Exhibit 10

AMENDED AND RESTATED
EMPLOYMENT AGREEMENT

(Amended and Restated as of April 20, 2005)

AMENDED AND RESTATED EMPLOYMENT AGREEMENT originally dated as of the 1st day of
July 2002, 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 effective July 1, 2002 between the Company and the Executive is
amended and restated as of April 20, 2005.   2.   Term of Employment. The
Company agrees to employ the Executive until December 30, 2010. This Agreement
shall automatically renew for a one (1) year renewal period on December 30,
2010, 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 30, 2010, 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 30, 2010, or
the end of any renewal period.   3.   Position and Responsibilities. The
Executive shall serve as the Chairman of the Board of Directors, President and
Chief Executive Officer of the Company. In his capacity as Chairman of the
Board, President and Chief Executive Officer, the Executive shall be the
Company’s highest ranking executive officer and shall have full authority and
responsibility for formulating and administering the plans and policies of the
Company subject to the control of the Board of Directors.   4.   Performance of
Duties. The Executive shall devote his full time attention and energies to the
Company’s business and will not engage in consulting work or any business for
his own account or for any person, firm or corporation. The Executive may serve
as a director of other companies so long as this service does not interfere with
the performance of his duties with the Company.   5.   Compensation. For all
services to be rendered by the Executive during the term of this Agreement, the
Company shall pay and provide to the Executive:

  5.1   Base Salary. The Company shall pay the Executive a Base Salary in the
fixed amount of one million dollars ($1,000,000) 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, pursuant to the terms of the Company’s Senior
Executive Performance Plan, an annual cash bonus (the “Bonus”) in respect of
each fiscal year during the term of this Agreement equal to two percent (2%) of
the Company’s consolidated earnings before taxes and extraordinary items as
adjusted by the Compensation Committee to eliminate the effect of bonus and
incentive compensation, changes in accounting methods and nonrecurring or
unusual expenses or

1

--------------------------------------------------------------------------------

 

charges. 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 thereunder equal to
one hundred fifty percent (150%) 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,
executive 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
Units.

  (a)   Prior Grant of Stock Units (July 2002)         Pursuant to the terms and
conditions of The Ryland Group, Inc. 2002 Equity Incentive Plan (the 2002 Plan),
the Company previously granted to the Executive an award of 470,000 Stock Units
(adjusted to reflect the Company’s two-for-one stock split effective
November 30, 2004).         Subject to Subsection (c) below, the Stock Units
become vested and payable in accordance with the following vesting schedule:

VESTING DATE

     
2003
   
 
   
94,000 Stock Units plus an amount equal to 2003 federal and state income and
medicare taxes assuming the highest marginal tax rate.
  May 1, 2003
unless the Company’s return on equity (ROE) for the period of July 1, 2002
through December 31, 2002 is less than sixty percent (60%) of the ten (10) year
median return on equity of the industrial companies within the Fortune 500 for
the ten (10) year period ending with the 2001 calendar year in which event this
installment of the Stock Unit grant is forfeited.
 
   
2004
   
 
   
94,000 Stock Units plus an amount equal to 2004 federal and state income and
medicare taxes assuming the highest marginal tax rate.
  February 15, 2004
unless the Company’s ROE for the year ended December 31, 2003 is less than sixty
percent (60%) of the ten (10) year median return on equity of the industrial
companies within the Fortune 500 for the ten (10) year period ending with the
2002 calendar year in which event this installment of the Stock Unit grant is
forfeited.

2

--------------------------------------------------------------------------------

 

     
 
   
2005
   
 
   
94,000 Stock Units plus an amount equal to 2005 federal and state income and
medicare taxes assuming the highest marginal tax rate.
  February 15, 2005
unless the Company’s ROE for the year ended December 31, 2004 is less than sixty
percent (60%) of the ten (10) year median return on equity of the industrial
companies within the Fortune 500 for the ten (10) year period ending with the
2003 calendar year in which event this installment of the Stock Unit grant is
forfeited.
 
   
2006
   
 
   
94,000 Stock Units plus an amount equal to 2006 federal and state income and
medicare taxes assuming the highest marginal tax rate.
  March 1, 2006
unless the Company’s ROE for the year ended December 31, 2005 is less than sixty
percent (60%) of the ten (10) year median return on equity of the industrial
companies within the Fortune 500 for the ten (10) year period ending with the
2004 calendar year in which event this installment of the Stock Unit grant is
forfeited.
 
   
2007
   
 
   
94,000 Stock Units plus an amount equal to 2007 federal and state income and
medicare taxes assuming the highest marginal tax rate.
  March 1, 2007
unless the Company’s ROE for the year ended December 31, 2006 is less than sixty
percent (60%) of the ten (10) year median return on equity of the industrial
companies within the Fortune 500 for the ten (10) year period ending with the
2005 calendar year in which event this installment of the Stock Unit grant is
forfeited.

      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
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.     (b)   Current Grant of Stock Units.    
    Upon approval of the 2005 Equity Incentive Plan (the 2005 Plan) by the
stockholders of the Company at the Annual Meeting of Stockholders on April 20,
2005 and pursuant to the terms and conditions of the 2005 Plan, the Company
grants to the Executive an award of 120,000 Stock Units.

3

--------------------------------------------------------------------------------

 

      Subject to Subsection (c) below, the Stock Units become vested and payable
in accordance with the following vesting schedule:

VESTING

     
2008
   
 
   
40,000 Stock Units plus an amount equal to 2008 federal and state income and
medicare taxes assuming the highest marginal tax rate.
  March 1, 2008
unless the Company’s ROE for the year ended December 31, 2007 is less than sixty
percent (60%) of the ten (10) year median return on equity of the industrial
companies within the Fortune 500 for the ten (10) year period ending with the
2006 calendar year in which event this installment of the Stock Unit grant is
forfeited.
 
   
2009
   
 
   
40,000 Stock Units plus an amount equal to 2009 federal and state income and
medicare taxes assuming the highest marginal tax rate.
  March 1, 2009
unless the Company’s ROE for the year ended December 31, 2008 is less than sixty
percent (60%) of the ten (10) year median return on equity of the industrial
companies within the Fortune 500 for the ten (10) year period ending with the
2007 calendar year in which event this installment of the Stock Unit grant is
forfeited.
 
   
2010
   
 
   
40,000 Stock Units plus an amount equal to 2010 federal and state income and
medicare taxes assuming the highest marginal tax rate.
  March 1, 2010
unless the Company’s ROE for the year ended December 31, 2009 is less than sixty
percent (60%) of the ten (10) year median return on equity of the industrial
companies within the Fortune 500 for the ten (10) year period ending with the
2008 calendar year in which event this installment of the Stock Unit grant is
forfeited.

      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
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.     (c)   Vesting of Stock Units.         If
the Executive terminates employment with the Company voluntarily or because of
death, Disability, retirement or for Cause (as defined in Section 5) 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

4

--------------------------------------------------------------------------------

 

     of Control (as defined in Section 7.2(a) below) or a termination by the
Company without Cause (as stated in Section 6.4).     (d)   Payment of Stock
Units.         Upon each vesting date on which the Executive is employed by the
Company, the number of Stock Units which become vested on such date shall be
paid to the Executive in an equal number of shares of Common Stock of the
Company and, upon payment, such Stock Units are automatically fully paid and
cancelled.     (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)  
Rights of Executive With Respect to Stock Units.         The Executive shall
have no rights as a stockholder with respect to any Stock Unit or any share of
Common Stock to be issued with respect to any Stock Unit until the date of
vesting and payment. The Executive’s rights with respect to Stock Units shall be
the rights of a general unsecured creditor of the Company until the Stock Units
vest and shares of Common Stock are actually issued to the Executive.     (h)  
Adjustments.         The number of Stock Units shall be appropriately adjusted,
as determined by the Board of Directors or Compensation Committee of the Board
of Directors pursuant to the 2002 Plan or the 2005 Plan, in the event of any
stock split, combination or similar transaction.     (i)   Stock Units Subject
to Terms and Conditions of the Plan.         The Stock Units and all shares of
Common Stock issued with respect to Stock Units shall be subject to the terms
and conditions of the 2002 Plan or the 2005 Plan, whichever is applicable and
which are incorporated herein by this reference.

  5.6   Supplemental Executive Retirement Plan. The Executive shall receive the
benefit payable under the Dreier Supplemental Executive Retirement Plan (SERP)
entered into and effective as of July 1, 2002 between the Company and the
Executive in the amount and form and pursuant to the terms and conditions set
forth in the SERP. The Company

5

--------------------------------------------------------------------------------

 

      has established a grantor “rabbi” trust (the “SERP Trust”), having a
commercial trustee, and to which the Company has deposited an amount of cash
equal to $6,943,982.     5.7   Supplemental Executive Retirement Plan II. In
order to comply with the American Jobs Creation Act and Section 409A of the
Internal Revenue Code of 1986, the Company created the Supplemental Executive
Retirement Plan II effective January 1, 2005 (SERP II) which is attached as
Exhibit A to this Agreement. The Executive shall receive the benefit payable
under SERP II in the amount and form and pursuant to the terms and conditions
set forth in SERP II. The Company shall continue to use the SERP Trust for the
purpose of informally funding both the SERP and SERP II. In addition to the
amounts deposited into the SERP Trust described in Section 5.6 above, the
Company shall deposit an amount of cash equal to $3,471,991 per year for the six
(6) year period commencing January 1, 2005. Immediately before the date of a
Change of Control (as defined in Section 7.2(a)), the Company shall deposit in
the SERP Trust such amount of cash sufficient to cause the total amount of the
cash held in the SERP Trust to equal the present value of the combined SERP and
SERP II Benefits (as defined in the respective plans) calculated using an eight
percent (8%) discount rate.     5.8   Executive Retirement Health Insurance
Program. The Executive shall be provided with an Executive Retirement Health
Insurance Program for the Executive and the Executive’s spouse at the time that
the Executive is eligible to receive his Vested SERP Benefit (as defined in the
SERP) as provided within the SERP. This Program shall be provided to the
Executive and the Executive’s Spouse for a period of fifteen (15) years. This
Executive Retirement Health Insurance Program is at the expense of the Company
and shall be equivalent to and provide the same coverage and benefits as the
Company’s executive health insurance program in which the Executive participated
prior to the time of eligibility to receive his Vested SERP Benefit or prior to
Retirement as defined in the SERP.

6. Employment Termination.

  6.1   Termination Due to Retirement or Death. In the event the Executive’s
employment is terminated by reason of Retirement (as defined below) or death,
the Executive’s benefits shall be determined in accordance with the Company’s
Retirement, SERP or SERP II survivor’s benefits, insurance or other applicable
program then in effect. Upon the effective date of termination of employment by
reason of Retirement or death, 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, unless Section 6.9 is
applicable to this payment. “Retirement” is defined as voluntary or involuntary
termination of employment for any reason other than death.     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

6

--------------------------------------------------------------------------------

 

      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, unless
Section 6.9 is applicable to this payment.         The term “Disabled” or
“Disability” means the incapacity of the Executive, due to injury, illness,
disease or bodily or mental infirmity, to engage in the performance of his
duties with the Company. A Disability is determined by the Board of Directors
upon receipt of and in reliance on competent medical advice from one or more
individuals selected by the Board who are qualified to give professional medical
advice.     6.3   Voluntary Termination by the Executive. The Executive may
terminate this Agreement at any time by giving the Board of Directors written
notice of intent to terminate delivered at least ninety (90) days prior to the
effective date of such termination. Upon the expiration of this ninety (90) day
period, the termination by the Executive shall become effective. The Company
shall pay the Executive his Base Salary through the effective date of
termination plus all benefits to which the Executive has a vested right at that
time. The Executive shall not receive a Bonus for the fiscal year in which
voluntary termination occurs.     6.4   Termination by the Company Without
Cause. The Board of Directors may terminate the Executive’s employment for
reasons other than death, Disability, Retirement or for Cause (as defined in
Section 6.5) by notifying the Executive in writing at least sixty (60) days
prior to the effective date of termination. Upon the expiration of this sixty
(60) day period, the termination by the Company is effective. Within thirty
(30) days after the date of termination, unless Section 6.9 is applicable to
this payment, the Company shall pay to the Executive a lump sum cash payment
equal to the greater of (a) the aggregate amount of Base Salary as then in
effect, payable for the remaining term of this Agreement, or (b) the aggregate
amount of twenty-four (24) months of the Base Salary as in effect prior to the
date of notice of termination, and shall provide to the Executive a continuation
of his health and welfare benefits for the greater of (a) the 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 also pay the Executive a Bonus for the year
in which termination occurs equal to the Bonus paid or payable in respect of the
fiscal year prior to the year in which termination occurs multiplied by the
number of fiscal years within the remaining term of this Agreement (including
the fiscal year in which the termination occurs). This Bonus payment shall be
paid within thirty (30) days after the date of termination, unless Section 6.9
is applicable to this payment. The Company shall also pay the Executive all
benefits to which the Executive has a vested right at the time of termination as
well as the SERP Benefit and SERP II Benefit. The Executive shall be fully
vested in the grant of Stock Units pursuant to Section 5.5 of this Agreement,
and shall be fully vested in any prior year awards that remain unvested or any
awards made for the fiscal year in which termination occurs under the TRG
Incentive Plan or any successor plan. All vested awards under any equity
incentive or other 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

7

--------------------------------------------------------------------------------

 

      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.     6.5   Termination for Cause. The Board of Directors may
terminate the Executive’s employment at any time for “Cause.” “Cause” is
determined by the Board of Directors and is defined as the Executive’s
(i) willful and continued failure to perform the material duties of his position
after receiving notice of such failure and being given reasonable opportunity to
cure such failure; (ii) willful misconduct which is demonstrably and materially
injurious to the Company; or (iii) conviction of a felony. No act or failure to
act on the part of the Executive shall be considered “willful” unless it is done
or omitted to be done in bad faith or without reasonable belief that the action
or omission was in the best interest of the Company. 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 under this
Agreement including any right to a Bonus for the fiscal year in which the
termination occurs, but excluding any benefits in which he has a vested right at
that time to receive including any vested benefits or rights under the SERP or
SERP II.     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 compensation and benefits provided for and
payable in accordance with and as set forth in Section 6.4.         “Good
Reason” means, without the Executive’s written consent, the occurrence of any of
the following:

  (a)   The assignment of the Executive to duties materially inconsistent with,
or a reduction or alteration in the nature or status of, the Executive’s
authorities, duties, responsibilities or status as an executive officer of the
Company from those in effect during the preceding year;     (b)   The Company
requires the Executive to be based at a location which is more than fifty
(50) miles from the Executive’s then current primary residence;     (c)   A
reduction by the Company in the Executive’s Base Salary, formula under which the
Bonus is determined or other benefits provided in accordance with this
Agreement; or     (d)   The failure of the Company to obtain an agreement from
any successor to the Company to perform this Agreement.

  6.7   Change of Control Period. If the Board of Directors terminates the
Executive’s employment pursuant to Section 6.4 during a Change of Control Period
(as defined below) or the Executive terminates his employment pursuant to
Section 6.6 during a Change of Control Period (as defined below) and the Change
of Control occurs, then the Executive shall, in lieu of the rights set forth in
Section 6.4 or Section 6.6, as applicable, receive the payments and benefits
that are provided to the Executive pursuant to Section 7 upon a Change of
Control (as defined in Section 7). A “Change of Control Period” shall mean the
period of time commencing with the date 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

8

--------------------------------------------------------------------------------

 

  on the first to occur of: (a) 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 and is determined not to occur or be consummated or effected.     6.8  
Termination After Change of Control. The Executive and the Company each may
terminate this Agreement on, or at any time within six (6) months after, the
effective date of a Change of Control by giving the other party written notice
of intent to terminate delivered at least thirty (30) days prior to the
effective date of such termination. Upon the expiration of this thirty (30) day
period, the termination 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 such a termination
occurs.     6.9   Delay of Payment Pursuant to Section 409A. Should any of the
payments made to the Executive in accordance with Section 6 of this Agreement be
determined to be payments from a nonqualified deferred compensation plan, as
defined by Section 409A of the Internal Revenue Code of 1986 as amended (the
“Code”), these payments will be made no earlier than the date that is six
(6) months from the Executive’s date of termination or, if Section 6.7 applies
and if earlier, the effective date of a Change of Control.

7. Change of Control.

  7.1   Change of Control. 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 be entitled under any other agreement, plan or
arrangement with the Company) in the event and effective and payable as of a
Change of Control of the Company:

  (a)   Lump Sum Cash Payment. On the date that the Change of Control occurs,
the Company or any successor corporation or affiliate of the successor
corporation will pay the Executive an amount equal to the Executive’s unpaid
Base Salary for the remainder of the year in which the Change of Control occurs
and a pro rata Bonus through the date of the Change of Control determined in
accordance with Section 6.1 but based on the results of the year preceding the
year in which the Change of Control occurs. Also, on or before the date of the
Change of Control, the Company or any successor corporation or affiliate of the
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 the Change of
Control.     (b)   Accelerated Vesting and Supplemental Payments. All rights,
awards and benefits of the Executive provided pursuant to this Agreement, the
2002 Plan or the 2005 Plan, 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 replacement plans) and any
incentive, bonus, stock option, equity incentive, restricted stock, insurance or
executive insurance program, relocation program, or other benefit plans of the
Company, including any successor or replacement plans for any of the foregoing
plans, 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

9

--------------------------------------------------------------------------------

 

      compensation as provided in accordance with the applicable benefit,
document or plan within thirty (30) days of the date of the Change of Control
unless Section 6.9 is applicable to this payment. 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 the Change
of Control. All supplemental payments are provided on an unfunded basis, are not
intended to meet the qualification requirements of Section 401 of the Code, and
shall be payable solely from the general assets of the Company or any successor
corporation or affiliate of the 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), any supplemental early retirement plan
other than the SERP or SERP II, executive insurance programs, personal health
services allowance, health or social club benefits, 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 the successor corporation (the
“Responsible Company”) at no cost to the Executive for a period of three
(3) years from the date of the Change of Control. 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 Change of Control, 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
and complete reimbursement for improvements to the Executive’s residence that
occurred after the date of the Executive’s purchase of the residence. Benefits
under this paragraph will include assistance in and payment of all costs and
commissions related to selling the Executive’s home, the payment of all moving
costs, as well as all other assistance and benefits which are provided by the
Company under its relocation plan as in effect prior to the Change of Control.  
  (e)   Stock Rights. All stock options, stock units, 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 the
Change of Control.     (f)   Outplacement Assistance. The Executive shall be
reimbursed by the Responsible Company for the cost of all outplacement services
obtained by the Executive within the two (2) year period after the date of the
Change of Control provided the total reimbursement shall be limited to an amount
equal to fifteen percent (15%) of the Executive’s Base Salary for the calendar
year immediately preceding the date of the Change of Control. Alternatively, the
Executive, upon request, will receive, in lieu of the foregoing reimbursement, a
cash payment

10

--------------------------------------------------------------------------------

 

      equal to ten percent (10%) of the Executive’s Base Salary for the calendar
year immediately preceding the date of the Change of Control.

  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, or more than one person acting as a group, together
with stock held by such person or group, of beneficial ownership of more than
fifty percent (50%) of the total fair market value or total voting power of the
Company’s then outstanding voting securities;     (ii)   Any one person or more
than one person acting as a group acquires, or has acquired during the twelve
(12) month period ending on the date of the most recent acquisition by such
person or group, beneficial ownership of thirty-five percent (35%) or more of
the total voting power of the Company’s then outstanding voting securities;    
(iii)   A majority of the members of the Company’s Board of Directors is
replaced during any twelve (12) month period by Directors whose appointment or
election is not endorsed or approved by a majority of the members of the Board
of Directors who were members of the Board of Directors prior to the initiation
of the replacement; or     (iv)   Any one person or more than one person acting
as a group acquires, or has acquired during the twelve (12) month period ending
on the date of the most recent acquisition by such person or group, assets of
the Company that have a total gross fair market value of forty percent (40%) or
more of the total gross fair market value of all of the assets of the Company
immediately prior to the initiation of the acquisition.

  (b)   “Annual Compensation” shall mean the sum of the Base Salary paid and
earned, the Bonus paid or earned, even though paid in a subsequent year, to the
Executive, vested and unvested, and all amounts and the cash value of any
restricted stock credited or paid to the Executive, vested and unvested, under
any incentive compensation or other benefit or compensation plans of the Company
in which the Executive participates, during a calendar year (including the TRG
Incentive Plan, the 2002 Plan or the 2005 Plan or any successor or replacement
plans).

  7.3   Certain Additional Payments.

  (a)   Gross-Up Payment Amount.         Notwithstanding anything in this
Agreement to the contrary, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of the Executive, whether
paid, payable, distributed or distributable pursuant to this Agreement or
otherwise (a “Payment”) would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”) (or
any successor provision) or any interest or penalties

11

--------------------------------------------------------------------------------

 

      with respect to such excise tax (such excise tax, together with any such
interest and penalties, are collectively referred to in this Agreement as the
“Excise Tax”), then the Executive shall be entitled to receive an additional
payment (a “Gross-Up Payment”) in an amount such that after the payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the payment. Additionally, should the Executive be subject to
additional tax and interest imposed by Section 409A of the Code, then the
Executive shall be entitled to receive a Gross-Up Payment in an amount such that
after the payment by the Executive of all such taxes and interest including any
taxes and interest imposed on the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to any tax or interest imposed by
Section 409A of the Code.     (b)   Determinations.         Subject to the
provisions of Section 7.3(c), all determinations required to be made under this
Section 7.3, including whether and when a Gross-Up Payment is required and the
amount of such Gross-Up Payment and the assumptions to be utilized in arriving
at such determination, shall be made by a nationally recognized certified public
accounting firm designated by the Executive (the “Accounting Firm”), which shall
provide detailed supporting calculations both to the Company and the Executive
within fifteen (15) business days of the receipt of notice from the Executive
that there has been a Payment, or such earlier time as is requested by the
Company. Any Gross-Up Payment, as determined pursuant to this Section 7.3, shall
be paid by the Company to the Executive within five (5) days of the receipt of
the Accounting Firm’s determination. All fees and expenses of the Accounting
Firm shall be borne solely by the Company. Any determination by the Accounting
Firm shall be binding upon the Company and the Executive. As a result of the
uncertainty in the application of Section 4999 and Section 409A of the Code at
the time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments that will not have been made by the Company
should have been made (“Underpayment”), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts its
remedies pursuant to Section 7.3(c) and the Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive.     (c)  
IRS Claims.         The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten (10) business days after the
Executive is informed in writing of such claim and shall apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the
thirty (30) day period following the date on which the Executive gives such
notice to the Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due).

12

--------------------------------------------------------------------------------

 

      If the Company notifies the Executive in writing prior to the expiration
of such period that it desires to contest such claim, the Executive shall:

  (i)   give the Company any information reasonably requested by the Company
relating to such claim,     (ii)   take such action in connection with
contesting such claim as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the Company,    
(iii)   cooperate with the Company in good faith in order effectively to contest
such claim, and     (iv)   permit the Company to participate in any proceedings
relating to such claim; provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold the
Executive harmless, on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a result of
such representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section, the Company shall control all proceedings
taken in connection with such contest and, at its sole option, may pursue or
forgo any and all administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may, at its sole option,
either direct the Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the Executive agrees to
prosecute such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of the statute
of limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company’s control of
the contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.

  (d)   Refunds.         If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 7.3(c), the Executive becomes
entitled to receive any refund with respect to such claim, the Executive shall
(subject to the Company’s complying with the requirements of such Section)
promptly pay to the Company

13

--------------------------------------------------------------------------------

 

      the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Executive
of an amount advanced by the Company pursuant to Section 7.3(c), a determination
is made that the Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expiration of thirty
(30) days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.

8.   Proprietary Information.

  8.1   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.     8.2  
Covenants Regarding Other Employees. 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 the 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 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.     8.3   Specific Performance.
The parties recognize that the Company will have no adequate remedy at law for
breach of the requirements of this Section 8 and, in the event of such breach,
the Company and the Executive agree that, in addition to the right to seek
monetary damages, the Company will be entitled to a decree of specific
performance, mandamus, or other appropriate remedy to enforce performance of
these requirements.

9.   Indemnification. The Company covenants and agrees to indemnify and hold
harmless the Executive fully, completely and absolutely against any and all
actions, suits, proceedings, claims, demands, judgments, costs, expenses
(including reasonable attorney’s fees), losses and damages resulting from the
Executive’s good faith performance of his duties under this Agreement subject to
the requirements and limitations imposed by the Company’s Articles of
Incorporation and By-Laws and applicable law.   10.   Assignment.

  10.1   Assignment by Company. This Agreement may be assigned or transferred
to, and shall be binding upon and inure to the benefit of, any successor of the
Company, provided the assignee successor of the Company or affiliate of a
successor is jointly and severally bound by and obligated with respect to all of
the terms, conditions, obligations, rights, liabilities and responsibilities set
forth in this Agreement, and any successor or affiliate of a 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 or affiliate of the foregoing which
at any time, whether by merger, purchase or otherwise acquires all or
substantially all of the

14

--------------------------------------------------------------------------------

 

      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 or decision made by 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 is entitled to reimbursement by the
Company of all expenses of such litigation or arbitration, including any legal
fees and expenses and any costs and disbursements.   12.   Miscellaneous.

  12.1   Entire Agreement. This Agreement supersedes any prior agreements or
understandings, oral or written, between the Executive and the Company with
respect to the subject matter hereof, including the Amended and Restated
Employment Agreement dated as of April 21, 1999 and July 1, 2002, 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.

15

--------------------------------------------------------------------------------

 

  12.7   Governing Law. To the extent not preempted by Federal law, the
provisions of this Agreement shall be construed and enforced in accordance with
the laws of the State of Maryland.     12.8   Notice. Any notices, requests,
demands or other communications required by or provided for in this Agreement
shall be sufficient if in writing and sent by registered or certified mail to
the Executive at the last address he has filed in writing with the Company or,
in the case of the Company, at its principal office.

IN WITNESS WHEREOF, the Executive and the Company have executed this Agreement
as of the date first above written.

                  THE RYLAND GROUP, INC.       EXECUTIVE:    
 
               
By:
               

               

  Robert E. Mellor, Chairman       R. Chad Dreier    

  Compensation Committee of the            

  Board of Directors            
 
               
By:
               

               

  Robert J. Cunnion III, Senior Vice President            
 
               
Attest:
               

               

  Timothy J. Geckle, Secretary            

16