UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ Annual Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
[Fee Required]
For the fiscal year ended December 31, 1996
Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
[No Fee Required]
Commission File Number 1-8029
THE RYLAND GROUP, INC.
(Exact name of registrant as specified in its charter)
Maryland 52-0849948
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or
organization)
11000 Broken Land Parkway
Columbia, Maryland 21044
(Address of principal executive offices)
Registrant's telephone number, including area code: (410) 715-7000
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, (Par Value $1.00) New York Stock Exchange
Common Share Purchase Rights New York Stock Exchange
Securities Registered Pursuant
to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Sec.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. /X/
The aggregate market value of the Common Stock of The Ryland Group, Inc., held
by non-affiliates of the registrant (15,671,097 shares) as of March 4, 1997,
was $199,806,487. The number of shares of common stock of The Ryland Group,
Inc., outstanding on March 4, 1997, was 15,896,988.
DOCUMENTS INCORPORATED BY REFERENCE
Name of Document Location in Report
- ---------------- ------------------
Proxy Statement for 1997 Annual Meeting of Stockholders Parts I, III
Annual Report to Shareholders for the year
ended December 31, 1996 Parts II, IV
Form 8-K filed September 12, 1989 Part IV
Form 10-K for the year ended December 31, 1989 Part IV
Registration Statement on Form S-3, Registration 33-28692 Part IV
Form 8-K filed December 31, 1990 Part IV
Form 8-K filed August 6, 1992 Part IV
Form 10-K for the year ended December 31, 1990 Part IV
Form 10-Q for the quarter ended June 30, 1992 Part IV
Registration Statement on Form S-3, Registration 33-48071 Part IV
Form 10-Q for the quarter ended June 30, 1994 Part IV
Form 8-K filed October 24, 1996 Part IV
Registration Statement on Form S-3, Registration 333-03791 Part IV
Form 10-K for the year-ended December 31, 1995 Part IV
Form 8-K filed July 2, 1996 Part IV
THE RYLAND GROUP, INC.
FORM 10-K
INDEX
Page
PART I. Number
------
Item 1. Business 4
Item 2 Properties 11
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
PART II.
Item 5. Market for the Company's Common Stock and Related
Stockholder Matters 14
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
Item 8. Financial Statements and Supplementary Data 14
Item 9. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure 14
PART III.
Item 10. Directors and Executive Officers of the Registrant 15
Item 11. Executive Compensation 15
Item 12. Security Ownership of Certain Beneficial
Owners and Management 15
Item 13. Certain Relationships and Related Transactions 15
PART IV.
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8- K 16
SIGNATURES 20
INDEX OF EXHIBITS 21
PART I
Item 1. Business.
The Ryland Group, Inc. (the "Company"), is a leading national homebuilder and
mortgage-related financial services firm. Established in 1967, the Company
builds homes and provides mortgage services in 24 divisions in 20 states and
is one of the largest single-family on-site homebuilders in the United States.
The Company's homebuilding segment specializes in the sale and construction of
single-family attached and detached housing. The financial services segment,
whose business is conducted through Ryland Mortgage Company and its
subsidiaries (RMC), complements the Company's homebuilding activities by
providing various mortgage-related products and services for retail customers
including loan origination, loan servicing, title and escrow services. The
financial services segment also conducts investment activities.
HOMEBUILDING
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MARKETS The homebuilding segment markets and builds homes that are
constructed on-site in five regions which are comprised of 24 divisions across
the nation. As of December 31, 1996, the Company operated in the following
metropolitan markets:
Region Major Markets Served
Mid-Atlantic Baltimore, Delaware Valley/Philadelphia,
Washington, D.C./ Northern Virginia
Midwest Chicago, Cincinnati, Indianapolis, Minneapolis
Southeast Atlanta, Charlotte, Greenville, Orlando, Tampa
Southwest Austin, Dallas, Houston, San Antonio
West Denver, Los Angeles/Pacific Inland, Phoenix, Portland,
Sacramento, Salt Lake City, San Diego, San Jose
Bay Area
Effective January 1996, the Company consolidated the West and California
regions into a new West region.
The homebuilding segment sells under the name of Brock Homes in Southern
California (except for San Diego where the Company sells under the Ryland
Homes name), Larchmont Homes in Sacramento, California, Scott Felder Homes in
certain Texas markets and Ryland Homes in all other areas.
The Company markets detached and attached single family homes generally
targeted to the entry level, first-and second-time move-up home buyer through
a diverse product line tailored to local styles and preferences in each of its
geographic markets. The product line offered in a particular community is
determined in conjunction with the land acquisition process, and is dependent
upon a number of factors, including consumer preferences, competitive product
offerings and the cost of building lots in the community. In 1996, the
Company's average closing price was $174,000.
During the last three years, the Company has updated a majority of its product
line. The Company generally outsources architectural services to a network of
architects to increase creativity and to ensure that its home designs are
consistent with local market preferences. In addition, through flexible
supply arrangements and construction methods, the Company has significantly
improved its ability to quickly bring new home designs to market and modify
existing products.
The Company's operations in each of its homebuilding markets may differ based
on a number of market-specific factors. These factors include regional
economic conditions and job growth, land availability and the local land
development process, consumer tastes, competition from other builders of new
homes and home resale activity. The Company considers each of these factors
when entering into new markets or determining the extent of its operations and
capital allocation in existing markets. During 1996, the Company completed
its first full year of operations in Minneapolis, Minnesota; Tampa, Florida;
and San Jose, California. The Company also continued its start-up operations
in Portland, Oregon and expects to begin delivering homes there in 1997.
In December 1995, the Company announced its decision to exit homebuilding
operations in the Columbus, Ohio market and this exit was substantially
completed at December 31, 1996. The Company's decision was based upon its
assessment that better opportunities were available to employ capital in other
Midwest markets. During the past year, due to economic uncertainties and
competitive pressures in the Mid-Atlantic region, the Company continued to
reallocate capital out of the Mid-Atlantic and into other regions where the
Company believes it can achieve higher returns.
LAND ACQUISITION AND DEVELOPMENT As of December 31, 1996, the Company
operated in approximately 275 communities in 24 metropolitan markets in 20
states. The Company's objective is to control a portfolio of building lots
sufficient to meet anticipated homebuilding requirements for a period of two
to three years. The land acquisition process is controlled through a formal
corporate land approval committee to help ensure that transactions meet the
Company's standards for financial performance and risk. In the ordinary
course of its homebuilding business, the Company utilizes both direct
acquisition and option contracts to control building lots for use in the sale
and construction of homes, depending on which vehicle is deemed more
advantageous given the Company's profit objectives and capital constraints as
well as local market conditions. The Company's direct land acquisition
activities include the bulk purchase of finished building lots from land
developers and the purchase of undeveloped, entitled land from various third
parties. The Company generally does not purchase unentitled or unzoned land.
Option contract agreements are generally limited to finished building lots.
Although control of lot inventory through the use of option contracts
minimizes the Company's investment, such a strategy is not viable in certain
markets due to the absence of third party land developers. In other markets,
competitive conditions may preclude the Company from controlling quality
building lots solely through the use of option contracts. In order to improve
its land positions, the Company acquires finished lots on a bulk basis and
undeveloped, entitled land. The Company utilizes selective development of
entitled land in order to gain access to prime locations, increase margins and
position the Company as a leader in the community through its influence over
the community's character, layout and amenities.
As of December 31, 1996, the Company had deposits and letters of credit
outstanding of $32.9 million in connection with option and land purchase
contracts having a total purchase price of $294.7 million. These options and
commitments expire at various dates through 2001.
MATERIALS COSTS Substantially all materials used in the construction of homes
are available from a number of sources, but may fluctuate in price due to
various factors. To increase purchasing efficiencies, the Company
standardizes certain building materials and products in its homes and may
procure such products through national supply contracts. The Company operates
a plant in Maryland that produces and ships rough lumber packages and trim
materials to building sites in its Baltimore, Maryland and Washington,
D.C./Northern Virginia markets. In other markets, the Company may purchase
rough lumber packages from outside suppliers where this is determined to be
the most cost effective procurement and construction approach.
PRODUCTION MANAGEMENT AND SUBCONTRACTORS Substantially all on-site
construction is performed for a fixed price by independent subcontractors
selected on a competitive bid basis. The Company generally requires a minimum
of three competitive bids for each phase of construction. Construction
activities are supervised by the Company's production supervisors who schedule
and coordinate subcontractor work, monitor quality and ensure compliance with
local zoning and building codes. The Company has completed the implementation
of an integrated financial and homebuilding management information system
which assists in scheduling production and controlling costs. Through this
system, the Company monitors the construction status and job costs incurred
for each home for each phase of construction. The system provides for
detailed budgeting and allows the Company to monitor and control actual costs
versus construction bids for each subcontractor. The Company has, on
occasion, experienced shortages of skilled labor in certain markets. If
shortages were to occur in the future, such shortages could result in longer
construction times and higher costs than those experienced in the past.
MARKETING AND CUSTOMER SERVICE The Company generally markets it's homes to
entry level, first and second-time move-up buyers through targeted product
offerings in each of the communities in which it operates. The Company's
marketing strategy is determined during the land acquisition and feasibility
stage of a community's development. The Company's homes are sold by employees
and independent real estate brokers, generally by showing furnished model
homes. The Company reports a new order when a customer's sales contract is
approved, and records revenue from a sale upon closing. The Company normally
commences construction of homes when a customer has selected a lot and floor
plan and has received preliminary mortgage approval. However, construction of
homes may begin prior to a sale to satisfy market demand for completed homes
and to facilitate construction scheduling.
The Company provides each homeowner with a comprehensive one-year warranty at
the time of sale and a ten-year warranty covering loss related to structural
defects. The Company believes its warranty program meets or exceeds terms
customarily offered in the homebuilding industry.
FINANCIAL SERVICES
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The Company has repositioned its financial services segment through a strategy
consisting of (1) a focus on retail mortgage loan origination and servicing
activities, (2) the divestiture of non-core assets and lines of business, (3)
leveraging its affiliation with the company's homebuilding segment to increase
its capture rate for builder loans and (4) reaching mortgage customers
directly at the point of sale through the use of technology. Operations of
the financial services segment include retail loan production, loan servicing,
related title, escrow and closing services and investment activities.
RETAIL OPERATIONS
LOAN PRODUCTION In 1996, the Company's mortgage origination operations
consisted of both builder loans, which originate in connection with the sale
of the Company's homes, and spot loans, which are unrelated to the financing
of homes built by the Company. During 1996, RMC originated 11,161 loans
totaling approximately $1.5 billion (including the wholesale operations which
was sold in the first quarter of 1996) of which 47 percent were for purchases
of homes built by the Company and 53 percent were for purchases of homes not
built by the Company or for the refinancing of existing mortgage loans. The
Company has increased its focus on builder loan production by deploying loan
officers directly in the Company's homebuilding communities and by utilizing
traffic and prospect information generated by the Company's homebuilding sales
and marketing staff. RMC's capture rate of the Company's homebuilding segment
customers increased from 63 percent in 1995 to 66 percent during 1996.
During 1996, the Company sold its wholesale mortgage origination business
based on expectations that the business would not contribute significantly to
the Company's future earnings. The disposition of this business reduced
mortgage originations and revenues of the financial services segment in 1996
but did not have a material effect on the Company's earnings for the year.
The Company arranges various types of mortgage financing including
conventional, Federal Housing Administration (FHA) and Veterans Administration
(VA) mortgages with various fixed- and adjustable-rate features. The
Company's mortgage operations are approved by Federal Home Loan Mortgage
Corporation (FHLMC), Federal National Mortgage Association (FNMA) and
Government National Mortgage Association (GNMA). The mortgage origination
operation has loan production offices which are generally co-located with the
Company's homebuilding operations.
LOAN SERVICING The Company services loans that it originates, as well as
loans originated by others. As of December 31, 1996, the Company's loan
servicing portfolio was $6.3 billion and included loans subserviced for others
totaling $1.2 billion. The Company services loans originated in all 50
states, with the highest concentrations in California, Florida, Maryland and
Texas. The Company continually evaluates the economics of selling versus
retaining the rights to service loans it originates. During 1996, the Company
sold a substantial portion of the servicing rights related to loans it
originated due to the economic conditions in the market place at the time.
TITLE AND ESCROW SERVICES Cornerstone Title Company, a wholly owned
subsidiary, provides title services primarily to the Company's customers. As
of December 31, 1996, Cornerstone had offices in Delaware, Florida, Georgia,
Illinois, Maryland, New Jersey, Texas and Virginia. The Company also operates
an escrow Company in California that performs escrow and loan closing
functions primarily on homes built by the Company. During 1996, Cornerstone
Title Company captured 94% of the title and escrow business related to
settlement of the Company's homes in those markets in which it operates.
INVESTMENT OPERATIONS
The Company's investment operations hold certain assets, primarily mortgage-
backed securities and notes receivable, 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. The Company earns a net
interest spread on the investment portfolio and may periodically realize gains
from the sale of mortgage-backed securities from the portfolio.
LIMITED-PURPOSE SUBSIDIARIES
- ----------------------------
The Company's limited-purpose subsidiaries no longer issue mortgage-backed
securities and mortgage-participation securities, but they continue to hold
collateral for previously issued mortgage-backed bonds in which the Company
maintains a residual interest. Revenues of the limited-purpose subsidiaries
consist of interest on mortgage collateral subject to bond indebtedness.
Expenses consist primarily of interest on the outstanding bonds and
amortization of deferred costs. Revenues, expenses and portfolio balances
continue to decline as the mortgage collateral pledged to secure the bonds
decreases due to scheduled principal payments, prepayments and exercises of
early redemption provisions. Revenues have approximated expenses for the last
three years.
REAL ESTATE AND ECONOMIC CONDITIONS
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The Company is significantly affected by the cyclical nature of the
homebuilding industry, which is sensitive to fluctuations in economic
activity, interest rates and levels of consumer confidence, the effects of
which differ among the various geographic markets in which the Company
operates. Higher interest rates may affect the ability of buyers to qualify
for mortgage financing and decrease demand for new homes. As a result, the
Company's home sales and mortgage originations generally will be negatively
impacted by rising interest rates. Movements in interest rates may also affect
the market value of the Company's investment portfolio. Prepayments, which
are higher in a falling interest rate environment, reduce the value of loan
servicing rights in the Company's loan servicing portfolio. The Company's
business is also affected by local economic conditions, such as employment
rates and housing demand in the markets in which it builds homes.
Inventory risk can be substantial for homebuilders. The market value of land,
building lots and housing inventories can fluctuate significantly as a result
of changing market and economic conditions. In addition, inventory carrying
cost can be significant and can result in losses in poorly performing projects
or markets. The Company must, in the ordinary course of its business,
continuously seek and make acquisitions of land for expansion into new markets
as well as for replacement and expansion of land inventory within its current
markets. Although the Company employs various measures designed to manage
inventory risks, there can be no assurance that such measures will be
successful.
COMPETITION
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The residential housing industry is highly competitive, and the Company
competes in each of its markets with a large number of national, regional and
local homebuilding companies. Some of these companies are larger than the
Company and have greater financial resources. In addition, the general
increase in the availability of capital and financing in recent years has made
it easier for both large and small homebuilders to expand and enter new
markets and has increased competition. In addition, the Company competes with
other housing alternatives including existing homes and rental housing.
Principal competitive factors in homebuilding are home price, design, quality,
reputation, relationship with developers, availability and location of lots
and availability of customer financing.
The financial services segment competes with other mortgage bankers to arrange
financing for home buyers and refinancing customers. Principal competitive
factors include interest rates and other features of mortgage loan products
available to the consumer. The loan servicing operation of the financial
services segment competes with other loan servicers for loan servicing rights.
REGULATORY AND ENVIRONMENTAL MATTERS
- ------------------------------------
The homebuilding segment is subject to various local, state and federal
statutes, ordinances, rules and regulations concerning zoning, building
design, construction and similar matters, including local regulations which
impose restrictive zoning and density requirements in order to limit the
number of homes that can be built within the boundaries of a particular area.
The Company may also be subject to periodic delays in homebuilding projects
due to building moratoria in any of the areas in which it operates.
Generally, such moratoria relate to insufficient water or sewage facilities or
inadequate roads or local services.
The Company and its competitors are subject to a variety of local, state and
federal statutes, ordinances, rules and regulations concerning the protection
of health and the environment. The Company is also subject to a variety of
environmental conditions that can affect its business and its homebuilding
projects. The particular environmental laws which apply to any given
homebuilding site vary greatly according to the site's location, the site's
environmental condition and the present and former uses of the site, as well
as adjoining properties. Environmental laws and conditions may result in
delays, may cause the Company to incur substantial compliance and other costs,
and can prohibit or severely restrict homebuilding activity in certain
environmentally sensitive regions or areas.
The Company's financial services segment is subject to the rules and
regulations of FHA, VA, FNMA, FHLMC, and GNMA ("regulatory agencies") with
respect to originating, processing, selling and servicing mortgage loans. In
addition, there are other federal and state statutes and regulations affecting
such activities. These rules and regulations, among other things, prohibit
discrimination and establish underwriting guidelines which include provisions
for inspections and appraisals, require credit reports on prospective
borrowers and fix maximum loan amounts. Moreover, the Company is required to
submit to the regulatory agencies audited financial statements annually, and
each regulatory entity has its own financial requirements. The Company's
affairs are also subject to examination by the regulatory agencies at all
times to assure compliance with the applicable regulations, policies and
procedures. Mortgage origination activities are subject to the Equal Credit
Opportunity Act, Federal Truth-in-Lending Act and Real Estate Settlement
Procedures Act and the regulations promulgated thereunder which prohibit
discrimination and require the disclosure of certain information to mortgagors
concerning credit and settlement costs.
EMPLOYEES
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At December 31, 1996, the Company employed 2,358 people. The Company
considers its employee relations to be good. No employees are represented by
a collective bargaining agreement.
Item 2. Properties
The Company leases office space for its corporate headquarters in Columbia,
Maryland. In addition, the Company leases office space in the various markets
in which it operates. The Company operates a building component plant in New
Windsor, Maryland.
Item 3. Legal Proceedings
Contingent liabilities may arise from the obligations incurred in the ordinary
course of business, or from the usual obligations of on-site housing producers
for the completion of contracts.
In 1995, one current and two former officers of Ryland Mortgage Company (RMC)
were 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 $3.4 million under
three mortgage-servicing contracts with the RTC. In July 1996, the RTC
(acting through its successor, the FDIC) requested reimbursement from RMC of
the alleged overpayment, interest thereon and additional amounts relating to
mortgage-servicing contracts. The Company is investigating these matters and,
at this time, cannot predict how they will be resolved or whether the Company
or RMC will be targets of the grand jury investigation, parties to any civil
litigation or incur any liability.
The Company is also party to various legal proceedings generally incidental to
its businesses. Based on evaluation of the above matters and discussions with
counsel, management believes that liabilities to the Company arising from
these matters will not have a material adverse effect on the financial
condition of the Company.
Item 4. Submission to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 1996.
SEPARATE ITEM: EXECUTIVE OFFICERS OF THE REGISTRANT
Position (date elected to position)
Name Age Prior Business Experience
- ---- --- -----------------------------------
R. Chad Dreier 49 Chairman of the Board of the Company (1994),
President and Chief Executive Officer of the
Company (1993). Executive Vice President and
Chief Financial Officer of Kaufman and Broad
Home Corporation and Chairman of Kaufman and
Broad Mortgage Company (1986-1993).
Michael C. Brown 39 Senior Vice President of the Company (1996),
President of Ryland Mortgage Company (1996).
Chief Operating Officer of Ryland Mortgage
Company (1995). Senior Vice President of
Ryland Mortgage Company (1987-1995).
J. Sidney Davenport IV 55 Vice President of the Company(1984) and
Executive Vice President of Ryland Mortgage
Company (1993). Senior Vice President of
Ryland Mortgage Company (1990-1993).
James R. Fratangelo 38 Senior Vice President of Ryland Mortgage
Company (1993). Marketing Representative
of Ryland Mortgage Company (1983-1993).
Thomas J. Gancsos 41 Senior Vice President of the Company and
President of Mid-Atlantic Region (1996).
Regional Vice President of Mid-Atlantic Region
(1994). Vice-President of Washington Homes
(1993-1994). Division President of Chicago
(1993).
John M. Garrity 50 Senior Vice President of the Company,
President of Southeast Region (1994) and
President of the Southwest Region (1996).
Division General Manager of Arvida Homes
(1992-1994).
Timothy J. Geckle 44 Vice President, Corporate Counsel and
Secretary of the Company (1996). Vice
President, Deputy General Counsel (1995-1996).
Corporate Counsel (1991-1995).
Edward W. Gold 39 Senior Vice President Human Resources of the
Company (1996). Vice President of Human
Resources, United States Fidelity & Guaranty
Company (1991-1996).
Michael D. Mangan 40 Executive Vice President and Chief Financial
Officer of the Company (1994).Executive Vice
President and Group Chief Financial Officer
of GMAC Mortgage Corporation (1991-1994).
Frank J. Scardina 48 Senior Vice President of the Company (1994),
President of West Region (1996) and President
of California Region (1994). Division
President of Columbus (1993).
Kipling W. Scott 42 Senior Vice President of the Company and
President of Midwest Region (1994). Midwest
Region Director of Land Resources & Planning
(1993). President of Development Management
Services, Inc. (1989-1993).
All officers are elected by the board of directors.
There are no family relationships, arrangements or understandings pursuant to
which any of the officers listed were elected. For a description of
employment and severance arrangements with certain executive officers of the
Company, see page 12 of the Proxy Statement for the 1997 Annual Meeting of
Stockholders.
PART II
Item 5. Market for the Company's Common Stock and Related Stockholder
Matters.
The information required by this item is incorporated by reference from the
section entitled "Common Stock Prices and Dividends" appearing on page 48 of
the Annual Report to Shareholders for the year ended December 31, 1996.
Item 6. Selected Financial Data.
The information required by this item is incorporated by reference from the
section entitled "Selected Financial Data" appearing on page 23 of the Annual
Report to Shareholders for the year ended December 31, 1996.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The information required by this item is incorporated by reference from the
section entitled "Management's Discussion and Analysis of Results of
Operations and Financial Condition" appearing on pages 24 through 28 of the
Annual Report to Shareholders for the year ended December 31, 1996.
Item 8. Financial Statements and Supplementary Data.
The information required by this item is incorporated by reference from the
information appearing on pages 29 through 46 and from the section entitled
"Quarterly Financial Data and Common Stock Prices and Dividends" appearing on
page 48 of the Annual Report to Shareholders for the year ended December 31,
1996.
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.
During the fiscal years ended December 31, 1996 and 1995, there were no
disagreements between the Company and its accountants on any matter of
accounting principle or financial statement disclosure.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information as to the Company's Directors is incorporated by reference from
pages 3, 4 and 7 of the Company's Proxy Statement for its 1997 Annual Meeting
of Stockholders. Information as to the Company's executive officers is shown
under Part I as a separate item.
Item 11. Executive Compensation.
The information required by this item is incorporated by reference from pages
7-13 of the Company's Proxy Statement for its 1997 Annual Meeting of
Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is incorporated by reference from pages
5 and 6 of the Company's Proxy Statement for its 1997 Annual Meeting of
Stockholders.
Item 13. Certain Relationships and Related Transactions.
There are no transactions, business relationships or indebtedness required to
be reported by the Company pursuant to this Item.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a) 1. Financial Statements.
The following consolidated financial statements of The Ryland Group,
Inc., and Subsidiaries, included in the Annual Report to Shareholders
for the year ended December 31, 1996, are incorporated by reference in
Item 8:
Consolidated Statements of Earnings - years ended December 31, 1996,
1995, and 1994.
Consolidated Balance Sheets - December 31, 1996 and 1995.
Consolidated Statements of Stockholders' Equity - years ended
December 31, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows - years ended
December 31, 1996, 1995 and 1994.
Notes to Consolidated Financial Statements.
(a) 2. Financial Statement Schedules. (filed herewith) Page No.
--------
Schedule II - Valuation and Qualifying Accounts..............18
Schedules not listed above have been omitted because they are
either inapplicable or the required information has been given
in the financial statements or notes thereto.
(a) 3. Exhibits
Exhibit No.
-----------
3.1 Charter of The Ryland Group, Inc., as amended.
(Incorporated by reference from Form 10-K for the year
ended December 31, 1989)
3.2 Bylaws of The Ryland Group, Inc., as amended.
(Filed herewith)
4.1 Rights Agreement dated as of October 18, 1996, between
The Ryland Group, Inc., and ChaseMellon Shareholder Services,
L.L.C. (Incorporated by reference from Form 8-K filed
October 24,1996)
4.2 Articles Supplementary dated as of August 31, 1989.
(Incorporated by reference from Form 8-K filed September 12,
1989)
4.3 Indenture dated as of July 15, 1992, between The Ryland Group,
Inc., and Security Trust Company, N.A., as Trustee.
(Incorporated by reference from Form 8-K filed August 6, 1992)
4.4 Senior Subordinated Notes dated as of July 23, 1992.
(Incorporated by reference from Form 8-K filed August 6, 1992)
4.5 Senior Subordinated Notes dated as of November 4, 1993.
(Incorporated by reference from Registration Statement on Form
S-3, Registration No. 33-48071)
4.6 Indenture dated as of June 28, 1996, between The Ryland Group,
Inc., and Chemical Bank, as Trustee.
(Incorporated by reference from Form 8-K filed July 2, 1996)
4.7 Senior Notes dated as of June 10, 1996.
(Incorporated by reference from Registration Statement on
Form S-3, Registration No. 333-03791)
10.1 Lease Agreement between Seventy Corporate Center Limited
Partnership and The Ryland Group, Inc., dated April 17, 1990.
(Incorporated by reference from Form 10-K for the year ended
December 31, 1990)
10.2 (1) 1992 Equity Incentive Plan of The Ryland Group, Inc.
(Incorporated by reference from Form 10-Q for the quarter
ended June 30, 1992)
10.3 (1) 1992 Non-Employee Director Equity Plan of The Ryland Group,
Inc., as amended. (Incorporated by reference from Form 10-Q
for the quarter ended June 30, 1994)
10.4 Restated Credit Agreement dated as of July 21, 1995, between
The Ryland Group, Inc., and certain banks. (Incorporated by
reference from Form 10-K for the year ended December 31, 1995)
10.5 Restated Loan and Security Agreement dated as of June 16, 1995,
between Ryland Mortgage Company; Associates Mortgage Funding
Corporation; BankOne, Texas, N.A.; and certain lenders.
(Incorporated by reference from Form 10-K for the year ended
December 31, 1995)
10.6 First Amendment to Restated Loan and Security Agreement dated
as of June 3, 1996, between Ryland Mortgage Company, Associate
Mortgage Funding Corporation, BankOne, Texas, N.A., and certain
lenders.
(Filed herewith)
10.7 (1) Employment Agreement dated as of January 28, 1997, between
R. Chad Dreier and The Ryland Group, Inc. (Filed herewith)
10.8 (1) Employment Agreement dated as of September 18, 1995,
between Michael D. Mangan and The Ryland Group, Inc. as
amended and restated as of January 28, 1997.
(Filed herewith)
10.9 (1) Senior Executive Severance Agreement dated as of January 28,
1997, between the executive officers of the Company and The
Ryland Group, Inc.
(Filed herewith)
10.10 (1) Executive and Director Deferred Compensation Plan, effective
as of January 1, 1997 between The Ryland Group, Inc. and
certain of its executive employees and Directors.
(Filed herewith)
11 Statement Re Computation of Per Share Earnings.
(Filed herewith)
13 Annual Report to Shareholders for the year ended December 31,
1996.
(Filed herewith)
21 Subsidiaries of the Registrant.
(Filed herewith)
23 Consent of Ernst & Young LLP, Independent Auditors.
(Filed herewith)
24 Power of Attorney.
(Filed herewith)
27 Financial Data Schedule.
(Filed herewith)
(1) Executive Compensation Plan or Arrangement
(b) Reports on Form 8-K filed in the fourth quarter of 1996:
Form 8-K was filed with the Securities and Exchange Commission on October
24, 1996 regarding The Shareholders Rights Plan.
The Ryland Group, Inc., and Subsidiaries
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(dollar amounts in thousands)
Balance at Charged to Charged Deductions Balance at
Beginning Costs and to Other and End of
Description of Period Expenses Accounts Transfers (1) Period (2)
Valuation allowance:
Homebuilding inventories
1996 $ 8,303 $ 0 $ 0 $ ( 5,251) $ 3,052
1995 31,853 7,000 0 (30,550) 8,303
1994 53,333 0 0 (21,480) 31,853
Valuation allowance:
Investment in and advances
to joint ventures
1996 $ 7,933 $ 0 $ 0 $ (1,433) $ 6,500
1995 1,573 7,000 0 (640) 7,933
1994 1,669 0 0 (96) 1,573
(1) In 1995, the Company adopted a new accounting standard, Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
(FASB 121). As part of the implementation of FASB 121, the carrying
basis of inventories to be held and used was written down by the
remaining amount of valuation reserves provided under prior accounting
rules. Deductions for homebuilding inventories, prior to the adoption of
FASB 121, were generally related to normal inventory turnover resulting
from home closings or land sales.
(2) Balances as of December 31, 1996 and 1995, represent valuation
allowances for assets to be disposed of.
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ Michael D. Mangan March 20, 1997
-----------------------------
Michael D. Mangan
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Principal Executive Officer:
/s/ R. Chad Dreier March 20, 1997
- -----------------------
R. Chad Dreier
Chief Executive Officer
Principal Financial Officer:
/s/ Michael D. Mangan March 20, 1997
- -----------------------
Michael D. Mangan
Chief Financial Officer
Principal Accounting Officer:
/s/ Stephen B. Cook March 20, 1997
- -----------------------
Stephen B. Cook
Chief Accounting Officer
The Board of Directors: James A. Flick, Jr.; R. Chad Dreier; Robert J. Gaw;
Leonard M. Harlan; L. C. Heist; William L. Jews; William G. Kagler; John H.
Mullin, III; Charlotte St. Martin; John O. Wilson.
By: /s/ R. Chad Dreier March 20, 1997
-----------------------------
R. Chad Dreier
For Himself and as Attorney-in-Fact
Page Of
INDEX OF Sequentially
EXHIBITS Numbered Pages
- -------- --------------
3.2 Bylaws of The Ryland Group, Inc.,
as amended October 18, 1996. 22-32
10.6 First Amendment to Restated Loan and Security
Agreement dated as of June 3, 1996, between
Ryland Mortgage Company, Associate Mortgage Funding
Corporation, BankOne, Texas, N.A., and certain lenders. 33-61
10.7(1) Employment Agreement dated as of January 28, 1997,
between R. Chad Dreier and The Ryland Group, Inc. 62-75
10.8(1) Employment Agreement dated as of September 18, 1995
between Michael D. Mangan and The Ryland Group, Inc.
as amended and restated as of January 28, 1997. 76-88
10.9(1) Senior Executive Severance Agreement dated as of
January 28, 1997, between the executive officers
of the Company and The Ryland Group, Inc. 89-133
10.10(1) Executive and Director Deferred Compensation Plan,
effective as of January 1, 1997 between
The Ryland Group, Inc. and certain of its
executive employees and Directors. 134-154
11 Statement Re Computation of Per Share Earnings 155
13 Annual Report to Shareholders for the year
ended December 31, 1996 156-188
21 Subsidiaries of the Registrant 189
23 Consent of Ernst & Young LLP, Independent Auditors 190
24 Power of Attorney 191
27 Financial Data Schedule 192
(1) Executive Compensation Plan or Arrangement.
THE RYLAND GROUP, INC.
Bylaws
ARTICLE I
STOCKHOLDERS
SECTION 1.01. Annual Meeting. The Corporation shall hold an annual
meeting of its stockholders to elect directors and transact any other business
within its powers, either at 10:00 a.m. on the third Wednesday of April in
each year, if not a legal holiday, or at such other time on such other day
falling on or before the 30th day thereafter as shall be set by the Board of
Directors. Except as the Charter or statute provides otherwise, any business
may be considered at an annual meeting without the purpose of the meeting
having been specified in the notice. Failure to hold an annual meeting does
not invalidate the Corporation's existence or affect any otherwise valid
corporate acts.
SECTION 1.02. Special Meeting. At any time in the interval between
annual meetings, a special meeting of the stockholders may be called by the
Chairman of the Board or the President or by a majority of the Board of
Directors by vote at a meeting or in writing (addressed to the Secretary of
the Corporation) with or without a meeting. Special meetings of the
stockholders shall be called by the Secretary at the request of the
stockholders only on the written request of stockholders entitled to cast at
least a majority of all the votes entitled to be cast at the meeting and then
only as may be required by law.
SECTION 1.03. Place of Meetings. Meetings of stockholders shall be
held at such place in the United States as is set, from time to time, by the
Board of Directors.
SECTION 1.04. Notice of Meetings; Waiver of Notice. Not less than 10
nor more than 90 days before each stockholders' meeting, the Secretary shall
give written notice of the meeting to each stockholder entitled to vote at the
meeting and each other stockholder entitled to notice of the meeting. The
notice shall state the time and place of the meeting and, if the meeting is a
special meeting or notice of the purpose is required by statute, the purpose
of the meeting. Notice is given to a stockholder when it is personally
delivered to him, left at his residence or usual place of business, or mailed
to him at his address as it appears on the records of the Corporation.
Notwithstanding the foregoing provisions, each person who is entitled to
notice waives notice if he, before or after the meeting, signs a waiver of the
notice, which is filed with the records of stockholders' meetings, or is
present at the meeting in person or by proxy. A meeting of stockholders
convened on the date for which it was called may be adjourned, from time to
time, without further notice to a date not more than 120 days after the
original record date.
SECTION 1.05. Quorum; Voting. Unless statute or the Charter provides
otherwise, at a meeting of stockholders the presence in person or by proxy of
stockholders entitled to cast a majority of all the votes entitled to be cast
at the meeting constitutes a quorum, and a majority of all the votes cast at a
meeting at which a quorum is present is sufficient to approve any matter which
properly comes before the meeting. In the absence of a quorum, the
stockholders present, in person or by proxy, by majority vote and without
notice other than by announcement, may adjourn the meeting, from time to time,
until a quorum shall attend. At any such adjourned meeting at which a quorum
shall be present, any business may be transacted which might have been
transacted at the meeting as originally notified. In the event that at any
meeting a quorum exists for the transaction of some business but does not
exist for the transaction of other business, the business as to which a quorum
is present may be transacted by the holders of stock present in person or by
proxy who are entitled to vote thereon.
SECTION 1.06. General Right to Vote; Proxies. Unless the Charter
provides for a greater or lesser number of votes per share or limits or denies
voting rights, each outstanding share of stock, regardless of class, is
entitled to one vote on each matter submitted to a vote at a meeting of
stockholders. In all elections for directors, each share of stock may be
voted for as many individuals as there are directors to be elected and for
whose election the share is entitled to be voted. A stockholder may vote the
stock he owns of record either in person or by written proxy signed by the
stockholder or by his duly authorized attorney in fact. Unless a proxy
provides otherwise, it is not valid more than 11 months after its date.
SECTION 1.07. List of Stockholders. At each meeting of stockholders,
a full, true and complete list of all stockholders entitled to vote at such
meeting, showing the number and class of shares held by each and certified by
the transfer agent for such class or by the Secretary, shall be furnished by
the Secretary.
SECTION 1.08. Conduct of Voting. At all meetings of stockholders,
unless the voting is conducted by judges, the proxies and ballots shall be
received, and all questions touching the qualification of voters and the
validity of proxies and the acceptance or rejection of votes shall be decided,
by the chairman of the meeting. If demanded by stockholders, present in
person or by proxy, entitled to cast 10 percent of the number of total votes
that are entitled to be cast, or if ordered by the chairman, the vote upon any
election or question shall be taken by ballot and, upon like demand or order,
the voting shall be conducted by two inspectors, in which event the proxies
and ballots shall be received, and all questions touching the qualification of
voters and the validity of proxies and the acceptance or rejection of votes,
shall be decided by the inspectors. Unless so demanded or ordered, no vote
need be by ballot, and voting need not be conducted by inspectors. The
stockholders at any meeting may choose an inspector or inspectors to act at
such meeting and, in default of such election, the chairman of the meeting may
appoint an inspector or inspectors. No candidate for election as a director
at a meeting shall serve as an inspector thereat.
SECTION 1.09. Informal Action by Stockholders. Any action required or
permitted to be taken at a meeting of stockholders may be taken without a
meeting if there is filed with the records of stockholders' meetings a
unanimous written consent which sets forth the action and is signed by each
stockholder entitled to vote on the matter and a written waiver of any right
to dissent signed by each stockholder entitled to notice of the meeting but
not entitled to vote at it.
SECTION 1.10. Nominations of Directors. In addition to any other
requirements, only persons who are nominated in accordance with the following
procedures shall be eligible for election to the Board of Directors of the
Corporation. Nominations of persons for election to the Board of Directors of
the Corporation shall be made at a meeting of stockholders at which directors
are to be elected exclusively in accordance with this Section. Nominations of
persons for such elections shall be deemed properly made if (i) set forth in
proxy materials prepared for such a meeting by or at the direction of the
Board of Directors, (ii) made by a stockholder at such a meeting at the
direction of the Board of Directors, or (iii) made by a stockholder at such a
meeting (other than at the direction of the Board of Directors) if timely
notice has been given to the Secretary of the Corporation at the principal
executive offices of the Corporation of such intent to make a nomination. To
be timely, such stockholder's notice must be received by the Corporation not
less than 75 days prior to the date of the stockholders' meeting; provided,
however, that if less than 100 days' notice or prior disclosure of the date of
the stockholders' meeting is given or made to the stockholders by the
Corporation, then notice by the stockholder of intent to make a nomination
must be received by the Corporation no later than the close of business on the
10th day following the day on which the Corporation mailed the notice of the
date of the meeting or published or otherwise made public disclosure of such
meeting date. For purposes of the preceding sentence, the "date of the
stockholder meeting" is the date when the meeting is first convened, even if
the meeting is adjourned one or more times to a later date or dates.
Such stockholders' notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election as a director, (i) the name,
age, business address and residence address of such person, (ii) the principal
occupation or employment of the person, (iii) the class and number of shares
of the Corporation which are beneficially owned by such person, if any, and
(iv) any other information relating to such person which is required to be
disclosed in solicitations for proxies for election of directors pursuant to
Regulation 14A under the Securities and Exchange Act of 1934, as amended, or
any successor act or Regulation; and (b) as to the stockholder giving the
notice (i) the name and record address of the stockholder and (ii) the class
and number of shares of the Corporation which are beneficially owned by the
stockholder. The Corporation may require any proposed nominee to furnish such
other information as may be reasonably required by the Corporation to
determine the qualifications of such proposed nominee to serve as a director
of the Corporation.
No person shall be eligible for election as a director of the Corporation
unless nominated in accordance with the procedures set forth in this Section
1.10. These procedures shall not apply to the nomination of any persons
entitled to be separately elected by holders of Preferred Stock. The chairman
of a stockholders' meeting may determine and declare to the meeting that a
nomination has not been made in accordance with the foregoing procedure and
that such defective nomination shall be disregarded.
SECTION 1.11. Stockholder Proposals. In addition to any other
requirements, any motions, resolutions, or proposals by stockholders
(hereinafter "proposals") made at a meeting of stockholders shall be
exclusively in accordance with this Section. Proposals shall be deemed
properly made if (i) set forth in proxy materials prepared for such a meeting
by or at the direction of the Board of Directors, (ii) made by a stockholder
at such a meeting at the direction of the Board of Directors, or (iii) made by
a stockholder at such a meeting (other than at the direction of the Board of
Directors) if timely notice has been given to the Secretary of the Corporation
at the principal executive offices of the Corporation of such intent to make
the proposal. To be timely, such stockholder's notice must be received by the
Corporation not less than 75 days prior to the date of the stockholders'
meeting; provided, however, that if less than 100 days' notice or prior public
disclosure of the date is given or made to the stockholders by the
Corporation, then notice by the stockholder of intent to make the proposal
must be received by the Corporation no later than the close of business on the
10th day following the day on which the Corporation mailed the notice of the
date of the meeting or published or otherwise made public disclosure of such
meeting date. For purposes of the preceding sentence, the "date of the
stockholder meeting" is the date when the meeting is first convened, even if
the meeting is adjourned one or more times to a later date or dates.
Such shareholder's notice shall set forth a brief description of any proposal
the stockholder intends to make, the reasons for bringing such proposal before
the meeting, the name and address of the stockholder, and the class and number
of shares of the Corporation which are beneficially owned by the stockholder,
and any material interest of the stockholder in the subject of the proposal.
No stockholder shall make a proposal at a stockholder meeting except in
accordance with the procedures set forth in this Section 1.11. The chairman
of a stockholder meeting may determine and declare to the meeting that a
proposal has not been made in accordance with the foregoing procedure and that
such defective proposal shall be disregarded.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.01. Function of Directors. The business and affairs of the
Corporation shall be managed under the direction of its Board of Directors.
All powers of the Corporation may be exercised by or under authority of the
Board of Directors, except as conferred on or reserved to the stockholders by
statute or by the Charter or Bylaws.
SECTION 2.02. Number of Directors. The Corporation shall have at
least three directors; provided that, if there is no stock outstanding, the
number of directors may be less than three but not less than one; and, if
there is stock outstanding and so long as there are less than three
stockholders, the number of directors may be less than three but not less than
the number of stockholders. The Corporation shall have the number of
directors provided in the Charter until changed as herein provided. A
majority of the entire Board of Directors may alter the number of directors
set by the Charter to not exceeding 25 nor less than the minimum number then
permitted herein, but the action may not affect the tenure of office of any
director.
SECTION 2.03. Election and Tenure of Directors. At each annual
meeting, the stockholders shall elect directors to hold office until the next
annual meeting and until their successors are elected and qualify. No
director shall stand for election upon reaching the age of 70.
SECTION 2.04. Removal of Director. The stockholders may remove any
director, with or without cause, by the affirmative vote of a majority of all
the votes entitled to be cast for the election of directors.
SECTION 2.05. Vacancy on Board. The stockholders may elect a
successor to fill a vacancy on the Board of Directors which results from the
removal of a director. A majority of the remaining directors, whether or not
sufficient to constitute a quorum, may fill a vacancy on the Board of
Directors which results from any cause except an increase in the number of
directors, and a majority of the entire Board of Directors may fill a vacancy
which results from an increase in the number of directors. A director elected
by the Board of Directors to fill a vacancy serves until the next annual
meeting of stockholders and until his successor is elected and qualifies. A
director elected by the stockholders to fill a vacancy which results form the
removal of a director serves for the balance of the term of the removed
director.
SECTION 2.06. Regular Meetings. After each meeting of stockholders at
which a Board of Directors shall have been elected, the Board of Directors so
elected shall meet as soon as practicable for the purpose of organization and
the transaction of other business; and in the event that no other time is
designated by the stockholders, the Board of Directors shall meet one hour
after the time for such stockholders' meeting or immediately following the
close of such stockholders' meeting on the day of such meeting. Such first
regular meeting shall be held at any place as may be designated by the
stockholders, or in default of such designation, at the place designated by
the Board of Directors for such first regular meeting, or in default of such
designation, at the place of the holding of the immediately preceding meeting
of stockholders. No notice of such first meeting shall be necessary if held
as hereinabove provided. Any other regular meeting of the Board of Directors
shall be held on such date and at any place as may be designated, from time to
time, by the Board of Directors.
SECTION 2.07. Special Meetings. Special meetings of the Board of
Directors may be called at any time by the Chairman of the Board, the
President or by a majority of the Board of Directors by vote at a meeting, or
in writing with or without a meeting. A special meeting of the Board of
Directors shall be held on such date and at any place in or out of the state
of Maryland as may be designated, from time to time, by the Board of
Directors. In the absence of designation, such meeting shall be held at such
place as may be designated in the call.
SECTION 2.08. Notice of Meeting. Except as provided in Section 2.06,
the Secretary shall give notice to each director of each regular and special
meeting of the Board of Directors. The notice shall state the time and place
of the meeting. Notice is given to a director when it is delivered personally
to him, left at his residence or usual place of business, or sent by telegraph
or telephone at least 24 hours before the time of the meeting or, in the
alternative, by mail to his address as it shall appear on the records of the
Corporation at least 72 hours before the time of the meeting. Unless the
Bylaws or a resolution of the Board of Directors provides otherwise, the
notice need not state the business to be transacted at or the purposes of any
regular or special meeting of the Board of Directors. No notice of any
meeting of the Board of Directors need be given to any director who attends or
to any director who, in writing executed and filed with the records of the
meeting either before or after the holding thereof, waives such notice. Any
meeting of the Board of Directors, regular or special, may adjourn, from time
to time, to reconvene at the same or some other place, and no notice need be
given of any such adjourned meeting other than by announcement.
SECTION 2.09. Action by Directors. Unless statute or the Charter or
Bylaws require a greater proportion, the action of a majority of the directors
present at a meeting at which a quorum is present is action of the Board of
Directors. A majority of the entire Board of Directors shall constitute a
quorum for the transaction of business. In the absence of a quorum, the
directors present, by majority vote and without notice other than by
announcement, may adjourn the meeting, from time to time, until a quorum shall
attend. At any such adjourned meeting at which a quorum shall be present, any
business may be transacted which might have been transacted at the meeting as
originally notified. Any action required or permitted to be taken at a
meeting of the Board of Directors may be taken without a meeting, if a
unanimous written consent which sets forth the action is signed by each member
of the Board and filed with the minutes of proceedings of the Board.
SECTION 2.10. Meeting by Conference Telephone. Members of the Board
of Directors may participate in a meeting by means of a conference telephone
or similar communications equipment if all persons participating in the
meeting can hear each other at the same time. Participation in a meeting by
these means constitutes presence in person at a meeting.
SECTION 2.11. Compensation. By resolution of the Board of Directors,
a fixed sum and expenses, if any, for attendance at each regular or special
meeting of the Board of Directors or of committees thereof, and other
compensation for their services as such on committees of the Board of
Directors, may be paid to directors. A director who serves the Corporation in
any other capacity also may receive compensation for such other services,
pursuant to a resolution of the directors.
ARTICLE III
COMMITTEES
SECTION 3.01. Committees. The Board of Directors may appoint from
among its members an Executive Committee and other committees composed of two
or more directors and delegate to these committees any of the powers of the
Board of Directors, except the power to declare dividends on stock; elect
directors; issue stock, other than as provided in the next sentence; recommend
to the stockholders any action which requires stockholder approval; amend the
Bylaws; or approve any merger or share exchange which does not require
stockholder approval. If the Board of Directors has given general
authorization for the issuance of stock, a committee of the Board, in
accordance with that authorization or any stock option or other plan or
program adopted by the Board of Directors, may fix the terms of stock subject
to classification or reclassification and the terms on which any stock may be
issued, including all terms and conditions required or permitted to be
established or authorized by the Board of Directors.
SECTION 3.02. Committee Procedure. Each committee may fix rules of
procedure for its business. A majority of the members of a committee shall
constitute a quorum for the transaction of business, and the act of a majority
of those present at a meeting at which a quorum is present shall be the act of
the committee. The members of a committee present at any meeting, whether or
not they constitute a quorum, may appoint a director to act in the place of an
absent member. Any action required or permitted to be taken at a meeting of a
committee may be taken without a meeting, if a unanimous written consent,
which sets forth the action, is signed by each member of the committee and
filed with the minutes of the committee. The members of a committee may
conduct any meeting thereof by conference telephone in accordance with the
provisions of Section 2.10.
SECTION 3.03. Emergency. In the event of a state of disaster of
sufficient severity to prevent the conduct and management of the affairs and
business of the Corporation by its directors and officers, as contemplated by
the Charter and the Bylaws, any two or more available members of the then
incumbent Executive Committee shall constitute a quorum of that Committee for
the full conduct and management of the affairs and business of the Corporation
in accordance with the provisions of Section 3.01. In the event of the
unavailability, at such time, of a minimum of two members of the then
incumbent Executive Committee, the available directors shall elect an
Executive Committee consisting of any two members of the Board of Directors,
whether or not they be officers of the Corporation, which two members shall
constitute the Executive Committee for the full conduct and management of the
affairs of the Corporation in accordance with the foregoing provisions of this
Section. This Section shall be subject to implementation by resolution of the
Board of Directors passed, from time to time, for that purpose; and any
provisions of the Bylaws (other than this Section) and any resolutions which
are contrary to the provisions of this Section or to the provisions of any
such implementary resolutions shall be suspended until it shall be determined
by any interim Executive Committee acting under this Section that it shall be
to the advantage of the Corporation to resume the conduct and management of
its affairs and business under all the other provisions of the Bylaws.
ARTICLE IV
OFFICERS
SECTION 4.01. Executive Officers. The Board of Directors may choose a
Chairman of the Board from among the directors. The Board of Directors shall
choose a President, a Secretary and a Treasurer who need not be directors.
The Board of Directors may choose one or more Vice Presidents and a
Controller, none of whom need be a director. Any two or more of the above-
mentioned offices, except those of President and Vice Presidents, may be held
by the same person; but no officer shall execute, acknowledge or verify any
instrument in more than one capacity if such instrument be required by
statute, by charter, by the Bylaws or by resolution of the Board of Directors
to be executed, acknowledged or verified by any two or more officers. Each
such officer shall hold office until the first meeting of the Board of
Directors after the annual meeting of stockholders next succeeding his
election, and until his successor shall have been duly chosen and qualified,
or until he shall have resigned or shall have been removed. Any vacancy in
any of the above offices may be filled for the unexpired portion of the term
by the Board of Directors at any regular or special meeting.
The Board of Directors may designate such persons as appointed officers as
they deem necessary or desirable, from time to time.
SECTION 4.02. Chairman of the Board. The Chairman of the Board, if
one be elected, shall preside at all meetings of the Board of Directors and of
the stockholders at which he shall be present. He shall have and may exercise
such powers as are, from time to time, assigned to him by the Board of
Directors.
SECTION 4.03. President. In the absence of the Chairman of the Board,
the President shall preside at all meetings of the stockholders and the Board
of Directors at which he shall be present; he shall have general charge and
supervision of the business of the Corporation; and he may sign and execute,
in the name of the Corporation, all authorized deeds, mortgages, bonds,
contracts or other instruments, except in cases in which the signing and
execution thereof shall have been expressly delegated to some other officer or
agent of the Corporation; and, in general, he shall perform all duties as,
from time to time, may be assigned to him by the Board of Directors.
SECTION 4.04. Vice Presidents. The Corporation shall have four (4)
classes of Vice President; namely, Executive Vice Presidents, Senior Vice
Presidents, Vice Presidents and Operational Vice Presidents. Each class of
Vice President shall have such powers and duties as, from time to time, may be
assigned to them by the Board of Directors or the Chairman. Executive Vice
Presidents, Senior Vice Presidents and Vice Presidents shall be executive
officers of the Corporation. They shall have the power and authority, in the
ordinary course of business of the Corporation, to acquire and dispose of real
and personal property of the Corporation and interests therein and to execute
and deliver all such documents as may be necessary or desirable in connection
with any such acquisition or disposition. Operational Vice Presidents shall
be deemed appointed officers of the Corporation. They shall have the power
and authority, in the ordinary course of business of the Corporation, to make
conveyances of real property developed by the Corporation and related personal
property and to execute and deliver all such documents as may be necessary or
desirable in connection with any such conveyance, and to execute land purchase
agreements and related documents in connection with land acquisition
transactions approved by a Senior Vice President of the Corporation.
SECTION 4.05. Secretary. The Secretary shall keep the minutes of the
meetings of the stockholders, of the Board of Directors and of any committees
in books provided for this purpose; he shall see that all notices are duly
given in accordance with the provisions of the Bylaws or as required by law;
he shall be custodian of the records of the Corporation; he shall see that the
corporate seal is affixed to all documents, the execution of which, on behalf
of the Corporation, under its seal, is duly authorized and when so affixed,
may attest the same; and, in general, he shall perform all duties incident to
the office of a secretary of a corporation, and such other duties as, from
time to time, may be assigned to him by the Board of Directors or the
President.
SECTION 4.06. Treasurer. The Treasurer shall have charge of and be
responsible for all funds, securities, and receipts and disbursements of the
Corporation, and shall deposit, or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust
companies or other depositories as shall, from time to time, be selected by
the Board of Directors; he shall render to the President and to the Board of
Directors, whenever requested, an account of the financial condition of the
Corporation; and, in general, he shall perform all the duties incident to the
office of treasurer of a corporation and such other duties as may be assigned
to him by the Board of Directors or the President.
SECTION 4.07. Appointed Officers. Operational Vice Presidents,
Controllers, Assistant Vice Presidents, Assistant Secretaries or Assistant
Treasurers, and such additional officers as may be deemed necessary or
desirable to management of the Corporation, shall be deemed appointed officers
and shall not be considered executive officers of the Corporation. Appointed
officers may be appointed by the Board of Directors or the President.
SECTION 4.08. Compensation. The Board of Directors shall have the
power to fix the compensation of all executive and appointed officers of the
Corporation. The President shall have the power to fix the compensation of
appointed officers in the absence of action thereon by the Board of Directors.
SECTION 4.09. Removal. Any officer, employee or agent of the
Corporation may be removed by the Board of Directors whenever, in its
judgment, the best interests of the Corporation will be served thereby; but
such removal shall be without prejudice to the contractual rights, if any, of
the person removed. Any appointed officer, employee or agent of the
Corporation may be removed by the President whenever, in his judgment, the
best interests of the Corporation will be served thereby; but such removal
shall be without prejudice to the contractual rights, if any, of the person so
removed.
ARTICLE V
STOCK
SECTION 5.01. Certificates for Stock. Each stockholder is entitled to
certificates which represent and certify the shares of stock he holds in the
Corporation. Each stock certificate shall include on its face the name of the
corporation that issues it, the name of the stockholder or other person to
whom it is issued, and the class of stock and number of shares it represents.
It shall be in such form, not inconsistent with law or with the Charter, as
shall be approved by the Board of Directors or any officer or officers
designated for such purpose by resolution of the Board of Directors. Each
stock certificate shall be signed by the Chairman of the Board, the President,
or a Vice President and countersigned by the Secretary, an Assistant
Secretary, the Treasurer or an Assistant Treasurer. Each certificate may be
sealed with the actual corporate seal or a facsimile of it in any other form,
and the signatures may be either manual or facsimile signatures. A
certificate is valid and may be issued whether or not an officer who signed it
is still an officer when it is issued.
SECTION 5.02. Transfers. The Board of Directors shall have the power
and authority to make such rules and regulations as it may deem expedient
concerning the issue, transfer and registration of certificates of stock; and
may appoint transfer agents and registrars thereof. The duties of the
transfer agent and registrar may be combined.
SECTION 5.03. Record Date and Closing of Transfer Books. The Board of
Directors may set a record date or direct that the stock transfer books be
closed for a stated period for the purpose of making any proper determination
with respect to stockholders, including which stockholders are entitled to
notice of a meeting, vote at a meeting, receive a dividend, or be allotted
other rights. The record date may not be more than 90 days before the date on
which the action requiring the determination will be taken; the transfer books
may not be closed for a period longer than 20 days; and, in the case of a
meeting of stockholders, the record date or the closing of the transfer books
shall be at least 10 days before the date of the meeting.
SECTION 5.04. Stock Ledger. The Corporation shall maintain a stock
ledger which contains the name and address of each stockholder and the number
of shares of stock of each class which the stockholder holds. The stock
ledger may be in written form or in any other form which can be converted
within a reasonable time into written form for visual inspection. The
original or a duplicate of the stock ledger shall be kept at the offices of a
transfer agent for the particular class of stock, within or without the state
of Maryland, or, if none, at the principal office or the principal executive
offices of the Corporation in the state of Maryland.
SECTION 5.05. Certification of Beneficial Owners. The Board of
Directors may adopt by resolution a procedure by which a stockholder of the
Corporation may certify in writing to the Corporation that any shares of stock
registered in the name of the stock-holder are held for the account of a
specified person other than the stockholder. The resolution shall set forth
the class of stockholders who may certify; the purpose for which the
certification may be made; the form of certification and the information to be
contained in it; the time after the record date or closing of the stock
transfer books within which the certification must be received by the
Corporation, if the certification is with respect to a record date or closing
of the stock transfer books; and any other provisions with respect to the
procedure which the Board considers necessary or desirable. Upon receipt of a
certification which complies with the procedure adopted by the Board in
accordance with this Section, the person specified in the certification is,
for the purpose set forth in the certification, the holder of record of the
specified stock in place of the stockholder who makes the certification.
SECTION 5.06. Lost Stock Certificates. The Board of Directors of the
Corporation may determine the conditions for issuing a new stock certificate
in place of one which is alleged to have been lost, stolen, or destroyed, or
the Board of Directors may delegate such power to any officer or officers of
the Corporation. In their discretion, the Board of Directors, or such officer
or officers, may refuse to issue such new certificate save upon the order of
some court having jurisdiction in the premises.
ARTICLE VI
FINANCE
SECTION 6.01. Checks, Drafts, Etc. All checks, drafts and orders for
the payment of money, notes and other evidences of indebtedness, issued in the
name of the Corporation, shall, unless otherwise provided by resolution of the
Board of Directors, be signed by the President, a Vice President or an
Assistant Vice President and countersigned by the Treasurer, an Assistant
Treasurer, the Secretary or an Assistant Secretary.
SECTION 6.02. Annual Statement of Affairs. There shall be prepared
annually a full and correct statement of the affairs of the Corporation, to
include a balance sheet and a financial statement of operations for the
preceding fiscal year. The statement of affairs shall be submitted at the
annual meeting of the stockholders and, within 20 days after the meeting,
placed on file at the Corporation's principal office.
SECTION 6.03. Fiscal Year. The fiscal year of the Corporation shall
be the 12-month period ending December 31 in each year, unless otherwise
provided by the Board of Directors.
ARTICLE VII
SUNDRY PROVISIONS
SECTION 7.01. Books and Records. The Corporation shall keep correct
and complete books and records of its accounts and transactions and minutes of
the proceedings of its stockholders, Board of Directors and of any executive
or other committee when exercising any of the powers of the Board of
Directors. The books and records of a Corporation may be in written form or
in any other form which can be converted within a reasonable time into written
form for visual inspection. Minutes shall be recorded in written form but may
be maintained in the form of a reproduction.
SECTION 7.02. Corporate Seal. The Board of Directors shall provide a
suitable seal, bearing the name of the Corporation, which shall be in the
charge of the Secretary. The Board of Directors may authorize one or more
duplicate seals and provide for the custody thereof.
SECTION 7.03. Bonds. The Board of Directors may require any officer,
agent or employee of the Corporation to give a bond to the Corporation,
conditioned upon the faithful discharge of his duties, with one or more
sureties and in such amount as may be satisfactory to the Board of Directors.
SECTIONS 7.04. Voting Upon Shares in Other Corporations. Stock of
other corporations or associations, registered in the name of the Corporation,
may be voted by the President, a Vice President or a proxy appointed by either
of them. The Board of Directors, however, may by resolution appoint some
other person to vote such shares, in which case such person shall be entitled
to vote such shares upon the production of a certified copy of such
resolution.
SECTION 7.05. Mail. Any notice or other document which is required by
these Bylaws to be mailed shall be deposited in the United States mails,
postage prepaid.
SECTION 7.06. Execution of Documents. A person who holds more than
one office in the Corporation may not act in more than one capacity to
execute, acknowledge or verify an instrument required by law to be executed,
acknowledged or verified by more than one officer.
SECTION 7.07. Amendments. Subject to the special provisions of
Section 2.02, the Board of Directors shall have the power at any regular or
special meeting of Directors, to make and adopt new bylaws, or to amend, alter
or repeal any of the bylaws of the Corporation, and the stockholders of the
Corporation shall have no power to make and adopt new Bylaws, or to amend,
alter or repeal any of the Bylaws of the Corporation.
EXHIBIT 10.6
FIRST AMENDMENT TO RESTATED LOAN AND SECURITY AGREEMENT
-------------------------------------------------------
THIS AMENDMENT is entered into as of June 3, 1996, between ASSOCIATES
MORTGAGE FUNDING CORPORATION, a Delaware corporation (`Associates'), RYLAND
MORTGAGE COMPANY, an Ohio corporation (`Ryland'), BANK ONE, TEXAS, N.A., as
Agent (`Agent'), and the Lenders executing this amendment.
Associates and Ryland (the `Companies'), Agent, and certain lenders are
party to the Restated Loan and Security Agreement (as renewed, extended, and
amended, the `Loan Agreement') dated as of June 16, 1995. This amendment is
for the purpose of, among other things, extending the maturity date, changing
the interest rates, and revising and adding certain sublimits under the Loan
Agreement. Accordingly, for adequate and sufficient consideration, the
parties to this amendment agree as follows:
1. TERMS AND REFERENCES. Unless otherwise stated in this amendment (a)
terms defined in the Loan Agreement have the same meanings when used in this
amendment and (b) references to "Sections," "Schedules," and "Exhibits" are to
the Loan Agreement's sections, schedules, and exhibits.
2. AMENDMENTS. The Loan Agreement is amended as follows:
(a) Section 1.1 is amended to entirely add, delete, or amend the
following terms, as the case may be:
Applicable Margin means the following interest margin over a base rate
(i.e., either the Fed-Funds Rate or LIBOR) as applicable under this agreement:
Borrowing Base Rate Applicable Margin
- --------- --------- -----------------
Warehouse Borrowings
(except Gestation Borrowings) Fed-Funds Rate 0.750%
LIBOR 0.625%
Gestation Borrowings Fed-Funds Rate 0.550%
LIBOR 0.450%
Receivables Borrowings Fed-Funds Rate 0.900%
LIBOR Not applicable
Working-Capital Borrowings Fed-Funds Rate 1.125%
LIBOR 1.000%
Closing Date means June 3, 1996.
Gestation Sublimit means not more than 50% of the Warehouse Sublimit.
Investment-Mortgage Loan Sublimit means $10,000,000.
Seasoned Loan means a Mortgage Loan that meets the requirements of being
an Eligible-Mortgage Loan except that it is originated to investor
specifications but delivered to Agent more than 180 days after the date
of the original promissory note.
Seasoned-Loan Sublimit means $10,000,000.
Stated-Termination Date means May 31, 1998.
(b) Section 3.18(b)(ii) is entirely amended as follows:
(ii) The amount of those commitment fees are a percentage per
annum - calculated on the basis of 12.5 basis points of the Commitment
Percentage of the Warehouse Sublimit, and 20 basis points of the Commitment
Percentage of the Receivables/Working-Capital Sublimit.
(c) Section 4.2(b)(ii) is amended in its entirety as follows:
(ii) In respect of the Servicing Portfolio, all present and
future:
Servicing Rights pertaining in any way to Ryland's
Servicing Contracts with FHLMC, FNMA, or GNMA,
together with all present and future sums paid or
payable to Ryland on account of, or as a result of the
performance of, those Servicing Rights, whether as
compensation for the performance by Ryland, damages
related to any of the foregoing, amounts payable upon
cancellation or termination thereof, or otherwise;
Servicing Receivables;
provided, however, that any of Ryland's Servicing
Portfolio sold within 180 days of origination shall be
deemed automatically released as Collateral without
any further action by the Companies, Agent, or any
other Lender.
(d) Section 4.10 is entirely amended as follows:
4.10 Release of Servicing Rights. In connection with any sale of
Servicing Rights [to the extent included as Collateral pursuant to Section
4.2(b) or otherwise] permitted by the Loan Papers, the Companies shall execute
and deliver to Agent a Request for Release and the appropriate Financing
Statement Changes in substantially the form of Exhibit D-4 for execution and
delivery by Agent, which Agent shall execute and return to the Companies
within seven days.
(e) Section 9.5 is entirely amended to read as follows:
9.5 Servicing Portfolio. (a) The sum of the Servicing Portfolio plus
the total unpaid-principal balance of all mortgage loans for which the
servicing rights are owned by any wholly-owned Subsidiary of Ryland (a
"Servicing Subsidiary") may never be less than $4,000,000,000, and (b) the
total Eligible-Servicing Portfolio may never be less than $1,000,000,000.
(f) Item A(1)(e) on Schedule 1.1(c) is amended as follows:
(e) The Collateral Documents for which (i) are delivered to
Agent within 30 days after the date of the related promissory note (other than
an ARM Loan that has been converted to a fixed-interest rate or an Investment-
Mortgage Loan or -- subject to the Seasoned-Loan Sublimit -- a Seasoned Loan),
(ii) in compliance with all Laws, and (iii) are otherwise in form and
substance acceptable to Agent in its reasonable judgment.
(g) The first seven lines of Part B on Schedule 1.1(d) are entirely
amended as follows:
B. Borrowing Base for Mortgage Collateral means, at any time, an
amount equal to the sum of (a) the Borrowing Base for Eligible-Gestation
Collateral plus (b) 99% of the Market Value of all Eligible-Mortgage
Securities plus (c) an amount -- as reduced by any of the matters listed
below -- equal to the lesser of either:
- 98% of the greater of either the total outstanding principal
balance or the total Market Value of all Eligible-Mortgage Loans that is not
Eligible-Gestation Collateral, or
- if -- the total Market Value of all Eligible-Mortgage
Collateral that is not Eligible-Gestation Collateral is less than 98% of the
total outstanding principal balance thereof -- then 100% of the total Market
Value.
(h) Item B.3 on Schedule 1.1(d) is entirely amended as follows:
3. No more than (a) $10,000,000 may be included for all
Investment-Mortgage Loans and (b) 75% of the greater of either the total
outstanding principal balance or the Market Value of any Investment-Mortgage
Loan may be included.
(i) Item B.7 is added to Schedule 1.1(d) as follows:
7. No more than the Seasoned-Loan Sublimit may be included for
Seasoned Loans.
(j) Schedules 1.1(a) and 1.1(b) and Exhibits C-3 and C-6 are
respectively amended in the forms of - and each reference in the Loan Papers
to those schedules and exhibits are now to - the attached Amended
Schedules 1.1(a) and 1.1(b) and Amended Exhibits C-3 and C-6, respectively.
3. SETTLEMENT OF FUNDS.
-------------------
(a) In accordance with Section 2.5(d), Borrower has terminated the
Commitments of certain lenders party to the Loan Agreement before the
effectiveness of this amendment, and on the effective date of this amendment
Borrower shall pay to Agent for the account of those terminated lenders all
amounts owing to those lenders in accordance with Sections 2.5(d)(ii).
(b) In accordance with the amendments reflected in the attached
Amended Schedule 1.1(a), certain Lenders are added as parties to the Loan
Agreement by the effectiveness of this amendment, and on the effective date of
this amendment those Lenders shall each jointly and severally pay to Agent
their respective Commitment Percentages of the Principal Debt remaining after
the payments by Borrower under Paragraph 3(a) above.
(c) In accordance with the amendments reflected in the attached
Amended Schedule 1.1(a), certain Lenders have increased their respective
Commitments by the effectiveness of this amendment, and on the effective date
of this amendment those Lenders shall each jointly and severally pay to Agent
their respective increased Commitment Percentages of the Principal Debt
remaining after the payments by Borrower under Paragraph 3(a) above.
(d) In accordance with the amendments reflected in the attached
Amended Schedule 1.1(a), certain Lenders have decreased their respective
Commitments by the effectiveness of this amendment, and -- subject to the
receipt of payments of funds under clauses (b) and (c) above, Agent shall pay
to those Lenders their respective decreased Commitment Percentages of the
Principal Debt remaining after the payments by Borrower under Paragraph 3(a)
above.
Upon receipt of replacement Notes pursuant to this amendment, each Lender
severally agrees to return to Companies the Note or Notes being replaced.
4. CONDITIONS PRECEDENT. Paragraphs 2 and 3 above are not effective until
Agent receives (a) counterparts of this amendment executed by the Companies
and all Lenders, (b) replacement or new Notes, as the case may be, for each
Lender whose Commitment is changing or is new according to the amendments
reflected in the attached Amended Schedule 1.1(a), and (c) certifications
acceptable to Agent and its counsel as to the Companies' continuing existence,
power, and authority and the due authorization of this amendment and the Notes
delivered under this amendment.
5. REPRESENTATIONS AND WARRANTIES. The Companies jointly and severally
represent and warrant to Agent and Lenders that, as of the date of this
amendment and on the date of its execution (a) the representations and
warranties in the Loan Papers are true and correct in all material respects
except to the extent that (i) a representation or warranty speaks to a
specific date or (ii) the facts on which a representation or warranty is based
have changed by transactions or conditions contemplated or permitted by the
Loan Papers, and (b) no Default or Potential Default exists.
6. RATIFICATION. The Companies ratify and confirm (a) all provisions of
the Loan Papers as amended by this amendment and (b) that all guaranties,
assurances, and Liens granted, conveyed, or assigned to Agent or Lenders under
the Loan Papers -- as they may have been revised, extended, and amended --
continue to guarantee, assure, and secure the full payment and performance of
the Obligation (including, without limitation, all amounts evidenced now or in
the future by any note delivered under this amendment).
7. MISCELLANEOUS. All references in the Loan Papers to the "Loan Agreement"
are to the Loan Agreement, as amended by this amendment. This amendment is a
"Loan Paper" referred to in the Loan Agreement, and the provisions relating to
Loan Papers in the Loan Agreement are incorporated in this amendment by
reference. Except as specifically amended and modified in this amendment, the
Loan Agreement is unchanged and continues in full force and effect. This
amendment may be executed in any number of counterparts with the same effect
as if all signatories had signed the same document. All counterparts must be
construed together to constitute one and the same instrument. THIS AMENDMENT
AND THE OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES. This amendment binds and inures to the
Companies, Agent, Lenders, and their respective successors and permitted
assigns.
REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGES FOLLOW.
EXECUTED as of the day and year first stated above.
ASSOCIATES MORTGAGE FUNDING CORPORATION
By /s/ Alexander J. Stavrolakis
----------------------------
Alexander J. Stavrolakis, Treasurer
RYLAND MORTGAGE COMPANY
By /s/ Michael Brown
-----------------
Michael Brown, President
BANK ONE, TEXAS, N.A., a Lender and Agent
By /s/ Mark Freeman
----------------
Mark L. Freeman, Vice President
BANK OF AMERICA, a Lender
By /s/ Donald Eppley
-----------------
Donald Eppley, Vice President
THE INDUSTRIAL BANK OF JAPAN, LIMITED, a Lender
By /s/ J. Kenneth Biegen
---------------------
J. Kenneth Biegen, Senior Vice President
FIRST BANK NATIONAL ASSOCIATION, a Lender
By /s/ Kathlyn K. Slater
---------------------
Kathlyn K. Slater, Vice President
THE FIRST NATIONAL BANK OF MARYLAND, a Lender
By /s/ Kellie M. Matthews
----------------------
Kellie M. Matthews
Vice President
FIRST UNION NATIONAL BANK OF NORTH CAROLINA, a Lender
By /s/ Sinclair Elliott
--------------------
Sinclair Elliott
Corporate Banking Officer
GUARANTY FEDERAL BANK, F.S.B., a Lender
By /s/ James B. Clapp
------------------
James B. Clapp
Loan Officer
NBD BANK, a Lender
By /s/ Ann H. Chudacoff
---------------------
Ann H. Chudacoff, Vice President
NATIONSBANK OF TEXAS, N.A., a Lender
By /s/ Elizabeth S. Kurilecz
-------------------------
Elizabeth S. Kurilecz, Senior Vice President
PNC BANK, KENTUCKY, INC., a Lender
By /s/ Scott Goodwin
-----------------
Scott Goodwin, Warehouse Lending Officer
TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a Lender
By /s/ William J. Clark Jr.
------------------------
William J. Clark Jr.
Vice President
SUNTRUST BANK, ATLANTA, a Lender
By /s/ Jerry White
----------------
Jerry White, Vice President
By /s/ Jennifer Rose
-----------------
Jennifer Rose, Banking Officer
AMENDED SCHEDULE 1.1(a)
-----------------------
LENDERS AND COMMITMENTS
-----------------------
Receivables/
Working
Warehouse Capital
Name of Lender Commitment Commitment Total
- -------------- --------- ----------- -------
Bank One, Texas, N.A.
Mortgage Finance Group
1717 Main Street
Dallas, TX 75201
Attn: Mark L Freeman, VP
Fed Tax ID 75-2270994
Tele 214-290-2780
Fax 214-290-2054 $51,000,000 $6,400,000 $57,400,000
Texas Commerce Bank National Association
717 Travis 7th Floor
07TCB South 56
Houston, TX 77252-7056
Attn: Robert Salcetti, Managing Director
Fed Tax ID 74-0800980
Tele 713-546-7702
Fax - 713-216-2082 45,000,000 5,500,000 50,500,000
Bank of America
Commercial Real Estate Services Division
Mortgage Warehousing 5134
24022 Calle de la Plata, Suite 405
Laguna Hills, CA 92653
Attn: Donald Eppley, VP
Tele - 714-951-4171
Fax - 714-951-4055 30,000,000 3,700,000 33,700,000
NationsBank of Texas, N.A.
Financial Institutions Department
901 Main Street, 66th Floor
MC#TX1-492-66-01
Dallas, TX 75283-1000
Attn: Elizabeth S. Kurilecz, Senior VP
Fed Tax ID 75-2238693
Tele - 214-508-0975
Fax - 214-508-0604 30,000,000 3,700,000 33,700,000
PNC Bank, Kentucky, Inc.
Warehouse Lending
500 West Jefferson
Suite 1200
Louisville, KY 40296
Attn: Scott Goodwin
Fed Tax ID 610191580
Tele: 502-581-2667
Fax - 502-581-3919 30,000,000 3,700,000 33,700,000
NBD Bank
One First National Plaza
Mail Suite 0155
Chicago, IL 60670-0085
Attn: Jason McIntyre, Corporate Banking Officer
Fed Tax ID
Tele - 312-732-1188
Fax - 312-732-6222 25,000,000 3,000,000 28,000,000
Guaranty Federal Bank, F.S.B.
8333 Douglas Ave., 10th Floor
Dallas, TX 75225
Attn: Abbie Y. Tidmore, VP
Fed Tax ID 74-2511478
Tele - 214-360-2865
Fax 214-360-1660 25,000,000 3,000,000 28,000,000
SunTrust Bank, Atlanta
25 Park Place, N.E.
Mail Code 118, 26th Floor
Atlanta, GA 30303
Attn: Jennifer Rose, Banking Officer
Fed Tax ID 580466330
Tele - 404-588-7170
Fax - 404-658-4905 20,000,000 2,500,000 22,500,000
First Union National Bank of North Carolina
Capital Markets
One First Union Center, DC-6
301 South College St.
Charlotte, NC 28228-0600
Attn: Ms. Sinclair Ellet, VP
Fed Tax ID: 56-0900030
Tele - 704-383-1418
Fax - 704-374-7102 20,000,000 2,500,000 22,500,000
The First National Bank of Maryland
25 South Charles Street
Mail Code 101-744
Corporate Banking Division, 18th Floor
Baltimore, MD 21201
Attn: Mr. Kellie M. Matthews, VP
Fed Tax ID
Tele - 410-244-4864
Fax - 410-244-4294 20,000,000 2,500,000 22,500,000
First Bank National Association
Mortgage Banking Services
First Bank Place/MPFP0801
601 Second Ave. South
Minnepolis, MN. 55402-4302
Attn: Kathlyn K. Slater, VP
Fed Tax ID 41-0256895
Tele: 612-973-0622
Fax: 612-973-0826 20,000,000 2,500,000 22,500,000
The Industrial Bank of Japan, Limited
New York Branch
245 Park Avenue
New York, NY 10167-0037
Attn: Craig Anderson
Fed Tax ID
Tele: 212-309-6698
Fax: 212-557-3581 9,000,000 1,000,000 10,000,000
------------ ----------- ------------
Total $325,000,000 $40,000,000 $365,000,000
============ =========== ============
AMENDED SCHEDULE 1.1(b)
-----------------------
WIRING INSTRUCTIONS
-------------------
Party Location of Account ABA#
- -------------------------------------- -------------------- -----
Associates Mortgage Funding Corporation Chemical, Delaware 031100267
Ryland Mortgage Company
Bank One, Texas, N.A. Bank One, Dallas 111000614
Bank of America Costa Mesa, California 121000358
First Bank National Association First Bank, Minn. 091000022
The First National Bank of Maryland First National,Baltimore 052000113
First Union National Bank of North Carolina First Union, Charlotte 053000219
Guaranty Federal Bank,F.S.B. Guaranty Federal,Dallas 314970664
The Industrial Bank of Japan, Limited New York 026008345
NationsBank of Texas, N.A. NationsBank,Dallas 111000025
NBD Bank NBD, Detroit 072000326
PNC Bank, Kentucky, Inc. PNC Kentucky, Louisville 083000108
Texas Commerce Bank National Association TCB, Houston 113000609
SunTrust Bank, Atlanta SunTrust,Atlanta 061000104
Account No. Attention/Phone No. Reference
- -------------- ------------------------------- --------------
6301215806500 --- Paydown
0100073055 Gloria Sadler (214)290-6069 Ryland Mtg.
56199-83980 Mr. Sandy Obnillas (213)345-9404
1702-2508-7585 Carolynn Kiewatt (612)973-0493 Asso/Ryland
0301789102 Marty Wolfe (410)244-6542 00005414
n/a Lisa Brown (704)383-5256 Ryland Mortgage
n/a Katie Turner (214)360-4802 n/a
n/a Atsushi Kawai (212)309-6521 Ryland
129-200-088-3 Mark Johnson (214)508-9349 Ryland Mtg.
(214)508-0944(fax)
0093054 Commercial Loan (313)225-3312 Assoc./Ryland Mtg.
3000990597 Warehouse Lending Associates Mtg.
7001136825800 Billie Hankey (713)775-5471
8892170730 Audrey Davies (404)588-8341 Assoc. Mtg.
AMENDED EXHIBIT C-3
-------------------
BORROWING-BASE REPORT FOR MORTGAGE COLLATERAL
AGENT: Bank One, Texas, N.A. DATE: , 199
FOR: Associates Mortgage Funding Corporation and Ryland Mortgage Company
This report is delivered to the Companies and Lenders under the Restated
Loan and Security Agreement (as renewed, extended, and amended, the "Loan
Agreement") dated as of June 16, 1995, between Associates Mortgage Funding
Corporation, Ryland Mortgage Company, Agent, and certain lenders. Terms
defined in the Loan Agreement have the same meanings when used -- unless
otherwise defined - in this report. Agent has calculated the Borrowing Base
for Mortgage Collateral and its various components as of the date of this
report.
1. Borrowing Base (@ certain advance rates)
(a) B-Paper Loans (@ 95%) $
(b) Investment-Mortgage Loans (@ 75%) $
(c) Seasoned Loans (@ 98%) $
(d) Other Dry Borrowings (@ 98%) $
(e) Wet Borrowings (@ 98%) $
(f) Gestation Borrowings (@ 99%) $
(g) Mortgage Securities (@ 99%) $
(h) Borrowing Base for Mortgage Collateral - Total of Lines 1(a)
through 1(g) $
2. Principal Debt of Warehouse Borrowings
(a) Against B-Paper Loans $
(b) Against Investment-Mortgage Loans $
(c) Against Seasoned Loans $
(d) Other Dry Borrowings $
(e) Wet Borrowings $
(f) Gestation Borrowings $
(g) Mortgage Securities $
(h) Principal Debt of Warehouse Borrowings - Total of Lines 2(a)
through 2(g) $
3. B-Paper Loans Availability
(a) B-Paper Sublimit $20,000,000
(b) Lesser of either Line 1(a) or Line 3(a) $
(c) Line 3(b) minus Line 2(a) - Maximum Borrowings against B-Paper
Loans if positive or Borrowing Excess if negative $
4. Investment-Mortgage Loan Availability
(a) Investment-Mortgage Loan Sublimit $10,000,000
(b) Lesser of either Line 1(b) or Line 4(a) $
(c) Line 4(b) minus Line 2(b) - Maximum Borrowings against
Investment-Mortgage Loans if positive or Borrowing Excess if negative $
5. Other Dry Borrowing Availability
(a) Warehouse Sublimit $325,000,000
(b) Line 5(a) minus Lines 2(a), 2(b), 2(c), 2(e), 2(f), and 2(g) $
(c) Lesser of either Line 1(d) or Line 5(b) $
(d) Line 5(c) minus Line 2(d) -- maximum other Dry Borrowings if
positive or Borrowing Excess if negative $
6. Wet Borrowings Availability
(a) Wet Sublimit [30% of Line 5(a)] $
(b) Lesser of either Line 1(e) or Line 6(a) $
(c) Line 6(b) minus Line 2(e) - Maximum Wet Borrowings if positive
or Borrowing Excess if negative $
7. Gestation Borrowing Availability
(a) Gestation Sublimit [50% of Line 5(a)] $
(b) Lesser of either Line 1(f) or Line 7(a) $
(c) Line 7(b) minus Line 2(f) - Maximum Gestation Borrowing if
positive or Borrowing Excess if negative $
8. Seasoned Loan Availability
(a) Seasoned-Loan Sublimit $10,000,000
(b) Lesser of either Line 1(c) or Line 8(a) $
(c) Line 8(b) minus Line 2(c) - Maximum Borrowings against Seasoned
Loans if positive or Borrowing Excess if negative $
The Principal Debt of Warehouse Borrowings to each Lender is as follows:
Lender Commitment Share
Percentage of
Lender of Line 5(a) Line 2(h)
Bank One, Texas, N.A. % $
Bank of America % $
First Bank National Association % $
The First National Bank of Maryland % $
First Union National Bank
of North Carolina % $
Guaranty Federal Bank, F.S.B. % $
The Industrial Bank of Japan, Limited % $
NationsBank of Texas, N.A. % $
NBD Bank % $
PNC Bank, Kentucky, Inc. % $
Texas Commerce Bank National Association % $
Sun Trust Bank, Atlanta % $
In additional to the above, the total Commitment Usage does not exceed
the lesser of either (i) the total Commitments or (ii) the total Borrowing
Base.
BANK ONE, TEXAS, N.A., Agent
By
-------------------------
(Name)
--------------------------
(Title)
--------------------------
AMENDED EXHIBIT C-6
-------------------
COMPLIANCE CERTIFICATE
----------------------
AGENT: Bank One, Texas, N.A. DATE: , 19
ASSOCIATES: Associates Mortgage Funding Corporation
RYLAND: Ryland Mortgage Company
SUBJECT PERIOD: ended , 199
This certificate is delivered under the Restated Loan and Security
Agreement (as renewed, extended, and amended, the "Loan Agreement") dated as
of June 16, 1995, between Associates, Ryland, Agent, and certain lenders.
Terms defined in the Loan Agreement have the same meanings when used - unless
otherwise defined - in this certificate.
Solely on behalf of the Company for which each undersigned officer has
executed this certificate, that undersigned officer certifies to Agent and
Lenders, that on the date of this certificate:
1. That undersigned officer is the officer of that Company designated
below.
2. That Company's consolidated Financial Statements that are attached
to this certificate were prepared in accordance with GAAP and present fairly
that Company's consolidated financial position and results of operations as
of -- and for the one, two, or three quarters of fiscal year, as the case may
be, ending on -- the last day of the Subject Period.
3. That undersigned officer supervised a review of that Company's
activities during the Subject Period in respect of the following matters and
has determined the following: (a) To that undersigned officer's best
knowledge, except to the extent that (i) a representation or warranty speaks
to a specific date or (ii) the facts on which a representation or warranty is
based have changed by transactions or conditions contemplated or permitted by
the Loan Papers, that Company's representations and warranties in Section 6 of
the Loan Agreement are true and correct in all material respects, other than
for the changes, if any, described on the attached Schedule 1; (b) that
Company has complied with all of its obligations under the Loan Papers, other
than for the deviations, if any, described on the attached Schedule 1; (c) no
Default or Potential Default exists or is imminent, other than those, if any,
described on the attached Schedule 1; and (d) that Company's compliance with
the financial covenants in Section 9 of the Loan Agreement is accurately
calculated on the attached Schedule 1.
(Name)
(Title)
(Name)
(Title)
SCHEDULE 1
----------
A. Describe deviations from compliance with obligations, if any -
clause 3(b) of attached Compliance Certificate - if none, so state:
B. Describe Potential Defaults or Defaults, if any - clause 3(c) of
the attached Compliance Certificate - if none, so state:
C. Calculate compliance with covenants in Section 9 at end of Subject
Period (on a consolidated basis) - clause 3(d) of the attached Compliance
Certificate:
Covenant At End of Subject Period
1. Associates' Stockholders' Equity
- Sec. 9.1(a) (quarterly)
(a) Actual $
(b) Minimum $1,000,000
2. Ryland's Adjusted-Net Worth
- Sec. 9.1(b) (quarterly)
(a) Stockholder's equity $
(b) Loans and advances deducted
under Item 13 on Schedule 8.3 $
(c) Actual - Line 2(a) minus Line 2(b) $
(d) Minimum $40,000,000
3. Ryland's Adjusted-Tangible-Net Worth
- Sec. 9.1(c) (quarterly)
(a) Subordinated long-term Debt
maturing no earlier than June 30, 1998 $
(b) 1% of Eligible-Servicing Portfolio $
(c) Net-book-value of Servicing Rights $
(d) Goodwill, etc. $
(e) Patents, etc. $
(f) Other intangibles $
(g) Actual - Line 2(c) plus Lines 3(a)
and 3(b) minus Lines 3(c) through 3(f) $
(h) Minimum $55,000,000
4. Ryland's Leverage Ratio - Sec. 9.2 (quarterly)
(a) Total liabilities $
(b) Repurchase obligations permitted
to be excluded $
(c) Line 4(a) minus Line 4(b) $
(d) Actual - Ratio of Line 4(c) to
Line 3(g) - to -
(e) Maximum 8.0 to 1.0
5. Associates' Net Income - Sec. 9.3 (annually)
(a) Actual $
(b) Minimum $1.00
6. Ryland's Cash Flow - Sec. 9.4 (rolling 4 quarters)
(a) Net income or loss $
(b) Amortization $
(c) Depreciation $
(d) Other noncash charges $
(e) Actual - Total of Lines 6(a)
through 6(d) $
(f) Minimum $1.00
7. Servicing Portfolio - Sec. 9.5
(a) Actual - Servicing Portfolio
(Ryland and any Subsidiary) $ billion
(b) Minimum $4.0 billion
(c) Actual Eligible-Servicing Portfolio
(Ryland only) $ billion
(d) Minimum $ 1 billion
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of the 28th day of January 1997, by and between
The Ryland Group, Inc., a Maryland corporation (the "Company"), and R. Chad
Dreier (the "Executive").
In consideration of the mutual covenants and agreements of the parties set
forth in this Agreement, and other good and valuable consideration the receipt
and sufficiency of which are acknowledged, the parties agree as follows:
1. Replacement of Prior Employment Agreement. This Employment Agreement
replaces and supercedes the Employment Agreement dated as of December
31, 1994 between the Company and the Executive which upon the effective
date of this Employment Agreement is terminated and no longer effective.
2. Term of Employment. The Company agrees to employ the Executive for a
period of four (4) years commencing as of January 1, 1997. This
Agreement shall be automatically renewed for a one (1) year period at
the end of the initial four (4) year term or at the end of each renewal
period until terminated in accordance with the terms of this Agreement.
Either party may terminate this Agreement at the end of the initial four
(4) year term or at the end of each one (1) year renewal period by
giving the other party written notice of termination delivered at least
one hundred eighty (180) days prior to the end of the initial term or
any renewal period.
If at any time during the initial term or any renewal period, a Change
of Control of the Company occurs (as defined in Section 7.2 below), the
term of this Agreement shall be the longer of (a) three (3) years
beyond the effective date of the Change of Control or (b) the term as
provided in this Section 2.
3. Position and Responsibilities. The Executive shall serve as the
Chairman of the Board of Directors, President and Chief Executive
Officer of the Company. In his capacity as Chairman of the Board,
President and Chief Executive Officer, the Executive shall be the
Company's highest ranking executive officer and shall have full
authority and responsibility for formulating and administering the plans
and policies of the Company subject to the control of the Board of
Directors.
4. Performance of Duties. The Executive shall devote his full time
attention and energies to the Company's business and will not engage in
consulting work or any business for his own account or for any person,
firm or corporation. The Executive may serve as a director of other
companies so long as this service does not interfere with the
performance of his duties with the Company.
5. Compensation. For all services to be rendered by the Executive during
the term of this Agreement, the Company shall pay and provide to the
Executive:
5.1 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, provided the Base Salary shall not be less
than six hundred fifty-five thousand dollars ($655,000) per year.
This Base Salary is paid in installments consistent with the
normal payroll practices of the Company and reviewed annually to
determine whether, in the judgment of the Board of Directors, it
should be increased based on the performance of the Executive and
any other factors deemed appropriate.
5.2 Annual Bonus. The Executive is eligible to receive an annual cash
bonus (the "Bonus") in respect of each fiscal year during the term
of this Agreement equal to one percent (1.0%) of the Ordinary
Course Pre-Tax Income. "Ordinary Course Pre-Tax Income" is the
consolidated pre-tax income of the Company and its subsidiaries as
reflected in the audited consolidated financial statements of the
Company, as adjusted in good faith by the Compensation Committee
to eliminate the effect of nonrecurring gains and losses and other
items not reflective of the ongoing ordinary course of business
and operating performance of the Company. The Bonus shall be
payable to the Executive in cash within sixty (60) days after the
end of each fiscal year during the term of this Agreement.
5.3 Incentive Plans. The Executive shall participate in any stock
option and incentive award programs available to executive
officers of the Company. This participation is on a basis which
is commensurate with the Executive's position with the Company.
5.4 Other Benefits. The Executive is entitled to receive other
employee benefits, such as disability, group life, sickness,
accident and health insurance programs, split-dollar life
insurance programs and other perquisites that are available to
executive officers of the Company. This participation is on a
basis which is commensurate with the Executive's position with the
Company.
5.5 Stock Option
(a) Grant of Option
Pursuant to the terms and conditions of The Ryland Group,
Inc. 1992 Equity Incentive Plan (the "Plan), the Company
grants to the Executive during the period ending at the
close of business on January 28, 2007 (the "Option Period"),
the option to purchase (the "Option") from the Company at a
price of $12.75 per share up to 150,000 shares of the
Company's Common Stock. THE OPTION GRANTED SHALL NOT BE
TREATED AS AN "INCENTIVE STOCK OPTION" WITHIN THE MEANING OF
SECTION 422 OF THE INTERNAL REVENUE CODE OF 1986. AS
AMENDED. The option is governed and controlled by all terms
of the Plan.
(b) Exercise of Option.
The Option may be exercised in whole or in part in
accordance with the following vesting schedule:
The aggregate number of shares of Common Stock optioned by
this Agreement shall be dividend into 3 installments.
The first installment for 50,000 shares may be exercised in
whole or in part beginning 1/29/98
The second installment for 50,000 shares may be exercised in
whole or in part beginning 1/29/99
The third installment for 50,000 shares may be exercised in
whole or in part beginning 1/29/00
In case an installment is not immediately exercisable, the
Board of Directors or the Compensation Committee of the Board
may in its discretion accelerate the time at which the
installment may be exercised. To the extent not exercised,
installments shall accumulate and be exercisable by the
Executive during the Option Period. Continued accrual and
vesting of installments shall cease immediately upon
termination of employment for any reason whatsoever, subject to
acceleration by the Board of Directors or the Compensation
Committee.
(c) Payment of Exercise Price.
The Executive shall pay the exercise price in the following
ways:
(I) cash payment (by certified check, bank draft or money
order payable to the order of the Company).
(ii) if approved by the Company, cash payment may be made from
the proceeds of an immediate sale of Common Stock
receivable upon the exercise of the Option; or
(iii) if approved by the Company, delivery of Common Stock
(including executed stock powers attached thereto);
The payment of the exercise price shall be delivered with a
notice of exercise, which notice will be in a form provided by
the Company.
The Company shall, subject to the receipt of withholding tax,
issue to the Executive the stock certificate for the number of
shares of Common Stock with respect to which the Option is
exercised.
The value of shares of Common Stock used as payment for the
exercise of an Option shall be the closing price of such shares
on the New York Stock Exchange on the date of exercise of an
Option or as otherwise determined by the Company, the Board of
Directors or the Compensation Committee of the Board of
Directors.
(d) Termination
The Option shall terminate upon the happening of the earliest
of the following events:
(i) January 28, 2007
(ii) The expiration of 90 days after the date of termination
of the Executive's employment, except in the case of
death, Disability (defined below) or retirement. During
this period, the Executive shall have the right to
exercise the Option to the extent it is exercisable on
the termination date.
(iii) The expiration of three (3) years after the date of death
of the Executive if death occurs during the term of this
Agreement. During this period, the Executive's estate,
personal representative or beneficiary shall have the
right to exercise the Option to the extent it is
exercisable on the date of death.
(iv) The expiration of three (3) years after the date the
Executive's employment is terminated due to Disability or
retirement. During this period, the Executive shall have
the right to exercise the Option to the extent it is
exercisable on the date of termination.
(e) Merger, Consolidation or Share Exchange.
After any merger, consolidation or share exchange in which the
Company is the surviving or resulting corporation, the
Executive shall be entitled, upon the exercise of an Option, to
receive the number and class of shares of stock or other
consideration to which the Executive would have been entitled,
if, immediately prior to such merger, consolidation or share
exchange, the Executive had exercised the Option in accordance
with and subject to the terms of this Agreement and the Plan.
If the Company is not the surviving or resulting corporation in
any merger, consolidation or share exchange, the surviving or
resulting corporation shall tender stock options to purchase
its shares on terms and conditions that substantially preserve
the rights and benefits under this Option.
5.6 Stock Units
(a) Grant of Stock Units.
Pursuant to the terms and conditions of the Plan, the
Company grants to the Executive an award of 45,000 Stock
Units (the "Stock Units") pursuant to Section 10 of the
Plan.
(b) Vesting of Stock Units.
The Stock Units become vested and payable in accordance with
the following vesting schedule:
DATE VESTING
November 1, 1999 15,000 Stock Units
November 1, 2000 30,000 Stock Units
If the Executive terminates employment with the Company for
any reason prior to any vesting date, all unvested Stock
Units are immediately forfeited and cancelled.
Notwithstanding the foregoing, all unvested Stock Units
shall vest and be paid by the Company to the Executive upon
the occurrence of a Change of Control (as defined in Section
7.2 below).
(c) Payment of Stock Units.
Upon each vesting date on which the Executive is employed by
the Company, the number of Stock Units which become vested
on such date shall be paid to the Executive in an equal
number of shares of Common Stock of the Company and, upon
payment, such Stock Units are automatically fully paid and
cancelled.
(d) Dividend Equivalents.
As of each dividend payment date with respect to Common
Stock, the Executive shall receive a cash dividend
equivalent payment equal to the product of (i) the pre-share
cash dividend payable with respect to each share of Common
Stock on that date and (ii) the total number of Stock Units
which have not been vested, paid or cancelled as of the
record date corresponding to such dividend payment date.
(e) Delivery of Stock Certificates.
The stock certificate for shares of Common Stock issued to
the Executive in payment of any vested Stock Unit shall be
delivered to the Executive on the applicable vesting date.
(f) Tax Matters.
The Executive will pay to the Company, or make provision
satisfactory to the Company for payment of, any taxes
required by law to be withheld with respect to the payment
of any Stock Unit no later than the date of vesting of each
Stock Unit. Tax obligations may be paid in whole or in part
in shares of Common Stock, including shares retained from
the payment of the Stock Units, valued at their Fair Market
Value (as defined in the Plan) on the date of payment.
(g) Rights of Executive With Respect to Stock Units.
The Executive shall have no rights as a stockholder with
respect to any Stock Unit or any share of Common Stock to be
issued with respect to any Stock Unit until the date of
vesting and payment. The Executive's rights with respect to
Stock Units shall be the rights of a general unsecured
creditor of the Company until the Stock Units vest and
shares of Common Stock are actually issued to the Executive.
(h) Adjustments.
The number of Stock Units shall be appropriately adjusted,
as determined by the Board of Directors or Compensation
Committee of the Board of Directors pursuant to the Plan, in
the event of any stock split, combination or similar
transaction.
(i) Stock Units Subject to Terms and Conditions of the Plan.
The Stock Units and all shares of Common Stock issued with
respect to Stock Units shall be subject to the terms and
conditions of the Plan, which is incorporated herein by this
reference.
6. Employment Termination.
6.1 Termination Due to Retirement or Death. In the event the
Executive's employment is terminated by reason of retirement or
death, the Executive's benefits shall be determined in accordance
with the Company's retirement, survivor's benefits, insurance or
other applicable program then in effect. Upon the effective date
of termination, the Company's obligation to pay and provide the
compensation described in Section 5 shall expire, except to the
extent the benefits described in Section 5 continue after
retirement or death. In addition, the Company shall pay to the
Executive or the Executive's beneficiaries or estate a pro rata
share of the Bonus for the year in which the termination occurs
based on the results of the Company for that fiscal year. This
pro rata Bonus shall be determined by multiplying the Bonus for
the applicable fiscal year by a fraction, the numerator of which
is the number of days in such fiscal year prior to the date of
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 the applicable fiscal year.
6.2 Termination Due to Disability. In the event the Executive becomes
Disabled (as defined below) and is unable to perform his duties
for more than one hundred twenty (120) days during any period of
twelve (12) months or, in the reasonable determination of the
Board of Directors, the Executive's Disability (as defined below)
will exist for more than one hundred twenty (120) days, the
Company has the right to terminate the Executive's employment and
the Company's obligation to pay and provide the compensation
described in Section 5 shall expire, except to the extent the
benefits described in Section 5 continue after Disability. In
addition, the Company shall pay to the Executive a pro rata share
of the Bonus for the year in which the termination occurs based on
the results of the Company for that fiscal year determined as
provided in Section 6.1. The pro rata Bonus shall be paid within
sixty (60) days of the end of the applicable fiscal year.
The term "Disabled" or "Disability" means the incapacity of the
Executive, due to injury, illness, disease or bodily or mental
infirmity, to engage in the performance of his duties with the
Company. A Disability is determined by the Board of Directors
upon receipt of and in reliance on competent medical advice from
one or more individuals selected by the Board who are qualified
to give professional medical advice.
6.3 Voluntary Termination by the Executive. The Executive may
terminate this Agreement at any time by giving the Board of
Directors written notice of intent to terminate delivered at least
ninety (90) days prior to the effective date of such termination.
Upon the expiration of this ninety (90) day period, the
termination by the Executive shall become effective. The Company
shall pay the Executive his Base Salary through the effective date
of termination plus all benefits to which the Executive has a
vested right at that time. The Executive shall not receive a
Bonus for the fiscal year in which voluntary termination occurs.
Upon the date of termination, the Company and the Executive shall
have no further obligations under this Agreement except as set
forth in Sections 8 and 9.
6.4 Termination by the Company Without Cause. The Board of Directors
may terminate the Executive's employment for reasons other than
death, Disability, retirement or for Cause (as defined in Section
6.5) by notifying the Executive in writing at least thirty (30)
days prior to the effective date of termination. Upon the
expiration of this thirty (30) day period, the termination by the
Company is effective. Within thirty (30) days after the date of
termination, the Company shall pay to the Executive a lump sum
cash payment equal to the greater of (a) the Base Salary in effect
for the remaining term of this Agreement, or (b) eighteen (18)
months of the Base Salary in effect as of the effective date of
termination, and shall provide to the Executive a continuation of
his health and welfare benefits for the greater of (a) such
remaining term of this Agreement or (b) eighteen (18) months. If
the Company is unable to provide health and welfare benefits as
required by this Section 6.4, the Company shall 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. The Company shall pay the Executive an annual
Bonus for the year in which termination occurs based upon the
performance of the Company through the end of the fiscal year in
which the termination occurs. This annual Bonus shall be paid
within sixty (60) days of the end of the applicable fiscal year.
The Company shall also pay the Executive all benefits to which the
Executive has a vested right at the time of termination. Upon the
date of termination, the Company and the Executive shall have no
further obligations under this Agreement except as set forth in
Sections 8 and 9.
6.5 Termination for Cause. The Board of Directors may terminate the
Executive's employment at any time for "Cause". "Cause" is
determined by the Board of Directors and is defined as fraud,
embezzlement, theft or other criminal act constituting a felony
under U.S. laws, or the failure of the Executive to perform any
material obligations under this Agreement for reasons other than
the Executive's death, Disability or retirement. In the event
this Agreement is terminated by the Board of Directors for Cause,
the Company shall pay the Executive his Base Salary through the
date of termination and the Executive shall forfeit all rights and
benefits he is entitled to receive including any right to a Bonus
for the fiscal year in which the termination occurs. The Company
and the Executive thereafter shall have no further obligations
under this Agreement except as set forth in Sections 8 and 9.
6.6 Termination for Good Reason. The Executive may terminate this
Agreement for Good Reason (as defined below) by giving the Board
of Directors thirty (30) days written notice of intent to
terminate, which notice sets forth the facts and circumstances for
the termination. Upon the expiration of this thirty (30) day
period, the termination by the Executive is effective and the
Company shall pay the Executive the benefits set forth in Section
6.4.
"Good Reason" means, without the Executive's written consent, the
occurrence of any of the following:
(a) The assignment of the Executive to duties materially
inconsistent with, or a reduction or alteration in the
nature or status of, the Executive's authorities, duties,
responsibilities or status as an executive officer of the
Company from those in effect during the preceding year;
(b) The Company requires the Executive to be based at a location
which is more than fifty (50) miles from the Executive's
then current primary residence;
(c) A reduction by the Company in the Executive's Base Salary;
or
(d) The failure of the Company to obtain an agreement from any
successor to the Company to perform this Agreement.
7. Change in Control.
7.1 Termination After Change of Control. In lieu of the compensation
and benefits provided in Sections 5 or 6, which will be superseded
and replaced by the provisions of this Section 7, the following
payments and benefits will be provided to the Executive by the
Company in the event of a Termination of Employment (as defined
below) within three (3) years after a Change of Control (as
defined below) of the Company:
(a) Lump Sum Cash Payment. On or before the Executive's last
day of employment with the Company, the Company will pay the
Executive an amount equal to the Executive's unpaid Base
Salary for the year in which the Termination of Employment
occurs and a pro rata Bonus through the date of Termination
of Employment determined in accordance with Section 6.1.
Also, on or before the Executive's last day of employment
with the Company, the Company will pay the Executive a lump
sum cash payment equal to three (3) times the highest Annual
Compensation (as defined below) paid to the Executive in any
of the three (3) calendar years immediately preceding the
date of Termination of Employment.
(b) Accelerated Vesting and Supplemental Payments. All rights,
awards and benefits of the Executive in the TRG Incentive
Plan or other incentive plan, the deferred compensation
plans (including the Retirement and Stock Ownership Plan,
Executive and Director Deferred Compensation Plan and any
successor or replacements plans) and any stock option or
other benefit plans of the Company in which the Executive
participates shall immediately vest in full and the
Executive shall be paid in a lump sum as soon as practicable
after the date of Termination of Employment. To the extent
that any of the plans of the Company would not under
applicable law permit accelerated vesting, the Executive
will be paid supplementally by the Company the amount of
additional benefits payable if full vesting had taken place
as of the date of Termination of Employment. All
supplemental payments are provided on an unfunded basis, are
not intended to meet the qualification requirements of
Section 401 of the Internal Revenue Code, and shall be
payable solely from the general assets of the Company.
(c) Insurance and Other Special Benefits. The Executive's
participation in the life, accident and health insurance,
employee welfare benefit plans (as defined in the Employee
Retirement Income Security Act of 1974) and other fringe
benefits (the "Benefits") provided to the Executive prior to
the Change of Control or the Termination of Employment shall
be continued or equivalent benefits provided by the Company
at no cost to the Executive for a period of two (2) years
from the date of the Executive's Termination of Employment.
If for any reason the Company is unable to continue the
Benefits as required by the preceding sentence, the Company
shall pay to the Executive a lump sum cash payment equal to
the value of the Benefits which the Company is unable to
provide.
(d) Relocation Assistance. Should the Executive move his
residence in order to pursue other business opportunities
within two (2) years after the date of the Executive's
Termination of Employment, he will be reimbursed for any
expenses incurred in that relocation, including taxes
payable on the reimbursement, which are not reimbursed by
another employer. Benefits under this paragraph will
include assistance in selling the Executive's home and all
other assistance and benefits which are provided by the
Company under its relocation plan as in effect immediately
prior to the Change of Control or the Termination of
Employment.
(e) Stock Rights. All stock options, stock appreciation rights,
stock purchase rights, restricted stock rights and any
similar rights which the Executive holds shall become fully
vested and be exercisable on the date of Termination of
Employment.
(f) Outplacement Assistant. The Executive shall be reimbursed
by the Company for the cost of all outplacement services
obtained by the Executive within the two (2) year period
after the date of Termination of Employment provided the
total reimbursement shall be limited to an amount equal to
fifteen percent (15%) of the Executive's Annual Compensation
for the calendar year immediately preceding the date of
Termination of Employment.
7.2 Definitions.
(a) A "Change of Control" shall take place on the date of the
earlier to occur of any of the following events:
(i) The acquisition by any person, other than the Company
or any employee benefit plan of the Company, of
beneficial ownership of 20% or more of the combined
voting power of the Company's then outstanding voting
securities;
(ii) The first purchase under a tender offer or exchange
offer, other than an offer by the Company or any
employee benefit plans of the Company, pursuant to
which shares of common stock have been purchased;
(iii) During any period of two consecutive years,
individuals who at the beginning of such period
constitute the Board of Directors of the Company cease
for any reason to constitute at least a majority
thereof, unless the election or the nomination for the
election by stockholders of the Company of each new
director was approved by a vote of at least two-thirds
of the directors then still in office who were
directors at the beginning of the period; or
(iv) Approval by stockholders of the Company of a merger,
consolidation, liquidation or dissolution of the
Company, or the sale of all or substantially all of
the assets of the Company.
(b) "Annual Compensation" shall mean the sum of the Base Salary
and the Bonus paid to the Executive and all vested amounts
credited to the Executive under any incentive compensation
or other benefit plans of the Company in which the Executive
participates during the applicable calendar year.
(c) A "Termination of Employment" shall take place in the event
that (a) the Executive's employment is terminated for any
reason other than as a consequence of death, disability or
normal retirement, (b) the Executive is assigned any duties
or responsibilities that are inconsistent in any respect
with his position, duties, responsibilities or status prior
to the Change of Control, (c) the Company requires the
Executive to be based at a location which is more than fifty
(50) miles from the Executive's then current primary
residence, (d) the Executive's Base Salary is reduced, or
(e) the Executive experiences in any year a reduction in the
ratio of his incentive compensation, bonus or other such
payments to his base compensation which is greater than the
average reduction in the ratio of incentive compensation,
bonus or other such payments to base compensation
experienced by all of the Company's or the successor
company's executive officers.
7.3 Subsequent Imposition of Excise Tax. If 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, 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 7.3 is made.
8. Noncompetition and Proprietary Information.
8.1 Prohibition on Competition. During the term of this Agreement and
for twenty-four (24) months following termination of this
Agreement pursuant to Sections 2, 6.1, 6.2, 6.3 or 6.5 (the
"Restrictive Period"), the Executive shall not, as a stockholder,
partner, employee or officer, engage, directly or indirectly, in
any business or enterprise which is "in competition" with the
Company. For purposes of this Agreement, a business or enterprise
will be "in competition" if it is engaged in any significant
business activity of the Company or its subsidiaries within the
United States.
The Executive shall be allowed to purchase and hold for investment
less than two percent (2%) of the shares of any corporation whose
shares are regularly traded on a national securities exchange or
in the over-the-counter market.
8.2 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.
8.3 Covenants Regarding Other Employees. During the term of this
Agreement and the Restrictive Period, 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 interfere in a similar manner with
the business of the Company.
8.4 Specific Performance. The parties recognize that the Company will
have no adequate remedy at law for breach of the requirements of
this Section 8 and, in the event of such breach, the Company and
the Executive 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 these requirements.
9. Indemnification. The Company covenants and agrees to indemnify and hold
harmless the Executive fully, completely and absolutely against any and
all actions, suits, proceedings, claims, demands, judgments, costs,
expenses (including reasonable attorney's fees), losses and damages
resulting from the Executive's good faith performance of his duties
under this Agreement subject to the requirements and limitations imposed
by the Company's Articles of Incorporation and By-Laws and applicable
law.
10. Assignment.
10.1 Assignment by Company. This Agreement may be assigned or
transferred to, and shall be binding upon and inure to the benefit
of, any successor of the Company, and any 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 jointly and severally liable for all obligations hereunder.
10.2 Assignment by Executive. The services to be provided by the
Executive to the Company are personal to the Executive and the
Executive's duties may not be assigned by the Executive. This
Agreement shall, however, inure to the benefit of and be
enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive dies while any amounts
payable to the Executive remain outstanding, all such amounts
shall be paid to the Executive's designee, estate or
beneficiaries.
11. Dispute Resolution. Either the Executive or the Company may elect to
have any good faith dispute or controversy arising under or in
connection with this Agreement settled by arbitration by providing
written notice of such election to the other party specifying the nature
of the dispute to be arbitrated. If arbitration is selected, such
proceeding shall be conducted before a panel of three (3) arbitrators
sitting in a location agreed to by the Company and the Executive within
fifty (50) miles from the location of the Executive's principal place of
employment in accordance with the rules of the American Arbitration
Association. Judgment may be entered on the award of the arbitrators in
any court having competent jurisdiction. To the extent that the
Executive prevails in any litigation or arbitration seeking to enforce
the provisions of this Agreement, the Executive shall be entitled to
reimbursement by the Company of all expenses of such litigation or
arbitration, including reasonable legal fees and expenses and necessary
costs and disbursements.
12. Miscellaneous.
12.1 Entire Agreement. This Agreement supersedes any prior agreements
or understandings, oral or written, between the Executive and the
Company with respect to the subject matter hereof, and constitutes
the entire agreement of the parties with respect thereto.
12.2 Modification. This Agreement shall not be varied, altered,
modified, cancelled, changed or in any way amended except by
mutual agreement of the parties in a written instrument executed
by the parties or their legal representatives.
12.3 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 and shall remain in full force and effect.
12.4 Tax Withholding. The Company may withhold all Federal, state,
city or other taxes required pursuant to any law or governmental
regulation or ruling.
12.5 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 a signed writing acceptable to the Board of Directors,
the Company or designees of the Board or Company. The Executive
may change such designation at any time.
12.6 Board Committee. Any action taken or determination made by the
Board of Directors under this Agreement may be taken or made by
the Compensation Committee or any other Committee of the Board of
Directors.
12.7 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.
12.8 Notice. Any notices, requests, demands or other communications
required by or provided for in this Agreement shall be sufficient
if in writing and 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 office.
IN WITNESS WHEREOF, the Executive and the Company have executed this Agreement
as of the date first above written.
THE RYLAND GROUP, INC. EXECUTIVE:
By: /s/ Edward W. Gold /s/ R. Chad Dreier
------------------------------------ -----------------------------
Edward W. Gold, Senior Vice President R. Chad Dreier
Attest:
/s/ Timothy J. Geckle
----------------------------
Timothy J. Geckle, Secretary
EXHIBIT 10.8
AMENDED AND RESTATED
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"), as amended and restated as of January 28, 1997.
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 of Control of the Company occurs (as
defined in Article 7 herein), then the term of this Agreement shall be three
(3) years beyond the month in which the effective date of such Change of
Control occurs.
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 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 8.1 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 $312,000 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.
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.
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.
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 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. Other than
during a Change of Control Period (as defined in Section 7.2), 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.
Unless the provisions of Section 7 apply, 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 fully vested in any prior
year awards that remain unvested or awards made for the fiscal year in which
termination occurs under the TRG Incentive Plan or any successor plan, 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 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 unless the provisions
of Section 7 apply.
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 10.1 herein.
Upon a termination of the Executive's employment for Good Reason at any
time, 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 unless the provisions of Section 7 apply. 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.
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 OF CONTROL
7.1 Termination in Connection With a Change of Control. In lieu of the
compensation and benefits provided in Sections 4 or 6, which will be
superseded and replaced by the provisions of this Section 7, the following
payments and benefits will be provided to the Executive by the Company in the
event of a Termination of Employment (as defined below) during a Change of
Control Period (as defined below) of the Company:
(a) Lump Sum Cash Payment. On or before the Executive's last day of
employment with the Company, the Company will pay the Executive an amount
equal to the Executive's unpaid Base Salary for the year in which the
Termination of Employment occurs and a pro rata Bonus through the date of
Termination of Employment determined in accordance with Section 6.1. Also, on
or before the Executive's last day of employment with the Company, the
Company will pay the Executive a lump sum cash payment equal to three (3)
times the highest Annual Compensation (as defined below) paid to the Executive
in any of the three (3) calendar years immediately preceding the date of
Termination of Employment.
(b) Accelerated Vesting and Supplemental Payments. All rights, awards
and benefits of the Executive in the TRG Incentive Plan or other incentive
plan, the deferred compensation plans (including the Retirement and Stock
Ownership Plan, Executive and Director Deferred Compensation Plan and any
successor or replacements plans) and any stock option or other benefit plans
of the Company in which the Executive participates shall immediately vest in
full and the Executive shall be paid in a lump sum as soon as practicable
after the date of Termination of Employment. To the extent that any of the
plans of the Company would not under applicable law permit accelerated
vesting, the Executive will be paid supplementally by the Company the amount
of additional benefits payable if full vesting had taken place as of the date
of Termination of Employment. All supplemental payments are provided on an
unfunded basis, are not intended to meet the qualification requirements of
Section 401 of the Internal Revenue Code, and shall be payable solely from the
general assets of the Company.
(c) Insurance and Other Special Benefits. The Executive's participation
in the life, accident and health insurance, employee welfare benefit plans (as
defined in the Employee Retirement Income Security Act of 1974) and other
fringe benefits (the "Benefits") provided to the Executive prior to the Change
of Control or the Termination of Employment shall be continued or equivalent
benefits provided by the Company at no cost to the Executive for a period of
two (2) years from the date of the Executive's Termination of Employment. If
for any reason the Company is unable to continue the Benefits as required by
the preceding sentence, the Company shall pay to the Executive a lump sum cash
payment equal to the value of the Benefits which the Company is unable to
provide.
(d) Relocation Assistance. Should the Executive move his residence in
order to pursue other business opportunities within two (2) years after the
date of the Executive's Termination of Employment, he will be reimbursed for
any expenses incurred in that relocation, including taxes payable on the
reimbursement, which are not reimbursed by another employer. Benefits under
this paragraph will include assistance in selling the Executive's home and all
other assistance and benefits which are provided by the Company under its
relocation plan as in effect immediately prior to the Change of Control Period
or the Termination of Employment.
(e) Stock Rights. All stock options, stock appreciation rights, stock
purchase rights, restricted stock rights and any similar rights which the
Executive holds shall become fully vested and be exercisable on the date of
Termination of Employment.
(f) Outplacement Assistance. The Executive shall be reimbursed by the
Company for the cost of all outplacement services obtained by the Executive
within the two (2) year period after the date of Termination of Employment
provided the total reimbursement shall be limited to an amount equal to
fifteen percent (15%) of the Executive's Annual Compensation for the calendar
year immediately preceding the date of Termination of Employment.
7.2 Definitions.
(a) A "Change of Control" shall take place on the date of the earlier to
occur of any of the following events:
(i) The acquisition by any person, other than the Company or any employee
benefit plan of the Company, of beneficial ownership of 20% or more of the
combined voting power of the Company's then outstanding voting securities;
(ii) The first purchase under a tender offer or exchange offer, other than
an offer by the Company or any employee benefit plans of the Company, pursuant
to which shares of common stock have been purchased;
(iii) During any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the Company
cease for any reason to constitute at least a majority thereof, unless the
election or the nomination for the election by stockholders of the Company of
each new director was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of the
period; or
(iv) Approval by stockholders of the Company of a merger, consolidation,
liquidation or dissolution of the Company, or the sale of all or substantially
all of the assets of the Company.
(b) "Annual Compensation" shall mean the sum of the Base Salary and the
Bonus paid to the Executive and all vested amounts credited to the Executive
under any incentive compensation or other benefit plans of the Company in
which the Executive participates during the applicable calendar year.
(c) A "Termination of Employment" shall take place in the event that (a)
the Executive's employment is terminated for any reason other than as a
consequence of death, disability or normal retirement, (b) the Executive is
assigned any duties or responsibilities that are inconsistent in any respect
with his position, duties, responsibilities or status prior to a Change of
Control Period, (c) the Company requires the Executive to be based at a
location which is more than fifty (50) miles from the Executive's then current
primary residence, (d) the Executive's Base Salary is reduced, (e) the
Executive experiences in any year a reduction in the ratio of his incentive
compensation, bonus or other such payments to his base compensation which is
greater than the average reduction in the ratio of incentive compensation,
bonus or other such payments to base compensation experienced by all of the
Company's or the successor company's executive officers, or (f) the Company
gives the Executive notice of an intent not to renew or does not renew the
term of this Agreement at any time during a Change of Control Period.
(d) A "Change of Control Period" shall mean the period of time commencing
with the date of a Change of Control or on which the Company becomes aware of
or enters into any discussions or negotiations that could involve a Change of
Control or a proposed transaction which could result in a Change of Control,
and ending on the first to occur of: (a) three (3) years after the effective
date of the Change of Control, or (b) the date on which the proposed Change of
Control is no longer discussed or expected to occur.
7.3 Subsequent Imposition of Excise Tax. If 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, 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 7.3 is made.
ARTICLE 8. NONCOMPETITION
8.1 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 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 home-building 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.
8.2 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.
8.3 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.
8.4 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 8 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 9. 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 10. ASSIGNMENT
10.1 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 provided in Article 7 hereof.
Except as herein provided, this Agreement may not otherwise be assigned
by the Company.
10.2 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 11. DISPUTE RESOLUTION AND NOTICE
11.1 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.
11.2 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 12. MISCELLANEOUS
12.1 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.
12.2 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.
12.3 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.
12.4 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.
12.5 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.
12.6 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 13. 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 and as amended and restated as of January 28, 1997.
THE RYLAND GROUP, INC. EXECUTIVE:
By: /s/ R. Chad Dreier /s/ Michael D. Mangan
------------------ ---------------------
R. Chad Dreier, Chairman Michael D. Mangan
of the Board of Directors, President
and Chief Executive Officer
Attest: /s/ Timothy J. Geckle
---------------------
Timothy J. Geckle, Secretary
EXHIBIT 10.9
SENIOR EXECUTIVE SEVERANCE AGREEMENT
AGREEMENT dated as of the 28th day of January 1997 between The Ryland Group,
Inc., a Maryland corporation (the "Corporation"), and Thomas J. Gancsos (the
"Executive").
In consideration of the services provided by the Executive and the covenants
and agreements contained herein, and for other good and valuable consideration
the sufficiency of which is acknowledged, the Corporation and the Executive
agree as follows:
1. Termination After Change of Control. The following payments and
benefits will be provided to the Executive by the Corporation in the
event of a Termination of Employment (as hereinafter defined) of the
Executive within three (3) years after a Change of Control (as
hereinafter defined) of the Corporation:
1.1 Lump Sum Cash Payment. On or before the Executive's last day of
employment with the Corporation, the Corporation will pay to the
Executive a lump sum cash amount equal to two (2) times the
highest Annual Compensation (as hereinafter defined) paid to the
Executive by the Corporation for any of the three (3) calendar
years immediately preceding the date of Termination of Employment.
1.2 Accelerated Vesting and Supplemental Payments. All rights, awards
and benefits of the Executive in the TRG Incentive Plan, the
deferred compensation plans (including the Retirement and Stock
Ownership Plan, Executive and Director Deferred Compensation Plan
and any successor or replacements plans) and any incentive, bonus
or benefit plans of the Corporation in which the Executive
participates shall immediately vest in full and the Executive
shall be paid in a lump sum within thirty (30) days of the date of
Termination of Employment. To the extent that any of the plans of
the Corporation would not under applicable law permit accelerated
vesting, the Executive will be paid supplementally by the
Corporation the amount of additional benefits that would be
payable if full vesting had taken place as of the date of
Termination of Employment. All supplemental payments are provided
on an unfunded basis, are not intended to meet the qualification
requirements of Section 401 of the Internal Revenue Code, and
shall be payable solely from the general assets of the
Corporation.
1.3 Insurance and Other Special Benefits. The Executive's
participation in the life, accident and health insurance, employee
welfare benefit plans (as defined in the Employee Retirement
Income Security Act of 1974) and other fringe benefits (the
"Benefits") provided to the Executive prior to the Change of
Control or the Termination of Employment shall be continued or
equivalent benefits provided by the Corporation, at no cost to the
Executive, for a period of two (2) years from the date of the
Executive's Termination of Employment. If for any reason the
Corporation is unable to continue the Benefits, as required by the
preceding sentence, the Corporation shall pay to the Executive a
lump sum cash payment equal to the value of the Benefits which the
Corporation is unable to provide.
1.4 Relocation Assistance. Should the Executive move his residence in
order to pursue other business opportunities within two (2) years
after the date of the Termination of Employment, he will be
reimbursed for any expenses incurred in that relocation, including
taxes payable on the reimbursement, which are not reimbursed by
another employer. Benefits under this paragraph will include
assistance in selling the Executive's home and all other
assistance and benefits which are provided by the Corporation
under its relocation plan as in effect immediately prior to the
Change of Control or the Termination of Employment.
1.5 Stock Rights. All stock options, stock appreciation rights, stock
purchase rights, restricted stock rights and any similar rights
which the Executive holds shall become fully vested and be
exercisable on the Executive's last day of employment with the
Corporation.
1.6 Outplacement Assistant. The Executive shall be reimbursed by the
Corporation for the costs of all outplacement services obtained by
the Executive within the two (2) year period after the date of the
Executive's Termination of Employment provided the total
reimbursement shall be limited to an amount equal to twenty-five
percent (25%) of the Executive's Annual Compensation for the
calendar year immediately preceding the date of the Executive's
Termination of Employment.
1.7 Definitions.
(i) A "Change of Control" shall take place on the date of the
earlier to occur of any of the following events:
(a) The acquisition by any person, other than the
Corporation or any employee benefit plan of the
Corporation, of beneficial ownership of 20% or more of
the combined voting power of the Corporation's then
outstanding voting securities;
(b) The first purchase under a tender offer or exchange
offer, other than an offer by the Corporation or any
employee benefit plans of the Corporation, pursuant to
which shares of common stock have been purchased;
(c) During any period of two consecutive years,
individuals who at the beginning of such period
constitute the Board of Directors of the Corporation
cease for any reason to constitute at least a majority
thereof, unless the election or the nomination for the
election by stockholders of the Corporation of each
new director was approved by a vote of at least two-
thirds of the directors then still in office who were
directors at the beginning of the period; or
(d) Approval by stockholders of the Corporation of a
merger, consolidation, liquidation or dissolution of
the Corporation, or the sale of all or substantially
all of the assets of the Corporation.
(ii) "Annual Compensation" shall mean the sum of the base salary
and annual bonus paid to the Executive and all vested
amounts credited to the Executive under any incentive
compensation or other benefit plans of the Corporation in
which the Executive participates during the applicable
calendar year. In the event the Executive has not been
employed by the Corporation or received a base salary and
annual bonus for a complete calendar year, the determination
of Annual Compensation shall involve a pro forma projection
of base salary, annual bonus and vested amounts credited
under incentive compensation or other benefit plans for a
complete calendar year based upon the amounts that were paid
or credited during the partial year of employment or partial
year of receipt of compensation and any other information
deemed appropriate.
(iii) A "Termination of Employment" shall take place in the event
that (a) the Executive's employment is terminated for any
reason other than as a consequence of death, disability or
normal retirement, (b) the Executive is assigned any duties
or responsibilities that are inconsistent in any respect
with his position, duties, responsibilities or status prior
to the Change of Control, (c) the Corporation requires the
Executive to be based at a location which is more than fifty
(50) miles from the Executive's then current primary
residence, (d) the Executive's base salary is reduced, or
(e) the Executive experiences in any year a reduction in the
ratio of his incentive compensation, bonus or other such
payments to his base compensation which is greater than the
average reduction in the ratio of incentive compensation,
bonus or other such payments to base compensation
experienced by all of the Corporation's or the successor
corporation's executive officers.
1.8 Subsequent Imposition of Excise Tax. If 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, 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 1.8 is made.
2. General.
2.1 Indemnification. If litigation shall be brought to enforce or
interpret any provision contained herein, the Corporation, to the
extent permitted by applicable law and the Corporation's Charter
and By-laws, indemnifies the Executive for his reasonable
attorneys' fees and disbursements incurred in such litigation.
2.2 Dispute Resolution. Either the Executive or the Corporation may
elect to have any good faith dispute or controversy arising under
or in connection with this Agreement settled by arbitration, by
providing written notice of such election to the other party,
specifying the nature of the dispute to be arbitrated. If
arbitration is selected, such proceeding shall be conducted before
a panel of three (3) arbitrators sitting in a location agreed to
by the Corporation and the Executive within fifty (50) miles from
the location of the Executive's principal place of employment in
accordance with the rules of the American Arbitration Association.
Judgment may be entered on the award of the arbitrators in any
court having competent jurisdiction.
If the Executive prevails in any litigation or arbitration seeking
to enforce the provisions of this Agreement, the Executive shall
be entitled to reimbursement by the Corporation of all expenses,
including reasonable legal fees and expenses, and costs and
disbursements incurred as a result of such dispute or legal
proceeding.
2.3 Payment of Obligations Absolute. The Corporation's obligation to
pay the compensation and to make the arrangements provided in this
Agreement shall be absolute and unconditional and shall not be
affected by any circumstances, including any offset, counterclaim,
recoupment, defense or other right which the Corporation may have
against the Executive or anyone else. All amounts payable by the
Corporation shall be paid without notice or demand. Each and
every payment made by the Corporation shall be final and the
Corporation will not seek to recover all or any part of such
payment. The Executive shall not be obligated to seek other
employment in mitigation of the amounts payable or arrangements
made under this Agreement, and the obtaining of any other
employment shall not result in a reduction of the Corporation's
obligations to make the payments, benefits and arrangements
required to be made under this Agreement.
2.4 Continuing Obligations. The Executive shall retain in confidence
any confidential information known to him concerning the
Corporation, its subsidiaries and their respective businesses so
long as such information is not publicly disclosed.
2.5 Successors. This Agreement shall be binding upon and inure to the
benefit of the Executive and his estate, and the Corporation and
any successor of the Corporation, but neither this Agreement nor
any rights arising hereunder may be assigned or pledged by the
Executive. All references in this Agreement to the Corporation
shall include its subsidiaries and affiliates and any successors
and assigns of the Corporation. Any successor of the Corporation
shall be deemed substituted for all purposes of the "Corporation"
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 Corporation. In all cases, the Corporation shall
remain jointly and severally liable for all obligations hereunder.
2.6 Severability. Any provisions in this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective only to the extent of such
jurisdiction, be ineffective only to the extent of such
prohibition or unenforceability, without invalidating or affecting
the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
2.7 Controlling Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Maryland.
2.8 Modification. This Agreement shall not be varied, altered,
modified, canceled, changed or in any way amended except by mutual
agreement of the Executive and the Corporation in a written
instrument executed by the Executive and the Corporation.
2.9 Tax Withholding. The Corporation may withhold all federal, state,
city or other taxes required pursuant to any law or governmental
regulation or ruling.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
THE RYLAND GROUP, INC. EXECUTIVE
/s/ R. Chad Dreier /s/ Thomas J. Gancsos
- ---------------------------------- -----------------------------
R. Chad Dreier, President and Chief Thomas J. Gancsos
Executive Officer
ATTEST:
/s/ Timothy J. Geckle
- ---------------------------------
Timothy J. Geckle, Secretary
SENIOR EXECUTIVE SEVERANCE AGREEMENT
AGREEMENT dated as of the 28th day of January 1997 between The Ryland Group,
Inc., a Maryland corporation (the "Corporation"), and Timothy J. Geckle (the
"Executive").
In consideration of the services provided by the Executive and the covenants
and agreements contained herein, and for other good and valuable consideration
the sufficiency of which is acknowledged, the Corporation and the Executive
agree as follows:
1. Termination After Change of Control. The following payments and
benefits will be provided to the Executive by the Corporation in the
event of a Termination of Employment (as hereinafter defined) of the
Executive within three (3) years after a Change of Control (as
hereinafter defined) of the Corporation:
1.1 Lump Sum Cash Payment. On or before the Executive's last day of
employment with the Corporation, the Corporation will pay to the
Executive a lump sum cash amount equal to two (2) times the
highest Annual Compensation (as hereinafter defined) paid to the
Executive by the Corporation for any of the three (3) calendar
years immediately preceding the date of Termination of Employment.
1.2 Accelerated Vesting and Supplemental Payments. All rights, awards
and benefits of the Executive in the TRG Incentive Plan, the
deferred compensation plans (including the Retirement and Stock
Ownership Plan, Executive and Director Deferred Compensation Plan
and any successor or replacements plans) and any incentive, bonus
or benefit plans of the Corporation in which the Executive
participates shall immediately vest in full and the Executive
shall be paid in a lump sum within thirty (30) days of the date of
Termination of Employment. To the extent that any of the plans of
the Corporation would not under applicable law permit accelerated
vesting, the Executive will be paid supplementally by the
Corporation the amount of additional benefits that would be
payable if full vesting had taken place as of the date of
Termination of Employment. All supplemental payments are provided
on an unfunded basis, are not intended to meet the qualification
requirements of Section 401 of the Internal Revenue Code, and
shall be payable solely from the general assets of the
Corporation.
1.3 Insurance and Other Special Benefits. The Executive's
participation in the life, accident and health insurance, employee
welfare benefit plans (as defined in the Employee Retirement
Income Security Act of 1974) and other fringe benefits (the
"Benefits") provided to the Executive prior to the Change of
Control or the Termination of Employment shall be continued or
equivalent benefits provided by the Corporation, at no cost to the
Executive, for a period of two (2) years from the date of the
Executive's Termination of Employment. If for any reason the
Corporation is unable to continue the Benefits, as required by the
preceding sentence, the Corporation shall pay to the Executive a
lump sum cash payment equal to the value of the Benefits which the
Corporation is unable to provide.
1.4 Relocation Assistance. Should the Executive move his residence in
order to pursue other business opportunities within two (2) years
after the date of the Termination of Employment, he will be
reimbursed for any expenses incurred in that relocation, including
taxes payable on the reimbursement, which are not reimbursed by
another employer. Benefits under this paragraph will include
assistance in selling the Executive's home and all other
assistance and benefits which are provided by the Corporation
under its relocation plan as in effect immediately prior to the
Change of Control or the Termination of Employment.
1.5 Stock Rights. All stock options, stock appreciation rights, stock
purchase rights, restricted stock rights and any similar rights
which the Executive holds shall become fully vested and be
exercisable on the Executive's last day of employment with the
Corporation.
1.6 Outplacement Assistant. The Executive shall be reimbursed by the
Corporation for the costs of all outplacement services obtained by
the Executive within the two (2) year period after the date of the
Executive's Termination of Employment provided the total
reimbursement shall be limited to an amount equal to twenty-five
percent (25%) of the Executive's Annual Compensation for the
calendar year immediately preceding the date of the Executive's
Termination of Employment.
1.7 Definitions.
(i) A "Change of Control" shall take place on the date of the
earlier to occur of any of the following events:
(a) The acquisition by any person, other than the
Corporation or any employee benefit plan of the
Corporation, of beneficial ownership of 20% or more of
the combined voting power of the Corporation's then
outstanding voting securities;
(b) The first purchase under a tender offer or exchange
offer, other than an offer by the Corporation or any
employee benefit plans of the Corporation, pursuant to
which shares of common stock have been purchased;
(c) During any period of two consecutive years,
individuals who at the beginning of such period
constitute the Board of Directors of the Corporation
cease for any reason to constitute at least a majority
thereof, unless the election or the nomination for the
election by stockholders of the Corporation of each
new director was approved by a vote of at least two-
thirds of the directors then still in office who were
directors at the beginning of the period; or
(d) Approval by stockholders of the Corporation of a
merger, consolidation, liquidation or dissolution of
the Corporation, or the sale of all or substantially
all of the assets of the Corporation.
(ii) "Annual Compensation" shall mean the sum of the base salary
and annual bonus paid to the Executive and all vested
amounts credited to the Executive under any incentive
compensation or other benefit plans of the Corporation in
which the Executive participates during the applicable
calendar year. In the event the Executive has not been
employed by the Corporation or received a base salary and
annual bonus for a complete calendar year, the determination
of Annual Compensation shall involve a pro forma projection
of base salary, annual bonus and vested amounts credited
under incentive compensation or other benefit plans for a
complete calendar year based upon the amounts that were paid
or credited during the partial year of employment or partial
year of receipt of compensation and any other information
deemed appropriate.
(iii) A "Termination of Employment" shall take place in the event
that (a) the Executive's employment is terminated for any
reason other than as a consequence of death, disability or
normal retirement, (b) the Executive is assigned any duties
or responsibilities that are inconsistent in any respect
with his position, duties, responsibilities or status prior
to the Change of Control, (c) the Corporation requires the
Executive to be based at a location which is more than fifty
(50) miles from the Executive's then current primary
residence, (d) the Executive's base salary is reduced, or
(e) the Executive experiences in any year a reduction in the
ratio of his incentive compensation, bonus or other such
payments to his base compensation which is greater than the
average reduction in the ratio of incentive compensation,
bonus or other such payments to base compensation
experienced by all of the Corporation's or the successor
corporation's executive officers.
1.8 Subsequent Imposition of Excise Tax. If 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, 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 1.8 is made.
2. General.
2.1 Indemnification. If litigation shall be brought to enforce or
interpret any provision contained herein, the Corporation, to the
extent permitted by applicable law and the Corporation's Charter
and By-laws, indemnifies the Executive for his reasonable
attorneys' fees and disbursements incurred in such litigation.
2.2 Dispute Resolution. Either the Executive or the Corporation may
elect to have any good faith dispute or controversy arising under
or in connection with this Agreement settled by arbitration, by
providing written notice of such election to the other party,
specifying the nature of the dispute to be arbitrated. If
arbitration is selected, such proceeding shall be conducted before
a panel of three (3) arbitrators sitting in a location agreed to
by the Corporation and the Executive within fifty (50) miles from
the location of the Executive's principal place of employment in
accordance with the rules of the American Arbitration Association.
Judgment may be entered on the award of the arbitrators in any
court having competent jurisdiction.
If the Executive prevails in any litigation or arbitration seeking
to enforce the provisions of this Agreement, the Executive shall
be entitled to reimbursement by the Corporation of all expenses,
including reasonable legal fees and expenses, and costs and
disbursements incurred as a result of such dispute or legal
proceeding.
2.3 Payment of Obligations Absolute. The Corporation's obligation to
pay the compensation and to make the arrangements provided in this
Agreement shall be absolute and unconditional and shall not be
affected by any circumstances, including any offset, counterclaim,
recoupment, defense or other right which the Corporation may have
against the Executive or anyone else. All amounts payable by the
Corporation shall be paid without notice or demand. Each and
every payment made by the Corporation shall be final and the
Corporation will not seek to recover all or any part of such
payment. The Executive shall not be obligated to seek other
employment in mitigation of the amounts payable or arrangements
made under this Agreement, and the obtaining of any other
employment shall not result in a reduction of the Corporation's
obligations to make the payments, benefits and arrangements
required to be made under this Agreement.
2.4 Continuing Obligations. The Executive shall retain in confidence
any confidential information known to him concerning the
Corporation, its subsidiaries and their respective businesses so
long as such information is not publicly disclosed.
2.5 Successors. This Agreement shall be binding upon and inure to the
benefit of the Executive and his estate, and the Corporation and
any successor of the Corporation, but neither this Agreement nor
any rights arising hereunder may be assigned or pledged by the
Executive. All references in this Agreement to the Corporation
shall include its subsidiaries and affiliates and any successors
and assigns of the Corporation. Any successor of the Corporation
shall be deemed substituted for all purposes of the "Corporation"
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 Corporation. In all cases, the Corporation shall
remain jointly and severally liable for all obligations hereunder.
2.6 Severability. Any provisions in this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective only to the extent of such
jurisdiction, be ineffective only to the extent of such
prohibition or unenforceability, without invalidating or affecting
the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
2.7 Controlling Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Maryland.
2.8 Modification. This Agreement shall not be varied, altered,
modified, canceled, changed or in any way amended except by mutual
agreement of the Executive and the Corporation in a written
instrument executed by the Executive and the Corporation.
2.9 Tax Withholding. The Corporation may withhold all federal, state,
city or other taxes required pursuant to any law or governmental
regulation or ruling.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
THE RYLAND GROUP, INC. EXECUTIVE
/s/ R. Chad Dreier /s/ Timothy J. Geckle
- ---------------------------------- -----------------------------
R. Chad Dreier, President and Chief Timothy J. Geckle
Executive Officer
ATTEST:
/s/ Julie Charping
- ---------------------------------
Julie Charping, Assistant Secretary
SENIOR EXECUTIVE SEVERANCE AGREEMENT
AGREEMENT dated as of the 28th day of January 1997 between The Ryland Group,
Inc., a Maryland corporation (the "Corporation"), and Edward W. Gold (the
"Executive").
In consideration of the services provided by the Executive and the covenants
and agreements contained herein, and for other good and valuable consideration
the sufficiency of which is acknowledged, the Corporation and the Executive
agree as follows:
1. Termination After Change of Control. The following payments and
benefits will be provided to the Executive by the Corporation in the
event of a Termination of Employment (as hereinafter defined) of the
Executive within three (3) years after a Change of Control (as
hereinafter defined) of the Corporation:
1.1 Lump Sum Cash Payment. On or before the Executive's last day of
employment with the Corporation, the Corporation will pay to the
Executive a lump sum cash amount equal to two (2) times the
highest Annual Compensation (as hereinafter defined) paid to the
Executive by the Corporation for any of the three (3) calendar
years immediately preceding the date of Termination of Employment.
1.2 Accelerated Vesting and Supplemental Payments. All rights, awards
and benefits of the Executive in the TRG Incentive Plan, the
deferred compensation plans (including the Retirement and Stock
Ownership Plan, Executive and Director Deferred Compensation Plan
and any successor or replacements plans) and any incentive, bonus
or benefit plans of the Corporation in which the Executive
participates shall immediately vest in full and the Executive
shall be paid in a lump sum within thirty (30) days of the date of
Termination of Employment. To the extent that any of the plans of
the Corporation would not under applicable law permit accelerated
vesting, the Executive will be paid supplementally by the
Corporation the amount of additional benefits that would be
payable if full vesting had taken place as of the date of
Termination of Employment. All supplemental payments are provided
on an unfunded basis, are not intended to meet the qualification
requirements of Section 401 of the Internal Revenue Code, and
shall be payable solely from the general assets of the
Corporation.
1.3 Insurance and Other Special Benefits. The Executive's
participation in the life, accident and health insurance, employee
welfare benefit plans (as defined in the Employee Retirement
Income Security Act of 1974) and other fringe benefits (the
"Benefits") provided to the Executive prior to the Change of
Control or the Termination of Employment shall be continued or
equivalent benefits provided by the Corporation, at no cost to the
Executive, for a period of two (2) years from the date of the
Executive's Termination of Employment. If for any reason the
Corporation is unable to continue the Benefits, as required by the
preceding sentence, the Corporation shall pay to the Executive a
lump sum cash payment equal to the value of the Benefits which the
Corporation is unable to provide.
1.4 Relocation Assistance. Should the Executive move his residence in
order to pursue other business opportunities within two (2) years
after the date of the Termination of Employment, he will be
reimbursed for any expenses incurred in that relocation, including
taxes payable on the reimbursement, which are not reimbursed by
another employer. Benefits under this paragraph will include
assistance in selling the Executive's home and all other
assistance and benefits which are provided by the Corporation
under its relocation plan as in effect immediately prior to the
Change of Control or the Termination of Employment.
1.5 Stock Rights. All stock options, stock appreciation rights, stock
purchase rights, restricted stock rights and any similar rights
which the Executive holds shall become fully vested and be
exercisable on the Executive's last day of employment with the
Corporation.
1.6 Outplacement Assistant. The Executive shall be reimbursed by the
Corporation for the costs of all outplacement services obtained by
the Executive within the two (2) year period after the date of the
Executive's Termination of Employment provided the total
reimbursement shall be limited to an amount equal to twenty-five
percent (25%) of the Executive's Annual Compensation for the
calendar year immediately preceding the date of the Executive's
Termination of Employment.
1.7 Definitions.
(i) A "Change of Control" shall take place on the date of the
earlier to occur of any of the following events:
(a) The acquisition by any person, other than the
Corporation or any employee benefit plan of the
Corporation, of beneficial ownership of 20% or more of
the combined voting power of the Corporation's then
outstanding voting securities;
(b) The first purchase under a tender offer or exchange
offer, other than an offer by the Corporation or any
employee benefit plans of the Corporation, pursuant to
which shares of common stock have been purchased;
(c) During any period of two consecutive years,
individuals who at the beginning of such period
constitute the Board of Directors of the Corporation
cease for any reason to constitute at least a majority
thereof, unless the election or the nomination for the
election by stockholders of the Corporation of each
new director was approved by a vote of at least two-
thirds of the directors then still in office who were
directors at the beginning of the period; or
(d) Approval by stockholders of the Corporation of a
merger, consolidation, liquidation or dissolution of
the Corporation, or the sale of all or substantially
all of the assets of the Corporation.
(ii) "Annual Compensation" shall mean the sum of the base salary
and annual bonus paid to the Executive and all vested
amounts credited to the Executive under any incentive
compensation or other benefit plans of the Corporation in
which the Executive participates during the applicable
calendar year. In the event the Executive has not been
employed by the Corporation or received a base salary and
annual bonus for a complete calendar year, the determination
of Annual Compensation shall involve a pro forma projection
of base salary, annual bonus and vested amounts credited
under incentive compensation or other benefit plans for a
complete calendar year based upon the amounts that were paid
or credited during the partial year of employment or partial
year of receipt of compensation and any other information
deemed appropriate.
(iii) A "Termination of Employment" shall take place in the event
that (a) the Executive's employment is terminated for any
reason other than as a consequence of death, disability or
normal retirement, (b) the Executive is assigned any duties
or responsibilities that are inconsistent in any respect
with his position, duties, responsibilities or status prior
to the Change of Control, (c) the Corporation requires the
Executive to be based at a location which is more than fifty
(50) miles from the Executive's then current primary
residence, (d) the Executive's base salary is reduced, or
(e) the Executive experiences in any year a reduction in the
ratio of his incentive compensation, bonus or other such
payments to his base compensation which is greater than the
average reduction in the ratio of incentive compensation,
bonus or other such payments to base compensation
experienced by all of the Corporation's or the successor
corporation's executive officers.
1.8 Subsequent Imposition of Excise Tax. If 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, 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 1.8 is made.
2. General.
2.1 Indemnification. If litigation shall be brought to enforce or
interpret any provision contained herein, the Corporation, to the
extent permitted by applicable law and the Corporation's Charter
and By-laws, indemnifies the Executive for his reasonable
attorneys' fees and disbursements incurred in such litigation.
2.2 Dispute Resolution. Either the Executive or the Corporation may
elect to have any good faith dispute or controversy arising under
or in connection with this Agreement settled by arbitration, by
providing written notice of such election to the other party,
specifying the nature of the dispute to be arbitrated. If
arbitration is selected, such proceeding shall be conducted before
a panel of three (3) arbitrators sitting in a location agreed to
by the Corporation and the Executive within fifty (50) miles from
the location of the Executive's principal place of employment in
accordance with the rules of the American Arbitration Association.
Judgment may be entered on the award of the arbitrators in any
court having competent jurisdiction.
If the Executive prevails in any litigation or arbitration seeking
to enforce the provisions of this Agreement, the Executive shall
be entitled to reimbursement by the Corporation of all expenses,
including reasonable legal fees and expenses, and costs and
disbursements incurred as a result of such dispute or legal
proceeding.
2.3 Payment of Obligations Absolute. The Corporation's obligation to
pay the compensation and to make the arrangements provided in this
Agreement shall be absolute and unconditional and shall not be
affected by any circumstances, including any offset, counterclaim,
recoupment, defense or other right which the Corporation may have
against the Executive or anyone else. All amounts payable by the
Corporation shall be paid without notice or demand. Each and
every payment made by the Corporation shall be final and the
Corporation will not seek to recover all or any part of such
payment. The Executive shall not be obligated to seek other
employment in mitigation of the amounts payable or arrangements
made under this Agreement, and the obtaining of any other
employment shall not result in a reduction of the Corporation's
obligations to make the payments, benefits and arrangements
required to be made under this Agreement.
2.4 Continuing Obligations. The Executive shall retain in confidence
any confidential information known to him concerning the
Corporation, its subsidiaries and their respective businesses so
long as such information is not publicly disclosed.
2.5 Successors. This Agreement shall be binding upon and inure to the
benefit of the Executive and his estate, and the Corporation and
any successor of the Corporation, but neither this Agreement nor
any rights arising hereunder may be assigned or pledged by the
Executive. All references in this Agreement to the Corporation
shall include its subsidiaries and affiliates and any successors
and assigns of the Corporation. Any successor of the Corporation
shall be deemed substituted for all purposes of the "Corporation"
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 Corporation. In all cases, the Corporation shall
remain jointly and severally liable for all obligations hereunder.
2.6 Severability. Any provisions in this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective only to the extent of such
jurisdiction, be ineffective only to the extent of such
prohibition or unenforceability, without invalidating or affecting
the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
2.7 Controlling Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Maryland.
2.8 Modification. This Agreement shall not be varied, altered,
modified, canceled, changed or in any way amended except by mutual
agreement of the Executive and the Corporation in a written
instrument executed by the Executive and the Corporation.
2.9 Tax Withholding. The Corporation may withhold all federal, state,
city or other taxes required pursuant to any law or governmental
regulation or ruling.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
THE RYLAND GROUP, INC. EXECUTIVE
/s/ R. Chad Dreier /s/ Edward W. Gold
- ---------------------------------- -----------------------------
R. Chad Dreier, President and Chief Edward W. Gold
Executive Officer
ATTEST:
/s/ Timothy J. Geckle, Secretary
- ---------------------------------
Timothy J. Geckle, Secretary
SENIOR EXECUTIVE SEVERANCE AGREEMENT
AGREEMENT dated as of the 28th day of January 1997 between The Ryland Group,
Inc., a Maryland corporation (the "Corporation"), and John M. Garrity (the
"Executive").
In consideration of the services provided by the Executive and the covenants
and agreements contained herein, and for other good and valuable consideration
the sufficiency of which is acknowledged, the Corporation and the Executive
agree as follows:
1. Termination After Change of Control. The following payments and
benefits will be provided to the Executive by the Corporation in the
event of a Termination of Employment (as hereinafter defined) of the
Executive within three (3) years after a Change of Control (as
hereinafter defined) of the Corporation:
1.1 Lump Sum Cash Payment. On or before the Executive's last day of
employment with the Corporation, the Corporation will pay to the
Executive a lump sum cash amount equal to two (2) times the
highest Annual Compensation (as hereinafter defined) paid to the
Executive by the Corporation for any of the three (3) calendar
years immediately preceding the date of Termination of Employment.
1.2 Accelerated Vesting and Supplemental Payments. All rights, awards
and benefits of the Executive in the TRG Incentive Plan, the
deferred compensation plans (including the Retirement and Stock
Ownership Plan, Executive and Director Deferred Compensation Plan
and any successor or replacements plans) and any incentive, bonus
or benefit plans of the Corporation in which the Executive
participates shall immediately vest in full and the Executive
shall be paid in a lump sum within thirty (30) days of the date of
Termination of Employment. To the extent that any of the plans of
the Corporation would not under applicable law permit accelerated
vesting, the Executive will be paid supplementally by the
Corporation the amount of additional benefits that would be
payable if full vesting had taken place as of the date of
Termination of Employment. All supplemental payments are provided
on an unfunded basis, are not intended to meet the qualification
requirements of Section 401 of the Internal Revenue Code, and
shall be payable solely from the general assets of the
Corporation.
1.3 Insurance and Other Special Benefits. The Executive's
participation in the life, accident and health insurance, employee
welfare benefit plans (as defined in the Employee Retirement
Income Security Act of 1974) and other fringe benefits (the
"Benefits") provided to the Executive prior to the Change of
Control or the Termination of Employment shall be continued or
equivalent benefits provided by the Corporation, at no cost to the
Executive, for a period of two (2) years from the date of the
Executive's Termination of Employment. If for any reason the
Corporation is unable to continue the Benefits, as required by the
preceding sentence, the Corporation shall pay to the Executive a
lump sum cash payment equal to the value of the Benefits which the
Corporation is unable to provide.
1.4 Relocation Assistance. Should the Executive move his residence in
order to pursue other business opportunities within two (2) years
after the date of the Termination of Employment, he will be
reimbursed for any expenses incurred in that relocation, including
taxes payable on the reimbursement, which are not reimbursed by
another employer. Benefits under this paragraph will include
assistance in selling the Executive's home and all other
assistance and benefits which are provided by the Corporation
under its relocation plan as in effect immediately prior to the
Change of Control or the Termination of Employment.
1.5 Stock Rights. All stock options, stock appreciation rights, stock
purchase rights, restricted stock rights and any similar rights
which the Executive holds shall become fully vested and be
exercisable on the Executive's last day of employment with the
Corporation.
1.6 Outplacement Assistant. The Executive shall be reimbursed by the
Corporation for the costs of all outplacement services obtained by
the Executive within the two (2) year period after the date of the
Executive's Termination of Employment provided the total
reimbursement shall be limited to an amount equal to twenty-five
percent (25%) of the Executive's Annual Compensation for the
calendar year immediately preceding the date of the Executive's
Termination of Employment.
1.7 Definitions.
(i) A "Change of Control" shall take place on the date of the
earlier to occur of any of the following events:
(a) The acquisition by any person, other than the
Corporation or any employee benefit plan of the
Corporation, of beneficial ownership of 20% or more of
the combined voting power of the Corporation's then
outstanding voting securities;
(b) The first purchase under a tender offer or exchange
offer, other than an offer by the Corporation or any
employee benefit plans of the Corporation, pursuant to
which shares of common stock have been purchased;
(c) During any period of two consecutive years,
individuals who at the beginning of such period
constitute the Board of Directors of the Corporation
cease for any reason to constitute at least a majority
thereof, unless the election or the nomination for the
election by stockholders of the Corporation of each
new director was approved by a vote of at least two-
thirds of the directors then still in office who were
directors at the beginning of the period; or
(d) Approval by stockholders of the Corporation of a
merger, consolidation, liquidation or dissolution of
the Corporation, or the sale of all or substantially
all of the assets of the Corporation.
(ii) "Annual Compensation" shall mean the sum of the base salary
and annual bonus paid to the Executive and all vested
amounts credited to the Executive under any incentive
compensation or other benefit plans of the Corporation in
which the Executive participates during the applicable
calendar year. In the event the Executive has not been
employed by the Corporation or received a base salary and
annual bonus for a complete calendar year, the determination
of Annual Compensation shall involve a pro forma projection
of base salary, annual bonus and vested amounts credited
under incentive compensation or other benefit plans for a
complete calendar year based upon the amounts that were paid
or credited during the partial year of employment or partial
year of receipt of compensation and any other information
deemed appropriate.
(iii) A "Termination of Employment" shall take place in the event
that (a) the Executive's employment is terminated for any
reason other than as a consequence of death, disability or
normal retirement, (b) the Executive is assigned any duties
or responsibilities that are inconsistent in any respect
with his position, duties, responsibilities or status prior
to the Change of Control, (c) the Corporation requires the
Executive to be based at a location which is more than fifty
(50) miles from the Executive's then current primary
residence, (d) the Executive's base salary is reduced, or
(e) the Executive experiences in any year a reduction in the
ratio of his incentive compensation, bonus or other such
payments to his base compensation which is greater than the
average reduction in the ratio of incentive compensation,
bonus or other such payments to base compensation
experienced by all of the Corporation's or the successor
corporation's executive officers.
1.8 Subsequent Imposition of Excise Tax. If 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, 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 1.8 is made.
2. General.
2.1 Indemnification. If litigation shall be brought to enforce or
interpret any provision contained herein, the Corporation, to the
extent permitted by applicable law and the Corporation's Charter
and By-laws, indemnifies the Executive for his reasonable
attorneys' fees and disbursements incurred in such litigation.
2.2 Dispute Resolution. Either the Executive or the Corporation may
elect to have any good faith dispute or controversy arising under
or in connection with this Agreement settled by arbitration, by
providing written notice of such election to the other party,
specifying the nature of the dispute to be arbitrated. If
arbitration is selected, such proceeding shall be conducted before
a panel of three (3) arbitrators sitting in a location agreed to
by the Corporation and the Executive within fifty (50) miles from
the location of the Executive's principal place of employment in
accordance with the rules of the American Arbitration Association.
Judgment may be entered on the award of the arbitrators in any
court having competent jurisdiction.
If the Executive prevails in any litigation or arbitration seeking
to enforce the provisions of this Agreement, the Executive shall
be entitled to reimbursement by the Corporation of all expenses,
including reasonable legal fees and expenses, and costs and
disbursements incurred as a result of such dispute or legal
proceeding.
2.3 Payment of Obligations Absolute. The Corporation's obligation to
pay the compensation and to make the arrangements provided in this
Agreement shall be absolute and unconditional and shall not be
affected by any circumstances, including any offset, counterclaim,
recoupment, defense or other right which the Corporation may have
against the Executive or anyone else. All amounts payable by the
Corporation shall be paid without notice or demand. Each and
every payment made by the Corporation shall be final and the
Corporation will not seek to recover all or any part of such
payment. The Executive shall not be obligated to seek other
employment in mitigation of the amounts payable or arrangements
made under this Agreement, and the obtaining of any other
employment shall not result in a reduction of the Corporation's
obligations to make the payments, benefits and arrangements
required to be made under this Agreement.
2.4 Continuing Obligations. The Executive shall retain in confidence
any confidential information known to him concerning the
Corporation, its subsidiaries and their respective businesses so
long as such information is not publicly disclosed.
2.5 Successors. This Agreement shall be binding upon and inure to the
benefit of the Executive and his estate, and the Corporation and
any successor of the Corporation, but neither this Agreement nor
any rights arising hereunder may be assigned or pledged by the
Executive. All references in this Agreement to the Corporation
shall include its subsidiaries and affiliates and any successors
and assigns of the Corporation. Any successor of the Corporation
shall be deemed substituted for all purposes of the "Corporation"
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 Corporation. In all cases, the Corporation shall
remain jointly and severally liable for all obligations hereunder.
2.6 Severability. Any provisions in this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective only to the extent of such
jurisdiction, be ineffective only to the extent of such
prohibition or unenforceability, without invalidating or affecting
the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
2.7 Controlling Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Maryland.
2.8 Modification. This Agreement shall not be varied, altered,
modified, canceled, changed or in any way amended except by mutual
agreement of the Executive and the Corporation in a written
instrument executed by the Executive and the Corporation.
2.9 Tax Withholding. The Corporation may withhold all federal, state,
city or other taxes required pursuant to any law or governmental
regulation or ruling.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
THE RYLAND GROUP, INC. EXECUTIVE
/s/ R. Chad Dreier /s/ John M. Garrity
- ----------------------------------- -----------------------------
R. Chad Dreier, President and Chief John M. Garrity
Executive Officer
ATTEST:
/s/ Timothy J. Geckle
- ---------------------------------
Timothy J. Geckle, Secretary
SENIOR EXECUTIVE SEVERANCE AGREEMENT
AGREEMENT dated as of the 28th day of January 1997 between The Ryland Group,
Inc., a Maryland corporation (the "Corporation"), and Frank J. Scardina (the
"Executive").
In consideration of the services provided by the Executive and the covenants
and agreements contained herein, and for other good and valuable consideration
the sufficiency of which is acknowledged, the Corporation and the Executive
agree as follows:
1. Termination After Change of Control. The following payments and
benefits will be provided to the Executive by the Corporation in the
event of a Termination of Employment (as hereinafter defined) of the
Executive within three (3) years after a Change of Control (as
hereinafter defined) of the Corporation:
1.1 Lump Sum Cash Payment. On or before the Executive's last day of
employment with the Corporation, the Corporation will pay to the
Executive a lump sum cash amount equal to two (2) times the
highest Annual Compensation (as hereinafter defined) paid to the
Executive by the Corporation for any of the three (3) calendar
years immediately preceding the date of Termination of Employment.
1.2 Accelerated Vesting and Supplemental Payments. All rights, awards
and benefits of the Executive in the TRG Incentive Plan, the
deferred compensation plans (including the Retirement and Stock
Ownership Plan, Executive and Director Deferred Compensation Plan
and any successor or replacements plans) and any incentive, bonus
or benefit plans of the Corporation in which the Executive
participates shall immediately vest in full and the Executive
shall be paid in a lump sum within thirty (30) days of the date of
Termination of Employment. To the extent that any of the plans of
the Corporation would not under applicable law permit accelerated
vesting, the Executive will be paid supplementally by the
Corporation the amount of additional benefits that would be
payable if full vesting had taken place as of the date of
Termination of Employment. All supplemental payments are provided
on an unfunded basis, are not intended to meet the qualification
requirements of Section 401 of the Internal Revenue Code, and
shall be payable solely from the general assets of the
Corporation.
1.3 Insurance and Other Special Benefits. The Executive's
participation in the life, accident and health insurance, employee
welfare benefit plans (as defined in the Employee Retirement
Income Security Act of 1974) and other fringe benefits (the
"Benefits") provided to the Executive prior to the Change of
Control or the Termination of Employment shall be continued or
equivalent benefits provided by the Corporation, at no cost to the
Executive, for a period of two (2) years from the date of the
Executive's Termination of Employment. If for any reason the
Corporation is unable to continue the Benefits, as required by the
preceding sentence, the Corporation shall pay to the Executive a
lump sum cash payment equal to the value of the Benefits which the
Corporation is unable to provide.
1.4 Relocation Assistance. Should the Executive move his residence in
order to pursue other business opportunities within two (2) years
after the date of the Termination of Employment, he will be
reimbursed for any expenses incurred in that relocation, including
taxes payable on the reimbursement, which are not reimbursed by
another employer. Benefits under this paragraph will include
assistance in selling the Executive's home and all other
assistance and benefits which are provided by the Corporation
under its relocation plan as in effect immediately prior to the
Change of Control or the Termination of Employment.
1.5 Stock Rights. All stock options, stock appreciation rights, stock
purchase rights, restricted stock rights and any similar rights
which the Executive holds shall become fully vested and be
exercisable on the Executive's last day of employment with the
Corporation.
1.6 Outplacement Assistant. The Executive shall be reimbursed by the
Corporation for the costs of all outplacement services obtained by
the Executive within the two (2) year period after the date of the
Executive's Termination of Employment provided the total
reimbursement shall be limited to an amount equal to twenty-five
percent (25%) of the Executive's Annual Compensation for the
calendar year immediately preceding the date of the Executive's
Termination of Employment.
1.7 Definitions.
(i) A "Change of Control" shall take place on the date of the
earlier to occur of any of the following events:
(a) The acquisition by any person, other than the
Corporation or any employee benefit plan of the
Corporation, of beneficial ownership of 20% or more of
the combined voting power of the Corporation's then
outstanding voting securities;
(b) The first purchase under a tender offer or exchange
offer, other than an offer by the Corporation or any
employee benefit plans of the Corporation, pursuant to
which shares of common stock have been purchased;
(c) During any period of two consecutive years,
individuals who at the beginning of such period
constitute the Board of Directors of the Corporation
cease for any reason to constitute at least a majority
thereof, unless the election or the nomination for the
election by stockholders of the Corporation of each
new director was approved by a vote of at least two-
thirds of the directors then still in office who were
directors at the beginning of the period; or
(d) Approval by stockholders of the Corporation of a
merger, consolidation, liquidation or dissolution of
the Corporation, or the sale of all or substantially
all of the assets of the Corporation.
(ii) "Annual Compensation" shall mean the sum of the base salary
and annual bonus paid to the Executive and all vested
amounts credited to the Executive under any incentive
compensation or other benefit plans of the Corporation in
which the Executive participates during the applicable
calendar year. In the event the Executive has not been
employed by the Corporation or received a base salary and
annual bonus for a complete calendar year, the determination
of Annual Compensation shall involve a pro forma projection
of base salary, annual bonus and vested amounts credited
under incentive compensation or other benefit plans for a
complete calendar year based upon the amounts that were paid
or credited during the partial year of employment or partial
year of receipt of compensation and any other information
deemed appropriate.
(iii) A "Termination of Employment" shall take place in the event
that (a) the Executive's employment is terminated for any
reason other than as a consequence of death, disability or
normal retirement, (b) the Executive is assigned any duties
or responsibilities that are inconsistent in any respect
with his position, duties, responsibilities or status prior
to the Change of Control, (c) the Corporation requires the
Executive to be based at a location which is more than fifty
(50) miles from the Executive's then current primary
residence, (d) the Executive's base salary is reduced, or
(e) the Executive experiences in any year a reduction in the
ratio of his incentive compensation, bonus or other such
payments to his base compensation which is greater than the
average reduction in the ratio of incentive compensation,
bonus or other such payments to base compensation
experienced by all of the Corporation's or the successor
corporation's executive officers.
1.8 Subsequent Imposition of Excise Tax. If 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, 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 1.8 is made.
2. General.
2.1 Indemnification. If litigation shall be brought to enforce or
interpret any provision contained herein, the Corporation, to the
extent permitted by applicable law and the Corporation's Charter
and By-laws, indemnifies the Executive for his reasonable
attorneys' fees and disbursements incurred in such litigation.
2.2 Dispute Resolution. Either the Executive or the Corporation may
elect to have any good faith dispute or controversy arising under
or in connection with this Agreement settled by arbitration, by
providing written notice of such election to the other party,
specifying the nature of the dispute to be arbitrated. If
arbitration is selected, such proceeding shall be conducted before
a panel of three (3) arbitrators sitting in a location agreed to
by the Corporation and the Executive within fifty (50) miles from
the location of the Executive's principal place of employment in
accordance with the rules of the American Arbitration Association.
Judgment may be entered on the award of the arbitrators in any
court having competent jurisdiction.
If the Executive prevails in any litigation or arbitration seeking
to enforce the provisions of this Agreement, the Executive shall
be entitled to reimbursement by the Corporation of all expenses,
including reasonable legal fees and expenses, and costs and
disbursements incurred as a result of such dispute or legal
proceeding.
2.3 Payment of Obligations Absolute. The Corporation's obligation to
pay the compensation and to make the arrangements provided in this
Agreement shall be absolute and unconditional and shall not be
affected by any circumstances, including any offset, counterclaim,
recoupment, defense or other right which the Corporation may have
against the Executive or anyone else. All amounts payable by the
Corporation shall be paid without notice or demand. Each and
every payment made by the Corporation shall be final and the
Corporation will not seek to recover all or any part of such
payment. The Executive shall not be obligated to seek other
employment in mitigation of the amounts payable or arrangements
made under this Agreement, and the obtaining of any other
employment shall not result in a reduction of the Corporation's
obligations to make the payments, benefits and arrangements
required to be made under this Agreement.
2.4 Continuing Obligations. The Executive shall retain in confidence
any confidential information known to him concerning the
Corporation, its subsidiaries and their respective businesses so
long as such information is not publicly disclosed.
2.5 Successors. This Agreement shall be binding upon and inure to the
benefit of the Executive and his estate, and the Corporation and
any successor of the Corporation, but neither this Agreement nor
any rights arising hereunder may be assigned or pledged by the
Executive. All references in this Agreement to the Corporation
shall include its subsidiaries and affiliates and any successors
and assigns of the Corporation. Any successor of the Corporation
shall be deemed substituted for all purposes of the "Corporation"
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 Corporation. In all cases, the Corporation shall
remain jointly and severally liable for all obligations hereunder.
2.6 Severability. Any provisions in this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective only to the extent of such
jurisdiction, be ineffective only to the extent of such
prohibition or unenforceability, without invalidating or affecting
the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
2.7 Controlling Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Maryland.
2.8 Modification. This Agreement shall not be varied, altered,
modified, canceled, changed or in any way amended except by mutual
agreement of the Executive and the Corporation in a written
instrument executed by the Executive and the Corporation.
2.9 Tax Withholding. The Corporation may withhold all federal, state,
city or other taxes required pursuant to any law or governmental
regulation or ruling.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
THE RYLAND GROUP, INC. EXECUTIVE
/s/ R. Chad Dreier /s/ Frank J. Scardina
- ----------------------------------- -----------------------------
R. Chad Dreier, President and Chief Frank J. Scardina
Executive Officer
ATTEST:
/s/ Timothy J. Geckle
- ---------------------------------
Timothy J. Geckle, Secretary
SENIOR EXECUTIVE SEVERANCE AGREEMENT
AGREEMENT dated as of the 28th day of January 1997 between The Ryland Group,
Inc., a Maryland corporation (the "Corporation"), and Kipling W. Scott (the
"Executive").
In consideration of the services provided by the Executive and the covenants
and agreements contained herein, and for other good and valuable consideration
the sufficiency of which is acknowledged, the Corporation and the Executive
agree as follows:
1. Termination After Change of Control. The following payments and
benefits will be provided to the Executive by the Corporation in the
event of a Termination of Employment (as hereinafter defined) of the
Executive within three (3) years after a Change of Control (as
hereinafter defined) of the Corporation:
1.1 Lump Sum Cash Payment. On or before the Executive's last day of
employment with the Corporation, the Corporation will pay to the
Executive a lump sum cash amount equal to two (2) times the
highest Annual Compensation (as hereinafter defined) paid to the
Executive by the Corporation for any of the three (3) calendar
years immediately preceding the date of Termination of Employment.
1.2 Accelerated Vesting and Supplemental Payments. All rights, awards
and benefits of the Executive in the TRG Incentive Plan, the
deferred compensation plans (including the Retirement and Stock
Ownership Plan, Executive and Director Deferred Compensation Plan
and any successor or replacements plans) and any incentive, bonus
or benefit plans of the Corporation in which the Executive
participates shall immediately vest in full and the Executive
shall be paid in a lump sum within thirty (30) days of the date of
Termination of Employment. To the extent that any of the plans of
the Corporation would not under applicable law permit accelerated
vesting, the Executive will be paid supplementally by the
Corporation the amount of additional benefits that would be
payable if full vesting had taken place as of the date of
Termination of Employment. All supplemental payments are provided
on an unfunded basis, are not intended to meet the qualification
requirements of Section 401 of the Internal Revenue Code, and
shall be payable solely from the general assets of the
Corporation.
1.3 Insurance and Other Special Benefits. The Executive's
participation in the life, accident and health insurance, employee
welfare benefit plans (as defined in the Employee Retirement
Income Security Act of 1974) and other fringe benefits (the
"Benefits") provided to the Executive prior to the Change of
Control or the Termination of Employment shall be continued or
equivalent benefits provided by the Corporation, at no cost to the
Executive, for a period of two (2) years from the date of the
Executive's Termination of Employment. If for any reason the
Corporation is unable to continue the Benefits, as required by the
preceding sentence, the Corporation shall pay to the Executive a
lump sum cash payment equal to the value of the Benefits which the
Corporation is unable to provide.
1.4 Relocation Assistance. Should the Executive move his residence in
order to pursue other business opportunities within two (2) years
after the date of the Termination of Employment, he will be
reimbursed for any expenses incurred in that relocation, including
taxes payable on the reimbursement, which are not reimbursed by
another employer. Benefits under this paragraph will include
assistance in selling the Executive's home and all other
assistance and benefits which are provided by the Corporation
under its relocation plan as in effect immediately prior to the
Change of Control or the Termination of Employment.
1.5 Stock Rights. All stock options, stock appreciation rights, stock
purchase rights, restricted stock rights and any similar rights
which the Executive holds shall become fully vested and be
exercisable on the Executive's last day of employment with the
Corporation.
1.6 Outplacement Assistant. The Executive shall be reimbursed by the
Corporation for the costs of all outplacement services obtained by
the Executive within the two (2) year period after the date of the
Executive's Termination of Employment provided the total
reimbursement shall be limited to an amount equal to twenty-five
percent (25%) of the Executive's Annual Compensation for the
calendar year immediately preceding the date of the Executive's
Termination of Employment.
1.7 Definitions.
(i) A "Change of Control" shall take place on the date of the
earlier to occur of any of the following events:
(a) The acquisition by any person, other than the
Corporation or any employee benefit plan of the
Corporation, of beneficial ownership of 20% or more of
the combined voting power of the Corporation's then
outstanding voting securities;
(b) The first purchase under a tender offer or exchange
offer, other than an offer by the Corporation or any
employee benefit plans of the Corporation, pursuant to
which shares of common stock have been purchased;
(c) During any period of two consecutive years,
individuals who at the beginning of such period
constitute the Board of Directors of the Corporation
cease for any reason to constitute at least a majority
thereof, unless the election or the nomination for the
election by stockholders of the Corporation of each
new director was approved by a vote of at least two-
thirds of the directors then still in office who were
directors at the beginning of the period; or
(d) Approval by stockholders of the Corporation of a
merger, consolidation, liquidation or dissolution of
the Corporation, or the sale of all or substantially
all of the assets of the Corporation.
(ii) "Annual Compensation" shall mean the sum of the base salary
and annual bonus paid to the Executive and all vested
amounts credited to the Executive under any incentive
compensation or other benefit plans of the Corporation in
which the Executive participates during the applicable
calendar year. In the event the Executive has not been
employed by the Corporation or received a base salary and
annual bonus for a complete calendar year, the determination
of Annual Compensation shall involve a pro forma projection
of base salary, annual bonus and vested amounts credited
under incentive compensation or other benefit plans for a
complete calendar year based upon the amounts that were paid
or credited during the partial year of employment or partial
year of receipt of compensation and any other information
deemed appropriate.
(iii) A "Termination of Employment" shall take place in the event
that (a) the Executive's employment is terminated for any
reason other than as a consequence of death, disability or
normal retirement, (b) the Executive is assigned any duties
or responsibilities that are inconsistent in any respect
with his position, duties, responsibilities or status prior
to the Change of Control, (c) the Corporation requires the
Executive to be based at a location which is more than fifty
(50) miles from the Executive's then current primary
residence, (d) the Executive's base salary is reduced, or
(e) the Executive experiences in any year a reduction in the
ratio of his incentive compensation, bonus or other such
payments to his base compensation which is greater than the
average reduction in the ratio of incentive compensation,
bonus or other such payments to base compensation
experienced by all of the Corporation's or the successor
corporation's executive officers.
1.8 Subsequent Imposition of Excise Tax. If 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, 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 1.8 is made.
2. General.
2.1 Indemnification. If litigation shall be brought to enforce or
interpret any provision contained herein, the Corporation, to the
extent permitted by applicable law and the Corporation's Charter
and By-laws, indemnifies the Executive for his reasonable
attorneys' fees and disbursements incurred in such litigation.
2.2 Dispute Resolution. Either the Executive or the Corporation may
elect to have any good faith dispute or controversy arising under
or in connection with this Agreement settled by arbitration, by
providing written notice of such election to the other party,
specifying the nature of the dispute to be arbitrated. If
arbitration is selected, such proceeding shall be conducted before
a panel of three (3) arbitrators sitting in a location agreed to
by the Corporation and the Executive within fifty (50) miles from
the location of the Executive's principal place of employment in
accordance with the rules of the American Arbitration Association.
Judgment may be entered on the award of the arbitrators in any
court having competent jurisdiction.
If the Executive prevails in any litigation or arbitration seeking
to enforce the provisions of this Agreement, the Executive shall
be entitled to reimbursement by the Corporation of all expenses,
including reasonable legal fees and expenses, and costs and
disbursements incurred as a result of such dispute or legal
proceeding.
2.3 Payment of Obligations Absolute. The Corporation's obligation to
pay the compensation and to make the arrangements provided in this
Agreement shall be absolute and unconditional and shall not be
affected by any circumstances, including any offset, counterclaim,
recoupment, defense or other right which the Corporation may have
against the Executive or anyone else. All amounts payable by the
Corporation shall be paid without notice or demand. Each and
every payment made by the Corporation shall be final and the
Corporation will not seek to recover all or any part of such
payment. The Executive shall not be obligated to seek other
employment in mitigation of the amounts payable or arrangements
made under this Agreement, and the obtaining of any other
employment shall not result in a reduction of the Corporation's
obligations to make the payments, benefits and arrangements
required to be made under this Agreement.
2.4 Continuing Obligations. The Executive shall retain in confidence
any confidential information known to him concerning the
Corporation, its subsidiaries and their respective businesses so
long as such information is not publicly disclosed.
2.5 Successors. This Agreement shall be binding upon and inure to the
benefit of the Executive and his estate, and the Corporation and
any successor of the Corporation, but neither this Agreement nor
any rights arising hereunder may be assigned or pledged by the
Executive. All references in this Agreement to the Corporation
shall include its subsidiaries and affiliates and any successors
and assigns of the Corporation. Any successor of the Corporation
shall be deemed substituted for all purposes of the "Corporation"
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 Corporation. In all cases, the Corporation shall
remain jointly and severally liable for all obligations hereunder.
2.6 Severability. Any provisions in this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective only to the extent of such
jurisdiction, be ineffective only to the extent of such
prohibition or unenforceability, without invalidating or affecting
the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
2.7 Controlling Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Maryland.
2.8 Modification. This Agreement shall not be varied, altered,
modified, canceled, changed or in any way amended except by mutual
agreement of the Executive and the Corporation in a written
instrument executed by the Executive and the Corporation.
2.9 Tax Withholding. The Corporation may withhold all federal, state,
city or other taxes required pursuant to any law or governmental
regulation or ruling.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
THE RYLAND GROUP, INC. EXECUTIVE
/s/ R. Chad Dreier /s/ Kipling W. Scott
- ----------------------------------- -----------------------------
R. Chad Dreier, President and Chief Kipling W. Scott
Executive Officer
ATTEST:
/s/ Timothy J. Geckle
- ---------------------------------
Timothy J. Geckle, Secretary
SENIOR EXECUTIVE SEVERANCE AGREEMENT
AGREEMENT dated as of the 28th day of January 1997 between The Ryland Group,
Inc., a Maryland corporation (the "Corporation"), and Michael C. Brown (the
"Executive").
In consideration of the services provided by the Executive and the covenants
and agreements contained herein, and for other good and valuable consideration
the sufficiency of which is acknowledged, the Corporation and the Executive
agree as follows:
1. Termination After Change of Control. The following payments and
benefits will be provided to the Executive by the Corporation in the
event of a Termination of Employment (as hereinafter defined) of the
Executive within three (3) years after a Change of Control (as
hereinafter defined) of the Corporation:
1.1 Lump Sum Cash Payment. On or before the Executive's last day of
employment with the Corporation, the Corporation will pay to the
Executive a lump sum cash amount equal to two (2) times the
highest Annual Compensation (as hereinafter defined) paid to the
Executive by the Corporation for any of the three (3) calendar
years immediately preceding the date of Termination of Employment.
1.2 Accelerated Vesting and Supplemental Payments. All rights, awards
and benefits of the Executive in the TRG Incentive Plan, the
deferred compensation plans (including the Retirement and Stock
Ownership Plan, Executive and Director Deferred Compensation Plan
and any successor or replacements plans) and any incentive, bonus
or benefit plans of the Corporation in which the Executive
participates shall immediately vest in full and the Executive
shall be paid in a lump sum within thirty (30) days of the date of
Termination of Employment. To the extent that any of the plans of
the Corporation would not under applicable law permit accelerated
vesting, the Executive will be paid supplementally by the
Corporation the amount of additional benefits that would be
payable if full vesting had taken place as of the date of
Termination of Employment. All supplemental payments are provided
on an unfunded basis, are not intended to meet the qualification
requirements of Section 401 of the Internal Revenue Code, and
shall be payable solely from the general assets of the
Corporation.
1.3 Insurance and Other Special Benefits. The Executive's
participation in the life, accident and health insurance, employee
welfare benefit plans (as defined in the Employee Retirement
Income Security Act of 1974) and other fringe benefits (the
"Benefits") provided to the Executive prior to the Change of
Control or the Termination of Employment shall be continued or
equivalent benefits provided by the Corporation, at no cost to the
Executive, for a period of two (2) years from the date of the
Executive's Termination of Employment. If for any reason the
Corporation is unable to continue the Benefits, as required by the
preceding sentence, the Corporation shall pay to the Executive a
lump sum cash payment equal to the value of the Benefits which the
Corporation is unable to provide.
1.4 Relocation Assistance. Should the Executive move his residence in
order to pursue other business opportunities within two (2) years
after the date of the Termination of Employment, he will be
reimbursed for any expenses incurred in that relocation, including
taxes payable on the reimbursement, which are not reimbursed by
another employer. Benefits under this paragraph will include
assistance in selling the Executive's home and all other
assistance and benefits which are provided by the Corporation
under its relocation plan as in effect immediately prior to the
Change of Control or the Termination of Employment.
1.5 Stock Rights. All stock options, stock appreciation rights, stock
purchase rights, restricted stock rights and any similar rights
which the Executive holds shall become fully vested and be
exercisable on the Executive's last day of employment with the
Corporation.
1.6 Outplacement Assistant. The Executive shall be reimbursed by the
Corporation for the costs of all outplacement services obtained by
the Executive within the two (2) year period after the date of the
Executive's Termination of Employment provided the total
reimbursement shall be limited to an amount equal to twenty-five
percent (25%) of the Executive's Annual Compensation for the
calendar year immediately preceding the date of the Executive's
Termination of Employment.
1.7 Definitions.
(i) A "Change of Control" shall take place on the date of the
earlier to occur of any of the following events:
(a) The acquisition by any person, other than the
Corporation or any employee benefit plan of the
Corporation, of beneficial ownership of 20% or more of
the combined voting power of the Corporation's then
outstanding voting securities;
(b) The first purchase under a tender offer or exchange
offer, other than an offer by the Corporation or any
employee benefit plans of the Corporation, pursuant to
which shares of common stock have been purchased;
(c) During any period of two consecutive years,
individuals who at the beginning of such period
constitute the Board of Directors of the Corporation
cease for any reason to constitute at least a majority
thereof, unless the election or the nomination for the
election by stockholders of the Corporation of each
new director was approved by a vote of at least two-
thirds of the directors then still in office who were
directors at the beginning of the period; or
(d) Approval by stockholders of the Corporation of a
merger, consolidation, liquidation or dissolution of
the Corporation, or the sale of all or substantially
all of the assets of the Corporation.
(ii) "Annual Compensation" shall mean the sum of the base salary
and annual bonus paid to the Executive and all vested
amounts credited to the Executive under any incentive
compensation or other benefit plans of the Corporation in
which the Executive participates during the applicable
calendar year. In the event the Executive has not been
employed by the Corporation or received a base salary and
annual bonus for a complete calendar year, the determination
of Annual Compensation shall involve a pro forma projection
of base salary, annual bonus and vested amounts credited
under incentive compensation or other benefit plans for a
complete calendar year based upon the amounts that were paid
or credited during the partial year of employment or partial
year of receipt of compensation and any other information
deemed appropriate.
(iii) A "Termination of Employment" shall take place in the event
that (a) the Executive's employment is terminated for any
reason other than as a consequence of death, disability or
normal retirement, (b) the Executive is assigned any duties
or responsibilities that are inconsistent in any respect
with his position, duties, responsibilities or status prior
to the Change of Control, (c) the Corporation requires the
Executive to be based at a location which is more than fifty
(50) miles from the Executive's then current primary
residence, (d) the Executive's base salary is reduced, or
(e) the Executive experiences in any year a reduction in the
ratio of his incentive compensation, bonus or other such
payments to his base compensation which is greater than the
average reduction in the ratio of incentive compensation,
bonus or other such payments to base compensation
experienced by all of the Corporation's or the successor
corporation's executive officers.
1.8 Subsequent Imposition of Excise Tax. If 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, 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 1.8 is made.
2. General.
2.1 Indemnification. If litigation shall be brought to enforce or
interpret any provision contained herein, the Corporation, to the
extent permitted by applicable law and the Corporation's Charter
and By-laws, indemnifies the Executive for his reasonable
attorneys' fees and disbursements incurred in such litigation.
2.2 Dispute Resolution. Either the Executive or the Corporation may
elect to have any good faith dispute or controversy arising under
or in connection with this Agreement settled by arbitration, by
providing written notice of such election to the other party,
specifying the nature of the dispute to be arbitrated. If
arbitration is selected, such proceeding shall be conducted before
a panel of three (3) arbitrators sitting in a location agreed to
by the Corporation and the Executive within fifty (50) miles from
the location of the Executive's principal place of employment in
accordance with the rules of the American Arbitration Association.
Judgment may be entered on the award of the arbitrators in any
court having competent jurisdiction.
If the Executive prevails in any litigation or arbitration seeking
to enforce the provisions of this Agreement, the Executive shall
be entitled to reimbursement by the Corporation of all expenses,
including reasonable legal fees and expenses, and costs and
disbursements incurred as a result of such dispute or legal
proceeding.
2.3 Payment of Obligations Absolute. The Corporation's obligation to
pay the compensation and to make the arrangements provided in this
Agreement shall be absolute and unconditional and shall not be
affected by any circumstances, including any offset, counterclaim,
recoupment, defense or other right which the Corporation may have
against the Executive or anyone else. All amounts payable by the
Corporation shall be paid without notice or demand. Each and
every payment made by the Corporation shall be final and the
Corporation will not seek to recover all or any part of such
payment. The Executive shall not be obligated to seek other
employment in mitigation of the amounts payable or arrangements
made under this Agreement, and the obtaining of any other
employment shall not result in a reduction of the Corporation's
obligations to make the payments, benefits and arrangements
required to be made under this Agreement.
2.4 Continuing Obligations. The Executive shall retain in confidence
any confidential information known to him concerning the
Corporation, its subsidiaries and their respective businesses so
long as such information is not publicly disclosed.
2.5 Successors. This Agreement shall be binding upon and inure to the
benefit of the Executive and his estate, and the Corporation and
any successor of the Corporation, but neither this Agreement nor
any rights arising hereunder may be assigned or pledged by the
Executive. All references in this Agreement to the Corporation
shall include its subsidiaries and affiliates and any successors
and assigns of the Corporation. Any successor of the Corporation
shall be deemed substituted for all purposes of the "Corporation"
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 Corporation. In all cases, the Corporation shall
remain jointly and severally liable for all obligations hereunder.
2.6 Severability. Any provisions in this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective only to the extent of such
jurisdiction, be ineffective only to the extent of such
prohibition or unenforceability, without invalidating or affecting
the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
2.7 Controlling Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Maryland.
2.8 Modification. This Agreement shall not be varied, altered,
modified, canceled, changed or in any way amended except by mutual
agreement of the Executive and the Corporation in a written
instrument executed by the Executive and the Corporation.
2.9 Tax Withholding. The Corporation may withhold all federal, state,
city or other taxes required pursuant to any law or governmental
regulation or ruling.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
THE RYLAND GROUP, INC. EXECUTIVE
/s/ R. Chad Dreier /s/ Michael C. Brown
- ----------------------------------- ----------------------------
R. Chad Dreier, President and Chief Michael C. Brown
Executive Officer
ATTEST:
/s/ Timothy J. Geckle
- --------------------------------
Timothy J. Geckle, Secretary
SENIOR EXECUTIVE SEVERANCE AGREEMENT
AGREEMENT dated as of the 28th day of January 1997 between The Ryland Group,
Inc., a Maryland corporation (the "Corporation"), and J. Sidney Davenport, IV
(the "Executive").
In consideration of the services provided by the Executive and the covenants
and agreements contained herein, and for other good and valuable consideration
the sufficiency of which is acknowledged, the Corporation and the Executive
agree as follows:
1. Termination After Change of Control. The following payments and
benefits will be provided to the Executive by the Corporation in the
event of a Termination of Employment (as hereinafter defined) of the
Executive within three (3) years after a Change of Control (as
hereinafter defined) of the Corporation:
1.1 Lump Sum Cash Payment. On or before the Executive's last day of
employment with the Corporation, the Corporation will pay to the
Executive a lump sum cash amount equal to two (2) times the
highest Annual Compensation (as hereinafter defined) paid to the
Executive by the Corporation for any of the three (3) calendar
years immediately preceding the date of Termination of Employment.
1.2 Accelerated Vesting and Supplemental Payments. All rights, awards
and benefits of the Executive in the TRG Incentive Plan, the
deferred compensation plans (including the Retirement and Stock
Ownership Plan, Executive and Director Deferred Compensation Plan
and any successor or replacements plans) and any incentive, bonus
or benefit plans of the Corporation in which the Executive
participates shall immediately vest in full and the Executive
shall be paid in a lump sum within thirty (30) days of the date of
Termination of Employment. To the extent that any of the plans of
the Corporation would not under applicable law permit accelerated
vesting, the Executive will be paid supplementally by the
Corporation the amount of additional benefits that would be
payable if full vesting had taken place as of the date of
Termination of Employment. All supplemental payments are provided
on an unfunded basis, are not intended to meet the qualification
requirements of Section 401 of the Internal Revenue Code, and
shall be payable solely from the general assets of the
Corporation.
1.3 Insurance and Other Special Benefits. The Executive's
participation in the life, accident and health insurance, employee
welfare benefit plans (as defined in the Employee Retirement
Income Security Act of 1974) and other fringe benefits (the
"Benefits") provided to the Executive prior to the Change of
Control or the Termination of Employment shall be continued or
equivalent benefits provided by the Corporation, at no cost to the
Executive, for a period of two (2) years from the date of the
Executive's Termination of Employment. If for any reason the
Corporation is unable to continue the Benefits, as required by the
preceding sentence, the Corporation shall pay to the Executive a
lump sum cash payment equal to the value of the Benefits which the
Corporation is unable to provide.
1.4 Relocation Assistance. Should the Executive move his residence in
order to pursue other business opportunities within two (2) years
after the date of the Termination of Employment, he will be
reimbursed for any expenses incurred in that relocation, including
taxes payable on the reimbursement, which are not reimbursed by
another employer. Benefits under this paragraph will include
assistance in selling the Executive's home and all other
assistance and benefits which are provided by the Corporation
under its relocation plan as in effect immediately prior to the
Change of Control or the Termination of Employment.
1.5 Stock Rights. All stock options, stock appreciation rights, stock
purchase rights, restricted stock rights and any similar rights
which the Executive holds shall become fully vested and be
exercisable on the Executive's last day of employment with the
Corporation.
1.6 Outplacement Assistant. The Executive shall be reimbursed by the
Corporation for the costs of all outplacement services obtained by
the Executive within the two (2) year period after the date of the
Executive's Termination of Employment provided the total
reimbursement shall be limited to an amount equal to twenty-five
percent (25%) of the Executive's Annual Compensation for the
calendar year immediately preceding the date of the Executive's
Termination of Employment.
1.7 Definitions.
(i) A "Change of Control" shall take place on the date of the
earlier to occur of any of the following events:
(a) The acquisition by any person, other than the
Corporation or any employee benefit plan of the
Corporation, of beneficial ownership of 20% or more of
the combined voting power of the Corporation's then
outstanding voting securities;
(b) The first purchase under a tender offer or exchange
offer, other than an offer by the Corporation or any
employee benefit plans of the Corporation, pursuant to
which shares of common stock have been purchased;
(c) During any period of two consecutive years,
individuals who at the beginning of such period
constitute the Board of Directors of the Corporation
cease for any reason to constitute at least a majority
thereof, unless the election or the nomination for the
election by stockholders of the Corporation of each
new director was approved by a vote of at least two-
thirds of the directors then still in office who were
directors at the beginning of the period; or
(d) Approval by stockholders of the Corporation of a
merger, consolidation, liquidation or dissolution of
the Corporation, or the sale of all or substantially
all of the assets of the Corporation.
(ii) "Annual Compensation" shall mean the sum of the base salary
and annual bonus paid to the Executive and all vested
amounts credited to the Executive under any incentive
compensation or other benefit plans of the Corporation in
which the Executive participates during the applicable
calendar year. In the event the Executive has not been
employed by the Corporation or received a base salary and
annual bonus for a complete calendar year, the determination
of Annual Compensation shall involve a pro forma projection
of base salary, annual bonus and vested amounts credited
under incentive compensation or other benefit plans for a
complete calendar year based upon the amounts that were paid
or credited during the partial year of employment or partial
year of receipt of compensation and any other information
deemed appropriate.
(iii) A "Termination of Employment" shall take place in the event
that (a) the Executive's employment is terminated for any
reason other than as a consequence of death, disability or
normal retirement, (b) the Executive is assigned any duties
or responsibilities that are inconsistent in any respect
with his position, duties, responsibilities or status prior
to the Change of Control, (c) the Corporation requires the
Executive to be based at a location which is more than fifty
(50) miles from the Executive's then current primary
residence, (d) the Executive's base salary is reduced, or
(e) the Executive experiences in any year a reduction in the
ratio of his incentive compensation, bonus or other such
payments to his base compensation which is greater than the
average reduction in the ratio of incentive compensation,
bonus or other such payments to base compensation
experienced by all of the Corporation's or the successor
corporation's executive officers.
1.8 Subsequent Imposition of Excise Tax. If 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, 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 1.8 is made.
2. General.
2.1 Indemnification. If litigation shall be brought to enforce or
interpret any provision contained herein, the Corporation, to the
extent permitted by applicable law and the Corporation's Charter
and By-laws, indemnifies the Executive for his reasonable
attorneys' fees and disbursements incurred in such litigation.
2.2 Dispute Resolution. Either the Executive or the Corporation may
elect to have any good faith dispute or controversy arising under
or in connection with this Agreement settled by arbitration, by
providing written notice of such election to the other party,
specifying the nature of the dispute to be arbitrated. If
arbitration is selected, such proceeding shall be conducted before
a panel of three (3) arbitrators sitting in a location agreed to
by the Corporation and the Executive within fifty (50) miles from
the location of the Executive's principal place of employment in
accordance with the rules of the American Arbitration Association.
Judgment may be entered on the award of the arbitrators in any
court having competent jurisdiction.
If the Executive prevails in any litigation or arbitration seeking
to enforce the provisions of this Agreement, the Executive shall
be entitled to reimbursement by the Corporation of all expenses,
including reasonable legal fees and expenses, and costs and
disbursements incurred as a result of such dispute or legal
proceeding.
2.3 Payment of Obligations Absolute. The Corporation's obligation to
pay the compensation and to make the arrangements provided in this
Agreement shall be absolute and unconditional and shall not be
affected by any circumstances, including any offset, counterclaim,
recoupment, defense or other right which the Corporation may have
against the Executive or anyone else. All amounts payable by the
Corporation shall be paid without notice or demand. Each and
every payment made by the Corporation shall be final and the
Corporation will not seek to recover all or any part of such
payment. The Executive shall not be obligated to seek other
employment in mitigation of the amounts payable or arrangements
made under this Agreement, and the obtaining of any other
employment shall not result in a reduction of the Corporation's
obligations to make the payments, benefits and arrangements
required to be made under this Agreement.
2.4 Continuing Obligations. The Executive shall retain in confidence
any confidential information known to him concerning the
Corporation, its subsidiaries and their respective businesses so
long as such information is not publicly disclosed.
2.5 Successors. This Agreement shall be binding upon and inure to the
benefit of the Executive and his estate, and the Corporation and
any successor of the Corporation, but neither this Agreement nor
any rights arising hereunder may be assigned or pledged by the
Executive. All references in this Agreement to the Corporation
shall include its subsidiaries and affiliates and any successors
and assigns of the Corporation. Any successor of the Corporation
shall be deemed substituted for all purposes of the "Corporation"
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 Corporation. In all cases, the Corporation shall
remain jointly and severally liable for all obligations hereunder.
2.6 Severability. Any provisions in this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective only to the extent of such
jurisdiction, be ineffective only to the extent of such
prohibition or unenforceability, without invalidating or affecting
the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
2.7 Controlling Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Maryland.
2.8 Modification. This Agreement shall not be varied, altered,
modified, canceled, changed or in any way amended except by mutual
agreement of the Executive and the Corporation in a written
instrument executed by the Executive and the Corporation.
2.9 Tax Withholding. The Corporation may withhold all federal, state,
city or other taxes required pursuant to any law or governmental
regulation or ruling.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
THE RYLAND GROUP, INC. EXECUTIVE
/s/ R. Chad Dreier /s/ J. Sidney Davenport, IV
- ---------------------------------- -----------------------------
R. Chad Dreier, President and Chief J. Sidney Davenport, IV
Executive Officer
ATTEST:
/s/ Timothy J. Geckle
- ---------------------------------
Timothy J. Geckle, Secretary
SENIOR EXECUTIVE SEVERANCE AGREEMENT
AGREEMENT dated as of the 28th day of January 1997 between The Ryland Group,
Inc., a Maryland corporation (the "Corporation"), and James R. Fratangelo (the
"Executive").
In consideration of the services provided by the Executive and the covenants
and agreements contained herein, and for other good and valuable consideration
the sufficiency of which is acknowledged, the Corporation and the Executive
agree as follows:
1. Termination After Change of Control. The following payments and
benefits will be provided to the Executive by the Corporation in the
event of a Termination of Employment (as hereinafter defined) of the
Executive within three (3) years after a Change of Control (as
hereinafter defined) of the Corporation:
1.1 Lump Sum Cash Payment. On or before the Executive's last day of
employment with the Corporation, the Corporation will pay to the
Executive a lump sum cash amount equal to two (2) times the
highest Annual Compensation (as hereinafter defined) paid to the
Executive by the Corporation for any of the three (3) calendar
years immediately preceding the date of Termination of Employment.
1.2 Accelerated Vesting and Supplemental Payments. All rights, awards
and benefits of the Executive in the TRG Incentive Plan, the
deferred compensation plans (including the Retirement and Stock
Ownership Plan, Executive and Director Deferred Compensation Plan
and any successor or replacements plans) and any incentive, bonus
or benefit plans of the Corporation in which the Executive
participates shall immediately vest in full and the Executive
shall be paid in a lump sum within thirty (30) days of the date of
Termination of Employment. To the extent that any of the plans of
the Corporation would not under applicable law permit accelerated
vesting, the Executive will be paid supplementally by the
Corporation the amount of additional benefits that would be
payable if full vesting had taken place as of the date of
Termination of Employment. All supplemental payments are provided
on an unfunded basis, are not intended to meet the qualification
requirements of Section 401 of the Internal Revenue Code, and
shall be payable solely from the general assets of the
Corporation.
1.3 Insurance and Other Special Benefits. The Executive's
participation in the life, accident and health insurance, employee
welfare benefit plans (as defined in the Employee Retirement
Income Security Act of 1974) and other fringe benefits (the
"Benefits") provided to the Executive prior to the Change of
Control or the Termination of Employment shall be continued or
equivalent benefits provided by the Corporation, at no cost to the
Executive, for a period of two (2) years from the date of the
Executive's Termination of Employment. If for any reason the
Corporation is unable to continue the Benefits, as required by the
preceding sentence, the Corporation shall pay to the Executive a
lump sum cash payment equal to the value of the Benefits which the
Corporation is unable to provide.
1.4 Relocation Assistance. Should the Executive move his residence in
order to pursue other business opportunities within two (2) years
after the date of the Termination of Employment, he will be
reimbursed for any expenses incurred in that relocation, including
taxes payable on the reimbursement, which are not reimbursed by
another employer. Benefits under this paragraph will include
assistance in selling the Executive's home and all other
assistance and benefits which are provided by the Corporation
under its relocation plan as in effect immediately prior to the
Change of Control or the Termination of Employment.
1.5 Stock Rights. All stock options, stock appreciation rights, stock
purchase rights, restricted stock rights and any similar rights
which the Executive holds shall become fully vested and be
exercisable on the Executive's last day of employment with the
Corporation.
1.6 Outplacement Assistant. The Executive shall be reimbursed by the
Corporation for the costs of all outplacement services obtained by
the Executive within the two (2) year period after the date of the
Executive's Termination of Employment provided the total
reimbursement shall be limited to an amount equal to twenty-five
percent (25%) of the Executive's Annual Compensation for the
calendar year immediately preceding the date of the Executive's
Termination of Employment.
1.7 Definitions.
(i) A "Change of Control" shall take place on the date of the
earlier to occur of any of the following events:
(a) The acquisition by any person, other than the
Corporation or any employee benefit plan of the
Corporation, of beneficial ownership of 20% or more of
the combined voting power of the Corporation's then
outstanding voting securities;
(b) The first purchase under a tender offer or exchange
offer, other than an offer by the Corporation or any
employee benefit plans of the Corporation, pursuant to
which shares of common stock have been purchased;
(c) During any period of two consecutive years,
individuals who at the beginning of such period
constitute the Board of Directors of the Corporation
cease for any reason to constitute at least a majority
thereof, unless the election or the nomination for the
election by stockholders of the Corporation of each
new director was approved by a vote of at least two-
thirds of the directors then still in office who were
directors at the beginning of the period; or
(d) Approval by stockholders of the Corporation of a
merger, consolidation, liquidation or dissolution of
the Corporation, or the sale of all or substantially
all of the assets of the Corporation.
(ii) "Annual Compensation" shall mean the sum of the base salary
and annual bonus paid to the Executive and all vested
amounts credited to the Executive under any incentive
compensation or other benefit plans of the Corporation in
which the Executive participates during the applicable
calendar year. In the event the Executive has not been
employed by the Corporation or received a base salary and
annual bonus for a complete calendar year, the determination
of Annual Compensation shall involve a pro forma projection
of base salary, annual bonus and vested amounts credited
under incentive compensation or other benefit plans for a
complete calendar year based upon the amounts that were paid
or credited during the partial year of employment or partial
year of receipt of compensation and any other information
deemed appropriate.
(iii) A "Termination of Employment" shall take place in the event
that (a) the Executive's employment is terminated for any
reason other than as a consequence of death, disability or
normal retirement, (b) the Executive is assigned any duties
or responsibilities that are inconsistent in any respect
with his position, duties, responsibilities or status prior
to the Change of Control, (c) the Corporation requires the
Executive to be based at a location which is more than fifty
(50) miles from the Executive's then current primary
residence, (d) the Executive's base salary is reduced, or
(e) the Executive experiences in any year a reduction in the
ratio of his incentive compensation, bonus or other such
payments to his base compensation which is greater than the
average reduction in the ratio of incentive compensation,
bonus or other such payments to base compensation
experienced by all of the Corporation's or the successor
corporation's executive officers.
1.8 Subsequent Imposition of Excise Tax. If 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, 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 1.8 is made.
2. General.
2.1 Indemnification. If litigation shall be brought to enforce or
interpret any provision contained herein, the Corporation, to the
extent permitted by applicable law and the Corporation's Charter
and By-laws, indemnifies the Executive for his reasonable
attorneys' fees and disbursements incurred in such litigation.
2.2 Dispute Resolution. Either the Executive or the Corporation may
elect to have any good faith dispute or controversy arising under
or in connection with this Agreement settled by arbitration, by
providing written notice of such election to the other party,
specifying the nature of the dispute to be arbitrated. If
arbitration is selected, such proceeding shall be conducted before
a panel of three (3) arbitrators sitting in a location agreed to
by the Corporation and the Executive within fifty (50) miles from
the location of the Executive's principal place of employment in
accordance with the rules of the American Arbitration Association.
Judgment may be entered on the award of the arbitrators in any
court having competent jurisdiction.
If the Executive prevails in any litigation or arbitration seeking
to enforce the provisions of this Agreement, the Executive shall
be entitled to reimbursement by the Corporation of all expenses,
including reasonable legal fees and expenses, and costs and
disbursements incurred as a result of such dispute or legal
proceeding.
2.3 Payment of Obligations Absolute. The Corporation's obligation to
pay the compensation and to make the arrangements provided in this
Agreement shall be absolute and unconditional and shall not be
affected by any circumstances, including any offset, counterclaim,
recoupment, defense or other right which the Corporation may have
against the Executive or anyone else. All amounts payable by the
Corporation shall be paid without notice or demand. Each and
every payment made by the Corporation shall be final and the
Corporation will not seek to recover all or any part of such
payment. The Executive shall not be obligated to seek other
employment in mitigation of the amounts payable or arrangements
made under this Agreement, and the obtaining of any other
employment shall not result in a reduction of the Corporation's
obligations to make the payments, benefits and arrangements
required to be made under this Agreement.
2.4 Continuing Obligations. The Executive shall retain in confidence
any confidential information known to him concerning the
Corporation, its subsidiaries and their respective businesses so
long as such information is not publicly disclosed.
2.5 Successors. This Agreement shall be binding upon and inure to the
benefit of the Executive and his estate, and the Corporation and
any successor of the Corporation, but neither this Agreement nor
any rights arising hereunder may be assigned or pledged by the
Executive. All references in this Agreement to the Corporation
shall include its subsidiaries and affiliates and any successors
and assigns of the Corporation. Any successor of the Corporation
shall be deemed substituted for all purposes of the "Corporation"
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 Corporation. In all cases, the Corporation shall
remain jointly and severally liable for all obligations hereunder.
2.6 Severability. Any provisions in this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective only to the extent of such
jurisdiction, be ineffective only to the extent of such
prohibition or unenforceability, without invalidating or affecting
the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
2.7 Controlling Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Maryland.
2.8 Modification. This Agreement shall not be varied, altered,
modified, canceled, changed or in any way amended except by mutual
agreement of the Executive and the Corporation in a written
instrument executed by the Executive and the Corporation.
2.9 Tax Withholding. The Corporation may withhold all federal, state,
city or other taxes required pursuant to any law or governmental
regulation or ruling.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
THE RYLAND GROUP, INC. EXECUTIVE
/s/ R. Chad Dreier /s/ James R. Fratangelo
- ---------------------------------- -----------------------------
R. Chad Dreier, President and Chief James R. Fratangelo
Executive Officer
ATTEST:
/s/ Timothy J. Geckle
- ---------------------------------
Timothy J. Geckle, Secretary
EXHIBIT 10.10
THE RYLAND GROUP, INC.
EXECUTIVE AND DIRECTOR DEFERRED
COMPENSATION PLAN
Effective as of March 1, 1997, and constituting an Amendment and Restatement
of the following Plans: The Ryland Group, Inc. Deferred Compensation Savings
Plan;
The Ryland Group, Inc. Salary Deferral Plan; and
The Ryland Group, Inc. Unfunded Deferred Director Fee Plan
THE RYLAND GROUP, INC.
EXECUTIVE AND DIRECTOR DEFERRED COMPENSATION PLAN
Effective as of March 1, 1997
TABLE OF CONTENTS
-----------------
ARTICLE 1
---------
DEFINITIONS
1.1 ACCOUNT 1
1.2 BENEFICIARY 1
1.3 CODE 1
1.4 COMPENSATION 1
1.5 COMPENSATION DEFERRAL ACCOUNT 1
1.6 COMPENSATION DEFERRALS 1
1.7 DESIGNATION DATE 2
1.8 EFFECTIVE DATE 2
1.9 ELIGIBLE INDIVIDUAL 2
1.10 EMPLOYER 2
1.11 EMPLOYER CONTRIBUTION CREDIT ACCOUNT 2
1.12 EMPLOYER CONTRIBUTION CREDITS 2
1.13 ENTRY DATE 2
1.14 PARTICIPANT 2
1.15 PARTICIPANT ENROLLMENT AND ELECTION FORM 2
1.16 PLAN 2
1.17 PLAN YEAR 3
1.18 TRUST 3
1.19 TRUSTEE 3
1.20 VALUATION DATE 3
ARTICLE 2
---------
ELIGIBILITY AND PARTICIPATION
-----------------------------
2.1 REQUIREMENTS 3
2.2 RE-EMPLOYMENT, ETC 3
2.3 CHANGE OF EMPLOYMENT CATEGORY 3
ARTICLE 3
---------
CONTRIBUTIONS AND CREDITS
-------------------------
3.1 EMPLOYER CONTRIBUTION CREDITS 3
3.2 PARTICIPANT COMPENSATION DEFERRALS 5
3.3 CONTRIBUTIONS TO THE TRUST 6
ARTICLE 4
---------
ALLOCATION OF FUNDS
-------------------
4.1 ALLOCATION OF DEEMED EARNINGS OR LOSSES ON ACCOUNTS 6
4.2 ACCOUNTING FOR DISTRIBUTIONS 6
4.3 SEPARATE ACCOUNTS 7
4.4 INTERIM VALUATIONS 7
4.5 DEEMED INVESTMENT DIRECTIONS OF PARTICIPANTS 7
4.6 EXPENSES 8
4.7 TAXES 8
ARTICLE 5
---------
ENTITLEMENT TO BENEFITS
-----------------------
5.1 FIXED PAYMENT DATES; TERMINATION OF EMPLOYMENT 8
5.2 HARDSHIP DISTRIBUTIONS. 8
5.3 APPLICATION TO TRUSTEE. 9
5.4 RE-EMPLOYMENT OF RECIPIENT, ETC. 9
ARTICLE 6
---------
DISTRIBUTION OF BENEFITS
------------------------
6.1 AMOUNT 9
6.2 METHOD OF PAYMENT 10
6.3 DEATH BENEFITS 10
ARTICLE 7
---------
BENEFICIARIES; PARTICIPANT DATA
-------------------------------
7.1 DESIGNATION OF BENEFICIARIES 10
7.2 INFORMATION TO BE FURNISHED BY PARTICIPANTS AND BENEFICIARIES;
INABILITY TO LOCATE PARTICIPANTS OR BENEFICIARIES 11
ARTICLE 8
---------
ADMINISTRATION
--------------
8.1 ADMINISTRATIVE AUTHORITY 11
8.2 UNIFORMITY OF DISCRETIONARY ACTS 12
8.3 LITIGATION 12
8.4 CLAIMS PROCEDURE 12
ARTICLE 9
---------
AMENDMENT
---------
9.1 RIGHT TO AMEND 14
9.2 AMENDMENTS TO ENSURE PROPER CHARACTERIZATION OF PLAN 14
ARTICLE 10
----------
TERMINATION
-----------
10.1 EMPLOYER'S RIGHT TO TERMINATE OR SUSPEND PLAN 14
10.2 AUTOMATIC TERMINATION OF PLAN 14
10.3 SUSPENSION OF DEFERRALS 14
10.4 ALLOCATION AND DISTRIBUTION 14
10.5 SUCCESSOR TO EMPLOYER 15
ARTICLE 11
----------
THE TRUST
---------
11.1 ESTABLISHMENT OF TRUST. 15
ARTICLE 12
----------
MISCELLANEOUS
-------------
12.1 LIMITATIONS ON LIABILITY OF EMPLOYER 15
12.2 CONSTRUCTION 15
12.3 SPENDTHRIFT PROVISION 16
THE RYLAND GROUP, INC.
EXECUTIVE AND DIRECTOR DEFERRED COMPENSATION PLAN
Effective as of March 1, 1997
RECITALS
--------
This, The Ryland Group, Inc. Executive and Director Deferred Compensation Plan
(the "Plan"), is adopted by The Ryland Group, Inc. (the "Employer"), effective
as of March 1, 1997, for certain of its executive employees and Directors.
The Plan constitutes an amendment and restatement of each of the following
plans, all of which are merged into this Plan as a single plan in connection
herewith: The Ryland Group, Inc. Deferred Compensation Savings Plan; The
Ryland Group, Inc. Salary Deferral Plan; and The Ryland Group, Inc. Unfunded
Deferred Director Fee Plan.
The purpose of the Plan is to offer participants an opportunity to elect to
defer the receipt of compensation in order to provide deferred compensation
benefits taxable pursuant to section 451 of the Internal Revenue Code of 1986,
as amended (the "Code"), and to provide a deferred compensation vehicle to
which the Employer may credit certain amounts on behalf of participants.
The Plan is intended to be a "top-hat" plan under sections 201(2), 301(a)(3)
and 401(a)(1) of the Employee Retirement Income Security Act of 1974
("ERISA").
Accordingly, the following Plan is adopted.
1
- -
DEFINITIONS
-----------
.1 ACCOUNT means the balance credited to a Participant's or Beneficiary's
Plan account, including contribution credits and deemed income, gains and
losses credited thereto. A Participant's or Beneficiary's Account shall be
determined as of the date of reference.
.2 BENEFICIARY means any person or person so designated in accordance with
the provisions of Article 7.
.3 CODE means the Internal Revenue Code of 1986 and the regulations
thereunder, as amended from time to time.
.4 COMPENSATION means the total current cash remuneration (exclusive of
the Eligible Individual's personal health and service allowance) paid by the
Employer to an Eligible Individual with respect to his or her service for the
Employer.
.5 COMPENSATION DEFERRAL ACCOUNT is defined in Section 3.2.
.6 COMPENSATION DEFERRALS is defined in Section 3.2.
.7 DESIGNATION DATE means the date or dates as of which a designation of
deemed investment directions by an individual pursuant to Section 4.5, or any
change in a prior designation of deemed investment directions by an individual
pursuant to Section 4.5, shall become effective. The Designation Dates in any
Plan Year shall be designated by the Employer.
.8 EFFECTIVE DATE means the effective date of the Plan, which shall be
March 1, 1997.
.9 ELIGIBLE INDIVIDUAL means, for any Plan Year (or applicable portion
thereof), a person who is determined by the Employer, or its designee, to be a
member of a select group of management or highly compensated employees of the
Employer or a member of the Employer's Board of Directors and who is
designated by the Employer, or its designee, to be an Eligible Individual
under the Plan. By each December 31, the Employer, or its designee, shall
notify those individuals, if any, who will be Eligible Individuals for the
next Plan Year. If the Employer, or its designee, determines that an
individual first becomes an Eligible Individual during a Plan Year, the
Employer, or its designee, shall notify such individual of its determination
and of the date during the Plan Year on which the individual shall first
become an Eligible Individual.
.10 means The Ryland Group, Inc. and its successors and assigns unless
otherwise herein provided, or any other corporation or business organization
which, with the consent of The Ryland Group, Inc., or its successors or
assigns, assumes the Employer's obligations hereunder, or any other
corporation or business organization which agrees, with the consent of The
Ryland Group, Inc., to become a party to the Plan.
.11 EMPLOYER CONTRIBUTION CREDIT ACCOUNT is defined Section 3.1.
.12 EMPLOYER CONTRIBUTION CREDITS is defined in Section 3.1.
.13 ENTRY DATE with respect to an individual means the first day of the
pay period following the date on which the individual first becomes an
Eligible Individual.
.14 PARTICIPANT means any person so designated in accordance with the
provisions of Article 2, including, where appropriate according to the context
of the Plan, any former employee or former member of the Board of Directors
who is or may become (or whose Beneficiaries may become) eligible to receive a
benefit under the Plan.
.15 PARTICIPANT ENTROLLMENT AND ELECTION FORM means the form or forms on
which a Participant elects to defer Compensation hereunder and/or on which the
Participant makes certain other designations as required thereon.
.16 PLAN means this The Ryland Group, Inc. Executive and Director Deferred
Compensation Plan, an amendment, restatement and consolidation of The Ryland
Group, Inc. Deferred Compensation Savings Plan, The Ryland Group, Inc. Salary
Deferral Plan, and The Ryland Group, Inc. Unfunded Deferred Director Fee Plan,
as amended from time to time.
.17 PLAN YEAR means the twelve (12) month period ending on the December 31
of each year during which the Plan is in effect.
.18 TRUST means the Trust established pursuant to Article 11.
.19 TRUSTEE means the trustee of the Trust established pursuant to Article
.20 VALUATION DATE means the last day of each Plan Year and any other date
that the Employer, in its sole discretion, designates as a Valuation Date.
2
- -
ELIGIBILITY AND PARTICIPATION
-----------------------------
.1 REQUIREMENTS. Every Eligible Individual on the Effective Date shall be
eligible to become or continue as a Participant on the Effective Date. Every
other Eligible Individual shall be eligible to become a Participant on the
first Entry Date occurring on or after the date on which he or she becomes an
Eligible Individual. No individual shall become a Participant, however, if he
or she is not an Eligible Individual on the date his or her participation is
to begin.
Participation in the Participant Compensation Deferral feature of the
Plan is voluntary. In order to participate in the Participant Compensation
Deferral feature of the Plan, an otherwise Eligible Individual must make
written application in such manner as may be required by Section 3.2 and by
the Employer and must agree to make Compensation Deferrals as provided in
Article 3.
.2 RE-EMPLOYMENT, ETC. If a Participant whose employment or Director
status with the Employer is terminated is subsequently re-employed by or
subsequently becomes a Director of the Employer, he or she shall become a
Participant in accordance with the provisions of Section 2.1.
.3 CHANGE OF EMPLOYMENT CATEGORY. During any period in which a
Participant remains in the employ of the Employer, but ceases to be an
Eligible Individual, he or she shall not be eligible to make Compensation
Deferrals hereunder.
3
- -
CONTRIBUTIONS AND CREDITS
-------------------------
.1 EMPLOYER CONTRIBUTION CREDITS. There shall be established and
maintained a separate Employer Contribution Credit Account in the name of each
Participant who is an employee of the Employer. Such Account shall be
credited or debited, as applicable, with (a) amounts equal to the Employer's
Contribution Credits credited to that Account, if any; (b) any deemed earnings
and losses (to the extent realized, based upon deemed fair market value of the
Account's deemed assets) allocated to that Account; and (c) expenses and/or
taxes charged to that Account.
The Employer's Contribution Credits attributable to a Participant who is
an employee of the Employer shall consist of the following:
(i) matching contribution amounts for each pay period equal to the
Participant's Participant Compensation Deferral amounts for that pay
period, provided however that the total Employer matching
contribution amounts under the Employer's 401(k) plan and this Plan
for any calendar year shall not exceed six percent (6%) of the
Participant's Compensation from the Employer for that year; and
(ii) for a particular year, any discretionary Employer contribution
amounts that the Employer wishes to contribute, but is prohibited under
applicable law from contributing, as discretionary Employer
contribution amounts, under the Employer's 401(k) plan.
A Participant shall become vested in amounts credited to his or her
Employer Contribution Account pursuant to the following vesting schedule:
Years of Service Vested Percentage
---------------- -----------------
Less than 2 0%
2 25%
3 50%
4 75%
5 100%
For purposes of the foregoing, each Participant will be credited with
one Year of Service for each twelve (12) month period of his employment with,
or service as a member of the Board of Directors of, the Employer.
Notwithstanding the foregoing, a Participant will become immediately
vested in amounts credited to his or her Employer Contribution Account upon his
or her death, his or her total and permanent disability (as determined by the
Employer, in its discretion), his or her retirement from service to the
Employer on or after age sixty-five (65), or a "Change in Control" of the
Employer. For this purpose, a Change in Control shall occur upon any of the
following:
(i) the acquisition by any person, other than the Employer or any
employee benefit plan(s) of the Employer, of beneficial ownership of twenty
percent (20%) or more of the combined voting power of the Employer's
then outstanding voting securities;
(ii) the first purchase under a tender offer or exchange offer, other
than an offer by the Employer or any employee benefit plan(s) of the
Employer, pursuant to which shares of common stock of the Employer
have been purchased;
(iii) during any period of two (2) consecutive years, individuals who,
at the beginning of such period constitute the Board of Directors of
the Employer cease for any reason to constitute at least a majority
thereof, unless the election or the nomination for the election by
stockholders of the Employer of each new Director was approved by a
vote of at least two-thirds (2/3rds) of the Directors then still in
office who were Directors at the beginning of the period; or
(iv) approval by stockholders of the Employer of a merger, consolidation,
liquidation or dissolution of the Employer, or the sale of all or
substantially all of the assets of the Employer.
.2 PARTICIPANT COMPENSATION DEFERRALS. In accordance with rules
established by the Employer, a Participant may elect to defer Compensation
which is not yet payable and which would otherwise be paid to the Participant.
Amounts so deferred will be considered a Participant's "Compensation
Deferrals". Ordinarily, a Participant shall make such an election with
respect to a coming twelve (12) month Plan Year during the period beginning on
the December 1 and ending on the December 31 of the prior Plan Year, or during
such other period established by the Employer.
Compensation Deferrals shall be made through regular payroll or
retainer/meeting fee deductions and/or through an election by the Participant
to defer a bonus payment not yet payable to him or her at the time of the
election. The Participant may reduce his or her regular payroll or
retainer/meeting fee deduction Compensation Deferral amount for a particular
year as of, and by written notice delivered to the Employer at least thirty
(30) days prior to, the beginning of any regular payroll period, with such
reduction being first effective for Compensation to be earned in that payroll
period. In the case of bonus payment deferrals, the Participant may reduce
his or her bonus payment deferral percentage for a particular year by giving
notice to the Employer of the reduced bonus payment Compensation Deferral
amount prior to the date the applicable bonus is first due to be paid.
Once made, a Compensation Deferral regular payroll or retainer/meeting
fee deduction election shall continue in force indefinitely, until reduced by
the Participant as aforesaid or until changed by the Participant for a coming
year on a subsequent Participant Enrollment and Election Form provided by the
Employer. A bonus payment reduction election, or a reduction thereof pursuant
to the foregoing, shall continue in force only for the Plan Year for which the
election is first effective.
Compensation Deferrals shall be deducted by the Employer from the pay
of a deferring Participant. There shall be established and maintained by the
Employer a separate Compensation Deferral Account in the name of each
Participant to which shall be credited or debited: (a) amounts equal to the
Participant's Compensation Deferrals; (b) amounts equal to any deemed earnings
or losses (to the extent realized, based upon deemed fair market value of the
Account's deemed assets) attributable or allocable thereto; and (c) expenses
and/or taxes charged to that Account.
A Participant shall at all times be 100% vested in amounts credited to
his or her Participant Compensation Deferral Account.
.3 CONTRIBUTIONS TO THE TRUST. Amounts shall be contributed by the
Employer to the Trust maintained under Section 11.1 equal to the amounts
required to be credited to the Participant's Account under Sections 3.1 and
3.2. The Employer shall make a good faith effort to contribute these amounts
to the Trust as soon as is practicable after such amounts are determined.
Employer contributions to the Trust shall be made in cash.
4
- -
ALLOCATION OF FUNDS
-------------------
.1 ALLOCATION OF DEEMED EARNINGS OR LOSSES ON ACCOUNTS. Subject to
Section 4.5, each Participant shall have the right to direct the Employer as
to how amounts in his or her Plan Account shall be deemed to be invested.
Subject to such limitations as may from time to time be required by law,
imposed by the Employer or the Trustee or contained elsewhere in the Plan, and
subject to such operating rules and procedures as may be imposed from time to
time by the Employer, prior to the date on which a direction will become
effective, the Participant shall have the right to direct the Employer as to
how amounts in his or her Account shall be deemed to be invested.
The Employer shall direct the Trustee to invest the account maintained
in the Trust on behalf of the Participant pursuant to the deemed investment
directions the Employer properly has received from the Participant. The value
of the Participant's Account shall be equal to the value of the account
maintained under the Trust on behalf of the Participant. As of each valuation
date of the Trust, the Participant's Account will be credited or debited to
reflect the Participant's deemed investments of the Trust.
The Participant's Plan Account will be credited or debited with the
increase or decrease in the realizable net asset value or credited interest,
as applicable, of the designated deemed investments, as follows. As of each
Valuation Date, an amount equal to the net increase or decrease in realizable
net asset value or credited interest, as applicable (as determined by the
Employer or the Trustee, as applicable), of each deemed investment option
within the Account since the preceding Valuation Date shall be allocated among
all Participants' Accounts deemed to be invested in that investment option in
accordance with the ratio which the portion of the Account of each Participant
which is deemed to be invested within that investment option, determined as
provided herein, bears to the aggregate of all amounts deemed to be invested
within that investment option.
.2 ACCOUNTING FOR DISTRIBUTIONS. As of the date of any distribution
hereunder, the distribution made hereunder to the Participant or his or her
Beneficiary or Beneficiaries shall be charged to such Participant's Account.
Such amounts shall be charged on a pro rata basis against the investments of
the Trust in which the Participant's Account is deemed to be invested.
.3 SEPARATE ACCOUNTS. A separate account under the Plan shall be
established and maintained hereunder to reflect the Account for each
Participant with sub-accounts to show separately the applicable deemed
investments of the Account.
.4 INTERIM VALUATIONS. If it is determined by the Employer that the value
of a Participant's Account as of any date on which distributions are to be
made differs materially from the value of the Participant's Account on the
prior Valuation Date upon which the distribution is to be based, the Employer,
in its discretion, shall have the right to designate any date in the interim
as a Valuation Date for the purpose of revaluing the Participant's Account so
that the Account will, prior to the distribution, reflect its share of such
material difference in value.
.5 DEEMED INVESTMENT DIRECTIONS OF PARTICIPANTS. Subject to such
limitations as may from time to time be required by law, imposed by the
Employer or the Trustee or contained elsewhere in the Plan, and subject to
such operating rules and procedures as may be imposed from time to time by the
Employer, prior to and effective for each Designation Date, each Participant
may communicate to the Employer a direction as to how his or her Plan Accounts
should be deemed to be invested among such categories of deemed investments as
may be made available by the Employer hereunder. Such direction shall
designate the percentage (in any whole percent multiples) of the Participant's
Plan Account which is requested to be deemed to be invested in such categories
of deemed investments.
An election concerning deemed investment choices shall continue
indefinitely until changed by the Participant in a manner specified by the
Employer. If the Employer receives an initial or revised deemed investment
direction which it deems to be incomplete, unclear or improper, the
Participant's investment direction then in effect shall remain in effect (or,
in the case of a deficiency in an initial deemed investment direction, the
Participant shall be deemed to have filed no deemed investment direction)
until the next Designation Date, unless the Employer provides for, and permits
the application of, corrective action prior thereto.
If the Employer possesses (or is deemed to possess as provided above)
at any time directions as to the deemed investment of less than all of a
Participant's Account, the Participant shall be deemed to have directed that
the undesignated portion of the Account be deemed to be invested in a money
market, fixed income, stable value or similar fund made available under the
Plan as determined by the Employer in its discretion.
Each Participant hereunder, as a condition to his or her participation
hereunder, agrees to indemnify and hold harmless the Employer and its agents
and representatives from any losses or damages of any kind relating to the
deemed investment of the Participant's Account hereunder.
Each reference in this Section to a Participant shall be deemed to
include, where applicable, a reference to a Beneficiary.
.6 EXPENSES. Expenses, including Trustee fees, allocable to the
administration or operation of an Account maintained under the Plan shall be
paid by the Employer unless, in the discretion of the Employer, the Employer
elects to charge such expenses, or any portion thereof, against the
appropriate Participant's Account or Participants' Accounts. If an expense,
or any portion thereof, is charged against a Participant's Account, at the
discretion of the Employer, such expense, or portion thereof, either (i) will
reduce the contribution to the Trust under Section 3.3 next due to be made by
the Employer in respect of the Account, or (ii) will be paid from the Trust to
the Employer out of assets of the Trust corresponding to the Participant's
Account hereunder.
.7 TAXES. Any taxes generated by earnings in an Account, as determined by
the Employer, shall be paid by the Employer unless, in the discretion of the
Employer, the Employer elects to charge such taxes against the appropriate
Participant's Account or Participants' Accounts. If a tax amount is charged
against a Participant's Account, at the discretion of the Employer, such
expense either (i) will reduce the contribution to the Trust under Section 3.3
next due to be made by the Employer in respect of the Account, or (ii) will be
paid from the Trust to the Employer out of assets of the Trust corresponding
to the Participant's Account.
5
- -
ENITLEMENT TO BENEFITS
----------------------
.1 FIXED PAYMENT DATES; TERMINATION OF EMPLOYMENT. On his or her
Participant Enrollment and Election Form, a Participant may select a fixed
payment date for the payment or commencement of payment of his or her vested
Account, which will be valued and payable according to the provisions of
Article 6. Such payment dates may be extended to later dates so long as
elections to so extend are made by the Participant prior to the then
applicable fixed date. Such payment dates may not be accelerated.
Alternatively, on his or her Participant Enrollment and Election Form,
a Participant may select payment or commencement of payment of his or her
vested Account at his or her termination of employment or Director status with
the Employer, or at the earlier of a fixed payment date or his or her
termination of employment or Director status with the Employer. In either of
these cases, the extension and non-acceleration rules discussed above shall
apply to such fixed payment date and/or termination of employment date, as
applicable.
Any fixed payment date elected by a Participant as provided above must
be no earlier than the January 1 of the second calendar year after the
calendar year in which the election is made. If a Participant does not select
a payment date or dates as aforesaid, his or her vested account shall be
distributed or commence to be distributed, as provided in Article 6, at the
termination of his or her employment of Director status with the Employer.
.2 HARDSHIP DISTRIBUTIONS. In the event of financial hardship of the
Participant, as hereinafter defined, the Participant may apply to the Employer
for the distribution of all or any part of his or her vested Account. The
Employer shall consider the circumstances of each such case, and the best
interests of the Participant and his or her family, and shall have the right,
in its sole discretion, if applicable, to allow such distribution, or, if
applicable, to direct a distribution of part of the amount requested, or to
refuse to allow any distribution. Upon a finding of financial hardship, the
Employer shall make the appropriate distribution to the Participant from
amounts held by the Employer in respect of the Participant's vested Account.
In no event shall the aggregate amount of the distribution exceed either the
full value of the Participant's vested Account or the amount determined by the
Employer to be necessary to alleviate the Participant's financial hardship
(which financial hardship may be considered to include any taxes due because
of the distribution occurring because of this Section), and which is not
reasonably available from other resources of the Participant. For purposes of
this Section, the value of the Participant's vested Account shall be
determined as of the date of the distribution.
"Financial hardship" means (a) a severe financial hardship to the
Participant resulting from a sudden and unexpected illness or accident of the
Participant or of a dependent (as defined in Code section 152(a)) of the
Participant, (b) loss of the Participant's property due to casualty, or (c)
other similar extraordinary and unforeseeable circumstances arising as a
result of events beyond the control of the Participant, each as determined to
exist by the Employer. A distribution may be made under this Section only
with the consent of the Employer.
3. APPLICATION TO TRUSTEE. On the date or dates on which a Participant or
Beneficiary is entitled to payment under Section 5.1, the Participant or
Beneficiary need not make application for payment to the Employer, but instead
may make application for payment directly to the Trustee who shall pay the
Participant or Beneficiary the appropriate amount directly from the Trust
without the consent of the Employer. The Trustee shall report the amount of
each such payment, and any withholding thereon, to the Employer.
4. RE-EMPLOYMENT OF RECIPIENT, ETC. If a Participant receiving
installment distributions pursuant to Section 6.2 is re-employed by the
Employer (or becomes a member of the Employer's Board of Directors), the
remaining distributions due to the Participant shall be suspended until such
time as the Participant (or his or her Beneficiary) once again becomes
eligible for benefits under Section 5.1 or 5.2, at which time such
distribution shall commence, subject to the limitations and conditions
contained in this Plan.
6
- -
DISTRIBUTION OF BENEFITS
------------------------
.1 AMOUNT. A Participant (or his or her Beneficiary) shall become
entitled to receive, on or about the date or dates selected by the Participant
on his or her Participant Enrollment and Election Form or, if none, on or
about the date of the Participant's termination of employment or Director
status with the Employer (or earlier as provided in Article 5), a distribution
in an aggregate amount equal to the Participant's vested Account. Any payment
due hereunder from the Trust which is not paid by the Trust for any reason
will be paid by the Employer from its general assets.
.2 METHOD OF PAYMENT
(a) Cash Or In-Kind Payments. Payments under the Plan shall be made in
cash or in-kind, as elected by the Participant, as permitted by the Employer
and the Trustee in their sole and absolute discretion and subject to
applicable restrictions on transfer as may be applicable legally or
contractually.
(b) Timing and Manner of Payment. In the case of distributions to a
Participant or his or her Beneficiary by virtue of an entitlement pursuant to
Sections 5.1, an aggregate amount equal to the Participant's vested Account
will be paid by the Trust or the Employer, as provided in Section 6.1, in a
lump sum or in five (5) or ten (10) substantially equal annual installments
(adjusted for gains and losses), as selected by the Participant as provided in
Article 5.
If a Participant fails to designate properly the manner of payment of
the Participant's benefit under the Plan, such payment will be in a lump sum.
If the whole or any part of a payment hereunder is to be in
installments, the total to be so paid shall continue to be deemed to be
invested pursuant to Sections 4.1 and 4.5 under such procedures as the
Employer may establish, in which case any deemed income, gain, loss or expense
or tax allocable thereto (as determined by the Trustee, in its discretion)
shall be reflected in the installment payments, in such equitable manner as
the Trustee shall determine.
.3 DEATH BENEFITS. If a Participant dies before terminating his or her
employment or Director status with the Employer and before the commencement of
payments to the Participant hereunder, the entire value of the Participant's
Account shall be paid, at the time(s) selected by the Participant under
Article 5 and in the manner provided in Section 6.2, to the person or persons
designated in accordance with Section 7.1.
Upon the death of a Participant after payments hereunder have begun but
before he or she has received all payments to which he or she is entitled
under the Plan, the remaining benefit payments shall be paid to the person or
persons designated in accordance with Section 7.1, in the manner in which such
benefits were payable to the Participant.
7
- -
BENEFICIARIES; PARTICIPANTS DATA
--------------------------------
.1 DESIGNATION OF BENEFICIAREIS. Each Participant from time to time may
designate any person or persons (who may be named contingently or
successively) to receive such benefits as may be payable under the Plan upon
or after the Participant's death, and such designation may be changed from
time to time by the Participant by filing a new designation. Each designation
will revoke all prior designations by the same Participant, shall be in a form
prescribed by the Employer, and will be effective only when filed in writing
with the Employer during the Participant's lifetime.
In the absence of a valid Beneficiary designation, or if, at the time
any benefit payment is due to a Beneficiary, there is no living Beneficiary
validly named by the Participant, the Employer shall pay any such benefit
payment to the Participant's spouse, if then living, but otherwise to the
Participant's then living descendants, if any, per stripes, but, if none, to
the Participant's estate. In determining the existence or identity of anyone
entitled to a benefit payment, the Employer may rely conclusively upon
information supplied by the Participant's personal representative, executor or
administrator.
If a question arises as to the existence or identity of anyone entitled
to receive a benefit payment as aforesaid, or if a dispute arises with respect
to any such payment, then, notwithstanding the foregoing, the Employer, in its
sole discretion, may distribute such payment to the Participant's estate
without liability for any tax or other consequences which might flow
therefrom, or may take such other action as the Employer deems to be
appropriate.
.2 INFORMATION TO BE FURNISHED BY PARTICIPANTS AND BENEFICIARIES;
INABILITY TO LOCATE PARTICIPANTS OR BENEFICIARIES. Any communication,
statement or notice addressed to a Participant or to a Beneficiary at his or
her last post office address as shown on the Employer's records shall be
binding on the Participant or Beneficiary for all purposes of the Plan. The
Employer shall not be obliged to search for any Participant or Beneficiary
beyond the sending of a registered letter to such last known address. If the
Employer notifies any Participant or Beneficiary that he or she is entitled to
an amount under the Plan and the Participant or Beneficiary fails to claim
such amount or make his or her location known to the Employer within three (3)
years thereafter, then, except as otherwise required by law, if the location
of one or more of the next of kin of the Participant is known to the Employer,
the Employer may direct distribution of such amount to any one or more or all
of such next of kin, and in such proportions as the Employer determines. If
the location of none of the foregoing persons can be determined, the Employer
shall have the right to direct that the amount payable shall be deemed to be a
forfeiture, except that the dollar amount of the forfeiture, unadjusted for
deemed gains or losses in the interim, shall be paid by the Employer if a
claim for the benefit subsequently is made by the Participant or the
Beneficiary to whom it was payable. If a benefit payable to an unlocated
Participant or Beneficiary is subject to escheat pursuant to applicable state
law, the Employer shall not be liable to any person for any payment made in
accordance with such law.
8
- -
ADMINISTRATION
--------------
.1 ADMINISTRATIVE AUTHORITY. Except as otherwise specifically provided
herein, the Employer, acting through its Board of Directors or the designee or
designees thereof, shall have the sole responsibility for and the sole control
of the operation and administration of the Plan, and shall have the power and
authority to take all action and to make all decisions and interpretations
which may be necessary or appropriate in order to administer and operate the
Plan, including, without limiting the generality of the foregoing, the power,
duty and responsibility to:
(a) Resolve and determine all disputes or questions arising under the
Plan, and to remedy any ambiguities, inconsistencies or omissions in the Plan.
(b) Adopt such rules of procedure and regulations as in its opinion may
be necessary for the proper and efficient administration of the Plan and as
are consistent with the Plan.
(c) Implement the Plan in accordance with its terms and the rules and
regulations adopted as above.
(d) Make determinations with respect to the eligibility of any Eligible
Individual as a Participant and make determinations concerning the crediting
of Plan Accounts.
(e) Appoint any persons or firms, or otherwise act to secure
specialized advice or assistance, as it deems necessary or desirable in
connection with the administration and operation of the Plan, and the Employer
shall be entitled to rely conclusively upon, and shall be fully protected in
any action or omission taken by it in good faith reliance upon, the advice or
opinion of such firms or persons. The Employer shall have the power and
authority to delegate from time to time by written instrument all or any part
of its duties, powers or responsibilities under the Plan, both ministerial and
discretionary, as it deems appropriate, to any person or committee, and in the
same manner to revoke any such delegation of duties, powers or
responsibilities. Any action of such person or committee in the exercise of
such delegated duties, powers or responsibilities shall have the same force
and effect for all purposes hereunder as if such action had been taken by the
Employer. Further, the Employer may authorize one or more persons to execute
any certificate or document on behalf of the Employer, in which event any
person notified by the Employer of such authorization shall be entitled to
accept and conclusively rely upon any such certificate or document executed by
such person as representing action by the Employer until such notified person
shall have been notified of the revocation of such authority.
.2 UNIFORMITY OF DISCRETIONARY ACTS. Whenever in the administration or
operation of the Plan discretionary actions by the Employer are required or
permitted, such actions shall be consistently and uniformly applied to all
persons similarly situated, and no such action shall be taken which shall
discriminate in favor of any particular person or group of persons.
.3 LITIGATION. Except as may be otherwise required by law, in any action
or judicial proceeding affecting the Plan, no Participant or Beneficiary shall
be entitled to any notice or service of process, and any final judgment
entered in such action shall be binding on all persons interested in, or
claiming under, the Plan.
.4 CLAIMS PROCEDURE. Any person claiming a benefit under the Plan (a
"Claimant") shall present the claim, in writing, to the Employer or the
Trustee, and the Employer or the Trustee shall respond in writing. If the
claim is denied, the written notice of denial shall state, in a manner
calculated to be understood by the Claimant:
(a) The specific reason or reasons for the denial, with specific
references to the Plan provisions on which the denial is based;
(b) A description of any additional material or information necessary
for the Claimant to perfect his or her claim and an explanation of why such
material or information is necessary; and
(c) An explanation of the Plan's claims review procedure.
The written notice denying or granting the Claimant's claim shall be
provided to the Claimant within ninety (90) days after the Employer's or
Trustee's receipt of the claim, unless special circumstances require an
extension of time for processing the claim. If such an extension is required,
written notice of the extension shall be furnished by the Employer or Trustee
to the Claimant within the initial ninety (90) day period and in no event
shall such an extension exceed a period of ninety (90) days from the end of
the initial ninety (90) day period. Any extension notice shall indicate the
special circumstances requiring the extension and the date on which the
Employer or Trustee expects to render a decision on the claim. Any claim not
granted or denied within the period noted above shall be deemed to have been
denied.
Any Claimant whose claim is denied, or deemed to have been denied under
the preceding sentence (or such Claimant's authorized representative), may,
within sixty (60) days after the Claimant's receipt of notice of the denial,
or after the date of the deemed denial, request a review of the denial by
notice given, in writing, to the Employer or Trustee. Upon such a request for
review, the claim shall be reviewed by the Employer or Trustee (or its
designated representative) which may, but shall not be required to, grant the
Claimant a hearing. In connection with the review, the Claimant may have
representation, may examine pertinent documents, and may submit issues and
comments in writing.
The decision on review normally shall be made within sixty (60) days of
the Employer's receipt of the request for review. If an extension of time is
required due to special circumstances, the Claimant shall be notified, in
writing, by the Employer or Trustee, and the time limit for the decision on
review shall be extended to one hundred twenty (120) days. The decision on
review shall be in writing and shall state, in a manner calculated to be
understood by the Claimant, the specific reasons for the decision and shall
include references to the relevant Plan provisions on which the decision is
based. The written decision on review shall be given to the Claimant within
the sixty (60) day (or, if applicable, the one hundred twenty (120) day) time
limit discussed above. If the decision on review is not communicated to the
Claimant within the sixty (60) day (or, if applicable, the one hundred twenty
(120) day) period discussed above, the claim shall be deemed to have been
denied upon review. All decisions on review shall be final and binding with
respect to all concerned parties.
9
- -
AMENDMENT
---------
.1 RIGHT TO AMEND. The Employer, by written instrument executed by a duly
authorized representative of the Employer, shall have the right to amend the
Plan, at any time and with respect to any provisions hereof, and all parties
hereto or claiming any interest hereunder shall be bound by such amendment;
provided, however, that no such amendment shall deprive a Participant or a
Beneficiary of a right accrued hereunder prior to the date of the amendment.
.2 AMENDMENTS TO ENSURE PROPER CHARATERIZATION OF PLAN. Notwithstanding
the provisions of Section 9.1, the Plan may be amended by the Employer at any
time, retroactively if required in the opinion of the Employer, in order to
ensure that the Plan is characterized as "top-hat" plan as described under
ERISA sections 201(2), 301(a)(3), and 401(a)(1), and to conform the Plan to
the provisions and requirements of any applicable law (including ERISA and the
Code). No such amendment shall be considered prejudicial to any interest of a
Participant or a Beneficiary hereunder.
10
- --
TERMINATION
-----------
.1 EMPLOYER'S RIGHT TO TERMINATE OR SUSPEND PLAN. The Employer reserves
the right to terminate the Plan and/or its obligation to make further credits
to Plan Accounts. The Employer also reserves the right to suspend the
operation of the Plan for a fixed or indeterminate period of time.
.2 AUTOMATIC TERMINATION OF PLAN. The Plan automatically shall terminate
upon the dissolution of the Employer, or upon its merger into or consolidation
with any other corporation or business organization if there is a failure by
the surviving corporation or business organization to adopt specifically and
agree to continue the Plan.
.3 SUSPENSION OF DEFERRALS. In the event of a suspension of the Plan, the
Employer shall continue all aspects of the Plan, other than Compensation
Deferrals and Employer Contribution Credits, during the period of the
suspension, in which event payments hereunder will continue to be made during
the period of the suspension in accordance with Articles 5 and 6.
.4 ALLOCATION AND DISTRIBUTION. This Section shall become operative on a
complete termination of the Plan. The provisions of this Section also shall
become operative in the event of a partial termination of the Plan, as
determined by the Employer, but only with respect to that portion of the Plan
attributable to the Participants to whom the partial termination is
applicable. Upon the effective date of any such event, notwithstanding any
other provisions of the Plan, no persons who were not theretofore Participants
shall be eligible to become Participants, the value of the interest of all
Participants and Beneficiaries shall be determined and, after deduction of
estimated expenses in liquidating and, if applicable, paying Plan benefits,
paid to them as soon as is practicable after such termination.
.5 SUCCESSOR TO EMPLOYER. Any corporation or other business organization
which is a successor to the Employer by reason of a consolidation, merger or
purchase of substantially all of the assets of the Employer shall have the
right to become a party to the Plan by adopting the same by resolution of the
entity's board of directors or other appropriate governing body. If, within
ninety (90) days from the effective date of such consolidation, merger or sale
of assets, such new entity does not become a party hereto, as above provided,
the Plan automatically shall be terminated, and the provisions of Section 10.4
shall become operative.
11
- --
THE TRUST
---------
.1 ESTABLISHMENT OF TRUST. The Employer shall establish the Trust with the
Trustee pursuant to such terms and conditions as are set forth in the Trust
agreement to be entered into between the Employer and the Trustee. The Trust
is intended to be treated as a "grantor" trust under the Code and the
establishment of the Trust is not intended to cause the Participant to realize
current income on amounts contributed thereto, and the Trust shall be so
interpreted.
12
- --
MISCELLANEOUS
-------------
.1 LIMITATIONS ON LIABILITY OF EMPLOYER. Neither the establishment of the
Plan nor any modification thereof, nor the creation of any account under the
Plan, nor the payment of any benefits under the Plan shall be construed as
giving to any Participant or other person any legal or equitable right against
the Employer, or any officer or employer thereof except as provided by law or
by any Plan provision. The Employer does not in any way guarantee any
Participant's Account from loss or depreciation, whether caused by poor
investment performance of a deemed investment or the inability to realize upon
an investment due to an insolvency affecting an investment vehicle or any
other reason. In no event shall the Employer, or any successor, employee,
officer, director or stockholder of the Employer, be liable to any person on
account of any claim arising by reason of the provisions of the Plan or of any
instrument or instruments implementing its provisions, or for the failure of
any Participant, Beneficiary or other person to be entitled to any particular
tax consequences with respect to the Plan, or any credit or distribution
hereunder.
.2 CONSTRUCTION. If any provision of the Plan is held to be illegal or
void, such illegality or invalidity shall not affect the remaining provisions
of the Plan, but shall be fully severable, and the Plan shall be construed and
enforced as if said illegal or invalid provision had never been inserted
herein. For all purposes of the Plan, where the context admits, the singular
shall include the plural, and the plural shall include the singular. Headings
of Articles and Sections herein are inserted only for convenience of reference
and are not to be considered in the construction of the Plan. The laws of the
State of Maryland shall govern, control and determine all questions of law
arising with respect to the Plan and the interpretation and validity of its
respective provisions, except where those laws are preempted by the laws of
the United States. Participation under the Plan will not give any Participant
the right to be retained in the service of the Employer nor any right or claim
to any benefit under the Plan unless such right or claim has specifically
accrued hereunder.
The Plan is intended to be and at all times shall be interpreted and
administered so as to qualify as a top-hat plan (as aforesaid), and no
provision of the Plan shall be interpreted so as to give any individual any
right in any assets of the Employer which right is greater than the rights of
a general unsecured creditor of the Employer.
.3 SPENDTHRIFT PROVISION. No amount payable to a Participant or a
Beneficiary under the Plan will, except as otherwise specifically provided by
law, be subject in any manner to anticipation, alienation, attachment,
garnishment, sale, transfer, assignment (either at law or in equity), levy,
execution, pledge, encumbrance, charge or any other legal or equitable
process, and any attempt to do so will be void; nor will any benefit be in any
manner liable for or subject to the debts, contracts, liabilities, engagements
or torts of the person entitled thereto. Further, (i) the withholding of taxes
from Plan benefit payments, (ii) the recovery under the Plan of overpayments
of benefits previously made to a Participant or Beneficiary, (iii) if
applicable, the transfer of benefit rights from the Plan to another plan, or
(iv) the direct deposit of benefit payments to an account in a banking
institution (if not actually part of an arrangement constituting an assignment
or alienation) shall not be construed as an assignment or alienation.
In the event that any Participant's or Beneficiary's benefits hereunder
are garnished or attached by order of any court, the Employer or Trustee may
bring an action or a declaratory judgment in a court of competent jurisdiction
to determine the proper recipient of the benefits to be paid under the Plan.
During the pendency of said action, any benefits that become payable shall be
held as credits to the Participant's or Beneficiary's Account or, if the
Employer or Trustee prefers, paid into the court as they become payable, to be
distributed by the court to the recipient as the court deems proper at the
close of said action.
IN WITNESS WHEREOF, the Employer has caused the Plan to be executed and its
seal to be affixed hereto, effective as of the 1st day of March, 1997.
ATTEST/WITNESS THE RYLAND GROUP, INC.
/s/ Kelly Elinsky By: /s/ Edward W. Gold
- --------------------------- -----------------------
Print: Kelly Elinsky Print Name: Edward W. Gold
Date: 3/19/97
Exhibit 11 Statement RE Computation of Per Share Earnings
December 31, December 31, December 31,
1996 1995 1994
----------- ------------ ------------
Primary:
Net earnings (loss)
from continuing operations $15,839 $(25,474) $16,417
Discontinued operations 0 22,856 5,974
------- --------- -------
Net earnings (loss) before
cumulative effect of
a change in accounting principle 15,839 (2,618) 22,391
Cumulative effect of a change
in accounting principle 0 0 2,076
------- --------- -------
Net earnings (loss) 15,839 (2,618) 24,467
Adjustment for dividends
on convertible preferred
shares (1,974) (2,193) (2,441)
------- --------- -------
Adjusteed net earnings (loss) $13,865 $(4,811) $22,026
======== ======== ========
Weighted average common
shares outstanding 15,789,184 15,585,254 15,404,994
========== =========== ==========
Common stock equivalents (1):
Stock Options 5,387 0 39,313
Employee incentive plans 134,240 0 116,739
------- --------- -------
Total 15,928,811 15,585,254 15,561,046
========== -=========== ==========
Net earnings (loss)
per share from continuing
operations $0.87 $(1.78) $0.90
Discontinued operations 0.00 1.47 0.39
------- --------- -------
Net earnings (loss)
per share before cumulative
effect of a change in
accounting principle 0.87 (0.31) 1.29
Cumulative effect of a
change in accounting
principle 0.00 0.00 0.13
------- --------- -------
Net earnings (loss)
per share $0.87 $ (0.31) $1.42
======= ========= ========
Fully-Diluted:
Net earnings (loss)
from continuing operations $15,839 $ (25,474) $16,417
Discontinued operations 0 22,856 5,974
------- --------- -------
Net earnings (loss)
before cumulative
effect of a change in
accounting principle 15,839 (2,618) 22,391
Cumulative effect of a
change in accounting
principle 0 0 2,076
------- --------- -------
Net earnings (loss) 15,839 (2,618) 24,467
Adjustment for dividends
on convertible
preferred shares (2) (1,974) (2,193) 0
Adjustment for incremental
dividends on convertible
preferred shares 0 0 (1,076)
------- --------- -------
Adjusted net earnings (loss) $13,865 $(4,811) $23,391
======== ======== ========
Weighted average common
shares outstanding 15,789,184 15,585,254 15,404,994
Common stock equivalents (1):
Stock options 5,387 0 39,313
Compensation unit plan 134,240 0 116,739
Convertible preferred stock 0 0 1,114,757
------- --------- ---------
Total 15,928,811 15,585,254 16,675,803
========== -=========== ==========
Net earnings (loss)
per share from continuing
operations $0.87 $(1.78) $ 0.92
Discontinued operations 0.00 1.47 0.36
------- --------- -------
Net earnings (loss)
per share before cumulative
effect of a change in
accounting principle 0.87 (0.31) 1.28
Cumulative effect of a
change in accounting
principle 0.00 0.00 0.12
------- --------- -------
Net earnings (loss)
per share $0.87 $ (0.31) $ 1.40
========== ========== ==========
(1) For 1995 average shares outstanding have not been increased by the common
stock equivalents relating to the employee stock option and employee incentive
plans as the effect would be anti-dilutive.
(2) For 1996 and 1995 the net earnings (loss) was adjusted for dividends on
convertible preferred shares as the adjustment for incremental dividends on
convertible preferred shares would be anti-dilutive.
The Ryland Group, Inc. and Subsidiaries
SELECTED FINANCIAL DATA
(dollar amounts in millions, except unit and per share data) unaudited
- ------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------
Annual Results:
Revenues
Homebuilding $1,473 $1,458 $1,443 $1,204 $1,077
Financial services and
limited-purpose subsidiaries 107 127 176 247 347
-----------------------------------------
Total 1,580 1,585 1,619 1,451 1,424
Cost of sales - homebuilding 1,277 1,280 1,262 1,059 940
Selling, general and
administrative expenses 203 211 225 201 200
Interest expense 74 91 105 162 249
Impairment of inventories and
joint venture investments (1) 0 45 0 45 0
-----------------------------------------
Earnings (loss) from continuing
operations before taxes 26 (42) 27 (16) 35
Tax expense (benefit) 10 (17) 11 (6) 12
-----------------------------------------
Net earnings (loss) from
continuing operations 16 (25) 16 (10) 23
Discontinued operations, net of
taxes (2)
Earnings from discontinued
operations 0 3 6 7 5
Gain on sale of discontinued
operations 0 19 0 0 0
-----------------------------------------
Net earnings (loss) before
cumulative effect
of accounting change 16 (3) 22 (3) 28
Cumulative effect of accounting
change, net of taxes (3) 0 0 2 0 0
-----------------------------------------
Net earnings (loss) $ 16 $ (3) $ 24 $ (3) $ 28
-----------------------------------------
Year-End Position:
Assets
Housing inventories $ 575 $ 538 $ 600 $ 492 $ 485
Mortgage loans held for sale 180 285 215 536 393
Mortgage-backed securities
and notes receivable 144 113 171 192 241
Collateral for bonds payable
of limited-purpose
subsidiaries 214 375 459 798 1,560
Other assets 226 270 259 298 218
-----------------------------------------
Total assets $1,339 $1,581 $1,704 $2,316 $2,897
-----------------------------------------
Liabilities
Long-term debt $ 354 $ 397 $ 409 $ 381 $ 318
Short-term notes payable 326 367 378 717 588
Bonds payable of limited
-purpose subsidiaries 207 365 447 778 1,533
Other liabilities 142 151 158 147 152
-----------------------------------------
Total liabilities $1,029 $1,280 $1,392 $2,023 $2,591
-----------------------------------------
Stockholders' equity $ 310 $ 301 $ 312 $ 293 $ 306
-----------------------------------------
Per Common Share Data:
Primary net earnings (loss)
from continuing operations $ 0.87 $(1.78) $ 0.90 $(0.79) $ 1.36
Primary net earnings (loss)
before cumulative effect of
accounting change $ 0.87 $(0.31) $ 1.29 $(0.34) $ 1.66
Primary net earnings (loss) $ 0.87 $(0.31) $ 1.42 $(0.34) $ 1.66
Dividends declared $ 0.60 $ 0.60 $ 0.60 $ 0.60 $ 0.60
Stockholders' equity $19.00 $18.69 $19.56 $18.61 $19.43
-----------------------------------------
(1) 1995 and 1993 reflect $45 million pretax charges related to homebuilding
inventories and investments in unconsolidated joint ventures.
(2) The Company sold its institutional mortgage securities administration
business in the second quarter of 1995.
(3) The Company adopted Statement of Financial Accounting Standards No.115,
"Accounting for Certain Investments in Debt and Equity Securities," in 1994.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
THE COMPANY
Operations of The Ryland Group, Inc. and subsidiaries (the "Company") consist
of two business segments: homebuilding and financial services. The Company's
homebuilding segment constructs and sells single-family attached and detached
homes in 24 divisions in 20 states throughout the United States. The
financial services segment provides various mortgage-related products and
services for retail customers and conducts investment activities.
RESULTS OF OPERATIONS
CONSOLIDATED
The Company reported consolidated net earnings of $15.8 million, or $.87 per
share, for 1996, compared with a consolidated net loss of $2.6 million, or
$.31 per share, for 1995, and consolidated net earnings of $24.5 million, or
$1.42 per share, for 1994. From continuing operations, the Company's 1996 net
earnings of $15.8 million, or $.87 per share, compare with a 1995 net loss of
$25.5 million, or $1.78 per share, and 1994 net earnings of $16.4 million, or
$.90 per share.
The Company's results for 1995 include an after-tax impairment charge of $27
million (pretax $45 million), primarily related to the Company's adoption of
Statement of Financial Accounting Standards No. 121 (FASB 121) "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of", that resulted in a reduction in the carrying value of certain inventories
and joint venture investments to fair value. The 1994 results include $2.1
million, or $.13 per share, for the cumulative impact of an accounting change
to adopt Statement of Financial Accounting Standards No. 115 (FASB 115),
"Accounting for Certain Investments in Debt and Equity Securities."
The Company's 1995 results also include a net after-tax gain of $19.5 million
related to the second-quarter sale of the Company's institutional mortgage
securities administration business. The sale of this business was consistent
with the Company's long-term strategy to focus on its core homebuilding and
retail mortgage-finance operations and to invest additional capital into its
homebuilding operations.
The homebuilding segment recorded pretax earnings of $22.6 million for 1996,
compared with a pretax loss of $47.5 million for 1995 and pretax earnings of
$10.9 million for 1994. Homebuilding results in 1996 increased from 1995,
excluding the $45 million pretax impairment charge, primarily due to improved
gross profit margins combined with lower selling, general and administrative
expenses. Homebuilding results in 1995, excluding the impairment charge,
declined from 1994 primarily due to lower closing volume and gross profit
margins.
The financial services segment reported pretax earnings of $15.8 million for
1996, compared with $17.9 million for 1995 and $33.5 million for 1994. The
decline from 1995 was primarily attributable to a decrease in investment
earnings due to lower gains from sales of mortgage-backed securities. Retail
earnings for 1996 were comparable to 1995. The decline in 1995 from 1994 was
primarily attributable to lower gains from sales of mortgages and mortgage
servicing rights and a lower level of investment earnings.
Corporate expenses represent the costs of corporate functions, which support
the business segments. Corporate expenses totaling $12.0 million for 1996
were down $.9 million from 1995 primarily due to the Company's efforts to
reduce operating expenses. Corporate expenses in 1995 were down $4.3 million
from 1994 primarily as a result of staff reductions which occurred in the
latter part of 1994 and lower payouts under the Company's performance-based
incentive plans.
The Company's limited-purpose subsidiaries no longer issue mortgage-backed
securities and mortgage-participation securities, but they continue to hold
collateral for previously issued mortgage-backed bonds in which the Company
maintains a residual interest. Revenues of the limited-purpose subsidiaries
consist of interest on mortgage collateral subject to bond indebtedness.
Expenses consist primarily of interest on the outstanding bonds and
amortization of deferred costs. Revenues, expenses and portfolio balances
continue to decline as the mortgage collateral pledged to secure the bonds
decreases due to scheduled payments, prepayments and exercises of early
redemption provisions. Revenues have approximated expenses for the last three
years.
HOMEBUILDING SEGMENT
Results of operations for the homebuilding segment are summarized as follows
(amounts in thousands except average closing price):
1996 1995 1994
---- ---- ----
Revenues $ 1,473,275 $1,458,174 $ 1,443,212
Gross profit 196,398 178,428 181,391
Selling, general and
administrative expenses 146,285 151,087 142,254
Interest expense 27,517 29,807 28,209
Impairment of inventories
and joint venture
investments 0 45,000 0
---- ---- ----
Homebuilding pretax
earnings (loss) $ 22,596 $ (47,466) $ 10,928
======== ======== ========
Average closing price $ 174,000 $ 164,000 $ 160,000
======== ======== ========
The Company's homebuilding segment reported pretax earnings of $22.6 million
in 1996, compared with a pretax loss of $47.5 million in 1995 and pretax
earnings of $10.9 million in 1994. The improvement in 1996, compared with
1995, excluding the $45 million pretax impairment charge, was primarily
attributable to improved gross profit margins as well as lower selling,
general and administrative expenses. The 1995 pretax impairment charge of $45
million was primarily related to the Company's adoption of FASB 121 and its
effect on the valuation of homebuilding inventories and investments in joint
ventures. Of the total impairment charge, $31 million related to California
inventories and $14 million related to assets to be disposed of.
In the fourth quarter of 1995, in response to competitive market pressures in
California, the Company determined that some product repositioning, increased
homebuyer incentives and reduced selling prices were necessary in certain of
its California subdivisions. The land inventory in most of these subdivisions
was acquired in 1988 and 1989 and had a cost basis substantially in excess of
current market values. Accordingly, the Company determined that certain
subdivision inventories were impaired. Under FASB 121, a writedown of $31
million was required to state the impaired inventories at their fair value.
In addition, the Company decided to dispose of certain joint venture
investments in the Mid-Atlantic and certain subdivision inventories in other
geographic areas because the Company believed that it could achieve higher
returns on alternative uses of its capital. As a result, the Company recorded
a reserve of $14 million in the fourth quarter of 1995 to reduce the carrying
value of these assets to their fair value less cost to sell.
Excluding the pretax impairment charge of $45 million, the Company's
homebuilding segment reported a pretax loss of $2.5 million for 1995, compared
with pretax earnings of $10.9 million for 1994. The decline in 1995 earnings
was due to lower closing volume and lower gross profit margins.
Homebuilding revenues increased 1.0 percent in 1996, compared with 1995,
primarily due to a $10,000 increase in average closing price and increased
revenues from land sales. The increase in average closing price was partially
offset by a 6.3 percent decline in closings reflecting a reduction in new
orders resulting from increased competitive pressures in certain markets and
the Company's reduced inventory investment in the Mid-Atlantic region.
Homebuilding revenues increased 1.0 percent in 1995, compared with 1994, due
to a $4,000 increase in average closing price, which was partially offset by a
.9 percent decline in closings. Closing volume was down in 1995, primarily
due to slower sales early in the year, particularly in the Mid-Atlantic
region.
Gross profit margins increased to 13.3 percent for 1996, an increase of 1.1
percentage points from 1995, excluding the impairment charge. Increased
closings from higher-margin new communities and $4.0 million in gains from
land sales contributed to the 1996 margin improvement. Gross profit margins
of 12.2 percent for 1995, excluding the impairment charge, were down from 12.6
percent for 1994. The Company's focus on reducing unsold homes under
construction and actions taken in the Mid-Atlantic region to close out older
communities with high-cost land positions, negatively impacted gross profit
margins during 1995. The Company's gross profit margins during 1995 and 1994
were negatively impacted by the build out of older inventories in California
that were affected by a decline in economic and market conditions. The
impairment charge taken in 1995 adjusted the basis of the affected California
inventories to fair value.
Selling, general and administrative expenses as a percent of revenues were 9.9
percent for 1996, 10.4 percent for 1995 and 9.9 percent for 1994. The 1996
decline is primarily reflective of the Company's ongoing efforts to control
costs as both general and administrative costs and selling costs declined from
1995. Included in selling, general and administrative expenses for 1995 were
$2.2 million of reorganization costs associated with the Company's initiatives
to restructure certain divisions within its Mid-Atlantic and Southwest
operations. In addition to the impact of the reorganization costs, selling,
general and administrative expenses increased in 1995 due to expenses
associated with expansion into new markets and higher costs associated with
the Company's new marketing and merchandising programs initiated in 1994.
Interest expense decreased in 1996 due to a lower average cost of funds.
Interest expense increased in 1995 due to an increase in the average
homebuilding debt outstanding required to fund higher average inventories and
an increase in the average cost of funds. The increase in interest expense in
1995 was mitigated by an increase in the amount of interest capitalized due to
an increase in land under development.
HOMEBUILDING OPERATIONAL DATA
1996 1995
---- ----
New Orders % Closings % New Orders Closings
(Units) Change (Units) Change (Units) (Units)
---------- ------ -------- ------ ---------- --------
Mid-Atlantic 1,194 (41) 1,470 (38) 2,011 2,385
Midwest 1,345 3 1,370 23 1,307 1,112
Southeast 1,450 4 1,401 11 1,399 1,260
Southwest 1,578 (18) 1,806 1 1,923 1,794
West 2,272 ( 9) 2,341 (2) 2,501 2,399
---- ---- ---- ---- ---- -------
Total 7,839 (14) 8,388 (6) 9,141 8,950
Outstanding Contracts Outstanding Contracts
December 31, 1996 December 31, 1995
--------------------- ---------------------
Dollars Dollars
% in Average in Average
Units Change Millions Price Units Millions Price
----- ----- ------ -------- ------ ---------- --------
Mid-Atlantic 370 (43) $74 $ 200,232 646 $125 $193,912
Midwest 469 (5) 77 165,439 494 79 159,917
Southeast 498 11 87 174,904 449 74 164,209
Southwest 334 (41) 52 154,605 562 92 163,308
West 524 (12) 115 219,237 593 107 181,425
----- ----- ----- --------- --- ----- --------
Total 2,195 (20) $405 $ 184,646 2,744 $477 $173,965
New orders in 1996 declined 14 percent compared with 1995 due to decreases in
the Mid-Atlantic, Southwest and West regions, which resulted from increased
competitive pressures combined with the Company's emphasis on margin
improvement rather than volume growth. The significant decline in the Mid-
Atlantic region was also due in large part to the Company's reduced investment
in favor of other markets showing stronger growth characteristics. The growth
for the year in the Midwest region was primarily attributable to the Company's
new markets in Chicago and Minneapolis, while growth in the new Tampa market
increased new orders for the Southeast region.
As of December 31, 1996, the Company had outstanding contracts for 2,195
units, down 20 percent from year-end 1995 due to a decline in new orders.
Outstanding contracts represent the Company's backlog of sold but not closed
homes, which generally are built and closed, subject to cancellation, over the
next two quarters. The $405 million value of outstanding contracts decreased
15 percent from year-end 1995. The decrease in outstanding contracts as of
the end of the year could result in a decline in homebuilding revenues and
closings for the first half of 1997.
FINANCIAL SERVICES SEGMENT
The Company's financial services segment reported pretax earnings of $15.8
million in 1996, compared with $17.9 million in 1995 and $33.5 million in
1994.
Pretax earnings by line of business were as follows (amounts in thousands):
1996 1995 1994
---- ---- ----
Retail $ 9,539 $ 9,672 $ 21,484
Investments 6,308 8,198 12,042
-------- -------- --------
Total $ 15,847 $ 17,870 $ 33,526
======== ======== ========
The decline in pretax earnings in 1996 was primarily due to a decrease in
investment earnings as the result of lower gains from the sale of mortgage-
backed securities. Lower retail originations and revenues in 1996 were
substantially offset by reduced general and administrative expenses and a
higher net interest spread.
During 1996, the Company sold its wholesale mortgage origination business
based on expectations that the business would not contribute significantly to
the Company's future earnings. The disposition of this business reduced
mortgage originations and revenues of the financial services segment in 1996
but did not have a material effect on the Company's earnings for the year.
The decline in pretax earnings in 1995 compared with 1994 was primarily
related to lower gains from sales of mortgages and mortgage servicing rights
and a lower level of investment earnings.
Revenues and expenses for the financial services segment were as follows
(amounts in thousands):
1996 1995 1994
----- ----- -----
Retail revenues:
Interest and
net origination fees $ 13,210 $ 16,727 $19,468
Gains on sales of mortgages
and servicing rights 15,543 17,362 37,191
Loan servicing 29,684 32,650 37,578
Title/escrow 5,733 5,246 4,597
Total retail revenues 64,170 71,985 98,834
------ ------ ------
Revenues from investment
operations 15,354 17,626 24,797
------ ------ ------
Total revenues 79,524 89,611 123,631
Expenses:
General and administrative 44,723 47,991 63,411
Interest 18,954 23,750 26,694
------ ------ ------
Total expenses 63,677 71,741 90,105
------ ------ ------
Pretax earnings $ 15,847 $ 17,870 $33,526
======== ======== ========
Revenues for the financial services segment decreased in 1996 primarily due to
reduced mortgage originations, which declined by 27.2 percent due principally
to the sale of the wholesale mortgage origination business in May 1996.
Revenues decreased 27.5 percent in 1995 compared with 1994 primarily as a
result of lower gains from sales of mortgages and mortgage servicing rights
and lower revenues from investment operations due to a decline in the
investment portfolio. The decrease in loan servicing revenue in 1996 is a
result of lower revenue per loan primarily due to changes in the portfolio
product mix. Loan servicing revenue declined in 1995 due to reductions in the
Company's loan servicing portfolio.
Declines in interest expense for 1996, 1995 and 1994 were directly related to
the level of borrowings required to fund mortgage loan originations and
investment portfolio balances in those periods. General and administrative
expenses for the financial services segment declined 6.8 percent in 1996 due
to the disposition of the Company's wholesale mortgage origination business
combined with the Company's cost reduction efforts. General and
administrative expenses for the financial services segment declined 24.3
percent in 1995 as a result of cost reduction measures in retail operations
initiated in the latter part of 1994.
Retail Operations
Retail operations include mortgage origination, loan servicing and
title/escrow services for retail customers.
A summary of mortgage origination activities is as follows:
1996 1995 1994
---- ---- ----
Dollar volume of mortgages
originated (in millions) $ 1,466 $ 1,952 $ 2,055
Number of mortgages
originated 11,161 15,330 16,740
Percentage
Ryland home settlements 47% 35% 28%
Other settlements 53% 65% 72%
---- ---- -----
Total settlements 100% 100% 100%
---- ---- ----
Mortgage originations decreased by 27.2 percent from 1995 due to the sale of
the wholesale mortgage origination business. Excluding wholesale
originations, originations for 1996 decreased by 2.0 percent compared with
1995, primarily due to the lower volume of closings from the Company's
homebuilding segment. Mortgage origination volume in 1995 was down 8.4
percent compared with 1994 as declines early in 1995 were offset by increases
later in the year when the interest rate environment was more favorable.
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:
1996 1995 1994
---- ---- ----
Net interest earned
(in thousands) $ 6,458 $ 5,766 $ 9,598
Average balance of
mortgages held for sale
(in millions) $ 168 $ 211 $ 293
Net interest spread 3.8% 2.7% 3.3%
Net interest earned increased in 1996 due to a higher net interest spread
resulting from lower average borrowing costs. 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 December 31
(amounts in billions):
1996 1995 1994
---- ---- ----
Originated $ 2.1 $ 2.4 $ 2.8
Acquired 3.0 3.5 4.0
Subserviced 1.2 .3 .1
----- ----- -----
Total serviced $ 6.3 $ 6.2 $ 6.9
===== ===== =====
The increase in the portfolio balance is attributable to an increase in loans
subserviced for others. The decreases in the originated and acquired
portfolio balances in 1996 and 1995 are primarily attributable to normal
mortgage prepayment activity.
Investment Operations
The assets of the Company's investment operations primarily consist of
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. Revenues and expenses were as follows
(amounts in thousands):
1996 1995 1994
---- ---- ----
Sale of mortgage-backed securities $ 1,138 $ 4,839 $ 2,349
Interest and other income 14,216 12,787 22,448
------ ------ ------
Total revenues 15,354 17,626 24,797
Interest and other expenses 9,046 9,428 12,755
------ ------ ------
Pretax earnings $ 6,308 $ 8,198 $ 12,042
------ ------ ------
Interest and other income includes $1.3 million for 1996 related to the
redemption of certain securities. Pretax earnings for 1996 were lower than
1995 due to a decrease in the gains from the sale of mortgage-backed
securities. Pretax earnings for 1995 decreased compared with 1994 due to
decreases in the net interest earned on mortgage-backed securities and notes
receivable. Partially offsetting the lower net interest earned in 1995 were
higher gains from sales of mortgage-backed securities.
Significant data from investment operations are as follows:
1996 1995 1994
---- ---- ----
Net interest earned
(in thousands) $ 4,744 $ 4,433 $12,989
Average balance outstanding
(in millions) $ 123 $ 122 $ 205
Net interest spread 3.8% 3.6% 6.3%
The Company earns a net interest spread on the investment portfolio, which
represents the difference between the interest rates on the mortgage-backed
securities and notes receivable and the related borrowing rates. A small
increase in the average investment portfolio balance outstanding combined with
a higher net interest spread resulted in an increase in net interest earned
for 1996. The 1995 decrease in net interest earned was primarily due to a
decline in the average balance outstanding combined with a lower net interest
spread resulting from an increase in borrowing rates.
DISCONTINUED INSTITUTIONAL OPERATIONS
In the second quarter of 1995, the Company sold its institutional mortgage
securities administration business which included master servicing, securities
administration, investor information services, and tax calculation and
reporting. The prior period results for this business (formerly reported as
institutional financial services), as well as the $19.5 million net after-tax
gain on the sale of the business, have been reported as discontinued
operations in the accompanying consolidated statements of earnings. Revenues
from operations of the discontinued business were $11.4 million and $23.6
million for 1995 and 1994, respectively. Net after-tax earnings from
operations of the discontinued business were $3.3 million for 1995 and $6.0
million for 1994.
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. The Company believes that its current sources of cash are
sufficient to finance its requirements.
The homebuilding segment has provided for a significant portion of its
external financing requirements through the issuance of senior and senior
subordinated notes, which totaled $318 million as of December 31, 1996. Of
this amount, only $18 million matures in the next five years. During 1996,
the Company completed the issuance of $100 million of 10.5% senior notes due
2006. The Company used the net proceeds of the offering to repay amounts
outstanding under its revolving credit facility and certain senior notes.
Senior notes amounting to $35 million matured and were paid off in 1996, and
$10 million in senior notes matured and were paid off in January 1997.
The homebuilding segment also meets its borrowing needs through utilization of
an unsecured revolving credit facility which is primarily used to finance
increases in its homebuilding inventory. As of January 1997, this facility
provides for total borrowings of up to $300 million. As of December 31, 1996,
the outstanding borrowings under this facility totaled $34.0 million, compared
with $137.0 million as of December 31, 1995. In addition, the Company had
letters of credit outstanding under this facility totaling $18.3 million and
$22.2 million at December 31, 1996 and 1995, respectively. To finance land
purchases, the Company also has additional letter of credit facilities
totaling $25 million and may also use seller-financed, non-recourse secured
notes. At December 31, 1996 and 1995, amounts outstanding under these letter
of credit facilities totaled $17.6 million and $9.3 million, respectively, and
non-recourse secured notes outstanding amounted to $1.5 million and $4.5
million, respectively. Total homebuilding debt outstanding was reduced by
$42.3 million during 1996 to $354.3 million as of December 31, 1996.
Housing inventories increased to $574.6 million as of December 31, 1996, from
$537.9 million as of the end of 1995. The increase is primarily due to a
higher investment in land under development and improved lots which reflects
in part the Company's entry into new markets.
The financial services segment uses cash generated from operations and
borrowing arrangements to finance its operations. In June 1996, the Company
extended the maturity of its bank facility to May 1998. The bank facility
provides up to $325 million for mortgage warehouse funding and $40 million for
working capital advances. Other borrowing arrangements as of year-end 1996
included repurchase agreement facilities aggregating $625 million, a $100
million revolving 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 December 31, 1996 and 1995, the
combined borrowings under these agreements were $325.7 million and $367.5
million, respectively.
Mortgage loans, notes receivable and mortgage-backed securities held by the
limited-purpose subsidiaries are pledged as collateral for the issued 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, notes receivable and mortgage-backed securities.
The Ryland Group, Inc. has not guaranteed the debt of the financial services
segment or the limited-purpose subsidiaries.
Note: Certain statements in this Annual Report may be "forward-looking
statements" within the meaning of the Private Securities Litigation Act of
1995. Such statements involve known and unknown risks, uncertainties and
other factors, including, changes in economic conditions and interest rates,
increases in raw material and labor costs, and general competitive factors
that may cause actual results to differ materially.
The Ryland Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(amounts in thousands, except share data)
- ------------------------------------------------------------------------------
Year ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------
Revenues:
Homebuilding:
Residential revenue $ 1,456,634 $ 1,456,767 $ 1,439,292
Other revenue 16,641 1,407 3,920
----------------------------------------
Total homebuilding revenue 1,473,275 1,458,174 1,443,212
Financial services 79,524 89,611 123,631
Limited-purpose subsidiaries 27,387 37,267 52,293
----------------------------------------
Total revenues 1,580,186 1,585,052 1,619,136
----------------------------------------
Expenses:
Homebuilding:
Cost of sales 1,276,877 1,279,746 1,261,821
Selling, general and
administrative 146,285 151,087 142,254
Interest 27,517 29,807 28,209
Impairment of inventories
and joint venture investments 0 45,000 0
----------------------------------------
Total homebuilding expenses 1,450,679 1,505,640 1,432,284
Financial services:
General and administrative 44,723 47,991 63,411
Interest 18,954 23,750 26,694
----------------------------------------
Total financial services expenses 63,677 71,741 90,105
Limited-purpose subsidiaries
expenses 27,387 37,215 52,197
Corporate expenses 12,046 12,913 17,187
----------------------------------------
Total expenses 1,553,789 1,627,509 1,591,773
----------------------------------------
Earnings (loss) from continuing
operations before taxes 26,397 (42,457) 27,363
Tax expense (benefit) 10,558 (16,983) 10,946
----------------------------------------
Net earnings (loss) from continuing
operations 15,839 (25,474) 16,417
Discontinued operations:
Earnings from discontinued
operations (net of taxes in 1995
- $2,212, 1994 - $3,982) 0 3,318 5,974
Gain on sale of discontinued operations
(net of taxes - $13,025) 0 19,538 0
----------------------------------------
Net earnings (loss) before cumulative
effect of a change in accounting
principle 15,839 (2,618) 22,391
Cumulative effect of a change in
accounting principle
(net of taxes - $1,384) 0 0 2,076
----------------------------------------
Net earnings (loss) $ 15,839 $ (2,618) $ 24,467
----------------------------------------
Preferred dividends $ 1,974 $ 2,193 $ 2,441
Net earnings (loss) applicable
to common stockholders $ 13,865 $ (4,811) $ 22,026
Net earnings (loss) per common share:
Primary:
Net earnings (loss) from continuing
operations $ 0.87 $ (1.78) $ 0.90
Discontinued operations 0.00 1.47 0.39
----------------------------------------
Net earnings (loss) before
cumulative effect of a change
in accounting principle 0.87 (0.31) 1.29
Cumulative effect of a change in
accounting principle 0.00 0.00 0.13
----------------------------------------
Net earnings (loss) per common share $ 0.87 $ (0.31) $ 1.42
Fully Diluted:
Net earnings (loss) from continuing
operations $ 0.87 $ (1.78) $ 0.92
Discontinued operations 0.00 1.47 0.36
----------------------------------------
Net earnings (loss) before cumulative
effect of a change in accounting
principle 0.87 (0.31) 1.28
Cumulative effect of a change
in accounting principle 0.00 0.00 0.12
----------------------------------------
Net earnings (loss) per common share $ 0.87 $ (0.31) $ 1.40
Average common shares outstanding:
Primary 15,929,000 15,585,000 15,561,000
Fully diluted 15,929,000 15,585,000 16,676,000
- ------------------------------------------------------------------------------
See notes to consolidated financial statements.
The Ryland Group, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
- ----------------------------------------------------------------------
DECEMBER 31, 1996 1995
- ----------------------------------------------------------------------
ASSETS
HOMEBUILDING:
Cash and cash equivalents $ 27,852 $ 54,518
Housing inventories:
Homes under construction 336,782 332,272
Land under development
and improved lots 237,808 205,646
---------------------------------
Total inventories 574,590 537,918
Property, plant and equipment 31,560 34,662
Purchase price in excess of
net assets acquired 20,543 21,575
Other assets 40,739 47,903
---------------------------------
695,284 696,576
---------------------------------
FINANCIAL SERVICES:
Cash and cash equivalents 856 1,474
Mortgage loans held
for sale 180,149 285,001
Mortgage-backed securities
and notes receivable 143,508 112,544
Mortgage servicing rights 9,903 7,814
Other assets 48,015 42,586
---------------------------------
382,431 449,419
---------------------------------
OTHER ASSETS:
Collateral for bonds payable
of limited-purpose
subsidiaries 214,443 375,146
Net deferred taxes 31,806 41,259
Other 14,560 18,389
-----------------------------------
TOTAL ASSETS $ 1,338,524 $ 1,580,789
===================================
See notes to consolidated financial statements.
The Ryland Group, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
- -----------------------------------------------------------------------
DECEMBER 31, 1996 1995
- -----------------------------------------------------------------------
LIABILITIES
HOMEBUILDING:
Accounts payable and
other liabilities $ 84,651 $ 78,853
Long-term debt 354,267 396,607
---------------------------------
438,918 475,460
---------------------------------
FINANCIAL SERVICES:
Accounts payable and
other liabilities 18,754 27,219
Short-term notes payable 325,650 367,469
---------------------------------
344,404 394,688
---------------------------------
OTHER LIABILITIES:
Bonds payable of limited-
purpose subsidiaries 206,891 364,672
Other 37,862 44,845
--------------------------------
TOTAL LIABILITIES 1,028,075 1,279,665
=================================
STOCKHOLDERS' EQUITY
Convertible preferred stock,
$1 par value:
Authorized-1,400,000 shares
Issued-861,741 shares
(943,097 for 1995) 862 943
Common stock, $1 par value
Authorized-78,600,000 shares
Issued-15,852,729 shares
(15,681,891 for 1995) 15,853 15,682
Paid-in capital 116,652 115,611
Retained earnings 184,678 179,937
Net unrealized gain on
mortgage-backed securities 2,758 2,550
Due from RSOP Trust (10,354) (13,599)
-------------------------------
TOTAL STOCKHOLDERS' EQUITY 310,449 301,124
================================
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,338,524 $ 1,580,789
================================
See notes to consolidated financial statements.
The Ryland Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(amounts in thousands, except share data)
- ---------------------------------------------------------------------------
Preferred Common Paid-In Retained
Stock Stock Capital Earnings
- ---------------------------------------------------------------------------
Balance at January 1, 1994 $ 1,154 $15,343 $116,386 $180,351
Adjustment to beginning
balance for change in
accounting principle,
net of taxes of $5,063
Net earnings 24,467
Preferred stock
dividends (per share $2.21) (2,441)
Common stock dividends
(per share $0.60) (9,262)
Conversion of preferred
stock (81) 81 (814)
Reclassification of
preferred paid-in
capital and
proportionate amount
of RSOP receivable (470)
RSOP debt repayments
Change in net unrealized gain on
mortgage-backed securities,
net of taxes of $3,888
Employee stock plans
(51,869 shares) 51 761 520
---------------------------------------------------
Balance at
December 31, 1994 1,073 15,475 115,863 193,635
---------------------------------------------------
Net loss (2,618)
Preferred stock
dividends (per share $2.21) (2,193)
Common stock dividends
(per share $0.60) (9,358)
Conversion of preferred
stock (130) 130 (1,387)
Reclassification of
preferred paid-in
capital and
proportionate amount
of RSOP receivable 151
RSOP debt repayments
Change in net unrealized
gain on mortgage
-backed securities,
net of taxes of $525
Employee stock plans
(77,181 shares) 77 984 471
----------------------------------------------
Balance at
December 31, 1995 943 15,682 115,611 179,937
---------------------------------------------
Net earnings 15,839
Preferred stock
dividends (per share $2.21) (1,974)
Common stock dividends
(per share $0.60) (9,475)
Conversion of preferred
stock (81) 81 (961)
Reclassification of
preferred paid-in
capital and
proportionate amount
of RSOP receivable 828
RSOP debt repayments
Change in net unrealized
gain on mortgage
-backed securities,
net of taxes of $139
Employee stock plans
(89,482 shares) 90 1,174 351
--------------------------------------------
Balance at
December 31, 1996 $ 862 $15,853 $116,652 $184,678
==============================================
See notes to consolidated financial statements.
The Ryland Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(amounts in thousands, except share data)
- ------------------------------------------------------------------------------
Net Unrealized Total
Gain on Mortgag- Due from Stockholders'
Backed Securities RSOP Trust Equity
- ----------------------------------------------------------------------------
Balance at January 1, 1994 $ 0 $(19,987) $293,247
Adjustment to beginning
balance for change in
accounting principle,
net of taxes of $5,063 7,594 7,594
Net earnings 24,467
Preferred stock
dividends (per share $2.21) (2,441)
Common stock dividends
(per share $0.60) (9,262)
Conversion of preferred
stock (814)
Reclassification of
preferred paid-in
capital and
proportionate amount
of RSOP receivable (584) (1,054)
RSOP debt repayments 4,884 4,884
Change in net unrealized gain on
mortgage-backed securities,
net of taxes of $3,888 (5,831) (5,831)
Employee stock plans
(51,869 shares) 1,332
---------------------------------------------------
Balance at
December 31, 1994 1,763 (15,687) 312,122
---------------------------------------------------
Net loss (2,618)
Preferred stock dividends (per share $2.21) (2,193)
Common stock dividends
(per share $0.60) (9,358)
Conversion of preferred
stock (1,387)
Reclassification of
preferred paid-in
capital and
proportionate amount
of RSOP receivable 251 402
RSOP debt repayments 1,837 1,837
Change in net unrealized
gain on mortgage
-backed securities,
net of taxes of $525 787 787
Employee stock plans
(77,181 shares) 1,532
----------------------------------------------
Balance at
December 31, 1995 2,550 (13,599) 301,124
---------------------------------------------
Net earnings 15,839
Preferred stock
dividends (per share $2.21) (1,974)
Common stock dividends
(per share $0.60) (9,475)
Conversion of preferred
stock (961)
Reclassification of
preferred paid-in
capital and
proportionate amount
of RSOP receivable (1,759) (931)
RSOP debt repayments 5,004 5,004
Change in net unrealized
gain on mortgage
-backed securities,
net of taxes of $139 208 208
Employee stock plans
(89,482 shares) 1,615
--------------------------------------------
Balance at
December 31, 1996 $ 2,758 $(10,354) $310,449
==============================================
See notes to consolidated financial statements.
The Ryland Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
- -----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996 1995 1994
- -----------------------------------------------------------------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net earnings (loss) $ 15,839 $ (2,618) $ 24,467
Adjustments to reconcile
net earnings (loss)
to net cash provided by
(used for) operating
activities:
Depreciation and
amortization 31,373 34,512 25,640
Cumulative effect of a
change in accounting
principle 0 0 (3,460)
Gain on sale of mortgage-
backed securities-available-
for-sale (1,138) (4,772) (2,349)
Gain on sale of discontinued
operations 0 (32,563) 0
Increase (decrease) in
inventories (36,672) 62,195 (105,267)
Net change in other assets,
payables and other
liabilities (3,311) (16,953) 6,387
Equity in (earnings) loss
of/distributions from
unconsolidated joint
ventures 1,080 8,973 11,319
Decrease (increase) in
mortgage loans held for
sale 104,852 (70,229) 320,907
-------------------------------------
Net cash provided by (used for)
operating activities 112,023 (21,455) 277,644
--------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net additions to property,
plant and equipment (19,500) (30,152) (19,019)
Proceeds from sale of
discontinued operations 0 47,000 0
Principal reduction of
mortgage collateral 64,230 56,257 152,805
Principal reduction of
mortgage-backed
securities----available-
for-sale 20,362 5,264 52,161
Purchases of mortgage-backed
securities----available-
for-sale (8,572) 0 0
Sales of mortgage-backed
securities----available-
for-sale 21,937 68,539 33,066
Principal reduction of
mortgage-backed
securities----held-to-
maturity 19,818 13,612 68,247
Decrease in funds held
by trustee 17,133 5,718 79,530
Other investing activities,
net (2,884) (470) 1,200
--------------------------------------
Net cash provided by investing
activities 112,524 165,768 367,990
--------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash proceeds of
long-term debt 103,145 14,747 55,074
Reduction of long-term
debt (145,485) (26,884) (27,370)
Decrease in short-term
notes payable (41,819) (10,160) (339,304)
Bond principal payments (159,665) (83,279) (348,047)
Common and preferred
stock dividends (11,449) (11,551) (11,703)
Other financing
activities, net 3,442 1,980 6,052
---------------------------------------
Net cash used for
financing activities (251,831) (115,147) (665,298)
--------------------------------------
Net (decrease) increase in cash
and cash equivalents (27,284) 29,166 (19,664)
Cash and cash
equivalents at
beginning of year 55,992 26,826 46,490
-------------------------------------
CASH AND CASH EQUIVALENTS AT
AT END OF YEAR $ 28,708 $ 55,992 $ 26,826
-------------------------------------
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid for interest
(net of capitalized interest) $ 77,612 $ 86,650 $ 105,639
Cash (received) paid for income
taxes (net of refunds
for 1996 and 1995) $ ( 3,230) $ 17,026 $ 26,555
See notes to consolidated financial statements.
The Ryland Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data, in all notes unless otherwise noted)
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Organization
The Ryland Group, Inc. is a leading national homebuilder and mortgage-related
financial services firm. The Company builds homes in 24 divisions in 20
states and is one of the largest single-family on-site homebuilders in the
United States. The Company's homebuilding segment specializes in the sale and
construction of single-family attached and detached housing. The financial
services segment provides mortgage-related products and services for retail
customers, including loan origination, loan servicing and title and escrow
services, and also conducts investment activities.
Basis of Presentation
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 amounts in the
consolidated statements of prior years have been reclassified to conform to
the 1996 presentation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Per Share Data
Primary net earnings (loss) per common share is computed by dividing net
earnings (loss), 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. Common equivalent shares were
not dilutive for the year ended December 31, 1995.
Fully diluted net earnings (loss) 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 (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 effect of the RSOP Trust was not dilutive
for the years ended December 31, 1996 and 1995.
Income Taxes
The Company files a consolidated federal income tax return. Certain items of
income and expense are included in one period for financial reporting purposes
and another for income tax purposes. Deferred income taxes are provided in
recognition of these differences. Deferred tax assets and liabilities are
determined based on the enacted tax rates and are subsequently adjusted for
changes in these rates. A change in the deferred tax assets or liabilities
results in a charge or credit to deferred tax expense.
Property, Plant and Equipment
Property, plant and equipment, which includes model home furnishings, are
carried at cost, less accumulated depreciation and amortization. Depreciation
is provided for, principally, by the straight-line method over the estimated
useful lives of the assets. Model home furnishings are amortized over the
life of the community as homes are closed.
Homebuilding Revenues
Homebuilding revenues are recognized when home sales are completed and title
passes to the customer at closing.
Service Liabilities
Service and warranty costs are estimated and accrued for at the time a home
closes.
Housing Inventories
Housing inventories consist principally of homes under construction and land
under development and improved lots. In 1995, the Company adopted Statement
of Financial Accounting Standards No. 121 (FASB 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
Under FASB 121, inventories to be held and used are stated at cost, unless a
subdivision is determined to be impaired, in which case the impaired
inventories are written down to fair value. Writedowns of impaired
inventories to fair value are recorded as adjustments to the cost basis of the
respective inventory.
Inventories to be disposed of are stated at the lower of cost or fair value
less cost to sell and are reported net of valuation reserves. Valuation
reserves related to inventories to be disposed of amounted to $3.1 million at
December 31, 1996, and $8.3 million at December 31, 1995. The carrying value
of the related inventories amounted to $8.0 million and $13.0 million at
December 31, 1996 and 1995, respectively.
Costs of inventory include direct costs of land, material acquisition, home
construction and related direct overhead expenses. Real estate taxes,
insurance and interest are capitalized during the land development stage. The
costs of acquiring and developing land and constructing certain related
amenities are allocated to the parcels to which these costs relate.
The following table is a summary of capitalized interest:
1996 1995
---- ----
Capitalized interest as of January 1, $ 27,649 $ 22,243
Interest capitalized 16,975 17,543
Interest amortized (17,035) (12,137)
------- -------
Capitalized interest as of December 31, $ 27,589 $ 27,649
------- -------
Purchase Price in Excess of Net Assets Acquired
Cost in excess of net assets of acquired businesses (goodwill) is being
amortized on a straight-line basis over 30 years. On a periodic basis, the
Company evaluates the businesses to which goodwill relates in order to insure
that the carrying value of goodwill has not been impaired.
Mortgage Loans Held For Sale
Mortgage loans held for sale are reported net of discounts and are valued at
the lower of cost or market determined on an aggregate basis. Any gain or
loss on the sale of the loans is recognized at the time of the sale.
Mortgage-Backed Securities
The Company classifies its mortgage-backed securities into three categories:
held-to-maturity, available-for-sale and trading. Management determines the
appropriate classification of investment securities at the time of purchase
and reevaluates such designations as of each balance sheet date.
Investment securities are classified as held-to-maturity when the Company has
the positive intent and ability to hold the securities to maturity.
Securities classified as held-to-aturity are stated at amortized cost. Those
securities which are held-to-maturity are currently held in a limited-purpose
subsidiary and are collateral for bonds payable whose indentures prohibit
liquidation of the collateral unless the corresponding bonds are redeemed.
Securities classified as available-for-sale are measured at fair value with
the unrealized gains and losses, net of tax, reflected as a component of
stockholders' equity. Securities classified as trading are measured at fair
value with gains and losses, both realized and unrealized, recognized in the
statement of earnings.
Loan Origination Fees, Costs and Mortgage Discounts
Loan origination fees, net of the related direct origination costs, and loan
discount points, are deferred as an adjustment to the carrying value of the
related mortgage loans held for sale and are recognized into income upon the
sale of the mortgage loans.
Discounts on mortgage collateral for the bonds of the limited-purpose
subsidiaries primarily represent loan origination discount points and purchase
price discounts. These discounts are deferred as an adjustment to the
recorded book value of the related mortgage loans. They are amortized into
interest income over their respective lives using the interest method, which
is adjusted for the effect of prepayments.
Hedging Contracts
The Company enters into forward delivery contracts, options on forward
delivery contracts, options on futures contracts and futures contracts,
(collectively referred to as hedging contracts), as an end-user, for the
purpose of minimizing its exposure to movements in interest rates on mortgage
loan commitments and mortgage loans held for sale. These hedging contracts
primarily represent commitments or options to purchase or sell mortgages or
securities generally within 90 days and at a specified price or yield.
Forward delivery contracts and futures are commitments only and, as such, are
not recorded on the Company's balance sheet or statement of earnings. Option
premiums are deferred when paid and recognized as an adjustment to gains on
sales of mortgages over the lives of the options on a straight-line basis.
Changes in the fair value of hedging contracts are deferred and included in
mortgage loans held for sale. Changes in fair value are recognized in income
as an adjustment to gains on sales of mortgages when the loans and securities
are sold.
Deferred Financing Costs
Financing costs incurred in connection with the issuance of bonds by the
limited-purpose subsidiaries are capitalized and amortized over the respective
lives of the bonds using the interest method.
Mortgage Servicing Rights
Retained mortgage servicing rights on originated loans are capitalized by
allocating the total cost of the mortgage loans between the mortgage servicing
rights and the loans based on their relative fair values. Capitalized
servicing rights, which include purchased servicing rights, are amortized in
proportion to and over the period of estimated servicing revenues.
New Accounting Pronouncements
FASB 123
Statement of Financial Accounting Standards No. 123 (FASB 123), "Accounting
for Stock-Based Compensation," encourages, but does not require, companies to
record compensation cost for stock-based employee compensation plans at fair
value. The Company has adopted the disclosure-only provisions of FASB 123 and
has chosen to continue to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's stock at the date of the
grant over the amount an employee must pay to acquire the stock. Refer to
Note N for additional information.
FASB 121
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, (FASB 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
The Company adopted this new standard for its inventories, joint venture
investments and other long-lived assets in the fourth quarter of 1995. In
accordance with FASB 121, prior period financial statements were not restated
to reflect the change in accounting principle.
FASB 121 provides that when events or changes in circumstances indicate that
the carrying amount of assets might not be recoverable, companies should
evaluate the need for an impairment writedown. In the fourth quarter of 1995,
in response to competitive market pressures in California, the Company
determined that some product repositioning, increased homebuyer incentives and
reduced selling prices would be necessary in certain of its California
subdivisions. The land inventory in most of these subdivisions was acquired
in 1988 and 1989 and had a cost basis substantially in excess of current
market values. Accordingly, the Company evaluated the affected California
subdivisions and determined that certain subdivision inventories were
impaired. Under FASB 121, a writedown of $31 million was required to state
the impaired inventories at their fair value. Fair value was based upon an
evaluation of comparable market prices, discounted cash flow analysis and
expected returns for comparable properties.
In addition, the Company decided in the fourth quarter of 1995 to dispose of
certain joint venture investments and certain other subdivision inventories
because the Company believed that it could achieve higher returns on
alternative uses of its capital. As a result, the Company recorded a reserve
of $14 million in the fourth quarter of 1995 to reduce the carrying value of
these assets to their fair value less cost to sell. Of the total reserve, $7
million pertained to the planned disposal of joint venture investments and the
remaining $7 million primarily pertained to the planned disposal of certain
subdivision lots.
FASB 122 and 125
In May 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 122 (FASB 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 adoption of FASB 122 resulted in a
favorable after-tax impact of $.7 million for the year ended December 31,
1995. In accordance with FASB 122, prior period financial statements were not
restated.
The book value of the capitalized mortgage-servicing rights at December 31,
1996 and 1995, was $9.9 million and $7.8 million, respectively, and the
aggregate fair value totaled $10.9 million and $9.5 million, respectively.
Comparable market values and the present value of future cash flows were used
to estimate fair value. For purposes of measuring impairment, risk
characteristics including product type, investor type and interest rates were
used to stratify the post-implementation originated mortgage-servicing rights.
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125 (FASB 125), "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities." The
Company is required to adopt FASB 125 on January 1, 1997; however, the Company
does not anticipate the adoption will have a significant impact on its 1997
financial statements.
FASB 115
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115 (FASB 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 FASB 115 as of January 1, 1994, increased
net income by $2.1 million (net of $1.4 million in deferred income taxes).
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.
In November 1995, the Financial Accounting Standards Board issued Special
Report No. 155-B, "A Guide to Implementation of Statement 115 on Accounting
for Certain Investments in Debt and Equity Securities," as an aid in
understanding and implementing FASB 115. The effect of adopting this
implementation guidance as of December 31, 1995, resulted in the
reclassification of $74,184 of mortgage-backed securities from the held-to-
maturity classification to the available-for-sale classification. The related
increase in net unrealized gains recorded in stockholders' equity at December
31, 1995, totaled $2,185, net of deferred taxes of $1,456. Restatement of
prior periods to reflect the effects of initially adopting this implementation
guidance was not permitted.
NOTE B: SEGMENT INFORMATION
- ---------------------------
Segment information in the following table is presented on the basis of
continuing operations and excludes amounts related to the institutional
mortgage securities administration business, which was sold in 1995 and is
reported as discontinued operations. For additional information, refer to
Note C: Discontinued Operations. In addition, amounts related to the limited-
purpose subsidiaries are combined with corporate expenses and corporate assets
in the following table as "Other."
Segment Information
1996 1995 1994
---- ---- ----
Revenues:
Homebuilding $ 1,473,275 $ 1,458,174 $1,443,212
Financial services 79,524 89,611 123,631
Other (limited-purpose subsidiaries) 27,387 37,267 52,293
----------- ----------- ----------
Total $ 1,580,186 $ 1,585,052 $1,619,136
----------- ----------- ----------
Pretax Earnings (Loss):
Homebuilding $ 22,596 $ (47,466) $ 10,928
Financial services 15,847 17,870 33,526
Corporate and other (12,046) (12,861) (17,091)
----------- ----------- ----------
Total $ 26,397 $ (42,457) $ 27,363
----------- ----------- ----------
Depreciation and Amortization:
Homebuilding $ 25,762 $ 28,410 $ 17,911
Financial services 3,296 4,846 4,250
Corporate and other 2,315 1,256 3,479
----------- ----------- ----------
Total $ 31,373 $ 34,512 $ 25,640
----------- ----------- ----------
Identifiable Assets:
Homebuilding $ 695,284 $ 696,576 $ 740,246
Financial services 382,431 449,419 455,020
Corporate and other 260,809 434,794 509,222
----------- ----------- ----------
Total $ 1,338,524 $ 1,580,789 $ 1,704,488
----------- ----------- ----------
NOTE C: DISCONTINUED OPERATIONS
- --------------------------------
On June 30, 1995, pursuant to an Asset Purchase Agreement dated April 10,
1995, the Company completed the sale of its institutional mortgage securities
administration business for a purchase price of $47 million in cash. The
Company's institutional mortgage securities administration business included
master servicing, securities administration, investor information services,
and tax calculation and reporting. The results for this business (formerly
reported as institutional financial services), as well as the net gain on the
sale of the business of $19.5 million (net of taxes of $13.0 million), have
been reported as discontinued operations in the accompanying consolidated
statements of earnings.
There were no operating results from the discontinued business for the second
half of 1995 as the sale occurred in the second quarter. Revenues from
operations of the discontinued business were $11.4 million and $23.6 million
for 1995 and 1994, respectively. Net earnings from operations of the
discontinued business were $3.3 million (net of taxes of $2.2 million) for
1995 and $6.0 million (net of taxes of $4.0 million) for 1994.
NOTE D: INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED JOINT VENTURES
-----------------------------------------------------------
The Company participates in homebuilding joint ventures primarily in its Mid-
Atlantic and West regions. Summarized financial information for all joint
venture entities accounted for under the equity method is as follows:
STATEMENT OF EARNINGS
Year ended December 31, 1996 1995 1994
---- ---- ----
Revenues $ 1,122 $ 23,045 $ 38,900
Cost of sales 4,322 21,287 36,718
Expenses 545 894 2,544
---------------------------------------
Pretax earnings (loss) $ (3,745) $ 864 $ (362)
---------------------------------------
The Company's share of
pretax earnings (loss),
net of reserve $ 120 $ (6,594) $ (37)
------------------------------------------------------------------
BALANCE SHEETS
December 31, 1996 1995
- ---------------------------------------------------------------
Assets:
Housing inventories $ 14,149 $ 15,521
Other assets 3,905 8,449
--------------------
Total assets $ 18,054 $ 23,970
--------------------
Liabilities and Partners' Equity:
Debt $ 11,055 $ 11,892
Other liabilities 4,891 7,261
Due to the Company 5,867 7,905
--------------------
Total liabilities 21,813 27,058
--------------------
The Company's equity (4,420) (5,378)
Other partners' equity 661 2,290
--------------------
Total equity (3,759) (3,088)
--------------------
Total liabilities and equity $ 18,054 $ 23,970
- -----------------------------------------------------------------
The Company generally has a 50 percent interest in these joint ventures and
records its interest in their operating results using the equity method. The
Company's share of operating results is not always in proportion to its
ownership interest. The Company's equity and pretax earnings (loss) reflected
in the above table included a charge to earnings of $7,000 in 1995 related to
joint venture investments in the Mid-Atlantic region.
The joint ventures primarily use non-recourse financing arrangements
collateralized by joint venture land and improvements. The Company had
guaranteed $1,200 and $1,400 of joint venture debt at December 31, 1996 and
1995, respectively.
NOTE E: ASSETS OF FINANCIAL SERVICES AND THE LIMITED-PURPOSE SUBSIDIARIES
- ---------------------------------------------------------------------------
FINANCIAL SERVICES
Mortgage loans held for sale consist of loans collateralized by first
mortgages or first deeds of trust on single-family attached or detached
houses. Mortgage-backed securities and notes receivable consist of GNMA
certificates, FNMA mortgage pass-through certificates, FHLMC participation
certificates, notes receivable secured by mortgage-backed securities and whole
loans.
Mortgage loans held for sale were reported net of mortgage discounts/
(premiums) of $871 and ($547) at December 31, 1996 and 1995, respectively.
Mortgage loans held for sale, mortgage-backed securities and notes receivable
are pledged as collateral for certain short-term notes payable (see Note F).
The financial services segment serviced 83,000 and 81,000 loans with principal
balances totaling $6.3 billion and $6.2 billion at December 31, 1996 and 1995,
respectively, including loans subserviced for others of $1.2 billion in 1996
and $.2 billion in 1995. As a mortgage servicer, the Company may incur risk
with respect to mortgages that are delinquent or in foreclosure to the extent
that losses are not covered by a mortgage insurer or guarantor. The Company
has no risk in the event of foreclosure for loans subserviced for others. The
reserve for potential losses on the servicing portfolio was $1,685 and $2,409,
at December 31, 1996 and 1995, respectively. These reserves are established
based on the current economic environment and historical experience for
foreclosures and delinquencies.
LIMITED-PURPOSE SUBSIDIARIES
Collateral for bonds payable consists of notes receivable secured by mortgage-
backed securities, fixed-rate mortgage loans and mortgage-backed securities
secured by first liens on single-family residential housing. Mortgage-backed
securities consist of GNMA certificates, FNMA mortgage pass-through
certificates and FHLMC participation certificates. All principal and interest
on the collateral is remitted directly to a trustee and is available for
payment on the bonds.
The components of collateral for bonds payable at December 31 are summarized
as follows:
1996 1995
- ------------------------------------------------------------------
Notes receivable $ 71,145 $ 158,352
Mortgage-backed securities 113,567 147,532
Mortgage loans 17,932 51,917
Funds held by trustee 15,669 26,231
Mortgage discounts (3,870) (8,886)
- -------------------------------------------------------------------
Total $214,443 $ 375,146
- ------------------------------------------------------------------
Cash reserves totaling $180 and $189 as of December 31, 1996 and 1995,
respectively, provide additional security for the bonds and will be available
for payment on the bonds in the event of certain circumstances as described in
the trust indentures.
Neither The Ryland Group, Inc. nor its homebuilding and financial services
subsidiaries have guaranteed or are otherwise obligated with respect to these
bond issues.
Mortgage-Backed Securities: Unrealized Gains and Losses
Mortgage-backed securities are held by the financial services segment and
reported in the balance sheet caption, "Mortgage-backed securities and notes
receivable," and are also held by the limited-purpose subsidiaries and
reported in the balance sheet caption, "Collateral for bonds payable."
The following is a consolidated summary of mortgage-backed securities
classified as available-for-sale and held-to-maturity as of:
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
- ----------------------------------------------------------------------------
December 31, 1996
Available-for-sale $ 64,018 $ 4,640 $ 43 $ 68,615
Held-to-maturity 90,886 5,925 17 96,794
- ----------------------------------------------------------------------------
Total $ 154,904 $ 10,565 $ 60 $ 165,409
- -----------------------------------------------------------------------------
December 31, 1995
Available-for-sale $ 79,133 $ 4,659 $ 409 $ 83,383
Held-to-maturity 110,007 8,754 0 118,761
- ----------------------------------------------------------------------------
Total $ 189,140 $ 13,413 $ 409 $ 202,144
- ----------------------------------------------------------------------------
NOTE F: FINANCIAL SERVICES SHORT-TERM NOTES PAYABLE
- -----------------------------------------------------
Financial services had outstanding borrowings at December 31 as follows:
1996 1995
- ---------------------------------------------------------------------
Mortgage warehouse and working
capital facility $ 188,046 $ 244,254
Repurchase agreements 82,157 82,653
Revolving credit agreement 55,447 34,260
Bond redemption financing agreement 0 6,302
- ----------------------------------------------------------------------
Total outstanding borrowings $ 325,650 $ 367,469
- ----------------------------------------------------------------------
During 1996, the Company renewed and extended until May 1998 its bank facility
which provides up to $325 million for mortgage warehouse funding and $40
million for working capital advances. Warehouse advances are secured by
mortgage loans held for sale, and working capital advances are secured by
certain loan servicing rights and loan servicing advances. Borrowings
outstanding under this bank facility totaling $188,046 at December 31, 1996,
were collateralized by mortgage loans held for sale with outstanding principal
balances of $161,735 and certain loan servicing advances of $28,112.
Borrowings outstanding under this bank facility totaling $244,254 at December
31, 1995, were collateralized by mortgage loans held for sale with outstanding
principal balances of $263,544. The effective interest rates on these
borrowings were 3.1 percent, 4.1 percent and 2.1 percent for 1996, 1995 and
1994, respectively. The agreement contains certain financial covenants, which
the Company met at December 31, 1996.
The repurchase agreements represent short-term borrowings. The collateral for
these borrowings consists of mortgage loans and mortgage-backed securities
issued by one of the Company's limited-purpose subsidiaries with outstanding
balances on December 31, 1996 and 1995, of $82,208 and $84,113, respectively.
The effective interest rates were 5.8 percent, 6.4 percent and 4.6 percent for
1996, 1995 and 1994, respectively.
The following table provides additional information relating to the mortgage
loans and mortgage-backed securities collateralizing the repurchase agreements
at December 31, 1996:
ASSETS
Carrying Accrued Fair Repurchase Interest
Maturity Value Interest Value Liability Rate
- ------------------------------------------------------------------
31 to 90 days $49,169 $410 $50,368 $48,052 6.0 %
Demand 33,039 271 35,292 34,105 5.6 %
-------------------------------------------------
Total $82,208 $681 $85,660 $82,157
-------------------------------------------------
In October 1996, the Company renewed and extended its $100 million credit
facility used to finance investment securities in the financial services
segment. The agreement was extended to May 1998, bears interest at market
rates and is collateralized by investment portfolio securities. Borrowings
outstanding under this facility totaling $55,447 and $34,260 were
collateralized by investment portfolio securities with principal balances of
$54,624 and $34,426 at December 31, 1996 and 1995, respectively.
The Company also has a secured $35 million credit agreement to be used for the
short-term financing of optional bond redemptions. The agreement has a one-
year term, is collateralized by the security being redeemed and bears interest
at market rates. No borrowings were outstanding under this agreement at
December 31, 1996. At December 31, 1995, outstanding borrowings were $6,302.
The effective interest rates for this credit agreement during 1996, 1995 and
1994 were 6.0 percent, 6.5 percent and 1.3 percent, respectively.
The weighted-average interest rates at the end of the period on all short-term
borrowings were 4.2 percent, 4.6 percent and 4.6 percent for 1996, 1995 and
1994, respectively. The weighted-average interest rates during the period on
all short-term borrowings were 4.3 percent, 4.8 percent and 3.5 percent for
1996, 1995 and 1994, respectively.
NOTE G: OFF BALANCE SHEET FINANCIAL INSTRUMENTS RELATED TO MORTGAGE LOAN
- ---------------------------------------------------------------------------
ORIGINATIONS
- ------------
The Company is a party to financial instruments in the normal course of
business. The financial services segment uses financial instruments to meet
the financing needs of its customers and reduce its exposure to fluctuations
in interest rates. These instruments involve, to varying degrees, elements of
credit and market risk not recognized in the consolidated balance sheets. The
Company has no derivative financial instruments that are held for trading
purposes.
The contract or notional amounts of these financial instruments as of December
31 are as follows:
1996 1995
---- ----
Commitments to originate mortgage loans $ 28,821 $ 64,393
Hedging contracts:
Forward delivery contracts $ 138,560 $ 157,850
Options on forward delivery contracts $ 0 $ 45,000
Options on futures contracts $ 5,000 $ 0
In addition, to protect against exposure to interest rate fluctuations on
adjustable-rate mortgage-loan commitments, at December 31, 1996 and 1995, the
Company contracted with various parties to deliver $30,004 and $115,015,
respectively, in adjustable and fixed-rate mortgage loans for a specified
price on a primarily best efforts basis.
Commitments to originate mortgage loans represent loan commitments with
customers at market rates up to 120 days before settlement. Loan commitments
have no carrying value on the balance sheet. These commitments expose the
Company to market risk as a result of increases in mortgage interest rates.
The amount of risk is limited to the difference between the contract price and
current market value, and is mitigated by fees collected from the customer and
by the Company's hedging activities. Loan commitments had interest rates
ranging from 6.8 percent to 9.3 percent as of December 31, 1996, and 6.3
percent to 11.0 percent as of December 31, 1995.
Hedging contracts are regularly entered into by the Company for the purpose of
mitigating its exposure to movements in interest rates on mortgage commitments
and mortgage loans held for sale. The selection of these hedging contracts is
based upon the Company's hedging policy, which establishes a risk tolerance
level. The major factors influencing the use of the various hedging contracts
include general market conditions, interest rate, types of mortgages
originated and the percentage of mortgage loan commitments expected to be
funded. The market risk assumed while holding the hedging contracts generally
mitigates the market risk associated with the mortgage loan commitments and
mortgage loans held for sale. Exposure to credit risk in the event of
nonperformance by the other parties to the hedging contracts would be limited
to the difference between the contract price and current market value of the
hedged item, which would be a small percentage of the outstanding commitments
and would be limited to those instances where the Company was in a net
unrealized gain position. The Company manages this credit risk by entering
into agreements with counterparties meeting the credit standards of the
Company and monitoring position limits. Net deferred hedging losses included
with mortgage loans held for sale on the Company's balance sheet at December
31, 1996 and 1995, amounted to $457 and $2,463, respectively.
NOTE H: FAIR VALUES OF FINANCIAL INSTRUMENTS
- -----------------------------------------------
The Company's financial instruments, both on and off the balance sheet, are
held for purposes other than trading. The fair values of these financial
instruments are based on quoted market prices, where available, or are
estimated using present value or other valuation techniques. Estimated fair
values are significantly affected by the assumptions used, including the
discount rate and estimates of cash flow. In that regard, the derived fair-
value estimates cannot be substantiated by comparison to independent markets
and, in many cases, could not be realized in immediate settlement of the
instrument.
The table below sets forth the carrying values and fair values of the
Company's financial instruments, except for those financial instruments noted
below for which the carrying values approximate fair values at the end of the
year. It excludes non-financial instruments and, accordingly, the aggregate
fair-value amounts presented do not represent the underlying value of the
Company.
1996 1995
- -----------------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
- -----------------------------------------------------------------------------
Homebuilding:
Liabilities
Secured notes payable $ 1,517 $ 1,517 $ 4,498 $ 4,498
Senior notes 118,000 123,110 53,000 55,490
Senior subordinated notes 200,000 202,500 200,000 201,500
Financial Services:
Assets
Mortgage loans held
for sale $ 180,149 $ 182,205 $ 285,001 $286,176
Mortgage-backed securities,
available-for-sale 47,290 47,290 47,911 47,911
Mortgage-backed securities,
trading 3,287 3,287 0 0
Notes receivable and whole loans 92,931 100,206 64,633 68,332
Off-balance sheet
financial instruments
Forward delivery contracts 0 381 0 (1,447)
Options on forward delivery contracts 0 0 0 0
Options on futures contracts 0 (29) 0 0
Commitments to originate
mortgage loans 0 (92) 0 296
Call right options 0 2,691 0 3,601
Other Assets:
Collateral for bonds payable
of the limited-purpose
subsidiaries $ 214,443 $ 227,067 $ 375,146 $395,760
Other Liabilities:
Bonds payable of the limited-
purpose subsidiaries $ 206,891 $ 226,727 $ 364,672 $394,175
The Company used the following methods and assumptions in estimating fair
values:
- - Cash and cash equivalents, bank credit agreement, loan servicing
receivables and short-term notes payable: The carrying amounts reported in
the balance sheet approximate fair values.
- - Secured notes payable: The fair values of the Company's secured notes
payable are estimated using discounted cash flow analyses, based on the
Company's current incremental borrowing rates for similar types of
borrowing arrangements.
- - Senior notes, senior subordinated notes, mortgage loans held for sale,
mortgage-backed securities, the various hedging contracts if settled on
December 31, 1996 and 1995, and mortgage loan commitments: The fair values
of these financial instruments are estimated based on quoted market prices
for similar financial instruments.
- - Call right options: In estimating the fair value, independent mortgage
prepayment forecasts were used to estimate mortgage collateral balances at
the dates when the call rights would be exercisable. Based on December 31,
1996 and 1995 collateral prices the implied net gains that could be
realized upon exercise of the options and sale of the mortgage collateral
were estimated. These net gains were then discounted using a current long-
term market interest rate.
NOTE I: LIMITED-PURPOSE SUBSIDIARIES' BONDS PAYABLE
- -----------------------------------------------------
The Company's limited-purpose subsidiaries are no longer issuing mortgage-
backed securities and mortgage-participation securities. Previously, they
issued mortgage-backed bonds, and the Company retained residual interests in
some of these bonds. Payments are made on the bonds on a periodic basis as a
result of, and in amounts relating to, corresponding payments received on the
underlying mortgage collateral.
The following table sets forth information with respect to the limited-purpose
subsidiaries' bonds payable outstanding at December 31:
1996 1995
- --------------------------------------------------------------------
Bonds payable, net of
discounts: 1996-$ 4,779;
1995-$6,662 $ 206,891 $364,672
Range of interest rates 7.25%-12.625% 7.25%-12.625%
Stated maturities 2006-2019 2006-2019
- ------------------------------------------------------------------------
NOTE J: LONG-TERM DEBT
- ------------------------
Long-term debt consists of the following:
December 31, 1996 1995
- ----------------------------------------------------------
Bank credit agreement $ 34,000 $ 137,000
Senior subordinated notes 200,000 200,000
Senior notes 118,000 53,000
Other 2,267 6,607
-----------------------
354,267 396,607
Less current portion (10,255) (35,073)
-----------------------
$ 344,012 $ 361,534
- ------------------------------------------------------------
The Company has an unsecured credit agreement with a group of banks, which
matures in July 1998, with a total borrowing capacity of $300 million as of
January 1997. Borrowings under the agreement bear interest at variable short-
term rates. The effective interest rates for 1996, 1995 and 1994 were 7.1
percent, 8.0 percent and 6.6 percent, respectively.
The Company has $100,000 of 10.5% senior subordinated notes outstanding, due
July 15, 2002, with interest payable semi-annually, which may be redeemed at
the option of the Company, in whole or in part, at any time on or after July
15, 1997. The Company also has $100,000 of 9.625% senior subordinated notes,
due 2004, with interest payable semi-annually, which may be redeemed at the
option of the Company, in whole or in part, at any time on or after December
1, 2000. Senior subordinated notes are subordinated to all existing and
future senior debt of the Company.
On July 6, 1996, the Company completed the issuance of $100 million of 10.5%
senior notes due 2006, with interest payable semi-annually, which may be
redeemed at the option of the Company, in whole or in part, at any time on or
after July 1, 2001. At December 31, 1996, the Company also has $18,000 of
senior notes bearing a fixed rate of 10.5% which mature in the years 1997
through 2000. Senior notes amounting to $35 million matured and were paid off
in 1996, and $10 million in senior notes matured and were paid off in January
1997.
Maturities of long-term debt for each of the next five years are as follows:
- ---------------------------------------------------------------
1997 $ 10,255
1998 35,762
1999 250
2000 8,000
2001 --
- ---------------------------------------------------------------
The bank credit agreement, senior subordinated indenture agreements and senior
note agreements contain certain financial covenants. Under the loan
covenants, the Company has $15,068 of retained earnings available for
dividends at December 31, 1996. At December 31, 1996, the Company is in
compliance with its covenants.
NOTE K: INCOME TAXES
- ----------------------
The Company's expense (benefit) for income taxes relating to earnings (loss)
from continuing operations for the years ended December 31 is summarized as
follows:
1996 1995 1994
- ---------------------------------------------------------------------
Current:
Federal $ 954 $ (1,257) $ 5,671
State 203 (266) 1,203
-------------------------------
Total current 1,157 (1,523) 6,874
-------------------------------
Deferred:
Federal 7,756 (12,754) 3,359
State 1,645 (2,706) 713
-------------------------------
Total deferred 9,401 (15,460) 4,072
-------------------------------
Total expense (benefit) $ 10,558 $(16,983) $ 10,946
- ---------------------------------------------------------------------
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
A reconciliation between the total income tax expense (benefit) and the income
tax expense (benefit) computed by applying the statutory federal income tax
rate to earnings (loss) from continuing operations before income taxes is as
follows:
1996 1995 1994
- ---------------------------------------------------------------------
Computed income taxes at
statutory rate (35%) $ 9,239 $ (14,860) $ 9,577
Applicable state taxes 1,201 (1,932) 1,245
Goodwill amortization 408 408 408
RSOP dividend (431) (401) (401)
Other, net 141 (198) 117
-------------------------------------
Total actual income
tax expense (benefit) $ 10,558 $ (16,983) $ 10,946
- ----------------------------------------------------------------------
Significant components of the Company's deferred tax assets and liabilities as
of December 31 were as follows:
1996 1995
- ----------------------------------------------------------------------------
Deferred tax assets:
Inventory valuation provisions and
operational reserves $ 26,301 $ 37,278
Employee benefit plans 4,743 5,472
Capitalization of costs to inventory 7,763 5,809
Other 3,192 3,378
----------------------
Total deferred tax assets 41,999 51,937
-----------------------
Deferred tax liabilities:
Gross profit from sales reported
on the installment method (4,339) (5,091)
Preconstruction interest (1,853) (2,307)
Unrealized market gain (1,135) (1,354)
Other (2,866) (1,926)
------------------------
Total deferred tax liabilities (10,193) (10,678)
--------------------------
Net deferred tax asset $ 31,806 $ 41,259
- ------------------------------------------------------------------------------
The Company has determined that no valuation allowance for the deferred tax
asset is required primarily due to tax carrybacks currently available. The
Company had a current tax asset of $3,761 and $7,750 as of December 31, 1996
and 1995, respectively.
NOTE L: STOCKHOLDERS' EQUITY
- -----------------------------
Preferred Stock
On August 31, 1989, the Company sold 1,267,327 shares of non-transferable
convertible preferred stock, par value $1.00, to the RSOP Trust for $31.5625
per share, or an aggregate purchase price of approximately $40,000 (see Note
N).
Each share of preferred stock pays an annual cumulative dividend of $2.21.
During 1996, 1995 and 1994, the Company paid $1,974, $2,193 and $2,441,
respectively, in dividends on the preferred stock. Each share of preferred
stock is entitled to a number of votes equal to the shares into which it is
convertible, and the holders of the preferred stock generally vote together
with the common stockholders on all matters.
Under the RSOP Trust, at the option of the trustee, the Company may be
obligated to redeem the preferred stock to satisfy distribution obligations to
or investment elections of participants. For purposes of these redemptions,
the value of each share of preferred stock is determined monthly by an
independent appraiser, with a minimum guaranteed value of $25.25 per share.
The Company may issue common stock to satisfy this redemption obligation, with
any excess redemption price to be paid in cash. At December 31, 1996 and
1995, the maximum cash obligation for such redemptions was shown outside of
stockholders' equity as part of other liabilities. This obligation is
calculated assuming that all preferred shares outstanding were submitted for
redemption.
Based upon the appraised value of each share of preferred stock ($25.50 and
$25.50) and the market value of each share of common stock ($13.625 and
$14.00) at December 31, 1996 and 1995, respectively, and the application of a
proportionate amount of the note due from the RSOP Trust, the net amounts of
this obligation at December 31, 1996 and 1995 were $3,981 and $3,051,
respectively. During 1996 and 1995, 81,356 and 129,806 shares of preferred
stock, respectively, were converted into shares of common stock.
Common Share Purchase Rights
On October 18, 1996, the Company adopted a new shareholder rights plan. The
new plan replaced the original plan dated December 17, 1986, which was set to
expire on January 13, 1997. Under the new plan, the Company distributed one
common share purchase right for each share of common stock outstanding on
January 13, 1997. Each right entitles the holder to purchase one share of
common stock at an exercise price of $70. The rights become exercisable 10
business days after any party acquires or announces an offer to acquire 20
percent or more of the Company's common stock. The rights expire January 13,
2007, and are redeemable at $0.01 per right at any time before 10 business
days following the time that any party acquires 20 percent or more of the
Company's common stock.
In the event the Company enters into a merger or other business combination,
or if a substantial amount of its assets are sold after the time that the
rights become exercisable, the rights provide that the holder will receive,
upon exercise, shares of the common stock of the surviving or acquiring
company having a market value of twice the exercise price. Until the earlier
of the time that the rights become exercisable, are redeemed or expire, the
Company will issue one right with each new share of common stock issued.
NOTE M: COMMITMENTS AND CONTINGENCIES
- ---------------------------------------
Commitments
In the normal course of business, the Company acquires rights under option
agreements to purchase land for use in future homebuilding operations. As of
December 31, 1996, the Company had deposits and letters of credit outstanding
of $32,978 for options and land purchase contracts having a total purchase
price of $294,664.
Rent expense primarily relates to office facilities, model home furniture and
equipment. Total rent expense amounted to $10,191, $11,681 and $13,973 for
the years ended December 31, 1996, 1995 and 1994, respectively. Future
minimum rental commitments under non-cancelable leases with remaining terms in
excess of one year are as follows:
- ------------------------------------------------------------------------------
1997 $ 7,689
1998 6,400
1999 4,782
2000 3,967
2001 3,073
After 2001 2
-------
Total lease commitments $ 25,913
- -----------------------------------------------------------------------------
Contingencies
Contingent liabilities may arise from the obligations incurred in the ordinary
course of business, or from the usual obligations of on-site housing producers
for the completion of contracts. Some municipalities require the Company to
issue development bonds or maintain letters of credit to assure completion of
public facilities within a project. Total development bonds at December 31,
1996, were $117,420, and total letters of credit at December 31, 1996, were
$9,215.
In 1995, one current and two former officers of Ryland Mortgage Company (RMC)
were 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 $3.4 million under
three mortgage-servicing contracts with the RTC. In July 1996, the RTC (acting
through its successor, the FDIC) requested reimbursement from RMC of the
alleged overpayment, interest thereon and additional amounts relating to
mortgage-servicing contracts. The Company is investigating these matters and
at this time cannot predict how they will be resolved or whether the Company
or RMC will be targets of the grand jury investigation, parties to any civil
litigation or incur any liability.
The Company is also party to various legal proceedings incidental to its
businesses. Based on evaluation of these proceedings and discussions with
counsel, management believes that liabilities to the Company arising from
these proceedings will not have a material adverse effect on the financial
condition of the Company.
NOTE N: EMPLOYEE INCENTIVE AND STOCK PLANS
- --------------------------------------------
The Company's employee incentive and stock plans are as follows:
Retirement and Stock Ownership Plan
On August 16, 1989, the Company established an employee stock ownership plan,
known as the RSOP Trust. The RSOP Trust's purchase of shares of preferred
stock was financed by a loan to the RSOP Trust by the Company in an amount of
$40,000. The loan bears interest at the rate of 9.99% and is expected to be
repaid by the RSOP Trust through dividends received on the preferred stock and
Company contributions. The RSOP Trust incurred interest on this loan in 1996,
1995 and 1994 of $1,794, $2,229 and $2,637, respectively. Preferred shares
are collateral for the loan and are released to the RSOP Trust as debt
payments are made. As of December 31, 1996, 486,867 shares under the RSOP
Trust have been allocated to participants and 374,874 shares remain
unallocated.
There are two components within the RSOP: a 401(k) plan and a profit sharing
plan. All full-time employees with one year of service are eligible to
participate in the RSOP. Pursuant to Section 401(k) of the Internal Revenue
Code, the plan permits deferral of a portion of a participant's income into a
variety of investment options. Compensation expense reflects the Company's
matching contributions of the employee 401(k) contributions and any
discretionary profit sharing contribution. Total compensation expense
amounted to $5,870, $5,072 and $4,986 in 1996, 1995 and 1994, respectively.
Equity Incentive Plan and Other Related Plans
The Company's 1992 Equity Incentive Plan permits the Company to provide equity
incentives in the form of stock options, stock appreciation rights,
performance shares, restricted stock and other stock-based awards to
employees. Under the Company's 1992 Equity Incentive Plan, options are
granted to purchase shares at prices not less than the fair- market value of
the shares at the date of grant. The options are exercisable at various dates
over one- to 10-year periods. Stock options granted during 1996 generally
have a maximum term of 10 years and vest over 3 years. At the beginning of
each year, 2 1/2 percent of the number of common shares outstanding at the
beginning of the year are authorized for grants of options and other equity
instruments.
The Company uses the intrinsic value method to measure compensation expense
related to the award of stock options. Since stock option awards are granted
at prices no less than the fair-market value of the shares at the date of
grant, no compensation expense is recognized.
The Company has adopted the disclosure-only provisions of FASB 123.
Accordingly, no compensation expense has been recognized for the stock option
plans. Had compensation expense for the Company's stock option plan been
determined based on the fair value at the grant date for awards in 1996 and
1995 consistent with the provisions of FASB 123, the Company's net earnings
(loss) and earnings (loss) per share would have been reduced to the pro-forma
amounts indicated below:
1996 1995
---- ----
Net earnings (loss)- as reported $15,839 $(2,618)
Net earnings (loss)- pro forma $15,154 $(3,058)
Primary net earnings (loss) per share - as reported $ 0.87 $ (0.31)
Primary net earnings (loss) per share - pro forma $ 0.83 $ (0.34)
Fully diluted net earnings (loss) per share - as reported $ 0.87 $ (0.31)
Fully diluted net earnings (loss) per share - pro forma $ 0.83 $ (0.34)
The pro-forma effect on net income (loss) and net earnings (loss) per share
for 1996 and 1995 is not representative of the pro-forma effect on net income
and earnings per share in future years because it does not take into
consideration pro-forma compensation expense related to grants made prior to
1995.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995, respectively: a risk-free
interest rate of 5.6% and 7.6%; an expected volatility factor for the market
price of the Company's common stock of 34%; a dividend yield of 4.0%; and an
expected life of 6 years. The weighted-average fair value as of the grant
date for options granted in 1996 and 1995 was $4.07 and $4.55, respectively.
Pursuant to the Equity Incentive Plan, the Company has a long-term incentive
plan for officers and key employees. After each fiscal year, restricted
shares of the Company's common stock and cash are credited to the accounts of
the participants according to a prescribed formula. There was no compensation
expense relating to this plan for 1996. Compensation expense for this plan
for 1995 and 1994 amounted to $1,404 and $2,504, respectively.
In November 1993, the Company entered into a stock unit agreement with an
officer, pursuant to the Equity Incentive Plan. The Company granted the
officer 75,000 stock units. Each stock unit is payable in one share of the
Company's common stock. The units vest in increments of 15,000 units for five
years beginning November 1, 1994. In January 1997, the Company granted the
officer 45,000 additional stock units that vest and are payable in the amount
of 15,000 and 30,000 shares of common stock on November 1, 1999 and 2000,
respectively. The Company recognizes compensation expense related to these
agreements over the vesting period, valued at the market price of the
Company's common stock on the vesting date. For 1996, 1995 and 1994, the
Company recognized compensation expense of $198, $267 and $315, respectively,
related to these agreements.
Under the Company's Non-Employee Director Equity Plan, stock options are
granted to directors to purchase shares at prices not less than the fair
market value of the shares at the date of grant. A maximum of 100,000 shares
of common stock has been reserved for issuance under this plan.
The following is a summary of the transactions relating to all stock option
plans for each year ended December 31:
1996 1995 1994
- ------------------------------------------------------------------------------
Weighted-
Average
Exercise
Shares Price Shares Shares
------- --------- -------- -------
Options outstanding
beginning of year 1,545,700 $17.44 1,262,599 1,040,530
Granted 539,500 14.85 620,270 507,600
Exercised (4,950) 15.00 (47,600) (45,030)
Forfeited (211,362) 16.27 (289,569) (240,501)
Expired (85,150) 19.48 0 0
---------------------------------------------------------------------------
Options outstanding
end of year 1,783,738 16.70 1,545,700 1,262,599
Available for future grant 561,715 530,729 708,157
- -----------------------------------------------------------------------------
Total shares reserved 2,345,453 2,076,429 1,970,756
- -----------------------------------------------------------------------------
Options exercisable at
December 31 923,119 18.16 701,262 656,827
- -----------------------------------------------------------------------------
Prices related to
options exercised $10.94- $10.13-
during the year $15.00 $15.25 $20.75
- ------------------------------------------------------------------------------
Exercise prices related to options outstanding on December 31, 1996, ranged
from $13.50 to $26.00. The weighted-average remaining contractual life for
options outstanding on December 31, 1996, is approximately seven years.
The Ryland Group, Inc. and Subsidiaries
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND STOCKHOLDERS OF THE RYLAND GROUP, INC.
We have audited the accompanying consolidated balance sheets of The Ryland
Group, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Ryland
Group, Inc. and subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
As discussed in Note A to the financial statements, in the fourth quarter of
1995, the Company changed its method of accounting for impairment of long-
lived assets in accordance with the adoption of FASB No. 121 and, effective
January 1, 1994, the Company also changed its method of accounting for
investments in debt securities in accordance with the adoption of FASB No.
115.
/s/ Ernst & Young LLP
Baltimore, Maryland
January 31, 1997
The Ryland Group, Inc. and Subsidiaries
REPORT OF MANAGEMENT
Management of the Company is responsible for the integrity and accuracy of the
financial statements and all other annual report information. The financial
statements are prepared in conformity with generally accepted accounting
principles and include amounts based on management's judgments and estimates.
The accounting systems, which record, summarize and report financial
information, are supported by internal control systems, which are designed to
provide reasonable assurance, at an appropriate cost, that the assets are
safeguarded and that transactions are recorded in accordance with Company
policies and procedures. Proper selection, training and development of
personnel also contribute to the effectiveness of the internal control
systems. These systems are the responsibility of management and are regularly
tested by the Company's internal auditors. The external auditors also review
and test the effectiveness of these systems to the extent they deem necessary
to express an opinion on the consolidated financial statements.
The Audit Committee of the Board of Directors periodically meets with
management, the internal auditors and the external auditors to review
accounting, auditing and financial matters. Both the internal auditors and
the external auditors have unrestricted access to the Audit Committee.
/s/ Michael D. Mangan
- ------------------------
Michael D. Mangan
Executive Vice President
Chief Financial Officer
/s/ Stephen B. Cook
- ------------------------
Stephen B. Cook
Vice President
Corporate Controller and
Chief Accounting Officer
The Ryland Group, Inc. and Subsidiaries
QUARTERLY FINANCIAL DATA
------------------------
(amounts in thousands, except per share data) unaudited
- ------------------------------------------------------------------------------
1996
Quarter Ended Dec. 31 Sept. 30 June 30 March 31
- ------------------------------------------------------------------------------
Consolidated Results:
Revenues $ 436,041 $ 402,458 $ 414,254 $ 327,433
Earnings (loss) from
continuing operations
before taxes 8,325 7,462 9,045 1,565
Income tax expense
(benefit) 3,329 2,985 3,618 626
-----------------------------------------------
Net earnings (loss) from
continuing operations 4,996 4,477 5,427 939
Discontinued operations,
net of taxes (2) 0 0 0 0
-----------------------------------------------
Net earnings (loss) $ 4,996 $ 4,477 $ 5,427 $ 939
Net earnings (loss) per
common share (primary) $ 0.28 $ 0.25 $ 0.31 $ 0.03
Weighted average common
shares outstanding 15,950 15,935 15,955 15,924
- ------------------------------------------------------------------------------
(amounts in thousands, except per share data) unaudited
- ------------------------------------------------------------------------------
1995
Quarter Ended Dec. 31(1) Sept. 30 June 30 March 31
- ------------------------------------------------------------------------------
Consolidated Results:
Revenues $ 448,040 $ 402,587 $ 389,228 $ 345,197
Earnings (loss) from
continuing operations
before taxes (39,588) 1,130 (1,536) (2,463)
Income tax expense
(benefit) (15,835) 452 (614) (986)
-----------------------------------------------
Net earnings (loss) from
continuing operations (23,753) 678 (922) (1,477)
Discontinued operations,
net of taxes (2) 0 0 20,706 2,150
-----------------------------------------------
Net earnings (loss) $ (23,753) $ 678 $ 19,784 $ 673
Net earnings (loss) per
common share (primary) $ (1.55) $ 0.01 $ 1.22 $ 0.01
Weighted average common
shares outstanding 15,667 15,812 15,764 15,676
- ------------------------------------------------------------------------------
(1) Reflects a $27 million after-tax charge related to homebuilding
inventories and investments in unconsolidated joint ventures.
(2) The Company sold its institutional mortgage securities administration
business in the second quarter of 1995. The 1995 results include the second-
quarter gain on the sale and the results of operations for the first half of
1995.
COMMON STOCK PRICES AND DIVIDENDS
The Ryland Group, Inc. lists its common shares on the New York Stock Exchange,
trading under the symbol RYL. The table below presents the high and low
market prices and dividend information for the Company. The number of common
stockholders of record as of February 19, 1997, was 3,260 (See Note J for
dividend restrictions)
Dividends
Declared
1996 High Low Per Share
- ----------------------------------------------------------------------------
First quarter $ 16 3/8 $ 14 1/8 $ 0.15
Second quarter 16 7/8 13 5/8 0.15
Third quarter 15 3/8 13 1/2 0.15
Fourth quarter 15 1/4 11 1/4 0.15
Dividends
Declared
1995 High Low Per Share
- ----------------------------------------------------------------------------
First quarter $ 15 $ 13 3/8 $ 0.15
Second quarter 17 1/4 14 3/8 0.15
Third quarter 17 1/4 14 5/8 0.15
Fourth quarter 15 5/8 12 3/8 0.15
Exhibit 21 List of Subsidiaries of Registrant
Ryland Mortgage Company (an Ohio Corporation)
M.J. Brock & Sons, Inc. (a Delaware Corporation)
LPS Holdings Corporation (a Maryland Corporation)
Exhibit 23 Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of The Ryland Group, Inc., of our report dated January 31, 1997, included in
the 1996 Annual Report to the Shareholders of The Ryland Group, Inc.
Our audits also included the financial statement schedule of The Ryland Group,
Inc., listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
We also consent to the incorporation by reference in the Registration
Statements (Form S-3 No. 33-28692, Form S-8 No. 33-32431, Form S-3 No. 33-
48071, Form S-3 No. 33-50933, Form S-8 No. 33-56905, Form S-8 No. 33-56917,
Form S-3 No. 333-03791) of The Ryland Group, Inc., and in the related
Prospectuses of our report dated January 31, 1997, with respect to the
consolidated financial statements incorporated herein by reference, and our
report included in the preceding paragraph with respect to the financial
statement schedule included in this Annual Report (Form 10-K) of The Ryland
Group, Inc.
/s/Ernst & Young LLP
Baltimore, Maryland
March 17, 1997
Exhibit 24 - Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that the undersigned directors and officers of
The Ryland Group, Inc., a Maryland corporation, constitute and appoint R. Chad
Dreier and Michael D. Mangan and either of them, the true and lawful agents
and attorneys-in-fact of the undersigned with full power and authority in said
agents and attorneys-in-fact, and in either of them, to sign for the
undersigned in their respective names as directors and officers of The Ryland
Group, Inc., the Annual Report on Form 10-K of The Ryland Group, Inc., for the
fiscal year ended December 31, 1996, to be filed with the Securities and
Exchange Commission under the Securities Exchange Act of 1934. We hereby
confirm all acts taken by such agents and attorneys-in-fact, or either of
them, as herein authorized.
DATED: January 31, 1997
/s/ R. Chad Dreier
-------------------------------
R. Chad Dreier, Chairman of the
Board, President, and Chief
Executive Officer
(Principal Executive Officer)
/s/ James A. Flick, Jr.
--------------------------------
James A. Flick, Jr., Director
/s/ Robert J. Gaw
---------------------------------
Robert J. Gaw, Director
/s/ Leonard M. Harlan
---------------------------------
Leonard M. Harlan, Director
/s/ L.C. Heist
---------------------------------
L.C. Heist, Director
/s/ William L. Jews
---------------------------------
William L. Jews, Director
/s/ William G. Kagler
--------------------------------
William G. Kagler, Director
/s/ John H. Mullin, III
---------------------------------
John H. Mullin, III, Director
/s/ Charlotte St. Martin
---------------------------------
Charlotte St. Martin, Director
/s/ John O. Wilson
---------------------------------
John O. Wilson, Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE RYLAND GROUP, INC. FORM 10-K FOR THE PERIOD ENDED 12/31/96
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 28,708
<SECURITIES> 143,508
<RECEIVABLES> 180,149
<ALLOWANCES> 0
<INVENTORY> 574,590
<CURRENT-ASSETS> 0
<PP&E> 31,560
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,338,524
<CURRENT-LIABILITIES> 0
<BONDS> 532,541
0
862
<COMMON> 15,853
<OTHER-SE> 293,734
<TOTAL-LIABILITY-AND-EQUITY> 1,338,524
<SALES> 1,473,275
<TOTAL-REVENUES> 1,580,186
<CGS> 1,276,877
<TOTAL-COSTS> 1,468,189
<OTHER-EXPENSES> 12,046
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 73,554
<INCOME-PRETAX> 26,397
<INCOME-TAX> 10,558
<INCOME-CONTINUING> 15,839
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,839
<EPS-PRIMARY> 0.87
<EPS-DILUTED> 0.87
</TABLE>
