NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders:
Notice is hereby given that the annual meeting of stockholders of The
Ryland Group, Inc., will be held at The Ryland Building, Fourth Floor, on
April 20, 1994, at 1:30 p.m., Eastern Daylight Time, for the purpose of
considering and acting upon the following matters:
(a) The election of 10 directors to serve until the next annual meeting of
stockholders and until their successors are elected and shall qualify;
(b) Approval of the amendment of the 1992 non-employee director equity
plan of the corporation;
(c) Approval of auditors for the corporation; and
(d) Such other business as may properly be brought before the meeting or
any adjournment thereof.
The transfer books of the corporation will not be closed, but only those
stockholders of record as of the close of business on Feb. 16, 1994, shall be
entitled to notice of and to vote at the meeting.
You are urged to date and sign the enclosed proxy and return it promptly in
the accompanying envelope, which requires no postage if mailed in the United
States, whether or not you plan to attend the meeting in person. If you do
attend the meeting, you may then withdraw your proxy.
By order of the Board of Directors
Thurman W. Bretz
Senior Vice President and Secretary
March 10, 1994
PROXY STATEMENT
The proxy enclosed with this proxy statement is being solicited by the
management of The Ryland Group, Inc. (the corporation), for use at the
annual meeting of stockholders to be held on April 20, 1994. This proxy
statement and proxy form are first being distributed to stockholders on
approximately March 10, 1994. A proxy may be revoked by the stockholder at any
time prior to its use at the meeting by filing with the secretary of the
corporation an instrument of revocation or a duly executed proxy bearing a later
date. It may also be revoked by attendance at the meeting and election to vote
in person.
The election of directors requires a plurality of the votes cast with a
quorum present. Abstentions and broker non-votes have no effect on the
plurality vote for the election of directors. Approval of the amendment of the
corporation's 1992 non-employee director equity plan requires the affirmative
vote of a majority of the votes of shares present or represented and entitled to
vote at the annual meeting of stockholders. For purposes of determining the
number of votes present or represented and entitled to vote with respect to the
amendment of the corporation's 1992 non-employee director equity plan,
abstentions will be counted (and will therefore be equivalent to a vote
against), but broker non-votes will not be counted.
Solicitation of proxies may be made by mail, personal interview, telephone
or telegraph by officers and other management employees of the corporation, who
will receive no additional compensation for their services. In addition, the
corporation intends to utilize the services of Chemical Bank to solicit proxies
for a fee of no more than $6,000, plus expenses. The total expense of the
solicitation will be borne by the corporation and may include reimbursement paid
to brokerage firms and others for their expenses in forwarding material
regarding the meeting to beneficial owners.
Only stockholders of record at the close of business on Feb. 16, 1994, are
entitled to vote at the meeting or any adjournment thereof.
The only outstanding securities of the corporation entitled to be voted at
the meeting are shares of common stock and shares of ESOP Series A convertible
preferred stock. The holders of preferred stock vote together with the holders
of common stock as one class on matters submitted to a vote of the stockholders
of the corporation. There were 15,360,016 shares of common stock outstanding as
of the close of business on Feb. 16, 1994. There were 1,150,074 shares of
preferred stock outstanding as of the close of business on Feb. 16, 1994.
Common stock and preferred stock do not have cumulative voting rights. Holders
of common stock are entitled to one vote per share on all matters. Holders of
preferred stock are entitled to the number of votes equal to the number of
shares of common stock into which shares of preferred stock were convertible on
Feb. 16, 1994, one vote per share on all matters.
The annual report of the corporation, including financial statements and
accompanying notes, is enclosed with this statement or was previously mailed to
stockholders.
ELECTION OF DIRECTORS
All directors (10 in number) are proposed to be elected to hold office
until the next annual meeting of stockholders and until the election and
qualification of their successors. The proxies solicited hereby, unless
directed to the contrary, will be voted for the 10 persons named below.
Management has no reason to believe that any nominee will be unable or
unwilling to serve as a director; but if for any reason any of those persons
should not be available or able to serve, the accompanying proxy will be voted
in accordance with the best judgment of the persons acting thereunder.
3
NAME, AGE AND
YEAR IN WHICH
FIRST ELECTED
A DIRECTOR PRINCIPAL OCCUPATION FOR FIVE PRIOR YEARS AND OTHER INFORMATION
- ----------------------- --------------------------------------------------------------------------------------------------
Robert J. Gaw Executive vice president of the corporation and president of Ryland Mortgage Company; director of
60 (1967) Columbia Bank; and Health Services, Inc.
Alan P. Hoblitzell, Jr. Executive vice president and chief financial officer of the corporation since 1991; chairman of the
62 (1972) board and chief executive officer of MNC Financial, Inc. (bank holding company), until 1990; director
of Fidelity and Deposit Company of Maryland; and PHH Corporation.
Andre W. Brewster Chairman of the board of directors of the corporation since July 1993; chief executive officer of the
68 (1977) corporation from July 1993 through November 1993; general partner of Piper & Marbury (law firm)(1);
director of Alex. Brown Incorporated; Aegon USA, Inc.; Fidelity and Deposit Company of Maryland; and
Ellicott Machine Corporation.
John H. Mullin, III Chairman of Ridgeway Farm, Inc. (wholesale nursery), since 1989; managing director of Dillon, Read &
52 (1982) Co. Inc. (investment banking firm) until 1989; director of Crystal Brands, Inc.; The Liberty Corp.;
Dillon, Read & Co. Inc.(2); Mattel, Inc.; and ACX Technologies, Inc.
Leonard M. Harlan Chairman of The Harlan Company, Inc. (real estate investment-banking company); president of Castle
57 (1984) Harlan, Inc. (private merchant-banking firm); chairman of the board of Long John Silver's Holdings,
Inc., until 1992; director of Delaware Management Holdings, Inc.; the Delaware Group of Mutual Funds;
Long John Silver's Restaurants, Inc.; Smarte Carte Corporation; and MAG Aerospace Industries, Inc.
William G. Kagler Chief executive officer of Skyline Chili, Inc., since 1989 and chairman of the board since 1992;
61 (1985) president of Skyline Chili, Inc., until 1992; director of Skyline Chili, Inc.; The Fifth Third
Bancorp; Union Central Life Insurance Company; Advanced Promotions Technologies, Inc.; and The Future
Now Corporation.
John O. Wilson Executive vice president and chief economist for Bank of America Corporation.
55 (1987)
L. C. Heist President, chief operating officer and director of Champion International Corporation (forest
62 (1989) products);director of Lyman Farm, Inc.
James A. Flick, Jr. Executive vice president of Legg Mason, Inc. (investment firm), since 1991; executive vice president
59 (1990) of USF&G Corporation (insurance holding company) until 1991; director of Dome Corporation; and
Forensic Technologies International Corporation.
R. Chad Dreier President and chief executive officer of the corporation since November 1993; executive vice president
46 (1993) and chief financial officer of Kaufman and Broad Home Corporation until 1993; and chairman of Kaufman
and Broad Mortgage Company until 1993.
<FN>
(1) Piper & Marbury serves as counsel to the corporation.
(2) Dillon, Read & Co. Inc. has served as financial advisor to the corporation.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS APPROVE THE
PROPOSAL TO ELECT THE NOMINEES FOR DIRECTORS. APPROVAL OF THE ELECTION OF THE
NOMINEES REQUIRES THE AFFIRMATIVE VOTE OF A PLURALITY OF THE SHARES OF THE
CORPORATION'S COMMON STOCK CAST WITH A QUORUM PRESENT.
4
PROPOSAL TO APPROVE THE AMENDMENT OF THE CORPORATION'S
1992 NON-EMPLOYEE DIRECTOR EQUITY PLAN
At the annual meeting, the corporation's stockholders will be asked to
approve an amendment of The Ryland Group, Inc. 1992 Non-Employee Director Equity
Plan (the director's plan) which would change the formula for granting options
beginning in 1994; cause all options, including those currently outstanding, to
be vested and exercisable six months after grant; and permit all options to be
exercisable for a three-year period after the date of termination of service as
a director of the corporation. The directors' plan (but not the proposed
amendment) was previously approved by a vote of the stockholders of the
corporation at the annual meeting held on April 15, 1992.
The following constitutes a brief summary of the directors' plan and the
proposed amendment. The summary is qualified in its entirety by reference to
the full text of the plan as proposed to be amended, as set forth in Exhibit A
to this proxy statement. The proposed amendment would modify the provisions of
Section 6 of the directors' plan regarding the number of options granted each
year after 1994 and the terms and conditions under which all options granted
under the directors' plan vest and become exercisable.
The purpose of the directors' plan is to advance the interests of the
corporation and its stockholders by encouraging increased common stock ownership
by members of the board of directors who are not significant stockholders of the
corporation or employees of the corporation in order to promote long-term
stockholder value. A "non-employee director" is defined under the directors'
plan as any person who is elected or appointed to the board of directors who is
not an officer or employee of the corporation or any of its subsidiaries. Non-
employee directors of the corporation are automatically participants in the
directors' plan. For 1993, a total of seven non-employee directors participated
in the directors' plan.
The directors' plan is administered by the compensation committee of the
board of directors (the committee). All grants under the directors' plan are
non-discretionary so as to assure that directors serving on the committee, which
administers the corporation's benefit plans for employees, will be
"disinterested persons" as required by Rule 16b-3 of the Securities Exchange Act
of 1934.
A maximum of 100,000 shares of common stock have been reserved for issuance
under the directors' plan. The common stock will be made available from
authorized but unissued shares of the corporation. Shares of common stock that
are the subject of an option but not purchased prior to the expiration of the
option shall thereafter be considered unissued for purposes of the maximum
number of shares that may be issued under the directors' plan and may again be
the subject of option grants under the directors' plan.
The directors' plan provides that, as of each Dec. 31 before 1994, each
non-employee director elected or appointed a member of the board receive a stock
option to purchase the number of shares of common stock determined by dividing
one-half of the non-employee director's annual retainer fee for that calendar
year by the market value of the common stock on that Dec. 31. For 1993, the
annual retainer was $19,500. For 1993, stock options for a total of 3,500
shares were granted to the seven non-employee directors as a group under the
directors' plan.
The director's plan as proposed to be amended changes the formula for
granting options to non-employee directors beginning in 1994. On Dec. 31,
1994, and on each Dec. 31 thereafter during the term of the directors' plan,
each non-employee director newly elected to the board during that calendar year
would receive an option to purchase 2,000 shares of common stock, and each other
non-employee director would receive an option for 1,000 shares. Under this
amended formula, for 1994, stock options for a total of 7,000 shares would be
granted to the seven non-employee directors as a group under the directors'
plan.
5
The exercise price for the stock options is the closing price on the New
York Stock Exchange on the date of grant. On Dec. 31, 1993, the closing price
of a share of common stock on the New York Stock Exchange was $20.00. The
exercise price of a stock option is payable in cash or shares of common stock or
in a combination of cash and common stock.
Currently, options granted to a non-employee director under the directors'
plan vest and become exercisable in annual increments of 20 percent beginning
one year after the date of grant and expire ten years from the date of grant,
except that options outstanding on the date the non-employee director terminates
service as a director continue to be exercisable for one year after the date of
termination, even if that causes the options to be exercisable for a total
period exceeding ten years. The proposed amendment would cause all options,
including those outstanding on the date the amendment would become effective, to
vest six months from the grant date and increase the post-termination exercise
period from one year to three years.
The right to receive a stock option granted under the directors' plan may
not be transferred by a participant other than by will or the laws of descent
and distribution. Stock options are exercisable during the non-employee
director's lifetime only by the director or a guardian or legal representative.
The committee will have the power to amend, suspend or terminate the
directors' plan at any time, provided that, to the extent required to qualify
the directors' plan under Rule 16b-3 of the Securities Exchange Act of 1934 and
any successor provision, no amendment may be made to change the eligibility or
selection of participants in the directors' plan, the timing of stock option
grants or the number of shares of common stock which may be subject to the
directors' plan. The directors' plan may not be amended more than once in any
six-month period except to comply with changes in the Internal Revenue Code or
the Employment Retirement Income Securities Act.
The proposed amendment to the directors' plan will become effective on the
date it receives approval by the holders of a majority of the votes present or
represented and entitled to vote at the 1994 annual meeting of stockholders.
Upon receipt of stockholder approval, the proposed amendment to the
directors' plan shall be deemed to have been in effect as of Dec. 18, 1991, the
initial effective date of the directors' plan. The directors' plan shall
terminate on, and no stock options shall be granted after, Dec. 18, 2001.
FEDERAL INCOME TAX CONSEQUENCES
No income is recognized by the optionee at the time the stock option is
granted. Generally, (a) at exercise, ordinary income is recognized by the
holder of the option in an amount equal to the difference between the option
price and the fair market value of the shares on the date of exercise, and the
corporation receives a tax deduction for the same amount for its fiscal year in
which the exercise occurs; and (b) at disposition, appreciation or depreciation
after the date of exercise is treated as either short-term or long-term capital
gain or loss depending on how long the shares have been held. The holding
period for determining whether subsequent gain or loss will be short-term or
long-term capital gain or loss begins at the time of ordinary income
recognition.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS APPROVE THE
PROPOSED AMENDMENT OF THE 1992 NON-EMPLOYEE DIRECTOR EQUITY PLAN. THE APPROVAL
OF A MAJORITY OF THE VOTES PRESENT OR REPRESENTED AND ENTITLED TO VOTE AT THE
ANNUAL MEETING OF STOCKHOLDERS IS NECESSARY FOR ADOPTION OF THIS PROPOSAL.
6
APPROVAL OF AUDITORS
At the meeting, the board of directors of the corporation will recommend
stockholder approval of Ernst & Young as auditors for the corporation for the
year 1994. The affirmative vote of the holders of a majority of the shares of
stock of the corporation present in person or by proxy at the annual meeting of
stockholders is required for approval. Representatives of Ernst & Young are
expected to be present at the meeting to respond to stockholders' questions and
to make a statement if they so desire.
STOCKHOLDERS' PROPOSALS
Proposals of security holders intended to be presented at the next annual
meeting of stockholders of the corporation must be received by the corporation
on or before Nov. 10, 1994, and must comply with applicable rules of the
Securities and Exchange Commission in order to be included in the corporation's
proxy statement and form of proxy relating to the 1995 annual meeting of
stockholders.
OTHER MATTERS
Management knows of no other business to be presented for action at the
meeting; but if any other business should properly come before the meeting, it
is intended that the proxies will be voted in accordance with the best judgment
of the persons acting thereunder.
Copies of the corporation's most recent annual report on Form 10-K,
including the financial statements and schedules thereto, which the corporation
is required to file with the Securities and Exchange Commission, will be
provided without charge upon the written request of any stockholder. Such
requests may be sent to Investor Relations, The Ryland Group, Inc., 11000 Broken
Land Parkway, Columbia, Md. 21044.
7
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
owners of more than 5 percent of the issued and outstanding shares of common
stock of the corporation as of Feb. 16, 1994. To the knowledge of management,
no other person owns beneficially more than 5 percent of the outstanding shares
of common stock:
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL OWNERSHIP PERCENT OF CLASS
---------------- ----------------------- ----------------
INVESCO PLC and 2,060,400 (1) 13.4
INVESCO Capital Management, Inc.
11 Devonshire Square
London EC2M 4YR
England
Wellington Management Company 1,234,100 (2) 8.0
75 State Street
Boston, Massachusetts 02109
Dalton, Greiner, Hartman, Maher & Co. 1,022,000 (3) 6.6
630 Fifth Avenue, Suite 3425
New York, New York 10111
<FN>
(1) According to a Schedule 13G dated Feb. 10, 1994, filed with the Securities
and Exchange Commission, all of these shares are owned with shared voting
and dispositive power.
(2) According to a Schedule 13G dated Feb. 10, 1994, filed with the Securities
and Exchange Commission, 404,300 of these shares are owned with shared
voting power and 1,234,100 with shared dispositive power.
(3) According to a Schedule 13G dated Jan. 18, 1994, filed with the Securities
and Exchange Commission, 627,100 of these shares are owned with sole voting
power and 1,022,000 with sole dispositive power.
The Ryland Group, Inc. Retirement and Stock Ownership Plan is the
beneficial owner of 1,150,074 shares of ESOP Series A convertible preferred
stock as of Feb. 16, 1994, representing 100 percent of the outstanding shares of
preferred stock of the corporation. All of these shares are owned with shared
voting power and shared dispositive power. The address of the retirement and
stock ownership plan is c/o Wachovia Trust Services, 301 N. Main Street,
Winston-Salem, North Carolina 27150.
8
The following table sets forth, as of Feb. 16, 1994, the numbers of shares
of common stock of the corporation beneficially owned by all directors of the
corporation, nominees for director, each of the executive officers named in the
Summary Compensation Table, and by the directors and executive officers as a
group:
Number of Shares
Name Beneficially Owned (1)
- ---------------------- ----------------------
Robert J. Gaw. . . . . . . . . . . . . . . . . . . . . 161,515 (3)(4)(6)
Alan P. Hoblitzell, Jr. . . . . . . . . . . . . . . . 27,912 (3)(4)(6)
Andre W. Brewster. . . . . . . . . . . . . . . . . . . 75,540 (2)(3)
John H. Mullin, III . . . . . . . . . . . . . . . . . 13,540 (3)(5)
Leonard M. Harlan. . . . . . . . . . . . . . . . . . . 1,540 (3)
William G. Kagler. . . . . . . . . . . . . . . . . . . 10,540 (3)
John O. Wilson . . . . . . . . . . . . . . . . . . . . 1,540 (3)
L. C. Heist. . . . . . . . . . . . . . . . . . . . . . 4,040 (3)
James A. Flick, Jr.. . . . . . . . . . . . . . . . . . 2,540 (3)
R. Chad Dreier . . . . . . . . . . . . . . . . . . . . 75,000 (6)
J. Sidney Davenport. . . . . . . . . . . . . . . . . . 78,519 (3)(4)(6)
Thomas C. Krobot . . . . . . . . . . . . . . . . . . . 47,245 (3)(4)(6)
All directors and executive officers as a
group (18 persons) . . . . . . . . . . . . . . . . . 710,472 (3)(4)(6)
<FN>
(1) Except for Mr. Gaw, no other director, nominee or executive officer
beneficially owns more than 1 percent of the corporation's outstanding
common stock. Mr. Gaw beneficially owns 1.1 percent of the outstanding
common stock of the corporation. Directors and executive officers as a
group beneficially own 4.6 percent of the outstanding common stock of the
corporation. Except as otherwise indicated, all of the shares in the table
are owned individually with sole voting and dispositive power.
(2) Does not include 3,200 shares owned by Mr. Brewster's wife as to which he
disclaims beneficial ownership.
(3) Includes shares subject to stock options which may be exercised within 60
days of Feb. 16, 1994. It includes: Mr. Gaw, 72,380 shares; Mr.
Hoblitzell, 20,040 shares; Mr. Brewster, 50,540 shares; Mr. Mullin, 540
shares; Mr. Harlan, 540 shares; Mr.Kagler, 540 shares; Mr. Wilson, 540
shares; Mr. Heist, 540 shares; Mr. Flick, 540 shares; Mr. Davenport, 33,300
shares; Mr. Krobot, 41,720 shares; and all directors and executive officers
as a group, 371,340 shares.
(4) Does not include shares of ESOP Series A convertible preferred stock which
have been allocated to participants' accounts under the corporation's
retirement and stock ownership plan as follows: Mr. Gaw, 1,668 shares; Mr.
Hoblitzell, 597 shares; Mr. Davenport, 1,432 shares; Mr. Krobot, 1,342
shares; and all directors and executive officers as a group, 11,656 shares.
(5) Does not include 5,000 shares held in the John H. Mullin, Jr. Trust,
wherein Mr. Mullin is co-trustee, nor 2,500 shares held in Pierrepont
Partners, of which Mr. Mullin is a partner, both of which are for the
benefit of his children. Does not include 400 shares owned by Mr. Mullin's
son. Mr. Mullin disclaims beneficial ownership of these shares.
(6) Includes shares subject to restricted stock units as follows: Mr. Gaw,
4,763 shares; Mr. Hoblitzell, 4,072 shares; Mr. Dreier, 75,000 shares; Mr.
Davenport, 2,236 shares; Mr. Krobot, 2,291 shares; and all directors and
executive officers as a group, 100,843.
INFORMATION CONCERNING THE BOARD OF DIRECTORS
The corporation maintains committees of the board of directors which assist
the board in performing its tasks.
The audit committee of the board of directors is composed of Messrs. Flick,
Heist and Kagler. The audit committee reviews audit services and the letter of
recommendations of the corporation's auditors. During 1993, seven audit
committee meetings were held.
9
The compensation committee of the board of directors determines or
recommends the amount and form of compensation awarded to officers and key
employees of the corporation as well as awards and distributions under the
corporation's various employee compensation plans. Messrs. Flick, Heist and
Kagler serve as its members. In 1993, six compensation committee meetings were
held.
The finance committee of the board of directors is composed of Messrs.
Harlan, Hoblitzell, Mullin and Wilson. The finance committee reviews the
financing activities of the corporation. There were three meetings of the
finance committee during 1993.
During 1993, the board of directors had a mortgage financial services
committee which was composed of Messrs. Gaw, Harlan, Hoblitzell, Mullin and
Wilson. This committee reviewed and recommended to the board new products and
services developed by Ryland Mortgage Company and its subsidiaries. It also
reviewed the risk control mechanisms that The Ryland Group, Inc., uses in
managing its mortgage business. During 1993, the mortgage financial services
committee held six meetings.
The planning committee of the board of directors is responsible for
reviewing and exploring in depth the general policies and the future plans and
strategies of the corporation. All members of the board of directors serve on
the planning committee. The planning committee met one time in 1993.
The corporation has no nominating committee of the board of directors.
A transition committee of the board of directors was established in August
1993 for the purpose of selecting a new chief executive officer for the
corporation and providing guidance during the transition period. Messrs.
Brewster, Flick, Heist and Mullin were the members of this committee and, other
than Mr. Brewster, received a monthly fee of $2,500. The committee was dissolved
on Dec. 31, 1993.
During 1993, the board of directors held a total of 11 regularly scheduled
and special meetings. All of the corporation's directors attended at least 75
percent of the meetings of the board of directors and of the committees of the
board of directors on which they served during 1993.
COMPENSATION OF DIRECTORS
Each director who was not an employee was paid an annual fee of $19,500 in
1993 and will be paid an annual fee of $19,500 in 1994. Each non-employee
director was paid an additional $850 for each meeting attended of the board of
directors and an additional $850 for each meeting attended of a committee of the
board of directors of which he is a member. A director may elect to have all or
any part of his annual fee and meeting fees deferred under the corporation's
deferred director fee plan. Under this plan, amounts elected to be deferred are
not included in a director's gross income for tax purposes until actually
distributed to the director.
The corporation maintains a non-employee director equity plan pursuant to
which non-employee directors received stock options on Dec. 31, 1993, to
purchase the number of shares of common stock determined by dividing one-half of
the annual fee by the market price of the common stock on the last trading day
of the year. On Dec. 31, 1993, the corporation granted each non-employee
director a stock option to purchase 500 shares of common stock at an exercise
price of $20.00 per share. The exercise price is the market price of the common
stock on the date of grant. The terms and conditions of these options are
described in this proxy statement in connection with the proposal to approve the
amendment of the 1992 non-employee director equity plan.
During 1993, the corporation donated $5,000 to a charitable organization
designated by each director. As a result, the corporation donated to charitable
organizations designated by the directors a total of $50,000.
10
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Ryland's mission is to become the leader in the homebuilding industry,
optimize the strength of its mortgage operations and maximize stockholder value.
To accomplish these objectives, Ryland is pursuing a comprehensive business
strategy that emphasizes earnings per share and return on stockholders' equity.
The compensation committee is comprised of three independent, non-employee
directors who have no "interlocking" relationships. The compensation committee
approves the design of, assesses the effectiveness of, and administers executive
compensation programs in support of stockholder interests. The compensation
committee also reviews and approves all salary arrangements and other pay for
executives, evaluates executive performance and considers related matters.
The compensation committee is committed to implementing a compensation
program which furthers Ryland's mission. We therefore adhere to the following
compensation policies which are intended to facilitate the achievement of
Ryland's business strategies:
- Executives' total compensation programs should strengthen the
relationship between pay and performance by emphasizing variable,
at-risk compensation that is dependent upon the level of success in
meeting specified financial and operational goals.
- Approximately one-third of total compensation should be comprised
primarily of equity-based pay opportunities. Encouraging a personal
proprietary interest provides executives a close identification with
the corporation and aligns their interests with those of stockholders.
This promotes a continuing focus on building profitability and
stockholder value.
- Compensation opportunities should enhance the corporation's ability to
attract, retain and encourage the development of exceptionally
knowledgeable and experienced executives upon whom the successful
operation and management of the corporation depends.
- Each program element should target compensation opportunities at the
median of compensation paid to executives of the peer group. However,
if company performance exceeds that of the peer group, compensation
should be above the median; likewise, if company performance falls
below the performance of the peer group, the compensation paid to the
senior executives should be below the median compensation paid to the
peer group.
COMPONENTS OF COMPENSATION
The committee relates total compensation levels for the company's senior
executives to the compensation paid to executives of a peer group of companies.
This peer group is comprised of large national homebuilding companies. The
compensation committee reviews and approves the selection of companies used for
compensation comparison purposes.
The companies chosen as the peer group companies used for compensation
purposes include many of the same companies which comprise the Dow/Home
Construction Index in the performance graph included in this proxy statement.
However, the compensation committee believes that the corporation's direct
competitors for executive talent also include other companies not included in
this index. Therefore, the committee also reviews general industry survey data
on companies of comparable revenue size.
The key elements of the corporation's executive compensation program are
base salary, annual incentives and long-term compensation. These key elements
are addressed separately below. In determining each component of compensation,
the compensation committee considers all elements of an executive's total
compensation package.
11
BASE SALARY
Base salaries generally are expected to comprise approximately one-third of
the value of executive compensation. The compensation committee regularly
reviews each executive's base salary. Base salaries are targeted at median
competitive levels and are adjusted by the committee to recognize varying levels
of responsibility, experience, breadth of knowledge, internal equity issues, as
well as external pay practices.
Increases to base salaries are driven primarily by individual performance.
Individual performance is evaluated based on sustained levels of individual
contribution to the corporation. When evaluating performance, the compensation
committee considers the executive's efforts in developing stockholder relations,
improving product quality and customer satisfaction, increasing market share,
demonstrating leadership abilities among co-workers and other goals.
Mr. Dreier was hired as Ryland's president and chief executive officer on
Nov. 29, 1993. In determining Mr. Dreier's $450,000 base salary, the
compensation committee considered the base salaries of chief executive officers
at the peer group companies. Mr. Dreier's salary is at the median for CEOs in
the peer group companies.
Mr. Schipke, president and chief executive officer until July 31, 1993, did
not receive a salary increase during 1993.
Mr. Brewster served as chief executive officer from July 31 until Nov. 29,
1993. Mr. Brewster was paid $210,000 for the period from July 31 through Dec.
27, 1993.
Other executive salaries were increased at rates comparable to the increase
provided at other companies and are near median competitive levels.
ANNUAL INCENTIVES
The annual incentive plan promotes the corporation's pay-for-performance
philosophy by providing executives with direct financial incentives in the form
of annual cash bonuses to achieve corporate, business unit and individual
performance goals. Annual bonus opportunities allow the corporation to
communicate specific goals that are of primary importance during the coming year
and motivate executives to achieve these goals. Annual bonuses generally are
expected to comprise approximately one-third of the value of executive
compensation.
At the beginning of each year, the compensation committee establishes
corporate and business unit specific goals relating to each executive's bonus
opportunity. Corporate goals are based on pretax income for the year. Business
unit goals are primarily based on operating income. Eligible executives are
assigned threshold, target and maximum bonus levels based on a percentage of
base salary. Executives earn bonuses to the extent to which pre-established
goals are achieved. Where executives have strategic business unit (SBU)
responsibilities, three-quarters of the goal is based on SBU operating income
performance. The compensation committee does not adjust annual incentive
payouts upward based on subjective judgement of executive performance.
Target bonus awards are set at median competitive levels. Targets are
considered by the compensation committee to be achievable but require
above-average performance from each of the executives. Corporate performance in
1993 did not meet threshold levels. However, certain SBUs did exceed 1993
target levels, and bonuses were awarded to certain executives accordingly.
In 1993, Messrs. Dreier, Schipke and Brewster did not receive an annual bonus
payment.
12
LONG-TERM INCENTIVES
In keeping with the corporation's commitment to provide a total
compensation package which favors at-risk components of pay, long-term incentive
compensation is expected to comprise approximately one-third of the value of an
executive's total compensation package.
When awarding long-term grants, the compensation committee considers
executives' levels of responsibility, prior experience, historical award data,
individual performance criteria and compensation practices at peer group
companies. The compensation committee's objective is to provide executives with
long-term incentive award opportunities that approximate a median competitive
level. Long-term incentives are in the form of stock options and restricted
stock unit awards.
STOCK OPTION PLAN
Stock options are granted at an option price not less than the fair market
value of the common stock on the date of grant. Accordingly, stock options have
value only if the stock price appreciates from the date the options are granted.
This design focuses executives on the creation of stockholder value over the
long term and encourages equity ownership in the corporation.
The size of stock option grants is based primarily on competitive practice
and is generally targeted to be at the median of option values granted by the
peer group companies. The size of the award can be adjusted based on individual
factors and historical award data. The compensation committee's objective is to
deliver a competitive award opportunity based on the dollar value of the award
granted. As a result, the number of shares underlying stock option awards
varies and is dependent on the stock price on the date of grant. There are no
other corporate performance goals considered in connection with the award of
stock options.
At time of hire, Mr. Dreier received options to purchase 100,000 shares
with an exercise price of $19.625 as detailed in the table entitled Stock Option
Grants in 1993. The compensation committee determined the grant for Mr. Dreier
with the objective of creating a strong and immediate link to the interests of
stockholders. Other factors considered by the compensation committee were
levels of option holdings by CEOs at other homebuilding companies and the number
of options Mr. Dreier forfeited at his prior employer.
No options were granted to Mr. Schipke in 1993.
At the time he was elected chief executive officer, Mr. Brewster received
options to purchase 50,000 shares with an exercise price of $18.25 as detailed
in the table entitled Stock Option Grants in 1993.
RESTRICTED STOCK UNITS
Restricted stock units granted to executives vest over five years. Except
for death, disability, retirement or a change in control, restricted stock units
are forfeited upon termination of employment. Because of the vesting
requirements, restricted stock units enhance the corporation's ability to
maintain a stable executive team, focused on the corporation's long-term
success. Restricted stock units also provide executives with an immediate link
to stockholder interest.
In determining the size of restricted stock unit awards, the corporation
considers competitive levels of restricted stock grants at companies of
comparable size and historical award data. As with stock options, the award
opportunity is based on the dollar value of the award granted.
Each year the compensation committee establishes financial goals relating
to each executive's opportunity to earn restricted stock units under the
corporation's long-term retirement and incentive plan. Executives earn
restricted stock units to the extent to which pre-established goals are
achieved. As a result, the number of restricted stock units awarded varies and
is dependent on achievement of financial performance targets. In 1993, the
compensation committee designated return on equity as the sole performance
measure for earning restricted stock units.
At time of hire, Mr. Dreier received 75,000 restricted stock units as
detailed in the "Restricted Stock Awards" column of the Summary Compensation
Table. As with his option grant, the compensation committee determined the
award of restricted stock units with the objective of creating a strong and
immediate link to the interests of stockholders. Other factors considered by
the compensation committee were levels of restricted stock holdings by CEOs at
other homebuilding companies and the number of restricted shares Mr. Dreier
forfeited at his prior employer.
The corporation did not meet return-on-equity performance targets in 1993;
and, therefore, no restricted stock units were awarded to the other executive
officers.
13
RETIREMENT PLANS
The corporation does not sponsor a defined benefit retirement plan but does
provide employees with the ability to accumulate retirement assets through a
defined contribution plan. Executive officers participate in the corporation's
retirement and stock ownership plan up to the statutory limits. Because of
these statutory limits the corporation also offers executive officers the
ability to defer additional pay and receive corresponding company-matching
contributions through the deferred compensation savings plan. The salary
deferral plan also enables executives to defer receipt of salary but without
company-matching contributions. Earnings on deferrals under the salary deferral
plan are credited based on the corporation's quarterly return on equity.
In addition, executive officers have the ability to earn supplemental
retirement assets based on achievement of pre-determined return-on-equity goals
under the corporation's long-term retirement and incentive plan. The
corporation did not meet performance targets in 1993; and, therefore, no company
contributions were made to the long-term retirement and incentive plan in 1993.
All of the corporation's contributions to each named executive's retirement
accounts are shown in the Summary Compensation Table under the "All Other
Compensation" column.
POLICY WITH RESPECT TO THE $1 MILLION DEDUCTION LIMIT
Recently enacted Section 162(m) of the Internal Revenue Code generally
limits the corporate deduction for compensation paid to executive officers named
in the corporation's proxy statement to $1 million, unless certain requirements
are met. In 1994, this limit is unlikely to affect the corporation's
deductibility for compensation paid to any of the executive officers. A review
of the existing plans is being undertaken in 1994 to determine what, if any,
modifications would be required.
CONCLUSION
The compensation committee believes these executive compensation policies
and programs serve the interests of stockholders and the corporation
effectively. The various pay vehicles offered are appropriately balanced to
provide increased motivation for executives to contribute to the corporation's
overall future success, thereby enhancing the value of the corporation for the
stockholders' benefit.
We will continue to monitor the effectiveness of the corporation's total
compensation program to meet the current and future needs of the corporation.
COMPENSATION COMMITTEE OF BOARD OF DIRECTORS
L.C. Heist, Chairman of Compensation Committee
James A. Flick, Jr.
William G. Kagler
Andre W. Brewster (member until July 31, 1993)
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Andre W. Brewster, a member of the compensation committee until July 31,
1993, was elected and served as chief executive officer of the corporation from
July 31 until Nov. 29, 1993.
14
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
--------------------------------------------------------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (F) COMPENSATION(G)
- -------------------------------------------------------------------------------------------------------------------
MR. BREWSTER - Chairman of the board of 1993 $ 210,000 (d) $ 0 $ 0
directors and chief executive officer of 1992 - - -
The Ryland Group, Inc. (a) 1991 - - -
MR. DREIER - President and chief executive 1993 $ 30,768 (e) $ 0 -
officer of The Ryland Group, Inc. (b) 1992 - - -
1991 - - -
MR. SCHIPKE - Former chairman of the 1993 $ 283,650 $ 0 $ 3,681
board, president and chief executive 1992 $ 469,871 $ 450,000 -
officer of The Ryland Group, Inc. (c) 1991 $ 450,000 $ 81,000 -
MR. GAW - Executive vice president of 1993 $ 340,283 $ 147,375 $ 18,499
The Ryland Group, Inc.; president of 1992 $ 327,500 $ 294,750 $ 28,801
Ryland Mortgage Company 1991 $ 314,382 $ 139,500 -
MR. HOBLITZELL - Executive vice president 1993 $ 348,446 $ 0 $ 2,443
and chief financial officer of The Ryland 1992 $ 281,281 $ 252,000 -
Group, Inc. 1991 $ 255,776 $ 45,567 -
MR. DAVENPORT - Vice president of 1993 $ 219,615 $ 164,000 $ 10,531
The Ryland Group, Inc.; executive vice 1992 $ 205,000 $ 205,000 $ 15,192
president of Ryland Mortgage Company 1991 $ 195,250 $ 172,800 -
MR. KROBOT - Senior vice president of 1993 $ 216,538 $ 105,000 $ 2,944
The Ryland Group, Inc.; president of the 1992 $ 210,000 $ 105,000 $ 2,083
southeast region of Ryland Homes 1991 $ 173,333 $ 69,304 -
LONG-TERM COMPENSATION
------------------------------------------------
AWARDS
----------------------------------
SECURITIES
RESTRICTED STOCK UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR AWARDS(H) OPTIONS/SARS PAYOUTS(L) COMPENSATION (M)
- -----------------------------------------------------------------------------------------------------------------------------
>
MR. BREWSTER - Chairman of the board of 1993 - 50,500 - -
directors and chief executive officer of 1992 - - - -
The Ryland Group, Inc. (a) 1991 - - - -
MR. DREIER - President and chief executive 1993 $1,471,875 (i) 100,000 - $151,234 (n)
officer of The Ryland Group, Inc. (b) 1992 - - - -
1991 - - - -
MR. SCHIPKE - Former chairman of the 1993 $ 0 0 $ 77,649 $ 89,291
board, president and chief executive 1992 $ 169,756 (j) 8,600 $ 14,200 $218,961
officer of The Ryland Group, Inc. (c) 1991 $2,925,000 (k) 13,100 - -
MR. GAW - Executive vice president of 1993 $ 0 4,500 $520,575 $ 38,900
The Ryland Group, Inc.; president of 1992 $ 98,832 (j) 4,100 $911,764 $130,240
Ryland Mortgage Company 1991 - 8,900 $184,870 -
MR. HOBLITZELL - Executive vice president 1993 $ 0 5,500 $ 12,900 $ 33,364
and chief financial officer of The Ryland 1992 $ 84,494 (j) 3,800 - $ 96,897
Group, Inc. 1991 - 33,200 - -
MR. DAVENPORT - Vice president of 1993 $ 0 1,300 $300,577 $ 25,189
The Ryland Group, Inc.; executive vice 1992 $ 46,397 (j) 1,500 $387,121 $ 71,482
president of Ryland Mortgage Company 1991 - 4,700 $ 62,283 -
MR. KROBOT - Senior vice president of 1993 $ 0 1,200 $ 51,319 $ 19,047
The Ryland Group, Inc.; president of the 1992 $ 47,538 (j) 800 $ 68,105 $ 66,114
southeast region of Ryland Homes 1991 - 3,700 $ 12,608 -
- ----------------------
Footnotes on page 16.
15
SUMMARY COMPENSATION TABLE
<FN>
FOOTNOTES
- ---------
(a) Mr. Brewster was employed by the corporation as chief executive officer
from July 31, 1993, until Nov. 29, 1993. Mr. Brewster was not employed by
the corporation before July 1993.
(b) Mr. Dreier was not employed by the corporation before November 1993.
(c) Mr. Schipke resigned from the corporation effective July 31, 1993.
(d) Amount represents five months of salary for 1993.
(e) Amount represents one month of salary for 1993.
(f) Bonus amounts are awarded under the annual incentive plan which provides
for bonuses based on the corporation's annual performance against
predetermined goals. If predetermined targets are not achieved, no bonuses
are given.
(g) Amounts represent dividend equivalent payments on long-term incentive plans
implemented in 1985 and 1992. The 1985 plan was phased out in 1993 and
replaced by the 1992 implementation of the long-term retirement and
incentive plan. Amounts paid for the 1985 plan are as follows: Mr. Gaw
1993 - $15,641, 1992 - $28,801; Mr. Davenport 1993 - $9,190, 1992 -
$15,192; Mr. Krobot 1993 - $1,569, 1992 - $2,083. Amounts paid in 1993 for
the long-term retirement and incentive plan are as follows: Mr. Schipke
$3,681; Mr. Gaw $2,858; Mr. Hoblitzell $2,443; Mr. Davenport $1,341; and
Mr. Krobot $1,375.
(h) At Dec. 31, 1993, the number and value of restricted stock units held for
each executive officer were as follows: Mr. Brewster - 0 units, $0 ; Mr.
Dreier - 75,000 units, $1,500,000; Mr. Schipke - 0 units, $0; Mr. Gaw -
4,763 units, $95,260; Mr. Hoblitzell - 4,072 units, $81,440; Mr. Davenport
- 2,236 units, $44,720; and Mr. Krobot - 2,291 units, $45,820. The value
of a restricted stock unit was $20.00 at Dec. 31, 1993.
(i) Mr. Dreier was awarded 75,000 restricted stock units upon his employment by
the corporation in 1993. The value of the restricted stock units was based
upon the $19.625 per share closing price of Ryland's common stock on the
date of grant, Nov. 29, 1993. The units will vest in five annual
increments of 15,000 shares beginning Nov. 1, 1994, with full vesting
occurring on Nov. 1, 1998. As the restricted stock units vest, the
corporation will distribute an equal number of shares of the corporation's
common stock to Mr. Dreier, and the vested restricted stock units will be
considered fully paid and cancelled. Mr. Dreier is entitled to all regular
quarterly dividend equivalent payments on the restricted stock units in the
amount and to the extent dividends are paid by the corporation on its
common stock.
(j) Amounts represent restricted stock units earned based upon the achievement
of predetermined goals established for 1992 for the long-term retirement
and incentive plan. The value of the restricted stock units was based upon
the $20.75 closing price of Ryland's common stock on the date of grant,
Dec. 31, 1992. The restricted stock units will be fully vested at the end
of five years at which time the corporation will distribute an equal number
of shares of the corporation's common stock, and the vested restricted
stock units will be considered fully paid and cancelled. Participants are
entitled to all regular quarterly dividend equivalent payments on the
restricted stock units in the amount and to the extent dividends are paid
by the corporation on its common stock.
(k) Mr. Schipke was previously awarded 150,000 shares of restricted common
stock. The value of the shares of restricted stock on the date of the
award was based upon the $20.50 per share closing price of Ryland's common
stock on the date of award. In 1992 and 1993, 20,000 shares of restricted
stock vested and were delivered to Mr. Schipke. All 110,000 unvested
shares of restricted stock were forfeited by Mr. Schipke when he terminated
employment with the corporation on July 31, 1993.
(l) Amounts in this column represent payouts in cash and common stock under two
long-term incentive plans implemented in 1979 and 1985 that were phased out
in 1993. Amounts paid in 1993 reflect the final payouts for the 1979 and
1985 plans. Amounts paid for the 1979 plan are as follows: Mr. Schipke
1993 - $77,649, 1992 - $14,200; Mr. Gaw 1993 - $8,971, 1992-$32,549, 1991 -
$22,566; Mr. Hoblitzell 1993- $12,900; Mr. Davenport 1992 - $11,369, 1991 -
$8,427; Mr. Krobot 1992 - $34,685, 1991 - $12,608. Amounts paid for the
1985 plan are as follows: Mr. Gaw 1993 - $511,604, 1992 - $879,215, 1991 -
$162,304; Mr. Davenport 1993 - $300,577, 1992 - $375,752, 1991 - $53,856;
and Mr. Krobot 1993 - $51,319, 1992 - $33,420.
(m) Amounts in this column represent employer contributions to the
corporation's retirement and stock ownership plan and deferred compensation
savings plan: Mr. Schipke 1993 - $44,279, 1992 - $36,562; Mr. Gaw 1993 -
$38,090, 1992 - $30,591; Mr. Hoblitzell 1993 - $32,519, 1992 - $11,929; Mr.
Davenport 1993 - $24,923, 1992 - $24,716; and Mr. Krobot 1993 - $18,857,
1992 - $18,476; earnings on the corporation's salary deferral plan: Mr.
Gaw 1992 - $374; Mr. Hoblitzell 1992 - $18; and Mr. Davenport 1992 -$223;
the term cost and current dollar value of the benefit of split dollar life
insurance; Mr. Schipke 1993 - $478, 1992 - $463; Mr. Gaw 1993 - $810, 1992
- $435; Mr. Hoblitzell 1993 - $845, 1992 - $446; Mr. Davenport 1993 - $266,
1992 - $141; and Mr. Krobot 1993 - $190, 1992 - $104; supplemental life
insurance: Mr. Schipke 1993 - $9,586, 1992 - $12,173; deferred cash earned
based upon the achievement of predetermined goals for 1992 for the long-
term retirement and incentive plan, which, if vested, is paid to
participants upon their termination of employment or retirement from the
corporation: Mr. Schipke $169,763; Mr. Gaw $98,840; Mr. Hoblitzell
$84,504; Mr. Davenport $46,402; and Mr. Krobot $47,534. Upon leaving the
corporation in 1993, Mr. Schipke was paid $34,948, which represented his
vested cash balance in the long-term retirement and incentive plan.
(n) The corporation reimbursed Mr. Dreier for relocation expenses totaling
$151,234, of which $110,003 represents actual moving expenses and $41,231
represents the gross-up adjustment for taxes.
16
STOCK OPTION GRANTS IN 1993
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES
OF STOCK PRICE APPRECIATION FOR 10-YEAR OPTION TERM
-----------------------------------------------------
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS GRANTED TO EXERCISE PRICE EXPIRATION
NAME UNDERLYING EMPLOYEES IN 1993 ($/SHARE) DATE 5% 10%
- ----------------- ---------- ----------------- -------------- ----------- ------------ ------------
Mr. Brewster(a) 50,000 21.1 $ 18.250 08/23/03 $ 573,866 $ 1,454,290
500 0.2 $ 20.000 12/31/03 $ 6,289 $ 15,937
Mr. Dreier(b) 100,000 42.1 $ 19.625 11/29/03 $ 1,234,206 $ 3,127,720
Mr. Schipke(c) - - - - - -
Mr. Gaw(d) 4,500 1.9 $ 20.000 12/31/03 $ 56,601 $ 143,437
Mr. Hoblitzell(d) 5,500 2.3 $ 20.000 12/31/03 $ 69,178 $ 175,312
Mr. Davenport(d) 1,300 0.5 $ 20.000 12/31/03 $ 16,351 $ 41,437
Mr. Krobot(d) 1,200 0.5 $ 20.000 12/31/03 $ 15,093 $ 38,250
All Stockholders(e) $193,031,558 $489,023,510
<FN>
- -------------------
(a) Stock options for 50,000 shares of common stock were granted to Mr.
Brewster when he was elected chairman of the board and chief executive
officer, and these options are fully exercisable. Mr. Brewster was granted
a stock option for 500 shares of common stock as a member of the
corporation's board of directors pursuant to the corporation's 1992 non-
employee director equity plan, the terms of which are described in the
proposal to approve the amendment of the 1992 non-employee director equity
plan in this proxy statement.
(b) Mr. Dreier was granted stock options upon his employment by the corporation
on Nov. 29, 1993, and these options vest 20 percent per year beginning on
the first anniversary of the date of the grant.
(c) Mr. Schipke did not receive a grant of stock options in 1993. His
outstanding stock options were cancelled or exercised upon termination of
employment.
(d) The stock options for Messrs. Gaw, Hoblitzell, Davenport and Krobot were
part of an annual award of stock options pursuant to the corporation's 1992
equity incentive plan, and these stock options vest 20 percent per year
beginning on the first anniversary of the date of the grant.
(e) Total dollar gains for all stockholders are based on the assumed annual
rates of stock price appreciation of 5 percent and 10 percent and
calculated on 15,342,624 shares of common stock outstanding as of Dec. 31,
1993, at $20.00 per share.
17
AGGREGATED STOCK OPTION EXERCISES IN 1993
AND YEAR-END STOCK OPTION VALUES
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-
UNEXERCISED OPTIONS AT YEAR END(#) MONEY OPTIONS AT YEAR END
SHARES ACQUIRED VALUE ---------------------------------- ---------------------------
NAME ON EXERCISE REALIZED(b) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------- -------------- ----------- ----------- ------------ ----------- -------------
Mr. Brewster - - 50,540 1,560 $ 87,500 $ 0
Mr. Dreier - - 0 100,000 $ 0 $ 37,500
Mr. Schipke - - - - - -
Mr Gaw - - 56,920 38,580 $186,178 $ 31,573
Mr. Hoblitzell - - 14,040 28,460 $ 24,000 $ 36,000
Mr. Davenport 4,600 (a) $ 36,375 19,720 21,680 $ 64,488 $ 19,138
Mr. Krobot - - 34,760 12,740 $121,085 $ 13,940
<FN>
- ----------------
(a) Of the shares acquired on exercise, Mr. Davenport continues to hold 4,600
shares.
(b) Market price at exercise less exercise price.
EMPLOYEE AGREEMENTS
The corporation has an employment agreement with Mr. Hoblitzell. Under
this agreement, the corporation shall pay Mr. Hoblitzell an annual base salary
of $420,000 through December 31, 1994. From January 1, 1995, until June 30,
1996, the corporation will pay Mr. Hoblitzell a base salary commensurate with
the job that he is performing but no less than $300,000 annually.
The corporation has senior executive severance agreements pursuant to
which certain of its executive officers would be entitled under certain
circumstances to receive a lump sum cash payment representing one and one-half
times the highest annual compensation paid during the three years prior to
termination of employment, accelerated vesting under incentive compensation,
stock option and benefit plans of the corporation, as well as other specified
benefits. Currently, the corporation has senior executive severance agreements
with Messrs. Dreier, Gaw, Hoblitzell, Bretz, Cline, Davenport and Paul. These
payments and benefits would be provided upon termination of employment within
two years after a change in control of the corporation, which occurs when a
third party becomes the beneficial owner of 30 percent or more of the
outstanding shares of common stock of the corporation, or, as a result of, or in
connection with, a tender or exchange offer, merger, share exchange, proxy
contest or certain other events, a majority of the board of directors or a
majority of stockholders of the corporation changes, or a liquidation,
dissolution or sale of all or substantially all of the assets of the
corporation.
18
COMPARISON OF CUMULATIVE TOTAL SHAREHOLDER RETURN ON COMMON STOCK
(STOCK PRICE APPRECIATION PLUS DIVIDENDS)
This chart graphs the corporation's performance in the form of cumulative
total return to stockholders during the previous five years in comparison to
Standard and Poor's 500 and the Dow/Home Construction Index. The Dow/Home
Construction Index includes Pulte, Standard Pacific, Centex, Clayton, Kaufman
and Broad and Ryland.
[Graph]
19
EXHIBIT A
THE RYLAND GROUP, INC.
1992 NON-EMPLOYEE DIRECTOR EQUITY PLAN
(AS PROPOSED TO BE AMENDED)
Section 1. PURPOSE
The purpose of The Ryland Group, Inc. 1992 Non-Employee Director Equity
Plan (the "plan") is to advance the interests of the corporation and its
stockholders by encouraging increased common stock ownership by members of the
board of directors who are not significant stockholders of the corporation or
employees of the corporation, in order to promote long-term stockholder value
through directors' continuing ownership of the common stock.
Section 2. DEFINITIONS
"Annual retainer" means the amount payable annually to each non-employee
director for service on the board (exclusive of any per meeting fees or expense
reimbursements).
"Board" means the board of directors of the corporation.
"Committee" means a committee of the board of directors elected or
designated from time to time to administer the plan, which initially shall be
the compensation committee of the board of directors.
"Common stock" means the common stock, $1.00 par value, of the corporation.
"Corporation" means The Ryland Group, Inc.
"Employee" means any officer or employee of the corporation or of its
subsidiaries.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Last trading day" means the last day of the calendar year in which the
common stock trades on the New York Stock Exchange; or, if the common stock is
not listed on the New York Stock Exchange, such other exchange on which the
common stock is traded; or, the NASDAQ National Market System or other over-the-
counter market on which the common stock is traded or quoted.
"Market price" means the last reported sale price of the common stock on
the New York Stock Exchange; or, if the common stock is not listed on the New
York Stock Exchange, the closing price on such other exchange on which the
common stock is traded; or, if quoted on the NASDAQ National Market System or
other over-the-counter market, the last reported sales price on the NASDAQ
National Market System or other over-the-counter market; or, if the common stock
is not publicly traded, such price as shall be determined by the committee to be
the fair market value.
"Meeting fee" means the amount payable to a non-employee director for a
meeting of the board.
"Non-employee director" or "participant" means any person who is elected or
appointed to the board.
"Stock options" means stock options granted under the plan which shall be
nonstatutory stock options not intended to qualify under Section 422 of the
Internal Revenue Code of 1986, as amended.
A-1
Section 3. SHARES OF COMMON STOCK SUBJECT TO THE PLAN
(a) Subject to adjustment as provided in Section 3(b) below, the maximum
aggregate number of shares of common stock that may be issued under the plan is
100,000 shares. The common stock to be issued under the plan will be made
available from authorized but unissued shares of common stock, and the
corporation shall set aside and reserve for issuance under the plan said number
of shares.
(b) In the event of any stock dividend, extraordinary cash dividend,
creation of a class of equity securities, recapitalization, reorganization,
merger, consolidation, split-up, spin-off, combination, exchange of shares,
warrants or rights offering to purchase common stock at a price substantially
below fair market value or similar change affecting the common stock,
appropriate adjustment shall be made in the maximum number and kind of shares
subject to the plan, outstanding stock options and subsequent grants of stock
options and in the exercise price of outstanding stock options.
Section 4. ADMINISTRATION OF THE PLAN
Stock options under the plan shall be automatic as provided in Section 6.
The plan shall be administered by the committee. The committee shall have the
powers vested in it by the terms of the plan. The committee shall, subject to
the provisions of the plan, have the power to construe the plan, to determine
all questions arising thereunder and to adopt and amend rules and regulations
for the administration of the plan. Notwithstanding the foregoing, the
committee shall have no discretion with respect to the eligibility or selection
of participants, the timing or exercise price of stock options, or the number of
shares of common stock subject to stock option grants. Any decisions of the
committee on the administration of the plan shall be final and conclusive.
Section 5. PARTICIPATION IN THE PLAN
All non-employee directors shall participate in the plan.
Section 6. DETERMINATION OF STOCK OPTIONS
Each stock option granted under the plan shall be evidenced by a written
instrument in such form as the committee may approve and shall be subject to the
following terms and conditions:
(a) Each current non-employee director shall receive, effective as of Dec.
31, 1991, a stock option to purchase 1,100 shares of common stock at an exercise
price of $23.25 per share.
(b) On Dec. 31 of each year before 1994 in which a non-employee director
is first elected to the board, such newly elected non-employee director shall
receive a stock option to purchase the number of shares of common stock
calculated by dividing the aggregate cash value of the annual retainer for that
year plus an amount equal to six meeting fees for that year by the market price
of the common stock on the last trading day of the year in which such non-
employee director was elected to the board. The stock options granted to a
newly elected non-employee director pursuant to this Section 6(b) shall be in
lieu of any stock options to which such non-employee director otherwise would be
entitled in such year under Section 6(c).
(c) On Dec. 31 of each year before 1994, each non-employee director
(except for non-employee directors first elected during such year) shall receive
a stock option to purchase the number of shares of common stock determined by
dividing one-half of the cash value of the annual retainer for the calendar year
during which the grant is being made by the market price of the common stock on
the last trading day of the year in which such grant is being made.
(d) On Dec. 31, 1994, and on each Dec. 31 thereafter during the term of
the plan, each non-employee director first elected to the board during the
calendar year that includes such date shall receive an option to purchase 2,000
shares of common stock and each other non-employee director on such date shall
receive an option to purchase 1,000 shares of common stock.
(e) The purchase price for the common stock subject to stock options shall
be the market price of the common stock on the date of grant.
A-2
(f) Stock options shall fully vest and become exercisable six months from
the date of grant. Stock options shall be exercisable in whole or in part with
respect to a whole number of vested shares (rounded to the next highest whole
number in the case of fractional shares) at any time prior to the expiration of
10 years from the date of grant, subject to Section 6(g) of the plan.
(g) In the event service on the board by a participant terminates for any
reason, all of the participant's stock options shall fully vest and become
immediately exercisable and will expire three years after the date of
termination regardless of their stated expiration dates. Stock options shall
not be transferable by the participant otherwise than by will or the laws of
descent and distribution. The rights of a participant in a stock option may be
exercised by the participant's guardian or legal representative in the case of
disability and by the participant's estate or a beneficiary designated by the
participant in the case of death.
(h) The purchase price for the common stock subject to a stock option may
be paid in cash, by check, in shares of common stock of the corporation or in a
combination of cash and common stock. The value of shares of common stock
delivered in payment of the purchase price shall be their market price as of the
date of exercise.
(i) Each participant shall pay to the corporation, or make arrangements
satisfactory to the committee for the payment of, any federal, state or local
taxes of any kind required by law to be withheld with respect to the receipt of
shares of common stock pursuant to the exercise of a stock option. Such tax
obligations may be paid in whole or in part in shares of common stock, including
shares issued upon exercise of the stock option, valued at market price on the
date of delivery.
Section 7. STOCKHOLDER RIGHTS
(a) Non-employee directors shall not be deemed for any purpose to be and
have rights as stockholders of the corporation with respect to any shares of
common stock except as and when such shares are issued and then only from the
date of the certificate thereof. No adjustment shall be made for dividends,
distributions or other rights for which the record date precedes the date of
such stock certificate.
(b) Subject to the provisions of Section 7(a) above, a participant will
have all rights of a stockholder with respect to common stock issued to the
participant, including the right to vote the shares and receive all dividends
and other distributions paid or made with respect thereto.
Section 8. CONTINUATION OF DIRECTOR OR OTHER STATUS
Nothing in the plan or in any instrument executed pursuant to the plan or
any action taken pursuant to the plan shall be construed as creating or
constituting evidence of any agreement or understanding, express or implied,
that the corporation will retain a non-employee director as a director or in any
other capacity for any period of time or at a particular retainer or other rate
of compensation, as conferring upon any participant any legal or other right to
continue as a director or in any other capacity, or as limiting, interfering
with or otherwise affecting the provisions of the corporation's charter, bylaws
or the Maryland General Corporation Law relating to the removal of directors.
Section 9. COMPLIANCE WITH GOVERNMENT REGULATIONS
Neither the plan nor the corporation shall be obligated to issue any shares
of common stock pursuant to the plan at any time unless and until all applicable
requirements imposed by any federal and state securities and other laws, rules,
and regulations, by any regulatory agencies, or by any stock exchanges upon
which the common stock may be listed have been fully met. As a condition
precedent to any issuance of shares of common stock and delivery of certificates
evidencing such shares pursuant to the plan, the committee may require a
participant to take any such action and to make any such covenants, agreements
and representations as the committee, as the case may be, in its discretion
deems necessary or advisable to ensure compliance with such requirements. The
corporation shall in no event be obligated to register the shares of common
stock issued or issuable under the plan pursuant to the Securities Act of 1933,
as now or hereafter amended, or to qualify or register such shares under any
securities laws of any state upon their issuance under the plan or at any time
thereafter, or to take any other action in order to cause the issuance and
delivery of such shares under the plan or any subsequent offer, sale or other
transfer of such shares to comply with any such law, regulation or requirement.
Participants are responsible for complying with all applicable federal and state
securities and other laws, rules and regulations in connection with any offer,
sale or other transfer of the shares of common stock issued under the plan or
any interest therein including, without limitation, compliance with the
registration requirements of the Securities Act of 1933 (unless an exemption
therefrom is available), or with the provisions of Rule 144 promulgated
thereunder, if available, or any successor provisions.
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Section 10. NON-TRANSFERABILITY OF RIGHTS
No participant shall have the right to assign any stock option or any other
right or interest under the plan, contingent or otherwise, or to cause or permit
any encumbrance, pledge or charge of any nature to be imposed on any such stock
option or any such right or interest, other than by will or the laws of descent
and distribution. Stock options shall be exercisable during the participant's
lifetime only by the participant or the participant's guardian or legal
representative.
Section 11. TERM OF PLAN
The plan as amended shall become effective immediately upon approval by the
affirmative vote of a majority of the shares of common stock present or
represented and entitled to vote at the 1994 annual meeting of the corporation's
stockholders. When so approved, the plan as amended shall be deemed to have
been in effect as of Dec. 18, 1991. The plan shall terminate on Dec. 18, 2001.
Section 12. AMENDMENT OF THE PLAN
The committee may amend, suspend or terminate the plan or any portion
thereof at any time, provided that to the extent required to qualify
transactions under the plan for exemption under Rule 16b-3 under the Exchange
Act and any successor provision, no amendment may be made to change the
eligibility or selection of participants in the plan, the timing of stock option
grants, or the number of shares of common stock subject to the plan or stock
options granted thereunder, other than as permitted by such rule or successor
provision. Notwithstanding the foregoing, the plan may not be amended more than
once in any six-month period except to comply with changes in the Internal
Revenue Code (the "code"), the Employment Retirement Income Securities Act
("ERISA") or any rules or regulations promulgated under either the code or
ERISA.
Section 13. GOVERNING LAW
The plan shall be governed by and interpreted in accordance with the laws
of the state of Maryland.
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