SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ) Filed by the Registrant /X/ Filed by a Party other than the Registrant / / Check the appropriate box: / / Preliminary Proxy Statement / / Confidential, for use of the Commission Only (as permitted by Rule 14a-6(e)(2)) /X/ Definitive Proxy Statement / / Definitive Additional Materials / / Soliciting Materials Pursuant to sec.240.14a-11(c) or sec.240.14a-12 THE RYLAND GROUP, INC. ---------------------- (Name of Registrant as Specified in Charter) THE RYLAND GROUP, INC. ---------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): /X/ No fee required. / / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. (1) Title of each class of securities to which transaction applies: ------------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: ------------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): ------------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: ------------------------------------------------------------------------- (5) Total fee paid: ------------------------------------------------------------------------- / / Fee paid previously with preliminary materials. / / Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: ------------------------------------------------------------------------- (2) Form, Schedule or Registration Statement No.: ------------------------------------------------------------------------- (3) Filing Party: ------------------------------------------------------------------------- (4) Date Filed: ------------------------------------------------------------------------- THE RYLAND GROUP, INC. 21800 Burbank Boulevard, Suite 300 Woodland Hills, California 91367 NOTICE OF ANNUAL MEETING OF STOCKHOLDERS To the Stockholders: Notice is given that the Annual Meeting of Stockholders of The Ryland Group, Inc. will be held at The Ritz-Carlton, 4375 Admiralty Way, Marina del Rey, California, on April 26, 2000, at 9:00 a.m., Pacific Time, for the following purposes: 1. To elect eight Directors to serve until the next Annual Meeting of Stockholders and until their successors are elected and shall qualify. 2. To approve the 2000 Non-Employee Director Equity Plan. 3. To act upon other business properly brought before the meeting. Stockholders of record at the close of business on February 17, 2000, are entitled to vote at the meeting or any adjournment thereof. Please date and sign the enclosed proxy and return it in the accompanying postage-paid return envelope. You may revoke your proxy at any time prior to its exercise by filing with the Secretary of the Corporation an instrument of revocation or a duly executed proxy bearing a later date. Your proxy may also be revoked by attending the meeting and voting in person. By Order of the Board of Directors /s/ Timothy J. Geckle Timothy J. Geckle Secretary March 15, 2000 PROXY STATEMENT The enclosed proxy is being solicited by The Ryland Group, Inc. (the "Corporation") for use at the Annual Meeting of Stockholders on April 26, 2000. This Proxy Statement and proxy are first being distributed to stockholders on approximately March 15, 2000. The Annual Report of the Corporation for the year ended December 31, 1999, including financial statements and accompanying notes, is enclosed with this Proxy Statement. A proxy may be revoked by a stockholder at any time prior to its exercise by filing with the Secretary of the Corporation an instrument of revocation or a duly executed proxy bearing a later date. It may also be revoked by attendance at the meeting and election to vote in person. The election of Directors requires a plurality of the votes cast with a quorum present. For the election of Directors, abstentions and broker non-votes are not votes cast and have no effect on the plurality vote required. The approval of the 2000 Non-Employee Director Equity Plan requires the affirmative vote of a majority of the votes cast in person or by proxy with a quorum present. Abstentions and broker non-votes will not be considered votes cast for the foregoing purpose. The Corporation will utilize the services of ChaseMellon Consulting Services in the solicitation of proxies for this Annual Meeting of Stockholders for a fee of $5,000 plus expenses. The Corporation may also solicit proxies by mail, personal interview or telephone by officers and other management employees of the Corporation, who will receive no additional compensation for their services. The cost of solicitation of proxies is borne by the Corporation. Arrangements will be made by the Corporation for the forwarding to beneficial owners, at the Corporation's expense, of soliciting materials by brokerage firms and others. Only stockholders of record at the close of business on February 17, 2000 are entitled to vote at the meeting or any adjournment thereof. The only outstanding securities of the Corporation entitled to vote at the meeting are shares of Common Stock and shares of ESOP Series A Convertible Preferred Stock. The holders of Preferred Stock vote together with the holders of Common Stock as one class. There were 13,555,560 shares of Common Stock outstanding as of the close of business on February 17, 2000. There were 341,206 shares of Preferred Stock outstanding as of the close of business on February 17, 2000. Neither Common Stock nor Preferred Stock has cumulative voting rights. Holders of Common Stock and Preferred Stock are entitled to one vote per share on all matters. 1 ELECTION OF DIRECTORS All Directors (eight in number) are proposed for election to hold office until the next Annual Meeting of Stockholders and until the election and qualification of their successors. The proxies solicited, unless directed to the contrary, will be voted FOR the eight persons named below. Management has no reason to believe that any nominee is unable or unwilling to serve as a Director; but if that should occur for any reason, the proxy holders reserve the right to vote for another person of their choice. Name, Age and Year in which First Elected a Director Principal Occupation for Five Prior Years and Other Information ---------- --------------------------------------------------------------- R. Chad Dreier Chairman of the Board of Directors, President and Chief Executive Officer of the Corporation. 52 (1993) Leslie M. Frecon President, L Frecon Enterprises; Senior Vice President, Corporate Finance, of General Mills 46 (1998) Inc., until 1998; Director of The Resource Companies. William L. Jews President and Chief Executive Officer of CareFirst, Inc.; President and Chief Executive 48 (1994) Officer of Blue Cross Blue Shield of Maryland, Inc., until 1998; Director of Crown Central Petroleum Corp., Federal Reserve Bank of Richmond and MuniMae. William G. Kagler Chairman of the Executive Committee and Director of Skyline Chili, Inc., until 1995; Retired 67 (1985) President of The Kroger Company; Director of Fifth Third Bankcorp and Union Central Life Insurance Co. Robert E. Mellor President, Chief Executive Officer and Director of Building Materials Holding 56 (1999) Corporation; Of Counsel, Gibson, Dunn and Crutcher, LLP (Law Firm) until 1997; Director of Coeur d'Alene Mines Corporation. Charlotte St. Martin Executive Vice President of Loews Hotels; President and Chief Executive Officer 54 (1996) of Loews Anatole Hotel, until 1995; Director of Gibson Greetings, Inc. Paul J. Varello Chairman and Chief Executive Officer of American Ref-Fuel Company; Director of 56 (1999) Integrated Waste Services Association. John O. Wilson Chief Operating Officer, Investment Policy Committee, SDR Capital Management 61 (1987) Group, San Francisco; Senior Fellow, Berkeley Roundtable on International Economics (BRIE), University of California-Berkeley; Executive Vice President and Chief Economist of Bank of America Corporation, until 1998; Director of Calpine Corporation, California Council on Science and Technology and Public Policy Institute of California. THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR EACH OF THE NOMINEES LISTED ABOVE. THE ELECTION OF THE NOMINEES REQUIRES A PLURALITY OF THE VOTES CAST WITH A QUORUM PRESENT. 2 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT To the knowledge of the Corporation, the only beneficial owners of more than 5 percent of the outstanding shares of Common Stock, as of February 17, 2000, are as follows: Amount and Nature Name and Address of Beneficial Ownership Percent of Class ---------------- ----------------------- ---------------- The Prudential Insurance 1,474,825 (1) 10.9 Company of America 751 Broad Street Newark, NJ 07102-3777 Dimensional Fund Advisors 936,164 (2) 6.9 1299 Ocean Avenue, 11th Floor Santa Monica, CA 90401 (1) According to Schedule 13G dated January 31, 2000, filed with the Securities and Exchange Commission, 6,800 of these shares are owned with sole voting and sole dispositive power, and 1,468,025 of these shares are owned with shared voting and shared dispositive power. (2) According to Schedule 13G dated February 4, 2000, filed with the Securities and Exchange Commission, all of these shares are owned with sole voting and sole dispositive power. The Corporation's Retirement Savings Opportunity Plan is the beneficial owner of 341,206 shares of ESOP Series A Convertible Preferred Stock representing 100 percent of the outstanding shares of Preferred Stock of the Corporation. All of these shares are owned with shared voting and shared dispositive power. The address of the Retirement Savings Opportunity Plan is c/o Vanguard Fiduciary Trust Company, 100 Vanguard Boulevard, Malvern, PA 19355. The following table sets forth, as of February 17, 2000, the number of shares of Common Stock of the Corporation beneficially owned by the Directors of the Corporation, nominees for Director, each of the executive officers named in the Summary Compensation Table, and by the Directors and executive officers as a group: Number of Shares Name Beneficially Owned (1) ---- --------------------- R. Chad Dreier .............................................. 525,484 Leslie M. Frecon ............................................ 2,870 William L. Jews ............................................. 8,080 William G. Kagler ........................................... 18,180 Robert E. Mellor ............................................ 1,901 Charlotte St. Martin ........................................ 5,078 Paul J. Varello ............................................. 36 John O. Wilson .............................................. 12,203 John M. Garrity ............................................. 63,727 Frank J. Scardina ........................................... 77,070 Daniel G. Schreiner ......................................... 15,101 Kipling W. Scott ............................................ 74,515 Michael D. Mangan (2) ....................................... 115,229 Directors and executive officers as a group (15 persons) .... 1,003,655 (1) With the exception of Mr. Dreier, no other Director, nominee or executive officer beneficially owns more than 1 percent of the Corporation's outstanding Common Stock. Mr. Dreier beneficially owns 3.9 percent of the outstanding Common Stock of the Corporation. Directors, nominees and executive officers as a group beneficially own 7.4 percent of the outstanding Common Stock of the Corporation. All of the shares in the table are owned individually with sole voting and sole dispositive power. Includes shares subject to stock options which may be exercised within 60 days of February 17, 2000, as follows: Mr. Dreier, 400,000 shares; Ms. Frecon, 2,000 shares; Mr. Jews, 6,000 shares; Mr. Kagler, 7,100 shares; Ms. St. Martin, 4,000 shares; Mr. Wilson, 7,100 shares; Mr. Garrity, 59,750 shares; Mr. Scardina, 70,950 shares; Mr. Schreiner, 14,850 shares; Mr. Scott, 70,350 shares; Mr. Mangan, 109,750 shares; and Directors and executive officers as a group, 830,600 shares. Includes shares subject to restricted stock units for Mr. Dreier of 75,000 shares. Does not include shares of ESOP Series A Convertible Preferred Stock which have been allocated to participants' accounts under the Corporation's Retirement Savings Opportunity Plan as follows: Mr. Dreier, 733 shares; Mr. Garrity, 610 shares; Mr. Scardina, 735 shares; Mr. Scott, 604 shares; Mr. Mangan, 686 shares; and executive officers as a group, 5,937 shares. (2) Mr. Mangan resigned as Executive Vice President and Chief Financial Officer in September 1999. 3 INFORMATION CONCERNING THE BOARD OF DIRECTORS During 1999, the Board of Directors held seven meetings. All Directors attended at least 75 percent of the meetings of the Board of Directors and of the committees of the Board of Directors on which they served during 1999. The Board of Directors of the Corporation has Audit, Compensation, Finance and Nominating and Governance Committees. The Audit Committee of the Board of Directors is composed of Directors Frecon and Mellor. The Audit Committee reviews the Corporation's financial statements and reports, the audit services provided by the Corporation's independent public accountants and the reports of the Corporation's internal auditors. During 1999, four meetings of the Audit Committee were held. The Compensation Committee of the Board of Directors determines or recommends the amount and form of compensation awarded and paid to executive officers and key employees of the Corporation as well as awards and distributions under the Corporation's compensation plans. Directors Jews, Kagler, Mellor and St. Martin serve as its members. During 1999, the Compensation Committee held five meetings. The Finance Committee of the Board of Directors is composed of Directors Frecon, Mellor and Wilson. The Finance Committee reviews and monitors the financial plans and capital structure of the Corporation. There were three meetings of the Finance Committee during 1999. The Nominating and Governance Committee recommends to the Board of Directors candidates to fill vacancies on the Board and makes recommendations about the composition of the Board's committees. Directors Jews, Kagler and St. Martin are the members of the Nominating and Governance Committee, which held two meetings during 1999. The Nominating and Governance Committee will consider nominees suggested by stockholders for election to the Board of Directors. Recommendations by stockholders are forwarded to the Secretary of the Corporation and should identify the nominee by name and provide information about the nominee's background and experience. COMPENSATION OF DIRECTORS Each Director who is not an employee receives an annual fee of $45,000; half of this amount is paid in cash and half is paid in the Corporation's Common Stock. Each non-employee Director is paid an additional $1,500 in cash for each meeting attended of the Board of Directors and of committees of the Board of Directors, with the exception of the Committee Chairperson who is paid $2,000 in cash. A Director may elect to have all or any part of the fees deferred under the Corporation's Executive and Director Deferred Compensation Plan. Under this Plan, amounts elected to be deferred are not included in a Director's gross income for income tax purposes until actually distributed to the Director. Directors who are employees of the Corporation do not receive additional compensation for service on the Board of Directors. During 1999, the Corporation donated $20,000 for each Director to charitable organizations on behalf of and as designated by each individual Director. The Corporation maintains a Non-Employee Director Equity Plan pursuant to which non-employee Directors receive stock options. On December 31, 1999, the Corporation granted each non-employee Director an option to purchase 1,000 shares of Common Stock at an exercise price of $23.0625 per share with the exception of Directors Mellor and Varello who received their initial option to purchase 2,000 shares of Common Stock at an exercise price of $23.0625 per share. The exercise price was the market price of the Common Stock on the date of grant. Stock options fully vest and become exercisable six months after the date of grant. Options are not exercisable after 10 years from the date of grant or three years after the date of termination of service on the Board of Directors. 4 1999 COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION The Compensation Committee is comprised of four independent, non-employee directors. The Compensation Committee approves the design of, assesses the effectiveness of, and administers executive compensation programs in support of stockholder interests. The Compensation Committee also reviews and approves all salary arrangements and other compensation for executive officers, including the Chief Executive Officer, evaluates executive performance and considers related matters. The Corporation's mission is to become a leader in the homebuilding industry, optimize the strength of its mortgage operations and maximize stockholder value. To accomplish these objectives, the Corporation is pursuing a comprehensive business strategy that emphasizes earnings per share and return on stockholders' equity. The Compensation Committee is committed to implementing a compensation program which furthers the Corporation's mission. This program adheres to the following compensation policies which are intended to facilitate the achievement of the Corporation's business strategies: o All executive officers', including the Chief Executive Officer's, compensation programs should emphasize the relationship between pay and performance by including variable, at-risk compensation that is dependent upon the level of success in meeting specified financial and operational goals. o A portion of total compensation should be comprised of equity-based pay opportunities. Encouraging a personal proprietary interest provides a close identification with the Corporation and aligns executive officers' interests with those of stockholders. This policy promotes a continuing focus on building profitability and stockholder value. o Compensation opportunities should enhance the Corporation's ability to attract, retain and encourage the development of exceptionally knowledgeable and experienced executives upon whom the successful operation and management of the Corporation depend. Components of Compensation The Compensation Committee relates total compensation levels for the Corporation's Chief Executive Officer and other executive officers to the compensation paid to executives of a peer group of companies. This peer group is comprised of large national homebuilding companies, which include many of the same companies within the Dow/Home Construction Index in the Performance Graph included in this Proxy Statement. However, the Compensation Committee believes that the Corporation's competitors for executive talent also include other companies not included in this Index. Therefore, the Committee reviews general industry survey data on companies of comparable revenue size and reviews and approves the selection of companies used for compensation comparison purposes. The key elements of the Corporation's executive compensation program are base salary, annual incentives and long-term incentive compensation. These key elements are addressed separately below. In determining each component of compensation, the Compensation Committee considers all elements of an executive's total compensation package. Base Salary The Compensation Committee regularly reviews each executive's base salary. Base salaries are targeted at median competitive levels and are adjusted by the Compensation Committee to recognize varying levels of responsibility, experience and breadth of knowledge, internal equity issues, as well as external pay practices. Increases to base salaries are driven primarily by individual performance. Individual performance is evaluated based on the Compensation Committee's judgement of sustained levels of individual contribution to the Corporation. In accordance with his employment agreement dated April 21, 1999, Mr. Dreier, Chairman of the Board of Directors, President and Chief Executive Officer of the Corporation, receives a base salary of $750,000. 5 Annual Incentives The annual incentive program promotes the Corporation's pay-for-performance philosophy by providing the Chief Executive Officer and other executive officers with direct financial incentives in the form of annual cash bonuses to achieve corporate, business unit and, in some cases, individual performance goals. Annual bonus opportunities allow the Corporation to communicate specific goals that are of primary importance during the coming year and to motivate executives to achieve these goals. Bonus opportunities are set at median competitive levels for the peer group of companies. The various bonus plans are designed to incent and reward above-average performance from the executives and their business units. Under the terms of his employment agreement dated April 21, 1999, Mr. Dreier is eligible for an annual cash bonus equal to 1.0 percent of the consolidated pretax income of the Corporation that is equal to or less than the prior year's amount, plus 1.5 percent of the amount of consolidated pretax income that exceeds the prior year's amount, as adjusted by the Compensation Committee to eliminate the effect of unusual items. In accordance with his employment agreement, Mr. Dreier received an annual cash bonus of $1,314,350 for 1999. Eligible executives on the corporate staff are assigned target bonus levels ranging from 25 to 60 percent of base salary. Bonuses are earned based on the extent to which pretax income goals established at the beginning of the year are achieved. Executives in the Corporation's homebuilding and mortgage operations receive bonuses based on a percentage of the pretax earnings of their business units, with no minimum or maximum bonus amounts. Long-Term Incentives In keeping with the Corporation's commitment to provide a total compensation package which includes at-risk components, long-term incentive compensation comprises a significant portion of the value of an executive's total compensation package. When awarding long-term incentives, the Compensation Committee considers an executive's level of responsibility, prior compensation experience, historical award data, individual performance criteria and the compensation practices at peer group companies. Long-term incentives are in the form of stock options, restricted stock units and cash. Stock Options Stock options are granted at an option price which is the fair market value of the Common Stock on the date of grant. Accordingly, stock options have value only if the stock price appreciates. This design focuses executives on the creation of stockholder value over the long term. The size of the award can be adjusted based on individual factors and historical award data. On April 21, 1999, Mr. Dreier received options to purchase 200,000 shares of the Common Stock of the Corporation at an exercise price of $25.50 per share. This option grant was determined based on the median competitive levels for chief executive officers of peer group companies. TRG Incentive Plan The TRG Incentive Plan provides for awards based on the Corporation's financial performance during the year. Each year, the Compensation Committee establishes maximum award levels for each executive officer based on a percentage of the executive's base salary. Executives can earn cash or common stock awards based on the extent to which pre-established financial goals are achieved by the Corporation. Awards are payable in cash or common stock with vesting occurring over three years. The Compensation Committee believes that the TRG Incentive Plan provides executives with an immediate link to the interest of stockholders, focuses them on company-wide performance and provides incentives that are longer-term than annual bonuses but less remote than retirement benefits. The Compensation Committee believes that the TRG Incentive Plan will enhance the Corporation's ability to maintain a stable executive team focused on the Corporation's long-term success. 6 For 1999, the Compensation Committee designated return on stockholders' equity as the performance measure for the TRG Incentive Plan. Based on the Corporation's performance in 1999, which exceeded the targeted return on equity, the Compensation Committee determined that the TRG Incentive Plan awards for 1999 were 153.75 percent of the target award value. A target award value for 1999 of 120 percent of base salary was established by the Compensation Committee for Mr. Dreier. Based on the Corporation's performance in 1999, which exceeded the targeted return on equity performance measure, Mr. Dreier received a TRG Incentive Plan award of $1,383,750. Retirement Plans The Corporation does not sponsor a defined benefit retirement plan but does provide executives with the ability to accumulate retirement assets through defined contribution plans. Executive officers participate in the Corporation's Retirement Savings Opportunity Plan up to the statutory limits. Because of these statutory limits, the Corporation also offers executive officers the ability to defer additional pay and to receive corresponding company-matching contributions through the Executive and Director Deferred Compensation Plan. Policy with Respect to the $1 Million Deduction Limit It is the policy of the Compensation Committee to continually evaluate the qualification of compensation for exclusion from the $1 million limitation on corporate tax deductions under Internal Revenue Code Section 162(m) as well as other sections of the Internal Revenue Code, while maintaining flexibility to take actions which it deems to be in the interest of the Corporation and its stockholders which may not qualify for tax deductibility. Conclusion The Compensation Committee believes these executive compensation policies and programs serve the interests of the stockholders and the Corporation effectively. The various compensation vehicles offered are appropriately balanced to provide increased motivation for executives to contribute to the Corporation's overall future success, thereby enhancing the value of the Corporation for the stockholders' benefit. The Compensation Committee will continue to monitor the effectiveness of the Corporation's total compensation program to meet the current and future needs of the Corporation. Compensation Committee of the Board of Directors William L. Jews William G. Kagler Robert E. Mellor Charlotte St. Martin 7 SUMMARY COMPENSATION TABLE Annual Compensation Long-Term Compensation ----------------------------------- ----------------------- Awards ------------------------ Other Restricted Securities Annual Stock Underlying All Other Name and Principal Position Year Salary Bonus(c) Compensation(d) Awards(e) Options Compensation (f) ------------------------------------------------------------------------------------------------------ Mr. Dreier - Chairman of 1999 $750,000 $1,775,554 $155,475 $1,147,500 200,000 $1,141,505 the Board of Directors, 1998 $700,000 $1,119,773 $ 10,147 $ 281,185 0 $ 361,898 President and Chief 1997 $655,000 $ 586,943 $ 7,291 $ 701,646 190,000 $ 199,642 Executive Officer of The Ryland Group, Inc. Mr. Garrity - Senior Vice 1999 $240,385 $ 788,780 $ 0 $ 0 20,000 $ 216,223 President of The Ryland 1998 $230,000 $ 483,485 $ 0 $ 64,651 35,000 $ 95,688 Group, Inc.; President of 1997 $220,000 $ 271,994 $ 0 $ 28,741 15,000 $ 47,401 the South Region of Ryland Homes Mr. Scardina - Senior Vice 1999 $260,385 $ 551,622 $ 0 $ 0 20,000 $ 245,705 President of The Ryland 1998 $250,000 $ 713,618 $ 0 $ 70,282 35,000 $ 95,165 Group, Inc.; President 1997 $240,000 $ 393,747 $ 0 $ 31,349 15,000 $ 54,097 of the West Region of Ryland Homes Mr. Schreiner - Senior 1999 $220,385 $ 418,492 $ 17,462 $ 0 15,000 $ 227,904 Vice President of The 1998 $130,769 $ 200,759 $ 15,158 $ 25,728 30,000 $ 62,416 Ryland Group, Inc.; President of Ryland Mortgage Company (a) Mr. Scott - Senior Vice 1999 $240,385 $ 741,738 $ 0 $ 0 20,000 $ 215,013 President of The Ryland 1998 $230,000 $ 480,624 $ 0 $ 64,651 35,000 $ 92,719 Group Inc.; President 1997 $209,231 $ 224,193 $ 16,960 $ 26,132 15,000 $ 93,895 of the North Region of Ryland Homes Mr. Mangan - Former 1999 $339,989 $ 764,210 $ 0 $ 0 20,000 $ 43,120 Executive Vice President 1998 $325,000 $ 409,106 $ 0 $ 104,441 35,000 $ 141,490 and Chief Financial 1997 $312,000 $ 280,590 $ 0 $ 46,577 20,000 $ 78,119 Officer of The Ryland Group, Inc. (b) --------------- (a) Mr. Schreiner joined the Corporation and was elected President of Ryland Mortgage Company in May 1998. (b) Mr. Mangan resigned as Executive Vice President and Chief Financial Officer in September 1999. (c) Includes bonuses for 1999, 1998, and 1997, which were paid in 2000, 1999, and 1998, respectively. Includes for 1999, 1998 and 1997, the dollar value of the initial vested portion of cash and restricted stock unit awards under the TRG Incentive Plan as follows: Mr. Dreier 1999 - $461,204, 1998 - $281,133, 1997 - $122,253; Mr. Garrity 1999 - $86,091, 1998 - $64,675, 1997 - $28,737; Mr. Scardina 1999 - $93,266, 1998 - $70,288, 1997 - $31,358; Mr. Schreiner 1999 - $78,917, 1998 - $25,759; Mr. Scott 1999 - $86,091, 1998 - $64,675, 1997 - $26,132; and Mr. Mangan 1999 - $418,200, 1998 - $104,418, 1997 - $46,590. (d) Includes the gross-up adjustment for taxes on relocation reimbursements as follows: Mr. Dreier 1999 - $86,421, Mr. Schreiner 1999 - $17,462; 1998 - $15,158; and Mr. Scott 1997 - $16,960. Also includes Medicaid taxes and gross-up adjustments paid to Mr. Dreier for vested restricted stock units as follows: 1999 - $8,751; 1998 - $10,147; 1997 - $7,291; and the personal health and services allowance and medical and fitness reimbursement paid to Mr. Dreier in 1999 of $60,303. (e) Amounts for 1998 and 1997 include restricted stock units awarded under the TRG Incentive Plan. The value of the restricted stock units for 1998 is based on the $28.875 closing price of the Corporation's Common Stock on the determination date of December 31, 1998. The value of the restricted stock units for 1997 is based on the $23.50 closing price of the Corporation's Common Stock on the determination date of December 31, 1997. The restricted stock units or the cash value of the restricted stock units awarded under the TRG Incentive Plan vest one-third per year over three years. Holders of restricted stock units are entitled to quarterly dividend equivalent payments if the Corporation pays dividends on its Common Stock. Mr. Dreier was awarded 45,000 restricted stock units by the Corporation in 1999. The value of the restricted stock units, which is included as 1999 compensation, was based upon the $25.50 closing price of the Corporation's Common Stock on the date of grant. The units vest and shares of Common Stock are delivered to Mr. Dreier in three annual installments of 15,000 shares on February 15, 2001, 2002, and 2003. Mr. Dreier is entitled to all regular quarterly dividend equivalent payments on the restricted stock units in the amount and to the extent dividends are paid by the Corporation on its Common Stock. Mr. Dreier was awarded 45,000 restricted stock units by the Corporation in 1997. The value of the restricted stock units, which is included as 1997 compensation, was based upon the $12.875 closing price of the Corporation's Common Stock on the date of grant. The units vest and shares of Common Stock are delivered to Mr. Dreier in two annual installments of 15,000 and 30,000 shares on November 1, 1999, and November 1, 2000, respectively. Mr. Dreier is entitled to all regular quarterly dividend equivalent payments on the restricted stock units in the amount and to the extent dividends are paid by the Corporation on its Common Stock. At December 31, 1999, the number and value of restricted stock units held by Mr. Dreier was 75,000 units at a value of $1,729,500. (f) Includes the Corporation's contributions to the Retirement Savings Opportunity Plan and the Executive and Director Deferred Compensation Plan: Mr. Dreier 1999 - $95,434, 1998 - $71,497, 1997 - $51,178; Mr. Garrity 1999 - $39,552, 1998 - $28,949, 1997 - $17,831; Mr. Scardina 1999 - $54,223, 1998 - $22,638, 1997 - $21,977; Mr. Schreiner 1999 - $23,723, 1998 - $7,846; Mr. Scott 1999 - $39,380, 1998 - $26,238, 1997 - $20,240; and Mr. Mangan 1999 - $38,681, 1998 - $34,325, 1997 - $26,092; earnings on the Executive and Director Deferred Compensation Plan: Mr. Dreier 1997 - $23,056 and Mr. Mangan 1997 - $4,614; the value of term life insurance paid under the Corporation's split dollar life insurance plan: Mr. Dreier 1999 - $11,986, 1998 - $4,009, 1997 - $1,905; Mr. Garrity 1999 - $2,747, 1998 - $834, 1997 - $563; Mr. Scardina 1999 - $3,057, 1998 - $885, 1997 - $532; Mr. Schreiner 1999 - $678, 1998 - $102; Mr. Scott 1999 - $1,740, 1998 - $689, 1997 - $283; and Mr. Mangan 1999 - $1,667, 1998 - $738, 1997 - $354; deferred cash and earnings under the TRG Incentive Plan: Mr. Dreier 1999 - $929,970, 1998 - $286,392, 1997 - $123,503; Mr. Garrity 1999 - $173,924, 1998 - $65,905, 1997 - $29,007; Mr. Scardina 1999 - $188,425, 1998 - $71,642, 1997 - $31,588; Mr. Schreiner 1999 - $158,406, 1998 - $25,765; Mr. Scott 1999 - $173,893, 1998 - $65,792, 1997 - $26,332; and Mr. Mangan 1999 - $2,772, 1998 - $106,427, 1997 - $47,059; and reimbursements for relocation expenses: Mr. Dreier 1999 - $104,115; Mr. Schreiner 1999 - $45,097, 1998 - $28,702; and Mr. Scott 1997 - $47,040. 8 EMPLOYMENT AGREEMENTS On April 21, 1999, the Corporation entered into an employment agreement with Mr. Dreier for a period extending until December 31, 2003. The agreement provides for one-year extensions subject to a right of termination upon notice at least 180 days prior to the end of the agreement's term. Under the agreement, Mr. Dreier will receive a base salary of $750,000 per year and is eligible for an annual cash bonus equal to 1.0 percent of the adjusted consolidated pretax income of the Corporation that is equal to or less than the prior year's amount, plus 1.5 percent of the amount of adjusted consolidated pretax income of the Corporation that exceeds the prior year's amount. Mr. Dreier also received a stock option grant for 200,000 shares of the Corporation's Common Stock at an exercise price of $25.50 per share. Mr. Dreier was granted 45,000 restricted stock units that vest and are paid in the amount of 15,000 shares of Common Stock on each of February 15, 2001, February 15, 2002 and February 15, 2003. If Mr. Dreier's employment is terminated without "cause," Mr. Dreier receives salary and benefits for the remaining term of the agreement or 24 months, whichever is greater, a bonus payment for the year of termination, and a payment of all vested benefits and awards. In the event of a termination of Mr. Dreier's employment within three years of a "change-in-control" of the Corporation, he receives a cash payment equal to three times his highest annual salary and bonus, accelerated vesting under benefit and equity plans of the Corporation, two years of continued receipt of his current benefits as well as relocation and outplacement assistance. The Corporation has senior executive severance agreements pursuant to which, upon termination of employment within three years of a "change-in-control" of the Corporation, certain executive officers, including Messrs. Garrity, Scardina, Schreiner and Scott, receive a cash payment equal to two times the highest annual compensation paid during the three years prior to termination, accelerated vesting under benefit and equity plans of the Corporation, and relocation and outplacement assistance. 9 STOCK OPTION GRANTS IN 1999 Percent Potential Realizable Value Number of of Total at Assumed Annual Rates of Securities Options Stock Price Appreciation for Underlying Granted to Exercise 10-Year Option Term Options Employees Price Expiration ------------------------- Name Granted (a) in 1999 ($/Share) Date 5% 10% ---------- ---------- ------- -------- -------- ---------- ----------- Mr. Dreier 200,000 29.0 $ 25.50 04/21/09 $3,207,363 $ 8,128,087 Mr. Garrity 20,000 2.9 $ 23.88 02/05/09 $ 300,297 $ 761,012 Mr. Scardina 20,000 2.9 $ 23.88 02/05/09 $ 300,297 $ 761,012 Mr. Schreiner 15,000 2.2 $ 23.88 02/05/09 $ 225,223 $ 570,759 Mr. Scott 20,000 2.9 $ 23.88 02/05/09 $ 300,297 $ 761,012 Mr. Mangan 20,000 2.9 $ 23.88 02/05/09 $ 300,297 $ 761,012 ---------- (a) These stock options are exercisable at a rate of 33, 33 and 34 percent per year beginning on the first anniversary of the date of grant. AGGREGATED STOCK OPTION EXERCISES IN 1999 AND YEAR-END STOCK OPTION VALUES Number of Securities Underlying Unexercised Value of Unexercised In-the- Options at Year End Money Options at Year End Shares Acquired Value ------------------------- ------------------------------- Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable ---- ----------- -------- ----------- ------------- ----------- ------------- Mr. Dreier 0 $ 0 336,400 263,600 $ 2,433,075 $ 645,675 Mr. Garrity 0 $ 0 41,450 48,550 $ 257,169 $ 48,769 Mr. Scardina 0 $ 0 52,650 48,550 $ 312,719 $ 48,769 Mr. Schreiner 0 $ 0 9,900 35,100 $ 16,397 $ 33,291 Mr. Scott 0 $ 0 52,050 48,550 $ 276,206 $ 48,769 Mr. Mangan 0 $ 0 89,750 50,250 $ 690,288 $ 65,025 10 COMPARISON OF CUMULATIVE TOTAL STOCKHOLDER RETURN ON COMMON STOCK (Stock Price Appreciation Plus Dividends) This chart graphs the Corporation's performance in the form of cumulative total return to stockholders during the previous five years in comparison to the Standard and Poor's 500 Index and the Dow/Home Construction Index. The Dow/Home Construction Index includes the following companies: Pulte Corporation; Centex Corporation; Clayton Homes, Inc.; Kaufman and Broad Home Corporation; Champion Enterprises, Inc.; Lennar Corporation; Walter Industries, Inc.; D.R. Horton, Inc.; and Toll Brothers, Inc. [Performance Graph Appears Here] In the printed version of the document, a line graph appears which depicts the following plot points: 12/94 12/95 12/96 12/97 12/98 12/99 The Ryland Group, Inc. 100 97 98 175 216 174 Standard and Poor's 500 Index 100 138 169 226 290 351 Dow/Home Construction Index 100 149 143 221 235 149 (a) Assumes that the value of the Common Stock of the Corporation and the Indices were $100 on January 1, 1995, and that all dividends were reinvested. 11 PROPOSAL TO APPROVE THE RYLAND GROUP, INC. 2000 NON-EMPLOYEE DIRECTOR EQUITY PLAN The Board of Directors proposes that the stockholders of the Corporation approve the Corporation's adoption of The Ryland Group, Inc. 2000 Non-Employee Director Equity Plan. If approved, shares of the Corporation's Common Stock will be made available for purchase under the Plan by eligible Directors. The following is a fair and complete summary of the Plan as proposed for approval. This summary is qualified in its entirety by reference to the full text of the Plan which appears as Exhibit A to this Proxy Statement. Summary of Plan Terms Purpose and Types of Awards: The Plan's purpose is to advance the interests of the Corporation and its stockholders by encouraging increased Common Stock ownership of the Corporation by its Directors. The Plan provides for automatic grants of nonstatutory stock options to Directors on December 31st of each year. The Plan will replace the 1992 Non-Employee Director Equity Plan (the "Predecessor Plan"). If the stockholders approve the Plan, the Corporation will not grant any more options under the Predecessor Plan. Shares Available Under the Plan: The Plan authorizes the issuance of 275,000 shares of Common Stock, plus the remaining 28,300 shares that will be carried over from the Predecessor Plan. Appropriate adjustments will be made to this limit to reflect any stock dividend, extraordinary cash dividend, creation of a class of equity securities, recapitalization, reorganization, merger, consolidation, split-up, spin-off, business combination, warrants or rights offering to purchase Common Stock at a price below market price, or other similar change affecting the Corporation's Common Stock. Such adjustments will be made in the maximum number and kind of shares subject to the Plan, outstanding stock options and subsequent grants of stock options, and in the exercise price of outstanding stock options. The shares available for purchase under the Plan will come from authorized but unissued shares of Common Stock. Administration: The Plan will be administered by the Compensation Committee of the Board of Directors. The Compensation Committee has the authority to construe the Plan, determine all questions arising under the Plan, and adopt and amend rules and regulations for the administration of the Plan. The Compensation Committee, however, has no discretion with respect to the eligibility or selection of Directors to receive stock options, or the timing and exercise price of the options. Decisions of the Compensation Committee on the administration of the Plan are final and conclusive. Eligibility to Participate: All members of the Board of Directors who are not employees of the Corporation will participate in the Plan. As of March 15, 2000, seven Directors are eligible to participate in the Plan. Stock Option Grants: If the stockholders approve the Plan, then on December 31, 2000, and on each December 31st thereafter during the term of the Plan, each non-employee Director first elected to the Board of Directors during that calendar year will receive an option to purchase 10,000 shares of Common Stock, and each other non-employee Director will receive an option to purchase 5,000 shares of Common Stock. The stock options will fully vest and become exercisable six months after their grant date. Once vested, stock options are exercisable at any time prior to the tenth anniversary of their grant date unless the Director terminates service on the Board of Directors for any reason. Upon termination of service from the Board of Directors, all stock options become fully vested, immediately exercisable and expire three years after the date of termination regardless of their stated expiration dates. Exercise Price: The exercise price of all stock options granted under the Plan will be equal to the market price of the Common Stock on the grant date. On March 1, 2000, the last reported sale price per share of Common Stock, as quoted on the New York Stock Exchange, was $17.375. The option exercise price may be paid in the following ways: (1) in cash or check; (2) in shares of Common Stock of the Corporation (including shares issued upon exercise of the stock option); (3) by a broker-assisted cashless exercise; or (4) by any combination of the foregoing methods. 12 Amendment and Termination: The Compensation Committee may amend, suspend or terminate the Plan or any portion of it at any time without further action of the stockholders except to the extent required by applicable law or the New York Stock Exchange. If not sooner terminated by the Compensation Committee, the Plan will terminate on January 1, 2010. Plan Benefits The following table provides information regarding stock options that will be granted under the Plan on December 31, 2000, assuming all nominees for Director are approved by the stockholders and are serving on the Board of Directors on that date. NEW PLAN BENEFITS TABLE Plan Name: 2000 Non-Employee Director Equity Plan Number of Shares of Common Stock Underlying Outstanding Name and Position Value ($) Options ----------------- --------- ------- Named Executive Officers (not eligible under Plan) n/a n/a Executive Group (not eligible under Plan) n/a n/a Non-Executive Director Group n/a (1) 35,000 (2) Non-Executive Officer Employee Group (not eligible under Plan) n/a n/a ---------------- (1) Not applicable since value of benefits or amounts is indeterminate. (2) Assumes a grant of options to acquire 5,000 shares of Common Stock to each of the seven eligible Non-Executive Directors. Tax Aspects of Plan The stock options granted under the Plan will be nonstatutory stock options not intended to qualify under Internal Revenue Code section 422. There are no tax consequences to the Corporation or the Director when the stock options are granted. A Director who exercises a nonstatutory stock option with cash will realize compensation taxable as ordinary income in an amount equal to the difference between the exercise price paid and the fair market value of the Common Stock purchased on the exercise date. The Corporation will be entitled to a deduction from income in the same amount in the fiscal year in which the exercise occurs. The Director's basis in the purchased shares will be the fair market value of the Common Stock on the date income is realized. When the Director disposes of the shares, he or she will recognize capital gain or loss, either long-term or short-term, depending on how long the shares are held before disposal. THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL OF THE 2000 NON-EMPLOYEE DIRECTOR EQUITY PLAN. APPROVAL OF THE PLAN REQUIRES THE AFFIRMATIVE VOTE OF A MAJORITY OF THE VOTES CAST WITH A QUORUM PRESENT. 13 SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Based upon the Corporation's review of Forms 3, 4 and 5 as well as any amendments submitted to the Corporation during 1999 for any person subject to Section 16 of the Securities Exchange Act of 1934 (The Exchange Act), there were no persons who failed to file on a timely basis during 1999 reports required by Section 16(a) of The Exchange Act. STOCKHOLDERS' PROPOSALS Proposals of stockholders intended to be presented at the next Annual Meeting of Stockholders of the Corporation must be received by the Corporation on or before November 15, 2000, and must comply with the applicable rules of the Securities and Exchange Commission in order to be included in the Corporation's Proxy Statement and proxy relating to the 2001 Annual Meeting of Stockholders. In addition, under the Corporation's bylaws, in order for a shareholder proposal or director nomination to come before the Annual Meeting of Stockholders, proposals and nominations, made in accordance with the bylaws of the Corporation, require appropriate notice to the Corporation of the proposal or nomination not less than 75 days prior to the date of the Annual Stockholders' Meeting. If less than 100 days' notice of the date of the Annual Stockholders' Meeting is given by the Corporation, then the Corporation must receive the notice of nomination or the proposal not later than the close of business on the 10th day following the date the Corporation first mailed the notice or made public disclosure of the meeting. In this regard, notice is given that the 2001 Annual Meeting of Stockholders is expected to be held on the third Wednesday of April in 2001, or on or before the 30th day thereafter, as determined by the Board of Directors in accordance with the Corporation's bylaws. OTHER MATTERS If any other business should come before the meeting, the proxy holders will vote according to their discretion. 14 EXHIBIT A THE RYLAND GROUP, INC. 2000 NON-EMPLOYEE DIRECTOR EQUITY PLAN Section 1. PURPOSE The purpose of The Ryland Group, Inc., 2000 Non-Employee Director Equity Plan (the "Plan") is to advance the interests of the Corporation and its stockholders by encouraging increased Common Stock ownership by members of the Board of Directors. Section 2. DEFINITIONS "Board" means the Board of Directors of the Corporation. "Committee" means the Compensation Committee of the Board or such other committee of the Board that is designated by the Compensation Committee or the Board from time to time to administer the Plan. "Common Stock" means the Common Stock, $1.00 par value, of the Corporation. "Corporation" means The Ryland Group, Inc. "Employee" means any officer or employee of the Corporation or of its subsidiaries. "Market Price" means the last reported sale price of the Common Stock on the New York Stock Exchange; or, if the Common Stock is not listed on the New York Stock Exchange, the closing price on such other exchange on which the Common Stock is traded; or, if quoted on the Nasdaq National Market System or other over-the-counter market, the last reported sales price on the Nasdaq National Market System or other over-the-counter market; or, if the Common Stock is not publicly traded, such price as shall be determined by the Committee to be the fair market value. "Non-Employee Director" or "Participant" means a member of the Board who is not at the time also an Employee. "Stock Options" mean stock options granted under the Plan which are nonstatutory stock options not intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended. Section 3. SHARES OF COMMON STOCK SUBJECT TO THE PLAN (a) Subject to adjustment as provided in Section 3(b) below, the maximum aggregate number of shares of Common Stock that may be issued under the Plan shall be equal to the sum of: (i) 275,000 shares, plus (ii) any shares of Common Stock available for future awards under the 1992 Non-Employee Director Equity Plan as of the date on which the Plan is approved by the stockholders of the Corporation. The Common Stock issued under the Plan will come from authorized but unissued shares of Common Stock, and the Corporation will set aside and reserve for issuance under the Plan said number of shares. (b) In the event of any stock dividend, extraordinary cash dividend, creation of a class of equity securities, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, exchange of shares, warrants or rights offering to purchase Common Stock at a price below Market Price or similar change affecting the Common Stock, appropriate adjustment shall be made in the maximum number and kind of shares subject to the Plan, outstanding Stock Options and subsequent grants of Stock Options and in the exercise price of outstanding Stock Options. Section 4. ADMINISTRATION OF THE PLAN Stock Option grants under the Plan are automatic as provided in Section 6. The Plan is administered by the Committee. The Committee shall have the powers vested in it by the terms of the Plan. The Committee shall, subject to the provisions of the Plan, have the power to construe the Plan, to determine all questions arising thereunder and to adopt and amend rules and regulations for the administration of the Plan. Notwithstanding the foregoing, the Committee shall have no discretion with respect to the eligibility or selection of Participants, and the timing or exercise price of Stock Options. Any decisions of the Committee on the administration of the Plan shall be final and conclusive. 15 Section 5. PARTICIPATION IN THE PLAN All Non-Employee Directors shall participate in the Plan. Section 6. DETERMINATION OF STOCK OPTIONS Each Stock Option granted under the Plan shall be evidenced by a written instrument in such form as the Committee may approve and shall be subject to the following terms and conditions: (a) On December 31, 2000, and on each December 31 thereafter during the term of the Plan, each Non-Employee Director first elected to the Board during the calendar year that includes such date shall receive an option to purchase 10,000 shares of Common Stock and each other Non-Employee Director on such date shall receive an option to purchase 5,000 shares of Common Stock. (b) The purchase price for the Common Stock subject to Stock Options shall be the Market Price of the Common Stock on the date of grant. (c) Stock Options shall fully vest and become exercisable six months from the date of grant. Vested Stock Options shall be exercisable at any time prior to the expiration of 10 years from the date of grant, subject to Section 6(d) of the Plan. (d) In the event service on the Board by a Participant terminates for any reason, all of the Participant's Stock Options shall fully vest and become immediately exercisable and will expire three years after the date of termination regardless of their stated expiration dates. The rights of a Participant in a Stock Option may be exercised by the Participant's guardian or legal representative in the case of disability and by the Participant's estate or a beneficiary designated by the Participant in the case of death. (e) The purchase price for the Common Stock subject to a Stock Option may be paid (i) in cash or by check, (ii) in shares of Common Stock of the Corporation including shares issued upon exercise of the Stock Option, (iii) by a broker-assisted cashless exercise in accordance with Regulation T of the Board of Governors of the Federal Reserve System through a brokerage firm approved by the Committee, or (iv) by any combination of the foregoing methods. The value of shares of Common Stock delivered in payment of the purchase price shall be their Market Price as of the date of exercise. (f) Each Participant shall pay to the Corporation, or make arrangements satisfactory to the Committee for the payment of, any federal, state or local taxes of any kind required by law to be withheld with respect to the receipt of shares of Common Stock pursuant to the exercise of a Stock Option. Such tax obligations may be paid in whole or in part, but in no event in excess of the amount necessary to satisfy the statutory minimum withholding amount due, in shares of Common Stock, including shares issued upon exercise of the Stock Option, valued at Market Price on the date of delivery. Section 7. STOCKHOLDER RIGHTS Non-Employee Directors shall not be deemed for any purpose to be or have rights as stockholders of the Corporation with respect to any shares of Common Stock except as and when such shares are issued and then only from the date of the certificate thereof. No adjustment shall be made for dividends, distributions or other rights for which the record date precedes the date of such stock certificate. Section 8. CONTINUATION OF DIRECTOR OR OTHER STATUS Nothing in the Plan or in any instrument executed pursuant to the Plan or any action taken pursuant to the Plan shall be construed as creating or constituting evidence of any agreement or understanding, express or implied, that the Corporation will retain a Non-Employee Director as a Director or in any other capacity for any period of time or at a particular retainer or other rate of compensation, as conferring upon any Participant any legal or other right to continue as a Director or in any other capacity, or as limiting, interfering with or otherwise affecting the provisions of the Corporation's charter, bylaws or the Maryland General Corporation Law relating to the removal of Directors. 16 Section 9. COMPLIANCE WITH GOVERNMENT REGULATIONS Neither the Plan nor the Corporation shall be obligated to issue any shares of Common Stock pursuant to the Plan at any time unless and until all applicable requirements imposed by any federal and state securities and other laws, rules, and regulations, by any regulatory agencies, or by any stock exchanges upon which the Common Stock may be listed have been fully met. As a condition precedent to any issuance of shares of Common Stock and delivery of certificates evidencing such shares pursuant to the Plan, the Committee may require a Participant to take any such action and to make any such covenants, agreements and representations as the Committee, in its discretion deems necessary or advisable to ensure compliance with such requirements. The Corporation shall in no event be obligated to register the shares of Common Stock issued or issuable under the Plan pursuant to the Securities Act of 1933, as now or hereafter amended, or to qualify or register such shares under any securities laws of any state upon their issuance under the Plan or at any time thereafter, or to take any other action in order to cause the issuance and delivery of such shares under the Plan or any subsequent offer, sale or other transfer of such shares to comply with any such law, regulation or requirement. Participants are responsible for complying with all applicable federal and state securities and other laws, rules and regulations in connection with any offer, sale or other transfer of the shares of Common Stock issued under the Plan or any interest therein including, without limitation, compliance with the registration requirements of the Securities Act of 1933 (unless an exemption therefrom is available), or with the provisions of Rule 144 promulgated thereunder, if available, or any successor provisions. Section 10. TRANSFERABILITY OF RIGHTS Except as otherwise determined by the Committee, no Participant shall have the right to assign any Stock Option or any other right or interest under the Plan, contingent or otherwise, or to cause or permit any encumbrance, pledge or charge of any nature to be imposed on any such Stock Option or any such right or interest, other than by will or the laws of descent and distribution. Unless otherwise determined by the Committee in accord with the provisions of the immediately preceding sentence, Stock Options shall be exercisable during the Participant's lifetime only by the Participant or the Participant's guardian or legal representative. Section 11. EFFECTIVE DATE OF PLAN The Plan is effective as of the date on which the Plan is approved by the stockholders of the Corporation. Prior to such approval, Awards may be made under the Plan expressly subject to such approval but any such Awards shall be void and ineffective if the Plan is not approved by the stockholders. Section 12. APPLICABILITY TO OTHER PLANS After and subject to stockholder approval of this Plan, no further awards shall be granted under the Corporation's 1992 Non-Employee Director Equity Plan. Outstanding awards under the 1992 Non-Employee Director Equity Plan shall remain in effect pursuant to the terms of the agreements governing such awards and shall continue to be governed by the 1992 Non-Employee Director Equity Plan to the extent applicable. Section 13. AMENDMENT AND TERMINATION OF THE PLAN The Committee may amend, suspend or terminate the Plan or any portion thereof at any time as it determines appropriate, without further action by the Corporation's stockholders except to the extent required by applicable law or by any stock exchanges upon which the Common Stock may be listed. If not sooner terminated by the Committee, the Plan shall terminate on January 1, 2010. Termination of the Plan will not affect the rights and obligations arising under Stock Options theretofore granted and then in effect. Section 14. GOVERNING LAW The validity, construction and effect of the Plan, of written instruments entered into pursuant to the Plan, and of any rules, regulations, determinations or decisions made by the Committee relating to the Plan or such written instruments, and the rights of any and all persons having or claiming to have any interest therein or thereunder, shall be determined exclusively in accordance with applicable federal laws and the laws of the State of Maryland, without regard to its conflict of laws principles. 17 RETIREMENT SAVINGS OPPORTUNITY PLAN PARTICIPANT INSTRUCTION CARD THE RYLAND GROUP, INC. Participant Proxy Solicited on Behalf of the Board of Directors Annual Meeting of Stockholders - April 26, 2000 The undersigned participant in The Ryland Group, Inc. Retirement Savings Opportunity Plan acknowledges receipt of the Proxy Statement and Notice of Annual Meeting of Stockholders, dated March 15, 2000, and instructs Vanguard Fidelity Trust Company, the Trustee, to vote all shares which the undersigned is entitled to vote at the Annual Meeting of Stockholders of the Corporation to be held at The Ritz-Carlton, 4375 Admiralty Way, Marina del Rey, California, on Wednesday, April 26, 2000 at 9:00 a.m., Pacific Time, and at any adjournments thereof. (Continued and signed on reverse side) This proxy, when properly executed, will be voted in accordance with the instructions herein. In the absence of specific instructions, this proxy will be voted FOR the nominees listed below, FOR the approval of the 2000 Non-Employee Director Equity Plan and, in the discretion of the proxies, upon other business properly brought before the meeting. Please mark your votes as indicted in this example /X/ 1. ELECTION OF DIRECTORS FOR all WITHHOLD AUTHORITY nominees for all nominees / / / / Nominees: Mr. Dreier, Ms. Frecon, Mr. Jews, Mr. Kagler Mr. Mellor, Ms. St. Martin, Mr. Varello, Mr. Wilson Instruction: To withhold authority to vote for any individual nominee, write that nominee's name in the space provided below. - - - - - - - - - - - - - - - - - - - - - - - - 2. Approval of 2000 Non-Employee Director Equity Plan For Against Abstain [ ] [ ] [ ] 3. In the discretion of the proxies, upon other business properly brought before the meeting. Please sign, date and return this proxy promptly in the enclosed postage paid envelope. Signature ___________________ Signature ___________________ Date_________ NOTE: Please sign your name exactly as it appears hereon. If stock is registered in more than one name, each joint owner must sign. When signing as attorney, executor, administrator, guardian or corporate officer, please give your full title as such. THE RYLAND GROUP, INC. Proxy Solicited on Behalf of the Board of Directors Annual Meeting of Stockholders - April 26, 2000 The undersigned stockholder of The Ryland Group, Inc. (the "Corporation") acknowledges receipt of the Proxy Statement and Notice of Annual Meeting of Stockholders, dated March 15, 2000, and constitutes and appoints R. CHAD DREIER, Chairman, President and Chief Executive Officer of the Corporation, and TIMOTHY J. GECKLE, Secretary of the Corporation, and each of them, as true and lawful proxies with full power of substitution, to vote all shares which the undersigned is entitled to vote at the Annual Meeting of Stockholders of the Corporation to be held at The Ritz- Carlton, 4375 Admiralty Way, Marina del Rey, California, on Wednesday, April 26, 2000, at 9:00 a.m., Pacific Time, and at any adjournments thereof. (Continued and signed on reverse side) This proxy, when properly executed, will be voted in accordance with the instructions herein. In the absence of specific instructions, this proxy will be voted FOR the nominees listed below, FOR the approval of the 2000 Non-Employee Director Equity Plan and, in the discretion of the proxies, upon other business properly brought before the meeting. Please mark your votes as indicted in this example /X/ 1. ELECTION OF DIRECTORS FOR all WITHHOLD AUTHORITY nominees for all nominees / / / / Nominees: Mr. Dreier, Ms. Frecon, Mr. Jews, Mr. Kagler Mr. Mellor, Ms. St. Martin, Mr. Varello, Mr. Wilson Instruction: To withhold authority to vote for any individual nominee, write that nominee's name in the space provided below. - - - - - - - - - - - - - - - - - - - - - - - - 2. Approval of 2000 Non-Employee Director Equity Plan For Against Abstain [ ] [ ] [ ] 3. In the discretion of the proxies, upon other business properly brought before the meeting. Please sign, date and return this proxy promptly in the enclosed postage paid envelope. Signature ___________________ Signature ___________________ Date_________ NOTE: Please sign your name exactly as it appears hereon. If stock is registered in more than one name, each joint owner must sign. When signing as attorney, executor, administrator, guardian or corporate officer, please give your full title as such.