-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DHLq+/dumlBLllCTyqqnV1lwqCq9aATeRkOE2oTLeHB0+15Cw4aH1AZH2Aoab84C vFryRuqMcaGLBEyCA5ncPw== /in/edgar/work/0000950150-00-000929/0000950150-00-000929.txt : 20001115 0000950150-00-000929.hdr.sgml : 20001115 ACCESSION NUMBER: 0000950150-00-000929 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RYLAND GROUP INC CENTRAL INDEX KEY: 0000085974 STANDARD INDUSTRIAL CLASSIFICATION: [1531 ] IRS NUMBER: 520849948 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08029 FILM NUMBER: 764669 BUSINESS ADDRESS: STREET 1: 11000 BROKEN LAND PARKWAY CITY: COLUMBIA STATE: MD ZIP: 21044 BUSINESS PHONE: 4107157000 FORMER COMPANY: FORMER CONFORMED NAME: RYAN JAMES P CO DATE OF NAME CHANGE: 19720414 10-Q 1 a66715e10-q.txt FORM 10-Q FOR PERIOD ENDING SEPTEMBER 30, 2000 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2000 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________ to _________. Commission File Number: 1-8029 THE RYLAND GROUP, INC. ---------------------- (Exact name of registrant as specified in its charter) Maryland 52-0849948 -------- ---------- (State of incorporation) (I.R.S. Employer Identification Number) 24025 Park Sorrento, Suite 400 Calabasas, California 91302 818.223.7500 (Address and telephone number of principal executive offices) 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. [X] Yes [ ] No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. The number of shares of common stock of The Ryland Group, Inc., outstanding on November 7, 2000, was 13,235,063. 2 THE RYLAND GROUP, INC. FORM 10-Q INDEX
PAGE NO. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets at September 30, 2000, (unaudited) and December 31, 1999 1-2 Consolidated Statements of Earnings for the Three and Nine Months Ended September 30, 2000 and 1999 (unaudited) 3 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2000 and 1999 (unaudited) 4 Notes to Consolidated Financial Statements (unaudited) 5-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-13 Item 3. Quantitative and Qualitative Disclosures About Market Risk 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings 14 Item 4. Submission of Matters to a Vote of Security Holders 14 Item 6. Exhibits and Reports on Form 8-K 14 SIGNATURES 15 INDEX OF EXHIBITS 16
3 PART I. FINANCIAL INFORMATION Item I. Financial Statements THE RYLAND GROUP, INC. & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (amounts in thousands, except share data)
SEPTEMBER 30, December 31, 2000 1999 ---------- ---------- (UNAUDITED) ASSETS HOMEBUILDING Cash and cash equivalents $ 57,189 $ 36,297 Housing inventories: Homes under construction 553,719 432,735 Land under development and improved lots 404,919 389,946 ---------- ---------- Total inventories 958,638 822,681 Property, plant and equipment 33,467 26,619 Purchase price in excess of net assets acquired 20,388 21,710 Other assets 58,960 48,064 ---------- ---------- 1,128,642 955,371 ---------- ---------- FINANCIAL SERVICES Cash and cash equivalents 32,210 33,629 Mortgage loans, held-for-sale 59,677 40,520 Mortgage-backed securities and notes receivable 87,035 99,249 Other assets 7,340 16,326 ---------- ---------- 186,262 189,724 ---------- ---------- OTHER ASSETS Collateral for bonds payable of limited-purpose subsidiaries 24,140 39,633 Net deferred taxes 30,001 32,134 Other 39,058 31,461 ---------- ---------- TOTAL ASSETS $1,408,103 $1,248,323 ---------- ----------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 1 4 THE RYLAND GROUP, INC. & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (amounts in thousands, except share data)
SEPTEMBER 30, December 31, 2000 1999 ---------- ---------- (UNAUDITED) LIABILITIES HOMEBUILDING Accounts payable and other liabilities $ 227,430 $ 208,133 Long-term debt 508,341 378,000 ---------- ---------- 735,771 586,133 ---------- ---------- FINANCIAL SERVICES Accounts payable and other liabilities 10,353 7,211 Short-term notes payable 153,606 157,458 ---------- ---------- 163,959 164,669 ---------- ---------- OTHER LIABILITIES Bonds payable of limited-purpose subsidiaries 22,469 37,339 Other 64,872 73,645 ---------- ---------- TOTAL LIABILITIES 987,071 861,786 ---------- ---------- STOCKHOLDERS' EQUITY Convertible preferred stock, $1 par value: Authorized - 1,400,000 shares Issued - 308,139 shares (350,137 for 1999) 308 350 Common stock, $1 par value: Authorized - 78,600,000 shares Issued - 13,115,899 shares (13,850,819 for 1999) 13,116 13,851 Paid-in capital 58,909 71,730 Retained earnings 348,158 299,547 Accumulated other comprehensive income 541 1,059 ---------- ---------- TOTAL STOCKHOLDERS' EQUITY 421,032 386,537 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,408,103 $1,248,323 ---------- ---------- STOCKHOLDERS' EQUITY PER COMMON SHARE $ 31.36 $ 27.22 ---------- ----------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 2 5 THE RYLAND GROUP, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) (amounts in thousands, except share data)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, 2000 1999 2000 1999 ------------ -------------- ------------- ------------- REVENUES Homebuilding: Residential revenue $ 574,335 $ 494,283 $ 1,496,174 $ 1,360,286 Other revenue 42,124 1,583 54,229 16,203 ----------- ----------- ----------- ----------- Total homebuilding revenue 616,459 495,866 1,550,403 1,376,489 Financial services 11,868 11,309 31,686 37,130 ----------- ----------- ----------- ----------- Total revenues 628,327 507,175 1,582,089 1,413,619 ----------- ----------- ----------- ----------- EXPENSES Homebuilding: Cost of sales 516,101 411,908 1,297,936 1,148,112 Selling, general and administrative 55,145 45,757 147,927 135,466 Interest 4,834 2,757 11,579 8,814 ----------- ----------- ----------- ----------- Total homebuilding expenses 576,080 460,422 1,457,442 1,292,392 Financial services: General and administrative 4,302 4,843 15,323 16,480 Interest 2,991 4,343 8,804 13,232 ----------- ----------- ----------- ----------- Total financial services expenses 7,293 9,186 24,127 29,712 Corporate expenses 7,513 7,831 17,392 16,332 ----------- ----------- ----------- ----------- Total expenses 590,886 477,439 1,498,961 1,338,436 EARNINGS BEFORE TAXES 37,441 29,736 83,128 75,183 Tax expense 14,602 11,597 32,420 29,321 ----------- ----------- ----------- ----------- NET EARNINGS $ 22,839 $ 18,139 $ 50,708 $ 45,862 =========== =========== =========== =========== NET EARNINGS PER COMMON SHARE Basic $ 1.74 $ 1.21 $ 3.81 $ 3.05 Diluted $ 1.67 $ 1.15 $ 3.68 $ 2.92 AVERAGE COMMON SHARES OUTSTANDING Basic 12,992,492 14,855,799 13,156,245 14,839,146 Diluted 13,691,616 15,741,410 13,785,868 15,723,099
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 3 6 THE RYLAND GROUP, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (amounts in thousands)
NINE MONTHS ENDED SEPTEMBER 30, 2000 1999 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 50,708 $ 45,862 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 20,036 19,763 Increase in inventories (135,957) (141,622) Net change in other assets, payables and other liabilities 11,907 18,815 (Increase) decrease in mortgage loans held-for-sale (19,157) 66,547 Other operating activities, net 2,339 (2,224) --------- --------- Net cash (used for) provided by operating activities (70,124) 7,141 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Net additions to property, plant and equipment (24,964) (18,947) Net principal reduction of mortgage collateral 11,948 24,594 Net principal reduction (increase) of mortgage-backed securities, available-for-sale 7,958 (3,154) Principal reduction of mortgage-backed securities, held-to-maturity 7,414 27,113 Other investing activities, net 1,236 (4,743) --------- --------- Net cash provided by investing activities 3,592 24,863 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Cash proceeds of long-term debt 150,000 61,425 Reduction of long-term debt (28,000) (1,628) Decrease in short-term notes payable (3,852) (16,748) Bond principal payments (15,127) (32,581) Common and preferred stock dividends (2,161) (2,449) Common stock repurchases (18,021) (8,983) Other financing activities, net 3,166 2,373 --------- --------- Net cash provided by financing activities 86,005 1,409 --------- --------- Net increase in cash and cash equivalents 19,473 33,413 Cash and cash equivalents at beginning of period 69,926 49,784 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 89,399 $ 83,197 ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for interest (net of capitalized interest) $ 17,997 $ 20,131 Cash paid for income taxes (net of refunds) $ 32,263 $ 30,464
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 4 7 THE RYLAND GROUP, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (amounts in thousands, except share data) Note 1. Consolidated Financial Statements The consolidated financial statements include the accounts of The Ryland Group and its wholly owned subsidiaries ("the Company"). Intercompany transactions have been eliminated in consolidation. The consolidated balance sheet as of September 30, 2000, the consolidated statements of earnings for the three months and nine months ended September 30, 2000 and 1999, and the consolidated statements of cash flows for the nine months ended September 30, 2000 and 1999, have been prepared by the Company without audit. In the opinion of management, all adjustments, which include normal recurring adjustments necessary to present fairly the Company's financial position, results of operations and cash flows at September 30, 2000, and for all periods presented, have been made. The consolidated balance sheet at December 31, 1999, is taken from the audited financial statements as of that date. Certain amounts in the consolidated statements have been reclassified to conform to the 2000 presentation. Certain information and footnote disclosures normally included in the financial statements have been condensed or omitted. These financial statements should be read in conjunction with the financial statements and related notes included in the Company's 1999 annual report to its shareholders. The results of operations for the nine months ended September 30, 2000, are not necessarily indicative of the operating results for the full year. Assets presented in the financial statements are net of any valuation allowances. The following table is a summary of capitalized interest:
2000 1999 -------- -------- Capitalized interest as of January 1 $ 26,970 $ 21,600 Interest capitalized 25,972 17,870 Interest amortized to cost of sales (19,037) (13,343) -------- -------- Capitalized interest as of September 30 $ 33,905 $ 26,127 ======== ========
Note 2. New Accounting Pronouncements FAS 133 In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 (FAS 133), "Accounting for Derivative Instruments and Hedging Activities," as amended by FAS 137 and FAS 138, which is required to be adopted in fiscal years beginning after June 15, 2000. FAS 133 requires all derivatives to be recorded on the balance sheet at fair value and establishes new accounting procedures for hedges that will affect the timing of recognition and the manner in which hedging gains and losses are recognized in the Company's financial statements. The Company is currently in the process of completing its evaluation of the impact of FAS 133 on its earnings and financial position and does not expect that impact to be material. The Company will adopt FAS 133 on January 1, 2001. 5 8 THE RYLAND GROUP, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (amounts in thousands, except share data) Note 3. Segment Information Operations of the Company consist of two business segments: homebuilding and financial services. The Company's homebuilding segment specializes in the sale and construction of single-family attached and detached housing in 19 markets. The financial services segment provides mortgage-related products and services for Ryland Homes' customers and also conducts investment activities. Corporate expenses represent the costs of corporate functions which support the business segments.
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, 2000 1999 2000 1999 -------- -------- -------- -------- Earnings before taxes Homebuilding $ 40,379 $ 35,444 $ 92,961 $ 84,097 Financial services 4,575 2,123 7,559 7,418 Corporate and other (7,513) (7,831) (17,392) (16,332) -------- -------- -------- -------- Total $ 37,441 $ 29,736 $ 83,128 $ 75,183 ======== ======== ======== ========
Note 4. Earnings Per Share Reconciliation The following table sets forth the computation of basic and diluted earnings per share.
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Numerator Net earnings $ 22,839 $ 18,139 $ 50,708 $ 45,862 Preferred stock dividends (170) (201) (531) (637) ------------ ------------ ------------ ------------ Numerator for basic earnings per share, available to common stockholders 22,669 17,938 50,177 45,225 Effect of dilutive securities, preferred stock dividends 170 201 531 637 ------------ ------------ ------------ ------------ Numerator for diluted earnings per share, available to common stockholders $ 22,839 $ 18,139 $ 50,708 $ 45,862 ============ ============ ============ ============ Denominator Denominator for basic earnings per share, weighted-average shares 12,992,492 14,855,799 13,156,245 14,839,146 Effect of dilutive securities, Stock options 305,741 350,970 223,598 340,679 Equity incentive plan 79,891 374,721 78,384 393,275 Conversion of preferred shares 313,492 159,920 327,641 149,999 ------------ ------------ ------------ ------------ Dilutive potential of common shares 699,124 885,611 629,623 883,953 Denominator for diluted earnings per share, adjusted weighted-average shares and assumed conversions 13,691,616 15,741,410 13,785,868 15,723,099 BASIC EARNINGS PER SHARE $ 1.74 $ 1.21 $ 3.81 $ 3.05 DILUTED EARNINGS PER SHARE $ 1.67 $ 1.15 $ 3.68 $ 2.92
6 9 THE RYLAND GROUP, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (amounts in thousands, except share data) Note 5. Commitments and Contingencies Refer to Part II, Other Information, Item 1, Legal Proceedings, of this document for updated information regarding the Company's commitments and contingencies. Note 6. Comprehensive Income Comprehensive income, which consists of net income and the increase or decrease in unrealized gains or losses on the Company's available-for-sale securities, totaled $22.8 million and $17.9 million for the three months ended September 30, 2000 and 1999, respectively. For the nine months ended September 30, 2000 and 1999, comprehensive income was $50.2 million and $45.2 million, respectively. Note 7. Financial Services Short-term Notes Payable In September 2000, the Company amended a revolving credit facility used to finance investment securities in the financial services segment. The facility, previously $100 million, was renewed at $45 million. The agreement extends through March 2001, bears interest at market rates, and is collateralized by investment portfolio securities. Borrowings outstanding under this facility were $28.8 million and $19.6 million at September 30, 2000, and December 31, 1999, respectively. Note 8. Long-term Debt In August 2000, the Company issued $150 million of 9.75 percent senior notes, which mature on September 1, 2010. The net proceeds from this issuance were used to repay amounts outstanding under the revolving credit facility. In July 2000, the Company increased its unsecured revolving credit facility from $375 million to $400 million. This facility matures in October 2003. The Company had borrowings under this facility of $50 million and $70 million at September 30, 2000, and December 31, 1999, respectively. Note 9. Financial Services Long-term Debt In August 2000, the financial services segment decreased its warehouse credit facility from $200 million to $150 million. This facility matures in May 2002. The Company had borrowings under this facility of $67.4 million and $60.2 million at September 30, 2000, and December 31, 1999, respectively. 7 10 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS CONSOLIDATED For the third quarter of 2000, the Company reported consolidated net earnings from operations of $22.8 million, or $1.74 per share ($1.67 per share diluted). This compared with consolidated net earnings from operations of $18.1 million, or $1.21 per share ($1.15 per share diluted), for the third quarter of 1999. Consolidated net earnings for the nine months ended September 30, 2000, were $50.7 million, or $3.81 per share ($3.68 per share diluted), compared to $45.9 million, or $3.05 per share ($2.92 per share diluted), for the same period in the prior year. The homebuilding segment reported pretax earnings of $40.4 million for the third quarter of 2000, a $5 million increase over the $35.4 million reported for the third quarter of 1999. The increase over the prior year was primarily attributable to higher closing volume and homebuilding revenues. For the nine months ended September 30, 2000, the homebuilding segment reported pretax earnings of $93 million, compared with $84.1 million for the same period in the prior year. Pretax homebuilding margins were 6.6 percent and 6 percent for the three and nine months ended September 30, 2000, compared to 7.1 percent and 6.1 percent for the corresponding periods in 1999. The financial services segment reported pretax earnings from operations of $4.6 million and $7.6 million for the three and nine months ended September 30, 2000, compared to $2.1 million and $7.4 million for the same periods in 1999. The increase from the prior year was primarily attributable to increased gains from the sale of mortgages and mortgage servicing rights; a 6.5 percent increase in loan originations; operating cost reductions; and increased earnings from title and escrow operations. Corporate expenses represent the cost of corporate functions which support the business segments. Corporate expenses were $7.5 million for the third quarter of 2000, compared to $7.8 million for the third quarter of 1999, and $17.4 million for the first nine months of 2000, versus $16.3 million for the first nine months of 1999. Corporate expenses included non-recurring charges associated with the relocation of the Company's corporate headquarters of $.2 million and $1.3 million for the three-month and nine-month periods ended September 30, 2000, respectively, compared with $2.8 million for the same periods in 1999. No further charges associated with the relocation of the Company's headquarters are anticipated. Excluding these charges, corporate expenses increased by $2.3 million and $2.6 million for the three-month and nine-month periods ended September 30, 2000, respectively. The increases are primarily related to increased incentive compensation expense. Although the Company's limited-purpose subsidiaries no longer issue mortgage-backed securities and mortgage-participation securities, they continue to hold collateral for previously issued mortgage-backed bonds in which the Company maintains a residual interest. Revenues, expenses, and portfolio balances continue to decline as the mortgage collateral pledged to secure the bonds decreases due to scheduled payments, prepayments, and exercises of early redemption provisions. Revenues have approximated expenses for the last three years. 8 11 HOMEBUILDING SEGMENT Results of operations from the homebuilding segment are summarized as follows: ($ amounts in thousands, except average closing price)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, 2000 1999 2000 1999 ---------- ---------- ---------- ---------- Revenues Residential $ 574,335 $ 494,283 $1,496,174 $1,360,286 Other 42,124 1,583 54,229 16,203 ---------- ---------- ---------- ---------- Total 616,459 495,866 1,550,403 1,376,489 Gross profit 100,358 83,958 252,467 228,377 Selling, general and administrative expenses 55,145 45,757 147,927 135,466 Interest expense 4,834 2,757 11,579 8,814 ---------- ---------- ---------- ---------- Homebuilding pretax earnings $ 40,379 $ 35,444 $ 92,961 $ 84,097 ========== ========== ========== ========== Operational unit data New orders (units) 2,912 2,250 9,318 8,171 Closings (units) 3,017 2,624 7,858 7,227 Outstanding contracts at September 30, Units 5,127 4,396 Dollar value $1,052,024 $ 841,887 Average closing price $ 190,000 $ 188,000 $ 190,000 $ 188,000
Homebuilding revenues increased 24.3 percent for the third quarter of 2000, compared with the same period last year, due to a 15 percent increase in closings (3,017 homes closed, compared with 2,624 homes closed in the third quarter of 1999) and a 1.1 percent increase in average closing price. For the nine months ended September 30, 2000, homebuilding revenues were $1,550.4 million, an increase of $173.9 million, or 12.6 percent, compared to the nine months ended September 30, 1999. Gross profit margins from home sales averaged 17.6 percent for the third quarter of 2000, an increase from 17.1 percent for the third quarter of 1999. Gross profit margins from home sales averaged 17.1 percent for the first nine months of 2000, versus 16.7 percent for the same period in 1999. New orders for the third quarter of 2000 increased 29.4 percent from the third quarter of the prior year to 2,912 homes. Sales per community were up 21.7 percent from the third quarter of 1999, with the Company operating in 16 additional active communities. At 9,318 homes sold, new orders were up 14 percent for the first nine months of 2000, as compared to the first nine months of 1999. Outstanding contracts as of September 30, 2000, were 5,127, versus 4,396 at September 30, 1999, and 3,667 at December 31, 1999. Outstanding contracts represent the Company's backlog of homes sold but not yet closed, which are generally built and closed, subject to cancellation, over the subsequent two quarters. The value of outstanding contracts at September 30, 2000, was $1.1 billion, an increase of 25 percent from September 30, 1999, and an increase of 52.4 percent from December 31, 1999. 9 12 Selling, general and administrative expenses, as a percentage of revenue, were 8.9 percent and 9.5 percent for the three and nine months ended September 30, 2000, respectively, compared to 9.2 percent and 9.8 percent for the same periods in the prior year. Compared with the third quarter of 1999, interest expense increased $2.1 million to $4.8 million in the third quarter of 2000 due to increased activity in the Company's homebuilding operations and higher interest rates. For the first nine months of 2000, interest expense was $11.6 million, an increase of $2.8 million from the prior year. FINANCIAL SERVICES Results of operations of the Company's financial services segment are summarized as follows: (amounts in thousands)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, 2000 1999 2000 1999 ------- ------- ------- ------- Retail revenues Interest and net origination fees $ 1,067 $ 1,546 $ 2,664 $ 4,696 Net gains on sales of mortgages and servicing rights 5,216 3,115 12,658 11,701 Loan servicing 80 377 360 1,392 Title/escrow 2,473 2,140 6,771 6,138 ------- ------- ------- ------- Total retail revenue 8,836 7,178 22,453 23,927 Revenue from investment operations and limited-purpose subsidiaries 3,032 4,131 9,233 13,203 ------- ------- ------- ------- Total revenues $11,868 $11,309 $31,686 $37,130 Expenses General and administrative 4,302 4,843 15,323 16,480 Interest 2,991 4,343 8,804 13,232 ------- ------- ------- ------- Total expenses 7,293 9,186 24,127 29,712 ------- ------- ------- ------- Pretax earnings $ 4,575 $ 2,123 $ 7,559 $ 7,418 ======= ======= ======= =======
Pretax earnings by line of business were as follows: (amounts in thousands)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, 2000 1999 2000 1999 ------ ------ ------ ------ Retail $4,010 $1,401 $5,998 $5,356 Investments 565 722 1,561 2,062 ------ ------ ------ ------ Total $4,575 $2,123 $7,559 $7,418 ====== ====== ====== ======
10 13 OPERATIONAL DATA
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, 2000 1999 2000 1999 ---- ---- ---- ---- Retail operations: Originations 1,920 1,803 5,001 5,218 Percent of Ryland Homes closings 97% 89% 96% 86% Ryland Homes capture rate 71% 67% 69% 69% Investment operations: Portfolio average balance (in millions) $89.2 $89.1 $95.5 $96.8
Revenues for the financial services segment increased $.6 million, or 4.9 percent, for the quarter ended September 30, 2000. For the first nine months of 2000, revenues for the financial services segment were $31.7 million, down $5.4 million from the same period in the prior year. Revenues from retail operations increased by $1.6 million to $8.8 million for the three months ended September 30, 2000, compared with the same period in 1999. For the nine months ended September 30, 2000, revenues from retail operations decreased by $1.5 million to $22.4 million, compared with the nine months ended September 30, 1999. The fluctuations from the prior year were attributable to increased gains from the sale of mortgages and mortgage servicing rights, and increased revenues from title and escrow operations due to increased settlement volume, offset by decreased financing income resulting from a reduction in the number of days loans were held for sale, and a decrease in loan servicing fee income as a result of exiting this line of business. Revenues from investment operations and limited-purpose subsidiaries decreased by $1.1 million and $4 million for the three-month and nine-month periods ended September 30, 2000, respectively, compared with the same periods in 1999. The decrease from the prior year was primarily attributable to reduced interest income from the declining mortgage collateral and investment portfolio balances. General and administrative expenses were $4.3 million and $15.3 million for the three and nine months ended September 30, 2000, respectively, compared with $4.8 million and $16.5 million for the periods ended September 30, 1999. These decreases were primarily attributable to cost reductions made at the mortgage branch level. Interest expense was $3 million and $8.8 million for the three and nine months ended September 30, 2000, respectively, compared with $4.3 million and $13.2 million for the same periods in 1999. These decreases were primarily attributable to declining mortgage collateral and investment portfolio balances, and a reduction in the number of days loans were held for sale. Retail operations include residential mortgage origination; loan servicing; and title, escrow and homeowners insurance services for retail customers. Retail operations reported pretax earnings of $4 million and $6 million for the third quarter and first nine months of 2000, respectively, compared to $1.4 million and $5.4 million for the same periods in the prior year. Mortgage origination volume increased by 6.5 percent for the three months ended September 30, 2000, and decreased by 4.2 percent for the nine months ended September 30, 2000, compared with the same periods in 1999. The decline from the nine-month levels reported in 1999 was primarily due to a decrease in third-party originations, resulting from the Company's 1999 decision to exit the third-party originations market, offset by increased closings from homebuilding operations that were financed by the Company. 11 14 Investment operations hold certain assets, mainly mortgage-backed securities, which were obtained as a result of the exercise of redemption rights on various mortgage-backed bonds previously owned by the Company's limited-purpose subsidiaries. Pretax earnings from investment operations were $.6 million and $1.6 million for the three and nine months ended September 30, 2000, respectively, versus $.7 million and $2.1 million for the same periods in 1999. The decrease was essentially the result of decreases in the investment portfolio's average balance and its weighted-average coupon rate, which resulted in a decline in interest and other income. FINANCIAL CONDITION AND LIQUIDITY Cash requirements for the Company's homebuilding and financial services segments are generally provided from outside borrowings and internally generated funds. The Company believes that its current sources of cash are sufficient to finance its current requirements. The homebuilding segment's borrowings include senior notes, senior subordinated notes, an unsecured revolving credit facility, and nonrecourse secured notes payable. Senior and senior subordinated notes outstanding totaled $450 million as of September 30, 2000, and $308 million as of December 31, 1999. The Company uses its unsecured revolving credit facility to finance increases in its homebuilding inventory and working capital. This facility matures in October 2003 and provides for borrowings up to $400 million. Outstanding borrowings under this facility totaled $50 million as of September 30, 2000, and $70 million at December 31, 1999. The Company had letters of credit outstanding under this facility totaling $59.7 million at September 30, 2000, and $48.9 million at December 31, 1999. To finance land purchases, the Company also uses seller-financed, nonrecourse secured notes payable. At September 30, 2000, such notes payable outstanding amounted to $1.1 million, compared with $8.1 million at December 31, 1999. Housing inventories increased to $958.6 million as of September 30, 2000, from $822.7 million at December 31, 1999. This increase reflects higher sold inventory levels, related to a significant increase in quarter-end backlog, and an increase in land under development and improved lots commensurate with growth. The increase in inventory was funded with internally generated funds and borrowings under the revolving credit facility. The financial services segment uses cash generated from operations and borrowing arrangements to finance its operations. The financial services segment has borrowing arrangements that include a credit facility which provides up to $150 million for mortgage warehouse funding and matures in May 2002; repurchase agreement facilities aggregating $80 million; and a $45 million revolving credit facility which is used to finance investment portfolio securities. At September 30, 2000, and December 31, 1999, the combined borrowings of the financial services segment outstanding under all agreements totaled $153.6 million and $157.5 million, respectively. Mortgage loans, notes receivable, and mortgage-backed securities held by the financial services subsidiaries were pledged as collateral for previously issued mortgage-backed bonds, the terms of which provided for the retirement of all bonds from the proceeds of the collateral. The source of cash for the bond payments was received from the mortgage loans, notes receivable, and mortgage-backed securities. The Company has not guaranteed the debt of either its financial services segment or limited-purpose subsidiaries. During the nine months ended September 30, 2000, the Company repurchased approximately 950,000 shares of its outstanding common stock at a cost of approximately $18 million. In February 2000, the Board of Directors approved the repurchase of up to one million shares of the Company's outstanding common stock. As of September 30, 2000, the Company had Board authorization to repurchase up to an additional 820,000 shares of its common stock. The Company's repurchase program has been funded through internally generated funds. 12 15 Note: Certain statements in Management's Discussion and Analysis of Financial Condition and Results of Operations may be "forward-looking statements" within the meaning of the Private Securities Litigation Act of 1995. Forward-looking statements are based on various factors and assumptions that include risks and uncertainties, such as the completion and profitability of sales reported; the market for homes generally and in areas where the Company operates; the availability and cost of land; changes in economic conditions and interest rates; the availability and increases in raw material and labor costs; consumer confidence; government regulations; and general competitive factors, all or each of which may cause actual results to differ materially. Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no other material changes in the Company's market risk from December 31, 1999. For information regarding the Company's market risk, refer to Form 10-K for the fiscal year ended December 31, 1999, of The Ryland Group, Inc. 13 16 PART II. OTHER INFORMATION Item 1. Legal Proceedings The Company is party to various legal proceedings generally incidental to its businesses. Based on evaluation of these 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 overall financial condition of the Company. Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders during the third quarter of 2000. Item 6. Exhibits and Reports on Form 8-K A. Exhibits 10.7 Amended and restated Employment Agreement, dated 17-33 as of September 20, 2000, between R. Chad Dreier and The Ryland Group, Inc. (filed herewith) 10.8 Senior Executive Severance Agreement, between 34-41 the executive officers of the Company and The Ryland Group, Inc. (filed herewith) 10.12 Amendment to the Restated Loan and Security 42 Agreement (Warehouse Agreement), dated as of February 18, 2000, between The Ryland Group, Inc. and certain financial institutions (filed herewith) 10.13 Amended Credit Agreement dated as of 43-52 September 1, 2000, between Ryland Mortgage Company; Associates Funding Corporation; Chase Manhattan Bank; and certain lenders. (filed herewith) 27 Financial Data Schedule 53 (filed herewith)
B. Reports on Form 8-K The Company filed one current report on Form 8-K, dated August 24, 2000, regarding the completion of the sale of $150 million aggregate principal Senior Notes at 9.75 percent, which are due September 2010. 14 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE RYLAND GROUP, INC. ---------------------- Registrant November 14, 2000 By: /s/ Gordon A. Milne - ----------------- ------------------- Date Gordon A. Milne Senior Vice President and Chief Financial Officer (Principal Financial Officer) November 14, 2000 By: /s/ David L. Fristoe - ----------------- -------------------- Date David L. Fristoe Senior Vice President and Corporate Controller (Principal Accounting Officer) 15 18 INDEX OF EXHIBITS A. Exhibits
Exhibit No. Page - ----------- ---- 10.7 Amended and restated Employment Agreement, dated 17-33 as of September 20, 2000, between R. Chad Dreier and The Ryland Group, Inc. (filed herewith) 10.8 Senior Executive Severance Agreement, between 34-41 the executive officers of the Company and The Ryland Group, Inc. (filed herewith) 10.12 Amendment to the Restated Loan and Security 42 Agreement (Warehouse Agreement), dated as of February 18, 2000, between The Ryland Group, Inc. and certain financial institutions (filed herewith) 10.13 Amended Credit Agreement dated as of 43-52 September 1, 2000, between Ryland Mortgage Company; Associates Funding Corporation; Chase Manhattan Bank; and certain lenders. (filed herewith) 27 Financial Data Schedule 53 (filed herewith)
16 EX-10.7 2 a66715ex10-7.txt EXHIBIT 10.7 1 Exhibit 10.7 AMENDED AND RESTATED EMPLOYMENT AGREEMENT (AMENDED AND RESTATED ON SEPTEMBER 20, 2000) AMENDED AND RESTATED EMPLOYMENT AGREEMENT dated as of the 21st day of April 1999, 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. AMENDMENT AND RESTATEMENT OF EMPLOYMENT AGREEMENT. This Employment Agreement amended and restated on September 20, 2000 the Employment Agreement dated and effective as of April 21, 1999 between the Company and the Executive. 2. TERM OF EMPLOYMENT. The Company agrees to employ the Executive until December 31, 2003. This Agreement shall automatically renew for a one (1) year renewal period on December 31, 2003, or for a one (1) year renewal period at the end of each renewal period until terminated in accordance with the terms of this Agreement. Either party may terminate this Agreement on December 31, 2003, 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 December 31, 2003, 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: 2 5.1 BASE SALARY. The Company shall pay the Executive a Base Salary in the fixed amount of seven hundred fifty thousand dollars ($750,000) per year for the term of this Employment Agreement. This Base Salary is paid in installments consistent with the normal payroll practices of the Company. 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 and one-fifth percent (1.2%) of the amount of Ordinary Course Pre-Tax Income that equals or is less than the prior fiscal year's Ordinary Course Pre-Tax Income and one and one-half percent (1.5%) of the amount of Ordinary Course Pre-Tax Income that exceeds the prior fiscal year's 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 non-recurring 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 the TRG Incentive Plan and shall have an individual target performance award equal to 120% of the Executive's Base Salary. The Executive shall participate in any additional 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) Prior Grant of Stock Option (January 1997) Pursuant to the terms and conditions of The Ryland Group, Inc. 1992 Equity Incentive Plan (the "Plan), the Company previously granted to the Executive on January 28, 1997, the ability to exercise during the period ending at the close of business on January 28, 2007, the option to purchase 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. 2 3 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 are divided into three (3) installments. The first installment for 50,000 shares was exercisable in whole or in part beginning 1/29/98 The second installment for 50,000 shares was exercisable in whole or in part beginning 1/29/99 The third installment for 50,000 shares is exercisable in whole or in part beginning 1/29/00
(b) Current Grant of Stock Option. Pursuant to the terms and conditions of the Plan, the Company grants to the Executive during the period ending at the close of business on April 21, 2009, the option to purchase from the Company at a price of $25.50 per share up to 200,000 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. 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 pursuant to this Section 5.5(b) of this Agreement are divided into three (3) installments. The first installment for 70,000 shares is exercisable in whole or in part beginning 4/21/00 The second installment for 70,000 shares is exercisable in whole or in part beginning 4/21/01 The third installment for 60,000 shares is exercisable in whole or in part beginning 4/21/02
(c) Exercise of Option. 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. (d) Payment of Exercise Price. The Executive shall pay the exercise price in the following ways: 3 4 (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. (e) Termination The Options shall terminate upon the happening of the earliest of the following events: (i) In accordance with Sections 5.5 (a) and (b) above. (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. 4 5 (f) 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) Prior Grant of Stock Units (January 1997) Pursuant to the terms and conditions of the Plan, the Company previously granted to the Executive an award of 45,000 Stock Units pursuant to Section 10 of the Plan. The Stock Units become vested and payable in accordance with the following vesting schedule: VESTING DATE ------------ 15,000 Stock Units November 1, 1999 30,000 Stock Units November 1, 2000 (b) Current Grant of Stock Units Pursuant to the terms and conditions of the Plan, the Company grants to the Executive an award of 90,000 Stock Units pursuant to Section 10 of the Plan. Subject to Subsection (c) below, the Stock Units become vested and payable in accordance with the following vesting schedule: VESTING DATE ------------ 30,000 Stock Units February 15, 2001 30,000 Stock Units February 15, 2002 unless the Company's Return on Equity (ROE) for the year ended December 31, 5 6 2000 exceeds the average ROE for fiscal years ending in the year 2000 for the homebuilding companies listed below (the "Competitor Group"), in which case this "Vesting Date" is the earlier of June 1, 2001 or when the competitive data becomes available and has been reviewed and approved by the Compensation Committee. 30,000 Stock Units February 15, 2003 unless the Company's ROE for the year ended December 31, 2001 exceeds the average ROE for fiscal years ending in the year 2001 for the Competitor Group, in which case this "Vesting Date" is June 1, 2002 or when the competitive data becomes available and has been reviewed and approved by the Compensation Committee. The Company's ROE for the fiscal years used in the determination of the "Vesting Dates" above is the Company's consolidated net earnings after taxes and extraordinary items and before the payment of dividends on the Company's common and preferred stock divided by the Company's beginning common stockholder's equity during such fiscal year period, all of which is determined under generally accepted accounting principles on a basis consistent with the Company's audited consolidated financial statements. The following homebuilding companies are the "Competitor Group" for the purpose of the foregoing determination of the "Vesting Dates": Beazer Homes Lennar Centex M/I Schottenstein DR Horton MDC Holdings K. Hovnanian NVR Kaufman & Broad Pulte Toll Brothers (c) Vesting of 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). (d) Payment of Stock Units. 6 7 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. (e) 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 per-share cash dividend amount 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. (f) 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. (g) Tax Matters. If any taxes, including income taxes or withholding taxes, result or become due and payable as a result of the Stock Units, including the grant, vesting and payment of the Stock Units to the Executive, the Executive shall receive a payment sufficient to place the Executive in the same net after-tax position that the Executive would have been in had such tax not resulted or been imposed and had the Executive not incurred any interest charges or penalties, if any, with respect to the imposition of such tax. (h) 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. (i) 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. 7 8 (j) 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. 8 9 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. Other than during a Change of Control Period (as defined in Section 7.2), 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) twenty-four (24) 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) twenty-four (24) 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. 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. 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 9 10 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 unless the provisions of Section 7 apply. "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 addition to any compensation or benefits to which the Executive may otherwise be entitled under any other agreement, plan or arrangement with the Corporation, other than a plan, policy or other arrangement providing for payments due to severance of employment) in the event of a Termination of Employment (as defined below) during a Change of Control Period (as defined below) of the Company: 10 11 (a) Lump Sum Cash Payment. On or before the Executive's last day of employment with the Company or any successor corporation, the Company or any successor corporation 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 or any successor corporation, the Company or any successor corporation will pay the Executive a lump sum cash payment equal to three (3) times the highest Annual Compensation (as defined below) for 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 provided pursuant to this Agreement, the TRG Incentive Plan or other incentive plan, Stock Units granted pursuant to this Agreement, any deferred compensation plans (including the Retirement Savings Opportunity Plan, Executive and Director Deferred Compensation Plan and any successor or replacements plans) and any incentive, bonus, stock option, equity incentive, restricted stock, insurance or split dollar insurance program, relocation equity program, or other benefit plans of the Company in which the Executive participates prior to the Change of Control shall immediately vest in full and the Executive shall receive the amount of these rights, awards and benefits in a cash lump sum payment or other form of compensation as provided in accordance with the applicable benefit, document or plan within thirty (30) days of 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 or receive equivalent payments by the Company in the amount of additional benefits or payments that would be payable if full vesting had taken place under these plans 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 or any successor corporation or affiliate of such successor corporation. (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 supplemental early retirement plan, split dollar insurance program, personal health services allowance, health or social club benefits, benefits outlined in the Executive's Compensation Program and any other fringe benefits (the "Benefits") provided to the Executive prior to the Change of Control shall be continued or equivalent benefits provided by the Company or any successor corporation or affiliate of such successor 11 12 corporation (the "Responsible 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 Responsible Company is unable to continue the Benefits as required by the preceding sentence, the Responsible Company shall pay to the Executive a lump sum cash payment equal to the value of the Benefits which the Responsible Company is unable to provide. (d) Relocation Assistance. Should the Executive move his residence in order to pursue professional or career opportunities within two (2) years after the date of the Executive's Termination of Employment, he will be reimbursed by the Responsible Company for any expenses incurred in that relocation, including taxes payable on the reimbursement, as well as any reduction in value from the original purchase price of the Executive's residence. Benefits under this paragraph will include assistance in and payment of all costs and commissions related to selling the Executive's home, moving costs, as well as 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. (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. Alternatively, the Executive, upon request, will receive, in lieu of the foregoing reimbursement, a cash payment equal to ten percent (10%) of the Executive's Annual Compensation for the calendar year immediately preceding the date of the Executive's 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; 12 13 (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 (2) 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 (2/3) 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 paid or earned and the Bonus paid or earned, even though paid in a subsequent year, to the Executive, vested or unvested, and all amounts credited to the Executive, vested or unvested, under any incentive compensation or other benefit or compensation plans of the Company in which the Executive participates during a 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, bonus or any other benefits, incentive compensation or compensation plans are 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 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) two (2) 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 proposed to occur. 13 14 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. 8. NONCOMPETITION AND PROPRIETARY INFORMATION. 8.1 PROHIBITION ON COMPETITION. During the term of this Agreement and for twenty-four (24) months following the expiration or termination of this Agreement as a result of notice of nonrenewal by Executive pursuant to Section 2 or following the effective date of a termination of this Agreement by the Executive pursuant to Section 6.3 (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 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 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 14 15 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. 15 16 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. 16 17 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/ Robert J. Cunnion III /s/ R. Chad Dreier -------------------------------------------- ------------------------- Robert J. Cunnion III, Senior Vice President R. Chad Dreier Attest: /s/ Timothy J. Geckle ---------------------------------------- Timothy J. Geckle, Secretary 17 EX-10.8 3 a66715ex10-8.txt EXHIBIT 10.8 1 EXHIBIT 10.8 SENIOR EXECUTIVE SEVERANCE AGREEMENT AGREEMENT dated as of ___________ between The Ryland Group, Inc., a Maryland corporation (the "Corporation"), and ______________________________ (the "Executive"). The purpose of this Agreement is to ensure that the Corporation will receive the continued dedication, loyalty, and service of, and the availability of objective advice and counsel from, the Executive notwithstanding the possibility, threat or occurrence of a bid or other action to take over control of the Corporation. 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 a Change of Control. The following payments and benefits will be provided to the Executive by the Corporation (in addition to any compensation or benefits to which the Executive may otherwise be entitled under any other agreement, plan or arrangement with the Corporation, other than a plan, policy or other arrangement providing for payments due to severance of employment) in the event of a Termination of Employment (as hereinafter defined) of the Executive during a Change of Control Period (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 or any successor corporation, the Corporation or any successor corporation will pay the Executive an amount equal to the Executive's unpaid, annualized base salary for the remainder of the year in which the Termination of Employment occurs and a pro rata bonus through the date of Termination of Employment. Also, on or before the Executive's last day of employment with the Corporation or any successor corporation, the Corporation or any successor corporation will pay the Executive a lump sum cash payment equal to two (2) times the highest Annual Compensation (as hereinafter defined) for any of the three (3) calendar years immediately preceding the date of Termination of Employment. For purposes of this Section 1.1, the pro-rata bonus shall be an amount equal to the highest bonus earned by the Executive within the three (3) calendar years immediately preceding the date of Termination of Employment, pro rated for the period served during the year in which the Termination of Employment occurs. 1.2 Accelerated Vesting and Supplemental Payments. All rights, awards and benefits of the Executive provided pursuant to this Agreement, the TRG Incentive Plan, any deferred compensation plans (including the Retirement Savings Opportunity Plan, Executive and Director Deferred Compensation Plan and any successor or 2 replacement plans) and any incentive, bonus, stock option, equity incentive, restricted stock, insurance or split dollar insurance program, relocation equity program, or other benefit plans of the Corporation in which the Executive participates prior to the Change of Control shall immediately vest in full and the Executive shall receive the amount of these rights, awards and benefits in a cash lump sum payment or other form of compensation as provided in accordance with the applicable benefit, document or plan 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 or receive equivalent payments by the Corporation in the amount of additional benefits or payments that would be payable if full vesting had taken place under these plans 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 or any successor corporation or affiliate of such successor 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 supplemental early retirement plan, split dollar insurance program, personal health services allowance, health or social club benefits, benefits outlined in the Executive's Compensation Program and any other benefits (the "Benefits") provided to the Executive prior to the Change of Control shall be continued or equivalent benefits provided by the Corporation or any successor corporation or affiliate of such successor corporation (the "Responsible 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 Responsible Corporation is unable to continue the Benefits, as required by the preceding sentence, the Responsible Corporation shall pay to the Executive a lump sum cash payment equal to the value of the Benefits which the Responsible Corporation is unable to provide. 1.4 Relocation Assistance. Should the Executive move his residence in order to pursue professional or career opportunities within two (2) years after the date of the Executive's Termination of Employment, he will be reimbursed by the Responsible Corporation for any expenses incurred in that relocation, including taxes payable on the reimbursement, as well as any reduction in value from the original purchase price of the Executive's residence. Benefits under this paragraph will include assistance in and payment of all costs and commissions related to selling the Executive's home, moving costs 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 Period. 2 3 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 date of Termination of Employment. 1.6 Outplacement Assistance. The Executive shall be reimbursed by the Responsible 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. Alternatively, the Executive, upon request, will receive, in lieu of the foregoing reimbursement, a cash payment equal to ten percent (10%) 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 twenty percent (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 (2) 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 (2/3) 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. 3 4 (ii) "Annual Compensation" shall mean the sum of the annual base salary paid or earned and annual bonus paid or earned, even though paid in a subsequent year, by the Executive and all amounts credited to the Executive, vested and unvested, under any incentive compensation or other benefit or compensation plans in which the Executive participates during a calendar year. In the event the Executive has not been employed by the Corporation for a complete calendar year, the determination of Annual Compensation shall involve a pro forma projection of annual base salary, annual bonus and amounts that are projected to be credited, vested and unvested, under any incentive compensation or other benefit or compensation plans in which the Executive participates. (iii) A "Termination of Employment" shall take place in the event that the Executive's employment is terminated (a) by the Corporation without Cause (as hereinafter defined) or (b) by the Executive with Good Reason (as hereinafter defined). (iv) "Cause" shall mean (a) the Executive's willful and continued failure substantially to perform the material duties of his or her position (other than as a result of disability, as defined in Section 22(e)(3) of the Internal Revenue Code, or as a result of termination by the Executive for Good Reason) after written notice to the Executive by the Board specifying such failure, provided that such "Cause" shall have been found by a majority vote of the Board after at least ten (10) days' written notice to the Executive specifying the failure on the part of the Executive and after an opportunity for the Executive to be heard at a meeting of the Board and take corrective action to remedy or eliminate such failure; (b) any willful act or omission by the Executive constituting dishonesty, fraud or other malfeasance, and any act or omission by the Executive constituting immoral conduct, which in any such case is injurious to the financial condition or business reputation of the Corporation and so proven by independently verified evidence of such conduct; or (c) the Executive's conviction of a felony under the laws of the United States or any state thereof or any other jurisdiction in which the Corporation conducts business. (v) "Good Reason" shall mean (a) 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, (b) the Corporation requires the Executive, without his or her consent, to be based at a location which is more than fifty (50) miles from the Executive's then current primary residence, (c) the Executive's base salary, bonus or any other benefits, incentive compensation or compensation plans are reduced, or (d) the Executive experiences in any year a reduction in the ratio of the Executive's incentive compensation, 4 5 bonus or other such payments to his base compensation, or a reduction in the method of calculation of the Executive's incentive compensation, bonus or other such payments if these benefits or payments are calculated other than as a percentage of base salary. An isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Corporation promptly after receipt of notice thereof given by the Executive shall be excluded. (vi) 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) two (2) 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 proposed to occur. 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 Internal Revenue 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 1.8 is made. 2. General. 2.1. Indemnification. If litigation shall be brought to enforce or interpret any provision contained herein, then, provided that the Executive prevails to any extent, the Corporation shall reimburse or indemnify the Executive for the Executive's reasonable attorneys' fees, expenses and disbursements incurred in such litigation, including costs of enforcement. 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 binding 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 5 6 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 to any extent in any 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, including costs of enforcement. 2.3 Payment of Obligations Absolute. The Responsible 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 Responsible Corporation may have against the Executive or anyone else, provided, however, that as a condition to payment of amounts under this Agreement, the Executive shall execute a general release and waiver, in form and substance reasonably satisfactory to the Responsible Corporation, of all claims relating to the Executive's employment by the Corporation and the termination of such employment, including, but not limited to, discrimination claims, employment-related tort claims, contract claims and claims under this Agreement (other than claims with respect to benefits under the Corporation's tax-qualified retirement plans or continuation of coverage or benefits solely as required by Part 6 of Title I of the Employee Retirement Income Security Act of 1974). All amounts payable by the Responsible Corporation shall be paid without notice or demand. Each and every payment made by the Responsible Corporation shall be final, and the Responsible 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 Responsible 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 or affiliate of a successor to 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, affiliates of successors or 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 6 7 this Agreement, the term "successor" shall mean any person, firm, corporation or business entity or affiliate thereof which at any time, whether by merger, purchase or otherwise, directly or indirectly acquires all or substantially all of the assets or the business of the Corporation, including any entity that shall be the surviving corporation in a merger with the Corporation or the acquiring person or affiliate of the acquiring person in an acquisition of the Corporation and/or of all or substantially all of its business or assets, regardless of whether such transaction constitutes a Change of Control. In all cases, the Corporation, Responsible Corporation or successor 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 Entire Agreement. This Agreement contains the entire agreement between the parties with respect to the subject matter described herein and supercedes any prior written agreement between the parties regarding such subject matter. Any oral or written agreements, representations, warranties, written inducements, or other communications made prior to the execution of this Agreement with respect to the subject matter described herein shall be void and ineffective for all purposes. 2.10 Tax Withholding. The Corporation may withhold all federal, state, city or other taxes required pursuant to any law or governmental regulation or ruling. 2.11 Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or unenforceability of any other provision of this Agreement, which shall remain in full force and effect and be interpreted so as to effect the original intent of the parties to this Agreement to the end that the obligations and agreements contained herein are fulfilled. 7 8 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. THE RYLAND GROUP, INC. EXECUTIVE - ----------------------------------- ------------------------------------ R. Chad Dreier, President and Chief [Executive] Executive Officer ATTEST: - ---------------------------------- Timothy J. Geckle, Secretary 8 EX-10.12 4 a66715ex10-12.txt EXHIBIT 10.12 1 Exhibit 10.12 July 19, 2000 Mr. Greg Martin Bank One, Texas N.A. Mortgage Finance Group 1717 Main Street Dallas, TX 75201 Dear Greg, This letter will serve as notification of Ryland Mortgage Company's desire to decrease the total amount of commitment under terms of the Second Restated Loan and Security Agreement, dated as of February 18, 2000 (warehouse agreement) from $200 million to $150 million. I would like to have this decrease effective as of August 1, 2000. In light of Ryland Mortgage's decision to exit the spot loan business and the improved efficiencies we have developed in our loan delivery process, we project that a warehouse line of $150 million is sufficient to meet our needs. Please call me if you have any questions. Thank you for your assistance. Sincerely, Susan M. Cass Senior Vice President/CFO EX-10.13 5 a66715ex10-13.txt EXHIBIT 10.13 1 EXHIBIT 10.13 9/00 AMENDMENT (THE SEVENTH AMENDMENT) DATED AS OF SEPTEMBER 1, 2000 TO REPURCHASE FINANCING AGREEMENT DATED AS OF OCTOBER 9, 1996 AMONG ASSOCIATES FUNDING, INC. ("BORROWER") RYLAND MORTGAGE COMPANY ("GUARANTOR") THE CHASE MANHATTAN BANK ("CHASE"), AS AGENT ("AGENT") AND CERTAIN LENDERS $45,000,000 (ORIGINALLY $100,000,000) REVOLVING CREDIT FACILITY 2 INDEX "9/00 Amendment" ............................................................. 1 "Agent" ...................................................................... 1 "Borrower" ................................................................... 1 "Chase" ...................................................................... 1 "Companies" .................................................................. 1 "Guarantor" .................................................................. 1 "Lenders" .................................................................... 1 "LIBOR" ...................................................................... 2 "Loan Agreement" ............................................................. 1 "Termination Date" ........................................................... 2 3 TABLE OF CONTENTS Preamble ..................................................................... 1 Recitals ..................................................................... 1 Amendments ................................................................... 1 1. Amendment of Section 1.1 .................................................. 1 2. Conditions Precedent ...................................................... 3 3. Representations and Warranties ............................................ 3 4. Ratification .............................................................. 3 5. Miscellaneous ............................................................. 3 4 9/00 AMENDMENT TO REPURCHASE FINANCING AGREEMENT PREAMBLE This 9/00 AMENDMENT TO REPURCHASE FINANCING AGREEMENT (THE "9/00 AMENDMENT") entered into as of September 1, 2000, among ASSOCIATES FUNDING, INC., a Delaware corporation ("BORROWER"), RYLAND MORTGAGE COMPANY, an Ohio corporation ("GUARANTOR"), THE CHASE MANHATTAN BANK ("CHASE"), a New York banking corporation and successor by merger to Chase Bank of Texas, National Association, a national banking association formerly named Texas Commerce Bank National Association, as a lender and as agent for the lenders from time to time party thereto (in that capacity, the "AGENT"), and Chase, as currently the only lender party to the Loan Agreement (defined below) to amend (for the seventh time) the Loan Agreement, recites and provides as follows: RECITALS Borrower and Guarantor (the "COMPANIES") and Chase, as Agent and the only lender (the lenders thereunder being called the "LENDERS"), are party to the Repurchase Financing Agreement dated as of October 9, 1996 (as amended through the date of this amendment, the "LOAN AGREEMENT") providing for revolving credit loans of (originally) up to $100 million of principal lent and outstanding on any day during the term of the Loan Agreement and previously amended to, among other things, reduce such limit to $35 million. Terms defined in the Loan Agreement have the same meanings when used, unless otherwise defined, in this amendment. This amendment is for the purposes of (i) increasing such limit to $45 million, (ii) eliminating the sublimit for financing the Borrower's investments in performing single-family mortgage loans that was added by the First Amendment (and subsequently modified by later amendments to be a $10 million sublimit), (iii) increasing the Borrower's required minimum Net Worth from $1 million to $3 million, (iv) providing for automatic termination of the availability of Borrowings under this Agreement if the Existing Loan Agreement or the Borrower's right to borrow under it is terminated at any time or for any reason and (v) adding new definitions and updating the definition of "LIBOR". Accordingly, for valuable and acknowledged consideration, the parties to this amendment agree as follows: AMENDMENTS 1. AMENDMENT OF SECTION 1.1. SECTION 1.1 is amended by adding the following new definitions, in alphabetical order: "9/00 AMENDMENT" means the 9/00 Amendment to Repurchase Financing Agreement dated as of September 1, 2000, executed by the parties hereto and amending this Agreement (for the seventh time). "CHASE" is defined in the preamble of the 9/00 Amendment. SECTION 1.1 is further amended by amending the following definitions to henceforth read as follows: "BORROWING BASE" means, at any time, the sum of: 1 5 (a) ninety-nine percent (99%) of the market value of Agency mortgage-backed securities covered by Lender Liens; plus (b) ninety-five percent (95%) of the market value of private mortgage-backed securities covered by Lender Liens. After the effective date of the 9/00 Amendment, mortgage loans are no longer eligible Collateral under this Agreement, and no mortgage loan shall have any value for purposes of determining the Borrowing Base, and accordingly Section 3 of each Borrowing Base Report made for any date after such effective date shall be left blank (or completed with zeros) and disregarded, and the following definitions added by the First Amendment likewise also may be disregarded: "Certifying Officer's Certificate", "Conforming", "FHA", "In Default", "Loan Papers", "Mortgage", "Mortgage Loan", "Mortgage Note", "Mortgaged Premises", "Nonconforming", "Permitted Encumbrances", "Single-family", "VA" and "Warehouse Transmission File Instructions". "LIBOR" means, for any LIBOR Borrowing and for any day, the rate quoted by the principal London Branch of The Chase Manhattan Bank at approximately 11:00 a.m. London time on the second Business Day before the first day of the applicable Interest Period for the offering to leading banks in the London interbank market of U.S. dollar deposits each for a term and in an amount that are fairly comparable, respectively, to the term of the Interest Period and the amount of the LIBOR Borrowing; provided that if for any reason the Agent cannot determine such rate for any such second Business Day, then LIBOR for that day shall be the rate of interest per annum that is equal to the arithmetic mean of the rates appearing on the Bloomberg British Bankers Association LIBOR page as of 11:00 a.m., London time, on the second Business Day before the first day of the applicable Interest Period for the offering by such institutions as are named therein to prime banks in the Eurodollar interbank market in London, England, for U.S. dollar deposits each for a term and in an amount that are fairly comparable, respectively, to the term of the relevant Interest Period and the amount of the relevant LIBOR Borrowing. The Agent's determination of LIBOR for each day shall be conclusive and binding, absent manifest error. "TERMINATION DATE" means the earliest of (a) the Stated Termination Date, (b) the date all commitments or obligations of all Lenders to extend any credit under this agreement have terminated or been canceled or (c) the date when the Existing Loan Agreement or the Borrower's right to borrow under it terminates, without regard to the reason therefor. And SCHEDULE 1.1(a) (first referred to in the Loan Agreement in the definition of "Commitment" in SECTION 1.1 and last updated by the 3/00 Amendment to Repurchase Financing Agreement dated March 31, 2000) is amended in its entirety to henceforth read as does SCHEDULE 9/00-1.1(a) attached to this amendment and hereby made a part hereof. 2 6 2. AMENDMENT OF SECTION 9.1. Section 9.1 is hereby amended in its entirety to henceforth read as follows: 9.1 NET WORTH. Borrower's stockholders' equity reflected on its balance sheet may not be less than Three Million Dollars ($3,000,000) at the end of any quarter in Borrower's fiscal year. 3. CONDITIONS PRECEDENT. The Companies agree to forthwith deliver to the Agent: (a) counterparts of this amendment executed by all of the parties named below, (b) for any officer of either Company signing below on behalf of that Company but not included in certificates of incumbency for that Company delivered to the Agent before this amendment, a certificate of the secretary or assistant secretary of that Company about the due incumbency of that officer, and (c) if the Agent reasonably requires, resolutions of the directors of any Company authorizing this amendment certified as accurate and complete by the secretary or assistant secretary of the appropriate Company. This Amendment shall become effective as of the effective date of this Amendment upon execution of this Amendment by the Borrower and the Agent. 4. 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. 5. 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). 6. 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 binds and benefits the Companies, Agent, Lenders, and their respective successors and permitted assigns. 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. 3 7 The remainder of this page is intentionally left blank; counterpart signature pages follow. 4 8 EXECUTED as of the day and year first stated above. ASSOCIATES FUNDING, INC. RYLAND MORTGAGE COMPANY By: SUSAN M. CASS By: SUSAN M. CASS -------------------------------- -------------------------------- (Name) Susan M. Cass (Name) Susan M. Cass ------------------------------ ------------------------------ (Title) Sr VP/CFO (Title) Sr VP/CFO ----------------------------- ----------------------------- THE CHASE MANHATTAN BANK, as Agent and as a Lender By: -------------------------------- (Name) ------------------------------ (Title) ----------------------------- UNNUMBERED COUNTERPART SIGNATURE PAGE TO 9/00 AMENDMENT TO REPURCHASE FINANCING AGREEMENT AMONG ASSOCIATES FUNDING, INC., RYLAND MORTGAGE COMPANY AND THE CHASE MANHATTAN BANK 9 EXECUTED as of the day and year first stated above. ASSOCIATES FUNDING, INC. RYLAND MORTGAGE COMPANY By: By: -------------------------------- -------------------------------- (Name) (Name) ------------------------------ ------------------------------ (Title) (Title) ----------------------------- ----------------------------- THE CHASE MANHATTAN BANK, as Agent and as a Lender By: MICHAEL W. NICHOLSON -------------------------------- (Name) Michael W. Nicholson ------------------------------ (Title) Vice President ----------------------------- UNNUMBERED COUNTERPART SIGNATURE PAGE TO 9/00 AMENDMENT TO REPURCHASE FINANCING AGREEMENT AMONG ASSOCIATES FUNDING, INC., RYLAND MORTGAGE COMPANY AND THE CHASE MANHATTAN BANK 10 SCHEDULE 9/00-1.1(a) LENDERS AND COMMITMENTS - ------------------------------------------------------------------------------- NAME OF LENDER COMMITMENT - ------------------------------------------------------------------------------- The Chase Manhattan Bank $45,000,000 717 Travis, 6th Floor O6TCBSouth56 Houston, TX 77252-7056 Attention: Michael Nicholson, Vice President Fed Tax ID No. 74-0800980 Tel (713) 216-5335 Fax (713) 216-1567 - ------------------------------------------------------------------------------- EX-27 6 a66715ex27.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RYLAND GROUP INC. FORM 10-Q FOR THE PERIOD ENDED 9/30/00 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-2000 SEP-30-2000 89,399 87,035 59,677 0 958,638 0 33,467 0 1,408,103 0 176,075 0 308 13,116 407,608 1,408,103 1,550,403 1,582,089 1,297,936 1,461,186 17,392 0 20,383 83,128 32,420 50,708 0 0 0 50,708 3.81 3.68
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