<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
-----------
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1995
------------------
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
-------------- --------------
Commission File Number: 1-8029
THE RYLAND GROUP, INC.
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 52-0849948
--------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
of incorporation or organization) Identification No.)
11000 Broken Land Parkway, Columbia, Maryland 21044
-----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(410) 715-7000
-----------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
The number of shares of common stock of The Ryland Group, Inc., outstanding on
November 7, 1995 was 15,666,458
<PAGE>
THE RYLAND GROUP, INC.
FORM 10-Q
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at
September 30, 1995 (unaudited) and
December 31, 1994 1-2
Consolidated Statements of Earnings
for the three and nine months ended
September 30, 1995 and 1994 (unaudited) 3
Consolidated Statements of Cash Flows
for the nine months ended September 30,
1995 and 1994 (unaudited) 4
Notes to Consolidated Financial
Statements (unaudited) 5-8
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial
Condition 9-16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
INDEX OF EXHIBITS 19
<PAGE>
The Ryland Group, Inc. and subsidiaries
CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
---------- ------------
(unaudited)
<S> <C> <C>
ASSETS
HOMEBUILDING:
Cash and cash equivalents $ 64,535 $ 25,963
Housing inventories:
Homes under construction 373,981 399,046
Land under development and improved lots 212,259 193,096
Land held for future development or resale 2,320 2,671
--------- ---------
Total inventories 588,560 594,813
Investment in/advances to unconsolidated
joint ventures 10,290 11,500
Property, plant and equipment 33,258 24,001
Purchase price in excess of net assets acquired 21,833 22,607
Other assets 53,075 61,362
---------- ---------
771,551 740,246
---------- ---------
FINANCIAL SERVICES:
Cash and cash equivalents 1,186 863
Mortgage loans held for sale, net 311,272 214,772
Mortgage-backed securities, net 104,303 171,120
Mortgage servicing and administration
rights, net 8,124 12,014
Other assets 39,908 56,251
---------- ---------
464,793 455,020
---------- ---------
LIMITED-PURPOSE SUBSIDIARIES:
Collateral for bonds payable, net 392,598 459,044
Other assets 4,552 5,289
---------- ---------
397,150 464,333
---------- ---------
Net deferred taxes 30,243 27,822
Other assets 8,847 17,067
---------- ---------
TOTAL ASSETS $ 1,672,584 $ 1,704,488
============ ===========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
The Ryland Group, Inc. and subsidiaries
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------ ------------
(unaudited)
<S> <C> <C>
LIABILITIES
HOMEBUILDING:
Accounts payable and other liabilities $ 87,026 $ 95,551
Long-term debt 429,653 408,744
------------ -----------
516,679 504,295
------------ -----------
FINANCIAL SERVICES:
Accounts payable and other liabilities 34,769 21,040
Short-term notes payable 375,226 377,629
------------ -----------
409,995 398,669
------------ -----------
LIMITED-PURPOSE SUBSIDIARIES:
Accounts payable and other liabilities 12,453 14,369
Bonds payable, net (1) 381,682 446,752
------------ -----------
394,135 461,121
------------ -----------
Other liabilities 26,690 28,281
------------ -----------
TOTAL LIABILITIES 1,347,499 1,392,366
============ ===========
STOCKHOLDERS' EQUITY
Convertible preferred stock, $1 par value
Authorized - 1,400,000 shares
Issued - 964,920 shares
(1,072,903 for 1994) 965 1,073
Common stock, $1 par value
Authorized - 78,600,000 shares
Issued - 15,620,974 shares
(15,475,242 for 1994) 15,621 15,475
Paid-in capital 115,776 115,863
Retained earnings 206,449 193,635
Net unrealized gain on
mortgage-backed securities 381 1,763
Other (14,107) (15,687)
------------ -----------
TOTAL STOCKHOLDERS' EQUITY 325,085 312,122
============ ===========
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,672,584 $ 1,704,488
============ ===========
See notes to consolidated financial statements.
<FN>
(F1) The "Bonds payable, net" shown in the financial statements represent
obligations solely of the limited-purpose subsidiaries, which are
secured by the assets of the limited-purpose subsidiaries.
The bonds are not guaranteed or insured by The Ryland Group, Inc.
or any of its other subsidiaries.
</FN>
</TABLE>
<PAGE>
The Ryland Group, Inc. and subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
1995 1994 1995 1994
-------- -------- -------- -------
<S> <C> <C> <C> <C>
REVENUES:
Homebuilding:
Residential revenues $ 371,810 $ 396,725 $1,039,496 $ 1,034,354
Other revenues 190 1,740 1,022 3,296
----------- ---------- ---------- ---------
Total homebuilding revenues 372,000 398,465 1,040,518 1,037,650
Financial services 21,530 32,143 67,889 100,093
Limited-purpose subsidiaries 9,057 11,367 28,605 41,673
----------- ----------- ---------- ---------
Total revenues 402,587 441,975 1,317,012 1,179,416
EXPENSES:
Homebuilding:
Cost of sales 325,243 348,373 917,279 905,624
Interest expense 7,891 7,680 22,185 21,261
Selling, general and
administrative 38,896 37,866 110,224 102,243
---------- ---------- ---------- ---------
Total 372,030 393,919 1,049,688 1,029,128
Financial services:
Interest expense 6,590 5,852 17,757 20,309
General and administrative 11,108 14,761 34,514 48,965
---------- ---------- ---------- ---------
Total 17,698 20,613 52,271 69,274
Limited-purpose subsidiaries:
Interest expense 9,019 11,082 28,508 39,640
Other expenses (5) 263 45 1,938
---------- ---------- ---------- ---------
Total 9,014 11,345 28,553 41,578
Corporate expenses 3,042 4,581 9,893 13,414
--------- ---------- ---------- ---------
Total expenses 401,784 430,458 1,140,405 1,153,394
Equity in earnings (losses) of
unconsolidated joint ventures 327 (139) 524 (2)
---------- ---------- ---------- ---------
Earnings (loss) from continuing
operations before taxes
and cumulative effect
of a change in
accounting principle 1,130 11,378 (2,869) 26,020
Tax expense (benefit) 452 4,551 (1,148) 10,408
---------- ---------- ---------- ------
Net earnings (loss) from
continuing operations
before cumulative effect
of a change in
accounting principle 678 6,827 (1,721) 15,612
Discontinued Operations:
Earnings from discontinued
operations (net of taxes
of $2,212 for 1995 and
$1,042 & $3,009 in 1994) 0 1,562 3,318 4,514
Gain on sale of
discontinued operations
(net of taxes of $13,025) 0 0 19,538 0
---------- ---------- ---------- ---------
Net earnings before cumulative
effect of a change in
accounting principle 678 8,389 21,135 20,126
Cumulative effect of a change
in accounting principle
(net of taxes of $1,384) 0 0 0 2,076
----------- ----------- ---------- ---------
NET EARNINGS $ 678 $ 8,389 $ 21,135 $ 22,202
=========== =========== ========== =========
Preferred dividends $ 533 $ 603 $ 1,672 $ 1,848
Net earnings available for
common shareholders $ 145 $ 7,786 $ 19,463 $ 20,354
NET EARNINGS PER COMMON SHARE:
Primary:
Net earnings(loss) from
continuing operations
before cumulative effect
of a change in
accounting principle $ 0.01 $ 0.40 $ (0.21) $ 0.88
Discontinued operations 0.00 0.10 1.45 0.30
---------- ----------- ---------- -------
Net earnings before
cumulative effect
of a change in
accounting principle 0.01 0.50 1.24 1.18
Cumulative effect
of a change in
accounting principle 0.00 0.00 0.00 0.13
----------- ----------- ---------- -------
Net earnings
per common share $ 0.01 $ 0.50 $ 1.24 $ 1.31
=========== =========== ========== =======
Fully diluted:
Net earnings (loss)
from continuing
operations before
cumulative effect
of a change in
accounting principle $ 0.01 $ 0.40 $ (0.15) $ 0.89
Discontinued operations 0.00 0.09 1.36 0.27
----------- ---------- ---------- -------
Net earnings before
cumulative effect
of a change in
accounting principle 0.01 0.49 1.21 1.16
Cumulative effect
of a change in
accounting principle 0.00 0.00 0.00 0.12
----------- ---------- ---------- -------
Net earnings
per common share $ 0.01 $ 0.49 $ 1.21 $ 1.28
=========== =========== ========== ========
DIVIDENDS PER COMMON SHARE $ 0.15 $ 0.15 $ 0.45 $ 0.45
DIVIDENDS PER PREFERRED SHARE $ 0.55 $ 0.55 $ 1.65 $ 1.65
=========== =========== ========== ========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
The Ryland Group, Inc. and subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, amounts in thousands)
<TABLE>
<CAPTION>
Nine months ended September 30,
1995 1994
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 21,135 $ 22,202
Adjustments to reconcile net earnings to
net cash provided by (used for)
operating activities:
Depreciation and amortization 24,462 14,332
Net cumulative effect of a change
in accounting principle 0 (3,460)
Gain on sale of mortgage-backed
securities - available-for-sale (4,772) (2,349)
Gain on sale of discontinued operations (32,563) 0
Decrease (increase) in inventories 6,253 (86,744)
Net change in other assets, payables
and other liabilities 14,608 13,572
Equity in earnings / distributions
from unconsolidated joint ventures 1,049 5,477
Increase in mortgage-backed securities-trading (2,546)
(Increase) decrease in mortgage
loans held for sale, net (96,500) 289,207
---------- ---------
Net cash (used for) provided by
operating activities (66,328) 249,691
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net additions to property, plant and equipment (23,064) (14,054)
Proceeds from sale of discontinued operations 47,000 0
Principal reduction of mortgage collateral 10,411 36,180
Principal reduction of mortgage-backed
securities - available-for-sale 4,907 33,262
Sales of mortgage-backed securities-
available-for-sale 68,003 33,066
Principal reduction of mortgage-backed
securities- held-to-maturity 49,074 172,377
Decrease in funds held by trustee 3,375 73,779
Other investing activities, net 8 (909)
---------- ---------
Net cash provided by investing activities 159,714 333,701
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in short-term notes payable (2,403) (309,704)
Cash proceeds of long-term debt 39,177 55,421
Reduction of long-term debt (18,266) (17,140)
Bond principal payments (65,840) (323,603)
Common and preferred stock dividends (8,680) (8,832)
Other financing activities, net 1,521 6,457
---------- ---------
Net cash (used for) financing activities (54,491) (597,401)
---------- ---------
Net increase (decrease) in cash 38,895 (14,009)
Cash at beginning of year 26,826 46,490
---------- ---------
CASH AT END OF PERIOD $ 65,721 $ 32,481
========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest (net of
capitalized interest) $ 81,750 $ 89,606
Cash paid for income taxes (net of
refund received in 1995) $ 16,787 $ 20,411
========== =========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
The Ryland Group, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(amounts in thousands, except for share data, in all notes)
Note 1. Segment Information
<TABLE>
<CAPTION>
Three months ended September 30,
1995 1994
------ ------
<S> <C> <C>
Pretax earnings from continuing operations:
Homebuilding $ 297 $ 4,407
Financial services (1) 3,832 11,530
Limited-purpose subsidiaries 43 22
Corporate expenses (3,042) (4,581)
---------- ---------
Total $ 1,130 $ 11,378
========== =========
<FN>
(F1) Excludes pretax operating earnings of $2,604 for the institutional
mortgage securities administration business for the three months ended
September 30, 1994. This amount is included in earnings from discontinued
operations.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Nine months ended September 30,
1995 1994
------ ------
<S> <C> <C>
Pretax (loss) earnings from continuing operations:
Homebuilding $ (8,646) $ 8,520
Financial services (2) 15,618 30,819
Limited-purpose subsidiaries 52 95
Corporate expenses (9,893) (13,414)
--------- ---------
Total $ (2,869) $ 26,020
========== =========
<FN>
(F2) Excludes pretax operating earnings of $5,530 and $7,523 for the
institutional mortgage securities administration business for the nine months
ended September 30, 1995 and 1994, respectively. These amounts are included
in earnings from discontinued operations.
</FN>
</TABLE>
<PAGE>
The Ryland Group, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(unaudited)
Note 2. Consolidated Financial Statements
The consolidated financial statements include the accounts of The Ryland
Group, Inc. and its wholly owned subsidiaries (the "Company"). Intercompany
transactions have been eliminated in consolidation. Certain investments in
joint ventures are accounted for by the equity method.
The consolidated balance sheet as of September 30, 1995, the consolidated
statements of earnings for the three and nine months ended September 30, 1995
and 1994, and the consolidated statements of cash flows for the nine months
ended September 30, 1995 and 1994 have been prepared by the Company, without
audit. In the opinion of management, all adjustments, which include normal
recurring adjustments necessary to present fairly the financial position,
results of operations and cash flows at September 30, 1995, and for all
periods presented, have been made. The consolidated balance sheet at December
31, 1994 is taken from the audited financial statements as of that date.
Certain amounts in the consolidated statements have been reclassified to
conform to the 1995 presentation.
Certain information and footnote disclosures normally included in the
financial statements have been condensed or omitted. It is suggested that
these financial statements be read in conjunction with the financial
statements and related notes included in the Company's 1994 annual report to
shareholders.
The results of operations for the three and nine months ended September 30,
1995 are not necessarily indicative of the operating results for the full
year.
Assets presented in the financial statements are net of any valuation
allowances.
Primary net earnings per common share is computed by dividing net earnings,
after considering preferred stock dividend requirements, by the weighted
average number of common shares outstanding considering dilutive common
equivalent shares. Common equivalent shares relating to stock options are
computed using the treasury stock method.
Fully diluted net earnings per common share additionally gives effect to the
assumed conversion of the preferred shares held by The Ryland Group, Inc.
Retirement and Stock Ownership Plan Trust (the "RSOP Trust") into common
stock, as well as the amount of the additional RSOP Trust contribution
required to fund the difference between the RSOP Trust's earnings from
preferred share dividends and the RSOP Trust's potential earnings from common
share dividends after an assumed conversion. The assumed conversion of the
preferred shares and the additional RSOP Trust contrubution were not dilutive
for the third quarter of 1995.
<PAGE>
The Ryland Group, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(unaudited)
Note 3. Accounting Changes
In May 1993 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115 (SFAS 115), "Accounting for Certain
Investments in Debt and Equity Securities." The Company adopted the
provisions of the new standard for investments held as of or acquired after
January 1, 1994.
The cumulative effect of adopting SFAS 115 as of January 1, 1994 increased net
income by $2.1 million (net of $1.4 million in deferred income taxes), or $.13
per share. This cumulative effect adjustment related to unearned income of
discount points on mortgage-backed securities, which can now be amortized into
income during the period that the mortgage-backed securities are held. The
January 1, 1994 balance of stockholders' equity was increased by $7.6 million
(net of $5.1 million in deferred income taxes) to reflect the net unrealized
holding gains on securities classified as available for sale, which were
previously carried at the lower of amortized cost or market. At September 30,
1995, the balance of the net unrealized gain on securities classified as
available for sale, which is reflected as a component of stockholders' equity,
was $381. The decline in this balance since January 1, 1994, is primarily due
to a reduction in the portfolio balance resulting from sales of securities.
In May 1995 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 122 (SFAS 122), "Accounting for Mortgage
Servicing Rights an amendment of FASB Statement No. 65." This Statement
requires a mortgage banking enterprise to capitalize retained mortgage
servicing rights on originated or purchased loans by allocating the total cost
of the mortgage loans between the mortgage servicing rights and the loans
(without the servicing rights) based on their relative fair values.
Previously, only the cost of mortgage servicing rights acquired through a
purchase transaction could be capitalized. The new statement also specifies
new procedures for assessing impairment of capitalized mortgage servicing
rights, whenever capitalized, and requires that impairment shall be recognized
through a valuation allowance for individual portfolio stratifications based
on the fair value of those rights. The Company adopted SFAS 122 effective in
the second quarter, which resulted in a favorable impact, net of the valuation
allowance, of $.5 million in the second quarter ended June 30, 1995 and $.7
million in the nine months ended September 30, 1995. In accordance with SFAS
122, prior period financial statements have not been restated.
The book value of the capitalized mortgage servicing rights at September 30,
1995 was $8.1 million and the aggregate fair value totaled $10.4 million.
Comparable market values and a valuation model that calculates the present
value of future cash flows were used to estimate fair value. In using this
valuation method, the Company incorporated assumptions that market
participants would use in estimating future net servicing income, which
included estimates of the cost of servicing per loan, the discount rate, float
value, an inflation rate, ancillary income per loan, prepayment speeds and
default rates.
For purposes of measuring impairment, the following risk characteristics were
used to stratify the post-implementation originated mortgage servicing rights:
product type, investor type, and interest rates. Additions to the valuation
allowance were $17 thousand and $231 thousand for the three and nine months
ended September 30, 1995, respectively and resulted in an ending balance of
$231 thousand at September 30, 1995.
<PAGE>
The Ryland Group, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(unaudited)
Note 4. New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 121 (SFAS 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
SFAS 121 amends the impairment provisions of the existing accounting
literature which required the Company's homebuilding inventories to be carried
at the lower of cost or net realizable value. Under the new provisions, if
the Company's homebuilding inventories are determined to be impaired, the
impairment loss is measured based upon the difference between the fair value
of the asset and its carrying amount. Fair value is a more conservative
measurement than net realizable value since it requires that impaired
homebuilding inventories be written down to provide for a risk-based profit
margin.
SFAS 121 is required to be adopted no later than the first quarter of 1996.
The Company has not completed its analysis of the impact of this new
pronouncement, therefore the timing and impact of adopting SFAS 121 have not
yet been determined. However, if the Company's homebuilding inventories are
determined to be impaired, it is posssible that SFAS 121 could have a material
adverse impact on the Company.
Note 5. Discontinued Operations
On June 30, 1995, pursuant to an Asset Purchase Agreement dated April 10,
1995, the Company completed the sale of its mortgage securities administration
business to Norwest Bank Minnesota, National Association (Norwest) for a
purchase price of $47 million in cash. The Company's mortgage securities
administration business included master servicing, securities administration,
investor information services, and tax calculation and reporting. The current
and prior period results for this business (formerly reported as institutional
financial services) as well as the gain on the sale of the business have been
reported as discontinued operations in the accompanying consolidated
statements of earnings.
There were no revenues from the operations of the discontinued business for
the third quarter of 1995 as the sale occurred in the second quarter. Revenues
for the three months ended September 30,1994 were $5.9 million. Revenues
from operations of the discontinued business were $11.4 million and $17.6
million, for the nine months ended September 30, 1995 and 1994, respectively.
Earnings from operations of the discontinued business were $3.3 million, or
$.21 per share (net of taxes of $2.2 million) for the nine months ended
September 30, 1995. Earnings for the three and nine months ended September
30, 1994 were $1.6 million, or $.10 per share (net of taxes of $1.0 million),
and $4.5 million, or $.30 per share (net of taxes of $3.0 million),
respectively.
The Company reported a net gain from the sale of the mortgage securities
administration business of $19.5 million, or $1.24 per share, in the second
quarter of 1995. Proceeds from the sale were used to repay long-term debt of
the homebuilding segment and short-term notes payable of the financial
services segment. The gain reported reflects the proceeds from the sale less
the book value of the net assets of the mortgage securities administration
business, transaction costs, accrued expenses, other costs directly related to
the transaction, and income taxes.
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS
CONSOLIDATED
For the third quarter of 1995, the Company reported consolidated net earnings
of $.7 million, or $.01 per share, compared with consolidated net earnings of
$8.4 million, or $.50 per share, for the same period in 1994. Consolidated
net earnings for the first nine months of 1995 were $21.1 million, or $1.24
per share, compared with $22.2 million, or $1.31 per share, for the same
period in 1994. Results for the first nine months of 1995 include a net gain
of $19.5 million related to the second quarter sale of the Company's mortgage
securities administration business to Norwest Bank Minnesota. The sale of
this business is consistent with the Company's long-term strategy to focus on
its core homebuilding and mortgage-finance operations and to invest additional
capital into its homebuilding operations. Earnings for the financial services
segment for the third quarter were, and future results will continue to be,
negaively impacted by the elimination of the mortgage securities
administration business. Results for the first nine months of 1994 included
$2.1 million, or $.13 per share, cumulative effect of an accounting change
related to the adoption of FAS 115.
The Company's continuing operations reported consolidated net earnings of $.7
million, or $.01 per share, for the third quarter of 1995 compared with $6.8
million, or $.40 per share, for the same period in 1994. For the first nine
months of 1995, the Company reported a consolidated net loss from continuing
operations of $1.7 million, or $.21 per share, compared with net earnings from
continuing operations of $15.6 million, or $.88 per share, for the same period
in 1994. For financial reporting purposes, net operating earnings of the
mortgage securities administration business, amounting to $3.3 million for the
six months ended June 30, 1995 (when the sale closed) and $4.5 million for the
nine months ended September 30, 1994, as well as the $19.5 million gain on the
sale, have been reported as discontinued operations.
The Company's homebuilding segment recorded pretax earnings of $.3 million for
the third quarter of 1995, compared with pretax earnings of $4.4 million for
the same period last year. The lower earnings reflect a nine percent decline
in closings. Gross profit margins were 12.6 percent for both periods. For the
first nine months of 1995, the homebuilding segment reported a pretax loss of
$8.6 million, compared with pretax earnings of $8.5 million for the same
period in 1994. The year-to-year decline is primarily due to lower gross
profit margins.
The Company's financial services segment, which excludes the results of the
discontinued institutional mortgage securities administration business,
reported pretax earnings of $3.8 million for the third quarter of 1995,
compared with $11.5 million for the same period in 1994. The financial
services segment reported pretax earnings of $15.6 million for the first nine
months of 1995, compared with $30.8 million for the same period in 1994. The
decline in both periods from last year's results is primarily attributable to
lower gains from sales of mortgages and mortgage servicing rights, and a lower
level of investment earnings.
The limited-purpose subsidiaries reported pretax earnings of $43 thousand for
the third quarter of 1995, compared with pretax earnings of $22 thousand for
the same period in 1994. For the first nine months of 1995, the limited-
purpose subsidiaries reported pretax earnings of $52 thousand compared with
$95 thousand for the same period in 1994, as the portfolio in which the
Company has a residual interest continued to decline.
<PAGE>
HOMEBUILDING
The Company's homebuilding segment reported pretax earnings of $.3 million for
the third quarter of 1995 compared with pretax earnings of $4.4 million for
the same period last year. For the nine months ended September 30, 1995,
homebuilding reported a pretax loss of $8.6 million compared with pretax
earnings of $8.5 million for the same period last year.
Results of operations of the Company's homebuilding segment are summarized as
follows ($ amounts in thousands, except average closing price):
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues $372,000 $398,465 $1,040,518 $1,037,650
Gross profit 46,757 50,092 123,239 132,026
Selling, general and
administrative expenses 38,896 37,866 110,224 102,243
Interest expense 7,891 7,680 22,185 21,261
Equity in earnings (losses)
of unconsolidated
joint ventures 327 (139) 524 (2)
--------- --------- ---------- ---------
Pretax earnings (loss) $ 297 $ 4,407 $ (8,646) $ 8,520
========= ========= ========== =========
Operational Unit Data:
(includes joint ventures)
Sales (units) 2,201 2,200 7,379 7,364
Closings (units) 2,263 2,488 6,479 6,620
Outstanding contracts at
September 30,
Units 3,453 3,463
Dollar Value $591,607 $570,024
Average Closing Price
(excludes unconsolidated
joint ventures) $165,000 $161,000 $161,000 $159,000
</TABLE>
Homebuilding revenues amounted to $372 million for the third quarter of 1995,
down 6.6 percent from the third quarter of 1994 due to a decline in closings
reflecting slower sales earlier this year. For the first nine months of 1995,
revenues amounted to $1.04 billion, approximately level with the same period
last year. An increase in average closing price more than offset a 2 percent
decline in the volume of closings.
<PAGE>
The gross profit margin for the third quarter of 1995 was 12.6 percent,
comparable with the third quarter last year, and a significant improvement
from the 11.3 percent reported for the second quarter of 1995. The year-to-
date gross margin decreased to 11.8 percent from 12.7 percent for the same
period of 1994. The Company's ongoing efforts to sell older inventories in
the California and Mid-Atlantic regions, and its focus on reducing its
inventory of unsold homes under construction negatively impacted gross margins
during the first nine months of 1995.
During the third quarter and first nine months of 1995, inventories in
California that were negatively impacted by the decline in economic and market
conditions experienced in that region prior to 1994, were reduced by the
closing of 121 homes and 377 homes, respectively, as compared with 196 homes,
and 453 homes, respectively, in the same periods of 1994. At September 30,
1995, the remaining net book value of the affected California inventory was
approximately $57 million and consisted of approximately 1,030 homebuilding
lots and related improvements, of which 69 were sold but not closed. Gross
profit margins for the remainder of 1995 and beyond will continue to be
negatively impacted by the build-out and sale of homes on these lots.
Since the latter part of 1994, the Company has taken actions to close-out
older communities in the Mid-Atlantic region. Closings on houses from these
Mid-Atlantic communities negatively affected gross profit margins in the first
nine months of 1995.
Total homebuilding sales for the third quarter and first nine months of 1995
were comparable with the same periods last year as increases in sales in many
markets were offset by a significant decline in sales in the Mid-Atlantic
region. In response to the current economic uncertainties and competitive
pressures in the Mid-Atlantic region, the Company is redistributing its
capital investment within the region and is reallocating some of this
investment to other markets outside the region where the Company believes it
can achieve higher returns. Except for the Mid-Atlantic region, all regions
reported increases in sales for the third quarter, reflecting the Company's
entry into several new markets as well as growth in many existing markets.
The increase in sales activity in existing markets during the third quarter is
attributable to a relatively favorable interest rate environment and the
opening of new communities.
Outstanding contracts at September 30, 1995 were 3,453 compared with 3,463 at
September 30, 1994. Outstanding contracts represent the Company's backlog of
sold but not closed homes, which generally are built and closed, subject to
cancellations, over the next two quarters. The $591.6 million value of
outstanding contracts as of September 30, 1995 has increased 39.4 percent from
December 31, 1994 and 3.8 percent from September 30, 1994.
<PAGE>
Selling, general and administrative expenses as a percent of revenues were
10.5 and 10.6 percent for the third quarter and the first nine months of 1995
compared with 9.5 percent and 9.9 percent, respectively, for the same periods
of 1994. Included in selling, general and administrative expenses for the
first nine months of 1995 were $2.2 million of reorganization costs associated
with the Company's initiatives to lower operating costs. General and
administrative expenses, excluding selling expenses and the reorganization
costs, as a percent of revenue, declined for the first nine months of 1995 due
to the Company's efforts to reduce fixed expenses. Selling expenses as a
percentage of revenues increased in the first nine months of 1995 due to costs
associated with expansion into new markets, implementation of the Company's
new marketing and merchandising initiatives and the Company's efforts to
reduce unsold inventories.
Interest expense for the third quarter of 1995 increased $0.2 million compared
with the same period of 1994. For the nine months ended September 30, 1995
interest expense increased $0.9 million primarily due to an increase in the
average homebuilding debt outstanding related to the financing of inventories.
Increases in interest expense were mitigated by an increase in the amount of
interest capitalized due to an increase in land under development.
FINANCIAL SERVICES
The financial services segment, which excludes the results of the discontinued
mortgage securities administration business, reported pretax earnings of $3.8
million for the third quarter of 1995, compared with $11.5 million for the
third quarter of 1994. Pretax earnings for the first nine months of 1995 were
$15.6 million compared with $30.8 million for the same period of 1994.
Pretax earnings by line of business were as follows (amounts in thousands):
<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
Retail $ 2,090 $ 7,315 $ 7,935 $ 20,537
Investments 1,742 4,215 7,683 10,282
-------- -------- -------- --------
Total $ 3,832 $11,530 $15,618 $ 30,819
</TABLE>
The declines in pretax earnings for the three and nine months ended September
30, 1995, compared with the same periods in 1994, were primarily due to lower
gains from sales of mortgages and mortgage servicing rights and a lower level
of investment earnings. The decline in investment earnings will likely
continue as the Company's investment portfolio declines.
<PAGE>
Revenues for the financial services segment decreased 33 percent and 32
percent for the three and nine months ended September 30, 1995, respectively,
as compared to the same periods of 1994, primarily due to lower gains from
sales of mortgage servicing rights and lower gains on sales of mortgages.
Interest expense increased 13 percent for the three months and decreased 13
percent for the nine months ended September 30, 1995, respectively, as
compared to the same periods of 1994. Interest expense increased in the third
quarter due to a higher interest rate on slightly higher borrowings. Interest
expense has decreased for the nine months ended September 30, 1995 as a result
of a lower level of borrowings required to fund mortgage loan originations.
General and administrative expenses declined 25 percent and 30 percent for the
three and nine months ended September 30, 1995, respectively, as compared to
the same periods of 1994, as a result of cost reduction measures implemented
in retail operations.
Retail Operations:
- ------------------
Retail operations include mortgage origination, loan servicing and
title/escrow services for retail and wholesale customers.
Results for retail operations were as follows (amounts in thousands):
<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues:
Interest and
net origination fees $ 5,731 $ 3,955 $12,434 $ 15,138
Net gains on sales of mortgages
and servicing rights 2,970 10,750 12,274 33,130
Loan servicing 7,627 8,653 24,686 28,331
Title/escrow 1,334 1,304 3,661 3,281
------- ------- ------- --------
Total retail revenues 17,662 24,662 53,055 79,880
Expenses 15,572 17,347 45,120 59,343
------- ------- ------- --------
Pretax earnings $ 2,090 $ 7,315 $ 7,935 $ 20,537
======= ======= ======= ========
</TABLE>
<PAGE>
A summary of origination activities is as follows:
<TABLE>
<CAPTION>
Three months Nine months
ended September 30 ended September 30,
1995 1994 1995 1994
------ ------ ------ -----
<S> <C> <C> <C> <C>
Dollar volume of mortgages
originated (in millions) $ 575 $ 467 $ 1,372 $ 1,667
Number of mortgages originated 4,465 3,795 10,825 13,374
Percentage of total closings:
Ryland Homes closings 32% 33% 34% 26%
Other closings 68% 67% 66% 74%
</TABLE>
The Company earns interest on mortgages held for sale and pays interest on
borrowings secured by the mortgages. Significant data related to these
activities are as follows:
<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net interest earned
(in thousands) $ 1,671 $1,905 $ 4,107 $7,380
Average balance of
mortgages held for sale
(in millions) $ 272 $221 $ 203 $315
Net interest spread 2.4% 3.4% 2.7% 3.1%
</TABLE>
Net interest earned decreased in the third quarter of 1995 as a lower net
interest spread was only partially offset by an increase in the average
balance of mortgages held for sale. For the nine month comparison, net
interest earned decreased in 1995 due to a lower average balance of mortgages
held for sale combined with a lower net interest spread.
The Company services loans that it originates as well as loans originated by
others. Loan servicing portfolio balances were as follows at September 30, (in
billions):
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Originated $2.5 $2.9
Acquired 3.5 4.1
Subserviced .1 .4
------ ------
Total portfolio $6.1 $7.4
====== ======
</TABLE>
The decrease in the portfolio balance as compared with September 30, 1994 was
attributable to a decline in origination volume combined with sales of
servicing rights and normal mortgage prepayment activity.
<PAGE>
Investment Operations:
- ----------------------
The Company's investment operations hold certain assets, primarily mortgage-
backed securities, which were obtained as a result of the exercise of
redemption rights on various mortgage-backed bonds previously owned by the
Company's limited-purpose subsidiaries. Pretax earnings for the three and
nine months ended September 30, were as follows (in thousands):
<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
Sale of mortgage-backed securities $ 908 $ 2,349 $ 4,839 $ 2,349
Net interest earned and other 834 1,866 2,844 7,933
-------- --------- -------- -------
Pretax earnings $ 1,742 $ 4,215 $ 7,683 $10,282
======== ========= ======== =======
</TABLE>
Pretax earnings for the third quarter and first nine months of 1995 decreased
from the same periods of 1994 due to decreases in the net interest earned on
mortgage-backed securities. These decreases are attributable to lower average
investment balances along with lower net interest spread. Lower gains from
sales of mortgage-backed securities also caused the decline for the third
quarter of 1995.
Significant data from the investment operations are as follows:
<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net interest earned
(in thousands) $ 1,021 $2,740 $ 3,574 $10,919
Average balance outstanding
(in millions) $ 112 $ 196 $ 128 $ 216
Net interest spread 3.7% 5.5% 3.7% 6.8%
</TABLE>
The Company earns a net interest spread on the investment portfolio from the
difference between the interest rates on the mortgage-backed securities and
the related borrowing rates. The decrease in the net interest earned between
periods is primarily due to a decline in the average investment portfolio
balance outstanding combined with a lower net interest spread resulting from
an increase in borrowing rates.
<PAGE>
FINANCIAL CONDITION AND LIQUIDITY
The Company generally provides for the cash requirements of the homebuilding
and financial services businesses from outside borrowings and internally
generated funds. Proceeds from the sale of the Company's institutional
mortgage securities administration business on June 30, 1995 were used to
repay long-term debt of the homebuilding segment and short-term notes payable
of the financial services segment. The Company believes that its current
sources of cash are sufficient to finance its current requirements.
The homebuilding segment borrowings include an unsecured revolving credit
facility, senior notes, senior subordinated notes and nonrecourse secured
notes payable.
The Company primarily uses its unsecured revolving credit facility to finance
increases in its homebuilding inventory. This facility was renewed in July
1995 for a three-year period and total borrowing capacity was increased from
$250 million to $400 million. As of September 30, 1995, the outstanding
borrowings under this facility were $161.5 million, compared with $127.5
million as of December 31, 1994. In addition, the Company had letters of
credit outstanding under this facility totaling $23.5 million at September 30,
1995. To finance land purchases, the Company may also use seller-financed,
non-recourse secured notes payable. At September 30, 1995, such notes payable
outstanding amounted to $12.9 million compared with $25.6 million at December
31, 1994.
Housing inventories decreased to $588.6 million as of September 30, 1995, from
$594.8 million as of the end of 1994. A lower investment in unsold homes
under construction was partially offset by an increase in sold homes.
The financial services segment uses cash generated from operations and
borrowing arrangements to finance its operations. In June 1995, the Company
renewed its bank facility which provides up to $325 million for mortgage
warehouse funding and $40 million for working capital advances, and extended
the maturity of the facility to May 1997. Other borrowing arrangements as of
September 30, 1995 included repurchase agreement facilities aggregating $925
million, a new $100 million committed credit facility used to finance
investment portfolio securities and a $35 million credit facility to be used
for the short-term financing of optional bond redemptions. At September 30,
1995 and December 31, 1994, the combined borrowings of the financial services
segment outstanding under all agreements were $375.2 million and $377.6
million, respectively.
Mortgage loans and mortgage-backed securities held by the limited-purpose
subsidiaries are pledged as collateral for the bonds, the terms of which
provide for the retirement of all bonds from the proceeds of the collateral.
The source of cash for the bond payments is cash received from the mortgage
loans receivable and mortgage-backed securities.
The Ryland Group, Inc. has not guaranteed the debt of the financial services
segment or limited-purpose subsidiaries.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
One current and two former officers of Ryland Mortgage Company ("RMC") have
been notified that they are targets of a federal grand jury investigation
concerning alleged misappropriation of funds from the Resolution Trust
Corporation ("RTC"). The Company has been advised that the investigation
relates to alleged overpayments to RMC of approximately $3 million under two
mortgage servicing contracts with the RTC. The Company is investigating this
matter, and at this time cannot predict how it will be resolved or whether the
Company or RMC will incur any liability.
The Company is party to various other legal proceedings generally incidental
to its businesses. Based on evaluation of such legal proceedings and
discussions with counsel, management believes that liabilities to the Company
arising from these matters will not have a material adverse effect on the
Company's financial condition.
Page Number
------------
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
10.1 Employment Agreement dated as of
September 18, 1995 between Michael D. Mangan
and The Ryland Group, Inc. (filed herewith) 20-35
10.2 Employment Agreement dated as of
September 18, 1995 between David Lesser
and The Ryland Group, Inc. (filed herewith) 36-52
11 Statement Re computation of earnings
per share (filed herewith) 53
27 Financial Data Schedule 54
B. Reports on Form 8-K
Form 8-K was filed with the Securities and Exchange Commission
on July 17, 1995 regarding the Company's sale of its mortgage
securities administration business to Norwest Bank Minnesota.
<PAGE>
SIGNATURES
------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE RYLAND GROUP, INC.
-----------------------
Registrant
November 13, 1995 By: /s/ Michael D. Mangan
- ----------------- --------------------------
Date Michael D. Mangan,
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
November 13, 1995 By: /s/ Stephen B. Cook
- ----------------- ------------------------
Date Stephen B. Cook, Vice President
and Corporate Controller
(Principal Accounting Officer)
<PAGE>
INDEX OF EXHIBITS
A. Exhibits Page of
Sequentially
Exhibit No. Numbered Pages
- ----------- ----------------
10.1 Employment Agreement dated as of
September 18, 1995 between Michael D. Mangan
and The Ryland Group, Inc. (filed herewith) 20-35
10.2 Employment Agreement dated as of
September 18, 1995 between David Lesser
and The Ryland Group, Inc. (filed herewith) 36-52
11 Statement Re computation of earnings
per share (filed herewith) 53
27 Financial Data Schedule (filed herewith) 54
<PAGE>
Exhibit 10.1
Employment Agreement
This EMPLOYMENT AGREEMENT is made, entered into, and is effective as of
this 18th day of September 1995 (the "Effective Date"), by and between The
Ryland Group, Inc., a Maryland corporation (the "Company"), and Michael D.
Mangan (the "Executive").
WHEREAS, the Company desires to retain the employment of the Executive as
the Company's Chief Financial Officer, and the Executive desires to serve the
Company in such capacity; and
WHEREAS, the parties hereto desire to set forth their agreement with
respect to the terms and provisions of the Executive's employment with the
Company as the Company's Chief Financial Officer.
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements of the parties set forth in this Agreement, and of
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, agree
as follows:
Article 1. Term of Employment
The Company hereby agrees to employ the Executive and the Executive hereby
agrees to continue to serve the Company, in accordance with the terms and
conditions set forth herein, for an initial period of three (3) years,
commencing as of the Effective Date of this Agreement, as indicated above;
subject, however, to earlier termination as expressly provided herein.
The initial three (3) year period of employment automatically shall be
extended for one (1) additional year at the end of the initial three (3) year
term, and then again after each successive year thereafter. However, either
party may terminate this Agreement at the end of the initial three (3) year
period, or at the end of any successive one (1) year term thereafter, by
giving the other party written notice of intent not to renew, delivered at
least three (3) months prior to the end of such initial period or successive
term.
In the event such notice of intent not to renew is properly delivered, this
Agreement, along with all corresponding rights, duties, and covenants,
automatically shall expire at the end of the initial period or successive term
then in progress.
However, regardless of the above, if at any time during the initial period
of employment, or successive term, a Change-in-Control of the Company occurs
(as defined in Article 7 herein), then the term of this Agreement shall be the
longer of: (a) two (2) years beyond the month in which the effective date of
such Change-in-Control occurs; or (b) the term as otherwise provided in this
Article 1.
Article 2. Position and Responsibilities
During the term of this Agreement, the Executive agrees to serve as Chief
Financial Officer of the Company and as a member of the
<PAGE>
Company's Board of Directors if so elected. In his capacity as Chief Financial
Officer of the Company, the Executive shall report directly to the Company's
Chief Executive Officer, and shall have primary responsibility for formulating
financial policy and plans and providing overall direction for the accounting,
tax, insurance, budget, credit, treasury and information systems functions of
the Company. The Executive shall have the same status, privileges, and
responsibilities normally inherent in such capacities in corporations of
similar size and character.
Article 3. Standard of Care
During the term of this Agreement, the Executive agrees to devote
substantially his full time, attention, and energies to the Company's business
and shall not be engaged in any other business activity, whether or not such
business activity is pursued for gain, profit, or other pecuniary advantage.
However, subject to Section 9.1 herein, the Executive may serve as a director
of other companies so long as such service is not injurious to the Company.
The Executive covenants, warrants, and represents that he shall:
(a) Devote his full and best efforts to the fulfillment of his employment
obligations; and
(b) Exercise the highest degree of loyalty and the highest standards of
conduct in the performance of his duties.
This Article 3 shall not be construed as preventing the Executive from
investing assets in such form or manner as will not require his services in
the daily operations of the affairs of the companies in which such investments
are made.
Article 4. Compensation
As remuneration for all services to be rendered by the Executive during the
term of this Agreement, and as consideration for complying with the covenants
herein, the Company shall pay and provide to the Executive the following:
4.1 Base Salary. The Company shall pay the Executive a Base Salary
in an amount which shall be established from time to time by the Board of
Directors of the Company or the Board's designee provided; however, that such
Base Salary shall not be less than $275,000 per year. This Base Salary shall
be paid to the Executive in equal biweekly installments throughout the year,
consistent with the normal payroll practices of the Company.
<PAGE>
The Executive's Base Salary shall be reviewed at least annually during the
term of this Agreement to ascertain whether, in the judgment of the Board or
the Board's designee, such Base Salary should be increased, based primarily on
the performance of the Executive during the year and on the then current rate
of inflation. If so increased, the Base Salary as stated above shall,
likewise, be increased for all purposes of this Agreement.
4.2 Annual Bonus. The Executive's targeted cash bonus under the Company's
annual bonus program (the "Bonus") shall not be less than 75 percent of the
Executive's Base Salary. Except as otherwise provided in Article 6 and 7
hereof, any Bonus earned under the program shall be payable to the Executive
in cash within sixty (60) days after the end of each fiscal year of the
Company during the term of this Agreement, commencing with the fiscal year
ending December 31, 1995.
4.3 Incentive Programs. The Executive shall participate in such stock
option, incentive, and performance award programs as are made available
generally to executives of the Company. With respect to any such program, the
Company shall provide the Executive with the opportunity to earn an award at a
level which is commensurate with the opportunity typically offered to
executives having the same or similar duties and responsibilities as the
Executive at companies similar in size and in character to the Company;
provided, however, that the Executive's opportunity shall be at least equal to
the highest level provided to any Senior Vice President of the Company.
4.4 Retirement Benefits. The Company shall provide to the Executive
participation in all Company qualified defined benefit and defined
contribution retirement plans (if any), subject to the eligibility and
participation requirements of such plans.
4.5 Employee Benefits. The Company shall provide to the Executive all
benefits to which other executives and employees of the Company are entitled
to receive, as commensurate with the Executive's position, subject to the
eligibility requirements and other provisions of such arrangements. Such
benefits shall include, but not be limited to, split-dollar and group term
life insurance, comprehensive health and major medical insurance, dental and
short-term and long-term disability.
4.6 Perquisites. The Company shall provide to the Executive, at the
Company's cost, all perquisites to which other similarly situated executives
of the Company are entitled to receive and such other perquisites which are
suitable to the character of Executive's position with the Company and
adequate for the performance of his duties hereunder. Without limiting the
generality of the foregoing, the Company shall provide to the Executive a
Personal Health and Services Allowance having a total annual value at least
equal to five percent (5%) of the Executive's Base Salary.
<PAGE>
4.7 Right to Change Plans. By reason of Sections 4.3, 4.4, 4.5, and 4.6
herein, the Company shall not be obligated to institute, maintain, or refrain
from changing, amending, or discontinuing any benefit plan, program, or
perquisite, so long as such changes are similarly applicable to executive
employees generally.
Article 5. Expenses
The Company shall pay, or reimburse the Executive, for all ordinary and
necessary expenses, in a reasonable amount, which the Executive incurs in
performing his duties under this Agreement including, but not limited to,
travel, entertainment, professional dues and subscriptions, and all dues,
fees, and expenses associated with membership in various professional,
business, and civic associations and societies of which the Executive's
participation is in the best interest of the Company.
Article 6. Employment Terminations
6.1 Termination Due to Retirement or Death. In the event the Executive's
employment is terminated while this Agreement is in force by reason of
Retirement (as defined under the then established rules of the Company's tax-
qualified retirement plan) or death, the Executive's benefits shall be
determined in accordance with the Company's retirement, survivor's benefits,
insurance, and other applicable programs of the Company then in effect. Upon
the effective date of such termination, the Company's obligation under this
Agreement to pay and provide to the Executive the elements of pay described in
Article 4 herein shall immediately expire, except to the extent that the
benefits described in Sections 4.4 and 4.5 continue after Retirement under the
terms of the benefit plans and programs which apply generally to the Company's
executives, and except that the Executive shall receive all other rights and
benefits that he is vested in pursuant to other plans and programs of the
Company. In addition, the Company shall pay to the Executive (or the
Executive's beneficiaries, or estate, as applicable), a pro rata share of his
Bonus for the fiscal year in which employment termination occurs, based on the
results of the Company for such fiscal year. This pro rata Bonus amount shall
be determined by multiplying the Bonus which otherwise would apply for such
full fiscal year by a fraction, the numerator of which is the number of days
in such fiscal year prior to the date of employment termination and the
denominator of which is the total number of days in such fiscal year. The pro
rata Bonus shall be paid within sixty (60) days of the end of such fiscal
year.
6.2 Termination Due to Disability. In the event that the Executive becomes
Disabled (as defined below) during the term of this Agreement and is,
therefore, unable to perform his duties herein for more than one hundred
twenty (120) total calendar days during any period of twelve (12) consecutive
months, or in the event of the Board's reasonable expectation that the
Executive's Disability will exist for more than a period of one hundred twenty
(120) calendar days, the Company shall have the right to terminate the
Executive's active employment as provided in this Agreement. However, the
Board shall deliver written notice to the Executive of the Company's intent to
terminate for Disability at least thirty (30) calendar days prior to the
effective date of such termination.
<PAGE>
A termination for Disability shall become effective upon the end of the
thirty (30) day notice period. Upon such effective date, the Company's
obligation to pay and provide to the Executive the elements of pay described
in Article 4 herein shall immediately expire, except to the extent that the
benefits described in Sections 4.4 and 4.5 continue after Disability under the
terms of the benefit plans and programs which apply generally to the Company's
executives, and except that the Executive shall receive all rights and
benefits that he is vested in pursuant to other plans and programs of the
Company. In addition, the Company shall pay to the Executive a pro rata share
of his Bonus for the fiscal year in which employment termination occurs, based
on the results for such fiscal year, determined as provided in Section 6.1
herein. The pro rata Bonus shall be paid within sixty (60) days of the end of
such fiscal year.
The term "Disability" shall mean, for all purposes of this Agreement, the
incapacity of the Executive, due to injury, illness, disease, or bodily or
mental infirmity, to engage in the performance of substantially all of the
usual duties of employment with the Company as contemplated by Article 2
herein, such Disability to be determined by the Board of Directors of the
Company upon receipt and in reliance on competent medical advice from one (1)
or more individuals, selected by the Board, who are qualified to give such
professional medical advice.
It is expressly understood that the Disability of the Executive for a
period of one hundred twenty (120) calendar days or less in the aggregate
during any period of twelve (12) consecutive months, in the absence of any
reasonable expectation that his Disability will exist for more than such a
period of time, shall not constitute a failure by him to perform his duties
hereunder and shall not be deemed a breach or default and the Executive shall
receive full compensation for any such period of Disability or for any other
temporary illness or incapacity during the term of this Agreement.
6.3 Voluntary Termination by the Executive. The Executive may terminate
this Agreement at any time by giving the Board of Directors of the Company
written notice of intent to terminate, delivered at least ninety (90) calendar
days prior to the effective date of such termination.
Upon the effective date of such termination, following the expiration of
the ninety (90) day notice period, the Company shall pay the Executive his
full Base Salary, at the rate then in effect as provided in Section 4.1
herein, through the effective date of termination, plus all other benefits to
which the Executive has a vested right to at that time (for this purpose, the
Executive shall not be paid any Bonus with respect to the fiscal year in which
voluntary termination under this Section 6.3 occurs). In the event
<PAGE>
that the terms and provisions of Section 6.6 or Article 7 herein do not apply
to such termination, the Company and the Executive thereafter shall have no
further obligations under this Agreement. However, in the event the terms and
provisions of Section 6.6 or Article 7 herein apply, the payments and benefits
set forth therein shall apply.
6.4 Involuntary Termination by the Company Without Cause. At all times
other than during a "Change-in-Control Period" (defined in Section 7.4
herein), the Board may terminate the Executive's employment, as provided under
this Agreement, at any time, for reasons other than death, Disability,
Retirement, or for Cause, by notifying the Executive in writing of the
Company's intent to terminate, at least thirty (30) calendar days prior the
effective date of such termination.
Upon the effective date of such termination, following the expiration of
the thirty (30) day notice period, the Company shall pay to the Executive a
lump-sum cash payment equal to the greater of: (a) the Base Salary then in
effect for the remaining term of this Agreement; or (b) eighteen (18) full
months of the Base Salary in effect as of the effective date of termination.
In addition, the Company shall provide the Executive a continuation of his
health and welfare benefits for the longer of: (x) the remaining term of the
Agreement; or (y) eighteen (18) full months at the employee rates then in
effect. If for any reason the Company is unable to continue health and
welfare benefits as required by the preceding sentence, the Company shall
either provide equivalent benefits to the Executive or pay to the Executive a
lump-sum cash payment equal to the value of the benefits which the Company is
unable to provide. Continuation of health benefits under this Section 6.4
will count against, and will not extend, the period during which benefits are
required to be continued under COBRA.
In addition, the Company shall make a prorated payment of the Executive's
targeted Bonus for the fiscal year in which termination occurs, calculated
based upon the performance of the Company through the end of the month
immediately preceding the effective date of the termination. Payment of the
Bonus shall be made in cash, in one lump sum, at the same time payment of Base
Salary is made pursuant to this Section 6.4. Further, the Company shall pay
the Executive all other benefits to which the Executive has a vested right at
the time, according to the provisions of each governing plan or program. The
Company and the Executive thereafter shall have no further obligations under
this Agreement.
For purposes of this Section 6.4: (i) with respect to the fiscal year in
which termination occurs, the Executive shall be given credit under the
Company's Long-Term Retirement and Incentive Plan or any successor plan for
the portion of the fiscal year in which this Agreement is in effect, and shall
be vested pro rata for purposes of prior and current year awards; and (ii) all
vested awards under any incentive programs shall be paid notwithstanding any
provision of the governing plan or program calling for forfeiture of benefits
upon
<PAGE>
termination. If for any reason the Company is unable to comply with the
preceding sentence, the Company shall pay the Executive a lump-sum cash
payment equal to the value of the benefits or awards it is unable to vest, pay
or give credit for.
If the Executive's employment is terminated for any of the reasons set
forth in Article 7 herein, the Executive shall be entitled to receive the
benefits provided in Article 7 herein.
6.5 Termination For Cause. Nothing in this Agreement shall be construed to
prevent the Board from terminating the Executive's employment under this
Agreement for "Cause."
"Cause" shall be determined by the Board in the exercise of good faith and
reasonable judgment; and shall be defined as the conviction of the Executive
for the commission of an act of fraud, embezzlement, theft, or other criminal
act constituting a felony under U.S. laws involving moral turpitude; or the
gross neglect of the Executive in the performance of any and all material
covenants under this Agreement, for reasons other than the Executive's death,
Disability, or Retirement. The Company's Board of Directors, by majority vote,
shall make the determination of whether Cause exists, after providing the
Executive with notice of the reasons the Board believes Cause may exist, and
after giving the Executive the opportunity to respond to the allegation that
Cause exists.
In the event this Agreement is terminated by the Board for Cause, the
Company shall pay the Executive his Base Salary through the effective date of
the employment termination and the Executive shall immediately thereafter
forfeit all rights and benefits (other than vested benefits) he would
otherwise have been entitled to receive under this Agreement. The Company and
the Executive thereafter shall have no further obligations under this
Agreement.
6.6 Termination by Executive for Good Reason. At any time during the term
of this Agreement, the Executive may terminate this Agreement for Good Reason
(as defined below) by giving the Board of Directors of the Company thirty (30)
calendar days written notice of intent to terminate, which notice sets forth
in reasonable detail the facts and circumstances claimed to provide a basis
for such termination.
Upon the expiration of the thirty (30) day notice period, the Good Reason
termination shall become effective, and the Company shall pay and provide to
the Executive the benefits set forth in this Section 6.6 (or, in the event of
termination for Good Reason within the Change-in-Control Period, the benefits
set forth in Section 7.1 herein).
Good Reason shall mean, without the Executive's express written consent,
the occurrence of any one or more of the following:
<PAGE>
(a)The assignment of the Executive to duties materially inconsistent with
the Executive's authorities, duties, responsibilities, and status
(including offices, titles, and reporting requirements) as an officer
of the Company, or a reduction or alteration in the nature or status
of the Executive's authorities, duties, or responsibilities from those
in effect during the immediately preceding fiscal year, other than an
insubstantial and inadvertent act that is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(b)Without the Executive's consent, the Company's requiring the Executive
to be based at a location which is at least fifty (50) miles further
from the Executive's primary residence as of the Effective Date than
is such residence from the Company's current headquarters, except for
required travel on the Company's business to an extent substantially
consistent with the Executive's business obligations as of the
Effective Date;
(c) A failure by the Company to meet any obligation under Article 4 herein,
except as provided in Section 4.7 herein.
(d) The failure of the Company to obtain a satisfactory agreement from any
successor to the Company to assume and agree to perform this
Agreement, as contemplated in Section 11.1 herein.
Upon a termination of the Executive's employment for Good Reason at any
time other than during the Change-in-Control Period, the Executive shall be
entitled to receive the same payments and benefits as he is entitled to
receive following an involuntary termination of his employment by the Company
without Cause, as specified in Section 6.4 herein. The payment of Base Salary
and pro rata Bonus shall be made to the Executive within thirty (30) calendar
days following the effective date of employment termination. Upon a
termination for Good Reason within the Change-in-Control Period, the Executive
shall be entitled to receive the payments and benefits set forth in Article 7
herein in lieu of those set forth in this Section 6.6.
The Executive's right to terminate employment for Good Reason shall not be
affected by the Executive's incapacity due to physical or mental illness. The
Executive's continued employment shall not constitute consent to, or a waiver
of rights with respect to, any circumstance constituting Good Reason herein.
6.7 Nonrenewal by Company. Upon any termination of this Agreement as a
result of a notice of nonrenewal by the Company pursuant to Article 1 hereof,
upon the effective date of such termination, the Company shall pay to the
Executive a lump-sum cash payment equal to twelve (12) full months' Base
Salary then in effect and shall continue the Executive's health and welfare
benefits for twelve (12) full months at the employee rates then in effect. If
for any reason the Company is unable to continue health and welfare benefits
as required by the preceding sentence, the Company shall either provide
<PAGE>
equivalent benefits to the Executive or pay to the Executive a lump-sum cash
payment equal to the value of the benefits which the Company is unable to
provide. Continuation of health benefits under this Section 6.7 will count
against, and will not extend, the period during which benefits are required to
be continued under COBRA. In addition, the Company shall pay the Executive's
Bonus for the final year within sixty (60) days after the effective date of
the termination of this Agreement.
Article 7. Change-in-Control
7.1 Employment Terminations in Connection With a Change-in-Control. In the
event of a Qualifying Termination (as defined below) during a Change- in-
Control Period, the Company shall pay to the Executive and provide him with
benefits in lieu of the benefits which otherwise would have been payable under
this Agreement such that the total benefits payable to the Executive shall be
as follows:
(a)A lump-sum amount equal to three (3) times the highest rate of the
Executive's annualized Base Salary rate in effect at any time up to
and including the effective date of termination;
(b)A lump-sum amount equal to three (3) times the higher of the Executive's
Bonus for the last fiscal year prior to the Change-in-Control or the
average annual Bonus paid to the Executive for the last three (3)
fiscal years prior to the Change-in-Control;
(c)An amount equal to the Executive's unpaid Base Salary and pro rata Bonus
through the effective date of termination, determined as provided in
Section 6.4 herein; and
(d)A continuation of health and welfare benefits for three (3) full years
from the effective date of termination. If for any reason the Company
is unable to continue health and welfare benefits as required by the
preceding sentence, the Company shall either provide equivalent
benefits to the Executive or pay to the Executive a lump-sum cash
payment equal to the value of the benefits which the Company is unable
to provide. Continuation of health benefits under this Section 7.1
will count against, and will not extend, the period during which
benefits are required to be continued under COBRA. The continuation of
these welfare benefits may be discontinued by the Company prior to the
end of the three- (3-) year period in the event the Executive has
available substantially similar benefits from a subsequent employer,
as determined by the Company's Board of Directors.
For purposes of this Article 7, a Qualifying Termination shall mean any
termination of the Executive's employment or this Agreement, other than a
termination: (1) by the Company for Cause; (2) by reason of death, Disability,
or Retirement; or (3) by the Executive without Good Reason. Payment of any
lump-sum amounts pursuant to this Section
<PAGE>
7.1 will be made within sixty (60) days after the effective date of the
termination of the Executive's employment or this Agreement.
Notwithstanding any other provisions of this Agreement, in the event that
the Company delivers a written notice of intent not to renew to the Executive
at a time when the Company is aware of a Change-in-Control (or is aware of a
proposed transaction which could reasonably be expected to result in a Change-
in-Control) or a notice of intent not to renew becomes effective during a
Change-in-Control Period but prior to the effective date of a Change-in-
Control, the nonrenewal of this Agreement shall be deemed to be an involuntary
termination of the Executive's employment without Cause occurring during a
Change of Control Period (and in such event, the Executive shall be entitled
to receive the payments and benefits set forth in Section 7.1 herein in lieu
of the payments and benefits set forth in Section 6.4 herein).
Notwithstanding any other provision of this Agreement, in the event that
the Company delivers a notice of nonrenewal at any time other than as provided
in the immediately preceding paragraph, the Executive shall not be entitled to
receive the payments and benefits set forth in Section 7.1 herein (but shall
remain entitled to receive the payments and benefits set forth in Section 6.4
herein). Further, a notice of nonrenewal delivered by the Executive to the
Company shall never result in the Executive's ability to receive the payments
and benefits set forth in Section 7.1 herein.
7.2 Definition of "Change-in-Control." A Change-in-Control of the Company
shall be deemed to have occurred as of the first day any one or more of the
following conditions shall have been satisfied:
(a)Any Person (as defined in Section 3(a)(9) of the Securities Exchange Act
of 1934) (other than those Persons in control of the Company as of the
Effective Date, and other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or a
corporation owned directly or indirectly by the stockholders of the
Company in substantially the same proportions as their ownership of
stock of the Company), becomes the Beneficial Owner (as defined in
Rule 13d-3 of the General Rules and Regulations under the Securities
Exchange Act of 1934), directly or indirectly, of securities of the
Company representing over thirty percent (30%) of the combined voting
power of the Company's common stock then outstanding; or
(b)During any period of two (2) consecutive years (not including any period
prior to the Effective Date), individuals who at the beginning of such
period constitute the Board of Directors (and any new Director, whose
election was approved or recommended by a vote of at least two-thirds
(2/3) of the Directors then still in office who either were Directors at
the beginning of the period or whose election or nomination for election
was so
<PAGE>
approved), cease for any reason to constitute a majority thereof; or
(c)The stockholders of the Company approve: (i) a plan of complete
liquidation of the Company; or (ii) an agreement for the sale or
disposition of all or substantially all the Company's assets (except
as provided in (iii)); or (iii) a merger, consolidation, share
exchange, or reorganization of the Company with or involving any other
corporation, other than a merger, consolidation, share exchange, or
reorganization that would result in the owners of common stock having
more than fifty percent (50%) of the combined voting power of the
common stock of the Company outstanding immediately prior thereto,
continuing to have (either by such stock remaining outstanding or by
being converted into common stock of another entity or entities), more
than fifty percent (50%) of the combined voting power of the common
stock which is outstanding immediately after such merger,
consolidation, share exchange, or reorganization.
However, in no event shall a Change-in-Control be deemed to have occurred,
with respect to the Executive, if the Executive is part of a purchasing group
which consummates the Change-in-Control transaction. The Executive shall be
deemed "part of a purchasing group" for purposes of the preceding sentence if
the Executive is an equity participant in the purchasing company or group
(except for: (i) passive ownership of less than two percent (2%) of the stock
of the purchasing company; or (ii) ownership of equity participation in the
purchasing company or group which is otherwise not significant, as determined
prior to the Change-in-Control by a majority of the nonemployee continuing
Directors).
7.3 Change-in-Control Period. "Change-in-Control Period" shall mean the
period of time commencing with the date on which the Company becomes aware of
the Change-in-Control or becomes aware of a proposed transaction which
reasonably could be expected to result in a Change-in-Control, and ending on
the first to occur of: (a) two (2) years after the effective date of the
Change-in-Control; or (b) the date on which the proposed transaction no longer
is reasonably expected to occur.
7.4 Limitation on Change-in-Control Benefits. In the event that any of the
amounts payable to the Executive by the Company pursuant to the provisions of
Section 7.1 of this Agreement or otherwise would, if made, be nondeductible
for Federal income tax purposes under Section 280G of the Internal Revenue
Code of 1986, as amended (after application of Section 280G(b)(4)), the amount
payable by the Company shall be reduced by the minimum amount necessary to
cause the Executive to receive no payments which would be nondeductible by the
Company for Federal income tax purposes under Section 280G of the Code. For
purposes of determining whether or not payments under Section 7.1 or otherwise
would in fact be nondeductible to the Company under Code Section 280G, the
following principles and guidelines are agreed to, and, absent contrary mutual
agreement, shall be followed: (i) all payments under or in respect of
<PAGE>
supplemental retirement plans, and stock option, bonus, and other incentive
compensation plans are intended to represent reasonable compensation for
personal services performed by the Executive through the date of termination
of the Executive's employment; (ii) if there is an issue as to whether any
payments being made to the Executive constitute "parachute payments" under
Section 280G of the Code, and the Company and the Executive cannot agree upon
the amount thereof within thirty (30) days after the effective date of the
termination of the Executive's employment, the Executive and the Company
shall, within forty-five (45) days after the effective date of the termination
of Executive's employment, mutually agree upon and appoint a third party
arbitrator who shall analyze the issue giving recognition to the foregoing
intentions and shall issue a report within thirty (30) days of the appointment
stating the arbitrator's best estimate of the amount of "parachute payments"
under Code Section 280G, if any, and the report of such arbitrator shall be
conclusive and binding on the parties; (iii) the third party arbitrator
selected shall be a nationally recognized accounting firm or a management
consulting firm specializing in the area of executive compensation, who shall
be entitled to engage independent legal counsel for advice with respect to
legal matters in connection with the report; (iv) if the parties cannot agree
upon a third party arbitrator within the specified forty five- (45-) day time
period, an arbitrator shall be selected and appointed by the Chief Judge of
the United States District Court for the District of Maryland; and (v) the
costs and expenses of the arbitrator, including counsel's fees, shall be borne
by the Company. The Executive and the Company agree that each will in all
cases file tax returns on a basis consistent with any conclusions reached with
respect to the deductibility of amounts under Code Section 280G, and will
defend such position to the extent practicable in the event a contrary
position is taken by the Internal Revenue Service. The Executive shall be
entitled to reimbursement of counsel fees in connection with any such defense
as provided in Section 12.1 hereof.
In the event of any reduction of payments made or to be made to the
Executive pursuant to Section 7.1 or otherwise as a result of this Section
7.4, the Executive shall be entitled to select the amount and form of
compensation to be reduced or eliminated.
7.5 Subsequent Imposition of Excise Tax. If, notwithstanding compliance
with the provisions of Section 7.4 herein, it is ultimately determined by a
court or pursuant to a final determination by the Internal Revenue Service
that any portion of the payments to the Executive is considered to be an
"excess parachute payment," subject to the excise tax under Section 4999 of
the Code, which was not contemplated to be an "excess parachute payment" at
the time of payment (so as to accurately determine whether a limitation should
have been applied to the payments to maximize the net benefit to the
Executive, as provided in Section 7.4 hereof), the Executive shall be entitled
to receive a lump-sum cash payment sufficient to place the Executive in the
same net after-tax position, computed by using the "Special Tax Rate" as such
term is defined below, that the Executive
<PAGE>
would have been in had such payment not been subject to such excise tax, and
had the Executive not incurred any interest charges or penalties with respect
to the imposition of such excise tax. For purposes of this Agreement, the
"Special Tax Rate" shall be the highest effective Federal and state marginal
tax rates applicable to the Executive in the year in which the payment
contemplated under this Section 7.5 is made.
Article 8. Outplacement Assistance
Following a Qualifying Termination (as defined in Section 7.1 herein) the
Executive shall be reimbursed by the Company for the costs of all outplacement
services obtained by the Executive within the two (2) year period after the
effective date of termination; provided, however, that the total reimbursement
shall be limited to an amount equal to fifteen percent (15%) of the
Executive's Base Salary as of the effective date of termination.
Article 9. Noncompetition
9.1 Prohibition on Competition. Without the prior written consent of the
Company: (a) during the term of this Agreement; (b) for twenty-four (24)
months following the termination of this Agreement for Cause or expiration or
termination of this Agreement as a result of Notice of Nonrenewal by the
Executive pursuant to Article 1; and (c) for twenty-four (24) months following
the effective date of a termination of this Agreement by the Executive
pursuant to Section 6.3, the Executive shall not serve as an employee or
officer of any business or enterprise which is both: (1) engaged in the
domestic homebuilding business; and (2) is ranked in the top ten, based on
annual revenues, of all domestic homebuilders.
However, the Executive shall be allowed to purchase and hold for investment
less than three percent (3%) of the shares of any corporation whose shares are
regularly traded on a national securities exchange or in the over-the-counter
market.
9.2 Disclosure of Information. The Executive recognizes that he has access
to and knowledge of certain confidential and proprietary information of the
Company which is essential to the performance of his duties under this
Agreement. The Executive will not, during or after the term of his employment
by the Company, in whole or in part, disclose such information to any person,
firm, corporation, association, or other entity for any reason or purpose
whatsoever, nor shall he make use of any such information for his own
purposes.
9.3 Covenants Regarding Other Employees. During the term of this Agreement,
and for a period of twenty-four (24) months following the expiration of this
Agreement, the Executive agrees not to attempt to induce any employee of the
Company to terminate his or her employment with the Company, accept employment
with any competitor of the Company, or to interfere in a similar manner with
the business of the Company.
<PAGE>
9.4 Specific Performance. The parties recognize that the Company
will have no adequate remedy at law for breach by the Executive of the
requirements of this Article 9 and, in the event of such breach, the Company
and the Executive hereby agree that, in addition to the right to seek monetary
damages, the Company will be entitled to a decree of specific performance,
mandamus, or other appropriate remedy to enforce performance of such
requirements.
Article 10. Indemnification
The Company hereby covenants and agrees to indemnify and hold harmless the
Executive fully, completely, and absolutely against and in respect to any and
all actions, suits, proceedings, claims, demands, judgments, costs, expenses
(including attorney's fees), losses, and damages resulting from the
Executive's good faith performance of his duties and obligations under the
terms of this Agreement. Nothing herein shall limit or reduce any rights of
indemnification to which the Executive might be entitled under the charter or
by-laws of the Company or otherwise.
Article 11. Assignment
11.1 Assignment by Company. This Agreement may and shall be assigned or
transferred to, and shall be binding upon and shall inure to the benefit of,
any successor of the Company, and any such successor shall be deemed
substituted for all purposes of the "Company" under the terms of this
Agreement. As used in this Agreement, the term "successor" shall mean any
person, firm, corporation, or business entity which at any time, whether by
merger, purchase, or otherwise, acquires all or substantially all of the
assets or the business of the Company. Notwithstanding such assignment, the
Company shall remain, with such successor, jointly and severally liable for
all its obligations hereunder.
Failure of the Company to obtain the agreement of any successor to be bound
by the terms of this Agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement, and shall immediately entitle
the Executive to compensation from the Company in the same amount and on the
same terms as the Executive would be entitled in the event of a Qualifying
Termination during a Change-in-Control Period, as provided in Article 7
hereof.
Except as herein provided, this Agreement may not otherwise be assigned by
the Company.
11.2 Assignment by Executive. The services to be provided by the Executive
to the Company hereunder are personal to the Executive, and the Executive's
duties may not be assigned by the Executive; provided, however that this
Agreement shall inure to the benefit of and be enforceable by the Executive's
personal or legal representatives, executors, and administrators, successors,
heirs, distributees, devisees, and legatees. If the Executive dies while any
amounts payable to the Executive hereunder remain outstanding, all such
amounts, unless otherwise provided herein, shall be paid in
<PAGE>
accordance with the terms of this Agreement to the Executive's devisee,
legatee, or other designee or, in the absence of such designee, to the
Executive's estate.
Article 12. Dispute Resolution and Notice
12.1 Dispute Resolution. The Executive shall have the right and option to
elect to have any good faith dispute or controversy arising under or in
connection with this Agreement settled by litigation or by arbitration.
If arbitration is selected, such proceeding shall be conducted before a
panel of three (3) arbitrators sitting in a location selected by the Executive
within fifty (50) miles from the location of his principal place of
employment, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the award of the
arbitrators in any court having competent jurisdiction.
All expenses of such litigation or arbitration, including the reasonable
fees and expenses of the legal representative for the Executive, and necessary
costs and disbursements incurred as a result of such dispute or legal
proceeding, and any prejudgment interest, shall be borne by the Company.
12.2 Notice. Any notices, requests, demands, or other communications
provided for by this Agreement shall be sufficient if in writing and if sent
by registered or certified mail to the Executive at the last address he has
filed in writing with the Company or, in the case of the Company, at its
principal offices.
Article 13. Miscellaneous
13.1 Entire Agreement. This Agreement supersedes any prior agreements or
understandings, oral or written, between the parties hereto, or between the
Executive and the Company, with respect to the subject matter hereof, and
constitutes the entire agreement of the parties with respect thereto.
13.2 Modification. This Agreement shall not be varied, altered, modified,
canceled, changed, or in any way amended except by mutual agreement of the
parties in a written instrument executed by the parties hereto or their legal
representatives.
13.3 Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason,
the remaining provisions of this Agreement shall be unaffected thereby and
shall remain in full force and effect.
13.4 Counterparts. This Agreement may be executed in one (1) or more
counterparts, each of which shall be deemed to be an original, but all of
which together will constitute one and the same Agreement.
<PAGE>
13.5 Tax Withholding. The Company may withhold from any benefits payable
under this Agreement all Federal, state, city, or other taxes as may be
required pursuant to any law or governmental regulation or ruling.
13.6 Beneficiaries. The Executive may designate one or more persons or
entities as the primary and/or contingent beneficiaries of any amounts to be
received under this Agreement. Such designation must be in the form of a
signed writing acceptable to the Board or the Board's designee. The Executive
may make or change such designation at any time.
Article 14. Governing Law
To the extent not preempted by Federal law, the provisions of this
Agreement shall be construed and enforced in accordance with the laws of the
state of Maryland.
IN WITNESS WHEREOF, the Executive and the Company have executed this
Agreement, as of September 18, 1995.
--------------------
The Ryland Group, Inc. Executive:
By: /s/ R. Chad Dreier /s/ Michael D. Mangan
------------------ ---------------------
R. Chad Dreier, President Michael D. Mangan
Chairman and CEO
Attest: /s/ Janet Ladd
-----------------------
<PAGE>
Exhibit 10.2
Employment Agreement
This EMPLOYMENT AGREEMENT is made, entered into, and is effective as of
this 18th day of September 1995 (the "Effective Date"), by and between The
Ryland Group, Inc., a Maryland corporation (the "Company"), and David Lesser
(the "Executive").
WHEREAS, the Company desires to retain the employment of the Executive as
the Company's Executive Vice President - General Counsel, and the Executive
desires to serve the Company in such capacity; and
WHEREAS, the parties hereto desire to set forth their agreement with
respect to the terms and provisions of the Executive's employment with the
Company as the Company's Executive Vice President - General Counsel.
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements of the parties set forth in this Agreement, and of
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, agree
as follows:
Article 1. Term of Employment
The Company hereby agrees to employ the Executive and the Executive hereby
agrees to continue to serve the Company, in accordance with the terms and
conditions set forth herein, for an initial period of three (3) years,
commencing as of the Effective Date of this Agreement, as indicated above;
subject, however, to earlier termination as expressly provided herein.
The initial three (3) year period of employment automatically shall be
extended for one (1) additional year at the end of the initial three (3) year
term, and then again after each successive year thereafter. However, either
party may terminate this Agreement at the end of the initial three (3) year
period, or at the end of any successive one (1) year term thereafter, by
giving the other party written notice of intent not to renew, delivered at
least three (3) months prior to the end of such initial period or successive
term.
In the event such notice of intent not to renew is properly delivered, this
Agreement, along with all corresponding rights, duties, and covenants,
automatically shall expire at the end of the initial period or successive term
then in progress.
However, regardless of the above, if at any time during the initial period
of employment, or successive term, a Change-in-Control of the Company occurs
(as defined in Article 7 herein), then the term of this Agreement shall be the
longer of: (a) two (2) years beyond the month in which the effective date of
such Change-in-Control occurs; or (b) the term as otherwise provided in this
Article 1.
<PAGE>
Article 2. Position and Responsibilities
During the term of this Agreement, the Executive agrees to serve as
Executive Vice President - General Counsel of the Company and as a member of
the Company's Board of Directors if so elected. In his capacity as Executive
Vice President - General Counsel of the Company, the Executive shall report
directly to the Company's Chief Executive Officer, and shall have primary
responsibility for determining corporate legal posture and interests of the
corporation. As General Counsel, he shall ensure that business practices,
policies and dealings of the Company meet regulatory requirements to protect
the Company from legal action, manage the Company's defense, interpret and
prepare legal documents and provide counsel to corporate management on legal
matters. The Executive shall have the same status, privileges, and
responsibilities normally inherent in such capacities in corporations of
similar size and character.
Article 3. Standard of Care
During the term of this Agreement, the Executive agrees to devote
substantially his full time, attention, and energies to the Company's business
and shall not be engaged in any other business activity, whether or not such
business activity is pursued for gain, profit, or other pecuniary advantage.
However, subject to Section 9.1 herein, the Executive may serve as a director
of other companies so long as such service is not injurious to the Company.
The Executive covenants, warrants, and represents that he shall:
(a)Devote his full and best efforts to the fulfillment of his employment
obligations; and
(b)Exercise the highest degree of loyalty and the highest standards of
conduct in the performance of his duties.
This Article 3 shall not be construed as preventing the Executive from
investing assets in such form or manner as will not require his services in
the daily operations of the affairs of the companies in which such investments
are made.
Article 4. Compensation
As remuneration for all services to be rendered by the Executive during the
term of this Agreement, and as consideration for complying with the covenants
herein, the Company shall pay and provide to the Executive the following:
4.1 Base Salary. The Company shall pay the Executive a Base Salary
in an amount which shall be established from time to time by the Board of
Directors of the Company or the Board's designee provided; however, that such
Base Salary shall not be less than $240,000 per year. This Base Salary shall
be paid to the Executive in equal
<PAGE>
biweekly installments throughout the year, consistent with the normal payroll
practices of the Company.
The Executive's Base Salary shall be reviewed at least annually during the
term of this Agreement to ascertain whether, in the judgment of the Board or
the Board's designee, such Base Salary should be increased, based primarily on
the performance of the Executive during the year and on the then current rate
of inflation. If so increased, the Base Salary as stated above shall,
likewise, be increased for all purposes of this Agreement.
4.2 Annual Bonus. The Executive's targeted cash bonus under the Company's
annual bonus program (the "Bonus") shall not be less than 60 percent of the
Executive's Base Salary. Except as otherwise provided in Article 6 and 7
hereof, any Bonus earned under the program shall be payable to the Executive
in cash within sixty (60) days after the end of each fiscal year of the
Company during the term of this Agreement, commencing with the fiscal year
ending December 31, 1995. For fiscal year 1995, the Executive shall receive a
minimum bonus payment of $50,000.
4.3 Incentive Programs. The Executive shall participate in such stock
option, incentive, and performance award programs as are made available
generally to executives of the Company. With respect to any such program, the
Company shall provide the Executive with the opportunity to earn an award at a
level which is commensurate with the opportunity typically offered to
executives having the same or similar duties and responsibilities as the
Executive at companies similar in size and in character to the Company;
provided, however, that the Executive's opportunity shall be at least equal to
the highest level provided to any Senior Vice President of the Company.
4.4 Retirement Benefits. The Company shall provide to the Executive
participation in all Company qualified defined benefit and defined
contribution retirement plans (if any), subject to the eligibility and
participation requirements of such plans.
4.5 Employee Benefits. The Company shall provide to the Executive all
benefits to which other executives and employees of the Company are entitled
to receive, as commensurate with the Executive's position, subject to the
eligibility requirements and other provisions of such arrangements. Such
benefits shall include, but not be limited to, split-dollar and group term
life insurance, comprehensive health and major medical insurance, dental and
short-term and long-term disability.
4.6 Perquisites. The Company shall provide to the Executive, at the
Company's cost, all perquisites to which other similarly situated executives
of the Company are entitled to receive and such other perquisites which are
suitable to the character of Executive's position with the Company and
adequate for the performance of his
duties hereunder. Without limiting the generality of the foregoing, the
Company shall provide to the Executive a Personal Health and
<PAGE>
Services Allowance having a total annual value at least equal to five percent
(5%) of the Executive's Base Salary.
4.7 Right to Change Plans. By reason of Sections 4.3, 4.4, 4.5, and 4.6
herein, the Company shall not be obligated to institute, maintain, or refrain
from changing, amending, or discontinuing any benefit plan, program, or
perquisite, so long as such changes are similarly applicable to executive
employees generally.
Article 5. Expenses
The Company shall pay, or reimburse the Executive, for all ordinary and
necessary expenses, in a reasonable amount, which the Executive incurs in
performing his duties under this Agreement including, but not limited to,
travel, entertainment, professional dues and subscriptions, and all dues,
fees, and expenses associated with membership in various professional,
business, and civic associations and societies of which the Executive's
participation is in the best interest of the Company.
Article 6. Employment Terminations
6.1 Termination Due to Retirement or Death. In the event the Executive's
employment is terminated while this Agreement is in force by reason of
Retirement (as defined under the then established rules of the Company's tax-
qualified retirement plan) or death, the Executive's benefits shall be
determined in accordance with the Company's retirement, survivor's benefits,
insurance, and other applicable programs of the Company then in effect. Upon
the effective date of such termination, the Company's obligation under this
Agreement to pay and provide to the Executive the elements of pay described in
Article 4 herein shall immediately expire, except to the extent that the
benefits described in Sections 4.4 and 4.5 continue after Retirement under the
terms of the benefit plans and programs which apply generally to the Company's
executives, and except that the Executive shall receive all other rights and
benefits that he is vested in pursuant to other plans and programs of the
Company. In addition, the Company shall pay to the Executive (or the
Executive's beneficiaries, or estate, as applicable), a pro rata share of his
Bonus for the fiscal year in which employment termination occurs, based on the
results of the Company for such fiscal year. This pro rata Bonus amount shall
be determined by multiplying the Bonus which otherwise would apply for such
full fiscal year by a fraction, the numerator of which is the number of days
in such fiscal year prior to the date of employment termination and the
denominator of which is the total number of days in such fiscal year. The pro
rata Bonus shall be paid within sixty (60) days of the end of such fiscal
year.
6.2 Termination Due to Disability. In the event that the Executive becomes
Disabled (as defined below) during the term of this Agreement and is,
therefore, unable to perform his duties herein for more than
<PAGE>
one hundred twenty (120) total calendar days during any period of twelve (12)
consecutive months, or in the event of the Board's reasonable expectation that
the Executive's Disability will exist for more than a period of one hundred
twenty (120) calendar days, the Company shall have the right to terminate the
Executive's active employment as provided in this Agreement. However, the
Board shall deliver written notice to the Executive of the Company's intent to
terminate for Disability at least thirty (30) calendar days prior to the
effective date of such termination.
A termination for Disability shall become effective upon the end of the
thirty (30) day notice period. Upon such effective date, the Company's
obligation to pay and provide to the Executive the elements of pay described
in Article 4 herein shall immediately expire, except to the extent that the
benefits described in Sections 4.4 and 4.5 continue after Disability under the
terms of the benefit plans and programs which apply generally to the Company's
executives, and except that the Executive shall receive all rights and
benefits that he is vested in pursuant to other plans and programs of the
Company. In addition, the Company shall pay to the Executive a pro rata share
of his Bonus for the fiscal year in which employment termination occurs, based
on the results for such fiscal year, determined as provided in Section 6.1
herein. The pro rata Bonus shall be paid within sixty (60) days of the end of
such fiscal year.
The term "Disability" shall mean, for all purposes of this Agreement, the
incapacity of the Executive, due to injury, illness, disease, or bodily or
mental infirmity, to engage in the performance of substantially all of the
usual duties of employment with the Company as contemplated by Article 2
herein, such Disability to be determined by the Board of Directors of the
Company upon receipt and in reliance on competent medical advice from one (1)
or more individuals, selected by the Board, who are qualified to give such
professional medical advice.
It is expressly understood that the Disability of the Executive for a
period of one hundred twenty (120) calendar days or less in the aggregate
during any period of twelve (12) consecutive months, in the absence of any
reasonable expectation that his Disability will exist for more than such a
period of time, shall not constitute a failure by him to perform his duties
hereunder and shall not be deemed a breach or default and the Executive shall
receive full compensation for any such period of Disability or for any other
temporary illness or incapacity during the term of this Agreement.
6.3 Voluntary Termination by the Executive. The Executive may terminate
this Agreement at any time by giving the Board of Directors of the Company
written notice of intent to terminate, delivered at least ninety (90) calendar
days prior to the effective date of such termination.
<PAGE>
Upon the effective date of such termination, following the expiration of the
ninety (90) day notice period, the Company shall pay the Executive his full
Base Salary, at the rate then in effect as provided in Section 4.1 herein,
through the effective date of termination, plus all other benefits to which
the Executive has a vested right to at that time (for this purpose, the
Executive shall not be paid any Bonus with respect to the fiscal year in which
voluntary termination under this Section 6.3 occurs). In the event that the
terms and provisions of Section 6.6 or Article 7 herein do not apply to such
termination, the Company and the Executive thereafter shall have no further
obligations under this Agreement. However, in the event the terms and
provisions of Section 6.6 or Article 7 herein apply, the payments and benefits
set forth therein shall apply.
6.4 Involuntary Termination by the Company Without Cause. At all times
other than during a "Change-in-Control Period" (defined in Section 7.4
herein), the Board may terminate the Executive's employment, as provided under
this Agreement, at any time, for reasons other than death, Disability,
Retirement, or for Cause, by notifying the Executive in writing of the
Company's intent to terminate, at least thirty (30) calendar days prior the
effective date of such termination.
Upon the effective date of such termination, following the expiration of
the thirty (30) day notice period, the Company shall pay to the Executive a
lump-sum cash payment equal to the greater of: (a) the Base Salary then in
effect for the remaining term of this Agreement; or (b) eighteen (18) full
months of the Base Salary in effect as of the effective date of termination.
In addition, the Company shall provide the Executive a continuation of his
health and welfare benefits for the longer of: (x) the remaining term of the
Agreement; or (y) eighteen (18) full months at the employee rates then in
effect. If for any reason the Company is unable to continue health and
welfare benefits as required by the preceding sentence, the Company shall
either provide equivalent benefits to the Executive or pay to the Executive a
lump-sum cash payment equal to the value of the benefits which the Company is
unable to provide. Continuation of health benefits under this Section 6.4
will count against, and will not extend, the period during which benefits are
required to be continued under COBRA.
In addition, the Company shall make a prorated payment of the Executive's
targeted Bonus for the fiscal year in which termination occurs, calculated
based upon the performance of the Company through the end of the month
immediately preceding the effective date of the termination. Payment of the
Bonus shall be made in cash, in one lump sum, at the same time payment of Base
Salary is made pursuant to this Section 6.4. Further, the Company shall pay
the Executive all other benefits to which the Executive has a vested right at
the time, according to the provisions of each governing plan or program.
<PAGE>
The Company and the Executive thereafter shall have no further obligations
under this Agreement.
For purposes of this Section 6.4: (i) with respect to the fiscal year in
which termination occurs, the Executive shall be given credit under the
Company's Long-Term Retirement and Incentive Plan or any successor plan for
the portion of the fiscal year in which this Agreement is in effect, and shall
be vested pro rata for purposes of prior and current year awards; and (ii) all
vested awards under any incentive programs shall be paid notwithstanding any
provision of the governing plan or program calling for forfeiture of benefits
upon termination. If for any reason the Company is unable to comply with the
preceding sentence, the Company shall pay the Executive a lump-sum cash
payment equal to the value of the benefits or awards it is unable to vest, pay
or give credit for.
If the Executive's employment is terminated for any of the reasons set
forth in Article 7 herein, the Executive shall be entitled to receive the
benefits provided in Article 7 herein.
6.5 Termination For Cause. Nothing in this Agreement shall be construed to
prevent the Board from terminating the Executive's employment under this
Agreement for "Cause."
"Cause" shall be determined by the Board in the exercise of good faith and
reasonable judgment; and shall be defined as the conviction of the Executive
for the commission of an act of fraud, embezzlement, theft, or other criminal
act constituting a felony under U.S. laws involving moral turpitude; or the
gross neglect of the Executive in the performance of any and all material
covenants under this Agreement, for reasons other than the Executive's death,
Disability, or Retirement. The Company's Board of Directors, by majority vote,
shall make the determination of whether Cause exists, after providing the
Executive with notice of the reasons the Board believes Cause may exist, and
after giving the Executive the opportunity to respond to the allegation that
Cause exists.
In the event this Agreement is terminated by the Board for Cause, the
Company shall pay the Executive his Base Salary through the effective date of
the employment termination and the Executive shall immediately thereafter
forfeit all rights and benefits (other than vested benefits) he would
otherwise have been entitled to receive under this Agreement. The Company and
the Executive thereafter shall have no further obligations under this
Agreement.
6.6 Termination by Executive for Good Reason. At any time during the term
of this Agreement, the Executive may terminate this Agreement for Good Reason
(as defined below) by giving the Board of Directors of the Company thirty (30)
calendar days written notice of intent to terminate, which notice sets forth
in reasonable detail the
<PAGE>
facts and circumstances claimed to provide a basis for such termination.
Upon the expiration of the thirty (30) day notice period, the Good Reason
termination shall become effective, and the Company shall pay and provide to
the Executive the benefits set forth in this Section 6.6 (or, in the event of
termination for Good Reason within the Change-in-Control Period, the benefits
set forth in Section 7.1 herein).
Good Reason shall mean, without the Executive's express written consent,
the occurrence of any one or more of the following:
(a)The assignment of the Executive to duties materially inconsistent with
the Executive's authorities, duties, responsibilities, and status
(including offices, titles, and reporting requirements) as an officer
of the Company, or a reduction or alteration in the nature or status
of the Executive's authorities, duties, or responsibilities from those
in effect during the immediately preceding fiscal year, other than an
insubstantial and inadvertent act that is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(b)Without the Executive's consent, the Company's requiring the Executive
to be based at a location which is at least fifty (50) miles further
from the Executive's primary residence as of the Effective Date than
is such residence from the Company's current headquarters, except for
required travel on the Company's business to an extent substantially
consistent with the Executive's business obligations as of the
Effective Date;
(c)A failure by the Company to meet any obligation under Article 4 herein,
except as provided in Section 4.7 herein.
(d)The failure of the Company to obtain a satisfactory agreement from any
successor to the Company to assume and agree to perform this
Agreement, as contemplated in Section 11.1 herein.
Upon a termination of the Executive's employment for Good Reason at any
time other than during the Change-in-Control Period, the Executive shall be
entitled to receive the same payments and benefits as he is entitled to
receive following an involuntary termination of his employment by the Company
without Cause, as specified in Section 6.4 herein. The payment of Base Salary
and pro rata Bonus shall be made to the Executive within thirty (30) calendar
days following the effective date of employment termination. Upon a
termination for Good Reason within the Change-in-Control Period, the Executive
shall be entitled to receive the payments and benefits set forth in Article 7
herein in lieu of those set forth in this Section 6.6.
<PAGE>
The Executive's right to terminate employment for Good Reason shall not be
affected by the Executive's incapacity due to physical or mental illness. The
Executive's continued employment shall not constitute consent to, or a waiver
of rights with respect to, any circumstance constituting Good Reason herein.
6.7 Nonrenewal by Company. Upon any termination of this Agreement as a
result of a notice of nonrenewal by the Company pursuant to Article 1 hereof,
upon the effective date of such termination, the Company shall pay to the
Executive a lump-sum cash payment equal to twelve (12) full months' Base
Salary then in effect and shall continue the Executive's health and welfare
benefits for twelve (12) full months at the employee rates then in effect. If
for any reason the Company is unable to continue health and welfare benefits
as required by the preceding sentence, the Company shall either provide
equivalent benefits to the Executive or pay to the Executive a lump-sum cash
payment equal to the value of the benefits which the Company is unable to
provide. Continuation of health benefits under this Section 6.7 will count
against, and will not extend, the period during which benefits are required to
be continued under COBRA. In addition, the Company shall pay the Executive's
Bonus for the final year within sixty (60) days after the effective date of
the termination of this Agreement.
Article 7. Change-in-Control
7.1 Employment Terminations in Connection With a Change-in-Control. In the
event of a Qualifying Termination (as defined below) during a Change- in-
Control Period, the Company shall pay to the Executive and provide him with
benefits in lieu of the benefits which otherwise would have been payable under
this Agreement such that the total benefits payable to the Executive shall be
as follows:
(a) A lump-sum amount equal to three (3) times the highest rate of the
Executive's annualized Base Salary rate in effect at any time up to and
including the effective date of termination;
(b) A lump-sum amount equal to three (3) times the higher of the Executive's
Bonus for the last fiscal year prior to the Change-in-Control or the
average annual Bonus paid to the Executive for the last three (3) fiscal
years prior to the Change-in-Control;
(c) An amount equal to the Executive's unpaid Base Salary and pro rata Bonus
through the effective date of termination, determined as provided in
Section 6.4 herein; and
<PAGE>
(d) A continuation of health and welfare benefits for three (3) full years from
the effective date of termination. If for any reason the Company is unable
to continue health and welfare benefits as required by the preceding
sentence, the Company shall either provide equivalent benefits to the
Executive or pay to the
Executive a lump-sum cash payment equal to the value of the benefits which
the Company is unable to provide. Continuation of health benefits under
this Section 7.1 will count against, and will not extend, the period
during which benefits are required to be continued under COBRA. The
continuation of these welfare benefits may be discontinued by the Company
prior to the end of the three- (3-) year period in the event the Executive
has available substantially similar benefits from a subsequent employer,
as determined by the Company's Board of Directors.
For purposes of this Article 7, a Qualifying Termination shall mean any
termination of the Executive's employment or this Agreement, other than a
termination: (1) by the Company for Cause; (2) by reason of death, Disability,
or Retirement; or (3) by the Executive without Good Reason. Payment of any
lump-sum amounts pursuant to this Section 7.1 will be made within sixty (60)
days after the effective date of the termination of the Executive's employment
or this Agreement.
Notwithstanding any other provisions of this Agreement, in the event that
the Company delivers a written notice of intent not to renew to the Executive
at a time when the Company is aware of a Change-in-Control (or is aware of a
proposed transaction which could reasonably be expected to result in a Change-
in-Control) or a notice of intent not to renew becomes effective during a
Change-in-Control Period but prior to the effective date of a Change-in-
Control, the nonrenewal of this Agreement shall be deemed to be an involuntary
termination of the Executive's employment without Cause occurring during a
Change of Control Period (and in such event, the Executive shall be entitled
to receive the payments and benefits set forth in Section 7.1 herein in lieu
of the payments and benefits set forth in Section 6.4 herein).
Notwithstanding any other provision of this Agreement, in the event that
the Company delivers a notice of nonrenewal at any time other than as provided
in the immediately preceding paragraph, the Executive shall not be entitled to
receive the payments and benefits set forth in Section 7.1 herein (but shall
remain entitled to receive the payments and benefits set forth in Section 6.4
herein). Further, a notice of nonrenewal delivered by the Executive to the
Company shall never result in the Executive's ability to receive the payments
and benefits set forth in Section 7.1 herein.
7.2 Definition of "Change-in-Control." A Change-in-Control of the Company
shall be deemed to have occurred as of the first day any one or more of the
following conditions shall have been satisfied:
<PAGE>
(a)Any Person (as defined in Section 3(a)(9) of the Securities Exchange Act
of 1934) (other than those Persons in control of the Company as of the
Effective Date, and other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or a
corporation owned directly or indirectly by the stockholders of the
Company in substantially the same proportions as their ownership of
stock of the Company), becomes the Beneficial Owner (as defined in
Rule 13d-3 of the General Rules and Regulations under the Securities
Exchange Act of 1934), directly or indirectly, of securities of the
Company representing over thirty percent (30%) of the combined voting
power of the Company's common stock then outstanding; or
(b)During any period of two (2) consecutive years (not including any period
prior to the Effective Date), individuals who at the beginning of such
period constitute the Board of Directors (and any new Director, whose
election was approved or recommended by a vote of at least two-thirds
(2/3) of the Directors then still in office who either were Directors
at the beginning of the period or whose election or nomination for
election was so approved), cease for any reason to constitute a
majority thereof; or
(c)The stockholders of the Company approve: (i) a plan of complete
liquidation of the Company; or (ii) an agreement for the sale or
disposition of all or substantially all the Company's assets (except
as provided in (iii)); or (iii) a merger, consolidation, share
exchange, or reorganization of the Company with or involving any other
corporation, other than a merger, consolidation, share exchange, or
reorganization that would result in the owners of common stock having
more than fifty percent (50%) of the combined voting power of the
common stock of the Company outstanding immediately prior thereto,
continuing to have (either by such stock remaining outstanding or by
being converted into common stock of another entity or entities), more
than fifty percent (50%) of the combined voting power of the common
stock which is outstanding immediately after such merger,
consolidation, share exchange, or reorganization.
However, in no event shall a Change-in-Control be deemed to have occurred,
with respect to the Executive, if the Executive is part of a purchasing group
which consummates the Change-in-Control transaction. The Executive shall be
deemed "part of a purchasing group" for purposes of the preceding sentence if
the Executive is an equity participant in the purchasing company or group
(except for: (i) passive ownership of less than two percent (2%) of the stock
of the purchasing company; or (ii) ownership of equity participation in the
purchasing company or group which is otherwise not significant,
<PAGE>
as determined prior to the Change-in-Control by a majority of the nonemployee
continuing Directors).
7.3 Change-in-Control Period. "Change-in-Control Period" shall mean the
period of time commencing with the date on which the Company becomes aware of
the Change-in-Control or becomes aware of a proposed transaction which
reasonably could be expected to result in a Change-in-Control, and ending on
the first to occur of: (a) two (2) years after the effective date of the
Change-in-Control; or (b) the date on which the proposed transaction no longer
is reasonably expected to occur.
7.4 Limitation on Change-in-Control Benefits. In the event that any of the
amounts payable to the Executive by the Company pursuant to the provisions of
Section 7.1 of this Agreement or otherwise would, if made, be nondeductible
for Federal income tax purposes under Section 280G of the Internal Revenue
Code of 1986, as amended (after application of Section 280G(b)(4)), the amount
payable by the Company shall be reduced by the minimum amount necessary to
cause the Executive to receive no payments which would be nondeductible by the
Company for Federal income tax purposes under Section 280G of the Code. For
purposes of determining whether or not payments under Section 7.1 or otherwise
would in fact be nondeductible to the Company under Code Section 280G, the
following principles and guidelines are agreed to, and, absent contrary mutual
agreement, shall be followed: (i) all payments under or in respect of
supplemental retirement plans, and stock option, bonus, and other incentive
compensation plans are intended to represent reasonable compensation for
personal services performed by the Executive through the date of termination
of the Executive's employment; (ii) if there is an issue as to whether any
payments being made to the Executive constitute "parachute payments" under
Section 280G of the Code, and the Company and the Executive cannot agree upon
the amount thereof within thirty (30) days after the effective date of the
termination of the Executive's employment, the Executive and the Company
shall, within forty-five (45) days after the effective date of the termination
of Executive's employment, mutually agree upon and appoint a third party
arbitrator who shall analyze the issue giving recognition to the foregoing
intentions and shall issue a report within thirty (30) days of the appointment
stating the arbitrator's best estimate of the amount of "parachute payments"
under Code Section 280G, if any, and the report of such arbitrator shall be
conclusive and binding on the parties; (iii) the third party arbitrator
selected shall be a nationally recognized accounting firm or a management
consulting firm specializing in the area of executive compensation, who shall
be entitled to engage independent legal counsel for advice with respect to
legal matters in connection with the report; (iv) if the parties cannot agree
upon a third party arbitrator within the specified forty five- (45-) day time
period, an arbitrator shall be selected and appointed by the Chief Judge of
the United States District Court for the District of Maryland; and
<PAGE>
(v) the costs and expenses of the arbitrator, including counsel's fees, shall
be borne by the Company. The Executive and the Company agree that each will in
all cases file tax returns on a basis consistent with any conclusions reached
with respect to the deductibility of amounts under Code Section 280G, and will
defend such position to the extent practicable in the event a contrary
position is taken by the Internal Revenue Service. The Executive shall be
entitled to reimbursement of counsel fees in connection with any such defense
as provided in Section 12.1 hereof.
In the event of any reduction of payments made or to be made to the
Executive pursuant to Section 7.1 or otherwise as a result of this Section
7.4, the Executive shall be entitled to select the amount and form of
compensation to be reduced or eliminated.
7.5 Subsequent Imposition of Excise Tax. If, notwithstanding compliance
with the provisions of Section 7.4 herein, it is ultimately determined by a
court or pursuant to a final determination by the Internal Revenue Service
that any portion of the payments to the Executive is considered to be an
"excess parachute payment," subject to the excise tax under Section 4999 of
the Code, which was not contemplated to be an "excess parachute payment" at
the time of payment (so as to accurately determine whether a limitation should
have been applied to the payments to maximize the net benefit to the
Executive, as provided in Section 7.4 hereof), the Executive shall be entitled
to receive a lump-sum cash payment sufficient to place the Executive in the
same net after-tax position, computed by using the "Special Tax Rate" as such
term is defined below, that the Executive would have been in had such payment
not been subject to such excise tax, and had the Executive not incurred any
interest charges or penalties with respect to the imposition of such excise
tax. For purposes of this Agreement, the "Special Tax Rate" shall be the
highest effective Federal and state marginal tax rates applicable to the
Executive in the year in which the payment contemplated under this Section 7.5
is made.
Article 8. Outplacement Assistance
Following a Qualifying Termination (as defined in Section 7.1 herein) the
Executive shall be reimbursed by the Company for the costs of all outplacement
services obtained by the Executive within the two (2) year period after the
effective date of termination; provided, however, that the total reimbursement
shall be limited to an amount equal to fifteen percent (15%) of the
Executive's Base Salary as of the effective date of termination.
Article 9. Noncompetition
9.1 Prohibition on Competition. Without the prior written consent of the
Company: (a) during the term of this Agreement; (b) for twenty-four (24)
months following the termination of this Agreement for Cause or expiration or
termination of this Agreement as a result
<PAGE>
of Notice of Nonrenewal by the Executive pursuant to Article 1; and (c) for
twenty-four (24) months following the effective date of a termination of this
Agreement by the Executive pursuant to Section 6.3, the Executive shall not
serve as an employee or officer of any business or enterprise which is both:
(1) engaged in the domestic homebuilding business; and (2) is ranked in the
top ten, based on annual revenues, of all domestic homebuilders.
However, the Executive shall be allowed to purchase and hold for investment
less than three percent (3%) of the shares of any corporation whose shares are
regularly traded on a national securities exchange or in the over-the-counter
market.
9.2 Disclosure of Information. The Executive recognizes that he has access
to and knowledge of certain confidential and proprietary information of the
Company which is essential to the performance of his duties under this
Agreement. The Executive will not, during or after the term of his employment
by the Company, in whole or in part, disclose such information to any person,
firm, corporation, association, or other entity for any reason or purpose
whatsoever, nor shall he make use of any such information for his own
purposes.
9.3 Covenants Regarding Other Employees. During the term of this Agreement,
and for a period of twenty-four (24) months following the expiration of this
Agreement, the Executive agrees not to attempt to induce any employee of the
Company to terminate his or her employment with the Company, accept employment
with any competitor of the Company, or to interfere in a similar manner with
the business of the Company.
9.4 Specific Performance. The parties recognize that the Company
will have no adequate remedy at law for breach by the Executive of the
requirements of this Article 9 and, in the event of such breach, the Company
and the Executive hereby agree that, in addition to the right to seek monetary
damages, the Company will be entitled to a decree of specific performance,
mandamus, or other appropriate remedy to enforce performance of such
requirements.
Article 10. Indemnification
The Company hereby covenants and agrees to indemnify and hold harmless the
Executive fully, completely, and absolutely against and in respect to any and
all actions, suits, proceedings, claims, demands, judgments, costs, expenses
(including attorney's fees), losses, and damages resulting from the
Executive's good faith performance of his duties and obligations under the
terms of this Agreement. Nothing herein shall limit or reduce any rights of
indemnification to which the Executive might be entitled under the charter or
by-laws of the Company or otherwise.
<PAGE>
Article 11. Assignment
11.1 Assignment by Company. This Agreement may and shall be assigned or
transferred to, and shall be binding upon and shall inure to the benefit of,
any successor of the Company, and any such successor shall be deemed
substituted for all purposes of the "Company" under the terms of this
Agreement. As used in this Agreement, the term "successor" shall mean any
person, firm, corporation, or business entity which at any time, whether by
merger, purchase, or otherwise, acquires all or substantially all of the
assets or the business of the Company. Notwithstanding such assignment, the
Company shall remain, with such successor, jointly and severally liable for
all its obligations hereunder.
Failure of the Company to obtain the agreement of any successor to be bound
by the terms of this Agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement, and shall immediately entitle
the Executive to compensation from the Company in the same amount and on the
same terms as the Executive would be entitled in the event of a Qualifying
Termination during a Change-in-Control Period, as provided in Article 7
hereof.
Except as herein provided, this Agreement may not otherwise be assigned by
the Company.
11.2 Assignment by Executive. The services to be provided by the Executive
to the Company hereunder are personal to the Executive, and the Executive's
duties may not be assigned by the Executive; provided, however that this
Agreement shall inure to the benefit of and be enforceable by the Executive's
personal or legal representatives, executors, and administrators, successors,
heirs, distributees, devisees, and legatees. If the Executive dies while any
amounts payable to the Executive hereunder remain outstanding, all such
amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Executive's devisee, legatee, or other
designee or, in the absence of such designee, to the Executive's estate.
Article 12. Dispute Resolution and Notice
12.1 Dispute Resolution. The Executive shall have the right and option to
elect to have any good faith dispute or controversy arising under or in
connection with this Agreement settled by litigation or by arbitration.
If arbitration is selected, such proceeding shall be conducted before a
panel of three (3) arbitrators sitting in a location selected by the Executive
within fifty (50) miles from the location of his principal place of
employment, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the award of the
arbitrators in any court having competent jurisdiction.
<PAGE>
All expenses of such litigation or arbitration, including the reasonable
fees and expenses of the legal representative for the Executive, and necessary
costs and disbursements incurred as a result of such dispute or legal
proceeding, and any prejudgment interest, shall be borne by the Company.
12.2 Notice. Any notices, requests, demands, or other communications
provided for by this Agreement shall be sufficient if in writing and if sent
by registered or certified mail to the Executive at the last address he has
filed in writing with the Company or, in the case of the Company, at its
principal offices.
Article 13. Miscellaneous
13.1 Entire Agreement. This Agreement supersedes any prior agreements or
understandings, oral or written, between the parties hereto, or between the
Executive and the Company, with respect to the subject matter hereof, and
constitutes the entire agreement of the parties with respect thereto.
13.2 Modification. This Agreement shall not be varied, altered, modified,
canceled, changed, or in any way amended except by mutual agreement of the
parties in a written instrument executed by the parties hereto or their legal
representatives.
13.3 Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason,
the remaining provisions of this Agreement shall be unaffected thereby and
shall remain in full force and effect.
13.4 Counterparts. This Agreement may be executed in one (1) or more
counterparts, each of which shall be deemed to be an original, but all of
which together will constitute one and the same Agreement.
13.5 Tax Withholding. The Company may withhold from any benefits payable
under this Agreement all Federal, state, city, or other taxes as may be
required pursuant to any law or governmental regulation or ruling.
13.6 Beneficiaries. The Executive may designate one or more persons or
entities as the primary and/or contingent beneficiaries of any amounts to be
received under this Agreement. Such designation must be in the form of a
signed writing acceptable to the Board or the Board's designee. The Executive
may make or change such designation at any time.
Article 14. Governing Law
To the extent not preempted by Federal law, the provisions of this
Agreement shall be construed and enforced in accordance with the laws of the
state of Maryland.
<PAGE>
IN WITNESS WHEREOF, the Executive and the Company have executed this
Agreement, as of September 18, 1995.
-------------------
The Ryland Group, Inc. Executive:
By:/s/ R. Chad Dreier /s/ David Lesser
------------------- -----------------
R. Chad Dreier, Chairman, David Lesser
President and CEO
Attest: /s/ Janet Ladd
---------------------
<PAGE>
EXHIBIT 11 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS:
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
1995 1994 1995 1994
------- -------- ------- -------
<S> <C> <C> <C> <C>
Primary:
Net earnings (loss) from
continuing operations before
cumulative effect
of a change in accounting
principle $ 678 $ 6,827 $ (1,721) $15,612
Discontinued Operations 0 1,562 22,856 4,514
-------- --------- --------- --------
Net earnings before cumulative
effect of a change in
accounting principle 678 8,389 21,135 20,126
Cumulative effect of a
change in accounting principle 0 0 0 2,076
-------- --------- --------- --------
Net earnings 678 8,389 21,135 22,202
Adjustment for dividends
on convertible preferred shares (533) (603) (1,672) (1,848)
-------- --------- --------- --------
Adjusted net earnings $ 145 $ 7,786 $ 19,463 $20,354
======== ========= ========= ========
Weighted average common
shares outstanding 15,619,055 15,416,704 15,558,096 15,386,683
Common stock equivalents:
Stock options 16,513 19,316 8,346 61,969
Employee incentive plans 176,710 117,931 185,592 123,308
---------- ---------- ---------- ----------
Total 15,812,277 15,553,951 15,752,033 15,571,960
========== ========== ========== ==========
Primary earnings (loss) per common
share from continuing
operations before cumulative
effect of a change in
accounting principle $ 0.01 $ 0.40 $ (0.21) $ 0.88
Discontinued Operations 0.00 0.10 1.45 0.30
-------- -------- ------- -------
Primary earnings per common
share before cumulative
effect of a change in
accounting principle 0.01 0.50 1.24 1.18
Cumulative effect of a
change in
accounting principle 0.00 0.00 0.00 0.13
--------- -------- ------- -------
Primary earnings
per common share $ 0.01 $ 0.50 $ 1.24 $ 1.31
========= ======== ======= =======
Fully-Diluted:
Net earnings (loss) from
continuing operations before
cumulative effect
of a change in accounting
principle $ 678 $ 6,827 $ (1,721) $ 15,612
Discontinued Operations 0 1,562 22,856 4,514
------- -------- ------- -------
Net earnings before cumulative
effect of a change in
accounting principle 678 8,389 21,135 20,126
Cumulative effect of a
change in accounting principle 0 0 0 2,076
------- --------- ------- -------
Net earnings 678 8,389 21,135 22,202
Adjustment for incremental
expense from conversion of
convertible preferred shares(1) 0 (266) (744) (815)
Adjustment for dividends on
convertible preferred shares (533) 0 0 0
---------- --------- -------- --------
Adjusted net earnings $ 145 $ 8,123 $20,391 $21,387
========== ========= ======== ========
Weighted average common
shares outstanding 15,619,055 15,416,704 15,558,096 15,386,683
Common stock equivalents:
Stock options 16,513 19,316 16,907 61,969
Employee incentive plans 176,710 117,931 185,592 123,308
Convertible preferred stock(1) 0 1,103,318 1,026,718 1,125,650
----------- ----------- ---------- ----------
Total 15,812,277 16,657,269 16,787,312 16,697,610
=========== =========== ========== ==========
Fully diluted earnings (loss)
per common share from
continuing operations
before cumulative effect
of a change in
accounting principle $ 0.01 $ 0.40 $ (0.15) $ 0.89
Discontinued Operations 0.00 0.09 1.36 0.27
------ ------- ------ ------
Fully diluted earnings per
common share before
cumulative effect
of a change in
accounting principle 0.01 0.49 1.21 1.16
Cumulative effect of a
change in accounting principle 0.00 0.00 0.00 0.12
------- ------- ------ ------
Fully diluted earnings
per common share $ 0.01 $ 0.49 $ 1.21 $ 1.28
======= ======= ====== =======
<FN>
(1) For the three months ended September 30, 1995, no adjustment was made to
net earnings for incremental dividends on preferred stock or to common stock
equivalents for convertible preferred stock as these adjustments would be
anti-dilutive.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
RYLAND GROUP INC. FORM 10-Q FOR THE PERIOD ENDED 9/30/95 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 65,721
<SECURITIES> 104,303
<RECEIVABLES> 311,272
<ALLOWANCES> 0
<INVENTORY> 588,560
<CURRENT-ASSETS> 0
<PP&E> 33,258
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,672,584
<CURRENT-LIABILITIES> 0
<BONDS> 756,908
<COMMON> 15,621
0
965
<OTHER-SE> 308,499
<TOTAL-LIABILITY-AND-EQUITY> 1,672,584
<SALES> 1,040,518
<TOTAL-REVENUES> 1,137,012
<CGS> 917,279
<TOTAL-COSTS> 1,062,017
<OTHER-EXPENSES> 9,414
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68,450
<INCOME-PRETAX> (2,869)
<INCOME-TAX> (1,148)
<INCOME-CONTINUING> (1,721)
<DISCONTINUED> 22,856
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,135
<EPS-PRIMARY> 1.24
<EPS-DILUTED> 1.21
</TABLE>
