Document:

Exhibit 10.17

Exhibit 10.17

REGAL BELOIT CORPORATION

SHAREHOLDER VALUE ADDED (SVA)

EXECUTIVE OFFICERS INCENTIVE COMPENSATION PLAN

ARTICLE I

Statement of Purpose

	1.1	 	The purpose of the REGAL BELOIT CORPORATION Shareholder Value Added (SVA) Executive Officers
Incentive Compensation Plan (the “Plan”) is to provide a system of incentive compensation,
which will promote the maximization of shareholder value over the long term. In order to
align executive management incentives with shareholder interests, incentive compensation will
reward the creation of value. This Plan will tie incentive compensation to Shareholder Value
Added (“SVA”) and, thereby, reward executive management for creating value and penalize
management for diminishing value.

	1.2	 	SVA is the performance measure of value creation. SVA reflects the benefits and costs of
capital employment. Executive officers create value when they employ capital in an endeavor
that generates a return that exceeds the cost of the capital employed. By imputing the cost
of capital upon the operating profits generated by the Company, SVA measures the total value
created by executive management.

SVA = (Net Operating Profit After Tax - Capital Charge)

	1.3	 	Each Participant has a prescribed target bonus. The bonus earned in any one year is the
result of multiplying the Actual Bonus Percentage times the Participant’s Target Bonus Value.
Bonuses earned in any one Fiscal Year up to the Target Bonus Value will be fully paid out
shortly after the end of that Fiscal Year but in no event later than March 15 of the year
following that Fiscal Year. Bonuses earned above the Target Bonus Value are deferred and paid
out as described in Article IV below.

ARTICLE II

Definition of SVA and the Components of SVA

Unless the context provides a different meaning, the following terms shall have the following
meanings.

	2.1	 	“Participant” is defined as a REGAL BELOIT employee who serves as a Corporate Officer of the
Company and is so designated by the Committee.

	2.2	 	“Capital” is defined as the net investment employed in the operations of the Company, without
giving effect to acquisitions of other companies or businesses until the first anniversary
thereof. The components of Capital are as follows:

	 	 	 	 	 
	 

	 	 	 	Accounts Receivable—at Gross Value
	 

	 	Plus:
	 	FIFO Inventory — Net of E&O Reserves
	 

	 	Plus:
	 	Other Current Assets
	 

	 	Plus:
	 	Net Property, Plant & Equipment
	 

	 	Plus:
	 	Goodwill
	 

	 	Plus:
	 	Other assets
	 

	 	Plus (Less):
	 	Special Items (one-time) (1)
	 

	 	Less:
	 	 Noninterest Bearing Current and Long-term Liabilities
	 

	 	Equals:
	 	Capital

	 	 	 
	(1)	 	Established within the first ninety (90) days of the Company’s
Fiscal Year.

 

 

 

	2.3	 	Each component of Capital will be measured by computing a thirteen fiscal month average
beginning with the last fiscal month of the prior Fiscal Year and the twelve fiscal months of
the current Fiscal Year.

	2.4	 	“Cost of Capital” is defined as the weighted average of the after tax cost of debt
and equity.

	 
	 	 	The Cost of Capital will be fixed for the year and reviewed annually, to determine if an
adjustment shall be considered. Any such adjustments will be made only if the fixed rate in
use does not represent the reasonable long-term Cost of Capital for the Company and must be
established for each Plan year within the first ninety (90) days of the Company’s Fiscal
Year.

	 
	 	 	The methodology for the calculation of the Cost of Capital will be as reflected in Exhibit
A.

	 
	 	 	Short-term debt is to be treated as long term for purposes of computing the cost of capital.

	2.5	 	“Capital Charge” is defined as the opportunity cost of employing Capital in the
Company. The Capital Charge is computed as follows:

Capital Charge = Capital x Cost of Capital

	2.6	 	“Fiscal Year” or “Plan Year” shall correspond with the fiscal year utilized by the
Company for financial reporting purposes.

	 
	2.7	 	“Net Operating Profit After Tax” or “NOPAT”

	 
	 	 	“NOPAT” is defined as the after tax earnings attributable to the capital employed by the
Company for the year in question, and shall exclude the first year impact of acquisitions.
The components of NOPAT are as follows:

	 	 	 	 	 
	 

	 	 	 	Income from Operations
	 

	 	Plus:
	 	Increase (Decrease) in Bad Debt and Warranty Reserves
	 

	 	Less:
	 	Other Expense (excluding interest)
	 

	 	Plus:
	 	Other Income
	 

	 	 Plus (Less):
	 	 Approved Special Adjustments (1)
	 

	 	Equals:
	 	Net Operating Profit Before Tax
	 

	 	 Less:
	 	Taxes (2)
	 

	 	Equals:
	 	Net Operating Profit After Tax

	 	 	 
	(1)	 	Adjustments to NOPAT for special items, if any, shall be
established within the first ninety (90) days of the Company’s Fiscal Year by
the Committee. A few examples are: gains and losses on sales of land and
buildings, gains and losses on sales of businesses.

	 
	(2)	 	The Corporate tax rate will vary as a percent of Net Operating
Profit Before Tax on the actual effective book tax rate of the Company.
Adjustments for specific non-book tax items may be considered on a case by case
basis and established within the first ninety (90) days of the Company’s Fiscal Year.

 

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	2.8	 	“Shareholder Value Added” or “SVA” is defined as the NOPAT that remains after subtracting the
Capital Charge from NOPAT. SVA may be positive or negative.

ARTICLE III

Other Definitions and Computations

	3.1	 	“Actual SVA” is defined as the SVA as calculated for the Company for the Fiscal Year in
question.

	3.2	 	“Target SVA” is defined as the level of SVA that is required in order for a Participant to
receive the Target Bonus Value.

	 
	 	 	The Target SVA is set at the average of the sum of the prior Fiscal Year’s Target and Actual
SVA plus an improvement factor. The Target SVA is revised according to the following
formula:

	 	 	 	 	 	 	 
	 

	 	(Prior Year’s + Prior Year’s)
	 	 
	Target SVA =

	 	 (Actual SVA      Target SVA)
	 	+ Expected improvement in SVA
	 

	2	 

	 	 	“Expected Improvement in SVA” is defined as the improvement in SVA established by the
Committee within the first ninety (90) days of the Company’s fiscal year. It may be in the
form of a specified dollar amount or a percentage of the prior year’s actual SVA. The
improvement factor may be changed annually, as determined by the Committee within the first
ninety (90) days of the Company’s Fiscal Year.

	3.3	 	“Target Bonus Value” is defined as the “Target Bonus Percentage” times a Participant’s Base
Pay.

	3.4	 	“Target Bonus Percentage” is determined for each Participant by the Committee within the
first ninety (90) days of the Company’s Fiscal Year.

	3.5	 	“Actual Bonus Value” is defined as the bonus earned by a Participant and is computed as the
Actual Bonus Percentage times a Participant’s Target Bonus Value. A portion of the Actual
Bonus Value may be placed in the Participant’s Deferred Account. See Article IV Deferred
Account.

	3.6	 	“Actual Bonus Percentage” is determined by multiplying the Target Bonus Percentage by the
Bonus Performance Value.

	3.7	 	“Bonus Performance Value” is defined as the difference between the Actual SVA and the Target
SVA divided by the Leverage Factor, plus 1.0.

	 	 	 	 	 
	 

	 	 	 	 [SVA - Target SVA] + 1
	 

	 	Bonus Performance Value =
	 	     [Leverage Factor]

 

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	3.8	 	“Leverage Factor” is the negative (positive) deviation from Target SVA necessary before a
zero (two times Target) bonus is earned.

	3.9	 	“Base Pay” is defined as the annual salary of a Participant as of the date specified by the
Committee within the first ninety (90) days of the Company’s fiscal year.

	3.10	 	“Maximum Bonus” is defined as 200% of Target Bonus Value. A Participant cannot earn an Actual
Bonus Value in any year more than twice his/her Target Bonus Value.

	3.11	 	“Minimum Bonus” means zero bonus. A Participant may earn an Actual Bonus Value of zero (-0-),
but the Actual Bonus Value cannot be negative.

ARTICLE IV

Description of Deferred Accounts

	4.1	 	Establishment of a Deferred Account. To serve as an incentive for Participants to remain
employed by the Company, amounts above the Target Bonus Value shall be credited to the Plan
Participant’s deferred account (“Deferred Account”).

	4.2	 	“Deferred Account” is defined as, with respect to each Participant, an unfunded account to
which amounts are credited, or debited (paid out), under the Plan.

	4.3	 	Payment: Subject to the conditions in Article V, any amounts earned above the Target Bonus
Value are paid in three equal amounts after the end of each of the three Fiscal Years
following the year in which such deferred amount was earned; thus, the first payment is made
in the second year following the Fiscal Year in which the deferred amount was earned, the
second payment is made in the third year following the Fiscal Year in which the deferred
amount was earned, and the third payment is made in the fourth year following the Fiscal Year
in which the deferred amount was earned.

	 
	4.4	 	No interest will be earned or paid on amounts in the Participant’s Deferred Account.

ARTICLE V

Plan Participation and Terminations

	5.1	 	Eligibility. The Compensation and Human Resources Committee of the Board of
Directors (the “Committee”) will have sole discretion in determining who shall participate in
the Plan. Employees designated for Plan participation by the Committee shall be members of
executive management. In order for a Participant to receive or be credited with his or her
Actual Bonus Value for a Plan Year, the Participant must have (i) remained employed by the
Company or an affiliate through the last day of such Plan Year, (ii) retired from the Company
within the meaning of Section 5.2 during the Plan Year, (iii) suffered a disability as defined
in the Company’s long-term disability plan during the Plan Year, or (iv) died during the Plan
Year. A Participant whose employment is terminated involuntarily without Cause after June 30
of any Fiscal Year will be entitled to a prorata Actual Bonus Value for the Fiscal Year in
which his/her employment so ends, payable as soon as practical after the end of that Fiscal
Year but

 

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	 	 	in no event later than March 15 of the year following that Fiscal Year; provided that if
such prorata amount exceeds the Target Bonus Value, such excess shall be credited to the
Participant’s Deferred Account and paid in accordance with Section 5.4. In all other cases
of termination of employment prior to the last day of the Fiscal Year, a Participant shall
not be entitled to any Actual Bonus Value for such Plan Year. In the case of items (ii),
(iii) and (iv), the Actual Bonus Value will be prorated for the portion of the Fiscal Year
worked and will be paid as soon as practical after the end of that Fiscal Year but in no
event later than March 15 of the year following that Fiscal Year; provided that if such
prorata amount exceeds the Target Bonus Value, such excess shall be credited to the
Participant’s Deferred Account and paid in accordance with Section 5.2, 4.3 or 5.5, as
applicable.

	5.2	 	Retirement. A Participant who retires from the Company in accordance with Company
retirement programs shall be eligible to receive the balance of his/her Deferred Account. Such
payment shall be made on the first day of the seventh (7th) month immediately
following the month in which his or her Separation from Service occurs.

	5.3	 	Disability. A Participant who suffers a disability, while in the Company’s employ,
(as defined in Section 5.10) shall receive the balance of his/her Deferred Account. Such
payment shall be made as soon as practical, but not more than 90 days, after the date the
Participant has suffered a Disability.

	5.4	 	Involuntary Termination Without Cause. A Participant who is terminated without Cause
shall receive the balance in his/her Deferred Account. Such payment shall be made on the
first day of the seventh (7th) month immediately following the month in which his
or her Separation from Service occurs.

	5.5	 	Death. In the case of a Participant who dies, such Participant’s estate shall
receive the balance in his/her Deferred Account. Such payment shall be made as soon as
practical, but not more than 90 days, after the Participant’s death.

	5.6	 	Voluntary Termination. In the event that a Participant voluntarily terminates
employment with the Company, the right of the Participant to the balance in, and any payments
from, his/her Deferred Account shall be forfeited.

	5.7	 	Termination for Cause. In the event of termination of employment for Cause, the
right of the Participant to his/her Deferred Account shall be declared forfeited. “Cause”
shall mean:

	 	(1)	 	any act or acts of the Participant constituting a felony under
the laws of the United States, any state thereof or any foreign jurisdiction;

	 
	 	(2)	 	any material breach by the Participant of any employment
agreement with the Company or the policies of the Company or the willful and
persistent (after written notice to the Participant) failure or refusal of the
Participant to comply with any lawful directives of the Board;

	 
	 	(3)	 	a course of conduct amounting to gross negligence or willful
misconduct; or

	 
	 	(4)	 	any misappropriation of property of the Company by the
Participant or any misappropriation of a corporate or business opportunity of
the Company by the Participant.

 

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	5.8	 	Breach of Agreement. Notwithstanding any other provision of the Plan or any other
agreement, in the event that a Participant shall breach any noncompetition agreement with the
Company or breach any agreement with respect to the postemployment conduct of such
Participant, any remaining payment otherwise due to the Participant hereunder shall be
forfeited.

	5.9	 	No Guarantee. Other than as provided in this Plan document, (i) participation in the
Plan provides no guarantee that a payment under the Plan will be paid; (ii) selection as a
Participant is no guarantee that payments under the Plan will be paid; or, (iii) that
selection as a Participant will be made in the subsequent Fiscal Year.

	5.10	 	Definitions. For purposes of the payment provisions, the following definitions
apply:

i. “Affiliate” means each entity that is required to be aggregated with the
Company pursuant to Code Section 414(b) or (c); provided that for purposes of
determining if a Participant has incurred a Separation from Service, the phrase “at
least 50 percent” shall be used in place of the phrase “at least 80 percent” each
place it appears therein or in the regulations thereunder.

ii. “Code” means the Internal Revenue Code of 1986, as amended.

iii. “Disability” means either (i) the Participant is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment that can be expected to result in death or can be expected to last
for a continuous period of not less than 12 months or (ii) the Participant is, by
reason of any medically determinable physical or mental impairment that can be
expected to result in death or can be expected to last for a continuous period of
not less than 12 months, receiving income replacement benefits for a period of not
less than three months under an accident and health plan covering employees of the
Participant’s employer.

iv. “Separation from Service” means a Participant’s termination of employment
from the Company and all Affiliates within the meaning of Code Section 409A,
including the following rules:

(1) If a Participant takes a leave of absence from the Company or an
Affiliate for purposes of military leave, sick leave or other bona fide
leave of absence, the Participant’s employment will be deemed to continue
for the first six (6) months of the leave of absence, or if longer, for so
long as the Participant’s right to reemployment is provided either by
statute or by contract; provided that if the leave of absence is due to the
Participant’s medically determinable physical or mental impairment that can
be expected to result in death or can be expected to last for a continuous
period of six months or more, and such impairment causes the Participant to
be unable to perform the duties of his position with the Company or an
Affiliate or a
substantially similar position of employment, then the leave period may
be extended for up to a total of 29 months.

 

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(2) A Participant shall be presumed to incur a Separation from Service
when the level of bona fide services provided by the Participant to the
Company and its Affiliates permanently decreases to a level of twenty
percent (20%) or less of the level of services rendered by such individual,
on average, during the immediately preceding 36 months.

(3) A Participant shall be presumed to not incur a Separation from
Service when the level of bona fide services provided by the Participant to
the Company and its Affiliates continues at a rate that is at least fifty
percent (50%) of the level of services rendered by such individual, on
average, during the immediately preceding 36 months.

ARTICLE VI

General Provisions

	6.1	 	Withholding of Taxes. The Company shall have the right to withhold the amount of
taxes, which in the determination of the Company, is required to be withheld under available
law with respect to any amount due or paid under the Plan.

	6.2	 	Expenses. All expenses and costs in connection with the adoption and administration
of the Plan shall be borne by the Company.

	6.3	 	No Prior Right or Offer. Except and until expressly granted pursuant to the Plan,
nothing in the Plan shall be deemed to give any employee any contractual or other right to
participate in the benefits of the Plan.

	6.4	 	Claims for Benefits. In the event a Participant desires to make a claim with respect
to any of the benefits provided hereunder, the Participant shall submit evidence satisfactory
to the Committee of facts establishing his entitlement to a payment under the Plan. Any claim
with respect to any of the benefits provided under the Plan shall be made in writing within
ninety (90) days of the event which the Participant asserts entitles him to benefits. Failure
by the Participant to submit his claim within such ninety (90) day period shall bar the
Participant from any subsequent claim for benefits under the Plan.

	6.5	 	Denial of Claim. In the event that a claim which is made by a Participant is wholly
or partially denied, the Participant will receive from the Committee a written explanation of
the reason for denial and the Participant or his/her duly authorized representative may appeal
the denial of the claim to the Committee at any time within ninety (90) days after the receipt
by the Participant of written notice from the Committee of the denial of the claim; provided
that to avoid penalties under Code Section 409A, the Participant’s appeal must be filed no
later than 180 days after the latest date the payment that is in dispute could have been
timely paid pursuant to Code Section 409A. In connection therewith, the Participant or his/her
duly authorized

 

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	 	 	representative may request a
review of the denied claim; may review pertinent documents; and may submit issues and comments in writing. Upon receipt of an appeal, the
Committee shall make a decision with respect to the appeal and, not later than sixty (60)
days after receipt of a request for review, shall furnish the Participant with a decision on
review in writing, including the specific reasons for the decision as well as specific
reference to the pertinent provisions of the Plan upon which the decision is based. In
reaching its decision, the Committee shall have complete discretionary authority to
determine all questions arising in the interpretation and administration of the Plan, and to
construe the terms of the Plan, including any doubtful or disputed terms, and the
eligibility of a Participant for benefits.

	6.6	 	Action Taken in Good Faith; Indemnification. The Committee may employ attorneys,
consultants, accountants or other advisors and the Company’s directors and officers shall be
entitled to rely upon the advice, opinions or valuations of any such persons. All actions
taken and all interpretations and determinations made by the Committee in good faith shall be
final and binding upon all Participants, the Company and all other interested parties. No
member of the Committee, nor any officer, director, employee or representative of the Company,
or any of its affiliates acting on behalf of or in conjunction with the Committee, shall be
personally liable for any action, determination, or interpretation, whether of commission or
omission, taken or made with respect to the Plan, except in circumstances involving actual bad
faith or willful misconduct. In addition to such other rights of indemnification as they may
have as members of the Board, as members of the Committee or as officers or employees of the
Company, all members of the Committee and any officer, employee or representative of the
Company or any of its subsidiaries acting on their behalf shall be fully indemnified and
protected by the Company with respect to any such action, determination or interpretation
against the reasonable expenses, including attorneys’ fees actually and necessarily incurred,
in connection with the defense of any civil or criminal action, suit or proceeding, or in
connection with any appeal therein, to which they or any of them may be a party by reason of
any action taken or failure to act under or in connection with the establishment and
administration of the Plan or an award granted thereunder, and against all amounts paid by
them in settlement thereof (provided such settlement is approved by independent legal counsel
selected by the Company) or paid by them in satisfaction of a judgment in any action, suit or
proceeding. Expenses (including attorney’s fees) incurred in defending a civil or criminal
action, suit or proceeding shall be paid by the Company if such person claiming
indemnification is entitled to be indemnified as provided in this Section.

	6.7	 	Rights Personal to Participant. Any rights provided to a Participant under the Plan
shall be personal to such Participant, shall not be transferable (except by will or pursuant
to the laws of descent or distribution), and shall be exercisable, during his/her lifetime,
only by such Participant.

	6.8	 	Distribution of Deferred Accounts Upon Termination of the Plan. Upon termination of
the Plan, to the extent permitted by and in accordance with Code Section 409A, the Committee
may provide that the Deferred Account of each Participant shall be distributed as soon as
practicable.

 

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ARTICLE VII

Limitation

	7.1	 	No Continued Employment. Nothing contained herein shall provide any Participant with
any right to continued employment or in any way abridge the rights of the Company and its
Participants to determine the terms and conditions of employment and whether to terminate
employment of any Participant.

	7.2	 	No Vested Rights. Except as otherwise provided herein, no Participant or other
person shall have any claim of right (legal, equitable, or otherwise) to any award,
allocation, or distribution or any right, title, or vested interest in any amounts in his/her
Deferred Account and no Officer of the Company or any other person shall have any authority to
make representations or agreements to the contrary. No interest conferred herein to a
Participant shall be assignable or subject to claim by a Participant’s creditors. The right of
the Participant to receive a distribution hereunder shall be an unsecured claim against the
general assets of the Company and the Participant shall have no rights in or against any
specific assets of the Company as the result of participation hereunder.

	7.3	 	Not Part of Other Benefits. The benefits provided in this Plan shall not be deemed a
part of any other benefit provided by the Company to its employees. The Company assumes no
obligation to Plan Participants except as specified herein. This is a complete statement,
along with any Exhibits, Schedules and Appendices attached hereto, of the terms and conditions
of the Plan.

	7.4	 	Other Plans. Nothing contained herein shall limit the Company or the Committee’s
power to grant bonuses to the Officers of the Company, whether or not Participants in this
Plan.

	7.5	 	Limitations. Neither the establishment of the Plan nor the grant of an award
hereunder shall be deemed to constitute an express or implied contract of employment for any
period of time or in any way abridge the rights of the Company to determine the terms and
conditions of employment or to terminate the employment of any Participant with or without
cause at any time.

	7.6	 	Unfunded Plan. This Plan is unfunded and is maintained by the Company in part to
provide incentive compensation to the Participants. Nothing herein shall create or be
construed to create a trust of any kind, or a fiduciary relationship between the Company and
any Participant.

ARTICLE VIII

Authority

	8.1	 	Compensation and Human Resources Committee Authority. Except as otherwise expressly
provided herein, full power and authority to interpret and administer this Plan shall be
vested in the Compensation and Human Resources Committee. The Committee may from time to time
make such decisions and adopt such rules and regulations for implementing the Plan as it deems
appropriate for any Participant under the Plan. Any decision taken by the Committee arising
out of or in connection with the construction, administration, interpretation and effect of
the Plan shall be final, conclusive and binding upon all Participants and any person claiming
under or through them.

 

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ARTICLE IX

Notice

	9.1	 	Any notice to be given pursuant to the provisions of the Plan shall be in writing and
directed to the appropriate recipient thereof at his/her business address or office location.

ARTICLE X

Effective Date

	10.1	 	This Plan shall be effective as of January 1, 2006 subject to receipt of Shareholder
approval.

ARTICLE XI

Amendments

	11.1	 	Amendment. This Plan may be suspended or terminated at any time or amended in
accordance with the terms and conditions hereof at the sole discretion of the Board of
Directors upon the recommendation of the Committee. Any action which suspends the bonus
accruals for more than twelve months shall be deemed a termination of the Plan.

	11.2	 	Protected Benefits. No amendment, suspension or termination of the Plan shall be
effective to eliminate or diminish the entitlement of a Participant to any award for an
applicable year, unless such amendment, suspension or termination has been made and dated
within ninety (90) days of the beginning of such Fiscal Year.

	11.3	 	Notice. Notice of any amendment, suspension or termination shall be given promptly
to each Participant.

ARTICLE XII

Applicable Law

	12.1	 	This Plan shall be construed in accordance with the laws of the State of Wisconsin without
reference to conflict of law principles thereof and to the extent not preempted by Federal
law. Portions of this Plan are intended to be a deferred compensation plan that complies with
Code Section 409A, and the Plan shall be construed and interpreted in a manner that will cause
any payment hereunder that is not exempt from Code Section 409A to meet the requirements
thereof such that no additional tax will be due under Code Section 409A on such payment.

 

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Exhibit A

Calculation of the Cost of Capital

Inputs Variables

			
	Risk Free Rate =	 	Average Daily closing yield on U.S. Government 30 Year.
Bonds or similar long-term instruments if a U.S.
Government 30 Year Bond yield is not available.

Market Risk Premium, Beta, Target Long-Term Debt/Capital Ratio, Cost of Debt Capital and Long-term
Marginal Tax Rate are to be evaluated periodically in conjunction with any other such plan
variables by the Committee within ninety (90) days of the beginning of each Fiscal Year.

Formula

Cost of Equity Capital = Risk Free Rate + (Beta x Market Risk Premium)

			
	Weighted Average Cost of Capital =	 	[Cost of Equity Capital x (1 - Debt/Capital Ratio) + [Cost of
Debt x (Debt/Capital Ratio) x (1 - Marginal Tax Rate)

 

11exv10w22

Exhibit 10.22

SEVERANCE AGREEMENT

          THIS SEVERANCE AGREEMENT (this “Agreement”) is made effective as of October 12, 2009
(the “Effective Date”), by and between Forestar Group Inc., a Delaware corporation (the
“Company”), and Phillip J. Weber (the “Executive”).

          In consideration of the mutual covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the
Executive, intending to be legally bound, hereby agree as follows:

          1. Term of Agreement. The term of this Agreement (the “Term”) shall commence
on the Effective Date and shall continue in effect until the earlier of (i) the third anniversary
of the Effective Date or (ii) the occurrence of a Change in Control as such term is defined in that
certain Change in Control Severance Agreement by and between the Company and the Executive dated as
of even date herewith, as it may be amended from time to time (such agreement, the “CIC
Agreement” and such a Change in Control, a “Change in Control”).

          2. Company’s Covenants Summarized. In order to induce the Executive to remain in the
employ of the Company, the Company agrees, under the conditions described herein, to pay or provide
to the Executive the payments and benefits described herein. This Agreement shall not be construed
as creating an express or implied contract of employment or to limit the ability of the Company or
its affiliates to terminate the employment of the Executive at any time for any reason and, except
as otherwise agreed in writing between the Executive and the Company, the Executive shall not have
any right to be retained in the employ of the Company or its affiliates.

          3. The Executive’s Covenants. Subject to the Executive’s right to terminate his
employment for Good Reason as described below, the Executive agrees that he will remain in the
employ of the Company until the earliest of the third anniversary of the Effective Date, a Change
in Control or the termination by the Company of the Executive’s employment for any reason.

          4. Entitlement to Benefits.

          (a) Subject to the provisions in the remainder of this Section 4, if (but only if) the Company
terminates the Executive’s employment without Cause or the Executive resigns for Good Reason (as
such terms are defined below), in either case during the Term:

          (i) The Company will pay to the Executive a lump sum cash payment equal to the sum of
(i) his then-current annual base salary and (ii) his target annual bonus pursuant to any
annual bonus or incentive plan maintained by the Company in respect of the fiscal year in
which such termination occurs (the “Severance Payment”).

 

 

          (ii) For the one-year period immediately following the date of such termination and in
satisfaction of the Company’s COBRA obligations in respect of such period, the Company shall
arrange to provide the Executive and his dependents life, accidental death and
dismemberment, medical and dental benefits substantially similar to those provided to the
Executive and his dependents immediately prior to the date of termination or, if more
favorable to the Executive, those provided to the Executive and his dependents immediately
prior to the first occurrence of an event or circumstance constituting Good Reason, at no
greater cost to the Executive than the cost to the Executive immediately prior to such date
or occurrence, provided that such health and welfare benefits shall be provided through an
arrangement that satisfies the requirements of Sections 105 and 106 of the Code. To the
extent that health and welfare benefits of the same type are received by or made available
to the Executive during the one-year period following the Executive’s date of termination
(which such benefits received by or made available to the Executive shall be reported by the
Executive to the Company’s insurance provider or other appropriate party in accordance with
any applicable coordination of benefits provisions), the benefits otherwise receivable by
the Executive pursuant to this Section 4(a)(ii) shall be made secondary to such benefits,
provided that the Company shall reimburse the Executive for the excess, if any, of the cost
of such benefits to the Executive over such cost immediately prior to the date of
termination or, if more favorable to the Executive, the first occurrence of an event or
circumstance constituting Good Reason.

          (iii) The Executive shall be credited with an additional year of service for purposes
of determining the extent to which he is vested in any then otherwise unvested or restricted
equity or equity-based incentive compensation awards to the extent they are subject to
service-based vesting conditions (including in satisfaction of any service-based vesting
component of awards that are also subject to performance-based vesting conditions, provided
that any such performance-based vesting conditions shall remain in effect in accordance with
their terms).

          (iv) The Company shall reimburse the Executive in accordance with its standard
practices for expenses incurred for outplacement services suitable to the Executive’s
position for a period of one (1) year following the date of such termination (or, if
earlier, until the first acceptance by the Executive of an offer of employment) in an amount
not exceeding ten percent (10%) of the sum of the Executive’s annual base rate of salary as
in effect immediately prior to the date of termination (or, if more favorable to the
Executive, the Executive’s annual base rate of salary as in effect immediately prior to the
first occurrence of an event or circumstance constituting Good Reason).

          (b) In no event shall the Executive be entitled to payments or benefits under this Agreement
if he becomes entitled to any payments or benefits under the Change in Control Agreement, including
by reason of a termination of employment before a Change in Control under the circumstances
described in the second sentence of Section 6.1 of the CIC Agreement

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          (c) The Executive’s entitlement to the payments and benefits described in the foregoing
provisions of this Section 4 shall be conditioned in their entirety upon the Executive timely
executing and not revoking a release of claims against the Company and its agents and affiliates in
a form reasonably satisfactory to the Company. The Company shall provide such form of release to
the Executive not later than five (5) days after the termination of his employment with the
Company. Provided the Executive has timely executed and not revoked such release of claims and
subject to Section 13 hereof, the Severance Payment shall be paid to the Executive on the date that
is sixty (60) days after his termination of employment.

          5. Notice of Termination. Any purported termination of the Executive’s employment
(other than by reason of death) shall be communicated by notice from one party hereto to the other
in accordance with Section 8 hereof, which notice in the case of a termination by the Company for
Cause or by the Executive for Good Reason shall specifically identify the circumstances
constituting Cause or Good Reason, as the case may be. Subject to the Company’s right to cure any
circumstances otherwise constituting Good Reason as set forth in Section 12(b) hereof, the
Executive’s termination of employment for Good Reason shall become effective on the sixth
(6th) day after such notice is given.

          6. No Mitigation. The Company agrees that, if the Executive’s employment with the
Company terminates during the Term, the Executive is not required to seek other employment or to
attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to
Section 4 hereof. Further, the amount of any payment or benefit provided for in this Agreement
(other than Section 4(a)(ii) hereof) shall not be reduced by any compensation earned by the
Executive as the result of employment by another employer, by retirement benefits, by offset
against any amount claimed to be owed by the Executive to the Company, or otherwise.

          7. Binding Effect. This Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, successors, legal representatives and permitted
assigns, provided that the obligations of the Executive are personal and may be performed only by
him.

          8. Notices. All notices or other communications under this Agreement shall be in
writing and shall be deemed to have been duly given (a) when delivered personally or by local
courier, (b) upon confirmation of receipt when such notice or other communication is sent by
facsimile, or (c) one day after timely delivery to an overnight delivery courier addressed as
follows:

     To the Company:

6300 Bee Cave Road

Building Two, Suite 500

Austin, TX 78746

Facsimile: (512) 433-5203

Attention: General Counsel

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     To the Executive:

          At the address of the Executive as maintained from time to time on the payroll
system of the Company

Any party hereto may, by notice to the other, change its address for receipt of notices hereunder.

          9. Miscellaneous. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing and signed by the
Executive and a duly authorized representative of the Company. No waiver by either party hereto at
any time of any breach by the other party hereto of, or of any lack of compliance with, any
condition or provision of this Agreement to be performed by such other party shall be deemed a
waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent
time. This Agreement supersedes any other agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof which have been made by the Executive
or the Company. The validity, interpretation, construction and performance of this Agreement shall
be governed by the laws of the State of Texas without regard to its principles of conflicts of law.
Any payments provided for hereunder shall be paid net of any applicable withholding required under
federal, state or local law and any additional withholding to which the Executive has agreed. The
obligations of the Company and the Executive under this Agreement which by their nature may require
either partial or total performance after the expiration of the Term shall survive such expiration.

          10. Validity and Construction. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect. The captions of this Agreement are not
part of the provisions hereof and shall have no force or effect.

          11. Counterparts. This Agreement may be executed in several counterparts, each of
which shall be deemed to be an original but all of which together will constitute one and the same
instrument.

          12. Definitions. For purposes of this Agreement, the following terms shall have the
meanings indicated below:

          (a) “Cause” for termination by the Company of the Executive’s employment shall mean
(i) the willful and continued failure by the Executive to substantially perform the Executive’s
duties with the Company (other than any such failure resulting from the Executive’s incapacity due
to physical or mental illness or any such actual or anticipated failure after the issuance of a
notice of termination for Good Reason by the Executive pursuant to Section 5 hereof) after a
written demand for substantial performance is delivered to the Executive by the Company, which
demand specifically identifies the manner in which the Board of Directors of the Company believes
that the Executive has not substantially performed the Executive’s duties, or (ii) the willful
engaging by the Executive in conduct which is demonstrably and materially injurious to the Company,
monetarily or otherwise.

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          (b) “Good Reason” for termination by the Executive of the Executive’s employment shall
mean the occurrence (without the Executive’s express written consent) of (i) a material reduction
in the Executive’s authority, duties or responsibilities, which for purposes of this Agreement
shall include only the assignment to the Executive of any duties substantially inconsistent with
the Executive’s status as a senior executive officer of the Company, or (ii) a material reduction
in the Executive’s annual base salary, provided that the Executive may not assert Good Reason in
respect of any act or failure to act otherwise constituting Good Reason under this Section 12(b)
unless asserted in a notice of termination pursuant to Section 5 hereof given within ninety (90)
days following the date of the first occurrence otherwise constituting Good Reason, and provided
further that the Company shall not have cured such reduction (in authority, duties or
responsibilities or of base salary, as the case may be) within five (5) days following notice from
the Executive of his termination for Good Reason.

          13. General 409A Compliance. To the extent applicable, it is intended that the
Agreement comply with the provisions of Section 409A of the Internal Revenue Code of 1986, as
amended (“Section 409A”). This Agreement shall be administered and interpreted in a manner
consistent with this intent, and any provision that would cause this Agreement to fail to satisfy
Section 409A shall have no force and effect until amended to comply therewith (which amendment may
be retroactive to the extent permitted by Section 409A). Notwithstanding anything contained herein
to the contrary, to the extent required in order to avoid accelerated taxation and/or tax penalties
under Section 409A, the Executive shall not be considered to have terminated employment with the
Company for purposes of this Agreement, and no payments shall be due to the Executive under this
Agreement which are payable upon the Executive’s termination of employment, until the Executive
would be considered to have incurred a “separation from service” from the Company within the
meaning of Section 409A. To the extent required in order to avoid accelerated taxation and/or tax
penalties under Section 409A, amounts that would otherwise be payable and benefits that would
otherwise be provided pursuant to this Agreement during the six (6)-month period immediately
following the Executive’s termination of employment shall instead be paid on the first
(1st) business day after the date that is six (6) months following the Executive’s
termination of employment (or upon the Executive’s death, if earlier). In addition, for purposes
of this Agreement, each amount to be paid or benefit to be provided to the Executive pursuant to
this Agreement shall be construed as a separate identified payment for purposes of Section 409A.
With respect to expenses eligible for reimbursement under the terms of this Agreement, (a) the
amount of such expenses eligible for reimbursement in any taxable year shall not affect the
expenses eligible for reimbursement in another taxable year and (b) any reimbursements of such
expenses shall be made no later than the end of the calendar year following the calendar year in
which the related expenses were incurred, except, in each case, to the extent that the right to
reimbursement does not provide for a “deferral of compensation” within the meaning of Section 409A.

* * * * *

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first
written above.

	 	 	 	 	 
	 	FORESTAR GROUP INC.

 	 
	 	/s/ James M. DeCosmo
 	 
	 	James M. DeCosmo 	 
	 	President and Chief Executive Officer 	 
	 
	 	 	 
	 	     /s/ Phillip J. Weber
 	 
	 	PHILLIP J. WEBER

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