Proxy Statement (definitive) (def 14a)

Datum : 25/02/2020 @ 22h53
Quelle : Edgar (US Regulatory)
Name : M D C Holdings Inc (MDC)
Kurs : 36.65  1.14 (3.21%) @ 22h01
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Proxy Statement (definitive) (def 14a)

Table of Contents

UNITED STATES

SECURITIES AND EXHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934 (Amendment No.   )

 

☒ Filed by the Registrant                             ☐ Filed by a party other than the Registrant

 

Check the appropriate box:

 

Preliminary Proxy Statement

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material Pursuant to 240.14a-12

 

 M.D.C. Holdings, Inc.

 

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

No fee required.

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

 

(1)

Title of each class of securities to which transaction applies:

     
 

(2)

Aggregate number of securities to which transaction applies:

     
 

(3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

     
 

(4)

Proposed maximum aggregate value of transaction:

     
 

(5)

Total fee paid:

 

Fee paid previously with preliminary materials.

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

 

(1)

Amount Previously Paid:

     
 

(2)

Form, Schedule or Registration Statement No.:

     
 

(3)

Filing Party:

     
 

(4)

Date Filed:

 

 

 

February 25, 2020

 

Dear Fellow Shareholders,

 

On behalf of the Board of Directors we would like to express our appreciation for your continued investment in the Company.

 

In 2019 the Company continued to build on more than four decades of operations during which it has become one of the leading homebuilding companies in the nation. We have grown from a net worth of $50,000 in 1972 to almost $1.8 billion at the 2019 fiscal year end, providing quality homes to over 205,000 families – all while persevering through housing cycles over the years. The Company continues to maintain its risk-adjusted strategy, has experienced a very successful year delivering 6,974 homes and is positioned for future growth. Highlights of the Company’s financial and operational performance include:

 

 

    Five-Year Total Shareholder

               Return of 113%

 

 

 

 

 

DEDICATED TO SHAREHOLDER RETURNS

●     Total shareholder return for 2019 exceeded 50% as we celebrated the 35th anniversary of our listing on the New York Stock Exchange;

●     Continuous and uninterrupted cash dividend since 1994 (unequalled by any member of the peer group);

●     Declared an 8% stock dividend in January 2019;

●     Increased cash dividend by 10% in January 2020.

 

NOTEWORTHY OPERATING RESULTS

●     Home sale revenues of $3.21 billion, which was $223 million higher than 2018 (7% increase);

o    Home closings from our more affordable product offerings increased from 44% in 2018 to 57% in 2019 (30% increase);

●    Pretax income of $305.0 million was $41 million higher than 2018 (16% increase);

●    Both home sale revenues and pretax income reached the highest levels since 2006.

 

POSITIONED FOR CONTINUED GROWTH

●    Active subdivision count grew by 11% year-over-year to 185;

●    Approval of 147 land transactions covering more than 12,000 lots (almost 65% are approved for our more affordable product offerings).

●    Backlog value of homes sold but not closed at the end of 2019 grew to $1.75 billion, which was $319 million higher than at the end of 2018 (22% increase).

 

 

STEADFAST FOCUS ON BALANCE SHEET STRENGTH

 

 

Issued $300 million of 10-year senior notes in January 2020;

 

o

3.85% interest rate was the lowest for senior notes in Company history;

 

Maintained a financial profile rated among the highest in the industry with a balanced land position and low unsold home inventories;

 

o

Continue to maintain high liquidity ($1.51 billion) and low leverage;

 

o

Average senior note maturity of nearly 15 years, far exceeding closest peer and industry average (following January 2020 issuance and February 2020 maturity);

 

o

Rating outlook raised to “Positive” by Standard & Poor’s in June 2019.

 

ONGOING COMMITMENT TO SOUND GOVERNANCE AND SUSTAINABLE BUSINESS PRACTICES

 

As we enter 2020, we maintain our longstanding focus on balancing environmental and social concerns with business needs. As industry leaders, we recognize that striking this balance is not only a matter of conscience but is a true key to ongoing success. Growing and maintaining a sustainable business goes hand in hand with fostering an environment where that business can flourish.

 

Richmond American is dedicated to developments that are sensitive to maintaining the integrity of our environment by designing neighborhoods that include generous open spaces, greenbelts and newly planted trees and foliage. Our stormwater management practices are among the best in the industry, reducing runoff and preserving water quality. Energy efficiency is also top of mind, as we seek innovative ways to reduce our carbon footprint in light of the pressing need to address climate risk and its greater impact on society. We have designated a third-party energy rater to evaluate every completed home to measure and work toward greater energy efficiency.

 

On the philanthropic side, the MDC/Richmond American Homes Foundation was created more than twenty years ago to enrich our community impact. Nonprofit endeavors our Foundation supports are wide-ranging in scope, selected to promote diversity, education, mental health and so much more.

 

As our Company embarks on a new decade, we seek to leverage the core principles and practices that we attribute to our past success, while welcoming new perspectives that will allow our organization to evolve with a changing economic landscape. Increasingly diverse senior leadership with an average of fourteen years of experience at the Company, a commitment to hiring from within whenever possible, and an internal culture that promotes work-life balance are all core tenants of our operational philosophy.

 

We are confident that our shareholders are aligned with our vision for long-term growth, success and contribution to a greater community. On behalf of the full Board of Directors, we strongly encourage you to vote your shares – your vote and support are valuable elements in our passion to succeed.

 

 

Sincerely,

 

 

Larry A. Mizel

Chairman of the Board of Directors and Chief Executive Officer

M.D.C. Holdings, Inc.

 

4350 SOUTH MONACO STREET, SUITE 500 • DENVER, COLORADO 80237

 

 

M.D.C. HOLDINGS, INC.

4350 South Monaco Street, Suite 500

Denver, Colorado 80237

 

NOTICE OF ANNUAL MEETING OF

SHAREHOLDERS

 

To Our Shareholders:

 

The 2020 Annual Meeting of Shareholders (the "Meeting") of M.D.C. Holdings, Inc. (the "Company") will be held at 4350 South Monaco Street, 6th Floor, Assembly Room, Denver, Colorado, on Monday, April 20, 2020, at 10:00 a.m., Mountain Time. Only shareholders of record at the close of business on February 20, 2020, the record date, will be entitled to vote. At the Meeting, we plan to consider and act upon the following matters:

 

 

1.

The election of David D. Mandarich, Paris G. Reece III and David Siegel as Class II Directors for three-year terms expiring in 2023;

 

2.

A non-binding advisory vote to approve the compensation of our named executive officers disclosed in this proxy statement (Say on Pay);

 

3.

Approval of amendment and restatement of the M.D.C. Holdings, Inc. 2020 Equity Plan for Non-Employee Directors; and

 

4.

Ratification of the selection of Ernst & Young LLP as the Company's independent registered public accounting firm for the 2020 fiscal year.

 

And such other business as properly may come before the Meeting and any postponements or adjournments thereof.

 

Our Board of Directors recommends that you vote FOR all Proposals.

 

Management and the Board of Directors desire to have maximum representation at the Meeting and request that you vote promptly, even if you plan to attend the meeting.

 

BY ORDER OF THE BOARD OF DIRECTORS,

 

Joseph H. Fretz

Secretary

Denver, Colorado

February 25, 2020

 

 

Important Notice Regarding the Availability of Proxy Materials

for the Shareholder Meeting to Be Held on April 20, 2020:

The Proxy Statement and the Annual Report on Form 10-K are available at:

www.rdgir.com/mdc-holdings-inc

 

 

Important Voting Information

 

Under New York Stock Exchange rules, unless you provide specific instructions, your broker is not permitted to vote on your behalf on the election of Directors or on proposals other than ratification of the selection of the Company’s auditors. It is important that you provide specific instructions by completing and returning the broker’s Voting Instruction Form or following the instructions provided to you to vote your shares by telephone or the Internet.

 

 

TABLE OF CONTENTS  

 

 

Page

GENERAL INFORMATION

1

DELIVERY OF PROXY MATERIALS TO SHAREHOLDERS WITH SHARED ADDRESSES

5

ANNUAL REPORT ON FORM 10-K

5

PROPOSAL ONE – ELECTION OF DIRECTORS

5

INFORMATION CONCERNING THE BOARD OF DIRECTORS AND ITS COMMITTEES

12

BENEFICIAL OWNERSHIP OF COMMON STOCK

26

EXECUTIVE OFFICERS

28

COMPENSATION DISCUSSION AND ANALYSIS

29

COMPENSATION COMMITTEE REPORT

45

SUMMARY COMPENSATION TABLE

46

GRANTS OF PLAN-BASED AWARDS IN 2019

48

OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2019

49

OPTION EXERCISES AND STOCK VESTED IN 2019

51

PENSION BENEFITS AT DECEMBER 31, 2019

51

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

51

EMPLOYMENT AGREEMENTS

52

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

57

2019 DIRECTOR COMPENSATION

58

CEO PAY RATIO DISCLOSURE

60

COMPENSATION POLICIES AND PRACTICES AND RISK MANAGEMENT

60

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

60

PROPOSAL TWO  - ADVISORY VOTE ON EXECUTIVE COMPENSATION

61

PROPOSAL THREE  - APPROVAL OF AMENDMENT AND RESTATEMENT OF THE M.D.C. HOLDINGS, INC. 2020 EQUITY PLAN FOR NON-EMPLOYEE DIRECTORS

61

AUDIT COMMITTEE REPORT

69

TRANSACTIONS WITH RELATED PERSONS

70

REVIEW OF TRANSACTIONS WITH RELATED PERSONS

70

PROPOSAL FOUR  - INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

71

OTHER MATTERS

71

SHAREHOLDER PROPOSALS

72

INCORPORATION BY REFERENCE

72

APPENDIX A – M.D.C. HOLDINGS, INC. 2020 EQUITY PLAN FOR NON-EMPLOYEE DIRECTORS   

 

 

 

M.D.C. HOLDINGS, INC.

4350 South Monaco Street, Suite 500

Denver, Colorado 80237

 


 

PROXY STATEMENT

ANNUAL MEETING OF SHAREHOLDERS

 

April 20, 2020

 


 

GENERAL INFORMATION

 

Why am I receiving these materials?

 

This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors (the "Board of Directors" or the "Board") of M.D.C. Holdings, Inc. (the "Company") to be used at the Annual Meeting of Shareholders of the Company (the "Meeting") to be held at our principal executive offices, 4350 South Monaco Street, 6th Floor, Assembly Room, Denver, Colorado 80237, on Monday, April 20, 2020, at 10:00 a.m., Mountain Time, and any postponements or adjournments thereof. The record date for determining shareholders entitled to vote at the Meeting is February 20, 2020 (the “Record Date”). The Meeting is being held for the purposes set forth in the accompanying Notice of Annual Meeting of Shareholders. Our shareholders are invited to attend the Meeting and are encouraged to vote on the matters described in this Proxy Statement.

 

What proxy materials are being delivered?

 

We are utilizing the rules of the Securities and Exchange Commission ("SEC") that allow us to deliver proxy materials to our shareholders on the Internet. Under these rules, we are sending many of our shareholders a Notice of Internet Availability of Proxy Materials (the "Notice") instead of a full set of proxy materials. If you receive the Notice, you will not receive printed copies of the proxy materials unless you specifically request them. Instead, the Notice tells you how to access and review on the Internet all of the important information contained in the proxy materials. The Notice also tells you how to vote your proxy card on the Internet and how to request a printed copy of our proxy materials. We expect to mail, or provide the Notice and electronic delivery of, this Proxy Statement, the proxy card and the Notice of Annual Meeting (the "Proxy Materials") on or about February 28, 2020.

 

The Company's 2019 Annual Report on Form 10-K, which includes the Company's 2019 audited financial statements, will accompany these Proxy Materials. Except to the extent expressly referenced in this Proxy Statement, the Annual Report is not incorporated into this Proxy Statement.

 

Who is paying for this proxy solicitation?

 

The Company will pay the cost of solicitation. The Company also will reimburse bankers, brokers and others holding shares in their names or in the names of nominees or otherwise for reasonable out-of-pocket expenses incurred in sending the Proxy Materials to the beneficial owners of such shares. In addition to the original solicitation of proxies, solicitations may be made in person, by telephone or by other means of communication by Directors, officers and employees of the Company, who will not be paid any additional compensation for these activities.

 

We have retained the services of Alliance Advisors, LLC to solicit proxies. We will pay all reasonable costs associated with such firm, which we anticipate will cost approximately $10,000 plus costs and expenses.

 

 

Who is entitled to vote at or attend the Annual Meeting?

 

Holders of shares of the Company's common stock, $.01 par value, at the close of business on the Record Date are entitled to notice of, and to vote at, the Meeting. All shareholders of record and beneficial owners wishing to attend the Meeting must bring with them a government issued picture identification of themselves and check in at the registration desk at the Meeting. Beneficial owners must also bring proof of ownership as described below. Attendees must comply with the rules of conduct available at the registration desk. A list of shareholders of record entitled to vote at the Meeting will be available for examination by any shareholder at the Meeting and for ten days prior to the Meeting at our principal executive offices.

 

Shareholders will have sufficient time immediately following the Meeting to ask questions of and have a dialogue with the Company’s Chairman and Chief Executive Officer, President and Chief Operating Officer, Chief Financial Officer and each of the members of the Board of Directors in attendance.

 

Shareholders of Record. If, on the Record Date, your shares were registered directly in your name with the Company's transfer agent, Continental Stock Transfer & Trust Company, then you are a shareholder of record. As a shareholder of record, you may vote in person at the Meeting or vote by proxy.

 

Beneficial Owners. If, on the Record Date, your shares were not held in your name, but rather were held in an account at a brokerage firm, bank or other nominee (commonly referred to as being held in "street name"), or through our 401(k) savings plan, you are the beneficial owner of those shares. The organization holding your account is considered to be the shareholder of record for purposes of voting at the Meeting. As a beneficial owner, you have the right to direct your broker or other nominee regarding how to vote the shares held in your account. You are also invited to attend the Meeting. However, since you are not the shareholder of record, you may not vote your shares in person at the Meeting unless you obtain a valid legal proxy from your broker or other nominee and bring the legal proxy to the Meeting. (Legal proxies are not available for shares held through our 401(k) savings plan; you must vote those shares as provided below.) If you want to attend the Meeting, but not vote at the Meeting, you must provide proof of beneficial ownership as of the Record Date, such as your most recent account statement prior to the Record Date.

 

How do I vote my shares?

 

By Telephone or the Internet. Shareholders can vote their shares via telephone or the Internet as instructed in the Notice of Internet Availability of Proxy Materials. The telephone and Internet procedures are designed to authenticate a shareholder's identity, allow shareholders to vote their shares and confirm that their instructions have been properly recorded. The telephone and Internet voting facilities will close at 11:59 p.m., Eastern Time, on April 19, 2020. (Participants in our 401(k) savings plan have an earlier deadline – see below.)

 

By Mail. Shareholders who receive a paper proxy card may vote by mail and should complete, sign and date their proxy card and mail it in the pre-addressed envelope that accompanied the delivery of the paper proxy card. Proxy cards submitted by mail must be received by the time of the Meeting in order for your shares to be voted. Beneficial shareholders (shares held in street name) may vote by mail by requesting a paper proxy card according to the instructions received from their broker or other agent, and then completing, signing and dating the voting instruction card provided by the broker or other agent and mailing it in the pre-addressed envelope provided.

 

401(k) Savings Plan. If your shares are held through our 401(k) savings plan, you will receive the Notice of Internet Availability of Proxy Materials, or copies of the Proxy Materials, and you are entitled to instruct the plan trustee how to vote the shares allocated to your account following the instructions described above. You must provide your instructions no later than 11:59 p.m., Eastern Time, on April 15, 2020.

 

At the Meeting.   Shares held in your name as the shareholder of record may be voted by you in person at the Meeting. Shares held beneficially in street name may be voted by you in person at the Meeting only if you obtain a legal proxy from the broker or other agent that holds your shares, giving you the right to vote the shares, and you bring the legal proxy to the Meeting.

 

 

What if I receive more than one Notice of Internet Availability of Proxy Materials?

 

If you receive more than one Notice, you hold shares in more than one name or shares in different accounts. To ensure that all of your shares are voted, you will need to vote separately by telephone or the Internet using the specific control number contained in each Notice that you receive.

 

Can I change my vote or revoke my proxy?

 

You can change your vote or revoke your proxy before the Meeting. You can do this by casting a later proxy through any of the available methods described above. If you are a shareholder of record, you can also revoke your proxy by delivering written notice of revocation to the Secretary of the Company, by presenting to the Company a later-dated proxy card executed by the person executing the prior proxy card or by attending the Meeting and voting in person. If you are a beneficial owner, you can revoke your proxy by following the instructions sent to you by your broker, bank or other agent.

 

How are votes counted?

 

Shares of common stock represented by properly executed proxy cards, or voted by proxy, by telephone or the Internet, and received in time for the Meeting will be voted in accordance with the instructions specified in the proxies. Unless contrary instructions are indicated in a proxy, the shares of common stock represented by such proxy will be voted FOR the election as Directors of the nominees named in this Proxy Statement and FOR all of the other proposals. If you grant a proxy (other than for shares held in our 401(k) savings plan), either of the officers named as proxy holders, Michael Touff and Joseph H. Fretz, or their nominees or substitutes, will have the discretion to vote your shares on any additional matters that are properly presented for a vote at the Meeting or at any adjournment or postponement that may take place. If, for any unforeseen reason, any of our nominees is not available as a candidate for Director, the persons named as the proxy holder may vote your proxy for another candidate or other candidates nominated by our Board.

 

The trustee of the 401(k) savings plan will vote the number of shares of common stock allocated to each participant’s accounts as directed by the participant if the direction is received in time to be processed. The trustee will vote any shares with respect to which it does not receive timely directions so that the proportion of the shares voted in any particular manner on any matter is the same as the proportion of the shares with respect to which the trustee has received timely directions, unless contrary to ERISA.

 

The inspector of elections designated by the Company will use procedures consistent with Delaware law concerning the voting of shares, the determination of the presence of a quorum and the determination of the outcome of each matter submitted for a vote.

 

What are the voting entitlements and requirements?

 

Each share of common stock issued and outstanding on the Record Date, other than shares held by the Company or a subsidiary, is entitled to one vote on each matter presented at the Meeting.  As of the Record Date, approximately 63,052,543 shares of common stock were issued, outstanding and entitled to vote. 

 

The Company's By-Laws provide that the holders of one-third of the shares of common stock issued and outstanding and entitled to vote, present in person or represented by proxy, constitute a quorum for transacting business at the Meeting. Shareholders who are present in person or represented by proxy, whether they vote for, against or abstain from voting on any matter, will be counted for purposes of determining whether a quorum exists. Broker non-votes, described below, also will be counted as present for purposes of determining whether a quorum exists.

 

The affirmative vote of the holders of a plurality of the shares of common stock present in person or represented by proxy and entitled to vote at the Meeting will be required for the election of a nominee to the Board of Directors (which means that the three nominees who receive the most votes will be elected).

 

 

The affirmative vote of the holders of a majority of the shares of Common Stock represented and entitled to vote at the Meeting is necessary to (1) approve, on an advisory basis, the executive compensation practices disclosed in this proxy statement; (2) approve the 2020 Equity Plan for Non-Employee Directors; and (3) ratify the appointment of the Company’s auditor. Because your vote on executive compensation is advisory, it will not be binding upon the Company.

 

Rules of the New York Stock Exchange (“NYSE”) determine whether NYSE member organizations ("brokers") holding shares for an owner in street name may vote on a proposal without specific voting instructions from the owner. For certain types of proposals, the NYSE has ruled that the “broker may vote” without specific instructions and on other types of proposals the “broker may not vote” without specific client instructions. A "broker non-vote" occurs when a proxy is received from a broker and the broker has not voted with respect to a particular proposal. The proposal to ratify the selection of the auditor is a “broker may vote” matter under the rules of the NYSE. As a result, brokers holding shares for an owner in street name may vote on the proposal even if no voting instructions are provided by the beneficial owner. The other proposals are “broker may not vote” matters. As a result, brokers holding shares for an owner in street name may vote on these proposals only if voting instructions are provided by the beneficial owner.

 

The following table reflects the vote required for the proposals and the effect of broker non-votes, withhold votes and abstentions on the vote, assuming a quorum is present at the Meeting:

 

       

Effect of Broker Non-Votes,

Proposal

 

Vote Required

 

Withhold Votes and Abstentions

1.  Election of Directors

 

The three nominees who receive the most votes will be elected.

 

Broker non-votes and withhold votes have no effect.

2.   Advisory vote to approve executive compensation
(Say on Pay)

 

Affirmative vote of the holders of a majority of the shares of common stock represented and entitled to vote at the Meeting.

 

Broker non-votes have no effect; abstentions have the same effect as a vote against the proposal.

3.   Approval of the 2020 Equity Plan for Non-Employee Directors

 

Affirmative vote of the holders of a majority of the shares of common stock represented and entitled to vote at the Meeting.

 

Broker non-votes have no effect; abstentions have the same effect as a vote against the proposal.

4.   Selection of Auditor

 

Affirmative vote of the holders of a majority of the shares of common stock represented and entitled to vote at the Meeting.

 

Broker non-votes have no effect; abstentions have the same effect as a vote against the proposal.

 

Management and the Board of Directors of the Company know of no other matters to be brought before the Meeting. If any other proposals are properly presented to the shareholders at the Meeting, the number of votes required for approval will depend on the nature of the proposal. Generally, under Delaware law and our By-Laws, the number of votes required to approve a proposal is the affirmative vote of a majority of the shares of common stock present in person or represented by proxy and entitled to vote at the Meeting. The proxy card gives discretionary authority to the proxy holders to vote on any matter not included in this Proxy Statement that is properly presented to the shareholders at the Meeting and any adjournments or postponements thereof. The persons named as proxies on the proxy card are Michael Touff, the Company's Senior Vice President and General Counsel, and Joseph H. Fretz, the Company’s Secretary and Corporate Counsel.

 

 

DELIVERY OF PROXY MATERIALS TO SHAREHOLDERS WITH SHARED ADDRESSES 

 

The broker, bank or other nominee of any shareholder who is a beneficial owner, but not the record holder, of the Company's common stock may deliver only one copy of the proxy related materials to multiple shareholders sharing an address (a practice called "householding"), unless the broker, bank or nominee has received contrary instructions from one or more of the shareholders.

 

In addition, with respect to shareholders of record, in some cases, only one copy of the proxy related materials may be delivered to multiple shareholders sharing an address, unless the Company has received contrary instructions from one or more of the shareholders. Upon written or oral request, the Company will deliver free of charge a separate copy of each of the proxy related materials, as applicable, to a shareholder at a shared address to which a single copy was delivered. You can notify your broker, bank or other nominee (if you are not the record holder) or the Company (if you are the record holder) that you wish to receive a separate copy of such materials in the future, or alternatively, that you wish to receive a single copy of the materials instead of multiple copies. The Company's contact information for these purposes is: M.D.C. Holdings, Inc., telephone number: (303) 773-1100, Attn: Corporate Secretary, 4350 South Monaco Street, Suite 500, Denver, CO 80237.

 

ANNUAL REPORT ON FORM 10-K

 

The Company will provide without charge to each person solicited by this Proxy Statement, upon the request of that person, a copy of our Annual Report on Form 10-K (without exhibits) for our most recent fiscal year. Please direct that request in writing to Investor Relations, M.D.C. Holdings, Inc., 4350 S. Monaco Street, Denver, Colorado 80237.

 

PROPOSAL ONE

ELECTION OF DIRECTORS

 

The Company's Certificate of Incorporation provides for three classes of directors (“Directors”) with staggered terms of office, to be divided as equally as possible. Directors of each class serve for terms of three years until election and qualification of their successors or until their resignation, death, disqualification or removal from office.

 

Our Board has ten members, consisting of four Class I Directors whose terms expire in 2022, three Class II Directors whose terms expire in 2020 and three Class III Directors whose terms expire in 2021. At the Meeting, three Class II Directors are to be elected to three-year terms expiring in 2023. The nominees for the Class II Directors are David D. Mandarich, Paris G. Reece III and David Siegel. All of the nominees presently serve on the Board of Directors of the Company. Based on the recommendation of the Corporate Governance/Nominating Committee, the Board approved the nomination of Messrs. Mandarich, Reece and Siegel for election as Class II Directors at the 2020 Annual Meeting.

 

 

Certain information, as of February 20, 2020, the Record Date, with respect to Messrs. Mandarich, Reece and Siegel, the nominees for election, and the continuing Directors of the Company, furnished in part by each such person, appears below:

 

Name

 

Age

Independent

Positions and Offices with the Company

and Other Principal Occupations

Committee Memberships

NOMINEES:

     

Audit

Compensation

Corporate

Governance /

Nominating

Legal

Class II: Terms Expire in 2020

David D. Mandarich

72

 

President and Chief Operating Officer of the Company

       

Paris G.

Reece III

65

 ✓

Private Investor and Community Philanthropy

C

     

David

Siegel

63

Private Investor and Former Partner, Irell & Manella LLP (retired)

   

C

M

               

CONTINUING DIRECTORS:

       
         

Class III: Terms Expire in 2021

Raymond

T. Baker

69

President of Gold Crown Management Company and

Co-Director of the Gold Crown Foundation

 

C

   

David E.

Blackford

70

President, Chief Executive Officer and Chairman of the Board of California Bank & Trust

   

M

M

Courtney L.

Mizel

46

 

Attorney, Principal, Mizel Consulting and Community Philanthropy

     

M

 

Class I: Terms Expire in 2022

Michael A.

Berman

69

Chairman, Applied Capital Management

M

     

Herbert T. Buchwald

88

Principal in the law firm of Herbert T. Buchwald, P.A. and President and Chairman of the Board of Directors of BPR Management Corporation

M

M

M

C

Larry A.

Mizel

77

 

Chairman of the Board of Directors and Chief Executive Officer of the Company

       

Leslie B.

Fox

61

Real estate consultant and Community Philanthropy

M

     

 

C = Chair; M = Member

 

 

NON-MANAGEMENT DIRECTOR

JOINED BOARD

TENURE1

Raymond T. Baker

2012

7.9 years

Michael A. Berman

2006

13.7 years

David E. Blackford

2001

18.8 years

Herbert T. Buchwald

1994

25.9 years

Leslie B. Fox

2018

1.5 years

Courtney L. Mizel

2017

2.6 years

Paris G. Reece III

2013

6.6 years

David Siegel

2009

10.5 years

 

1 As of December 31, 2019

 

Our Board is committed to active refreshment, and balancing fresh perspectives with continuity and institutional knowledge
   

Average tenure of non-

management directors:

10.9 years

 

The following is a brief description of the business experience during at least the past five years of each nominee for the Board of Directors of the Company and each of the continuing members of the Board. Their experience, qualifications, attributes or skills, set forth below, have led to the conclusion that each person should serve as a Director, in light of the Company’s business and structure.

 

None of the business organizations identified below (excluding HomeAmerican Mortgage Corporation) are affiliates of the Company. Other than for Ms. Fox, who was elected to the board of directors of Front Yard Residential Corporation, a Maryland corporation (NYSE: RESI), on May 23, 2019, none of the continuing Directors or Director nominees holds, or has held during the past five years, any directorship in any company with a class of securities registered pursuant to Section 12 of the Exchange Act, subject to the requirements of Section 15(d) of the Exchange Act or registered as an investment company under the Investment Company Act of 1940.

 

 

Class II Directors: Terms Expire in 2020

 

David D. Mandarich

Director Since: 1994

David D. Mandarich has been associated with the Company since 1977. He was a Director from September 1980 until April 1989, and has been a Director continuously since March 1994. He was elected President and Chief Operating Officer of the Company in June 1999, a position he currently holds. A skilled and experienced leader in the homebuilding industry, Mr. Mandarich provides the Board with the benefit of his judgment and his knowledge and understanding of the Company's homebuilding business and operations.

 

Paris G. Reece III  

Director Since: 2013

Committee Memberships:

●  Audit Committee Chairman

Paris G. Reece III was formerly the Company’s Chief Financial Officer and Principal Accounting Officer, and retired on August 1, 2008. Since his retirement, Mr. Reece has performed consulting work and served in a volunteer position as the President of the Cancer League of Colorado, a leading non-profit organization that was established almost fifty years ago to raise money for cancer research and patient care. He joined the Company's Board of Directors in May 2013. As a Certified Public Accountant (Texas, non-practicing), a former Chief Financial Officer and a highly respected person within the homebuilding industry, Mr. Reece is uniquely qualified to provide the Company with strong oversight of accounting and financial matters, as well as the operation of the Company's homebuilding and financial services businesses.

 

David Siegel 

Director Since: 2009

Committee Memberships:

● Corporate Governance/Nominating Committee Chairman

●  Legal Committee

David Siegel was a partner in the law firm of Irell & Manella LLP for more than twenty-five years, where he led that firm's securities litigation practice and was the firm's Managing Partner.  He retired from the active practice of law in 2019. Mr. Siegel's law practice, for which he was nationally recognized, was concentrated on securities class actions, corporate governance, risk management, SEC reporting standards and regulatory compliance.  Mr. Siegel has chaired and is a frequent speaker at various seminars on securities litigation, class actions, and trial techniques.  He has been named by his peers as one of the "Best Lawyers in Commercial Litigation" in The Best Lawyers in America guide. Mr. Siegel has been a member of the Company's Board of Directors since June 2009. Mr. Siegel's knowledge and experience in corporate governance and litigation matters provide the Company with significant guidance and oversight.

 

 

Class III Directors: Terms Expire in 2021

 

Raymond T. Baker 

Director Since: 2012

Committee Memberships:

● Compensation Committee Chairman

Raymond T. Baker has served as President of Gold Crown Management Company, a real estate asset management company, from 1978 to present. He is the founder and has served as Co-Director of the Gold Crown Foundation since 1986. He also is a member of the Board of Directors of Alpine Banks of Colorado and Land Title Guarantee Company. Mr. Baker is currently serving as Chairman of the Board of the Denver Metropolitan Major League Baseball Stadium District and Chairman of the Board of the Metropolitan Football Stadium District (Denver). From February 2004 until May 2007, he served as a director of Central Parking Corporation. He has over thirty-five years of experience in the real estate and banking industries. Mr. Baker became a member of the Company's Board of Directors in January 2012.  His experience and knowledge of the real estate and banking industries directly complement and support the Company’s real estate activities and the financing of those activities.

 

David E. Blackford 

Director Since: 2001

Committee Memberships:

● Corporate Governance/Nominating Committee

● Legal Committee

David E. Blackford has over thirty-five years’ experience in the banking industry. He is employed by California Bank & Trust (CB&T), a leading California banking institution and a division of Zions Bancorporation, National Association. Between 1998 and 2001, he was CB&T’s managing director, serving on the board of directors and the Senior Loan Committee for Real Estate Finance. In May 2001 he was appointed chairman, president and chief executive officer of CB&T, positions he currently holds. He also is an executive vice president of Zions Bancorporation, National Association. Prior to 1998, he served as an executive officer in several financial institutions, including Bank One and Valley National Bank. He joined the Company's Board of Directors in April 2001. His experience and knowledge of historic and current institutional real estate lending practices, the regulatory process and the volatility of the credit markets provide a unique perspective to the Board.

 

Courtney L. Mizel

Director Since: 2017

Committee Memberships:

● Legal Committee 

Courtney L. Mizel is a Principal at Mizel Consulting where she has worked for over twenty years. In this role, Ms. Mizel consults with companies in various industries on matters relating to their business management and strategy, including operations, business development, marketing, as well as legal matters. She is also a Founding Director of The Counterterrorism Education Learning Lab, an organization dedicated to preventing terrorism through education, empowerment, and engagement. She is active in a number of other non-profit organizations, including serving on the Boards of Directors of Zimmer Children’s Museum, Sharsheret National, and JQ International. Ms. Mizel received her Bachelor of Science in Economics with honors from The Wharton School of the University of Pennsylvania and her Juris Doctor from the University of Southern California Gould School of Law. Ms. Mizel became a member of the Company’s Board of Directors in June 2017. She is the daughter of the Company’s Chairman of the Board and Chief Executive Officer, Larry A. Mizel. Ms. Mizel’s professional and business achievements, intellect and diverse experiences contribute to the business, governance and legal perspectives of the Board.

 

 

Class I Directors: Terms Expire in 2022

 

Larry A. Mizel 

Chairman & CEO

Director Since: 1972

Larry A. Mizel founded the Company in 1972 and has served as a Director and Chairman of the Board since its inception. He was appointed Chief Executive Officer of the Company in 1988, a position he currently holds. Mr. Mizel has provided the Company with leadership and judgment, serving as the Chief Executive Officer and Chairman of the Board of Directors, while advancing the long-term interests of the Company's shareholders. One of the most experienced leaders in the homebuilding industry, his knowledge and foresight provide the Board with invaluable guidance.  

 

Herbert T. Buchwald 

Lead Director

Director Since: 1994

Committee Memberships:

● Legal Committee Chairman

● Audit Committee

● Compensation Committee

● Corporate Governance/Nominating Committee

Herbert T. Buchwald is a principal in the law firm of Herbert T. Buchwald, P.A. and president and chairman of the board of directors of BPR Management Corporation, a property management company located in Denver, Colorado, positions he has held for more than the past five years. Mr. Buchwald has been engaged in the acquisition, development and management of residential and commercial real estate in Florida, New Jersey and Colorado, through both publicly and privately held ventures for more than forty years. As an attorney, he has been admitted to practice before federal and state trial and appellate courts in Florida and Colorado. In addition, he holds an accounting degree and formerly was a practicing Certified Public Accountant. He has been a member of the Company's Board of Directors since March 1994. The combination of his knowledge, experience and skills provide the Company with strong oversight of accounting, financial, regulatory and legal matters, as well as the operation of the Company's real estate businesses.

 

Michael A. Berman 

Director Since: 2006

Committee Memberships:

● Audit Committee

Michael A. Berman has over thirty-five years of experience in the financial services industry. He is a member of Applied Capital Management, a private investment management firm located in Scottsdale, Arizona, and has served as its chairman from 2002 to date. From 2005 to 2006, he also served as the chief executive officer of First Ascent Capital, a financial services firm located in New York. From July 2006 until December 2008, he served as president and Chief Executive Officer of Real Estate Equity Exchange, Inc. (Rex & Co.), a financial services firm located in San Francisco, California. From January 1990 to March 1999, Mr. Berman was employed by The Nomura Securities Co., Ltd. (Tokyo) group of companies, where he held several senior executive positions, including that of President and CEO of Nomura Holding America Inc. and Chairman of Capital America, Nomura's commercial real estate lending subsidiary. In April 2006, Mr. Berman became a Director of the Company. Since 2006, he has been a director of HomeAmerican Mortgage Corporation, the Company’s mortgage lending subsidiary. Mr. Berman’s experience as a senior executive in corporate finance, in general, and the residential mortgage market, in particular, provide the Company with a valuable resource.

 

 

Leslie B. Fox 

Director Since: 2018

Committee Memberships:

● Audit Committee

 

Leslie B. Fox has served in an executive capacity at multiple companies in the real estate industry. She was the Chief Operating Officer of Invitation Homes LP, the largest owner/operator of single family housing rentals in the United States, from March 2014 to March 2016. Before that, Ms. Fox served as the Chief Operating Officer of American Residential Communities LLC, one of the largest operators of manufactured housing communities in the United States, and as the President of the affordable housing division at Equity Residential and as an Executive Vice President of that company. Ms. Fox also has served as an independent consultant in the real estate sector. Starting in October 2019, she began working for Discover Land Company, assisting in the rebuilding of affordable housing in the Bahamas after Hurricane Dorian.  On May 23, 2019, Ms. Fox was elected to the board of directors of Front Yard Residential Corporation (RESI) and, currently, Ms. Fox is serving on the Endowment Board and the Finance Committee for Craig Hospital in Denver, Colorado. Ms. Fox holds a Juris Doctor/Master of Business Administration from the University of Denver. Ms. Fox became a member of the Company’s Board of Directors in June 2018. Ms. Fox’s experience as a senior executive in the real estate and housing industries, and her experience as an independent consultant in the real estate sector, provide the Company with a valuable resource and contribute to the business perspectives of the Board.

 

Unless otherwise specified, proxies will be voted FOR the election of Messrs. Mandarich, Reece and Siegel. Management and the Board of Directors are not aware of any reasons that would cause any of Messrs. Mandarich, Reece and Siegel to be unavailable to serve as Directors. If any of them become unavailable for election, discretionary authority may be exercised by the proxy holders named in the proxy to vote for a substitute candidate or candidates nominated by the Board of Directors.

 

The Board of Directors recommends a vote FOR the election of Messrs. Mandarich, Reece and Siegel as Directors.

 

 

INFORMATION CONCERNING THE BOARD OF DIRECTORS AND ITS COMMITTEES

  

The Board of Directors

 

The Board of Directors and the Audit Committee meet monthly. The other committees meet regularly, as required. Directors also consider Company matters and participate in numerous communications with the Chairman of the Board of Directors and other officials of the Company wholly apart from the formal Board meetings.

 

The following table shows the frequency of the Board and Board committee meetings over the last three years:

 

   

2019

   

2018

   

2017

 

Board of Directors

    12       12       12  

Audit Committee

    11       12       11  

Compensation Committee

    7       7       8  

Corporate Governance/Nominating Committee

    3       6       8  

Legal Committee

    9       9       8  

 

In 2019  while one Director attended over 87% of all such meetings, all of the Company's other Directors attended 100% of the monthly meetings of the Board of Directors and the meetings of the committees on which they served.

 

Directors are expected to attend the Company's annual meeting of shareholders. To facilitate their attendance, the annual meetings typically are scheduled the same day as a monthly Board meeting. In 2019, all of the Directors attended the Annual Meeting.

 

Board Composition.

 

The Company’s Board is composed of Directors who provide diverse experience and talent to our Company. Four of our ten Directors have Board tenure of eight years or less, with two of these Directors serving as chairs of key Board Committees. New Directors bring a fresh perspective to our Board’s deliberations. The remaining Directors continue to provide their knowledge, experience and understanding of the Company’s approach to balancing risk and reward inherent in the homebuilding industry, which is fundamental to achieving long-term shareholder value. The professional qualifications of the Directors include a diverse range of talents and experiences well suited to guiding the Company in our challenging industry.

 

Our Board is Uniquely Qualified to Oversee Company Strategy

 Real Estate

✓ Homebuilding

✓ Senior Leadership

✓ Risk Management

✓ Banking

✓ Finance

✓ Accounting

✓ Legal

✓ Regulatory

✓ Business Management

 

 

Director Independence.

 

Each of Ms. Fox and Messrs. Raymond T. Baker, Michael A. Berman, David E. Blackford, Herbert T. Buchwald, Paris G. Reece III and David Siegel are independent. NYSE listing standards require that the Board be comprised of a majority of independent directors. SEC rules and NYSE listing standards require that audit committees be comprised solely of independent directors. NYSE listing standards also require that corporate governance/nominating committees and compensation committees be comprised solely of independent directors.

 

Under the NYSE listing standards, no director qualifies as "independent" unless the Board of Directors affirmatively determines that the director has no material relationship with the Company, either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company. Material relationships can include commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships, among others. The NYSE listing standards also require that, in determining the independence of any director who will serve on the Company’s Compensation Committee, the Board of Directors consider all factors specifically relevant to determining whether the director has a relationship with the Company that is material to that director’s ability to be independent from management in connection with the duties of a Compensation Committee member, including the source of compensation of such director and whether the director is affiliated with the Company (or a subsidiary or affiliate of a subsidiary).

 

The Board has adopted standards of independence to assist in determining whether a director of the Company is independent. The standards are available on the investor relations section of the Company's website, www.mdcholdings.com.

 

The Company's Board of Directors has determined the independence of Directors based on a review conducted by the Corporate Governance/Nominating Committee. This determination included consideration of the deposit and payroll accounts the Company maintained at two banking divisions of Zions Bancorporation, National Association (“Zions”), of which Mr. Blackford is an officer. The Board also considered the participation by Zions as the smallest lender in the Company’s revolving credit facility, in which there are several lenders. Mr. Blackford had no direct or indirect material interest in the foregoing transactions and the Board concluded that the amounts involved (less than 0.03% of Zion’s revenues) were not significant.

 

With respect to the determination of Mr. Reece’s independence, the Board considered that, until his retirement on August 1, 2008, he was the Executive Vice President and Chief Financial Officer of the Company. Mr. Reece is serving in a volunteer position as president of a non-profit organization (Cancer League of Colorado), which, in 2019, received a charitable contribution from the MDC/Richmond American Homes Foundation ($25,000) and charitable contributions from a number of Company officers and directors (totaling less than $50,000). The Board concluded that the amounts involved were not significant.

 

The Board determined that Ms. Leslie B. Fox and each of Messrs. Raymond T. Baker, Michael A. Berman, David E. Blackford, Herbert T. Buchwald, Paris G. Reece III and David Siegel have no material relationship with the Company, each is independent under the NYSE listing standards and each meets the foregoing standards of Director independence adopted by the Board, including for Audit and Compensation Committee membership. The Board determined that each of the foregoing Directors meets the independence standards for Audit Committee membership under the rules of the SEC and they each qualify as a “non-employee director” as defined in Rule 16b-3 of the Exchange Act. The Board also determined that Ms. Fox and each of Messrs. Baker, Berman, Blackford, Buchwald and Siegel, but not Mr. Reece, qualify as an "outside director" within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”).

 

 

Board Leadership and Risk Oversight.

 

Larry A. Mizel serves as Chairman of the Board of Directors and the Chief Executive Officer of the Company. Mr. Mizel, who founded our Company, has served for 47 years and is the largest shareholder of the Company. He provides effective leadership and guidance in the development of the Company's risk profile, pursuit of its strategic goals and recognition of business opportunities that present themselves.

 

Herbert T. Buchwald serves as the Company's independent Lead Director. The independent Lead Director presides at the executive sessions of the independent Directors and his authority also includes approving the schedule of Board and Committee meetings and the agendas and topics to be considered at the Board and Committee meetings, coordinating the activities of the various Committees of the Board, advising the Chairman as to the quality, quantity and timeliness of the flow of information from management, and coordinating and developing the agenda for executive sessions of the Board's independent Directors. See “Lead Director” below.

 

The Board of Directors convenes on a monthly basis and is comprised of a majority of independent Directors. This independent majority and our regular governance practices, including periodic executive sessions of the independent Directors at which the Lead Director presides, provide an effective and independent oversight of management.

 

Our Board of Directors oversees the Company’s management and exposure to risk. The Board, itself and through its Committees, regularly discusses our material risk exposure, the potential impact on the Company and the efforts of management to manage the risks that are identified. In meetings with Company management, the head of the internal audit department and the external independent auditors, the Audit Committee reviews regulatory, information technology, financial and accounting risk exposure, the Company’s insurance coverage with respect to such risks, reserves and the Company’s internal controls. The Corporate Governance/Nominating Committee, with the guidance of corporate and outside counsel, considers the risks associated with corporate governance. The Compensation Committee considers risks associated with the elements contained in the Company’s compensation programs. The Legal Committee considers the risks that arise from material litigation, regulatory issues and other legal issues. Each of our Committees generally reports to the Board on a monthly basis.

 

For the foregoing reasons, the Company has determined that its leadership structure is appropriate.

 

Commitment to Sound Environmental and Social Practices

 

As a leader in the homebuilding industry, we have a responsibility to conduct our operations in a socially and environmentally acceptable manner.  Not only is this an obligation, but it is also sound business that drives long-term value creation.  In order to maintain our tradition of building attractive, affordable and desirable homes, we must be focused on preserving the integrity and quality of our local neighborhoods.  To illustrate that effort, select areas of environmental and social emphasis by the Company’s Board of Directors and management team are briefly summarized below. For 2020 and beyond, our Board has committed to further study and develop a set of additional initiatives to better assure the sustainability of our communities and the environment in which we operate.

 

Environment and Climate Change

We promote energy efficiency, water conservation, healthier indoor environments and waste reduction.  We are proud to be an industry leader in working to protect the quality of our environment through our efforts to reduce energy consumption, including our Home Energy Rating System (“HERS”) Rated homes - which received an average HERS Index of 61, nearly 70 percent more energy efficient than a typical resale home - as well as our offering in select markets of high-efficiency solar power systems to generate much of a home’s annual expected energy needs. We have and will continue  to use our nationwide purchasing power to offer low cost solar and other alternative energy options to our homebuyers. We continue to expand our use of high energy efficient appliances and low chemical carpeting and floor coverings.

 

Additionally MDC, like other homebuilders, also plays an important role in the conservation of protected animal and plant species, including those listed under the Endangered Species Act (ESA).  We performed biological impact and other ecological studies to determine the proximity of endangered species to our communities and take precautions to prevent or minimize adverse impacts to any species identified in such studies. We also are committed to preserving or replacing any wetlands that may be impacted by our construction activities, and to expand green space available to our homebuyers.

 

Sustainable Forestry

As a major purchaser of wood, MDC specifies wood products that are not only cost-effective for our homebuyers, but which primarily are from new and high-growth forests or harvested from specific tree farms used by the building industry. Our wood varieties typically are new softwoods and our firs, which most often come from inland areas of the western U.S., not the coastal areas that are populated by the endangered redwoods and other old growth species.

 

 

Health and Safety

MDC has an excellent safety record that underscores the Company’s commitment to worker safety.  Examples of our safety practices include:

 

MDC maintains a job site Safety Policy under which  our superintendents guard against infractions on his or her job site.  If an incident does occur, the superintendent is required to report it to the appropriate authorities in the Company. 
 

In addition to job sites, our Company has a policy to provide for the safety and security of all employees, customers, visitors, and Company property. Acts or threats of violence, including intimidation, harassment, or coercion, which involve or affect the Company or which occur on Company property or during the course of the Company's business are not tolerated.

 

In order to perform tasks for the Company, subcontractors must supply us with evidence of their written safety program before becoming an approved vendor, and they must adhere to all health and safety policies of the Company, including but not limited to standards set by OSHA.

 

Community

The Company takes seriously its responsibility to strengthen the communities in which its homebuilding subsidiaries operate through a long history of community philanthropy. Since 2015 alone, the Company has donated $7,000,000 to the MDC/Richmond American Homes Foundation, a Delaware not-for-profit corporation. The Foundation has supported numerous charitable efforts in communities served by the Richmond American Homes companies, which support survivors of domestic violence, support arts and culture, promote quality healthcare, support youth, assist foster children, fight hunger, support public servants, help the homeless and others in need, and promote wellness.

 

Affordability

Affordable home ownership is an increasing challenge throughout the United States and in the areas in which we operate. Our Company is among the leaders in building more affordable homes. Indeed, providing more affordable homes is a major part of our business strategy. For example:

 

 

A majority of the lots we own or control are targeted for the construction of more affordable homes.

 

 

In 2019, 57% of the new homes we delivered were from one of our more affordable homes series. Since, 2017 we have increased the number of more affordable homes delivered by over 150%.

 

Board Oversight of Sustainability Initiatives

MDC’s Board of Directors brings industry leadership and experience in providing oversight of and guidance to sustainability initiatives at the Company. The Board works closely with management in establishing and communicating Company culture and values. MDC’s senior management regularly updates the Board on environmental, health and safety, and community involvement by the Company. The Board receives reports at least annually of shareholder engagements related to sustainability and considers investor feedback when providing oversight of management on topics related to sustainable business practices and corporate responsibility. While we are proud of the commitments made to date, we are committed to continuing to promote environmental and social sustainability for our customers and communities.

 

 

OTHER ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) HIGHLIGHTS

Work Environment

• Equal employment opportunity hiring practices and policies

• Anti-discrimination and anti-harassment policies that prohibit unlawful harassment directed at individuals in protected classes, prohibit sexual harassment, detail how to report harassment and prohibit retaliation against any employee for reporting unlawful harassment

• Competitive benefits package including medical coverage, paid time off and 401(k) match

Diversity and Inclusion

• Committed to fostering and promoting an inclusive work environment

• Diverse employee base comprising 23% non-white employees and 47% female employees

• Two directors are female, representing 25% of the non-management members of the Board; approximately 33% of our Corporate / National / Regional leadership (excluding Named Executive Officers) are female

Information Technology

and Data Security

• Maintaining management oversight and technology processes to protect personal data

• CFO Key Performance Indicators (“KPIs” – basis for annual bonus) for 2019 included oversight of the information technology department

• Formal information technology / data security reporting to the Audit Committee and Board on a regular basis

Business Conduct and

Ethics Code

• A corporate culture that promotes high standards of ethics and compliance for our business; many of our directors have an extensive background and experience in risk management

• Corporate Code of Conduct sets forth principles to guide employee and director conduct, with training required for all employees and directors annually

Anti-Bribery and

Corruption Policies

• Policies on political contributions and other restricted payments require compliance with all applicable political contribution and anticorruption laws

• Formal procedure in place for confidential reporting of any suspected violations of law

 

 

Lead Director.

 

By vote of the independent directors, Herbert T. Buchwald, an independent member of the Board, was elected Lead Director. In his capacity as our Lead Director, Mr. Buchwald has the following responsibilities:

 

 

Presides at Board meetings if the Chairman and the Chief Operating Officer are not present;

 

Approves the schedule of Board and committee meetings and the agendas and topics to be considered at Board and committee meetings;

 

Approves information being sent to the Board;

 

Coordinates activities of the various Board committees;

 

Advises the Chairman as to the quality, quantity and timeliness of the flow of information necessary to permit the independent Directors to effectively and responsibly perform their duties;

 

Coordinates the agenda for and presides at executive sessions of the independent Directors;

 

Acts as a liaison between the independent Directors and the Chairman of the Board as needed;

 

Is available for communication and engagement with major shareholders, and engaged with institutional shareholders in 2019 and 2020;

 

Facilitates the process of conducting Committee and Board self-evaluations;

 

Promotes effective practices to achieve a high standard of corporate governance; and

 

Provides guidance to the committee chairmen and independent Directors in the performance of their duties.

 

A description of the role of the Lead Director is posted on the investor relations section of the Company\'s website, www.mdcholdings.com.

 

Board Committees and Related Matters

 

Audit Committee.

 

The Audit Committee of the Board of Directors, which has been established in accordance with Section 3(a)(58)(A) of the Exchange Act, consists of Messrs. Berman and Buchwald, Ms. Fox and Mr. Reece, who serves as Chairman. Each member of the Audit Committee is "independent" and "financially literate" in the judgment of the Board of Directors, as defined in the listing standards of the NYSE and the rules of the SEC. In addition, the Board of Directors has determined that Mr. Buchwald is an "audit committee financial expert" as defined by applicable SEC regulations. The Board believes that his experience and qualifications described above under "Election of Directors" qualify him to act as the Audit Committee's audit committee financial expert.

 

The Audit Committee met eleven times during 2019.  The organization, functions and responsibilities of the Audit Committee are described in the restated charter for the Audit Committee, which is posted on the investor relations section of the Company's website, www.mdcholdings.com.  The Audit Committee's functions include, among others:

 

 

Assisting the Board in its oversight of the Company's compliance with legal and regulatory matters; 
 

Setting the “tone at the top” and emphasizing the importance of an environment that supports integrity in the financial reporting process;

 

Oversight of the Company's external auditors, including processes for monitoring auditor independence;

 

Review of the Company's financial statements, including non-GAAP measures and related company policies and disclosure controls;

 

Review of the annual audit plan and results of the audit, including communicating with the external auditor on critical audit matters expected to be described in the auditor’s report;

 

Review of any significant modification in accounting policies, including oversight of the implementation of new accounting standards; 
 

Oversight of the duties of the Company's internal audit department, including oversight and participation in the resolution of internal control issues where identified; and 
 

Review and discussion of policies with respect to risk assessment and risk management, including disaster recovery and cybersecurity risks.

 

 

Compensation Committee.

 

The Compensation Committee met seven times during 2019. The Compensation Committee consists of Messrs. Buchwald and Baker, who serves as Chairman. Each member of the committee is independent in the judgment of the Board of Directors, as defined in the listing standards of the NYSE, and has been determined by the Board to qualify as an “outside director” under Section 162(m) of the Code and as a “non-employee director” as defined in Rule 16b-3 of the Exchange Act. The Compensation Committee approves executive compensation plans, reviews salaries, bonuses and other forms of compensation for officers and key employees of the Company, establishes salary levels, benefits and other forms of compensation for employees and addresses other compensation and personnel matters as the Board of Directors from time to time may request. The organization, functions and responsibilities of the Compensation Committee are described in the Compensation Committee's restated charter, which is posted on the investor relations section of the Company's website, www.mdcholdings.com.

 

For a discussion of the Company's compensation philosophy and a description of the Company's processes and procedures for the consideration and determination of executive and director compensation, see the "Compensation Discussion and Analysis" below.

 

Scope of Authority of Compensation Committee

 

The Compensation Committee has the authority to oversee all employee compensation levels, including benefits. Its goal is to have the Company develop compensation levels that will attract, retain, reward and motivate employees, that are competitive with those prevailing in the marketplace and are consistent with shareholder interests. The Compensation Committee also administers the Company's equity and other compensation plans, as they may be amended from time to time. The Compensation Committee may delegate the day-to-day administrative duties of these plans to Company officers, employees and agents.

 

The primary components of the Company's executive compensation have been: a base salary, annual performance-based bonuses and equity-based, long-term incentive awards. The Compensation Committee also has discretionary authority to award other forms of executive compensation.

 

The Compensation Committee reviews and establishes the base salaries for the executive officers annually. The base salaries of Mr. Mizel, the Chief Executive Officer, and Mr. Mandarich, President and Chief Operating Officer, were established in accordance with their employment agreements with the Company. The base salaries for Mr. Martin, Senior Vice President and Chief Financial Officer, and Mr. Touff, Senior Vice President and General Counsel, were established in the Compensation Committee's discretion.

 

Annual bonuses are awarded to the Mr. Mizel, the Chief Executive Officer, and Mr. Mandarich, the President and Chief Operating Officer, pursuant to the terms of the Company’s 2018 Performance-Based Plan, adopted by the Compensation Committee and the Board in December 2018. This Performance-Based Plan provides for a broad range of incentive criteria and the adoption of performance goals.

 

Annual bonuses for Mr. Martin, the Chief Financial Officer, and Mr. Touff, the General Counsel, may be awarded based on an assessment by the Chief Executive Officer and the Chief Operating Officer of each individual’s achievement of Key Performance Indicators (KPIs) established for his position.

 

The Compensation Committee also has discretionary authority to determine equity awards, including stock options, restricted stock and/or performance share units, granted to the executive officers and may exercise that authority based on its subjective assessment and determination of the individual's performance, contributions to the Company and role in achieving the Company's results and objectives.

 

Historically, the Company's Board of Directors, and not the Compensation Committee, has exercised the authority to consider and determine Director compensation, including retainer and meeting fees. The Non-Employee Directors have received equity compensation pursuant to the M.D.C. Holdings, Inc. 2011 Stock Option Plan for Non-Employee Directors approved by the shareholders in 2011 and amended with shareholder approval in 2016 (the “2011 Director Plan”), under which each Non-Employee Director was granted an option to purchase 25,000 shares of common stock annually. The options are fully vested on the date of the grant and exercisable six months thereafter. In lieu of an option, each Non-Employee Director could elect in advance to receive a restricted stock award that would result in the same expense to the Company as the stock option. Each restricted stock award vests on March 1st of the following year.

 

 

As described in Proposal Three below, the amendment and restatement of the 2011Director Plan as the 2020 Equity Plan for Non-Employee Directors is being proposed for approval by the shareholders.

 

Role of Executive Officers regarding Employee and Executive Compensation

 

Mr. Mizel and Mr. Mandarich, with the assistance of the Company’s human resources department, make recommendations to the Compensation Committee with respect to the structure of the compensation plans and proposals for compensation levels for Company employees, including the Chief Financial Officer and the General Counsel. The resources and processes used in making these recommendations involve a review of employee performance with respect to established goals, and overall Company performance subjectively compared to other public homebuilders and the Company's business plan.

 

The Compensation Committee took these recommendations into account, together with a variety of other inputs, in its decision making process.

 

Corporate Governance/Nominating Committee.

 

The Corporate Governance/Nominating Committee met three times during 2019. The Corporate Governance/Nominating Committee consists of Messrs. Blackford, Buchwald and Siegel, who serves as Chairman. Each member of the committee is independent in the judgment of the Board of Directors, as defined in the listing standards of the NYSE. The organization, functions and responsibilities of the Corporate Governance/Nominating Committee are described in the committee's charter, which is posted on the investor relations section of the Company's website, www.mdcholdings.com. The functions of the Corporate Governance/Nominating Committee include development of and recommendations as to corporate governance principles and the Company's Code of Conduct, identification of individuals qualified to become Board members, the review of Director independence, the selection process for Director nominees and oversight of the self-evaluations of the Board and the Audit, Compensation and Corporate Governance/Nominating Committees.

 

Procedures for nominating persons for election to the Board are contained in the Company's By-Laws and, accordingly, those procedures constitute the Company's policy with regard to the nomination and consideration of Director candidates recommended by shareholders. The Corporate Governance/Nominating Committee will consider candidates identified by shareholders following the procedures set forth in the By-Laws. There have been no changes to these procedures in the last year.

 

The By-Laws provide that nominations of persons for election to the Board of Directors may be made at a meeting of shareholders by any shareholder entitled to vote for the election of Directors and who complies with the notice procedures set forth in the By-Laws. Specifically, such nominations shall be made pursuant to timely notice in writing to the Secretary of the Company. To be timely, a shareholder's notice shall be delivered to, or mailed and received at, the principal offices of the Company not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 75 days' notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such shareholder's notice shall set forth in writing the information required by the By-Laws. The chairman of the meeting will determine whether or not the nomination was made in accordance with the foregoing procedure. If it was not, the chairman will so declare and the defective nomination will be disregarded. If it was, the nomination will be considered. The Corporate Governance/Nominating Committee may request that additional information be provided in connection with consideration of the nomination.

 

 

The Corporate Governance/Nominating Committee believes that all candidates for the Board, including candidates recommended by shareholders, should have experience in appropriate areas and disciplines and, ideally, will add to the experience of current Board members. While the Committee does not have a formal diversity policy, in identifying Director nominees and recommending candidates for nomination by the Board, the Committee considers and assesses, in addition to applicable requirements of law and of the NYSE, the diversity of the candidate's experience, qualifications and background including business experience, specific expertise, strength of character, judgment, and other factors (such as gender, ethnicity and age) deemed appropriate to contribute meaningfully to the Board’s capability to serve as effective, engaged stewards of shareholders’ interests. The Committee, as well as the full Board, understands that our long-term future depends on broadening our diversity in the boardroom and among the senior management team. Our current Board members are from various backgrounds and bring a valuable mixed set of skills providing a wide-ranging perspective on the issues important to our company. We anticipate future nominees will reflect the skills, experience and diversity needed to drive the business going forward. Other than for compliance with the procedures set forth in the By-Laws, there is no difference in the manner in which the Corporate Governance/Nominating Committee evaluates nominees for Director based on whether the nominee is recommended by a shareholder. At such times as may be appropriate, the Corporate Governance/Nominating Committee will lead the search for individuals qualified to become members of the Board, seeking candidates who have diversity of backgrounds, as well as experience with the ability to broaden the diversity of our Board being an advantage. The Committee has authority to engage search firms to identify candidates for nomination to the Board.

 

Legal Committee.

 

The Legal Committee met nine times during 2019. The Legal Committee consists of Mr. Buchwald, who serves as Chairman, Messrs. Blackford and Siegel and Ms. Mizel. Other than Ms. Mizel, a non-employee director, all Legal Committee members are independent members of the Board of Directors. The Legal Committee provides oversight and review of significant legal affairs of the Company, and it has been active in reviewing legal issues affecting the Company's business with the Company's counsel. The organization, functions and responsibilities of the Legal Committee are described in the committee's charter, which is posted in the investor relations section of the Company's website, www.mdcholdings.com.

 

 

Committee Charters.

 

The Board of Directors has adopted a charter for the Audit Committee, designed to comply with the applicable requirements of the NYSE listing standards and SEC regulations. The Board of Directors also has adopted charters for the Compensation Committee and the Corporate Governance/Nominating Committee, designed to comply with the applicable requirements of the NYSE listing standards, and a charter for the Legal Committee. These charters are posted under the corporate governance documents on the investor relations section of the Company's website, www.mdcholdings.com.

  

Corporate Governance Guidelines.

 

Upon the recommendation of the Corporate Governance/Nominating Committee, the Board of Directors adopted a set of corporate governance guidelines to implement requirements of the NYSE. These guidelines, as amended, are posted under the corporate governance documents on the investor relations section of the Company's website, www.mdcholdings.com.

 

As described in the guidelines, the Compensation Committee considers management succession planning as part of its annual CEO evaluation process. The Compensation Committee then reports on succession planning to the Corporate Governance/Nominating Committee.

 

Senior Leadership Team.

 

The Company has an increasingly diverse senior leadership team supporting its Named Executive Officers with an average of fourteen years of experience at the Company:

 

 

 

 
 

 

 

 
 

 

 

 

Regularly Scheduled Executive Sessions of Independent Non-Management Directors.

 

The Company's corporate governance guidelines provide for the independent Directors to meet at regularly scheduled executive sessions without management present. The Lead Director presides at the executive sessions. In 2019, four executive sessions were held.

 

Corporate Code of Conduct.

 

For many years, the Company has had in place a Corporate Code of Conduct designed to provide that all persons associated with the Company, including employees, officers and Directors, follow the Company's compliance program and legal and ethical obligations and conduct themselves accordingly. The Company’s employees, officers and Directors receive annual training on the Corporate Code of Conduct. In 2019, all officers, directors and employees (other than those on leave of absence) participated in the annual training.

 

The Corporate Code of Conduct includes, among other things, a code of ethics for senior financial officers and Audit Committee complaint procedures, as required by the Sarbanes-Oxley Act and SEC regulations. The Corporate Code of Conduct, the code of ethics for senior financial officers and the Audit Committee complaint procedures for handling confidential complaints regarding accounting or auditing matters are posted under the corporate governance documents on the investor relations section of the Company's website, www.mdcholdings.com.

 

 

Asset Management Committee.

 

The Company has in place four Asset Management Committees (each "AMC"), three for reviewing real estate transactions and one for reviewing corporate transactions.  Each real estate AMC is comprised of our Chief Operating Officer, Chief Financial Officer and one of our other corporate officers, with the corporate AMC comprised of our Chief Operating Officer and Chief Financial Officer.  Each AMC generally meets weekly to review all proposed real estate transactions and other proposed non-real estate transactions at or above certain thresholds.  Transactions that exceed certain thresholds also are reviewed by an executive committee of senior officers and the Board of Directors.

 

Communications with the Board of Directors.

 

Shareholders and other interested parties may contact the outside Directors and the Board of Directors by sending communications directly to any of the following persons:

 

 

(1)

Herbert T. Buchwald, Lead Director, P.O. Box 24649, Denver, CO 80224, Fax Number: (303) 355-2240.

 

 

(2)

Paris G. Reece III, Chairman, Audit Committee, 4350 S. Monaco Street, Denver, CO 80237, Fax Number: (303) 660-3631.

 

 

(3)

David Siegel, Chairman, Corporate Governance/Nominating Committee, 1800 Avenue of the Stars, Suite 900, Los Angeles, CA 90067-4276.

 

Any communications that come within the purview of a Board committee and/or the Board will be forwarded to the committee chair and the Lead Director, as applicable.

 

Equity Ownership Guidelines for Non-Employee Directors.

 

In order to strengthen the financial alignment of the Company's Directors with the interests of the Company's shareholders, the Corporate Governance/Nominating Committee and the Board of Directors have established Equity Ownership Guidelines for Directors who are not employees of the Company. Under these guidelines, each Director is encouraged to acquire and maintain ownership of common stock with an acquisition value, measured at the time of acquisition, of not less than ten times the then annual amount of the retainer paid for serving on the Board of Directors determined as of the time the Director joins the Board. The annual amount of the retainer currently is $60,000 resulting in a current stock ownership goal of $600,000 for new Directors. The Directors who have not yet achieved the goal have agreed to retain 100% of the shares they acquire through restricted stock awards and the future exercise of stock options, net of taxes and any option exercise price, up to the number of shares necessary to achieve the goal.

 

 

BENEFICIAL OWNERSHIP OF COMMON STOCK

 

Ownership of Directors and Officers

 

Certain information, as of February 20, 2020, the Record Date, with respect to common stock beneficially owned by the Company's named executive officers, the nominees for election as Directors and the current Directors of the Company, furnished in part by each such person, appears below (unless stated otherwise, the named beneficial owner possesses the sole voting and investment power with respect to such shares).  None of the shares beneficially owned by the executive officers and Directors have been pledged as security.

 

Name of Executive Officer/Director

 

Number of Shares of

Common Stock Owned

Beneficially 1

   

 

Percent

of Class 2

 

Raymond T. Baker

    77,448        *  

Michael A. Berman

    16,167        *  

David E. Blackford

    14,266        *  

Herbert T. Buchwald

    24,597        *  

Leslie B. Fox

    10,163        *  

David D. Mandarich

    5,934,220       9.1 %

Robert N. Martin

    137,650        *  

Larry A. Mizel

    10,253,206 3      15.8 %

Courtney L. Mizel

    17,301        *  

Paris G. Reece III

    65,134 3       *  

David Siegel

    121,026 3       *  

Michael Touff

    278,015        *  

All current executive officers and Directors as a group (12 persons)

    16,949,193       25.2 %

 


 

* Represents less than one percent of the shares of common stock outstanding and entitled to vote.

 

1 Includes, where applicable, shares of common stock owned by related individuals or entities over whose shares such person may be deemed to have beneficial ownership. Also includes the following shares of common stock subject to options that are exercisable or become exercisable within 60 days of the Record Date at prices ranging from $17.10 to $32.37 per share: Raymond T. Baker 57,618; David D. Mandarich 1,909,080; Robert N. Martin, 52,049; Larry A. Mizel 2,019,304; Paris G. Reece III 30,618; David Siegel 91,854; and Michael Touff 91,854. As a group, the executive officers and Directors had the right to acquire within 60 days of the Record Date by the exercise of options an aggregate of 4,252,377 shares of common stock.

 

2 The percentage shown is based on the number of shares of common stock outstanding and entitled to vote as of the Record Date. All shares of common stock that the person or group had the right to acquire within 60 days of the Record Date are deemed to be outstanding for the purpose of computing the percentage of shares of common stock owned by such person or group, but are not deemed to be outstanding for the purpose of computing the percentage of shares of common stock owned by any other person or group.

 

3 Mr. Mizel has sole voting power and sole investment power over 2,145,411 shares and shared voting power and shared investment power over 8,107,795 shares. Mr. Reece has sole voting power and sole investment power over 43,933 shares and shared voting power and shared investment power over 21,201 shares. Mr. Siegel has sole voting power and sole investment power over 113,772 shares and shared voting power and shared investment power over 7,254 shares. 

 

 

Ownership of Certain Beneficial Owners

 

The table below sets forth information with respect to those persons (other than the officers/Directors listed above) known to the Company, as of the Record Date, to have owned beneficially 5% or more of the outstanding shares of common stock. The information as to beneficial ownership is based upon statements filed by such persons with the SEC under Section 13(d) or 13(g) of the Securities Exchange Act of 1934, as amended.

 

 

 

Name and Address of Beneficial Owner

 

Number of Shares of

Common Stock

Owned Beneficially 5

   

 

Percent

of Class 1

 

BlackRock, Inc.

55 East 52nd Street

New York, NY 10055

    9,084,917 2      14.4 %
                 

The Vanguard Group

100 Vanguard Blvd.

Malvern, PA 19355

    5,408,754 3      8.6 %
                 

Dimensional Fund Advisors LP

6300 Bee Cave Road

Austin, TX 78746

    5,146,804 4      8.2 %
                 

_________________________________________________

 

1 The percentage shown is based on the number of shares outstanding and entitled to vote as of the Record Date.

 

2 Schedule 13G/A filed with the SEC on February 4, 2020 disclosed that: BlackRock, Inc. has sole voting power over 8,761,475 shares, shared voting power over no shares, sole dispositive power over 9,084,917 shares and shared dispositive power over no shares.

 

3 Schedule 13G/A filed with the SEC on February 12, 2020 disclosed that: The Vanguard Group has sole voting power over 47,874 shares, shared voting power over 6,568 shares, sole dispositive power over 5,360,183 shares and shared dispositive power over 48,571 shares.

 

4 Schedule 13G/A filed with the SEC on February 12, 2020 disclosed that: the Dimensional Fund Advisors LP has sole voting power over 5,022,723 shares, shared voting power over no shares, sole dispositive power over 5,146,804 shares and shared dispositive power over no shares. Dimensional Fund Advisors LP and/or its subsidiaries disclaim beneficial ownership.

 

 

EXECUTIVE OFFICERS

 

Set forth below are the names and offices held by the executive officers of the Company as of the Record Date. The Board of Directors, after reviewing the functions performed by the Company's officers, has determined that, for purposes of Item 401 of SEC Regulation S-K, only these officers are deemed to be executive officers of the Company.

 

The executive officers of the Company hold office until their successors are duly elected and qualified or until their resignation, retirement, death or removal from office. Biographical information on Messrs. Mizel and Mandarich, who serve as Directors and executive officers of the Company, is set forth under "Election of Directors" above. Biographical information for Messrs. Martin and Touff is set forth below.

 

Name

 

Age

 

Offices Held

Larry A. Mizel

 

77

 

Chairman of the Board of Directors andChief Executive Officer

David D. Mandarich

 

72

 

President, Chief Operating Officer and a Director

Robert N. Martin

 

41

 

Senior Vice President, Chief Financial Officer and Principal Accounting Officer

Michael Touff

 

75

 

Senior Vice President and General Counsel

 

 

 

 

Robert N. Martin was appointed Senior Vice President, Chief Financial Officer and Principal Accounting Officer in May 2015. He joined the Company in 2002, and has since held a number of leadership roles within the Company. He previously served as Vice President – Finance and Business Development. In April 2013, he was promoted to the position of Vice President of Finance and Corporate Controller. Over the last five years, Mr. Martin has had direct oversight of the Company's division and corporate accounting, tax, treasury, investor relations, information technology and finance, planning and analysis functions. Additionally, he has served on all of the Company’s AMCs and has performed a key role in the Company's capital markets activities. He is an officer, director or both of many of the Company’s subsidiaries. Mr. Martin received a bachelor’s degree in Accounting and Computer Applications from the University of Notre Dame and is both a Certified Public Accountant and a CFA charterholder.

 

Michael Touff was appointed Senior Vice President and General Counsel of the Company in July 1999, having been appointed previously as Vice President and General Counsel in December 1994. From August 1992 through December 1994, he was an officer in the law firm of Ireland, Stapleton, Pryor & Pascoe, P.C. Prior to August 1992, Mr. Touff was an officer in the law firm of Holmes & Starr, a Professional Corporation. Mr. Touff also is an officer, director or both of several of the Company's subsidiaries. Mr. Touff is a graduate of Harvard University and received his J.D. degree from the University of Michigan Law School.

 

 

COMPENSATION DISCUSSION AND ANALYSIS

 

This Compensation Discussion and Analysis (this “CD&A”) discusses the compensation of our Named Executive Officers (“NEOs”) for fiscal year 2019. The CD&A is organized as follows:

 

CD&A Table of Contents

 

 

 

 

 

Executive Summary

 

30

Over 40 Years of Shareholder Value Creation.

30

 

Business Performance Overview.

32

 

Executive Compensation Program Structure: Aligning Pay with Performance.

32

 

2019 Pay Performance Metrics and Outcomes Summarized.

33

 

Compensation Governance Best Practices.

34

 

2019 Say-on-Pay Vote

34

 

 

 

 

Executive Compensation Program: Plan Design & Components

  35

Key Goals and Objectives.

35

 

Components of Executive Compensation.

35

 

Fixed Compensation.

36

 

Base Salary

36

 

Variable and Performance-Based Compensation.

36

 

2019 Chief Executive Officer and Chief Operating Officer Annual Incentive Bonus

36

 

2019 CFO and General Counsel Annual Incentive Bonus

39

 

Long-Term Incentive Compensation

40

 

Peer Data and Benchmarking to the Market.

41

 

Role of Compensation Committee and Management.

42

 

Role of the Independent Compensation Consultant.

42

 

 

 

 

Other Compensation Considerations

 

43

Stock Ownership Guidelines

43

 

Anti-Hedging and Anti-Pledging Policies

43

 

Clawback Policy

43

 

Compensation and Risk Management

44

 

Tax Considerations

44

 

Medical Insurance Benefits

44

 

Other Compensation

44

 

 

 

Executive Summary

 

In 2019, our NEOs were as follows:

 

Named Executive Officers

Larry A. Mizel

Chairman and Chief Executive Officer (“CEO”)

David D. Mandarich

President and Chief Operating Officer (“COO”)

Robert N. Martin

Senior Vice President, Chief Financial Officer (“CFO”)

Michael Touff

Senior Vice President and General Counsel (“CLO”)

 

Over 40 Years of Shareholder Value Creation 

 

Our Company is one of the leading homebuilders in the United States. Founded in 1972, we have sold over 205,000 new, quality Richmond American homes to homebuyers across the nation.

 

Our business consists of two primary operations: homebuilding and financial services. The homebuilding operation is comprised of wholly owned subsidiary companies that primarily construct and market single-family detached houses to first-time and first-time move-up homebuyers under the name “Richmond American Homes.” Our financial services operations support our homebuilding business.

 

 

We strive to generate sustainable long-term value for our shareholders, focusing on our core strength: designing, building and selling quality homes. Homebuilding is a cyclical, often unpredictable, industry. Our business strategy is distinctive among the publicly traded US homebuilders, maximizing risk-adjusted returns while minimizing the risks of excess leverage and land ownership – a strategy designed to outperform over the years.

 

HOW MDC IS DIFFERENT

 

WHY IT MATTERS

 

Risk-Adjusted Strategy 

 ✓  Controlled 3.9 years of inventory (ranked #2) vs 5.5 years average for peer group

✓  “Build-to-order” policy limits risk vs. speculative building of unsold homes by peer group

 

Company philosophy emphasizes risk management and financial stability while striving to achieve long-term shareholder value

 

Credit Ratings Among the Highest in the Industry

✓  Moody’s: Ba2 / S&P: BB+ / Fitch: BBB-

 

Commitment to maintaining a strong financial profile (1) safeguards against inevitable market downturns and (2) provides capital resources for opportunistic investments

 

 

 

Our strategy has been successful, generating superior returns over time: we are the only publicly traded homebuilder to have maintained both a consistent dividend and robust cash position over the last twenty years, including the 2007-2011 housing crisis. As a result of our long-term discipline and conservative asset management, we endured the financial and housing downturn better than virtually all of our peers with a balance sheet that reflected a strong credit profile, long-term maturity duration of debt, top quartile ratings and abundant liquidity. We continue to adhere closely to these principles.

 

 

The financial stability resulting from our operating strategy has enabled us to reward our shareholders with a consistent dividend program unmatched in the homebuilding industry.

 

HOW MDC IS DIFFERENT

 

WHY IT MATTERS

     

Industry-Leading Dividend (Ranked #1) 

✓    Current yield of 2.9% vs. 0.4% average for peer group*

✓    Uninterrupted cash dividend since 1994 – unequalled by any member of the peer group

✓    In the past ten years, Company has paid over $500 million in dividends to shareholders 

Increased quarterly dividend by 10% in the first quarter of 2020

 

* As of 2/20/2020

 

Shows long-term commitment and ability to provide a reliable source of return for our shareholders

 

 

Business Performance Overview

 

Our founder and CEO, Larry A. Mizel, joined by COO, David D. Mandarich, have guided the Company for over 47 years and 42 years, respectively. They are among the most experienced and highly respected executives currently serving in the U.S. homebuilding industry.

 

HOW MDC IS DIFFERENT

 

WHY IT MATTERS

     

Leadership by Two of the Industry’s Senior Veterans 

✓    CEO/COO with over 89 years of combined experience at MDC (ranked #1) vs. 43-year average for peer group

 

Decades of experience has created extraordinary long-term shareholder value by successfully navigating through multiple economic cycles

 

Industry-Leading Management Ownership

✓    CEO/COO beneficial ownership of 24% (ranked #1) of MDC shares vs. 3% average for peer group

 

Significant alignment of management’s interests with the shareholders

 

As a result of their leadership and resolve to enhance shareholder value, while mitigating risk and maintaining the financial integrity of the Company, we have experienced eight years of steady and improving financial results following the severe homebuilding industry downturn.

 

We maintain a long-term focus and approach:

 

 

Consistent Industry Leading Dividends. Paid over $73 million in cash dividends in 2019, extending our track record of reliable capital return to our shareholders to over 25 years and increasing our annual dividend by 10% to $1.32 in the first quarter of 2020.

 

Continued Improvement to Balance Sheet and Liquidity. We maintained a financial profile rated among the highest in the industry, as evidenced by total liquidity of $1.51 billion and year-over-year decrease in our debt to capital ratio as of year-end. Already in 2020, we have focused on further improvement to our balance sheet through the issuance of $300 million of 10-year senior notes at a rate of 3.85%, which is the lowest rate for any senior note issuance in our Company’s history.

 

Total Shareholder Return. Our respective one, three and five year total shareholder returns of 52%, 93% and 113% each met or exceeded our peer group average for the respective time periods.

 

Strong Financial Results Over the Last Five Years – Top and Bottom Line 
 

o

Home sale revenues of $3.21 billion, up 73% since 2015
 

o

Pre-tax income of $305 million, up 200% since 2015 
 

o

Both home sale revenues and pretax income reached the highest level since 2006.

 

Executive Compensation Program Structure: Aligning Pay with Performance

 

Our compensation program is designed to align executive pay with the drivers of long-term value creation and reward execution of our strategic program.

 

 

The annual incentive and long-term compensation programs for our CEO and COO are primarily performance-based utilizing our annual and long term business goals and predetermined challenging metrics tied to the drivers of our long-term shareholder value. The following table outlines our executive compensation program structure in 2019.

 

 

2019 Pay Performance Metrics and Outcomes Summarized

 

2019 Annual Incentive Program – Bonus Determination for CEO & COO

 

2019 Short-Term Incentive Program

% Change from Prior Year in Parenthesis

Performance Goal

Performance

Required at Threshold

Performance

Required at Target

Actual Performance Bonus Earned

Adjusted Pre-Tax Return* on

Equity

6.0% hurdle achieved at 19.3% $1,200,000

 

Additional Bonus Opportunity

       

Home sale revenues

$2,700 million

$2,981 million

$3,205 million (+7%)

$1,300,000

Net new orders

5,974 homes

6,200 homes

7,839 homes (+31%)

$1,300,000

Adjusted pre-tax EPS*

$3.07

$4.74

$4.78 (+1%)

$1,300,000

Adjusted EBITDA** 

$284.0 million

$398.0 million

$412.5 million (+4%)

$1,500,000

Total Additional Bonus

$5,400,000

 

Total Incentive Bonus (Lesser of $6 million or the calculated amount)

$6,000,000

 

*      Each of these performance metrics include adjusted pre-tax income, which is a non-GAAP financial measure. Adjusted pre-tax income is calculated by taking pre-tax income and adjusting to exclude unrealized gains or losses on investments, expenses derived from impairments, executive stock-based compensation expense above a budgeted amount, warranty reserve adjustments, and non-recurring or out-of-period charges.

**     Adjusted EBITDA s a non-GAAP financial measure and is defined as earnings before interest, taxes, depreciation, amortization, unrealized gains or losses on investments and other non-cash charges derived from impairments, stock-based compensation expense, abandoned project costs, warranty reserve adjustments, and non-recurring or out-of-period charges.

 

 

2019 Long-Term Incentive Program

 

The long-term incentive program in 2019 includes metrics that measure the Company’s long-term value drivers related to the Company’s core business. The majority of the program is performance-based and designed to retain, motivate and reward our executive officers for achieving our strategic and financial long-term objectives through the use of performance share units that vest three years from the date of grant provided specific performance targets are achieved.

 

Additionally, our long-term incentive program in 2019 includes the use of stock options. During 2019, stock options covering 200,000 shares were granted to both the CEO and COO that vest annually over three years subsequent to the grant date. These stock options represented approximately 30% of overall long-term incentive grants to the CEO and COO during 2019 (based on the grant date fair value of the awards), whereas the above-referenced performance share grants represented the remaining 70%.

 

Compensation Governance Best Practices

 

In order to continue to provide long-term value to our shareholders, our Compensation Committee is committed to maintaining independent and thorough oversight of our executive compensation program and the following governance best practices are key to achieving this goal.

 

Compensation Governance Best Practices

    ✓    Executive compensation program design and refinements incorporate shareholder feedback

    ✓    Significant CEO pay is performance based and at risk

    ✓    Compensation Committee sets rigorous targets and metrics

    ✓    Compensation Committee performs thorough assessment of Company and individual performance

    ✓    100% of Compensation Committee is independent

    ✓    Compensation Committee works with an independent compensation consultant

    ✓    Executives are subject to significant stock ownership guidelines

    ✓    Company maintains policies prohibiting hedging Company stock

    ✓    Clawback policy authorizes Company to recover compensation under certain circumstances

    ✓    Vesting of cash remuneration under CEO and COO employment agreements is subject to double trigger change-in-control provisions

 

2019 Say-on-Pay Vote

 

Our Compensation Committee is committed to improving our executive compensation programs and modifying them as necessary to maintain the alignment of our executives and shareholders. We continue to engage investors on executive compensation topics and will continue to seek their feedback. We received a positive vote at the 2019 annual shareholders meeting, where our say-on-pay proposal received 70.9% support. We continue to seek feedback and actively engage with our shareholders and reached out to holders representing over 45% of our outstanding shares following the 2019 annual meeting. These conversations and feedback greatly helped inform our Board of Directors’ decision-making process with respect to our compensation and governance practices.

 

 

Executive Compensation Program: Plan Design & Components

 

Key Goals and Objectives

 

The Compensation Committee aims to design a compensation program that rewards and retains talented executives while motivating them to drive short- and long-term performance. We believe that our ability to retain and motivate our executive officers with their exceptional skills, experience and capacity to succeed in our competitive industry has been essential to the success of our Company and a significant factor in creating long-term value for our shareholders.

 

Our compensation program reflects the above philosophy and, additionally, prioritizes the following:

 

 

Attracting and retaining talented executives and encouraging their long-term service and loyalty

 

Supporting our long-term business goals and driving performance by closely aligning our compensation metrics and goals with our long-term growth strategy

 

Maintaining a firm link between our executives’ and shareholders’ long-term interests

 

Prioritizing growth, risk management and financial stability

 

Reflecting shareholder feedback in the compensation program design and related considerations, through regular, ongoing shareholder engagement

 

Components of Executive Compensation

 

The Compensation Committee designed our compensation program to support the drivers of value and shareholder return over the long term. It is comprised of three primary elements: (i) base salary, (ii) annual incentive award; and (iii) long-term incentive award.

 

Compensation Component

Description

Purpose

Key

Characteristic

Base Salary

Cash compensation based on executive officer’s role and employment agreement, if any. Salary levels are evaluated annually and may be adjusted for length of service, competitive considerations or recognition of a change in responsibilities.

● Provide financial certainty and stability

● Attract and retain executive talent

● Recognize experience, length of service, competitive market conditions and individual performance

Fixed

Annual

Incentive

Award

Each year the Compensation Committee approves awards for the CEO and COO, and establishes Key Performance Indicators (“KPIs”) for the CFO and CLO. The Compensation Committee determines the extent to which an award is earned and the amount of such award is based on individual and Company performance against pre-established goals.

● Motivate executive officer to achieve key annual goals and position the Company for long-term success

● Reward executive officer for individual performance and overall Company performance

Variable

Long-Term

Incentive

Award

Each executive officer is eligible to receive an award at the discretion of the Compensation Committee based upon long-term performance potential.

● Provide an incentive for executive officers to achieve long-term success for the Company and to promote shareholder value

● Attract, motivate, reward and retain executive talent

Variable

 

 

 

The net effect of our pay design is that both for the CEO and the other NEOs, a large majority of total direct compensation is at-risk, and dependent on Company, individual, or stock performance.

 

Fixed Compensation

 

Base Salary

 

The Compensation Committee sets executive officer base salaries at a level that reflects the competitive market for these roles as well as each individual’s performance, skills and experience. In 2019, the Compensation Committee determined to maintain CEO and COO base salaries unchanged from their 2018 levels, meaning CEO and COO base salary have remained unchanged for over a decade. In light of exceptional performance and to ensure alignment with peer group levels, the Compensation Committee approved a $60,000/year increase to the CFO’s base salary and a $50,000/year increase to the CLO’s base salary.

 

Variable and Performance-Based Compensation

 

2019 Chief Executive Officer and Chief Operating Officer Annual Incentive Bonus

 

Our annual incentive compensation program is designed to retain, motivate and reward the CEO and COO for their respective contributions in achieving the Company’s annual financial goals by focusing their attention on the following key economic drivers: return on equity, home sale revenues, pre-tax earnings per share, net new orders and EBITDA. Significant year-over-year performance is essential to our short-term financial results and, ultimately, our long-term success.

 

Annual Bonus Calculation Formula: Links to Key Metrics

 

 

 

The 2019 performance goal included a condition precedent for any bonus earned by requiring a minimum consolidated adjusted pre-tax return on beginning equity to exceed 6.0% (the “ROE Condition”). The actual adjusted pre-tax ROE was 19.3%, satisfying the ROE Condition, and as such, the CEO and COO earned a $1.2 million bonus.

 

Once the ROE Condition was met, the CEO and COO each had the opportunity to earn additional bonuses (the “Additional Bonus Opportunity”) as described below.

 

Outcomes Reflect Alignment with Performance

 

Based in part on shareholder feedback, the Additional Bonus Opportunity for the CEO and COO for 2019 was based on four distinct sets of financial goals, as set forth below. The Committee believes that achievement of these goals, in concert, is important for long term shareholder value creation.

 

The targets set forth below represent a required improvement over 2018 performance.

 

Home Sale Revenues  

Bonus

(thousands)

   

Goal

(billions)

   

Adjusted Pre-Tax

EPS

 

 

Bonus

(thousands)

    Goal  

Target

 

  $1,300     $2.981     Target   $1,300     $4.74  

Threshold

 

  $800     $2.700     Threshold   $800     $3.07  

 

Net New Orders  

Bonus

(thousands)

 

   

Goal

(homes)

   

Adjusted

EBITDA

 

Bonus

(thousands)

   

Goal

($ in millions)

 
Target   $1,300    

6,200

 

    Target   $1,500     $398  
Threshold   $800    

5,974

 

    Threshold   $1,000     $284  

 

The appropriateness of the categories selected for 2019, along with target and threshold goal amounts, were carefully considered by the Compensation Committee given the Company’s emphasis on prioritizing growth, risk management, financial stability and pursuit of long-term value. Specifically, with respect to the Home Sale Revenues, Adjusted Pre-Tax Diluted EPS, Net New Orders and EBITDA goals, the minimum performance criteria was established based on the prior year actual performance with target levels based on the 2019 Business Plan. The target goals represent a required improvement over 2018 actual performance. Bonuses earned for each metric were adjusted on a pro-rata basis if actual results were between Threshold and Target.

 

 

The 2019 Business Plan was developed by the CEO, COO and CFO from the “ground up” utilizing (i) forecasts submitted by the presidents for each of the Company’s homebuilding divisions detailing their operational projections for each of their divisions’ communities, (ii) the forecast submitted for the mortgage company by its president, and (iii) forecasts from the CFO regarding the insurance companies, any other income producing divisions of the Company, and all the corporate general and administrative departments. The 2019 Business Plan was reviewed by the Board.  The process of developing the business plan incorporates a disciplined evaluation of risks identified by management and the Board to establish a reasonable range of potential performance goals for the year including general economic conditions, fluctuations in interest rates, variations in projected mortgage lending programs, the availability and cost of capital, the availability and acquisition cost of land, materials and contractors in the homebuilding operations, potential for shortages and the increased cost of labor, and increased governmental regulation, including the adverse interpretation of tax, labor and environmental laws.

 

Target performance goals were established to reflect outstanding performance in light of the risks and market conditions anticipated for 2019.

 

Based on the achievements in these categories, both the CEO and COO earned an additional bonus of $5.4 million (subject to the bonus payment cap discussed below) related to the Additional Bonus Opportunity as shown below.

 

2019 Short-Term Incentive Program

Performance Goal

Performance

Required at Threshold

Performance

Required at Target

Actual Performance

Bonus Earned

Home sale revenues

$2,700 million

$2,981 million

$3,205 million

$1,300,000

Net new orders

5,974 homes

6,200 homes

7,839 homes

$1,300,000

Adjusted Pre-tax EPS

$3.07

$4.74

$4.78

$1,300,000

Adjusted EBITDA

$284.0 million

$398.0 million

$412.5 million

$1,500,000

 

Bonus Payment Cap

 

The 2019 annual incentive bonus (the ROE Condition Bonus plus the Additional Bonus Opportunity) was subject to a $6.0 million cap (the “Bonus Cap”) established by the Compensation Committee based on guidance from its Compensation Consultant taking into account each executive’s historic compensation, reference to executive compensation being awarded to the Company’s peer group and feedback from its shareholders.

 

In addition, any bonus earned in excess of $4.0 million would be paid in restricted stock shares vesting in equal amounts on the first, second and third anniversaries of the date of grant. The Compensation Committee believes that remuneration of a portion of the bonus in form of restricted stock serves as a retention tool and reflects the alignment of interests between the CEO/COO and other shareholders.

 

 

2019 CFO and General Counsel Annual Incentive Bonus

 

The CFO and CLO positions are primarily responsible for accounting, finance, legal and regulatory compliance and, in the judgment of the Compensation Committee, their incentive compensation should not directly depend on the Company’s financial performance. Instead, the CLO and the CFO were awarded a bonus opportunity measured by specific Key Performance Indicators (“KPIs”) established by the Compensation Committee, their attainment and a bonus payment commensurate with a percentage of their base pay. The Compensation Committee consults with the CEO and COO with regard to their achievements. For 2019, the Compensation Committee established the following KPIs:

 

Chief Financial Officer

 

Shareholder relations management and oversight

 

Timely and accurate handling of financial regulatory filings

 

Oversight of accounting, finance, information technology and treasury functions, including capital markets and bank financing transactions, if applicable

 

Successful completion of special projects

 

General Counsel

 

Litigation management

 

Regulatory compliance

 

Successful completion of special projects

 

Oversight of risk management

 

The KPIs were weighted equally, with bonus amounts based on the level of the performance they achieved:

 

 

A target bonus of 100% of base salary if the Compensation Committee determined that each KPI was achieved.

 

A maximum bonus of 200% of base salary if the Compensation Committee determined that each KPI has been exceeded at a level doubling the targeted performance.

 

Proportionate bonus levels as a percentage of base salary to the extent some KPIs were partially achieved or exceeded.

 

Based on its evaluation of performance relative to the established KPIs, the Compensation Committee awarded Mr. Martin and Mr. Touff 2019 annual incentive bonuses of $1,225,000 and $575,000, respectively. Mr. Martin’s incentive bonus is comprised of $850,000 payable in cash and $375,000 in restricted stock shares. Mr. Touff’s incentive bonus is comprised of $500,000 payable in cash and $75,000 in restricted stock shares. The restricted stock shares vest in equal amounts on the first, second and third anniversaries of the date of grant.

 

 

Long-Term Incentive Compensation

 

For our CEO and COO, the 2019 long-term equity grants were delivered approximately 70% in performance stock units and 30% in stock options (based on the grant date fair value of the awards), while the CFO grant was entirely in performance stock units. Our long-term incentive program is heavily weighted in performance stock units in order to objectively align the incentives of the Company’s management team with the interests of our shareholders.

 

Performance Stock Units (PSUs): Metrics

 

Executives will have their PSU awards vest if they meet the challenging financial and operating goals which have been established to improve our long-term performance.

 

Long-Term Incentive Metrics

Metric

Link to Value Drivers

Home Sale Revenues

✓    Home sale revenues are an industry standard directly linked to the Company’s financial stability and growth

Minimum Gross Margin from Home Sales Before Impairments Threshold

✓    Gross margin is an industry standard that investors use to gauge the strength of our business as a measure that costs are being managed effectively

 

2019 Long-Term Incentive Compensation Awards

 

 

The awards will vest based on increasing average home sale revenues over a three-year performance period compared to home sale revenues over a base period, while maintaining a minimum average gross margin from home sales (excluding impairments) of at least fifteen percent (15%).

 

 

2019 Long-Term Incentive Compensation Target-Setting Process

 

The Compensation Committee set clear, ambitious, long-term revenue growth targets over a three-year period. In determining the appropriate targets, the Compensation Committee considered the Company’s long term strategic plan, historic performance, peer group performance, anticipated broader business, market conditions and the Company’s current backlog.

 

The Target Goal established for each award was based on the Company achieving a three-year average Revenue over the period commencing January 1, 2019 and ending December 31, 2021 (the “Performance Period”) that was at least 10% but less than 20% greater than the Revenue over the period commencing January 1, 2018 and ending December 31, 2018 (the “Base Period”). The Threshold Goal was based on three-year average Revenue over the Performance Period that was at least 5% but less than 10% greater than Revenue over the Base Period. The Maximum Goal was based on three-year average Revenue over the Performance Period that was at least 20% greater than Revenue over the Base Period. The number of PSUs earned shall be adjusted to be proportional to the partial performance between the Threshold Goals, Target Goals and Maximum Goals.

 

2019 Long-Term Incentive Program

Performance Metric

Base

Threshold

Target

Maximum

Gross Margin from Home Sales (Excluding Impairments)

15% Average Gross Margin from Home Sales requirement

Home Sale Revenues (in billions)

$2.98

$3.13*

$3.28*

$3.58*

* Average over Performance Period

 

Upon the Company satisfying the gross margin from home sales (excluding impairments) precondition, the following shares of Company stock would vest depending on the Revenue performance relative to Base Period achieved:

 

Executive

Target 

Threshold

Maximum

CEO/COO

120,000 shares

50% of Target

200% of Target

CFO

30,000 shares

50% of Target

200% of Target

 

 

Peer Data and Benchmarking to the Market

 

The Compensation Committee utilized peer data as a reference when it considered the incentives and compensation plan design. It was not employed for benchmarking purposes. Rather, the peer group information was considered for broad subjective comparisons and not as an objective metric.

 

Homebuilder Peer Group Companies (the “Peer Group”)

Lennar Corporation

Toll Brothers, Inc.

M/I Homes Inc.

Meritage Homes Corporation

D.R. Horton, Inc.

Hovnanian Enterprises, Inc.

NVR, Inc.

Beazer Homes USA, Inc.

KB Home

PulteGroup, Inc.

 

The Compensation Committee chose these companies for their parallels to MDC's core business and markets, recognizing that their corporate structure, business strategies and risk profile may significantly vary from those of our Company.   For example, significant differences include (1) MDC’s exceptional strategic focus on risk management, including its land-light operating model and conservative utilization of leverage, (2) senior management’s high percentage of stock ownership – they beneficially own approximately 24% of the Company’s outstanding stock, the highest among the Peer Group and (3) the Company’s annual dividend yielding approximately 2.9%, far exceeding the closest Peer Group member.  Nevertheless, the Committee believes that the companies in the Peer Group were appropriate for reference purposes since they compete for the same executive talent, as well as competing in core areas of business such as land acquisitions and sales.

 

The Compensation Committee refers to the Peer Group not only for compensation purposes, but also for business model and risk evaluation purposes, as discussed in more detail, below.

 

 

Role of Compensation Committee and Management

 

The Compensation Committee conducted a series of meetings beginning in October 2019 and continuing into February 2020, at which time the Compensation Committee developed its determinations regarding 2019 executive officer compensation. The following table summarizes the roles of the Compensation Committee, the Consultant and management in formulating their decisions on executive officer compensation:

 

 

Responsible Party

Roles and Responsibilities

Compensation Committee of the Board of Directors

 

The Compensation Committee currently is comprised of Independent Directors and reports to the Board.

    Oversees all executive officer compensation levels, including benefits, having a goal to maintain compensation levels that are comparable to the marketplace and in conformity with shareholder interests.

●    Administers the Company's current equity and other compensation plans and any additional plans adopted by the Company.

●    Reviews and approves corporate goals and objectives relevant to CEO compensation.

●    Evaluates the CEO's performance in light of set goals and objectives, and determines and approves the CEO's compensation level based on this evaluation.

●    Has authority to determine and approve non-CEO compensation.

●    Makes recommendations to the Board with respect to incentive-compensation plans and equity-based plans.

●    Develops a compensation committee report on executive compensation as required by the SEC to be included in the Company's annual proxy statement or annual report on Form 10-K filed with the SEC.

Consultant to the Compensation Committee

 

WealthPoint, LLC, as an independent Consultant, retained directly by the Compensation Committee, that provides consulting advice on matters of governance and executive compensation.

    Provides advice and guidance on the appropriateness and competitiveness of our compensation programs relative to Company performance and market practice.

●    Performs all functions at the direction of the Compensation Committee

●    Attends Compensation Committee meetings (including executive sessions, as required).

●    Provides advice and guidance regarding governance issues bearing on the executive compensation determinations.

●    Provides market data, as requested.

●    Consults on various compensation matters and compensation program designs and practices.

●    Conducts an assessment of the risks arising from our compensation programs.

●    Confers with the CEO on behalf of the Compensation Committee concerning compensation, incentives and goals for other NEOs.

●    Assists in selection of the Company’s peers.

Chairman and CEO 

 

With the support of other members of the management team.

●    Review performance of the CFO and CLO and makes recommendations to the Compensation Committee with respect to their compensation.

●    Confer with the Compensation Committee concerning design and development of compensation and benefit plans for Company employees.

 

Role of the Independent Compensation Consultant

 

The Compensation Committee has the authority to retain outside counsel, consultants and other advisors to assist it in evaluating compensation or in otherwise discharging its duties and responsibilities. After consideration of independence factors as required by the NYSE, the Compensation Committee engaged WealthPoint, LLC to advise the Committee in connection with year-end 2019 compensation determinations, the structuring of executive compensation for 2020 and the compensation disclosures to be included in this proxy statement. This consultant also assisted the Compensation Committee in determining appropriate peers for purposes of comparing (but not benchmarking) market compensation, and provided other related services.

 

 

WealthPoint, LLC has not provided any services to the Company other than the services provided to the Compensation Committee. After considering, among other matters, the absence of any business or personal relationship between the consultants and any member of the Compensation Committee or any executive officer of the Company, the Compensation Committee has concluded the consultant’s services do not raise any conflicts of interest.

 

Other Compensation Considerations

 

Stock Ownership Guidelines

 

The Company’s executive officers as a group have historically maintained a high percentage of ownership of Company stock, especially when compared against other companies in the homebuilding industry. For example, Messrs. Mizel, Mandarich, Martin and Touff beneficially own shares totaling approximately 25% of the Company’s shares. See Beneficial Ownership of Common Stock – Ownership of Directors and Officers, above.

 

Nonetheless, in response to feedback received from the investor community, the Company has adopted formal equity ownership guidelines for the executive officers in order to expressly promote their continued short and long term financial alignment with the interests of the shareholders of the Company. Under the guidelines, each executive officer is encouraged to acquire and maintain ownership of common stock of the Company having an acquisition value of not less than the following multiple of the executive officer’s base annual salary:

 

Executive Officer

Multiple

CEO

5X

COO

5X

All Others

1X

 

To expedite achievement of the goal set forth above, each executive officer who has not yet achieved the goal agrees to retain the shares they acquire through restricted stock awards and the future exercise of employee stock options, net of taxes and any option exercise price, up to the number of shares necessary to achieve the goal. Messrs. Mizel, Mandarich, Martin and Touff have all achieved and maintain the stock ownership goal.

 

Anti-Hedging and Anti-Pledging Policies

 

Our executive officers (but not other employees) and our Directors are prohibited from acquiring an interest in financial instruments intended to hedge or offset any decrease in the market value of the Company’s stock held directly or indirectly by that person. They also are required to inform the Company’s compliance committee and obtain pre-clearance prior to purchasing Company stock on margin, margining Company stock or pledging Company stock as collateral for a loan.

 

Clawback Policy

 

In January 2015, based in part on shareholder feedback, the Corporate Governance/Nominating Committee approved a “Clawback” Policy. The Company’s Clawback Policy authorizes the Company to recover compensation previously paid to executive officers of the Company that was based upon any metric contained in a financial statement that was filed with the U.S. Securities and Exchange Commission during the Company’s then-current fiscal year or during one of the three prior fiscal years, which metric was materially restated.

 

 

Compensation and Risk Management

 

As part of its annual risk assessment, the Compensation Committee reviews the Company’s compensation policies and practices to confirm that the programs are designed in a manner that does not motivate individuals or groups to take risks reasonably likely to have a material adverse effect on the Company. Based on the Compensation Committee’s annual risk assessment, the Company believes that its compensation policies and practices for its employees, including executive officers, do not create risks that are reasonably likely to have a material adverse effect on the Company, and that such policies and practices are designed with strong oversight mechanisms in place.

 

Tax Considerations

 

Effective for tax years beginning on January 1, 2018 or later, Internal Revenue Code Section 162(m) was amended by the Tax Cuts and Jobs Act (the “TCJA”), which was signed into law on December 22, 2017. The tax reform legislation repealed the performance-based compensation exception to the Section 162(m) $1 million deduction limitation. The definition of a “covered employee” was revised to include the principal financial officer and any individual who held the position of either principal executive officer or principal financial officer at any time during the taxable year.

 

Previously, the Section 162(m) deductibility limitation was subject to an exception for compensation that qualified as “performance-based”. The Company was able to deduct certain performance-based compensation in excess of $1 million paid to our CEO and the three other most highly paid executives (excluding our CFO). Our compensation programs were designed to permit our Company to qualify for the “performance-based” exception, although the Company reserved (and continues to reserve) the right to pay compensation that did not qualify as “performance-based”.

 

Medical Insurance Benefits

 

Under the terms of their respective employment agreements, each of the CEO and COO is entitled to medical insurance benefits for the duration of his life (described in more detail below under “Employment Agreements”).

 

Other Compensation

 

In 2019 our executive officers also received compensation in the form of 401(k) employer contributions, incremental travel expenses incurred by the Company in support of not-for-profit organizations (as approved by the Board) and cell phone allowances.

 

The Board has determined that it is in the best interests of the Company for its CEO and its COO to use the Company's aircraft for non-Company purposes, when the aircraft is not being employed in the ordinary course of Company business. The CEO and the COO reimburse the Company for their non-Company use of the aircraft.

 

The objective of these benefits is to provide amenities to the CEO and COO that allow them to more efficiently utilize their time and to support them in effectively contributing to the success of the Company.

 

 

COMPENSATION COMMITTEE REPORT

 

The following Report of the Compensation Committee shall not be deemed to be "filed" with the SEC or to be subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended. The report shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except that it will be deemed "furnished" in the Company's Annual Report on Form 10-K for 2018, but shall not be deemed incorporated by reference into any filing as a result of being furnished in the Annual Report.

 

The Compensation Committee hereby confirms that it has reviewed and discussed the Compensation Discussion and Analysis with management and, based on the review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.

 

  COMPENSATION COMMITTEE  
     
 

Raymond T. Baker, Chairman

Herbert T. Buchwald

 

 

 

SUMMARY COMPENSATION TABLE

 

For the fiscal years ended December 31, 2019, 2018 and 2017, the following table summarizes the compensation of the Company’s named executive officers.

 

Name and
Principal
Position

Year

 

Salary
($)

   

Bonus
($)

   

Stock

Awards
($)
1

   

Option

Awards
($)
2

   

Non-Equity

Incentive Plan Compensation

($) 3

   

All Other Compensation
($)

   

Total
($)

 

Larry A. Mizel,

2019

  $ 1,000,000       N/A     $ 4,911,969     $ 1,576,080     $ 4,000,000     $ 297,539     $ 11,785,588  
Chairman and CEO                                                          
 

2018

  $ 1,000,000       N/A     $ 4,030,967     $ 1,383,620     $ 5,000,000     $ 190,961     $ 11,605,548  
                                                           
 

2017

  $ 1,000,000       N/A     $ 4,471,044       N/A     $ 4,000,000     $ 124,414     $ 9,595,458  
                                                           

David D. Mandarich,

2019

  $ 830,000       N/A     $ 4,911,969     $ 1,576,080     $ 4,000,000     $ 8,760     $ 11,326,809  
President and Chief Operating                                                          
Officer

2018

  $ 830,000       N/A     $ 4,030,967     $ 1,383,620     $ 5,000,000     $ 8,610     $ 11,253,197  
                                                           
 

2017

  $ 830,000       N/A     $ 4,471,044       N/A     $ 4,000,000     $ 8,460     $ 9,309,504  
                                                           

Robert N. Martin,

2019

  $ 713,077     $ 850,000     $ 1,252,984       N/A       N/A     $ 9,120     $ 2,825,181  
Senior Vice President, Chief                                                          
Financial Officer and Principal

2018

  $ 653,077     $ 750,000     $ 1,048,547       N/A       N/A     $ 8,970     $ 2,460,594  
Financial Officer                                                          
 

2017

  $ 576,923     $ 600,000     $ 1,092,746       N/A       N/A     $ 8,820     $ 2,278,489  
                                                           

Michael Touff,

2019

  $ 444,231     $ 500,000     $ 74,984       N/A       N/A     $ 9,120     $ 1,028,335  
Senior Vice President and                                                          
General Counsel

2018

  $ 400,000     $ 500,000     $ 50,000       N/A       N/A     $ 8,970     $ 958,970  
                                                           
 

2017

  $ 394,609     $ 400,000     $ 49,975       N/A       N/A     $ 8,820     $ 853,404  

 

1 The amounts shown in the "Stock Awards" column are based on the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 of the following:

 

2019
- For Messrs. Mizel, Mandarich and Martin, Performance Share Units ("PSUs") were granted to each individual on August 5, 2019. These awards are performance based, and, therefore, the amounts in the table above include $3,912,000, $3,912,000 and $978,000 for Messrs. Mizel, Mandarich and Martin, respectively, reflecting the aggregate grant date fair value of the awards ($32.60 per share on the date of grant) multiplied by the probable outcome of the performance conditions as of the grant date. Assuming achievement of the highest level of performance for these awards, the grant date fair value of the performance-based equity awards for Messrs. Mizel, Mandarich and Martin total $7,824,000, $7,824,000 and $1,956,000, respectively.
- For each of Messrs. Mizel and Mandarich, this column also includes $999,969 in Restricted Stock Awards ("RSAs") that were granted February 1, 2019 pursuant to the 2018 performance goals established under the terms of the shareholder-approved Performance-Based Plan.
- For Mr. Martin and Mr. Touff, this column also includes $274,984 and $74,984, respectively, in RSAs that were granted on February 1, 2019 based on their 2018 performance.

 

2018
- For Messrs. Mizel, Mandarich and Martin, Performance Share Units ("PSUs") were granted to each individual on May 23, 2018. These awards are performance based, and, therefore, the amounts in the table above include $3,314,295, $3,314,295 and $828,574 for Messrs. Mizel, Mandarich and Martin, respectively, reflecting the aggregate grant date fair value of the awards ($25.57 per share on the date of grant) multiplied by the probable outcome of the performance conditions as of the grant date. Assuming achievement of the highest level of performance for these awards, the grant date fair value of the performance-based equity awards for Messrs. Mizel, Mandarich and Martin total $6,628,590, $6,628,590 and $1,657,147, respectively.
- For each of Messrs. Mizel and Mandarich, this column also includes $716,672 in Restricted Stock Awards ("RSAs") that were granted February 2, 2018 pursuant to the 2017 performance goals established under the terms of the shareholder-approved Performance-Based Plan.
- For Mr. Martin and Mr. Touff, this column also includes $219,973 and $50,000, respectively, in RSAs that were granted on February 2, 2018 based on their 2017 performance.

 

 

2017
- For Messrs. Mizel, Mandarich and Martin, Performance Share Units ("PSUs") were granted to each individual on June 20, 2017. These awards are performance based, and, therefore, the amounts in the table above include $3,571,128, $3,571,128 and $892,782 for Messrs. Mizel, Mandarich and Martin, respectively, reflecting the aggregate grant date fair value of the awards ($27.83 per share on the date of grant) multiplied by the probable outcome of the performance conditions as of the grant date. Assuming achievement of the highest level of performance for these awards, the grant date fair value of the performance-based equity awards for Messrs. Mizel, Mandarich and Martin total $7,142,256, $7,142,256 and $1,785,564, respectively.
- For each of Messrs. Mizel and Mandarich, this column also includes $899,990 in Restricted Stock Awards ("RSAs") that were granted February 2, 2017 pursuant to the 2016 performance goals established under the terms of the shareholder-approved Performance-Based Plan.
- For Mr. Martin and Mr. Touff, this column also includes $199,982 and $49,975, respectively, in RSAs that were granted on February 2, 2017 based on their 2016 performance.

 

For a description of assumptions used in valuing the awards, please see Note 22 (Stock Based Compensation) to the Consolidated Financial Statements in the Company's Annual Report on Form 10-K, for the year ended December 31, 2019.

 

2 The amounts shown in the "Option Awards" column are based on the aggregate grant date fair value computed in accordance with FASB ASC Topic 718. For Messrs. Mizel and Mandarich, the option awards granted in 2018 and 2019 were service based, were assigned a fair value of $6.41 and $7.88 per share, respectively, on the date of grant using the Black-Scholes option pricing model and are being expensed on a straight-line basis over the three year vesting period. For a description of the assumptions used in valuing the awards, please see Note 22 (Stock Based Compensation) to the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2019. No option awards were granted in 2017.

 

3 These non-equity incentive plan compensation amounts were paid in cash in accordance with the terms of the Performance-Based Plan, as in effect for the year indicated, as compensation for that year's performance. The amounts were paid in the subsequent year.

 

All Other Compensation

 

The table below provides a breakdown of all other compensation for 2019 for the named executive officers:

 

Name

 

Non-

Business

Use of

Aircraft

   

401(k)

Match 2

   

Other 3

   

Total

 

Larry A. Mizel

    -- 1     $ 8,400     $ 289,139     $ 297,539  

David D. Mandarich

    -- 1    $ 8,400     $ 360     $ 8,760  

Robert N. Martin

    --     $ 8,400     $ 720     $ 9,120  

Michael Touff

    --     $ 8,400     $ 720     $ 9,120  

 

1 The incremental costs of non-business use of the Company's aircraft are calculated as the total variable operating costs directly associated with non-business trips, which include fuel, pilot travel related costs, catering, landing fees, flight communications and trip-related maintenance (the “Incremental Cost”). For their non-business use of the aircraft in 2019, Messrs. Mizel and Mandarich each reimbursed the Company amounts in excess of the Incremental Cost to the Company.

 

2 401(k) match represents amounts paid in 2020 based on 2019 401(k) deferrals.

 

3 For Mr. Mizel, the amount shown for “Other” consists of (i) $286,029 of Incremental Costs incurred by the Company in support of Mr. Mizel's service to not-for-profit organizations, consistent with the Company’s commitment to sustainability, (ii) $2,390 of Incremental Costs for spousal travel to Company events, and (iii) $720 for a cell phone allowance.

 

 

GRANTS OF PLAN-BASED AWARDS IN 2019

 

The following table sets forth certain information with respect to awards granted during 2019 to our named executive officers. All equity awards were made under the 2011 Equity Incentive Plan.

 

                             

All other stock awards:

   

Exercise or Base

   

Grant Date

Fair Value

 
     

Estimated payouts under equity

incentive plan awards 3

   

Number of

shares of stock

   

Price of

Option

    of Stock and Option  

Name

Grant Date

 

Threshold
(#)

   

Target
(#)

   

Maximum
(#)

    or units
(#)
   

Awards

($/Sh)

    Award
($)
 

Larry A. Mizel

02/01/2019

                            32,895   1          $ 999,969  

Larry A. Mizel

08/05/2019

                            200,000   2  $ 35.55     $ 1,576,080  

Larry A. Mizel

08/05/2019

    60,000       120,000       240,000                     $ 3,912,000  

David D. Mandarich

02/01/2019

                            32,895   1          $ 999,969  

David D. Mandarich

08/05/2019

                            200,000   2  $ 35.55     $ 1,576,080  

David D. Mandarich

08/05/2019

    60,000       120,000       240,000                     $ 3,912,000  

Robert N. Martin

02/01/2019

                            9,046   4          $ 274,984  

Robert N. Martin

08/05/2019

    15,000       30,000       60,000                     $ 978,000  

Michael Touff

02/01/2019

                            2,466   4          $ 74,984  

 

1 The restricted stock award will vest equally over three years, starting with February 1, 2020. Dividends are paid on the restricted stock. The restricted stock granted in 2019 was based on 2018 performance.

 

2 The option granted will become exercisable equally over three years, starting with the first anniversary of the grant date. The option granted was part of the executive’s 2019 long term incentive compensation.

 

3 The PSUs will be earned based upon the Company’s performance, over a three year period commencing January 1, 2019 and ending December 31, 2021 (the “Performance Period”), measured by increasing average home sale revenues over the Base Period. The “Base Period” for the awards is January 1, 2018 to December 31, 2018. The awards are conditioned upon the Company achieving a minimum average gross margin from home sales percentage (excluding impairments) of at least fifteen percent (15%) over the Performance Period. If Performance Revenues exceed the Base Revenues by at least 5% but less than 10% (“Threshold Goals”), 50% of the Target Goals will be earned. If Performance Revenues exceed the Base Revenues by at least 20%, 200% of the Target Goals will be earned (“Maximum Goals”). The number of PSUs earned under these grants shall be adjusted to be proportional to the partial performance between the Threshold Goals, Target Goals and Maximum Goals.

 

4 The restricted stock awards will vest equally over three years, starting with the first anniversary of the grant date. Dividends are paid on the restricted stock.

 

 

OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2019

 

The table below sets forth information with respect to all unexercised options, unvested restricted stock and unvested performance stock units awarded to our named executive officers that were outstanding as of December 31, 2019.

 

   

Option Awards

   

Stock Awards

 

Name

 

Number of

Securities

Underlying

Unexercised

Options (#)

Exercisable

   

Number of

Securities

Underlying

Unexercised

Options (#)

Unexercisable

   

Option

Exercise

Price
($)

   

Option

Expiration

Date

   

Number of

Shares or

Units of

Stock

That Have

Not Vested
(#)

   

Market

Value of

Shares or

Units of

Stock That

Have Not

Vested
($)

   

Equity Incentive

Plan

Awards: Number of

Unearned

Units That

Have Not

Vested
(#)

   

Equity

Incentive

Plan

Awards:

Market

Value of

Unearned

Units That

Have Not

Vested ($)

 

Larry A. Mizel

    110,224       -       23.51    

12/30/2020

      -       -       -       -  
      110,224       -       25.86    

12/30/2020

      -       -       -       -  
      612,360       -       19.96    

3/8/2022

      -       -       -       -  
      1,224,720       -       23.18    

5/18/2025

      -       -       -       -  
      72,000       144,000   1    28.51    

5/23/2028

      -       -       -       -  
      -       200,000   2    35.55    

8/5/2029

      -       -       -       -  
      -       -       -       -       19,693   3    751,485       -       -  
      -       -       -       -       25,039   4    955,488       -       -  
      -       -       -       -       16,120   5    615,139       -       -  
      -       -       -       -       32,895   6    1,255,273       -       -  
      -       -       -       -       -       -       256,608   7    9,792,161  
      -       -       -       -       -       -       64,800   8    2,472,768  
      -       -       -       -       -       -       60,000   9    2,289,600  

David D. Mandarich

    110,224       -       23.51    

12/30/2020

      -       -       -       -  
      110,224       -       25.86    

12/30/2020

      -       -       -       -  
      612,360       -       19.96    

3/8/2022

      -       -       -       -  
      1,224,720       -       23.18    

5/18/2025

      -       -       -       -  
      72,000       144,000   1    28.51    

5/23/2028

      -       -       -       -  
      -       200,000   2    35.55    

8/5/2029

      -       -       -       -  
      -       -       -       -       19,693   3    751,485       -       -  
      -       -       -       -       25,039   4    955,488       -       -  
      -       -       -       -       16,120   5    615,139       -       -  
      -       -       -       -       32,895   6    1,255,273       -       -  
      -       -       -       -       -       -       256,608   7    9,792,161  
      -       -       -       -       -       -       64,800   8    2,472,768  
      -       -       -       -       -       -       60,000   9    2,289,600  

 

 

   

Option Awards

   

Stock Awards

 

Name

 

Number of

Securities

Underlying

Unexercised

Options (#)

Exercisable

   

Number of

Securities

Underlying

Unexercised

Options (#)

Unexercisable

   

Option

Exercise

Price
($)

   

Option

Expiration

Date

   

Number of

Shares or

Units of

Stock That

Have Not

Vested
(#)

   

Market

Value of

Shares or

Units of

Stock That

Have Not

Vested
($)

   

Equity

Incentive

Plan

Awards:

Number of

Unearned

Units That

Have Not

Vested
(#)

   

Equity

Incentive

Plan

Awards:

Market

Value of

Unearned

Units That

Have Not

Vested($)

 

Robert N. Martin

    9,185       -       17.10    

1/26/2022

      -       -       -       -  
      12,247       -       28.46    

11/27/2022

      -       -       -       -  
      12,247       -       25.34    

1/22/2024

      -       -       -       -  
      18,370       -       23.11    

5/23/2025

      -       -       -       -  
      -       -       -       -       6,124   10    233,692       -       -  
      -       -       -       -       2,782   11    106,161       -       -  
      -       -       -       -       4,947   5    188,778       -       -  
      -       -       -       -       9,046   6    345,195       -       -  
      -       -       -       -       -       -       64,152   5    2,448,040  
      -       -       -       -       -       -       16,200   6    618,192  
      -       -       -       -       -       -       15,000   7    572,400  

Michael Touff

    30,618       -       32.37    

2/1/2023

      -       -       -       -  
      30,618       -       23.67    

2/6/2024

      -       -       -       -  
      30,618       -       20.35    

1/26/2025

      -       -       -       -  
      -       -       -