<PAGE>
SCHEDULE 14A INFORMATION
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 /X/
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
M.D.C. HOLDINGS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
MERRILL CORPORATION
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ 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:
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(4) Date Filed:
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<PAGE>
[LOGO]
M.D.C. HOLDINGS, INC.
3600 SOUTH YOSEMITE STREET, SUITE 900
DENVER, COLORADO 80237
March 30, 1998
To Our Shareowners:
You are invited to attend the 1998 Annual Meeting of Shareowners (the
"Meeting") of M.D.C. Holdings, Inc. (the "Company") to be held at 3600 South
Yosemite Street, Lower Level Conference Room A, Denver, Colorado, on Monday, May
18, 1998, at 8:00 a.m., Denver time.
Following this letter is the formal notice of the Meeting and a proxy
statement describing the matters to be acted upon at the Meeting. Shareowners
also are entitled to vote on any other matters which properly come before the
Meeting.
While many of our shareowners have exercised their right to vote their
shares in person at past meetings, we recognize that many of you are unable to
attend the Meeting. Accordingly, enclosed is a proxy card that enables
shareowners to vote their shares on the matters to be considered at the Meeting,
even if they are unable to attend. All you need to do is mark the proxy card to
indicate your vote, date and sign the proxy card and return it to the Company in
the enclosed postage-paid envelope as soon as conveniently possible. If you
desire to vote in accordance with management's recommendations, you need not
mark your vote on the proxy card, but need only sign, date and return it to the
Company in the enclosed postage-paid envelope.
WHETHER YOU OWN FEW OR MANY SHARES OF STOCK, PLEASE BE SURE YOU ARE
REPRESENTED AT THE MEETING BY ATTENDING IN PERSON OR BY RETURNING YOUR PROXY
CARD AS SOON AS POSSIBLE.
Sincerely,
/s/ Larry A. Mizel
Larry A. Mizel
CHAIRMAN OF THE BOARD
<PAGE>
[LOGO]
M.D.C. HOLDINGS, INC.
3600 SOUTH YOSEMITE STREET, SUITE 900
DENVER, COLORADO 80237
------------------------
NOTICE OF ANNUAL MEETING OF SHAREOWNERS
---------------------
To Our Shareowners:
The 1998 Annual Meeting of Shareowners (the "Meeting") of M.D.C. Holdings,
Inc. (the "Company") will be held at 3600 South Yosemite Street, Lower Level
Conference Room A, Denver, Colorado, on Monday, May 18, 1998, at 8:00 a.m.,
Denver time, to consider and act upon the following matters:
1. the election of Herbert T. Buchwald and Larry A. Mizel, two Class I
Directors, for three-year terms expiring in 2001;
2. a shareowner proposal to provide for cumulative voting in the election
of directors; and
3. such other business as properly may come before the Meeting and any
postponements or adjournments thereof.
Only shareowners of record at the close of business on March 20, 1998, the
record date, will be entitled to vote at the Meeting.
Management and the Board of Directors desire to have maximum representation
at the Meeting and respectfully request that you date, execute and timely return
the enclosed proxy in the postage-paid envelope provided.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Daniel S. Japha
Daniel S. Japha
SECRETARY
March 30, 1998
<PAGE>
[LOGO]
M.D.C. HOLDINGS, INC.
3600 SOUTH YOSEMITE STREET, SUITE 900
DENVER, COLORADO 80237
------------------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREOWNERS
May 18, 1998
------------------------
To Our Shareowners:
This proxy statement (the "Proxy Statement") is furnished in connection with
the solicitation of proxies by the Board of Directors (the "Board of Directors")
of M.D.C. Holdings, Inc. (the "Company") to be used at the Annual Meeting of
Shareowners of the Company (the "Meeting") to be held at 3600 South Yosemite
Street, Lower Level Conference Room A, Denver, Colorado, on Monday, May 18,
1998, at 8:00 a.m., Denver time, and any postponements or adjournments thereof.
The Meeting is being held for the purposes set forth in the accompanying Notice
of Annual Meeting of Shareowners. This Proxy Statement, the accompanying proxy
card and the Notice of Annual Meeting (collectively, the "Proxy Materials") are
first being sent to shareowners on or about March 30, 1998.
GENERAL INFORMATION
SOLICITATION
The enclosed proxy is being solicited by the Board of Directors of the
Company. In addition to solicitations by mail, solicitations may be made by
personal interview, telephone and telegram by directors, officers and regular
employees of the Company. No compensation will be paid for the solicitation of
proxies, although the Company 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.
VOTING RIGHTS
Holders of shares of the Company's common stock, $.01 par value (the "Common
Stock"), at the close of business on March 20, 1998, (the "Record Date"), are
entitled to notice of, and to vote at, the Meeting. As of February 27, 1998,
approximately 17,978,000 shares of Common Stock were outstanding. The presence,
in person or by proxy, of the holders of one-third of the total number of shares
of Common Stock outstanding constitutes a quorum for transacting business at the
Meeting. Each share of Common Stock outstanding on the Record Date is entitled
to one vote on each matter presented at the Meeting.
1
<PAGE>
VOTING PROXIES
Shares of Common Stock represented by properly executed proxy cards received
by the Company in time for the Meeting will be voted in accordance with the
choices specified in the proxies. Unless contrary instructions are indicated on
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
will be voted AGAINST providing cumulative voting in the election of directors.
Abstentions and broker non-votes (proxies that do not indicate that brokers or
nominees have received instructions from the beneficial owner of shares) will be
counted for purposes of determining the presence or absence of a quorum for the
transaction of business. Abstentions are counted in tabulating the total number
of votes cast on proposals presented to shareowners, whereas broker non-votes
are not counted for purposes of determining the total number of votes cast.
Management and the Board of Directors of the Company know of no other
matters to be brought before the Meeting. If other matters properly are
presented to the shareowners for action at the Meeting and any adjournments or
postponements thereof, it is the intention of the proxy holders named in the
proxy to vote in their discretion on all matters on which the shares of Common
Stock represented by such proxy are entitled to vote.
REVOCABILITY OF PROXY
The giving of the enclosed proxy does not preclude the right to vote in
person, should the shareowner giving the proxy so desire. A proxy may be revoked
at any time prior to its exercise by notice of revocation in writing sent to the
Secretary of the Company, by presenting 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.
ANNUAL REPORT
The Company's 1997 Annual Report to Shareowners is enclosed with these Proxy
Materials. The 1997 Annual Report to Shareowners is not incorporated into this
Proxy Statement by reference nor is it a part of the Proxy Materials.
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation provides for three classes of
Directors with staggered terms of office, to be divided as equally as possible.
Nominees of each class serve for terms of three years (unless a nominee is
changing to a different class) and until election and qualification of their
successors or until their resignation, death, disqualification or removal from
office.
The Board of Directors currently consists of six members, including two
Class I Directors whose terms expire in 1998, two Class II Directors whose terms
expire in 1999 and two Class III Directors whose terms expire in 2000. At the
Meeting, two Class I Directors are to be elected to three-year terms expiring in
2001. The nominees for the Class I Directors are Messrs. Herbert T. Buchwald and
Larry A. Mizel. All of the nominees presently serve on the Board of Directors of
the Company.
Unless otherwise specified, the enclosed proxy card will be voted FOR the
election of Messrs. Buchwald and Mizel. Management and the Board of Directors
are not aware of any reasons which would cause Messrs. Buchwald or Mizel to be
unavailable to serve as Directors. If Messrs. Buchwald or Mizel become
unavailable for election, discretionary authority may be exercised by the proxy
holders named in the enclosed proxy card to vote for a substitute nominee or
nominees proposed by the Board of Directors.
The affirmative vote of the holders of a plurality of the shares present or
represented and entitled to vote at the Meeting will be required for election to
the Board of Directors. The Board of Directors recommends a vote FOR the
election of Messrs. Buchwald and Mizel as Directors.
2
<PAGE>
Certain information with respect to Messrs. Buchwald and Mizel, the nominees
for election, and the continuing Directors of the Company, furnished in part by
each such person, appears below:
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED AS OF THE
POSITIONS AND OFFICES WITH THE COMPANY RECORD DATE PERCENTAGE OF
NAME AGE AND OTHER PRINCIPAL OCCUPATIONS (1)(2) CLASS (3)
- ----------------------- --- ------------------------------------------------ ----------------- --------------
<S> <C> <C> <C> <C>
NOMINEES:
CLASS I
TERMS EXPIRE IN 2001
Herbert T. Buchwald 67 Principal in the law firm of Herbert T. 60,426 *
Buchwald, P.A. and President and Chairman of
the Board of Directors of BPR Management
Corporation
Larry A. Mizel 55 Chairman of the Board of Directors, President 4,664,772(4) 25.54%
and Chief Executive Officer of the Company
CONTINUING DIRECTORS:
CLASS II
TERMS EXPIRE IN 1999
Gilbert Goldstein 79 Principal in the law firm of Gilbert Goldstein, 45,000 *
P.C.
William B. Kemper 60 Private real estate investor 75,000 *
CLASS III
TERMS EXPIRE IN 2000
Steven J. Borick 45 President, Texakota, Inc. and a General Partner 50,000 *
in Texakota Oil Company
David D. Mandarich 50 Executive Vice President-Real Estate and Chief 1,762,531 9.56%
Operating Officer of the Company
</TABLE>
- ------------------------
* Represents less than one percent of the outstanding shares of Common Stock.
(1) Includes, where applicable, shares of Common Stock owned by such person's
minor children and spouse and by other related individuals or entities over
whose shares such person has custody.
(2) Includes the following shares of Common Stock that such persons had the
right to acquire within 60 days of the Record Date by the exercise of stock
options at prices ranging from $4.25 to $7.50 per share: Gilbert Goldstein
25,000, William B. Kemper 75,000, Steven J. Borick 50,000, Herbert T.
Buchwald 50,000, Larry A. Mizel 283,333 and David D. Mandarich 458,333.
(3) The percentage shown includes shares of Common Stock actually owned and
shares of Common Stock which the person had the right to acquire within 60
days of the Record Date. In calculating the percentage of ownership, all
shares of Common Stock which the person 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 but
are not deemed to be outstanding for the purpose of computing the percentage
of shares of Common Stock owned by any other person.
(4) Includes 5,500 shares held jointly with Mr. Mizel's wife, 1,115 shares owned
by Mr. Mizel's children and 405,314 shares of Common Stock with respect to
which Mr. Mizel may be considered the "beneficial owner," as defined under
the Securities Exchange Act of 1934 (the "1934 Act"), because he is a
3
<PAGE>
beneficiary of certain trusts which own all of the outstanding stock of
CVentures, Inc., a corporation which controls the voting of these shares of
Common Stock. Mr. Mizel is a director and officer of CVentures, Inc. Also
includes 194,032 shares of Common Stock owned by certain trusts for the
benefit of Mr. Mizel and certain members of his immediate family, over which
shares Mr. Mizel does not exercise voting control, although he has a limited
power of appointment allowing him to direct the trustee to gift all or a
portion of such shares to any person other than himself or a creditor. Mr.
Mizel disclaims beneficial ownership of the 194,032 shares.
OTHER INFORMATION RELATING TO DIRECTORS
The following is a brief description of the business experience during at
least the past five years of each member and nominee for the Board of Directors
of the Company.
HERBERT T. BUCHWALD has been 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, for more than the past five years. Mr. Buchwald was appointed to the
Company's Board of Directors in March 1994 and is Chairman of the Audit
Committee and a member of the Compensation and Legal Committees.
LARRY A. MIZEL was elected President of the Company in March 1996 and has
served as Chairman of the Board of Directors and Chief Executive Officer of the
Company for more than five years. Mr. Mizel also serves as a director of
Richmond American Homes of Colorado, Inc., a wholly owned subsidiary of the
Company ("Richmond American Homes"). Mr. Mizel also is a Trustee of Marsico
Investment Fund, an open-end investment company that currently offers two
investment portfolios, the Marsico Focus Fund and the Marsico Growth and Income
Fund. Mr. Mizel has been a Director of the Company since founding the Company in
January 1972 and is a member of the Legal Committee.
GILBERT GOLDSTEIN has been engaged in private law practice for more than the
past five years as the principal in the law firm of Gilbert Goldstein, P.C. See
"Certain Relationships and Related Transactions" below. Mr. Goldstein has been a
Director of the Company since January 1976. Mr. Goldstein also is the Chairman
of the Legal Committee.
WILLIAM B. KEMPER has been engaged in private real estate investments, real
estate development and property management since May 1982. Prior to May 1982, he
was president of Gold Crown, Inc., a real estate development company. Mr. Kemper
has been a Director of the Company since January 1972. He is a member of the
Audit and the Compensation Committees.
STEVEN J. BORICK has been the president of Texakota, Inc., an oil and gas
exploration and development company, and a general partner in Texakota Oil
Company, a private oil and gas partnership, for more than the past five years.
He also is a director of Superior Industries International, Inc., a New York
Stock Exchange-listed manufacturer of automobile accessories, and Richmond
American Homes. Mr. Borick has been a Director of the Company since April 1987
and is a member of the Audit Committee and Chairman of the Compensation
Committee.
DAVID D. MANDARICH was elected Chief Operating Officer of the Company in
March 1996, Co-Chief Operating Officer in September 1994 and Executive Vice
President-Real Estate in April 1993 and appointed a Director of the Company in
March 1994. From April 1989 to April 1993, Mr. Mandarich served as a consultant
to the Company. In April 1990, Mr. Mandarich was elected as chairman of the
board of directors of Richmond American Homes. Mr. Mandarich also was a Director
of the Company from September 1980 until April 1989.
INFORMATION CONCERNING THE BOARD OF DIRECTORS
The Audit Committee of the Board of Directors consists currently of Messrs.
Borick, Buchwald and Kemper. The Audit Committee met 11 times during 1997. The
Audit Committee is chaired by Mr. Buchwald
4
<PAGE>
and is responsible for reviewing and approving the scope of the annual audit
undertaken by the Company's independent accountants and meets with them to
review the progress and results of their work as well as their resulting
recommendations. The Audit Committee recommends to the Board of Directors the
appointment of, has direct access to and reviews the fees of the Company's
independent accountants. In connection with the internal accounting controls of
the Company, the Audit Committee reviews internal audit procedures and reporting
systems.
The Director of Internal Audit for the Company reports directly to the Audit
Committee on, among other things, the Company's compliance with certain Company
procedures which are designed to enhance management's consideration of all
aspects of major transactions involving the Company. The Audit Committee has
direct control over staffing and compensation of the Internal Audit Department.
Additionally, the Audit Committee reviews annually the Company's Corporate Code
of Conduct. On at least a quarterly basis, the Company's Chief Financial Officer
reports directly to the Audit Committee on significant accounting issues, if
any.
The Compensation Committee currently consists of Messrs. Buchwald, Kemper
and Borick. During 1997, the Compensation Committee met six times. The
Compensation Committee is chaired by Mr. Borick and is active in approving the
design of executive compensation plans, reviewing salaries, bonuses and other
forms of compensation for officers and key employees of the Company,
establishing salaries, benefits and other forms of compensation for new
employees and in other compensation and personnel areas as the Board of
Directors from time to time may request. For a discussion of the criteria
utilized and factors considered by the Compensation Committee in reviewing and
making recommendations with respect to executive compensation, see "Report of
the Compensation Committee" below.
The Legal Committee currently consists of Messrs. Goldstein, Buchwald and
Mizel. During 1997, the Legal Committee met four times. The Legal Committee is
chaired by Mr. Goldstein and is active in reviewing legal issues and interacting
with the Company's inside and outside legal counsel.
The Company has no executive or nominating committees. Procedures for
nominating persons for election to the Board of Directors are contained in the
Company's By-Laws.
During 1997, the Board of Directors held 10 regularly scheduled board
meetings. The Directors also held four special meetings and considered Company
matters and had numerous communications with the Chairman of the Board of
Directors and other officials of the Company wholly apart from the formal
meetings. In 1997, all of the Company's Directors attended at least 75% of the
total number of meetings of the Board of Directors and of the committees of the
Board of Directors on which they served.
COMPENSATION
Until December 31, 1997, each Director who is not an officer of the Company
was paid $3,000 per month and $750 for attending each Board of Directors meeting
and each meeting of the Audit and Compensation Committees. Effective January 1,
1998, the fee for each Board of Directors meeting attended was increased to
$1,500. The fee for attendance at committee meetings was not increased. Each
Director also is reimbursed for expenses related to his attendance at Board of
Directors and committee meetings.
In addition, Mr. Borick received fees of $1,500 per month during 1997 for
services as a director of Richmond American Homes.
Mr. Kemper and his wife are covered by the Company's self-funded
contributory medical plan for which he pays 100% of the premiums. For the
medical plan's fiscal year ended September 30, 1997, Mr. Kemper paid premiums in
excess of the cost of claims paid on behalf of Mr. Kemper and his wife.
5
<PAGE>
EXECUTIVE OFFICERS
Set forth below are the names and offices held by the executive officers of
the Company as of the Record Date. The executive officers of the Company are
elected annually and 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 in "Election of Directors"
above. Biographical information on the other executive officers of the Company
is set forth below.
<TABLE>
<CAPTION>
NAME OFFICES HELD AS OF THE RECORD DATE
- ------------------------------- -----------------------------------------------------------------------
<S> <C>
Larry A. Mizel................. Chairman of the Board of Directors, President and Chief Executive
Officer
David D. Mandarich............. Executive Vice President-Real Estate, Chief Operating Officer and a
Director
Paris G. Reece III............. Senior Vice President, Chief Financial Officer and Principal Accounting
Officer
Michael Touff.................. Vice President and General Counsel
</TABLE>
PARIS G. REECE III, 43, was elected as a Vice President of the Company in
August 1988, as Secretary in February 1990, as Chief Financial Officer in June
1990, as Treasurer in September 1993 and as Senior Vice President in September
1994. Mr. Reece resigned as Secretary of the Company in May 1996 and as
Treasurer of the Company in November 1996. Mr. Reece also is an officer,
director or both of most of the Company's subsidiaries.
MICHAEL TOUFF, 53, was elected as a Vice President and the General Counsel
of the Company 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.
6
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation received by the Chief
Executive Officer and the three other executive officers for the three fiscal
years ended December 31, 1997.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
---------------
ANNUAL COMPENSATION SHARES
--------------------------------- OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(4) OPTIONS COMPENSATION(1)
- ------------------------------------- --------- --------- ----------- ----------------- --------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Larry A. Mizel, Chairman of the 1997 $ 600,000 $ 1,027,100(2) N/A 100,000(5) $ 2,850
Board of Directors, President and 1996 $ 560,000 $ 825,780(2) N/A 350,000 $ 2,945
Chief Executive Officer 1995 $ 560,000 $ 668,000(2) N/A -0- $ 2,310
David D. Mandarich, Chief 1997 $ 500,000 $ 1,027,100(2) N/A 100,000(5) $ 2,850
Operating Officer, Executive Vice 1996 $ 460,000 $ 825,780(2) N/A 350,000 $ 2,945
President-Real Estate and a 1995 $ 460,000 $ 668,000(2) N/A -0- $ 2,310
Director
Paris G. Reece III, Senior Vice 1997 $ 208,000 $ 248,200(3) N/A 20,000(5) $ 2,850
President and Chief Financial 1996 $ 200,000 $ 210,000(3) N/A -0- $ 2,945
Officer 1995 $ 167,000 $ 135,000 N/A -0- $ 2,310
Michael Touff Vice President 1997 $ 239,200 $ 164,400(3) N/A 10,000(5) $ 2,850
and General Counsel 1996 $ 230,000 $ 375,000(3) N/A -0- $ 2,945
1995 $ 210,000 $ 90,000 N/A -0- $ 2,310
</TABLE>
- ------------------------------
(1) The amounts disclosed in this column consist of Company contributions
allocated to the Executive Officers' accounts pursuant to the Company's
401(k) Plan. One hundred percent of the Company's 1997 contribution will be
funded with shares of Common Stock valued at $18.375 per share, the closing
price of the Common Stock on March 3, 1998, the date as of which the Company
approved the stock portion of the allocation.
(2) These bonuses were paid in February following the year indicated in
accordance with the terms of the M.D.C. Holdings, Inc. Executive Officer
Performance-Based Compensation Plan approved by the Company's stockholders
at the 1994 Annual Meeting (the "Executive Compensation Plan"). The amount
of these bonuses is determined based on the Company's "Adjusted Pre-Tax
Return on Average Stockholders' Equity" (as defined in the Executive
Compensation Plan). Bonuses are not payable under the Executive Compensation
Plan unless the Company's Adjusted Pre-Tax Return on Average Stockholders'
Equity equals or exceeds 10%.
(3) Portions of these bonuses were paid in shares of the Common Stock valued at
the closing price of the Common Stock on the New York Stock Exchange on the
date the Compensation Committee of the Board of Directors approved the
bonuses ($7.75 for 1996 and $11.375 for 1997). In 1996, Mr. Reece elected to
receive $75,000 of his bonus (10,170 shares) and Mr. Touff elected to
receive $150,000 of his bonus (20,339 shares) in the form of Common Stock.
In 1997, Mr. Reece elected to receive $95,000 of his bonus (8,348 shares)
and Mr. Touff elected to receive $75,000 of his bonus (6,591 shares) in the
form of Common Stock. The Compensation Committee also granted the employees
who received bonuses in the form of stock the right to borrow from the
Company the taxes due on the stock portion of the bonus. Messrs. Reece and
Touff borrowed $26,277 and $70,856, respectively, in 1996 and $52,581 and
$41,511, respectively in 1997. These amounts are secured by a pledge of the
number of shares of Common Stock equal to 125% of the amounts borrowed,
divided by the price of the Common Stock on the respective date of the loan.
The loans bear interest at LIBOR plus one percent, are amortized over 10
years with annual principal and interest payments due each December 30 of
employment and mature on the earliest of (i) five years from the date of the
notes; (ii) 90 days after the date of termination for cause; or (iii) one
year after termination without cause, when the entire amount of principal
plus accrued interest are due.
(4) N/A: Disclosure is not applicable under the Securities and Exchange
Commission's rules.
(5) See "Option Grants in Last Fiscal Year," below.
Severance benefits for Messrs. Mizel and Mandarich are included in their
employment agreements. Severance benefits for Messrs. Reece and Touff are
included in their change in control agreements. See "Employment Agreements and
Change in Control Agreements" below.
7
<PAGE>
The Company's severance pay policy also provides severance pay to eligible
employees, including each of the named executive officers, whose employment is
involuntarily terminated by the Company for reasons other than gross misconduct.
Employees are eligible for severance pay under this policy if involuntarily
terminated after 90 days of employment. The amount of severance pay under the
policy is based on the length of service with the Company. For each of the named
executive officers, the amount of pay would be one week for each year of service
to a maximum of 12 weeks; provided, however, the Compensation Committee of the
Board of Directors may approve additional severance payments for situations
involving management personnel.
OPTION GRANTS IN LAST FISCAL YEAR
The table below provides information on option grants in fiscal 1997 to the
named executive officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
------------------------------------------------------------------- STOCK PRICE
PERCENT OF TOTAL APPRECIATION FOR
NUMBER OF SHARES OPTIONS GRANTED TO OPTION TERM
UNDERLYING EMPLOYEES IN FISCAL EXERCISE EXPIRATION --------------------
NAME OPTIONS(1) YEAR(2) PRICE ($/SH) DATE 5% 10%
- ---------------------------- ------------------- ------------------- ------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Larry A. Mizel.............. 31,948 8.85% $ 12.52 12/1/02 $ 136,000 $ 308,400
Larry A. Mizel.............. 68,052 18.85% $ 11.38 12/1/03 $ 263,300 $ 597,300
David D. Mandarich.......... 29,088 8.06% $ 11.38 12/1/03 $ 112,500 $ 255,300
David D. Mandarich.......... 70,912 19.64% $ 11.38 12/1/03 $ 274,300 $ 622,400
Paris G. Reece III.......... 20,000 5.54% $ 11.38 12/1/03 $ 77,372 $ 175,500
Michael Touff............... 10,000 2.77% $ 11.38 12/1/03 $ 38,700 $ 87,800
</TABLE>
- ------------------------------
(1) Options granted in 1997 are exercisable in whole or in part beginning on
December 1, 1998. The closing price of the Common Stock on the New York
Stock Exchange on the date of grants was $11.38.
(2) The Company granted options representing 361,000 shares of Common Stock to
employees in fiscal 1997.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The table below provides information on option exercises in fiscal 1997 by
the named executive officers and the value of such officers' unexercised options
at December 31, 1997.
<TABLE>
<CAPTION>
SHARES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
SHARES FISCAL YEAR END AT FISCAL YEAR END(1)
ACQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------ ----------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Larry A. Mizel(2)................... 175,000 $ 755,086 283,333 166,667 $2,271,872 $ 844,672
David D. Mandarich.................. 0 0 458,333 166,667 $3,989,060 $ 881,253
Paris G. Reece III.................. 0 0 50,000 20,000 $ 540,625 $ 73,750
Michael Touff....................... 0 0 50,000 10,000 $ 503,125 $ 36,875
</TABLE>
- ------------------------------
(1) The closing price of the Common Stock on December 31, 1997 on the New York
Stock Exchange was $15.063.
(2) Mr. Mizel borrowed two-thirds of the sum of the exercise price and the
federal and state income taxes due on the exercise of options pursuant to
the M.D.C. Holdings, Inc. Executive Option Purchase Program. See "Certain
Relationships and Related Transactions" below.
REPORT OF THE COMPENSATION COMMITTEE
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
PREVIOUS FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE EXCHANGE
ACT THAT MIGHT INCORPORATE FUTURE FILINGS, INCLUDING THIS PROXY STATEMENT, IN
WHOLE OR IN PART, THE FOLLOWING REPORT OF THE COMPENSATION COMMITTEE AND THE
PERFORMANCE GRAPHS SHALL NOT BE INCORPORATED BY REFERENCE INTO ANY SUCH FILING.
8
<PAGE>
The Compensation Committee of the Board of Directors of the Company (the
"Committee") is comprised solely of Directors who are not employees of the
Company. The Committee is responsible for setting executive compensation
policies and determining the compensation paid to executive officers of the
Company.
There are three primary objectives of the Company's executive compensation
program. First, this program is designed to attract, retain and reward highly
qualified executives. Second, the stock-based portion of the compensation
program is designed to create and maintain a strong and direct link between
executive pay, the Company's financial performance and total returns to
shareowners. Third, the Company's compensation program is intended to address,
among other things, the Committee's concern that the Company's highly
experienced executives could be targeted by the Company's competitors.
The three main components of the Company's executive compensation program
are: base salary, annual performance-based incentive compensation and
stock-based, long-term incentive. The Company operates with comparatively few
middle management employees. Because of this, base salaries for the Company's
executive officers, including the Chief Executive Officer, are at or above the
average rates paid by competitors in order to enable the Company to retain its
experienced and skilled executives. However, based upon a study of executive
compensation paid by other major homebuilding companies, the Committee believes
that the Company's overall management costs are comparable to those of other
major homebuilders, including those that are part of the Peer Group Index shown
on the performance graph below.
Base salaries are reviewed annually and adjusted based on individual
performance, annual salary increases in the industry, local economic and
employment conditions and the compensation paid for similar positions at
comparable companies.
The factors considered by the Committee in setting total compensation for
1997 included the following components: the Company's increased earnings per
share, increased home closings, revenues, orders for homes and year-end backlog,
additional coverage by Wall Street analysts, the rating upgrade of the Company's
senior notes by Standard and Poor's, the addition to and extension of the
Company's unsecured line of credit, the Company's performance compared to that
of its competitors, the reduction of debt and the Company's improved financial
ratios.
Incentive compensation paid to Messrs. Mizel and Mandarich for 1997 was
based upon the Company's Executive Compensation Plan adopted in April 1994 and
approved by the Company's shareowners. This plan was designed (i) to provide the
Company's most senior executive officers annual incentive compensation based on
achievement of specific performance objectives linked to return on equity; and
(ii) to permit the Company to deduct executive compensation for tax purposes.
The Company also maintains an annual bonus program for the Company's other
officers and key management employees. Bonuses are intended to compensate
management and other employees for the attainment of the Company's annual
financial performance goals and other criteria, as determined by the Committee.
Because the Company met or exceeded the 1997 performance goals for these
performance criteria, the Committee authorized the bonuses set forth in the
summary compensation table for Messrs. Reece and Touff, the named executive
officers other than Messrs. Mizel and Mandarich.
Historically, the Committee has granted long-term, stock-based incentives in
the form of stock options to executive officers and other key employees. In
1997, the Committee awarded stock options to acquire 361,000 shares of Common
Stock to a total of 43 employees, including the named executive officers. These
incentives are designed and intended to link management and shareowner interests
and to motivate executives to make long-term decisions and investments that will
serve to increase the long-term total return to shareowners. Vesting
requirements contained in the option grants serve as an additional long-term
incentive to retain key officers and other employees.
9
<PAGE>
CEO COMPENSATION
Mr. Mizel's base salary for 1997 was $600,000 and was based on the factors
described below. The Committee approved a bonus of $1,027,100 for Mr. Mizel for
1997 in accordance with the terms of the Executive Compensation Plan described
above.
The Committee approved Mr. Mizel's 1997 base salary based on the following
factors, in order of importance to the Committee: (i) the Company's
significantly improved operating results during 1996 compared to prior years'
results; (ii) the comparative performance of the Company's Common Stock as
reflected in the performance graph; and (iii) the rating upgrade of the
Company's senior notes by Standard and Poor's.
The primary financial performance improvements on which the Committee relied
in determining Mr. Mizel's 1997 base salary were the 24% increase in the
Company's fully diluted operating earnings in 1996 and the 23% shareowner return
during 1996.
COMPENSATION COMMITTEE
Steven J. Borick, Chairman
William B. Kemper
Herbert T. Buchwald
10
<PAGE>
PERFORMANCE GRAPHS
Set forth below is a graph comparing the yearly change in the cumulative
total return of the Common Stock with the cumulative total return of the
Standard & Poor's 500 Stock Index and with that of a peer group over the
five-year period ending on December 31, 1997.
It is assumed in the graph that $100 was invested (i) in Common Stock; (ii)
in the stocks of the companies in the Standard & Poor's 500 Index; and (iii) in
the stocks of the peer group companies just prior to the commencement of the
period and that all dividends received within a quarter were reinvested in that
quarter. The peer group index is composed of the following companies: Centex
Corporation, PH Corporation, U.S. Home Corporation, The Ryland Group, Inc., Toll
Brothers, Inc., Kaufman and Broad Home Corporation, Lennar Corporation,
Hovnanian Enterprises, Inc., Del Webb Corporation, D.R. Horton Inc., M/I
Schottenstein Homes, Inc., Continental Homes Holding Corp., Beazer Homes USA,
Inc. and NVR Inc. D.R. Horton has announced its intention to acquire Continental
Homes Holding Corp. Based on published reports, this acquisition is expected to
close on or about March 31, 1998.
Note: The stock price performance shown on the following graph is not
indicative of future price performance.
COMPARISON OF CUMULATIVE TOTAL RETURN
OF MDC COMMON STOCK, THE S&P 500 INDEX
AND A SELECTED PEER GROUP
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
<S> <C> <C> <C> <C> <C> <C>
M.D.C. Holdings, Inc. 100.00 142.42 122.55 177.70 218.75 386.82
Weighted Avg. Peer Group 100.00 128.33 81.28 128.25 131.83 223.25
S&P 500 100.00 107.06 105.40 140.54 170.01 222.72
</TABLE>
11
<PAGE>
EMPLOYMENT AGREEMENTS AND
CHANGE IN CONTROL AGREEMENTS
EMPLOYMENT AGREEMENTS
Mr. Mizel and Mr. Mandarich (each an "Executive" or collectively, the
"Executives") each entered into an Employment Agreement with the Company
effective October 1, 1997 (collectively, the "Employment Agreements"). The
Employment Agreements provide for each Executive's continued employment by the
Company; Mr. Mizel as Chairman, President and Chief Executive Officer and Mr.
Mandarich as Executive Vice President-Real Estate and Chief Operating Officer,
until September 30, 2002 (the Initial Term). Unless either the Company on the
one hand or either Executive on the other hand elects by notice in writing
delivered to the other at least six months prior to the expiration of the
Initial Term or any extension thereof, such term shall be extended automatically
for two additional years, subject to earlier termination by either Executive's
voluntary resignation or otherwise as provided pursuant to the terms of the
Employment Agreement (the "Employment Term").
Pursuant to the Employment Agreements, the Executives' base salaries ("Base
Salaries") are subject to annual review by the Board of Directors. Messrs. Mizel
and Mandarich also are to be paid incentive compensation pursuant to the
Executive Compensation Plan ("Annual Incentive Compensation") and long-term
incentive compensation pursuant to the Company's Employee Equity Incentive Plan
(the "Equity Plan").
Each Executive will be entitled to a retirement benefit under the Employment
Agreement. Mr. Mizel's retirement benefit requires that he remain employed by
the Company through September 30, 1999, and Mr. Mandarich's requires that he
remain employed by the Company through September 30, 2002, in each case unless
such employment is terminated by the Company without cause, in the event of the
Executive's death or total disability or if the Executive elects to terminate
his employment upon a "Change in Control" or because of a "Material Change" (as
those terms are described below). The retirement benefit shall be equal to 70%
of the Executive's highest Base Salary during the final three years of the
Employment Term and shall be payable for the duration of the Executive's life.
In addition, the Employment Agreements provide for medical insurance benefits,
reimbursement of certain expenses, and entitle each of the Executives to
participate in the Company's benefit plans. If Messrs. Mizel and Mandarich
retire at the end of 1999 and 2002, respectively, assuming their Base Salaries
remain the same as in 1997, their annual retirement benefits would approximate
$420,000 and $350,000, respectively.
Messrs. Mizel and Mandarich may be terminated for cause, as defined in the
Employment Agreements. If an Executive is terminated without cause (including
the Company's election not to extend the term of the Employment Agreement)
during the Employment Term, he will be entitled to receive (i) an amount equal
to the aggregate Base Salary earned by the Executive during the three years
prior to such termination, plus (ii) an amount equal to 100% of the Annual
Incentive Compensation paid for the year prior to termination, and (iii) the
retirement benefits payable under the Employment Agreement commencing on the
date of termination. In addition, in the event of termination without cause,
each Executive's options and other rights under the Equity Plan shall vest
immediately and the Executive and his spouse and dependents shall be entitled to
continued medical benefits.
If a Change in Control occurs, all options, dividend equivalents and other
rights granted to Executives under the Equity Plan and any other Company plans
shall be accelerated and become exercisable immediately prior to the occurrence
of the transaction giving rise to the Change in Control.
Within two years after a Change in Control or a Material Change, the
Executive may terminate his employment, if not already terminated by the
Company. In the event of such termination or a termination of employment by the
Company without cause upon or within two years following a Change in Control,
then (A) each Executive shall receive the amounts payable in the event the
Executive's employment were terminated without cause as described above, and (B)
with respect to the retirement benefit, either (1) the
12
<PAGE>
Company shall establish and fund an irrevocable grantor trust in conformance
with the model trust set forth in IRS Revenue Procedure 92-64, or (2) the
Company shall, if it so elects, pay to the Executive, in a lump sum cash
payment, the amount that otherwise would be required to be contributed to such
trust.
If the amounts payable upon the occurrence of a Change in Control or
Material Change, either alone or together with any other payments which the
Executive has the right to receive, would be subject to an excise tax as an
"excess parachute payment" under Section 4999 of the Internal Revenue Code, each
Executive agrees in his Employment Agreement that such aggregate amounts shall
be paid in annual installments over the shortest period of time over which such
aggregate amounts may be paid and not be treated as "excess parachute payments"
under Section 4999.
For purposes of this description of the Employment Agreements, a "Change in
Control" shall occur if:
(i) a report on Schedule 13D is filed with the Securities and Exchange
Commission disclosing that any person, other than the Company or any employee
benefit plan sponsored by the Company, or any director of the Company as of the
date of the Employment Agreements, or affiliate of such director, is the
beneficial owner, directly or indirectly, of twenty percent (20%) or more of the
combined voting power of the then-outstanding securities of the Company;
(ii) any person, other than the Company or any employee benefit plan
sponsored by the Company or any director of the Company as of the date of the
Employment Agreements, or affiliate of such director, shall purchase securities
pursuant to a tender offer or exchange offer to acquire any Common Stock of the
Company (or securities convertible into Common Stock) for cash, securities or
any other consideration, provided that after consummation of the offer, the
person in question is the beneficial owner of twenty percent (20%) or more of
the combined voting power of the then outstanding securities of the Company;
(iii) the shareowners of the Company shall approve: (A) any consolidation or
merger of the Company (1) in which the Company is not the continuing or
surviving corporation; or (2) pursuant to which shares of Common Stock of the
Company would be converted into cash, securities or other property; or (B) any
sale, lease, exchange or other transfer (in one transaction or a series of
related transactions) of all or substantially all the assets of the Company; or
(iv) there shall have been a change in a majority of the members of the
Board of Directors of the Company within a twelve month period, unless the
election or nomination for election by the Company's shareowners of each new
director during such twelve month period was approved by the vote of two-thirds
of the directors then still in office who were directors at the beginning of
such twelve month period.
For purposes of the Employment Agreements, a "Material Change" shall occur
if:
(i) the Company makes any of certain specified adverse changes in an
Executive's reporting relationship, titles, functions, duties or
responsibilities from those that the Executive occupied on October 1, 1997 or,
if the Employment Agreements have been renewed or extended, the date of the last
renewal or extension;
(ii) the Company assigns or reassigns the Executive (without his written
permission) to another place of employment;
(iii) the Company reduces the Executive's Base Salary, Annual Incentive
Compensation or long-term incentive compensation or the manner in which such
compensation is determined, or retirement benefits, unless such reduction
similarly applies to all "Senior Executive Officers of the Company," as defined
in the Employment Agreements, or the Company breaches the terms of the
Employment Agreements; provided, however, that nothing in this clause (iii)
shall be construed to permit the Company to reduce either Executive's retirement
benefit, as provided in the Employment Agreements, in any event, and regardless
of whether such reduction would similarly apply to all Senior Executive Officers
of the Company; or
13
<PAGE>
(iv) a purchaser of all or substantially all of the Company's assets or any
successor or assignee of the Company fails to assume the Employment Agreements.
CERTAIN OTHER CHANGE IN CONTROL AGREEMENTS
Messrs. Reece and Touff have entered into change in control Agreements with
the Company (the "Agreements")*. The Agreements are effective January 26, 1998
and terminate on the earlier of termination of the employee's employment or
December 31, 2000. Unless either party elects by notice in writing delivered to
the other by September 30, 2000, or at least 90 days prior to December 31 of
each subsequent year, the term of the Agreement will be renewed automatically
for successive one year terms. In addition, if an Agreement has not been
terminated prior to a "Change in Control" (as defined below), upon a Change in
Control, the term of an Agreement shall extend automatically for two years.
For purposes of the Agreements, the definition of "Change in Control" is
generally the same as the definition of "Change in Control" in the description
of the Employment Agreements as described above.
For purposes of the Agreements, a "Change in Control Event" occurs if a
Change in Control is followed by a "Material Change" within two years. A
Material Change is defined in the Agreements to occur if the employee's
employment is terminated without "cause" (as defined in the Agreements) or if
any of the events set forth under the definition of "Material Change" described
above with respect to the Employment Agreements takes place, taking into account
the titles, positions and reporting relationships of Messrs. Reece or Touff.
Pursuant to the Agreements, if a Change in Control Event occurs, the
employee may elect within 90 days after the Change in Control Event to terminate
the employee's employment, if not previously terminated by the Company, and to
receive a Change in Control payment. The Change in Control payment equals two
times the sum of the employee's Base Salary, in effect immediately prior to the
Change in Control Event, plus the amount of the employee's last regular annual
bonus, provided that the amount of such annual bonus shall not exceed 50% of the
employee's annual Base Salary in effect immediately prior to the Change in
Control Event.
If a Change in Control as defined above occurs, all options, dividend
equivalents and other rights granted to the employee under any Company equity
incentive plan shall be accelerated and become exercisable immediately prior to
the closing of the Change in Control. If the Change in Control is not
consummated, the employee's election to exercise such options and other rights
shall be of no effect and the employee's options shall remain subject to their
original restrictions.
Any amounts payable pursuant to the Change in Control Agreement are in
addition to any payments otherwise payable to the employee pursuant to any
agreement, plan or policy of the Company. If the amounts payable upon the
occurrence of a Change in Control Event, either alone or together with other
payments which the employee has the right to receive, would be subject to an
excise tax as a "excess
- ------------------------
* Certain other employees of the Company (the "Covered Employees") have been
provided change in control agreements containing the same terms and
conditions as the Agreements described above for Messrs. Reece and Touff,
taking into account the respective titles, positions and reporting
relationships of the other Covered Employees and with changes to certain
other provisions. If the Agreements for the Covered Employees have not been
terminated prior to a Change in Control, upon a Change in Control, the term
of the Agreements for the other Covered Employees shall extend automatically
for one year, rather than two years as in the cases of Messrs. Reece and
Touff. The Change in Control payment for a Covered Employee would equal the
sum of the Covered Employee's Base Salary in effect immediately prior to the
Change in Control Event, plus an amount equal to the Covered Employee's last
regular annual bonus, provided that the amount of such bonus shall not
exceed 50% of the Covered Employee's annual Base Salary in effect
immediately prior to the Change in Control Event.
14
<PAGE>
parachute payment" under Section 4999 of the Internal Revenue Code, each
employee agrees in the Change in Control Agreement that such aggregate amounts
shall be paid in annual installments over the shortest period of time over which
such amounts may be paid and not be treated as "excess parachute payments" under
Section 4999.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Approximately 7,000 square feet in the Company's Denver office building is
leased by various affiliates of Mr. Mizel for which they collectively paid rent,
including for parking, to the Company of approximately $96,000 in 1997.
During 1997, the Company paid Premier Building Group, Inc., a company in
which Mr. Mandarich's brother-in-law is an owner and the vice president,
approximately $1,975,000 for plumbing, door and millwork services. Effective
October 1, 1996, the Company entered into a three-year agreement with Gilbert
Goldstein, P.C., of which Gilbert Goldstein, a Director of the Company, is the
sole shareholder. Pursuant to the agreement, Mr. Goldstein acts as a consultant
to the Company on legal matters and, in return, the Company (i) pays Mr.
Goldstein's firm $21,000 per month for a minimum of 160 hours per month in legal
services; (ii) pays Mr. Goldstein's firm $150 per hour for services performed in
excess of 160 hours in any month; (iii) provides office space with an estimated
annual rental value of $14,000 in the Company's office building; (iv) provides
one full-time secretary (in 1997, this secretary received a salary of
approximately $27,000 plus benefits); and (v) reimburses actual expenses
incurred related to services provided. In the event that Mr. Goldstein retires
from the practice of law, becomes disabled or dies during the term of the
agreement, the Company will pay to Mr. Goldstein or his estate $7,000 per month
during the remaining term of the agreement. Payment of $404,000 was made
directly to Mr. Goldstein's firm in 1997 for services performed, including
amounts paid pursuant to the agreement and including $150,000 paid in January
1997 as compensation for services during 1994, 1995 and 1996 related to the
resolution in November 1996 of litigation that had been brought against the
Company in Colorado.
During 1997, the Company paid to PageWorks Communication Design
("PageWorks"), a marketing and communications firm, approximately $414,000 for
annual report design, advertising and marketing design services. PageWorks is
owned by Mr. Mizel's brother-in-law.
During 1997, the Company paid a firm owned by Carol Mizel, Mr. Mizel's wife,
approximately $98,000 for consulting services.
On April 12, 1995, the Company's Board of Directors adopted the Option
Purchase Program. The purpose of the Option Purchase Program is to permit the
Company's key executive officers to increase their ownership of Common Stock and
more closely align their interests with those of the Company's other shareowners
by facilitating the exercise of options that would expire shortly. Pursuant to
the Option Purchase Program, prior to November 4, 1997, Messrs. Mizel and
Mandarich each were able to borrow up to $810,000 and Mr. Reece could borrow up
to $243,000 for the purpose of paying two-thirds of the sum of the exercise
price of options exercised and federal and state income taxes due as a result of
the exercise of the options. On November 4, 1997 the Company's Board of
Directors adopted Amendment Number 1 to the Option Purchase Program. This
amendment added Michael Touff as an eligible participant to the program and
increased the amount that each of Messrs. Mizel and Mandarich may borrow to
$1,000,000 and the amount that each of Messrs. Reece and Touff may borrow to
$300,000. All borrowings under the Option Purchase Program are secured by a
pledge of 100% of the stock acquired upon exercise, are full recourse to the
borrower and bear interest at the average one month LIBOR plus 1%, adjusted
monthly. Principal and accrued interest is payable on April 1st of each year
based on a 10-year amortization. Additional principal is due on each April 1st
in an amount required to reduce the outstanding aggregate principal amount of
the loans under the Option Purchase Program to each borrower in an amount
depending on each borrower's maximum permitted borrowings. The unpaid principal
balance is due on the earlier of: (i) the fifth anniversary of the loan; (ii) 90
days after the borrower's employment with the
15
<PAGE>
Company has been terminated for cause; or (iii) one year after the borrower's
employment with the Company has been terminated other than for cause.
The following table shows, as of December 31, 1997, the number of options
exercised, the date of borrowings, and the principal and interest due as of that
date for each of the executive officers who have participated in the Option
Purchase Program:
<TABLE>
<CAPTION>
NUMBER OF ACCRUED
OPTIONS DATE OF NOTE BALANCE INTEREST AT
BORROWER EXERCISED NOTE AT 12/31/97 12/31/97
- ----------------------------------------------------- ----------- --------- ------------ -------------
<S> <C> <C> <C> <C>
Larry A. Mizel....................................... 175,000 10/3/97 $ 800,000 -0-
David D. Mandarich................................... 496,914 4/17/95 $ 630,552 $ 118
1/12/96 $ 111,704 $ 100
David D. Mandarich................................... 100,000 11/26/96 $ 57,744 -0-
</TABLE>
As of December 31, 1997, Mr. Mandarich owed $280,080 to the Company under an
unsecured promissory note (the "Promissory Note") which was issued to the
Company in February 1994 in exchange for $280,080 in notes held by the Company
which were executed by Mr. Mandarich in connection with his (and Mr. Mizel's)
December 1989 purchase from the Company of the Richmond American Homes common
stock. The Promissory Note bears interest at 8% payable annually in December and
matures in December, 1999. On February 2, 1994, the Company acquired 35% of the
outstanding shares of Richmond American Homes common stock (the only remaining
shares of Richmond American Homes not then owned by the Company) from Messrs.
Mizel and Mandarich. The Promissory Note requires that Mr. Mandarich pay to the
Company the cash proceeds of the sale of any of the 202,956 shares of MDC Common
Stock he received in exchange for the shares of Richmond American Homes common
stock he sold to the Company, to the extent of the unpaid balances of the
Promissory Note, plus accrued but unpaid interest thereon at the time of such a
sale. The Company recognized interest income of $22,426 on the Promissory Note
in 1997.
In the ordinary course of its business, HomeAmerican Mortgage Corporation, a
wholly owned subsidiary of the Company, has made loans to certain officers and
employees of the Company. Such loans were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons and did not involve more than the
normal risk of collection or present other unfavorable features.
HOLDERS OF FIVE PERCENT OR MORE OF VOTING SHARES
OF THE COMPANY AND OWNERSHIP OF MANAGEMENT
The table below sets forth those persons known by the Company to have owned
beneficially 5% or more of the outstanding shares of Common Stock individually
and the number of shares beneficially owned by the Company's named officers
individually and by all of the Company's officers and Directors as a group, each
as of the Record Date. The information as to beneficial ownership is based upon
statements furnished to the Company by such persons. Information with respect to
the beneficial ownership of shares
16
<PAGE>
of Common Stock held by each of the Directors of the Company, two of whom
beneficially own more than 5% of the outstanding shares of Common Stock, is set
forth in "Election of Directors" above.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK OWNED PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIALLY CLASS(2)
- ------------------------------------------------------------------------------- --------------------- -----------
<S> <C> <C>
Wellington Management Co. LLP ................................................. 1,298,600(3) 7.31%
75 State Street
Boston, Massachusetts 02109
Dimensional Fund Advisors, Inc. ............................................... 1,282,588(4) 7.22%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
Vanguard/Windsor Funds, Inc. .................................................. 1,298,600(5) 7.31%
100 Vanguard Bldg.
P.O. Box 2600
Malvern, Pennsylvania 19355
Franklin Resources, Inc. ...................................................... 1,069,300(6) 6.00%
777 Mariners Island Blvd., 6th Floor
San Mateo, California 94404
Investment Counselors of Maryland, Inc. ....................................... 960,000(7) 5.36%
803 Cathedral Street
Baltimore, Maryland 21201
Paris G. Reece III ............................................................ 113,698(8) *
3600 S. Yosemite St., #900
Denver, Colorado 80237
Michael Touff ................................................................. 86,270(8) *
3600 S. Yosemite St., #900
Denver, Colorado 80237
All executive officers and directors as a group (8 persons).................... 6,857,697 36.16%
</TABLE>
- ------------------------
* Less than 1%.
(1) The address of Messrs. Mizel and Mandarich, the Directors who beneficially
own more than 5% of the outstanding shares of Common Stock (see "Election of
Directors" above), is 3600 South Yosemite Street, Suite 900, Denver,
Colorado 80237.
(2) In calculating the percentage of ownership, all shares of Common Stock the
identified person or group had the right to acquire within 60 days of the
Record Date by the exercise of options are deemed to be outstanding for the
purpose of computing the percentage of the 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 the shares of Common Stock owned by any other
person.
(3) Based upon information in a Schedule 13G filed with the Commission on or
about February 10, 1998, Wellington Management Company, LLP exercises sole
voting power over none of such shares, shared voting power over none of such
shares and shared dispositive power over all such shares.
(4) Based upon information in a Schedule 13G filed with the Commission on
February 10, 1998, Dimensional Fund Advisors Inc. exercises sole voting and
dispositive power over all such shares.
(5) Based upon information in a Schedule 13G filed with the Commission on
February 9, 1998, Vanguard/ Windsor Funds Inc. exercises sole voting and
shared dispositive power over all such shares.
17
<PAGE>
(6) Based upon information in a Schedule 13G filed with the Commission on
February 5, 1998, sole voting and dispositive power over all such shares is
held by Franklin Advisory Services, Inc., investment advisor to Franklin
Resources, Inc.
(7) Based upon information provided to the Company by Investment Counselors of
Maryland, Inc. which exercises sole voting power over 890,000 of such shares
and sole dispositive power over all of such shares.
(8) Includes 50,000 shares of Common Stock that each of Messrs. Reece and Touff
have the right to acquire within 60 days of the Record Date by the exercise
of stock options at a price of $4.25 and $5.00 per share, respectively.
No change in control of the Company has occurred since the beginning of the
last fiscal year. The Company knows of no arrangement the operation of which
may, at a subsequent date, result in a change in control of the Company.
The Company's executive officers and Directors are required under Section
16(a) of the 1934 Act to file initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the Company
with the Securities and Exchange Commission and the New York Stock Exchange and
Pacific Exchange, Inc. Copies of those reports also must be furnished to the
Company. Based solely upon a review of the copies of reports furnished to the
Company and written representations that no other reports were required, the
Company believes that during the year ended December 31, 1997 all such reports
were filed on a timely basis.
SHAREOWNER PROPOSAL TO PROVIDE
CUMULATIVE VOTING IN THE ELECTION OF DIRECTORS
Shareowner proponents have stated that they intend to have the following
proposal and supporting statement presented at the Meeting. Approval of the
proposal requires the affirmative vote of the holders of a majority of the
shares represented in person or by proxy and entitled to vote at the Meeting.
The adoption of the proposal would only constitute a recommendation to the Board
of Directors.
John J. Gilbert, the owner of 1,000 shares of Common Stock, and Margaret R.
Gilbert, the owner of 1,000 shares of Common Stock, both of 29 E. 64th St., New
York, NY 10021-7043 and Dan Fuhrman, the holder of 1,000 shares of Common Stock,
P.O. Box 110543, Aurora, CO 80042, have given notice that they intend to present
the following resolution at the Meeting:
"RESOLVED: That the stockholders of M.D.C. Holdings, Inc., assembled in
annual meeting in person and by proxy, hereby request the Board of
Directors to take the steps necessary to provide for cumulative voting
in the election of directors, which means each stockholder shall be
entitled to as many votes as shall equal the number of shares he or she
owns multiplied by the number of directors to be elected, and he or she
may cast all of such votes for a single candidate, or any two or more of
them as he or she may see fit."
REASONS:
"Strong support along the lines we suggest were shown at the last annual
meeting when owners of 2,464,478 shares (23%), were cast in favor of this
proposal. [In addition, 2,263,801 shares did not vote on this proposal.]
"California law still requires that unless stockholders have voted not to
have cumulative voting they will have it. Ohio also has the same provision.
"The National Bank Act (sic) provides for cumulative voting. In many cases
companies get around it by forming holding companies without cumulative voting.
Banking authorities have the right to question the capability of directors to be
on banking boards. In many cases authorities come in after and say the
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director or directors were not qualified. We were delighted to see the SEC has
finally taken action to prevent bad directors from being on boards of public
companies. The SEC should have hearings to prevent such persons becoming
directors before they harm investors.
"Many successful corporations have cumulative voting. Example, Pennzoil
defeated Texaco in that famous case. Texaco's recent problems might have also
been prevented with cumulative voting, getting directors on the board to prevent
such things. Ingersoll-Rand, also having cumulative voting, won two awards.
FORTUNE magazine ranked it second in its industry as 'America's Most Admired
Corporations' and the WALL STREET TRANSCRIPT noted 'on almost any criteria used
to evaluate management, Ingersoll-Rand excels.' In 1994 and 1995 they raised
their dividend.
"Lockheed-Martin, as well as VWR Corporation, now have a provision that if
anyone has 40% or more of the shares cumulative voting applies; it does apply at
the latter company.
"In 1995 American Premier adopted cumulative voting. Alleghany (sic) Power
System tried to take away cumulative voting, as well as put in a stagger system,
and stockholders defeated it, showing stockholders are interest in their rights.
Hewlett Packard, a very successful company, also has cumulative voting.
"Another reason for cumulative voting is to see that we have some directors
elected to the board who will see to ending the stagger system of electing
directors, which more and more companies are now properly doing.
"If you agree, please mark your proxy for this resolution; otherwise it is
automatically cast against it, unless you have marked to abstain."
THE BOARD OF DIRECTORS HAS CONSIDERED THIS PROPOSAL AND RECOMMENDS THAT
SHAREOWNERS VOTE AGAINST IT.
In support of their proposal, the shareowner proponents state that
California and Ohio state law and the National Bank Act (sic) require cumulative
voting in certain circumstances. The shareowner proponents do not indicate why
this is relevant to the Company, which is a Delaware corporation headquartered
in Colorado, to which neither California nor Ohio corporation laws apply.
Because the Company is not a bank, the National Banking Act also is
inapplicable.
In addition, the shareowner proponents state that "many successful
corporations have cumulative voting." As examples they assert that had Texaco
permitted cumulative voting, it may not have lost a large lawsuit to Pennzoil
and that Ingersoll-Rand won two awards and that it has cumulative voting. The
shareowner proponents do not indicate what, if any role the absence of
cumulative voting had in Texaco's loss of what amounted to a breach of contract
claim to Pennzoil or if the presence of cumulative voting had anything to do
with Ingersoll-Rand winning any awards.
Furthermore, the reasons given by the shareowner proponents do not discuss
the impact cumulative voting would have on the Company. Rather, their reasons in
support of their proposal are copies of the same arguments used by the
shareowner proponents when advocating this proposal in prior years.
The Company's director voting procedures have been in place for more than
ten years and have not during that time included cumulative voting. The
Company's Board of Directors presently consists of two members of senior
management of the Company and a majority of four independent directors. The
Board of Directors and management have proven themselves to be successful at
adopting the Company's business to the changing economic environments in which
it operates. This is evidenced by the Company's very strong financial
performance in 1997. The stock price performance graph above indicates the
impact these results have had on the Company's stock price and total return to
shareowners during the last five years.
The Board of Directors and management of the Company hold more than 35% of
the Company's common stock, a strong indicator of the close tie between the
interests of the Board of Directors and
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management on the one hand, and the Company's several thousand shareowners, on
the other hand. Other than the general reasons set forth above, the shareowner
proponents have not stated any specific reasons why the Company should adopt
cumulative voting and have at prior shareowner meetings verbally commended
management for the Company's achievements. Because of this, neither the Board of
Directors, nor management see any reason to change the manner in which members
of the Board of Directors are elected.
The Board of Directors unanimously recommends that shareowners vote AGAINST
this proposal.
INDEPENDENT PUBLIC ACCOUNTANTS
The Company has retained Price Waterhouse LLP as the Company's independent
accountants for the year ended December 31, 1998. Price Waterhouse examined the
Company's financial statements for the year ended December 31, 1997. A
representative of Price Waterhouse is expected to be present at the Meeting and
available to respond to appropriate questions. Although Price Waterhouse has
indicated that no statement will be made, an opportunity for a statement will be
provided.
OTHER MATTERS
Management and the Board of Directors of the Company know of no matters to
be brought before the meeting other than as set forth above. However, if any
other matters are properly presented to the shareowners for action, it is the
intention of the proxy holders named in the enclosed proxy to vote in their
discretion on all matters on which the shares represented by such proxy are
entitled to vote.
SHAREOWNER PROPOSALS
Any proposal which a shareowner may desire to present at the 1999 Annual
Meeting of Shareowners must be received in writing by the Secretary of the
Company prior to December 15, 1998.
BY THE ORDER OF THE BOARD OF DIRECTORS,
/s/ Larry A. Mizel
Larry A. Mizel
CHAIRMAN OF THE BOARD
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M.D.C. HOLDINGS, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
PROXY FOR ANNUAL MEETING OF SHAREOWNERS -- MAY 18, 1998
PROXY
The undersigned hereby appoints Paris G. Reece III, and Michael Touff, or
either one of them, as proxies or proxy for the undersigned, each with full
power of substitution and resubstitution, to attend the 1998 Annual Meeting of
Shareowners and any adjournments or postponements thereof (the "Meeting") and to
vote as designated below, all the shares of Common Stock of M.D.C. Holdings,
Inc. held of record by the undersigned on March 20, 1998. In their discretion,
the proxies are hereby authorized to vote upon such other business as may
properly come before the Meeting and any adjournments or postponements thereof.
/X/ PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.
1. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF MESSRS.
BUCHWALD AND MIZEL.
Election of Directors
NOMINEES: Herbert T. Buchwald and Larry A. Mizel
FOR / / WITHHELD / /
FOR, except vote withheld from the following
nominee(s):
/ / ________________________________________________
2. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" THE PROPOSAL TO PROVIDE
FOR CUMULATIVE VOTING IN THE ELECTION OF DIRECTORS.
Shareowner proposal to provide for cumulative voting in the election of
directors.
FOR / / AGAINST / / ABSTAIN / /
PLEASE SPECIFY YOUR CHOICES BY CLEARLY MARKING THE APPROPRIATE BOXES. UNLESS
OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED "FOR" ITEM 1. ABOVE AND "AGAINST"
ITEM 2. ABOVE.
<PAGE>
Please sign exactly as your name appears on this proxy. Joint owners should
each sign individually. If signing as attorney, executor, administrator, trustee
or guardian, please include your full title. Corporate proxies should be signed
by an authorized officer.
Signature(s): _____________________
Date: _____________________________
Signature(s): _____________________
Date: _____________________________
