Exhibit 4.2
FORM OF
RIGHTS AGREEMENT
between
FORESTAR REAL ESTATE GROUP INC.
and
COMPUTERSHARE TRUST COMPANY, N.A.,
as Rights Agent
Dated as of [
], 2007
TABLE OF CONTENTS
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Page
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Section 1.
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Certain Definitions
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1
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Section 2.
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Appointment of Rights Agent
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5
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Section 3.
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Issuance of Rights Certificates
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6
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Section 4.
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Form of Rights Certificates
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8
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Section 5.
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Countersignature and Registration
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9
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Section 6.
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Transfer, Split-Up, Combination and Exchange of
Rights Certificates; Mutilated, Destroyed, Lost or
Stolen Rights Certificates
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10
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Section 7.
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Exercise of Rights; Purchase Price; Expiration Date of Rights
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11
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Section 8.
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Cancellation and Destruction of Rights Certificates
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13
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Section 9.
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Reservation and Availability of Capital Stock
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13
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Section 10.
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Preferred Stock Record Date
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15
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Section 11.
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Adjustment of Purchase Price, Number and
Kind of Shares or Number of Rights
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15
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Section 12.
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Certificate of Adjusted Purchase Price or Number of Shares
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23
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Section 13.
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Consolidation, Merger or Sale or Transfer of
Assets Cash Flow or Earning Power
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24
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Section 14.
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Fractional Rights and Fractional Shares
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26
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Section 15.
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Rights of Action
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27
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Section 16.
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Agreement of Rights Holders
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28
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Section 17.
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Rights Certificate Holder Not Deemed a Stockholder
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28
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Section 18.
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Concerning the Rights Agent
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29
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Section 19.
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Merger or Consolidation or Change of Name of Rights Agent
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29
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Section 20.
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Duties of Rights Agent
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30
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Section 21.
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Change of Rights Agent
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32
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i
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Page
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Section 22.
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Issuance of New Rights Certificates
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33
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Section 23.
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Redemption and Termination
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33
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Section 24.
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Exchange
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34
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Section 25.
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Notice of Certain Events
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35
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Section 26.
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Notices
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36
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Section 27.
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Supplements and Amendments
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37
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Section 28.
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Successors
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37
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Section 29.
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Determinations and Actions by the Board of Directors, etc
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38
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Section 30.
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Benefits of this Agreement
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38
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Section 31.
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Severability
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38
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Section 32.
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Governing Law
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39
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Section 33.
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Counterparts
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39
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Section 34.
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Descriptive Headings
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39
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EXHIBITS
Exhibit A Form of Certificate of Designation, Preferences and Rights
Exhibit B Form of Rights Certificates
Exhibit C Form of Summary of Rights
ii
RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of [
], 2007 (the Agreement), between Forestar Real
Estate Group Inc., a Delaware corporation (the Company), and Computershare Trust Company, N.A. [,
a New York banking corporation] (the Rights Agent).
WITNESSETH
WHEREAS, on [___], 2007 (the Rights Dividend Declaration Date), the Board of Directors of
the Company authorized and declared a dividend distribution of one Right (as hereinafter defined)
for each share of common stock, par value $1.00 per share, of the Company (the Common Stock)
outstanding at the close of business on [___], 2007 (the Record Date), and has authorized the
issuance of one Right (as such number may hereinafter be adjusted pursuant to the provisions of
Section 11(p) hereof) for each share of Common Stock of the Company issued between the Record Date
(whether originally issued or delivered from the Companys treasury) and the Distribution Date (as
hereinafter defined), each Right initially representing the right to purchase one one-thousandth of
a share of Series A Junior Participating Preferred Stock of the Company (the Preferred Stock)
having the rights, powers and preferences set forth in the form of Amended and Restated Certificate
of Designation, Preferences and Rights attached hereto as Exhibit A, upon the terms and subject to
the conditions hereinafter set forth (the Rights);
NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth,
the parties hereby agree as follows:
Section 1.
Certain Definitions
. For purposes of this Agreement, the following terms
have the meanings indicated:
(a) Acquiring Person shall mean any Person who or which, together with all Affiliates and
Associates of such Person, shall be the Beneficial Owner of 20% or more of the shares of Common
Stock then outstanding, but shall not include (i) the Company, (ii) any Subsidiary of the Company,
(iii) any employee benefit plan of the Company, or of any Subsidiary of the Company, or any Person
or entity organized, appointed or established by the Company for or pursuant to the terms of any
such plan, or (iv) any Person who becomes the Beneficial Owner of 20% or more of the shares of
Common Stock then outstanding as a result of a reduction in the number of shares of Common Stock
outstanding due to the repurchase of shares of Common Stock by the Company unless and until such
Person, after becoming aware that such Person has become the Beneficial Owner of 20% or more of the
then outstanding shares of Common Stock, acquires beneficial ownership of additional shares of
Common Stock representing one percent (1%) or more of the shares of Common Stock then outstanding,
(v) any such Person who has reported or is required to report such ownership (but less than 20%) on
Schedule 13G under the Exchange Act (or any comparable or successor report) or on
Schedule 13D under the Exchange Act (or any comparable or successor report) which Schedule 13D
does not state any intention to or reserve the right to control or influence
1
the management or
policies of the Company or engage in any of the actions specified in Item 4 of such schedule (other
than the disposition of the Common Stock) and, within 10 Business Days of being requested by the
Company to advise it regarding the same, certifies to the Company that such Person acquired shares
of Common Stock in excess of 19.9% inadvertently or without knowledge of the terms of the Rights
and who or which, together with all Affiliates and Associates, thereafter does not acquire
additional shares of Common Stock while the Beneficial Owner of 20% or more of the shares of Common
Stock then outstanding;
provided
,
however
, that if the Person requested to so
certify fails to do so within 10 Business Days or breaches or violates such certification, then
such Person shall become an Acquiring Person immediately after such 10-Business-Day period or such
breach or violation, or (vi) until the completion of the spin-off distribution of all of the
outstanding shares of Common Stock by Temple-Inland Inc. to its stockholders, Temple-Inland Inc. or
any of its subsidiaries.
(b) Act shall mean the Securities Act of 1933, as amended.
(c) Affiliate and Associate shall have the respective meanings ascribed to such terms in
Rule 12b-2 of the General Rules and Regulations under the Exchange Act.
(d) A Person shall be deemed the Beneficial Owner of, and shall be deemed to beneficially
own, any securities:
(i) that such Person or any of such Persons Affiliates or Associates,
directly or indirectly, owns or has the right to acquire (whether such right is
exercisable immediately or only after the passage of time or upon the satisfaction
of one or more conditions (whether or not within the control of such Person),
compliance with regulatory requirements or otherwise) pursuant to any agreement,
arrangement or understanding (whether or not in writing) or upon the exercise of
conversion rights, exchange rights, other rights, warrants or options, or
otherwise;
provided
,
however
, that a Person shall not be deemed
the Beneficial Owner of, or to beneficially own, (A) securities tendered
pursuant to a tender or exchange offer made by such Person or any of such Persons
Affiliates or Associates until such tendered securities are accepted for purchase
or exchange, (B) securities issuable upon exercise of Rights at any time prior to
the occurrence of a Triggering Event (as hereinafter defined), or (C) securities
issuable upon exercise of Rights from and after the occurrence of a Triggering
Event which Rights were acquired by such Person or any of such Persons Affiliates
or Associates prior to the Distribution Date (as hereinafter defined) or pursuant
to Section 3(a) or Section 22 hereof (the Original Rights) or pursuant to
Section 11(i) hereof in connection with an adjustment made with respect to any
Original Rights;
(ii) that such Person or any of such Persons Affiliates or Associates,
directly or indirectly, has the right to vote or
2
dispose of or has beneficial
ownership of (as determined pursuant to Rule 13d-3 of the General Rules and
Regulations under the Exchange Act), including pursuant to any agreement,
arrangement or understanding, whether or not in writing;
provided
,
however
, that a Person shall not be deemed the Beneficial Owner of, or
to beneficially own, any security under this subparagraph (ii) as a result of an
agreement, arrangement or understanding (whether or not in writing) to vote such
security if such agreement, arrangement or understanding: (A) arises solely from
a revocable proxy given in response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the applicable provisions of the General
Rules and Regulations under the Exchange Act, and (B) is not reportable by such
Person on Schedule 13D under the Exchange Act (or any comparable or successor
report); or
(iii) that are beneficially owned, directly or indirectly, by any other
Person (or any Affiliate or Associate thereof) with which such Person (or any of
such Persons Affiliates or Associates) has any agreement, arrangement or
understanding (whether or not in writing), for the purpose of acquiring, holding,
voting (except pursuant to a revocable proxy as described in the proviso to
subparagraph (ii) of this paragraph (d)) or disposing of any voting securities of
the Company;
provided
,
however
, that nothing in this paragraph (d) shall cause a Person engaged
in business as an underwriter of securities to be the Beneficial Owner of, or to beneficially
own, any securities acquired through such Persons participation in good faith in a firm
commitment underwriting until the expiration of forty days after the date of such acquisition, and
then only if such securities continue to be owned by such Person at such expiration of forty days.
(e) Business Day shall mean any day other than a Saturday, Sunday or a day on which banking
institutions in the State of New York are authorized or obligated by law or executive order to
close.
(f) Close of business on any given date shall mean 5:00 P.M., New York City time, on such
date;
provided
,
however
, that if such date is not a Business Day, it shall mean
5:00 P.M., New York City time, on the next succeeding Business Day.
(g) Common Stock shall mean the common stock, par value $1.00 per share, of the Company, or
any other shares of capital stock of the Company into which such stock shall be reclassified or
changed, except that Common Stock when used with reference to any Person other than the Company
shall mean the capital stock of such Person with the greatest voting power, or the equity
securities or other equity interest having power to control or direct the management, of such
Person.
(h) Common Stock Equivalents shall have the meaning set forth in Section 11(a)(iii) hereof.
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(i) Current Market Price shall have the meaning set forth in Section 11(d)(i) hereof.
(j) Current Value shall have the meaning set forth in Section 11(a)(iii) hereof.
(k) Distribution Date shall have the meaning set forth in Section 3(a) hereof.
(l) Equivalent Preferred Stock shall have the meaning set forth in Section 11(b) hereof.
(m) Exchange Act shall mean the Securities Exchange Act of 1934, as amended.
(n) Exchange Ratio shall have the meaning set forth in Section 24 hereof.
(o) Expiration Date shall have the meaning set forth in Section 7(a) hereof.
(p) Final Expiration Date shall have the meaning set forth in Section 7(a) hereof.
(q) Person shall mean any individual, firm, corporation, partnership, limited liability
company, trust, association, syndicate or other entity and includes, without limitation, an
unincorporated group of persons who, by formal or informal agreement or arrangement (whether or not
in writing), have embarked on a common purpose or act.
(r) Preferred Stock shall mean shares of Series A Junior Participating Preferred Stock, par
value $.01 per share, of the Company, and, to the extent that there are not a sufficient number of
shares of Series A Junior Participating Preferred Stock authorized to permit the full exercise of
the Rights, any other series of preferred stock of the Company designated for such purpose
containing terms substantially similar to the terms of the Series A Junior Participating Preferred
Stock.
(s) Principal Party shall have the meaning set forth in Section 13(b) hereof.
(t) Purchase Price shall have the meaning set forth in Section 4(a) hereof.
(u) Qualified Offer shall have the meaning set forth in Section 11(a)(ii) hereof.
(v) Record Date shall have the meaning set forth in the preamble of this Agreement.
4
(w) Rights shall have the meaning set forth in the preamble of this Agreement.
(x) Rights Agent shall have the meaning set forth in the parties clause at the beginning of
this Agreement.
(y) Rights Certificate shall have the meaning set forth in Section 3(a) hereof.
(z) Rights Dividend Declaration Date shall have the meaning set forth in the preamble of
this Agreement.
(aa) Section 11(a)(ii) Event shall mean any event described in Section 11(a)(ii) hereof.
(bb) Section 13 Event shall mean any event described in clauses (x), (y) or (z) of Section
13(a) hereof.
(cc) Spread shall have the meaning set forth in Section 11(a)(iii) hereof.
(dd) Stock Acquisition Date shall mean the first date of public announcement (which, for
purposes of this definition, shall include, without limitation, a report filed or amended pursuant
to Section 13(d) under the Exchange Act) by the Company or an Acquiring Person that an Acquiring
Person has become such other than pursuant to a Qualified Offer.
(ee) Subsidiary shall mean, with reference to any Person, any corporation or other entity of
which an amount of voting securities sufficient to elect at least a majority of the directors (or
members of a similar governing body) of such corporation or other entity is beneficially owned,
directly or indirectly, by such Person, or otherwise controlled by such Person.
(ff) Substitution Period shall have the meaning set forth in Section 11(a)(iii) hereof.
(gg) Summary of Rights shall have the meaning set forth in Section 3(b) hereof.
(hh) Trading Day shall have the meaning set forth in Section 11(d)(i) hereof.
(ii) Triggering Event shall mean any Section 11(a)(ii) Event or any Section 13 Event.
Section 2.
Appointment of Rights Agent
. The Company hereby appoints the Rights Agent to act as rights agent for the Company and the
holders of the Rights (who, in accordance with Section 3 hereof, shall prior to the Distribution
Date also
5
be the holders of the Common Stock) in accordance with the terms and conditions hereof,
and the Rights Agent hereby accepts such appointment. The Company may from time to time appoint
such co-rights agents as it may deem necessary or desirable.
Section 3.
Issuance of Rights Certificates
.
(a) Until the earlier of (i) the close of business on the tenth Business Day (or such
specified or unspecified later date as may be determined by the Board before the occurrence of the
Distribution Date) after the Stock Acquisition Date (or, if the tenth Business Day (or such later
date) after the Stock Acquisition Date occurs before the Record Date, the close of business on the
Record Date), or (ii) the close of business on the tenth Business Day (or such specified or
unspecified later date as may be determined by the Board before the occurrence of the Distribution
Date) after the date that a tender or exchange offer by any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the
Company, or any Person or entity organized, appointed or established by the Company for or pursuant
to the terms of any such plan) is first commenced within the meaning of Rule 14d-2(a) of the
General Rules and Regulations under the Exchange Act if, upon consummation thereof, such Person
would become an Acquiring Person, in either instance other than pursuant to a Qualified Offer (the
earlier of (i) and (ii) being herein referred to as the Distribution Date), (x) the Rights will
be evidenced (subject to the provisions of paragraph (b) of this Section 3) by the balance
indicated in the book entry account system of the transfer agent for the Common Stock registered in
the names of the holders of the Common Stock (which shares of Common Stock shall also be deemed to
represent certificates for Rights) or, in the case of certificated shares, the certificates for the
Common Stock registered in the names of the holders of the Common Stock (which certificates for
Common Stock shall also be deemed to be certificates for Rights), and not by separate certificates,
and (y) the Rights will be transferable only in connection with the transfer of the underlying
shares of Common Stock (including a transfer to the Company). As soon as practicable after the
Distribution Date, the Rights Agent will send by first-class, insured, postage-prepaid mail, to
each record holder of the Common Stock as of the close of business on the Distribution Date, at the
address of such holder shown on the records of the Company, one or more rights certificates, in
substantially the form of Exhibit B hereto (the Rights Certificates), evidencing one Right for
each share of Common Stock so held, subject to adjustment as provided herein. In the event that an
adjustment in the number of Rights per share of Common Stock has been made pursuant to Section
11(p) hereof, at the time of distribution of the Rights Certificates, the Company shall make the
necessary and appropriate rounding adjustments (in accordance with Section 14(a) hereof) so that
Rights Certificates representing only whole numbers of
Rights are distributed and cash is paid in lieu of any fractional Rights. As of and after the
Distribution Date, the Rights will be evidenced solely by such Rights Certificates.
(b) The Company will make available, as promptly as practicable following the Record Date, a
copy of a Summary of Rights, in substantially the form attached hereto as Exhibit C (the Summary
of Rights) to any holder of Rights who may so request from time to time prior to the Expiration
Date (as such term is defined in Section 7(a) hereof). With respect to the Common Stock
outstanding as of the
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Record Date, or issued subsequent to the Record Date, unless and until the
Distribution Date shall occur, the Rights will be evidenced by the balances indicated in the book
entry account system of the transfer agent for the Common Stock or, in the case of certificated
shares, such certificates for the Common Stock and the registered holders of the Common Stock shall
also be the registered holders of the associated Rights. Until the earlier of the Distribution
Date or the Expiration Date, the transfer of any shares of Common Stock in respect of which Rights
have been issued shall also constitute the transfer of the Rights associated with such shares of
Common Stock.
(c) Rights shall be issued in respect of all shares of Common Stock that are issued (whether
originally issued or from the Companys treasury) after the Record Date but prior to the earlier of
the Distribution Date or the Expiration Date and shall bear the following legends:
(i) Confirmation and account statements sent to holders of shares of Common
Stock in book-entry form (which shares of Common Stock shall also be deemed to
represent certificates for Rights) shall bear the following legend:
The shares of Common Stock, par value $1.00 per share, of
Forestar Real Estate Group Inc. (the Company) entitles the
holder hereof to certain Rights as set forth in the Rights
Agreement between the Company and the Rights Agent thereunder (the
Rights Agent), dated as of [
], 2007, as it may be
amended, restated, renewed or extended from time to time (the
Rights Agreement), the terms of which are hereby incorporated
herein by reference and a copy of which is on file at the
principal offices of the Rights Agent. Under certain
circumstances, as set forth in the Rights Agreement, such Rights
will be evidenced by separate certificates and will no longer be
evidenced by the shares to which this statement relates. The
Rights Agent will mail to the holder of shares to which this
statement relates a copy of the Rights Agreement, as in effect on
the date of mailing, without charge, promptly after receipt of a
written request therefor. Under certain circumstances set forth
in the Rights Agreement, Rights beneficially owned (as such term
is defined in the Rights Agreement) by any Person who is, was or
becomes an
Acquiring Person or any Affiliate or Associate thereof (as
such terms are defined in the Rights Agreement), whether currently
held by or on behalf of such Person or by any subsequent holder,
may become null and void.
With respect to shares of Common Stock in book-entry form for which there has been sent a
confirmation or account statement containing the foregoing legend, until the earlier of (i) the
Distribution Date or (ii) the Expiration Date, the Rights associated with the
7
Common Stock
represented by such shares of Common Stock shall be evidenced by such shares of Common Stock alone
and registered holders of Common Stock shall also be the registered holders of the associated
Rights, and the transfer of any of such shares of Common Stock shall also constitute the transfer
of the Rights associated with such shares of Common Stock.
(ii) In the case of certificated shares, certificates representing shares of
Common Stock (which certificates shall also be deemed to be certificates for
Rights) shall bear the following legend if such certificates are issued after the
Record Date but prior to the earlier of the Distribution Date or the Expiration
Date:
This certificate also evidences and entitles the holder hereof to certain
Rights as set forth in the Rights Agreement between Forestar Real Estate Group
Inc. (the Company) and the Rights Agent thereunder (the Rights Agent), dated
as of [
], 2007 (the Rights Agreement), the terms of which are hereby
incorporated herein by reference and a copy of which is on file at the principal
offices of the Company. Under certain circumstances, as set forth in the Rights
Agreement, such Rights will be evidenced by separate certificates and will no
longer be evidenced by this certificate. The Company will mail to the holder of
this certificate a copy of the Rights Agreement, as in effect on the date of
mailing, without charge, promptly after receipt of a written request therefor.
Under certain circumstances set forth in the Rights Agreement, Rights issued to,
or held by, any Person who is, was or becomes an Acquiring Person or any Affiliate
or Associate thereof (as such terms are defined in the Rights Agreement), whether
currently held by or on behalf of such Person or by any subsequent holder, may
become null and void.
With respect to such certificates containing the foregoing legend, until the earlier of (i)
the Distribution Date or (ii) the Expiration Date, the Rights associated with the Common Stock
represented by such certificates shall be evidenced by such certificates alone and registered
holders of Common Stock shall also be the registered holders of the associated Rights, and the
transfer of any of such certificates shall also constitute the transfer of the Rights associated
with the Common Stock represented by such certificates.
Section 4.
Form of Rights Certificates
.
(a) The Rights Certificates (and the forms of election to purchase and of assignment to be
printed on the reverse thereof) shall each be substantially in the form set forth in Exhibit B
hereto and may have such marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with
the provisions of this Agreement, or as may be required to comply with any applicable law or with
any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange
on
8
which the Rights may from time to time be listed, or to conform to usage. Subject to the
provisions of Section 11 and Section 22 hereof, the Rights Certificates, whenever distributed,
shall be dated as of the Record Date and on their face shall entitle the holders thereof to
purchase such number of one one-thousandths of a share of Preferred Stock as shall be set forth
therein at the price set forth therein (such exercise price per one one-thousandth of a share, the
Purchase Price), but the amount and type of securities purchasable upon the exercise of each
Right and the Purchase Price thereof shall be subject to adjustment as provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a), Section 11(i) or Section 22 hereof
that represents Rights beneficially owned by: (i) an Acquiring Person or any Associate or
Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee after the Acquiring Person becomes such, or (iii)
a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee prior to or concurrently with the Acquiring Person becoming such and receives such
Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring
Person to holders of equity interests in such Acquiring Person or to any Person with whom such
Acquiring Person has any continuing agreement, arrangement or understanding (whether or not in
writing) regarding the transferred Rights or (B) a transfer that the Board of Directors of the
Company has determined is part of a plan, arrangement or understanding that has as a primary
purpose or effect the avoidance of Section 7(e) hereof, and any Rights Certificate issued pursuant
to Section 6 or Section 11 hereof upon transfer, exchange, replacement or adjustment of any other
Rights Certificate referred to in this sentence, shall contain (to the extent feasible) the
following legend:
The Rights represented by this Rights Certificate are or were beneficially owned
by a Person who was or became an Acquiring Person or an Affiliate or Associate of
an Acquiring Person (as such terms are defined in the Rights Agreement).
Accordingly, this Rights Certificate and the Rights represented hereby may become
null and void in the circumstances specified in Section 7(e) of the Rights
Agreement.
Section 5.
Countersignature and Registration
.
(a) The Rights Certificates shall be executed on behalf of the Company by its Chief Executive
Officer, President or any Vice President, either manually or by facsimile signature, and shall have
affixed thereto the Companys seal or a facsimile thereof that shall be attested by the Secretary
or an Assistant Secretary of the Company, either manually or by facsimile signature. The Rights
Certificates shall be countersigned by the Rights Agent, either manually or by facsimile signature
and shall not be valid for any purpose unless so countersigned. In case any officer of the Company
who shall have signed any of the Rights Certificates shall cease to be such officer of the Company
before countersignature by the Rights Agent and issuance and delivery by the Company, such Rights
Certificates, nevertheless, may be countersigned by the Rights Agent and issued and delivered by
the Company with the same force and effect as though
9
the person who signed such Rights Certificates
had not ceased to be such officer of the Company; and any Rights Certificates may be signed on
behalf of the Company by any person who, at the actual date of the execution of such Rights
Certificate, shall be a proper officer of the Company to sign such Rights Certificate, although at
the date of the execution of this Rights Agreement any such person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep, or cause to be kept, at its
principal office or offices designated as the appropriate place for surrender of Rights
Certificates upon exercise or transfer, books for registration and transfer of the Rights
Certificates issued hereunder. Such books shall show the names and addresses of the respective
holders of the Rights Certificates, the number of Rights evidenced on its face by each of the
Rights Certificates and the date of each of the Rights Certificates.
Section 6.
Transfer, Split-Up, Combination and Exchange of Rights Certificates; Mutilated,
Destroyed, Lost or Stolen Rights Certificates
.
(a) Subject to the provisions of Section 4(b), Section 7(e) and Section 14 hereof, at any time
after the close of business on the Distribution Date, and at or prior to the close of business on
the Expiration Date, any Rights Certificate or Certificates (other than Rights Certificates
representing Rights that may have been exchanged pursuant to Section 24 hereof) may be transferred,
split up, combined or exchanged for another Rights Certificate or Certificates, entitling the
registered holder to purchase a like number of one one-thousandths of a share of Preferred Stock
(or, following a Triggering Event, Common Stock, other securities, cash or other assets, as the
case may be) as the Rights Certificate or Certificates surrendered then entitles such holder (or
former holder in the case of a transfer) to purchase. Any registered holder desiring to transfer,
split up, combine or exchange any Rights Certificate or Certificates shall make such request in
writing delivered to the Rights Agent, and shall surrender the Rights Certificate or Certificates
to be transferred, split up, combined or exchanged at the principal office or offices of the Rights
Agent designated for such purpose. Neither the Rights Agent nor the Company shall be obligated to
take any action whatsoever with respect to the transfer of any such surrendered Rights Certificate
until the registered holder shall have completed and signed the certificate contained in the form
of assignment on the reverse side of such Rights Certificate and shall have provided such
additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or
Affiliates or Associates thereof as the Company shall reasonably request. Thereupon the Rights
Agent shall, subject to Section 4(b), Section 7(e), Section 14 and Section 24 hereof, countersign
and deliver to the Person entitled thereto a Rights Certificate or Rights Certificates, as the case
may be, as so requested. The Company may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer, split up, combination or
exchange of Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to
them of the loss, theft, destruction or mutilation of a Rights Certificate, and, in case of loss,
theft or destruction, of indemnity or security
10
reasonably satisfactory to them, and reimbursement
to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon
surrender to the Rights Agent and cancellation of the Rights Certificate if mutilated, the Company
will execute and deliver a new Rights Certificate of like tenor to the Rights Agent for
countersignature and delivery to the registered owner in lieu of the Rights Certificate so lost,
stolen, destroyed or mutilated.
Section 7.
Exercise of Rights; Purchase Price; Expiration Date of Rights
.
(a) Subject to Section 7(e) hereof, at any time after the Distribution Date the registered
holder of any Rights Certificate may exercise the Rights evidenced thereby (except as otherwise
provided herein including, without limitation, the restrictions on exercisability set forth in
Section 9(c), Section 11(a)(iii) and Section 23(a) hereof) in whole or in part upon surrender of
the Rights Certificate, with the form of election to purchase and the certificate on the reverse
side thereof duly executed, to the Rights Agent at the principal office or offices of the Rights
Agent designated for such purpose, together with payment of the aggregate Purchase Price with
respect to the total number of one one-thousandths of a share of Preferred Stock (or other
securities, cash or other assets, as the case may be) as to which such surrendered Rights are then
exercisable, at or prior to the earlier of (i) 5:00 P.M., New York City time, on [
], 2017
(the Final Expiration Date) or (ii) the time at which the Rights are redeemed or exchanged as
provided in Section 23 and Section 24 hereof (the earlier of (i) and (ii) being herein referred to
as the Expiration Date).
(b) The Purchase Price for each one one-thousandth of a share of Preferred Stock pursuant to
the exercise of a Right initially shall be $[___], and shall be subject to adjustment from time
to time as provided in Section 11 and Section 13(a) hereof and shall be payable in accordance with
paragraph (c) below.
(c) Upon receipt of a Rights Certificate representing exercisable Rights, with the form of
election to purchase and the certificate duly executed, accompanied by payment, with respect to
each Right so exercised, of the Purchase Price per one one-thousandth of a share of Preferred Stock
(or other shares, securities, cash or other assets, as the case may be) to be purchased as set forth below and an amount equal to
any applicable transfer tax, the Rights Agent shall, subject to Section 20(k) hereof, thereupon
promptly (i) (A) requisition from any transfer agent of the shares of Preferred Stock (or make
available, if the Rights Agent is the transfer agent for such shares) certificates for the total
number of one one-thousandths of a share of Preferred Stock to be purchased and the Company hereby
irrevocably authorizes its transfer agent to comply with all such requests, or (B) if the Company
shall have elected to deposit the total number of shares of Preferred Stock issuable upon exercise
of the Rights hereunder with a depositary agent, requisition from the depositary agent depositary
receipts representing such number of one one-thousandths of a share of Preferred Stock as are to be
purchased (in which case certificates for the shares of Preferred Stock represented by such
receipts shall be deposited by the transfer agent with the depositary agent) and the Company will
direct the depositary agent to comply with such request, (ii) requisition from the Company the
amount of cash, if any, to be paid in lieu of fractional shares in accordance
11
with Section 14
hereof, (iii) after receipt of such certificates or depositary receipts, cause the same to be
delivered to or, upon the order of the registered holder of such Rights Certificate, registered in
such name or names as may be designated by such holder, and (iv) after receipt thereof, deliver
such cash, if any, to or upon the order of the registered holder of such Rights Certificate. The
payment of the Purchase Price (as such amount may be reduced pursuant to Section 11(a)(iii) hereof)
shall be made in cash or by certified bank check or bank draft payable to the order of the Company.
In the event that the Company is obligated to issue other securities (including Common Stock) of
the Company, pay cash and/or distribute other property pursuant to Section 11(a) hereof, the
Company will make all arrangements necessary so that such other securities, cash and/or other
property are available for distribution by the Rights Agent, if and when appropriate. The Company
reserves the right to require prior to the occurrence of a Triggering Event that, upon any exercise
of Rights, a number of Rights be exercised so that only whole shares of Preferred Stock would be
issued.
(d) In case the registered holder of any Rights Certificate shall exercise less than all the
Rights evidenced thereby, a new Rights Certificate evidencing the Rights remaining unexercised
shall be issued by the Rights Agent and delivered to, or upon the order of, the registered holder
of such Rights Certificate, registered in such name or names as may be designated by such holder,
subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary, from and after the first
occurrence of a Section 11(a)(ii) Event, any Rights beneficially owned by (i) an Acquiring Person
or an Associate or Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or
of any such Associate or Affiliate) who becomes a transferee after the Acquiring Person becomes
such, or (iii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee prior to or concurrently with the Acquiring Person becoming such and receives
such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring
Person to holders of equity interests in such Acquiring Person or to any Person with whom the
Acquiring Person has any continuing agreement, arrangement or understanding regarding the
transferred Rights or (B) a transfer that the Board of Directors of the Company has
determined is part of a plan, arrangement or understanding that has as a primary purpose or
effect the avoidance of this Section 7(e), shall become null and void without any further action
and no holder of such Rights shall have any rights whatsoever with respect to such Rights, whether
under any provision of this Agreement or otherwise. The Company shall use all reasonable efforts
to insure that the provisions of this Section 7(e) and Section 4(b) hereof are complied with, but
shall have no liability to any holder of Rights Certificates or any other Person as a result of its
failure to make any determinations with respect to an Acquiring Person or any of its Affiliates,
Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the contrary, neither the Rights Agent nor
the Company shall be obligated to undertake any action with respect to a registered holder upon the
occurrence of any purported exercise as set forth in this Section 7 unless such registered holder
shall have (i) completed and signed the
12
certificate contained in the form of election to purchase
set forth on the reverse side of the Rights Certificate surrendered for such exercise, and (ii)
provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial
Owner) or Affiliates or Associates thereof as the Company shall reasonably request.
(g) A committee of the Board of Directors of the Company shall periodically review this
Agreement in order to consider whether the maintenance of this Agreement continues to be in the
best interests of the Company and its stockholders. The committee shall consist of independent
directors of the Company and shall conduct such review when, as and in such manner as the committee
deems appropriate, after giving due regard to all relevant circumstances; provided, however, that
the committee shall take such action at least once every three years. Following each such review,
the committee will report its conclusions to the Board, including any recommendation in light
thereof as to whether this Agreement should be maintained, modified, terminated or the Rights
redeemed. The committee is authorized to retain such legal counsel, financial advisors and other
advisors as the committee deems appropriate in order to assist the committee in carrying out its
foregoing responsibilities under this Agreement.
Section 8.
Cancellation and Destruction of Rights Certificates
.
All Rights Certificates surrendered for the purpose of exercise, transfer, split-up,
combination or exchange shall, if surrendered to the Company or any of its agents, be delivered to
the Rights Agent for cancellation or in cancelled form, or, if surrendered to the Rights Agent,
shall be cancelled by it, and no Rights Certificates shall be issued in lieu thereof except as
expressly permitted by any of the provisions of this Agreement. The Company shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any
other Rights Certificate purchased or acquired by the Company otherwise than upon the exercise
thereof. The Rights Agent shall deliver all cancelled Rights Certificates to the Company, or
shall, at the written request of the Company, destroy such cancelled Rights Certificates, and in
such case shall deliver a certificate of destruction thereof to the Company.
Section 9.
Reservation and Availability of Capital Stock
.
(a) The Company covenants and agrees that it will cause to be reserved and kept available out
of its authorized and unissued shares of Preferred Stock (and, following the occurrence of a
Triggering Event, out of its authorized and unissued shares of Common Stock and/or other securities
or out of its authorized and issued shares held in its treasury), the number of shares of Preferred
Stock (and, following the occurrence of a Triggering Event, Common Stock and/or other securities)
that, as provided in this Agreement including Section 11(a)(iii) hereof, will be sufficient to
permit the exercise in full of all outstanding Rights.
(b) So long as the shares of Preferred Stock (and, following the occurrence of a Triggering
Event, Common Stock and/or other securities) issuable and deliverable upon the exercise of the
Rights may be listed on any national securities exchange, the Company shall use its best efforts to
cause, from and after such time as the
13
Rights become exercisable, all shares reserved for such
issuance to be listed on such exchange upon official notice of issuance upon such exercise.
(c) The Company shall use its best efforts to (i) file, as soon as practicable following the
earliest date after the first occurrence of a Section 11(a)(ii) Event on which the consideration to
be delivered by the Company upon exercise of the Rights has been determined in accordance with
Section 11(a)(iii) hereof, a registration statement under the Act, with respect to the securities
purchasable upon exercise of the Rights on an appropriate form, (ii) cause such registration
statement to become effective as soon as practicable after such filing, and (iii) cause such
registration statement to remain effective (with a prospectus at all times meeting the requirements
of the Act) until the earlier of (A) the date as of which the Rights are no longer exercisable for
such securities, and (B) the date of the expiration of the Rights. The Company will also take such
action as may be appropriate under, or to ensure compliance with, the securities or blue sky laws
of the various states in connection with the exercisability of the Rights. The Company may
temporarily suspend, for a period of time not to exceed ninety (90) days after the date set forth
in clause (i) of the first sentence of this Section 9(c), the exercisability of the Rights in order
to prepare and file such registration statement and permit it to become effective. Upon any such
suspension, the Company shall issue a public announcement stating that the exercisability of the
Rights has been temporarily suspended, as well as a public announcement at such time as the
suspension has been rescinded. In addition, if the Company shall determine that a registration
statement is required following the Distribution Date, the Company may temporarily suspend the
exercisability of the Rights until such time as a registration statement has been declared
effective. Notwithstanding any provision of this Agreement to the contrary, the Rights shall not
be exercisable in any jurisdiction if the requisite qualification in such jurisdiction shall not
have been obtained, the exercise thereof shall not be permitted under applicable law, or a
registration statement shall not have been declared effective.
(d) The Company covenants and agrees that it will take all such action as may be necessary to
ensure that all one one-thousandths of a share of Preferred Stock (and, following the occurrence of
a Triggering Event, Common Stock and/or other securities) delivered upon exercise of Rights shall,
at the time of delivery of the certificates for such shares (subject to payment of the Purchase
Price), be duly and validly authorized and issued and fully paid and nonassessable.
(e) The Company further covenants and agrees that it will pay when due and payable any and all
federal and state transfer taxes and charges that may be payable in respect of the issuance or
delivery of the Rights Certificates and of any certificates for a number of one one-thousandths of
a share of Preferred Stock (or Common Stock and/or other securities, as the case may be) upon the
exercise of Rights. The Company shall not, however, be required to pay any transfer tax that may
be payable in respect of any transfer or delivery of Rights Certificates to a Person other than, or
the issuance or delivery of a number of one one-thousandths of a share of Preferred Stock (or
Common Stock and/or other securities, as the case may be) in respect of a name other than that of
the registered holder of the Rights Certificates evidencing Rights surrendered for exercise, nor
shall the Company be required to issue or deliver any certificates (or
14
make any entries in the book
entry account system of the transfer agent) for a number of one one-thousandths of a share of
Preferred Stock (or Common Stock and/or other securities, as the case may be) in a name other than
that of the registered holder upon the exercise of any Rights until such tax shall have been paid
(any such tax being payable by the holder of such Rights Certificates at the time of surrender) or
until it has been established to the Companys satisfaction that no such tax is due.
Section 10.
Preferred Stock Record Date
. Each person in whose name any certificate or entry in the book entry account system of the
transfer agent for a number of one one-thousandths of a share of Preferred Stock (or Common Stock
and/or other securities, as the case may be) is issued upon the exercise of Rights shall for all
purposes be deemed to have become the holder of record of such fractional shares of Preferred Stock
(or Common Stock and/or other securities, as the case may be) represented thereby on, and such
certificate or entry in the book account system shall be dated, the date upon which the Rights
Certificate evidencing such Rights was duly surrendered and payment of the Purchase Price (and all
applicable transfer taxes) was made;
provided
,
however
, that if the date of such
surrender and payment is a date upon which the Preferred Stock (or Common Stock and/or other
securities, as the case may be) transfer books of the Company are closed, such Person shall be
deemed to have become the record holder of such shares (fractional or otherwise) on, and such
certificate or entry in the book entry account system shall be dated, the next succeeding Business
Day on which the Preferred Stock (or Common Stock and/or other securities, as the case may be)
transfer books of the Company are open. Prior to the exercise of the Rights evidenced thereby, the
holder of a Rights Certificate shall not be entitled to any rights of a stockholder of the Company
with respect to shares for which the Rights shall be exercisable, including, without limitation,
the right to vote, to receive dividends or other distributions or to exercise any preemptive
rights, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein.
Section 11.
Adjustment of Purchase Price, Number and Kind of Shares or Number of
Rights
. The Purchase Price, the number and kind of shares covered by each Right and the number of
Rights outstanding are subject to adjustment from time to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the date of this Agreement
(A) declare a dividend on the Preferred Stock payable in shares of Preferred Stock, (B)
subdivide the outstanding shares of Preferred Stock, (C) combine the outstanding Preferred
Stock into a smaller number of shares, or (D) issue any shares of its capital stock in a
reclassification of the Preferred Stock (including any such reclassification in connection
with a consolidation or merger in which the Company is the continuing or surviving
corporation), except as otherwise provided in this Section 11(a) and Section 7(e) hereof,
the Purchase Price in effect at the time of the record date for such dividend or of the
effective date of such subdivision, combination or reclassification, and the number and
kind of shares of Preferred Stock or capital stock, as the case may be, issuable on such
date, shall be proportionately adjusted so that the holder of any Right exercised after
such time shall be entitled to receive, upon payment of the
15
Purchase Price then in effect,
the aggregate number and kind of shares of Preferred Stock or capital stock, as the case
may be, which, if such Right had been exercised immediately prior to such date and at a
time when the Preferred Stock transfer books of the Company were open, such holder would
have owned upon such exercise and been entitled to receive by virtue of such dividend,
subdivision, combination or reclassification. If an event occurs that would require an
adjustment under both this Section 11(a)(i) and Section 11(a)(ii) hereof, the adjustment
provided for in this Section 11(a)(i) shall be in addition to, and shall be made prior to,
any adjustment required pursuant to Section 11(a)(ii) hereof.
(ii) In the event any Person shall, at any time after the Rights Dividend
Declaration Date, become an Acquiring Person, unless the event causing such Person
to become an Acquiring Person is a transaction set forth in Section 13(a) hereof,
or is an acquisition of shares of Common Stock pursuant to a tender offer or an
exchange offer for all outstanding shares of Common Stock at a price and on terms
determined by at least a majority of the members of the Board of Directors who are
not officers of the Company and who are not representatives, nominees, Affiliates
or Associates of an Acquiring Person, after receiving advice from one or more
investment banking firms, to be (a) at a price that is fair to stockholders and
not inadequate (taking into account all factors that such members of the Board
deem relevant, including, without limitation, prices that could reasonably be
achieved if the Company or its assets were sold on an orderly basis designed to
realize maximum value) and (b) otherwise in the best interests of the Company and
its stockholders (a Qualified Offer) then, promptly following the occurrence of such event,
proper provision shall be made so that each holder of a Right (except as provided
below and in Section 7(e) hereof) shall thereafter have the right to receive, upon
exercise thereof at the then current Purchase Price in accordance with the terms
of this Agreement, in lieu of a number of one one-thousandths of a share of
Preferred Stock, such number of shares of Common Stock of the Company as shall
equal the result obtained by (x) multiplying the then current Purchase Price by
the then number of one one-thousandths of a share of Preferred Stock for which a
Right was exercisable immediately prior to the first occurrence of a Section
11(a)(ii) Event, and (y) dividing that product (which, following such first
occurrence, shall thereafter be referred to as the Purchase Price for each Right
and for all purposes of this Agreement) by 50% of the Current Market Price
(determined pursuant to Section 11(d) hereof) per share of Common Stock on the
date of such first occurrence (such number of shares, the Adjustment Shares).
(iii) In the event that the number of shares of Common Stock authorized by the
Companys Restated Certificate of Incorporation, but not outstanding or reserved
for issuance for purposes other than upon exercise of the Rights, is not
sufficient to permit the exercise in full of the Rights in accordance with the
foregoing
16
subparagraph (ii) of this Section 11(a), the Company shall (A) determine
the value of the Adjustment Shares issuable upon the exercise of a Right (the
Current Value), and (B) with respect to each Right (subject to Section 7(e)
hereof), make adequate provision to substitute for the Adjustment Shares, upon the
exercise of a Right and payment of the applicable Purchase Price, (1) cash, (2) a
reduction in the Purchase Price, (3) Common Stock or other equity securities of
the Company (including, without limitation, shares, or units of shares, of
preferred stock, such as the Preferred Stock, that the Board has deemed to have
essentially the same value or economic rights as shares of Common Stock (such
shares of preferred stock being referred to as Common Stock Equivalents)), (4)
debt securities of the Company, (5) other assets, or (6) any combination of the
foregoing, having an aggregate value equal to the Current Value (less the amount
of any reduction in the Purchase Price), where such aggregate value has been
determined by the Board based upon the advice of a nationally recognized
investment banking firm selected by the Board;
provided
,
however
,
that if the Company shall not have made adequate provision to deliver value
pursuant to clause (B) above within thirty (30) days following the later of (x)
the first occurrence of a Section 11(a)(ii) Event and (y) the date on which the
Companys right of redemption pursuant to Section 23(a) expires (the later of (x)
and (y) being referred to herein as the Section 11(a)(ii) Trigger Date), then
the Company shall be obligated to deliver, upon the surrender for exercise of a
Right and without requiring payment of the Purchase Price, shares of Common Stock
(to the extent available) and then, if necessary, cash, which shares and/or cash
have an aggregate value equal to the Spread. For purposes of the preceding
sentence, the term Spread shall mean the excess of (i) the Current Value over
(ii) the Purchase Price. If the Board determines in good faith that it is likely
that sufficient additional shares of Common Stock could be authorized for issuance
upon exercise in full of the Rights, the thirty (30) day period set forth above
may be extended to the extent necessary, but not more than ninety (90) days after
the Section 11(a)(ii) Trigger Date, in order that the Company may seek stockholder
approval for the authorization of such additional shares (such thirty (30) day
period, as it may be extended, is herein called the Substitution Period). To
the extent that the Company determines that action should be taken pursuant to the
first and/or third sentences of this Section 11(a)(iii), the Company (1) shall
provide, subject to Section 7(e) hereof, that such action shall apply uniformly to
all outstanding Rights, and (2) may suspend the exercisability of the Rights until
the expiration of the Substitution Period in order to seek such stockholder
approval for such authorization of additional shares and/or to decide the
appropriate form of distribution to be made pursuant to such first sentence and to
determine the value thereof. In the event of any such suspension, the Company
shall issue a public announcement stating that the exercisability of the Rights
has been temporarily suspended, as well as a public announcement at such time as
the suspension is no
17
longer in effect. For purposes of this Section 11(a)(iii),
the value of each Adjustment Share shall be the Current Market Price per share of
the Common Stock on the Section 11(a)(ii) Trigger Date and the per share or per
unit value of any Common Stock Equivalent shall be deemed to equal the Current
Market Price per share of the Common Stock on such date.
(b) In case the Company shall fix a record date for the issuance of rights, options or
warrants to all holders of Preferred Stock entitling them to subscribe for or purchase (for a
period expiring within forty-five (45) calendar days after such record date) Preferred Stock (or
shares having the same rights, privileges and preferences as the shares of Preferred Stock
(Equivalent Preferred Stock)) or securities convertible into Preferred Stock or Equivalent
Preferred Stock at a price per share of Preferred Stock or per share of Equivalent Preferred Stock
(or having a conversion price per share, if a security convertible into Preferred Stock or
Equivalent Preferred Stock) less than the Current Market Price (as determined pursuant to Section
11(d) hereof) per share of Preferred Stock on such record date, the Purchase Price to be in effect
after such record date shall be determined by multiplying the Purchase Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the number of shares of
Preferred Stock outstanding on such record date, plus the number of shares of Preferred Stock that
the aggregate offering price of the total number of shares of Preferred Stock and/or Equivalent
Preferred Stock so to be offered (and/or the aggregate initial conversion price of the convertible
securities so to be offered) would purchase at such Current Market Price, and the denominator of
which shall be the number of shares of Preferred Stock outstanding on such record date, plus the
number of additional shares of Preferred Stock and/or Equivalent Preferred Stock to be offered for
subscription or purchase (or into which the convertible securities so to be offered are initially
convertible). In case such subscription price may be paid by delivery of consideration, part
or all of which may be in a form other than cash, the value of such consideration shall be as
determined in good faith by the Board of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent and shall be binding on the Rights Agent and
the holders of the Rights. Shares of Preferred Stock owned by or held for the account of the
Company shall not be deemed outstanding for the purpose of any such computation. Such adjustment
shall be made successively whenever such a record date is fixed, and in the event that such rights
or warrants are not so issued, the Purchase Price shall be adjusted to be the Purchase Price that
would then be in effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for a distribution to all holders of Preferred
Stock (including any such distribution made in connection with a consolidation or merger in which
the Company is the continuing corporation), cash (other than a regular quarterly cash dividend out
of the earnings or retained earnings of the Company), assets (other than a dividend payable in
Preferred Stock, but including any dividend payable in stock other than Preferred Stock) or
evidences of indebtedness, or of subscription rights or warrants (excluding those referred to in
Section 11(b) hereof), the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the Current Market Price (as determined pursuant to
Section
18
11(d) hereof) per share of Preferred Stock on such record date, less the fair market value
(as determined in good faith by the Board of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent) of the portion of the cash, assets or
evidences of indebtedness so to be distributed or of such subscription rights or warrants
applicable to a share of Preferred Stock, and the denominator of which shall be such Current Market
Price (as determined pursuant to Section 11(d) hereof) per share of Preferred Stock. Such
adjustments shall be made successively whenever such a record date is fixed, and in the event that
such distribution is not so made, the Purchase Price shall be adjusted to be the Purchase Price
that would have been in effect if such record date had not been fixed.
(d) (i) For the purpose of any computation hereunder, other than computations made
pursuant to Section 11(a)(iii) hereof, the Current Market Price per share of Common Stock
on any date shall be deemed to be the average of the daily closing prices per share of such
Common Stock for the thirty (30) consecutive Trading Days immediately prior to such date,
and for purposes of computations made pursuant to Section 11(a)(iii) hereof, the Current
Market Price per share of Common Stock on any date shall be deemed to be the average of the
daily closing prices per share of such Common Stock for the ten (10) consecutive Trading
Days immediately following such date;
provided
,
however
, that in the event
that the Current Market Price per share of the Common Stock is determined during a period
following the announcement by the issuer of such Common Stock of (A) a dividend or
distribution on such Common Stock payable in shares of such Common Stock or securities
convertible into shares of such Common Stock (other than the Rights), or (B) any
subdivision, combination or reclassification of such Common Stock, and the ex-dividend date
for such dividend or distribution, or the
record date for such subdivision, combination or reclassification shall not have
occurred prior to the commencement of the requisite thirty (30) Trading Day or ten (10)
Trading Day period, as set forth above, then, and in each such case, the Current Market
Price shall be properly adjusted to take into account ex-dividend trading. The closing
price for each day shall be the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices, regular way, in
either case as reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock Exchange or, if
the shares of Common Stock are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system with
respect to securities listed on the principal national securities exchange on which the
shares of Common Stock are listed or admitted to trading or, if the shares of Common Stock
are not listed or admitted to trading on any national securities exchange, the last quoted
price or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the Nasdaq Global Market or such other system then
in use, or, if on any such date the shares of Common Stock are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Common Stock selected by the Board. If on
any such date no market maker is making a market in the Common Stock, the fair value of
such shares on such date
19
as determined in good faith by the Board shall be used. The term
Trading Day shall mean a day on which the principal national securities exchange on which
the shares of Common Stock are listed or admitted to trading is open for the transaction of
business or, if the shares of Common Stock are not listed or admitted to trading on any
national securities exchange, a Business Day. If the Common Stock is not publicly held or
not so listed or traded, Current Market Price per share shall mean the fair value per share
as determined in good faith by the Board, whose determination shall be described in a
statement filed with the Rights Agent and shall be conclusive for all purposes.
(ii) For the purpose of any computation hereunder, the Current Market Price
per share of Preferred Stock shall be determined in the same manner as set forth
above for the Common Stock in clause (i) of this Section 11(d) (other than the
last sentence thereof). If the Current Market Price per share of Preferred Stock
cannot be determined in the manner provided above or if the Preferred Stock is not
publicly held or listed or traded in a manner described in clause (i) of this
Section 11(d), the Current Market Price per share of Preferred Stock shall be
conclusively deemed to be an amount equal to 1,000 (as such number may be
appropriately adjusted for such events as stock splits, stock dividends and
recapitalizations with respect to the Common Stock occurring after the date of
this Agreement) multiplied by the Current Market Price per share of the Common
Stock. If neither the Common Stock nor the Preferred Stock is publicly held or so
listed or traded, Current Market Price per share of the Preferred Stock shall mean
the fair value per share as determined in good faith by the Board, whose
determination shall be described in a statement filed with the Rights Agent
and shall be conclusive for all purposes.
(e) Anything herein to the contrary notwithstanding, no adjustment in the Purchase Price shall
be required unless such adjustment would require an increase or decrease of at least one percent
(1%) in the Purchase Price;
provided
,
however
, that any adjustments that by reason
of this Section 11(e) are not required to be made shall be carried forward and taken into account
in any subsequent adjustment. All calculations under this Section 11 shall be made to the nearest
cent or to the nearest ten-thousandth of a share of Common Stock or other share or one
ten-millionth of a share of Preferred Stock, as the case may be. Notwithstanding the first
sentence of this Section 11(e), any adjustment required by this Section 11 shall be made no later
than the earlier of (i) two years from the date of the transaction that mandates such adjustment,
or (ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section 11(a)(ii) or Section 13(a)
hereof, the holder of any Right thereafter exercised shall become entitled to receive any shares of
capital stock other than Preferred Stock, thereafter the number of such other shares so receivable
upon exercise of any Right and the Purchase Price thereof shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect
to the
20
Preferred Stock contained in Sections 11(a), (b), (c), (e), (g), (h), (i), (j), (k) and (m),
and the provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the Preferred Stock shall
apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any adjustment made to the
Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the
number of one one-thousandths of a share of Preferred Stock purchasable from time to time hereunder
upon exercise of the Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided in Section 11(i), upon
each adjustment of the Purchase Price as a result of the calculations made in Sections 11(b) and
(c), each Right outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of one one-thousandths
of a share of Preferred Stock (calculated to the nearest one ten-millionth) obtained by (i)
multiplying (x) the number of one one-thousandths of a share covered by a Right immediately prior
to this adjustment, by (y) the Purchase Price in effect immediately prior to such adjustment of the
Purchase Price, and (ii) dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of the Purchase Price to
adjust the number of Rights, in lieu of any adjustment in the number of one one-thousandths of a
share of Preferred Stock purchasable upon the exercise of a Right. Each of the Rights outstanding
after the adjustment in the number of Rights shall be exercisable for the number of one
one-thousandths of a share of Preferred
Stock for which a Right was exercisable immediately prior to such adjustment. Each Right held
of record prior to such adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one ten-thousandth) obtained by dividing the Purchase Price in effect
immediately prior to adjustment of the Purchase Price by the Purchase Price in effect immediately
after adjustment of the Purchase Price. The Company shall make a public announcement of its
election to adjust the number of Rights, indicating the record date for the adjustment, and, if
known at the time, the amount of the adjustment to be made. This record date may be the date on
which the Purchase Price is adjusted or any day thereafter, but, if the Rights Certificates have
been issued, shall be at least ten (10) days later than the date of the public announcement. If
Rights Certificates have been issued, upon each adjustment of the number of Rights pursuant to this
Section 11(i), the Company shall, as promptly as practicable, cause to be distributed to holders of
record of Rights Certificates on such record date Rights Certificates evidencing, subject to
Section 14 hereof, the additional Rights to which such holders shall be entitled as a result of
such adjustment, or, at the option of the Company, shall cause to be distributed to such holders of
record in substitution and replacement for the Rights Certificates held by such holders prior to
the date of adjustment, and upon surrender thereof, if required by the Company, new Rights
Certificates evidencing all the Rights to which such holders shall be entitled after such
adjustment. Rights Certificates so to be distributed shall be issued, executed and countersigned
in the manner provided for herein (and may bear, at the option of the Company, the adjusted
Purchase Price) and
21
shall be registered in the names of the holders of record of Rights
Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or the number of one
one-thousandths of a share of Preferred Stock issuable upon the exercise of the Rights, the Rights
Certificates theretofore and thereafter issued may continue to express the Purchase Price per one
one-thousandth of a share and the number of one one-thousandths of a share that were expressed in
the initial Rights Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing the Purchase Price below
the then stated value, if any, of the number of one one-thousandths of a share of Preferred Stock
issuable upon exercise of the Rights, the Company shall take any corporate action that may, in the
opinion of its counsel, be necessary in order that the Company may validly and legally issue fully
paid and nonassessable such number of one one-thousandths of a share of Preferred Stock at such
adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an adjustment in the Purchase
Price be made effective as of a record date for a specified event, the Company may elect to defer
until the occurrence of such event the issuance to the holder of any Right exercised after such
record date the number of one one-thousandths of a share of Preferred Stock and other capital stock
or securities of the Company, if any, issuable upon such exercise over and above the number of one
one-thousandths of a share of Preferred Stock and other capital stock or securities of the Company,
if any, issuable upon such exercise on the basis of the Purchase Price in effect
prior to such adjustment;
provided
,
however
, that the Company shall deliver to
such holder a due bill or other appropriate instrument evidencing such holders right to receive
such additional shares (fractional or otherwise) or securities upon the occurrence of the event
requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the Company shall be entitled
to make such reductions in the Purchase Price, in addition to those adjustments expressly required
by this Section 11, as and to the extent that in their good faith judgment the Board of Directors
of the Company shall determine to be advisable in order that any (i) consolidation or subdivision
of the Preferred Stock, (ii) issuance wholly for cash of any shares of Preferred Stock at less than
the Current Market Price, (iii) issuance wholly for cash of shares of Preferred Stock or securities
that by their terms are convertible into or exchangeable for shares of Preferred Stock, (iv) stock
dividends or (v) issuance of rights, options or warrants referred to in this Section 11, hereafter
made by the Company to holders of its Preferred Stock shall not be taxable to such stockholders.
(n) The Company covenants and agrees that it shall not, at any time after the Distribution
Date, (i) consolidate with any other Person (other than a Subsidiary of the Company in a
transaction that complies with Section 11(o) hereof), (ii) merge with or into any other Person
(other than a Subsidiary of the Company in a
22
transaction that complies with Section 11(o) hereof),
or (iii) other than pursuant to a pro rata dividend and/or distribution to all of the then current
holders of Common Stock, sell or transfer (or permit any Subsidiary to sell or transfer), in one
transaction, or a series of related transactions, assets, cash flow or earning power aggregating
more than 50% of the assets, cash flow or earning power of the Company and its Subsidiaries (taken
as a whole) to any other Person or Persons (other than the Company and/or any of its Subsidiaries
in one or more transactions each of which complies with Section 11(o) hereof), if (x) at the time
of or immediately after such consolidation, merger or sale there are any rights, warrants or other
instruments or securities outstanding or agreements in effect that would substantially diminish or
otherwise eliminate the benefits intended to be afforded by the Rights or (y) prior to,
simultaneously with or immediately after such consolidation, merger or sale, the stockholders of
the Person who constitutes, or would constitute, the Principal Party for purposes of Section
13(a) hereof shall have received a distribution of Rights previously owned by such Person or any of
its Affiliates and Associates.
(o) The Company covenants and agrees that, after the Distribution Date, it will not, except as
permitted by Section 23, Section 24 or Section 27 hereof, take (or permit any Subsidiary to take)
any action if at the time such action is taken it is reasonably foreseeable that such action will
diminish substantially or otherwise eliminate the benefits intended to be afforded by the Rights.
(p) Anything in this Agreement to the contrary notwithstanding, in the event that the Company
shall at any time after the Rights Dividend Declaration Date and prior to the Distribution Date (i)
declare a dividend on the outstanding shares of Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding shares of Common Stock, or (iii) combine the outstanding shares of
Common Stock into a
smaller number of shares, the number of Rights associated with each share of Common Stock then
outstanding, or issued or delivered thereafter but prior to the Distribution Date, shall be
proportionately adjusted so that the number of Rights thereafter associated with each share of
Common Stock following any such event shall equal the result obtained by multiplying the number of
Rights associated with each share of Common Stock immediately prior to such event by a fraction the
numerator of which shall be the total number of shares of Common Stock outstanding immediately
prior to the occurrence of the event and the denominator of which shall be the total number of
shares of Common Stock outstanding immediately following the occurrence of such event.
Section 12.
Certificate of Adjusted Purchase Price or Number of Shares
. Whenever an adjustment is made as provided in Section 11 and Section 13 hereof, the Company
shall (a) promptly prepare a certificate setting forth such adjustment and a brief statement of the
facts accounting for such adjustment, (b) promptly file with the Rights Agent, and with each
transfer agent for the Preferred Stock and the Common Stock, a copy of such certificate and (c) if
a Distribution Date has occurred, mail a brief summary thereof to each holder of a Rights
Certificate in accordance with Section 25 hereof. The Rights Agent shall be fully protected in
relying on any such certificate and on any adjustment therein contained.
23
Section 13.
Consolidation, Merger or Sale or Transfer of Assets Cash Flow or Earning
Power
.
(a) In the event that, following the Stock Acquisition Date, directly or indirectly, (x) the
Company shall consolidate with, or merge with and into, any other Person (other than a Subsidiary
of the Company in a transaction that complies with Section 11(o) hereof), and the Company shall not
be the continuing or surviving corporation of such consolidation or merger, (y) any Person (other
than a Subsidiary of the Company in a transaction that complies with Section 11(o) hereof) shall
consolidate with, or merge with or into, the Company, and the Company shall be the continuing or
surviving corporation of such consolidation or merger and, in connection with such consolidation or
merger, all or part of the outstanding shares of Common Stock shall be changed into or exchanged
for stock or other securities of any other Person or cash or any other property, or (z) the Company
shall, other than pursuant to pro rata dividend and/or distribution to all of the then current
holders of Common Stock, sell or otherwise transfer (or one or more of its Subsidiaries shall sell
or otherwise transfer), in one transaction or a series of related transactions, assets, cash flow
or earning power aggregating more than 50% of the assets, cash flow or earning power of the Company
and its Subsidiaries (taken as a whole) to any Person or Persons (other than the Company or any
Subsidiary of the Company in one or more transactions each of which complies with Section 11(o)
hereof), then, and in each such case (except as may be contemplated by Section 13(d) hereof),
proper provision shall be made so that: (i) each holder of a Right, except as provided in Section
7(e) hereof, shall thereafter have the right to receive, upon the exercise thereof at the then
current Purchase Price in accordance with the terms of this Agreement, such number of validly
authorized and issued, fully paid, non-assessable and freely tradable shares of Common Stock of the
Principal Party (as such term is hereinafter defined), not subject to any liens, encumbrances,
rights of first refusal or other adverse claims, as shall be equal to the result obtained by (1)
multiplying the then current Purchase Price by the number of one one-thousandths of a share of
Preferred Stock for which a Right is exercisable immediately prior to the first occurrence of a
Section 13 Event (or, if a Section 11(a)(ii) Event has occurred prior to the first occurrence of a
Section 13 Event, multiplying the number of such one one-thousandths of a share for which a Right
was exercisable immediately prior to the first occurrence of a Section 11(a)(ii) Event by the
Purchase Price in effect immediately prior to such first occurrence of a Section 11(a)(ii) Event),
and (2) dividing that product (which, following the first occurrence of a Section 13 Event, shall
be referred to as the Purchase Price for each Right and for all purposes of this Agreement) by
50% of the Current Market Price (determined pursuant to Section 11(d)(i) hereof) per share of the
Common Stock of such Principal Party on the date of consummation of such Section 13 Event; (ii)
such Principal Party shall thereafter be liable for, and shall assume, by virtue of such Section 13
Event, all the obligations and duties of the Company pursuant to this Agreement; (iii) the term
Company shall thereafter be deemed to refer to such Principal Party, it being specifically
intended that the provisions of Section 11 hereof shall apply only to such Principal Party
following the first occurrence of a Section 13 Event; (iv) such Principal Party shall take such
steps (including, but not limited to, the reservation of a sufficient number of shares of its
Common Stock) in connection with the consummation of any such transaction as may be necessary
to assure that the provisions hereof shall thereafter be applicable, as nearly as
24
reasonably may be, in relation to its shares of Common Stock thereafter deliverable upon the exercise of the
Rights; and (v) the provisions of Section 11(a)(ii) hereof shall be of no effect following the
first occurrence of any Section 13 Event.
(b) Principal Party shall mean:
(i) in the case of any transaction described in clause (x) or (y) of the
first sentence of Section 13(a), the Person that is the issuer of any securities
into which shares of Common Stock of the Company are converted in such merger or
consolidation, and if no securities are so issued, the Person that is the other
party to such merger or consolidation; and
(ii) in the case of any transaction described in clause (z) of the first
sentence of Section 13(a), the Person that is the party receiving the greatest
portion of the assets, cash flow or earning power transferred pursuant to such
transaction or transactions;
provided
,
however
, that in any such case, (1) if the Common Stock of such Person is
not at such time and has not been continuously over the preceding twelve (12) month period
registered under Section 12 of the Exchange Act, and such Person is a direct or indirect Subsidiary
of another Person the Common Stock of which is and has been so registered, Principal Party shall
refer to such other Person; and (2) in case such Person is a Subsidiary, directly or indirectly, of
more than one Person, the Common Stock of two or more of which are and have been so registered,
Principal Party shall refer to whichever of such Persons is the issuer of the Common Stock having
the greatest aggregate market value.
(c) The Company shall not consummate any such consolidation, merger, sale or transfer unless
the Principal Party shall have a sufficient number of authorized shares of its Common Stock that
have not been issued or reserved for issuance to permit the exercise in full of the Rights in
accordance with this Section 13 and unless prior thereto the Company and such Principal Party shall
have executed and delivered to the Rights Agent a supplemental agreement providing for the terms
set forth in paragraphs (a) and (b) of this Section 13 and further providing that, as soon as
practicable after the date of any consolidation, merger or sale of assets mentioned in paragraph
(a) of this Section 13, the Principal Party will:
(i) prepare and file a registration statement under the Act, with respect to
the Rights and the securities purchasable upon exercise of the Rights on an
appropriate form, and will use its best efforts to cause such registration
statement to (A) become effective as soon as practicable after such filing and (B)
remain effective (with a prospectus at all times meeting the requirements of the
Act) until the Expiration Date;
(ii) take all such other action as may be necessary to enable the Principal
Party to issue the securities purchasable upon
25
exercise of the Rights, including but not limited to the registration or qualification of such securities under all
requisite securities laws of jurisdictions of the various states and the listing
of such securities on such exchanges and trading markets as may be necessary or
appropriate; and
(iii) deliver to holders of the Rights historical financial statements for
the Principal Party and each of its Affiliates that comply in all respects with
the requirements for registration on Form 10 under the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive mergers or consolidations or
sales or other transfers. In the event that a Section 13 Event shall occur at any time after the
occurrence of a Section 11(a)(ii) Event, the Rights that have not theretofore been exercised shall
thereafter become exercisable in the manner described in Section 13(a).
(d) Notwithstanding anything in this Agreement to the contrary, Section 13 shall not be
applicable to a transaction described in subparagraphs (x) and (y) of Section 13(a) if (i) such
transaction is consummated with a Person or Persons who acquired shares of Common Stock pursuant to
a Qualified Offer (or a wholly owned subsidiary of any such Person or Persons), (ii) the price per
share of Common Stock offered in such transaction is not less than the price per share of Common
Stock paid to all holders of shares of Common Stock whose shares were purchased pursuant to the
Qualified Offer and (iii) the form of consideration being offered to the remaining holders of
shares of Common Stock pursuant to such transaction is the same as the form of consideration paid
pursuant to the Qualified Offer. Upon consummation of any such transaction contemplated by this
Section 13(d), all Rights hereunder shall expire.
Section 14.
Fractional Rights and Fractional Shares
.
(a) The Company shall not be required to issue fractions of Rights, except prior to the
Distribution Date as provided in Section 11(p) hereof, or to distribute Rights Certificates that
evidence fractional Rights. In lieu of such fractional Rights, the Company shall pay to the
registered holders of the Rights Certificates with regard to which such fractional Rights would
otherwise be issuable, an amount in cash equal to the same fraction of the current market value of
a whole Right. For purposes of this Section 14(a), the current market value of a whole Right shall
be the closing price of the Rights for the Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable. The closing price of the Rights for any day
shall be the last sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities listed or admitted
to trading on the New York Stock Exchange or, if the Rights are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the principal national securities
exchange on which the Rights are listed or admitted to trading, or if the Rights are not listed or
admitted to trading on any national securities exchange, the
26
last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as
reported by the Nasdaq Global Market or such other system then in use or, if on any such date the
Rights are not quoted by any such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Rights, selected by the Board of
Directors of the Company. If on any such date no such market maker is making a market in the
Rights, the fair value of the Rights on such date as determined in good faith by the Board of
Directors of the Company shall be used.
(b) The Company shall not be required to issue fractions of shares of Preferred Stock (other
than fractions that are integral multiples of one one-thousandth of a share of Preferred Stock)
upon exercise of the Rights or to distribute certificates that evidence fractional shares of
Preferred Stock (other than fractions that are integral multiples of one one-thousandth of a share
of Preferred Stock). In lieu of fractional shares of Preferred Stock that are not integral
multiples of one one-thousandth of a share of Preferred Stock, the Company may pay to the
registered holders of Rights Certificates at the time such Rights are exercised as herein provided
an amount in cash equal to the same fraction of the current market value of one one-thousandth of a
share of Preferred Stock. For purposes of this Section 14(b), the current market value of one
one-thousandth of a share of Preferred Stock shall be one one-thousandth of the closing price of a
share of Preferred Stock (as determined pursuant to Section 11(d)(ii) hereof) for the Trading Day
immediately prior to the date of such exercise.
(c) Following the occurrence of a Triggering Event, the Company shall not be required to issue
fractions of shares of Common Stock upon exercise of the Rights or to distribute certificates that
evidence fractional shares of Common Stock. In lieu of fractional shares of Common Stock, the
Company may pay to the registered holders of Rights Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction of the current market
value of one (1) share of Common Stock. For purposes of this Section 14(c), the current market
value of one share of Common Stock shall be the closing price per share of Common Stock (as
determined pursuant to Section 11(d)(i) hereof) on the Trading Day immediately prior to the date of
such exercise.
(d) The holder of a Right by the acceptance of the Rights expressly waives such holders right
to receive any fractional Rights or any fractional shares upon exercise of a Right, except as
permitted by this Section 14.
Section 15.
Rights of Action
. All rights of action in respect of this Agreement are vested in the respective registered
holders of the Rights Certificates (and, prior to the Distribution Date, the registered holders of
the Common Stock); and any registered holder of any Rights Certificate (or, prior to the Distribution Date, of the Common Stock), without the consent of
the Rights Agent or of the holder of any other Rights Certificate (or, prior to the Distribution
Date, of the Common Stock), may, in the holders own behalf and for the holders own benefit,
enforce, and may institute and maintain any suit, action or proceeding against the Company to
enforce, or otherwise act in respect of, the holders right to exercise the Rights evidenced by
such Rights
27
Certificate in the manner provided in such Rights Certificate and in this Agreement.
Without limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate remedy at law for
any breach of this Agreement and shall be entitled to specific performance of the obligations
hereunder and injunctive relief against actual or threatened violations of the obligations
hereunder of any Person subject to this Agreement.
Section 16.
Agreement of Rights Holders
. Every holder of a Right by accepting the same consents and agrees with the Company and the
Rights Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable only in connection with
the transfer of shares of Common Stock;
(b) after the Distribution Date, the Rights Certificates are transferable only on the registry
books of the Rights Agent if surrendered at the principal office or offices of the Rights Agent
designated for such purposes, duly endorsed or accompanied by a proper instrument of transfer and
with the appropriate forms and certificates fully executed;
(c) subject to Section 6(a) and Section 7(f) hereof, the Company and the Rights Agent may deem
and treat the person in whose name a Rights Certificate (or, prior to the Distribution Date, the
associated balance indicated in the book entry account system of the transfer agent for the Common
Stock or, in the case of certificated shares, the associated Common Stock certificate) is
registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any
notations of ownership or writing on the Rights Certificates or the associated balance indicated in
the book entry account system of the transfer agent for the Common Stock or, in the case of
certificated shares, the associated Common Stock certificate made by anyone other than the Company
or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent,
subject to the last sentence of Section 7(e) hereof, shall be required to be affected by any notice
to the contrary; and
(d) notwithstanding anything in this Agreement to the contrary, neither the Company nor the
Rights Agent shall have any liability to any holder of a Right or other Person as a result of its
inability to perform any of its obligations under this Agreement by reason of any preliminary or
permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction
or by a governmental, regulatory or administrative agency or commission, or any statute, rule,
regulation or executive order promulgated or enacted by any governmental authority, prohibiting or otherwise restraining performance of such obligation;
provided
,
however
, the
Company must use its best efforts to have any such order, decree or ruling lifted or otherwise
overturned as soon as possible.
Section 17.
Rights Certificate Holder Not Deemed a Stockholder
. No holder, as such, of any Rights Certificate shall be entitled to vote, receive dividends
or be deemed for any purpose the holder of the number of one one-thousandths of a share of
28
Preferred Stock or any other securities of the Company that may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein or in any Rights
Certificate be construed to confer upon the holder of any Rights Certificate, as such, any of the
rights of a stockholder of the Company or any right to vote for the election of directors or upon
any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting stockholders (except
as provided in Section 25 hereof), or to receive dividends or subscription rights, or otherwise,
until the Right or Rights evidenced by such Rights Certificate shall have been exercised in
accordance with the provisions hereof.
Section 18.
Concerning the Rights Agent
.
(a) The Company agrees to pay to the Rights Agent reasonable compensation for all services
rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and disbursements and other disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of its duties hereunder. The
Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss,
liability, or expense, incurred without gross negligence, bad faith or willful misconduct, each as
determined by a court of competent jurisdiction, on the part of the Rights Agent, for anything done
or omitted by the Rights Agent in connection with the acceptance and administration of this
Agreement or the performance of the Rights Agents duties hereunder, including the costs and
expenses of defending against any claim of liability in the premises.
(b) The Rights Agent shall be protected and shall incur no liability for or in respect of any
action taken, suffered or omitted by it in connection with its administration of this Agreement or
the performance of the Rights Agents duties hereunder in reliance upon any Rights Certificate or
the balance indicated in the book entry account system of the transfer agent for the Common Stock
or, in the case of certificated shares, certificate for Common Stock or for other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter,
notice, direction, consent, certificate, statement, or other paper or document believed by it to be
genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper
Person or Persons.
Section 19.
Merger or Consolidation or Change of Name of Rights Agent
.
(a) Any Person into which the Rights Agent or any successor Rights Agent may be merged or with
which it may be consolidated, or any Person resulting from any merger or consolidation to which the
Rights Agent or any successor Rights Agent shall be a party, or any Person succeeding to the
corporate trust, stock transfer or other stockholder services business of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the
execution or filing of any paper or any further act on the part of any of the parties hereto; but
only if such Person would be eligible for appointment as a successor Rights
29
Agent under the provisions of Section 21 hereof. In case at the time such successor Rights Agent shall succeed to
the agency created by this Agreement, any of the Rights Certificates shall have been countersigned
but not delivered, any such successor Rights Agent may adopt the countersignature of a predecessor
Rights Agent and deliver such Rights Certificates so countersigned; and in case at that time any of
the Rights Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Rights Certificates either in the name of the predecessor or in the name of the
successor Rights Agent; and in all such cases such Rights Certificates shall have the full force
provided in the Rights Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be changed and at such time any of
the Rights Certificates shall have been countersigned but not delivered, the Rights Agent may adopt
the countersignature under its prior name and deliver Rights Certificates so countersigned; and in
case at that time any of the Rights Certificates shall not have been countersigned, the Rights
Agent may countersign such Rights Certificates either in its prior name or in its changed name; and
in all such cases such Rights Certificates shall have the full force provided in the Rights
Certificates and in this Agreement.
Section 20.
Duties of Rights Agent
. The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the
following terms and conditions, by all of which the Company and the holders of Rights Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal counsel for the
Company), and the advice or opinion of such counsel shall be full and complete authorization and
protection to the Rights Agent as to any action taken or omitted by it in good faith and in
accordance with such advice or opinion.
(b) Whenever in the performance of its duties under this Agreement the Rights Agent shall deem
it necessary or desirable that any fact or matter (including, without limitation, the identity of
any Acquiring Person and the determination of Current Market Price) be proved or established by the
Company prior to taking or suffering any action hereunder, such fact or matter (unless other
evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by the Chief Executive Officer, the President, the Chief
Financial Officer, any Vice President, the Treasurer, any Assistant Treasurer, the Secretary or any
Assistant Secretary of the Company and delivered to the Rights Agent; and such certificate shall be
full authorization to the Rights Agent for any action taken or suffered in good faith by it under
the provisions of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its own gross negligence, bad faith or
willful misconduct, each as determined by a court of competent jurisdiction.
30
(d) The Rights Agent shall not be liable for or by reason of any of the statements of fact or
recitals contained in this Agreement or in the Rights Certificates or be required to verify the
same (except as to its countersignature on such Rights Certificates), but all such statements and
recitals are and shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect of the validity of this
Agreement or the execution and delivery hereof (except the due execution hereof by the Rights
Agent) or in respect of the validity or execution of any Rights Certificate (except its
countersignature thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Rights Certificate; nor shall it be
responsible for any adjustment required under the provisions of Section 11, Section 13 or Section
24 hereof or responsible for the manner, method or amount of any such adjustment or the
ascertaining of the existence of facts that would require any such adjustment (except with respect
to the exercise of Rights evidenced by Rights Certificates after actual notice of any such
adjustment); nor shall it by any act hereunder be deemed to make any representation or warranty as
to the authorization or reservation of any shares of Common Stock or Preferred Stock to be issued
pursuant to this Agreement or any Rights Certificate or as to whether any shares of Common Stock or
Preferred Stock will, when so issued, be validly authorized and issued, fully paid and
nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be
performed, executed, acknowledged and delivered all such further and other acts, instruments and
assurances as may reasonably be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept instructions with respect to
the performance of its duties hereunder from the Chief Executive Officer, the President, the Chief
Financial Officer, any Vice President, the Treasurer, any Assistant Treasurer, the Secretary or any
Assistant Secretary of the Company, and to apply to such officers for advice or instructions in
connection with its duties, and it shall not be liable for any action taken or suffered to be taken
by it in good faith in accordance with instructions of any such officer.
(h) The Rights Agent and any stockholder, director, officer or employee of the Rights Agent
may buy, sell or deal in any of the Rights or other securities of the Company or become pecuniarily
interested in any transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were not Rights Agent under
this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity
for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it
or perform any duty hereunder either itself or by or through its attorneys or agents, and the
Rights Agent shall not be answerable or accountable for
31
any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct;
provided
,
however
, reasonable care was exercised in the
selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights Agent to expend or risk its own
funds or otherwise incur any financial liability in the performance of any of its duties hereunder
(other than internal costs incurred by the Rights Agent in providing services to the Company in the
ordinary course of its business as Rights Agent) or in the exercise of its rights if there shall be
reasonable grounds for believing that repayment of such funds or adequate indemnification against
such risk or liability is not reasonably assured to it.
(k) If, with respect to any Rights Certificate surrendered to the Rights Agent for exercise or
transfer, the certificate attached to the form of assignment or form of election to purchase, as
the case may be, has either not been completed or indicates an affirmative response to clause 1
and/or 2 thereof, the Rights Agent shall not take any further action with respect to such requested
exercise or transfer without first consulting with the Company.
Section 21.
Change of Rights Agent
. The Rights Agent or any successor Rights Agent may resign and be discharged from its duties
under this Agreement upon thirty (30) days notice in writing mailed to the Company, and to each
transfer agent of the Common Stock and Preferred Stock, by registered or certified mail, and, if
such resignation occurs after the Distribution Date, to the registered holders of the Rights
Certificates by first-class mail. The Company may remove the Rights Agent or any successor Rights
Agent upon thirty (30) days notice in writing, mailed to the Rights Agent or successor Rights
Agent, as the case may be, and to each transfer agent of the Common Stock and Preferred Stock, by
registered or certified mail, and, if such removal occurs after the Distribution Date, to the
holders of the Rights Certificates by first-class mail. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the
Rights Agent. If the Company shall fail to make such appointment within a period of thirty (30)
days after giving notice of such removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Rights Certificate (who shall, with such notice, submit his
Rights Certificate for inspection by the Company), then any registered holder of any Rights
Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights
Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be
(a) a legal business entity organized and doing business under the laws of the United States or any
State thereof, in good standing, having an office in the State of New York, that is authorized
under such laws to exercise corporate trust, stock transfer or stockholder services powers and that
has at the time of its appointment as Rights Agent a combined capital and surplus of at least
$50,000,000 or (b) an affiliate of a legal business entity described in clause (a) of this
sentence. After appointment, the successor Rights Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights
32
Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further
assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of
any such appointment, the Company shall file notice thereof in writing with the predecessor Rights
Agent and each transfer agent of the Common Stock and the Preferred Stock, and, if such appointment
occurs after the Distribution Date, mail a notice thereof in writing to the registered holders of
the Rights Certificates. Failure to give any notice provided for in this Section 21, however, or
any defect therein, shall not affect the legality or validity of the resignation or removal of the
Rights Agent or the appointment of the successor Rights Agent, as the case may be.
Section 22.
Issuance of New Rights Certificates
. Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary,
the Company may, at its option, issue new Rights Certificates evidencing Rights in such form as may
be approved by the Board of Directors to reflect any adjustment or change in the Purchase Price and
the number or kind or class of shares or other securities or property purchasable under the Rights
Certificates made in accordance with the provisions of this Agreement. In addition, in connection
with the issuance or sale of shares of Common Stock following the Distribution Date and prior to
the redemption or expiration of the Rights, the Company (a) shall, with respect to shares of Common
Stock so issued or sold pursuant to the exercise of stock options or under any employee plan or
arrangement, granted or awarded as of the Distribution Date, or upon the exercise, conversion or
exchange of securities hereinafter issued by the Company, and (b) may, in any other case, if deemed
necessary or appropriate by the Board of Directors of the Company, issue Rights Certificates
representing the appropriate number of Rights in connection with such issuance or sale;
provided
,
however
, that (i) no such Rights Certificate shall be issued if, and to
the extent that, the Company shall be advised by counsel that such issuance would create a
significant risk of material adverse tax consequences to the Company or the Person to whom such
Rights Certificate would be issued, and (ii) no such Rights Certificate shall be issued if, and to
the extent that, appropriate adjustment shall otherwise have been made in lieu of the issuance
thereof.
Section 23.
Redemption and Termination
.
(a) The Board of Directors of the Company may, at its option, at any time prior to the earlier
of (i) the close of business on the tenth Business Day (or such specified or unspecified later date
as may be determined by the Board before the Rights cease to be redeemable) following the Stock
Acquisition Date (or, if the Stock Acquisition Date shall have occurred prior to the Record Date,
the close of business on the tenth Business Day following the Record Date), or (ii) the Final
Expiration Date, redeem all but not less than all of the then outstanding Rights at a redemption
price of $.001 per Right, as such amount may be appropriately adjusted to reflect any stock split,
stock dividend or similar transaction occurring after the date hereof (such redemption price being
hereinafter referred to as the Redemption Price). Notwithstanding anything contained in this
Agreement to the contrary, the Rights shall not be exercisable after the first occurrence of a
Section 11(a)(ii) Event until such time as the Companys right of redemption hereunder has expired.
The Company may, at its option, pay the Redemption
33
Price in cash, shares of Common Stock (based on the Current Market Price, as defined in Section 11(d)(i) hereof, of the Common Stock at the time of
redemption) or any other form of consideration deemed appropriate by the Board of Directors. The
redemption of the Rights by action of the Board of Directors may be made effective at such time, on
such basis and with such conditions as the Board of Directors in its sole discretion may establish.
(b) Immediately upon the effectiveness of the action of the Board of Directors of the Company
ordering the redemption of the Rights (or, if the resolution of the Board of Directors electing to
redeem the Rights states that the redemption will not be effective until the occurrence of a
specified future time or event, upon the occurrence of such future time or event), and without any
further action and without any notice, the right to exercise the Rights will terminate and the only
right thereafter of the holders of Rights shall be to receive the Redemption Price for each Right
so held. The Company shall promptly give notice of any such redemption to the Rights Agent and the
holders of the then outstanding Rights by mailing such notice to all such holders at each holders
last address as it appears upon the registry books of the Rights Agent or, prior to the
Distribution Date, on the registry books of the transfer agent for the Common Stock;
provided
,
however
, that the failure to give, or any defect in, any such notice
shall not affect the validity of such redemption. Any notice that is mailed in the manner herein
provided shall be deemed given, whether or not the holder receives the notice. Each such notice of
redemption will state the method by which the payment of the Redemption Price will be made.
Section 24.
Exchange
.
(a) The Board of Directors of the Company may, at its option, at any time after any Person
becomes an Acquiring Person, exchange all or part of the then outstanding and exercisable Rights
(which shall not include Rights that have become void pursuant to the provisions of Section 7(e)
hereof) for Common Stock at an exchange ratio of one share of Common Stock per Right, appropriately adjusted to reflect any stock split,
stock dividend or similar transaction occurring after the date hereof (such exchange ratio being
hereinafter referred to as the Exchange Ratio). Notwithstanding the foregoing, the Board of
Directors of the Company shall not be empowered to effect such exchange at any time after any
Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the
Company or any such Subsidiary, or any entity holding Common Stock for or pursuant to the terms of
any such plan, or, until the completion of the spin-off distribution of all of the outstanding
shares of Common Stock by Temple-Inland, Inc. to its stockholders, Temple-Inland Inc.), together
with all Affiliates and Associates of such Person, becomes the Beneficial Owner of 50% or more of
the Common Stock then outstanding.
(b) Immediately upon the action of the Board of Directors of the Company ordering the exchange
of any Rights pursuant to subsection (a) of this Section 24 and without any further action and
without any notice, the right to exercise such Rights shall terminate and the only right thereafter
of a holder of such Rights shall be to receive that number of shares of Common Stock equal to the
number of such Rights held
34
by such holder multiplied by the Exchange Ratio. The Company shall promptly give public notice of any such exchange;
provided
,
however
, that the
failure to give, or any defect in, such notice shall not affect the validity of such exchange. The
Company promptly shall mail a notice of any such exchange to all of the holders of such Rights at
their last addresses as they appear upon the registry books of the Rights Agent. Any notice that
is mailed in the manner herein provided shall be deemed given, whether or not the holder receives
the notice. Each such notice of exchange will state the method by which the exchange of the Common
Stock for Rights will be effected and, in the event of any partial exchange, the number of Rights
that will be exchanged. Any partial exchange shall be effected pro rata based on the number of
Rights (other than Rights that have become void pursuant to the provisions of Section 7(e) hereof)
held by each holder of Rights.
(c) In any exchange pursuant to this Section 24, the Company, at its option, may substitute
Preferred Stock (or Equivalent Preferred Stock, as such term is defined in paragraph (b) of Section
11 hereof) for Common Stock exchangeable for Rights, at the initial rate of one one-thousandth of a
share of Preferred Stock (or Equivalent Preferred Stock) for each share of Common Stock, as
appropriately adjusted to reflect stock splits, stock dividends and other similar transactions
after the date hereof.
(d) In the event that there shall not be sufficient shares of Common Stock issued but not
outstanding or authorized but unissued to permit any exchange of Rights as contemplated in
accordance with this Section 24, the Company shall take all such action as may be necessary to
authorize additional shares of Common Stock for issuance upon exchange of the Rights.
(e) The Company shall not be required to issue fractions of shares of Common Stock or, in the
case of certificated shares, to distribute certificates that evidence fractional shares of Common
Stock. In lieu of such fractional shares of Common Stock, there shall be paid to the registered
holders of the Rights Certificates with regard to which such fractional shares of Common Stock would otherwise be issuable, an
amount in cash equal to the same fraction of the current market value of a whole share of Common
Stock. For the purposes of this subsection (e), the current market value of a whole share of
Common Stock shall be the closing price of a share of Common Stock (as determined pursuant to the
second sentence of Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of
exchange pursuant to this Section 24.
Section 25.
Notice of Certain Events
.
(a) In case the Company shall propose, at any time after the Distribution Date, (i) to pay any
dividend payable in stock of any class to the holders of Preferred Stock or to make any other
distribution to the holders of Preferred Stock (other than a regular quarterly cash dividend out of
earnings or retained earnings of the Company), or (ii) to offer to the holders of Preferred Stock
rights or warrants to subscribe for or to purchase any additional shares of Preferred Stock or
shares of stock of any class or any other securities, rights or options, or (iii) to effect any
reclassification of its Preferred Stock (other than a reclassification involving only the
subdivision of
35
outstanding shares of Preferred Stock), or (iv) to effect any consolidation or merger into or with any other Person (other than a Subsidiary of the Company in a transaction that
complies with Section 11(o) hereof), or, other than pursuant to a pro rata dividend and/or
distribution to all of the then current holders of Common Stock, to effect any sale or other
transfer (or to permit one or more of its Subsidiaries to effect any sale or other transfer), in
one transaction or a series of related transactions, of more than 50% of the assets, cash flow or
earning power of the Company and its Subsidiaries (taken as a whole) to any other Person or Persons
(other than the Company and/or any of its Subsidiaries in one or more transactions each of which
complies with Section 11(o) hereof), or (v) to effect the liquidation, dissolution or winding up of
the Company, then, in each such case, the Company shall give to each holder of a Rights
Certificate, to the extent feasible and in accordance with Section 26 hereof, a notice of such
proposed action, that shall specify the record date for the purposes of such stock dividend,
distribution of rights or warrants, or the date on which such reclassification, consolidation,
merger, sale, transfer, liquidation, dissolution, or winding up is to take place and the date of
participation therein by the holders of the shares of Preferred Stock, if any such date is to be
fixed, and such notice shall be so given in the case of any action covered by clause (i) or (ii)
above at least twenty (20) days prior to the record date for determining holders of the shares of
Preferred Stock for purposes of such action, and in the case of any such other action, at least
twenty (20) days prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the shares of Preferred Stock, whichever shall be the
earlier.
(b) In case any of the events set forth in Section 11(a)(ii) hereof shall occur, then, in any
such case, (i) the Company shall as soon as practicable thereafter give to each holder of a Rights
Certificate, to the extent feasible and in accordance with Section 26 hereof, a notice of the
occurrence of such event, which shall specify the event and the consequences of the event to
holders of Rights under Section 11(a)(ii) hereof, and (ii) all references in the preceding paragraph to Preferred Stock shall be deemed thereafter
to refer to Common Stock and/or, if appropriate, other securities.
Section 26.
Notices
. Notices or demands authorized by this Agreement to be given or made by the Rights Agent or
by the holder of any Rights Certificate to or on the Company shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address is filed in writing by
the Rights Agent with the Company) as follows:
Forestar Real Estate Group Inc.
1300 MoPac Expressway South
Austin, Texas 78746
Attention: Corporate Secretary
Subject to the provisions of Section 21, any notice or demand authorized by this Agreement to
be given or made by the Company or by the holder of any Rights Certificate to or on the Rights
Agent shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed
(until another address is filed in writing by the Rights Agent with the Company) as follows:
36
Computershare Trust Company, N.A.
250 Royall Street
Canton, MA 02021
Attention: Corporate Trust Department
Notices or demands authorized by this Agreement to be given or made by the Company or the
Rights Agent to the holder of any Rights Certificate (or, if prior to the Distribution Date, to the
holder of shares of Common Stock) shall be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27.
Supplements and Amendments
. Prior to the Distribution Date, the Company and the Rights Agent shall, if the Company so
directs, supplement or amend any provision of this Agreement without the approval of any holders of
shares of Common Stock. From and after the Distribution Date, the Company and the Rights Agent
shall, if the Company so directs, supplement or amend this Agreement without the approval of any
holders of Rights Certificates in order (i) to cure any ambiguity, (ii) to correct or supplement
any provision contained herein that may be defective or inconsistent with any other provisions
herein, (iii) to shorten or lengthen any time period hereunder or (iv) to change or supplement the
provisions hereunder in any manner that the Company may deem necessary or desirable and that shall
not adversely affect the interests of the holders of Rights Certificates (other than an Acquiring
Person or an Affiliate or Associate of an Acquiring Person);
provided
, this Agreement may
not be supplemented or amended to lengthen, pursuant to clause (iii) of this sentence (A) a time
period relating to when the Rights may be redeemed at such time as the Rights are not then redeemable, or (B) any other time period unless such lengthening is
for the purpose of protecting, enhancing or clarifying the rights of, and/or the benefits to the
holders of the Rights (other than an Acquiring Person or an Affiliate or Associate of an Acquiring
Person). Upon the delivery of a certificate from an appropriate officer of the Company that states
that the proposed supplement or amendment is in compliance with the terms of this Section 27, the
Rights Agent shall execute such supplement or amendment. Prior to the Distribution Date, the
interests of the holders of Rights shall be deemed coincident with the interests of the holder of
Common Stock. Notwithstanding anything herein to the contrary, this Agreement may not be amended
(other than pursuant to clauses (i) or (ii) of the first sentence of this Section 27) at a time
when the Rights are not redeemable.
Section 28.
Successors
. All the covenants and provisions of this Agreement by or for the benefit of the Company or
the Rights Agent shall bind and inure to the benefit of their respective successors and assigns
hereunder.
37
Section 29.
Determinations and Actions by the Board of Directors, etc.
(a) For all purposes of this Agreement, any calculation of the number of shares of Common
Stock or any other class of capital stock outstanding at any particular time, including for
purposes of determining the particular percentage of such outstanding shares of Common Stock of
which any Person is the Beneficial Owner, shall be made in accordance with the last sentence of
Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the Exchange Act.
(b) The Board of Directors of the Company shall have the exclusive power and authority to
administer this Agreement and to exercise all rights and powers specifically granted to the Board
or to the Company, or as may be necessary or advisable in the administration of this Agreement,
including, without limitation, the right and power to (i) interpret the provisions of this
Agreement, and (ii) make all determinations deemed necessary or advisable for the administration of
this Agreement (including a determination to redeem or not redeem the Rights or to amend the
Agreement). All such actions, calculations, interpretations and determinations (including, for
purposes of clause (y) below, all omissions with respect to the foregoing) that are done or made by
the Board in good faith, shall (x) be final, conclusive and binding on the Company, the Rights
Agent, the holders of the Rights and all other parties, and (y) not subject the Board, or any of
the directors on the Board, to any liability to the holders of the Rights.
Section 30.
Benefits of this Agreement
. Nothing in this Agreement shall be construed to give to any Person other than the Company,
the Rights Agent and the registered holders of the Rights Certificates (and, prior to the Distribution Date, registered holders of the Common Stock) any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of the Rights
Certificates (and, prior to the Distribution Date, registered holders of the Common Stock).
Section 31.
Severability
. If any term, provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of
the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated;
provided
,
however
,
that notwithstanding anything in this Agreement to the contrary, if any such term, provision,
covenant or restriction is held by such court or authority to be invalid, void or unenforceable and
the Board of Directors of the Company determines in its good faith judgment that severing the
invalid language from this Agreement would adversely affect the purpose or effect of this
Agreement, the right of redemption set forth in Section 23 hereof shall be reinstated and shall not
expire until the close of business on the tenth Business Day following the date of such
determination by the Board of Directors. Without limiting the foregoing, if any provision
requiring a specific group of directors to act is held to by any court of competent jurisdiction or
other authority to be invalid, void or unenforceable, such determination shall then be made by the
Board of Directors of the Company in accordance with applicable law and the Companys Restated
Certificate of Incorporation and By-laws.
38
Section 32.
Governing Law
. This Agreement, each Right and each Rights Certificate issued hereunder shall be deemed to
be a contract made under the laws of the State of Delaware and for all purposes shall be governed
by and construed in accordance with the laws of such State applicable to contracts made and to be
performed entirely within such State.
Section 33.
Counterparts
. This Agreement may be executed in any number of counterparts and each of such counterparts
shall for all purposes be deemed to be an original, and all such counterparts shall together
constitute but one and the same instrument.
Section 34.
Descriptive Headings
. Descriptive headings of the several sections of this Agreement are inserted for convenience
only and shall not control or affect the meaning or construction of any of the provisions hereof.
39
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of
the day and year first above written.
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COMPUTERSHARE TRUST COMPANY, N.A.
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40
Exhibit A
FORM OF
CERTIFICATE OF DESIGNATION, PREFERENCES AND
RIGHTS OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
FORESTAR REAL ESTATE GROUP INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
We, James M. DeCosmo, President and Chief Executive Officer, and David M. Grimm, Secretary, of
Forestar Real Estate Group Inc. (hereinafter called the Corporation), a corporation organized and
existing under the General Corporation Law of the State of Delaware, in accordance with the
provisions of Section 103 thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by the Amended and
Restated Certificate of Incorporation of the Corporation, the Board of Directors on November 28,
2007, adopted the following resolution establishing the terms of a series of shares of Preferred
Stock designated as Series A Junior Participating Preferred Stock (none of which were outstanding
at such time):
RESOLVED, that pursuant to the authority vested in the Board in accordance
with the provisions of the Corporations Amended and Restated Certificate of
Incorporation, the Board does hereby create, authorize and provide for the
issuance, upon the exercise of the Rights, of the Series A Junior Participating
Preferred Stock, having the designation and relative rights, preferences and
limitations that are set forth in the Certificate of Designation concerning the
Series A Junior Participating Preferred Stock, substantially in the form attached
as Exhibit A to the Rights Agreement, which Certificate of Designation is hereby
approved
The designation and amount thereof and the voting powers, preferences and relative,
participating, optional and other special rights of the shares of such series, and the
qualifications, limitations or restrictions thereof are hereby fixed as follows:
Section 1.
Designation and Amount
. The shares of such series shall be designated as
Series A Junior Participating Preferred Stock and the number of shares constituting such series
shall be 200,000.
A-1
Section 2.
Dividends and Distributions
.
(A) Subject to the prior and superior rights of the holders of any shares of
any series of Preferred Stock ranking prior and superior to the shares of Series A
Junior Participating Preferred Stock with respect to dividends, the holders of
shares of Series A Junior Participating Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in cash on the fifteenth
day of March, June, September, and December in each year (each such date being
referred to herein as a Quarterly Dividend Payment Date), commencing on the
first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Junior Participating Preferred Stock, in an amount
per share (rounded to the nearest cent) equal to the greater of (a) $[
] or
(b) subject to the provision for adjustment hereinafter set forth, 1,000 times the
aggregate per share amount of all cash dividends, and 1,000 times the aggregate
per share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock, par value $1.00 per share, of the
Corporation (the Common Stock) since the immediately preceding Quarterly
Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any share or fraction of a share of Series A
Junior Participating Preferred Stock. In the event the Corporation shall at any
time after [
], 2007 (the Rights Declaration Date) (i) declare any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the amount to which holders of
shares of Series A Junior Participating Preferred Stock were entitled immediately
prior to such event under clause (b) of the preceding sentence shall be adjusted
by multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the Series A
Junior Participating Preferred Stock as provided in Paragraph (A) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock);
provided
that,
in the event no dividend or distribution shall have been declared on the Common
Stock during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $ [
] per share on the
Series A Junior Participating Preferred Stock shall
A-2
nevertheless be payable on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding shares
of Series A Junior Participating Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares of Series A Junior
Participating Preferred Stock, unless the date of issue of such shares is prior to
the record date for the first Quarterly Dividend Payment Date, in which case
dividends on such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a
date after the record date for the determination of holders of shares of Series A
Junior Participating Preferred Stock entitled to receive a quarterly dividend and
before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Series A Junior Participating Preferred Stock in an amount
less than the total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Series A Junior Participating Preferred
Stock entitled to receive payment of a dividend or distribution declared thereon,
which record date shall be no more than 30 days prior to the date fixed for the
payment thereof.
Section 3.
Voting Rights
. The holders of shares of Series A Junior Participating
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each share
of Series A Junior Participating Preferred Stock shall entitle the holder thereof
to 1,000 votes on all matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the number of votes per share to which holders of shares of Series A Junior
Participating Preferred Stock were entitled immediately prior to such event shall
be adjusted by multiplying such number by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of shares of
Series A Junior Participating Preferred
A-3
Stock and the holders of shares of Common Stock shall vote together as one
class on all matters submitted to a vote of stockholders of the Corporation.
(C) (i) If at any time dividends on any Series A Junior Participating
Preferred Stock shall be in arrears in an amount equal to six (6) quarterly
dividends thereon, the occurrence of such contingency shall mark the beginning of
a period (herein called a default period) that shall extend until such time when
all accrued and unpaid dividends for all previous quarterly dividend periods and
for the current quarterly dividend period on all shares of Series A Junior
Participating Preferred Stock then outstanding shall have been declared and paid
or set apart for payment. During each default period, all holders of Preferred
Stock (including holders of the Series A Junior Participating Preferred Stock)
with dividends in arrears in an amount equal to six (6) quarterly dividends
thereon, voting as a class, irrespective of series, shall have the right to elect
two (2) directors.
(ii) During any default period, such voting right of the holders of
Series A Junior Participating Preferred Stock may be exercised initially at a
special meeting called pursuant to subparagraph (iii) of this Section 3(C) or
at any annual meeting of stockholders, and thereafter at annual meetings of
stockholders,
provided
that neither such voting right nor the right
of the holders of any other series of Preferred Stock, if any, to increase,
in certain cases, the authorized number of directors shall be exercised
unless the holders of ten percent (10%) in number of shares of Preferred
Stock outstanding shall be present in person or by proxy. The absence of a
quorum of the holders of Common Stock shall not affect the exercise by the
holders of Preferred Stock of such voting right. At any meeting at which the
holders of Preferred Stock shall exercise such voting right initially during
an existing default period, they shall have the right, voting as a class, to
elect directors to fill such vacancies, if any, in the Board of Directors as
may then exist up to two (2) directors or, if such right is exercised at an
annual meeting, to elect two (2) directors. If the number that may be so
elected at any special meeting does not amount to the required number, the
holders of the Preferred Stock shall have the right to make such increase in
the number of directors as shall be necessary to permit the election by them
of the required number. After the holders of the Preferred Stock shall have
exercised their right to elect directors in any default period and during the
continuance of such period, the number of directors shall not be increased or
decreased except by vote of the holders of Preferred Stock as herein provided
or pursuant to the rights of any equity securities ranking senior to or
pari
passu
with the Series A Junior Participating Preferred
Stock.
A-4
(iii) Unless the holders of Preferred Stock shall, during an existing
default period, have previously exercised their right to elect directors, the
Board of Directors may order, or any stockholder or stockholders owning in
the aggregate not less than ten percent (10%) of the total number of shares
of Preferred Stock outstanding, irrespective of series, may request, the
calling of a special meeting of the holders of Preferred Stock, which meeting
shall thereupon be called by the President, a Vice President or the Secretary
of the Corporation. Notice of such meeting and of any annual meeting at
which holders of Preferred Stock are entitled to vote pursuant to this
Paragraph (C)(iii) shall be given to each holder of record of Preferred Stock
by mailing a copy of such notice to him at his last address as the same
appears on the books of the Corporation. Such meeting shall be called for a
time not earlier than 20 days and not later than 60 days after such order or
request or in default of the calling of such meeting within 60 days after
such order or request, such meeting may be called on similar notice by any
stockholder or stockholders owning in the aggregate not less than ten percent
(10%) of the total number of shares of Preferred Stock outstanding.
Notwithstanding the provisions of this Paragraph (C)(iii), no such special
meeting shall be called during the period within 60 days immediately
preceding the date fixed for the next annual meeting of the stockholders.
(iv) In any default period, the holders of Common Stock, and other
classes of stock of the Corporation if applicable, shall continue to be
entitled to elect the whole number of directors until the holders of
Preferred Stock shall have exercised their right to elect two (2) directors
voting as a class, after the exercise of which right (x) the directors so
elected by the holders of Preferred Stock shall continue in office until
their successors shall have been elected by such holders or until the
expiration of the default period, and (y) any vacancy in the Board of
Directors may (except as provided in Paragraph (C)(ii) of this Section 3) be
filled by vote of a majority of the remaining directors theretofore elected
by the holders of the class of stock that elected the director whose office
shall have become vacant. References in this Paragraph (C) to directors
elected by the holders of a particular class of stock shall include directors
elected by such directors to fill vacancies as provided in clause (y) of the
foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the right
of the holders of Preferred Stock as a class to elect directors shall cease,
(y) the term of any directors elected by the holders of Preferred Stock as a
class shall terminate, and (z) the number of directors shall be such number
as may be provided for in the certificate of incorporation or by-laws
irrespective
A-5
of any increase made pursuant to the provisions of Paragraph (C)(ii) of
this Section 3 (such number being subject, however, to change thereafter in
any manner provided by law or in the certificate of incorporation or
by-laws). Any vacancies in the Board of Directors effected by the provisions
of clauses (y) and (z) in the preceding sentence may be filled by a majority
of the remaining directors.
(D) Except as set forth herein, holders of Series A Junior Participating
Preferred Stock shall have no special voting rights and their consent shall not be
required (except to the extent they are entitled to vote with holders of Common
Stock as set forth herein) for taking any corporate action.
Section 4.
Certain Restrictions
.
(A) Whenever quarterly dividends or other dividends or distributions payable
on the Series A Junior Participating Preferred Stock as provided in Section 2 are
in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Junior Participating
Preferred Stock outstanding shall have been paid in full, the Corporation shall
not:
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Junior Participating Preferred Stock;
(ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Junior
Participating Preferred Stock, except dividends paid ratably on the Series A
Junior Participating Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total amounts to
which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares
of any stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Junior Participating Preferred
Stock, provided that the Corporation may at any time redeem, purchase or
otherwise acquire shares of any such parity stock in exchange for shares of
any stock of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Junior Participating
Preferred Stock; or
A-6
(iv) purchase or otherwise acquire for consideration any shares of
Series A Junior Participating Preferred Stock, or any shares of stock ranking
on a parity with the Series A Junior Participating Preferred Stock, except in
accordance with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the respective
series and classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under Paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5.
Reacquired Shares
. Any shares of Series A Junior Participating Preferred
Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired
and cancelled promptly after the acquisition thereof. All such shares shall upon their
cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part
of a new series of Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth herein.
Section 6.
Liquidation, Dissolution or Winding Up
.
(A) Upon any liquidation (voluntary or otherwise), dissolution or winding up
of the Corporation, no distribution shall be made to the holders of shares of
stock ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Junior Participating Preferred Stock unless, prior
thereto, the holders of shares of Series A Junior Participating Preferred Stock
shall have received an amount equal to $1,000 per share of Series A Junior
Participating Preferred Stock, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of such
payment (the Series A Liquidation Preference). Following the payment of the
full amount of the Series A Liquidation Preference, no additional distributions
shall be made to the holders of shares of Series A Junior Participating Preferred
Stock unless, prior thereto, the holders of shares of Common Stock shall have
received an amount per share (the Common Adjustment) equal to the quotient
obtained by dividing (i) the Series A Liquidation Preference by (ii) 1,000 (as
appropriately adjusted as set forth in subparagraph (C) below to reflect such
events as stock splits, stock dividends and recapitalizations with respect to the
Common Stock) (such number in clause (ii), the Adjustment Number). Following
the payment of the full amount of the Series A Liquidation Preference and the
Common
A-7
Adjustment in respect of all outstanding shares of Series A Junior
Participating Preferred Stock and Common Stock, respectively, holders of Series A
Junior Participating Preferred Stock and holders of shares of Common Stock shall
receive their ratable and proportionate share of the remaining assets to be
distributed in the ratio of the Adjustment Number to 1 with respect to such
Preferred Stock and Common Stock, on a per share basis, respectively.
(B) In the event, however, that there are not sufficient assets available to
permit payment in full of the Series A Liquidation Preference and the liquidation
preferences of all other series of preferred stock, if any, that rank on a parity
with the Series A Junior Participating Preferred Stock, then such remaining assets
shall be distributed ratably to the holders of such parity shares in proportion to
their respective liquidation preferences. In the event, however, that there are
not sufficient assets available to permit payment in full of the Common
Adjustment, then such remaining assets shall be distributed ratably to the holders
of Common Stock.
(C) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the Adjustment Number in effect immediately prior to such event shall be adjusted
by multiplying such Adjustment Number by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
Section 7.
Consolidation, Merger, etc
. In case the Corporation shall enter into any
consolidation, merger, combination or other transaction in which the shares of Common Stock are
exchanged for or changed into other stock or securities, cash and/or any other property, then in
any such case the shares of Series A Junior Participating Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 1,000 times the aggregate amount of stock, securities, cash and/or
any other property (payable in kind), as the case may be, into which or for which each share of
Common Stock is changed or exchanged. In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the amount set forth in the preceding sentence
with respect to the exchange or change of shares of Series A Junior Participating Preferred Stock
shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the denominator of which is the
A-8
number of shares of Common Stock that were outstanding immediately prior to such event.
Section 8.
No Redemption
. The shares of Series A Junior Participating Preferred Stock
shall not be redeemable.
Section 9.
Ranking
. The Series A Junior Participating Preferred Stock shall rank
junior to all other series of the Corporations Preferred Stock as to the payment of dividends and
the distribution of assets, unless the terms of any such series shall provide otherwise.
Section 10.
Amendment
. At any time when any shares of Series A Junior Participating
Preferred Stock are outstanding, neither the Restated Certificate of Incorporation of the
Corporation nor this Certificate of Designation shall be amended in any manner that would
materially alter or change the powers, preferences or special rights of the Series A Junior
Participating Preferred Stock so as to affect them adversely without the affirmative vote of the
holders of a majority or more of the outstanding shares of Series A Junior Participating Preferred
Stock, voting separately as a class.
Section 11.
Fractional Shares
. Series A Junior Participating Preferred Stock may be
issued in fractions of a share that shall entitle the holder, in proportion to such holders
fractional shares, to exercise voting rights, receive dividends, participate in distributions and
to have the benefit of all other rights of holders of Series A Junior Participating Preferred
Stock.
A-9
IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do affirm the
foregoing as true under the penalties of perjury this
[ ]
day of [
]
, 2007.
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By:
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Name:
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James M. DeCosmo
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Title:
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President and Chief Executive Officer
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Attest:
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By:
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Name:
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David M. Grimm
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Title:
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Secretary
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A-10
Exhibit B
[Form of Rights Certificate]
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Certificate No. R-
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Rights
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NOT EXERCISABLE AFTER [
], 2017 OR EARLIER IF REDEMPTION OR EXCHANGE OCCURS AS PROVIDED IN THE
RIGHTS AGREEMENT. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.001 PER RIGHT AND TO EXCHANGE ON THE
TERMS SET FORTH IN THE RIGHTS AGREEMENT. IF THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE
OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR
ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT), THIS RIGHTS
CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES
SPECIFIED IN SECTION 7(e) OF THE RIGHTS AGREEMENT.
Rights Certificate
FORESTAR REAL ESTATE GROUP INC.
This certifies that [
], or registered assigns, is the registered owner of the number
of Rights set forth above, each of which entitles the owner thereof, subject to the terms,
provisions and conditions of the Rights Agreement, dated as of [
], 2007 (the Rights
Agreement), between Forestar Real Estate Group Inc., a Delaware corporation (the Company), and
Computershare Trust Company, N.A., a New York corporation (the Rights Agent), to purchase from
the Company at any time prior to 5:00 P.M. New York City time on [
], 2017 at the office or offices
of the Rights Agent designated for such purpose, or its successors as Rights Agent, one
one-thousandth of a fully paid, non-assessable share of Series A Junior Participating Preferred
Stock (the Preferred Stock) of the Company, at a purchase price of $[
] per one
one-thousandth of a share (the Purchase Price), upon presentation and surrender of this Rights
Certificate with the Form of Election to Purchase and related Certificate duly executed. The
number of Rights evidenced by this Rights Certificate (and the number of shares that may be
purchased upon exercise thereof) set forth above, and the Purchase Price per share set forth above,
are the number and Purchase Price as of [
], 2007, based on the Preferred Stock as
constituted at such date. The Company reserves the right to require prior to the occurrence of a
Triggering Event (as such term is defined in the Rights Agreement) that a number of Rights be
exercised so that only whole shares of Preferred Stock will be issued.
Upon the occurrence of a Section 11(a)(ii) Event (as such term is defined in the Rights
Agreement), if the Rights evidenced by this Rights Certificate are beneficially owned by (i) an
Acquiring Person or an Affiliate or Associate of any such
B-1
Acquiring Person (as such terms are defined in the Rights Agreement), (ii) a transferee of any
such Acquiring Person, Associate or Affiliate, or (iii) under certain circumstances specified in
the Rights Agreement, a transferee of a person who, after such transfer, became an Acquiring
Person, or an Affiliate or Associate of an Acquiring Person, such Rights shall become null and void
and no holder hereof shall have any right with respect to such Rights from and after the occurrence
of such Section 11(a)(ii) Event.
As provided in the Rights Agreement, the Purchase Price and the number and kind of shares of
Preferred Stock or other securities, that may be purchased upon the exercise of the Rights
evidenced by this Rights Certificate are subject to modification and adjustment upon the happening
of certain events, including Triggering Events.
This Rights Certificate is subject to all of the terms, provisions and conditions of the
Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by
reference and made a part hereof and to which Rights Agreement reference is hereby made for a full
description of the rights, limitations of rights, obligations, duties and immunities hereunder of
the Rights Agent, the Company and the holders of the Rights Certificates, which limitations of
rights include the temporary suspension of the exercisability of such Rights under the specific
circumstances set forth in the Rights Agreement. Copies of the Rights Agreement are on file at the
above-mentioned office of the Rights Agent and are also available upon written request to the
Rights Agent.
This Rights Certificate, with or without other Rights Certificates, upon surrender at the
principal office or offices of the Rights Agent designated for such purpose, may be exchanged for
another Rights Certificate or Rights Certificates of like tenor and date evidencing Rights
entitling the holder to purchase a like aggregate number of one one-thousandths of a share of
Preferred Stock as the Rights evidenced by the Rights Certificate or Rights Certificates
surrendered shall have entitled such holder to purchase. If this Rights Certificate shall be
exercised in part, the holder shall be entitled to receive upon surrender hereof another Rights
Certificate or Rights Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate
(i) may be redeemed by the Company at a redemption price of $.001 per Right subject to adjustment,
payable, at the election of the Company, in cash or shares (including fractional shares) of Common
Stock or such other consideration as the Board of Directors may determine or (ii) may be exchanged,
in whole or in part, for shares of the Common Stock, or shares of preferred stock of the Company
having essentially the same value or economic rights as such shares.
No fractional shares of Preferred Stock will be issued upon the exercise of any Right or
Rights evidenced hereby (other than fractions that are integral multiples of one one-thousandth of
a share of Preferred Stock, which may, at the election of the Company, be evidenced by depositary
receipts), but in lieu thereof a cash payment will be made, as provided in the Rights Agreement.
The Company, at its election, may
B-2
require that a number of Rights be exercised so that only whole shares of Preferred Stock
would be issued.
No holder of this Rights Certificate shall be entitled to vote or receive dividends or be
deemed for any purpose the holder of shares of Preferred Stock or of any other securities of the
Company that may at any time be issuable on the exercise hereof, nor shall anything contained in
the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the
rights of a stockholder of the Company or any right to vote for the election of directors or upon
any matter submitted to stockholders at any meeting thereof, or to give consent to or withhold
consent from any corporate action, or, to receive notice of meetings or other actions affecting
stockholders (except as provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Rights Certificate shall have
been exercised as provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any purpose until it shall have
been countersigned by the Rights Agent.
B-3
WITNESS the facsimile signature of the proper officers of the Company.
Dated as of [_________], 20[__].
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ATTEST:
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FORESTAR REAL ESTATE GROUP INC.
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By:
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By:
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Name:
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Name:
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Title:
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Title:
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Countersigned:
COMPUTERSHARE TRUST COMPANY, N.A.
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By:
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Authorized Signature
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B-4
[Form of Reverse Side of Rights Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Rights Certificate.)
FOR VALUE RECEIVED
hereby sells, assigns and transfers unto
(Please print name and address of transferee)
this Rights Certificate, together with all right, title and interest therein, and does hereby
irrevocably constitute and appoint
Attorney, to transfer the within Rights Certificate on the books
of the within named Company, with full power of substitution.
Dated:
, ____
Signature Guaranteed:
Certificate
The undersigned hereby certifies by checking the appropriate boxes that:
(1) this Rights Certificate [ ] is [ ] is not being sold, assigned and transferred by or on
behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of any such
Acquiring Person (as such terms are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it [ ] did [ ] did not
acquire the Rights evidenced by this Rights Certificate from any Person who is, was or subsequently
became an Acquiring Person or an Affiliate or Associate of an Acquiring Person.
Signature Guaranteed:
B-5
NOTICE
The signature to the foregoing Assignment and Certificate must correspond to the name as
written upon the face of this Rights Certificate in every particular, without alteration or
enlargement or any change whatsoever.
B-6
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to
exercise Rights represented by the
Rights Certificate.)
To: Forestar Real Estate Group Inc.:
The undersigned hereby irrevocably elects to exercise
Rights represented by this Rights
Certificate to purchase the shares of Preferred Stock issuable upon the exercise of the Rights (or
such other securities of the Company or of any other person that may be issuable upon the exercise
of the Rights) and requests that certificates for such shares be issued in the name of and
delivered to:
Please insert social security
or other identifying number
(Please print name and address)
If such number of Rights shall not be all the Rights evidenced by this Rights Certificate, a
new Rights Certificate for the balance of such Rights shall be registered in the name of and
delivered to:
Please insert social security
or other identifying number
(Please print name and address)
Dated:
, ___
Signature Guaranteed:
B-7
Certificate
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not being exercised by or
on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of any such
Acquiring Person (as such terms are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it [ ] did [ ] did not
acquire the Rights evidenced by this Rights Certificate from any Person who is, was or became an
Acquiring Person or an Affiliate or Associate of an Acquiring Person.
Signature Guaranteed:
NOTICE
The signature to the foregoing Election to Purchase and Certificate must correspond to the name as
written upon the face of this Rights Certificate in every particular, without alteration or
enlargement or any change whatsoever.
B-8
Exhibit C
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED STOCK
On [
], 2007, the Board of Directors of Forestar Real Estate Group Inc. (the
Company) declared a dividend distribution of one Right for each outstanding share of common
stock, par value of $1.00 per share (the Common Stock), of the Company to stockholders of record
at the close of business on [
], 2007 (the Record Date). Each Right entitles the
registered holder to purchase from the Company one one-thousandth of a share of Series A Junior
Participating Preferred Stock, par value $.01 per share (the Series A Preferred Stock), at a
Purchase Price of $[___], subject to adjustment. The description and terms of the Rights are set
forth in a Rights Agreement (the Rights Agreement) between the Company and Computershare Trust
Company, N.A., as Rights Agent.
Initially, the Rights will be attached to all Common Stock certificates representing shares
then outstanding, and no separate Rights Certificates will be distributed. Subject to certain
exceptions specified in the Rights Agreement, the Rights will separate from the Common Stock and a
Distribution Date will occur upon the earlier of (i) 10 days following a public announcement that a
person or group of affiliated or associated persons (an Acquiring Person) has acquired beneficial
ownership of 20% or more of the outstanding shares of Common Stock (the Stock Acquisition Date),
other than as a result of repurchases of stock by the Company or certain inadvertent actions by
institutional or certain other stockholders or (ii) 10 business days (or such later date as the
Board shall determine) following the commencement of a tender offer or exchange offer that would
result in a person or group becoming an Acquiring Person. Until the Distribution Date, (i) the
Rights will be evidenced by the Common Stock certificates and will be transferred with and only
with such Common Stock certificates, (ii) new Common Stock certificates issued after the Record
Date will contain a notation incorporating the Rights Agreement by reference and (iii) the
surrender for transfer of any certificates for Common Stock outstanding will also constitute the
transfer of the Rights associated with the Common Stock represented by such certificate. Pursuant
to the Rights Agreement, the Company reserves the right to require prior to the occurrence of a
Triggering Event (as defined below) that, upon any exercise of Rights, a number of Rights be
exercised so that only whole shares of Preferred Stock will be issued.
The Rights are not exercisable until the Distribution Date and will expire at 5:00 P.M. New
York City time on [
], 2017, unless such date is extended or the Rights are earlier redeemed
or exchanged by the Company, in each case as described below.
As soon as practicable after the Distribution Date, Rights Certificates will be mailed to
holders of record of the Common Stock as of the close of business on the Distribution Date and,
thereafter, the separate Rights Certificates alone will represent the
C-1
Rights. Except as otherwise determined by the Board of Directors, only shares of Common Stock
issued prior to the Distribution Date will be issued with Rights.
In the event that a Person becomes an Acquiring Person, except pursuant to an offer for all
outstanding shares of Common Stock that a majority of the members of the Board of Directors who are
not officers and not affiliated with the Acquiring Person determines to be fair and not inadequate
and to otherwise be in the best interests of the Company and its stockholders after receiving
advice from one or more investment banking firms (a Qualified Offer), each holder of a Right will
thereafter have the right to receive, upon exercise, Common Stock (or, in certain circumstances,
cash, property or other securities of the Company) having a value equal to two times the exercise
price of the Right. Notwithstanding any of the foregoing, following the occurrence of the event set
forth in this paragraph, all Rights that are, or (under certain circumstances specified in the
Rights Agreement) were, beneficially owned by any Acquiring Person will be null and void. However,
Rights are not exercisable following the occurrence of the event set forth above until such time as
the Rights are no longer redeemable by the Company as set forth below.
For example, at an exercise price of $[A] per Right, each Right not owned by an Acquiring
Person (or by certain related parties) following an event set forth in the preceding paragraph
would entitle its holder to purchase $[2A] worth of Common Stock (or other consideration, as noted
above) for $[A]. Assuming that the Common Stock had a per share value of $[current market] at such
time, the holder of each valid Right would be entitled to purchase [___] shares of Common Stock
for $[A].
In the event that, at any time following the Stock Acquisition Date, (i) the Company engages
in a merger or other business combination transaction in which the Company is not the surviving
corporation (other than with an entity that acquired the shares pursuant to a Qualified Offer),
(ii) the Company engages in a merger or other business combination transaction in which the Company
is the surviving corporation and the Common Stock of the Company is changed or exchanged, or (iii)
50% or more of the Companys assets, cash flow or earning power is sold or transferred, each holder
of a Right (except Rights that have previously been voided as set forth above) shall thereafter
have the right to receive, upon exercise, common stock of the acquiring company having a value
equal to two times the exercise price of the Right. The events set forth in this paragraph and in
the second preceding paragraph are referred to as the Triggering Events.
At any time after a person becomes an Acquiring Person and prior to the acquisition by such
person or group of fifty percent (50%) or more of the outstanding Common Stock, the Board may
exchange the Rights (other than Rights owned by such person or group that have become void), in
whole or in part, at an exchange ratio of one share of Common Stock, or one one-thousandth of a
share of Preferred Stock (or of a share of a class or series of the Companys preferred stock
having equivalent rights, preferences and privileges), per Right (subject to adjustment).
C-2
The Purchase Price payable, and the number of one one-thousandths of Preferred Stock or other
securities or property issuable, upon exercise of the Rights are subject to adjustment from time to
time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Preferred Stock, (ii) if holders of the Preferred Stock are granted
certain rights or warrants to subscribe for Preferred Stock or convertible securities at less than
the current market price of the Preferred Stock, or (iii) upon the distribution to holders of the
Preferred Stock of evidences of indebtedness or assets (excluding regular quarterly cash dividends)
or of subscription rights or warrants (other than those referred to above).
With certain exceptions, no adjustment in the Purchase Price will be required until cumulative
adjustments amount to at least 1% of the Purchase Price. No fractional shares of Preferred Stock
(other than fractions that are integral multiples of one one-thousandth of a share of Preferred
Stock) will be issued and, in lieu thereof, an adjustment in cash will be made based on the market
price of the Preferred Stock on the last trading date prior to the date of exercise.
At any time until ten days following the Stock Acquisition Date, the Company, at the election
of the Board of Directors, may redeem the Rights in whole, but not in part, at a price of $.001 per
Right (payable in cash, Common Stock or other consideration deemed appropriate by the Board of
Directors). The redemption may be made effective at such time, on such basis and with such
conditions as the Board of Directors in its sole discretion may establish. Immediately upon any
redemption of the Rights, the right to exercise the Right will terminate and the only right of the
holders of Rights will be to receive the redemption price.
Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder
of the Company, including, without limitation, the right to vote or to receive dividends. While
the distribution of the Rights will not be taxable to stockholders or to the Company, stockholders
may, depending upon the circumstances, recognize taxable income in the event that the Rights become
exercisable for Common Stock (or other consideration) of the Company or for common stock of the
acquiring company or in the event of the redemption of the Rights as set forth above.
Any of the provisions of the Rights Agreement may be amended by the Board of Directors of the
Company prior to the Distribution Date. After the Distribution Date, the provisions of the Rights
Agreement may be amended by the Board in order to cure any ambiguity, to make changes that do not
adversely affect the interests of holders of Rights, or, in certain cases, to shorten or lengthen
any time period under the Rights Agreement. The foregoing notwithstanding, no amendment may be
made at such time as the Rights are not redeemable, other than to cure any ambiguity or to correct
or supplement any defective or inconsistent provision.
A copy of the Rights Agreement [has been filed] [is being filed] with the Securities and
Exchange Commission as an Exhibit to a Current Report on Form 8-K, dated [
], 2007. A copy
of the Rights Agreement is available free of charge from the Company. This summary description of
the Rights does not purport to be
C-3
complete and is qualified in its entirety by reference to the Rights Agreement, which is
incorporated herein by reference.
C-4
Exhibit 10.4
FORESTAR SAVINGS AND RETIREMENT PLAN
Effective December 28, 2007
TABLE
OF CONTENTS
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ARTICLE 1 DEFINITIONS
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1
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1.1
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Accounts
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1
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1.2
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Account Balance
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1
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1.3
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Affiliate Plan
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1
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1.4
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After Tax Contributions
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1
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1.5
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After Tax Contributions Account
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2
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1.6
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Approved Absence
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2
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1.7
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Automatic Contribution Arrangement
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2
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1.8
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Automatic Contribution Employee
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2
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1.9
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Automatic Contribution Participant
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3
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1.10
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Automatic Increase Participant
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3
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1.11
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Average Contribution Percentage
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3
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1.12
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Before Tax Contributions
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5
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1.13
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Before Tax Contributions Account
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5
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1.14
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Borrower
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5
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1.15
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Code
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5
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1.16
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Company
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5
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1.17
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Company Retirement Contributions
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5
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1.18
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Company Retirement Contributions Account
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5
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1.19
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Compensation
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5
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1.20
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Contributing Participant
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6
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1.21
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Designated Enrollment Date
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6
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1.22
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Distribution Event
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6
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i
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1.23
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Eligible Borrower
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7
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1.24
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Employee
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7
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1.25
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Employee Matters Agreement
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7
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1.26
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Employer
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7
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1.27
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Employer Matching Contributions
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7
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1.28
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Employer Matching Contributions Account
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8
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1.29
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ERISA
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8
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1.30
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Funds
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8
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1.31
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Group
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8
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1.32
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Guaranty Plan
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8
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1.33
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Highly Compensated Employee
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8
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1.34
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Hour of Service means:
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9
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1.35
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Inactive Participant
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10
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1.36
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Investment Committee
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10
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1.37
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Loan
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10
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1.38
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Merged Plan
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10
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1.39
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Merger Date
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10
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1.40
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Months of Participation
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10
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1.41
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Non-Highly Compensated Employee
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11
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1.42
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Non-Residential Loan
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11
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1.43
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Notice
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11
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1.44
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One Year Break in Service
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11
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1.45
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Participant
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11
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1.46
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Participant Loan Subaccount
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12
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1.47
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Payroll Savings Contributions
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12
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ii
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1.48
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Period of Separation
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12
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1.49
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Period of Service means:
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12
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1.50
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Period of Severance
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14
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1.51
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Plan
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14
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1.52
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Plan Administrator
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14
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1.53
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Plan Year
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15
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1.54
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Profit Sharing Contributions
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15
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1.55
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Profit Sharing Contributions Account
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15
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1.56
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Qualified Nonelective Contributions
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15
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1.57
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Qualified Nonelective Contributions Account
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15
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1.58
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Required Beginning Date
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15
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1.59
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Residential Loan
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16
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1.60
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Rollover Account
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16
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1.61
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Rollover Contributions
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16
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1.62
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Section 414(n) Leased Employee
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16
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1.63
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Section 414 Compensation
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16
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1.64
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Section 415 Compensation means
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17
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1.65
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Severance from Service Date
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18
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1.66
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Subaccounts
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19
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1.67
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Temple-Inland Savings Plan
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19
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1.68
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Trust Agreement
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19
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1.69
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Trust Fund
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19
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1.70
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Trustee
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19
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1.71
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Valuation Date
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19
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ARTICLE 2 ELIGIBILITY AND PARTICIPATION
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20
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iii
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2.1
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Participation
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20
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2.2
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Enrollment as a Contributing Participant
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23
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2.3
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No Participation by Non-Covered Employees
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25
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ARTICLE 3 PARTICIPANT CONTRIBUTIONS
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26
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3.1
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Payroll Savings Contributions
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26
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3.2
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Suspension of Contributions
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27
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3.3
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Changes in Contribution Elections
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27
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3.4
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Payment of Contributions
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27
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3.5
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No Make-Up of Contributions
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28
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3.6
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Limitations on Before Tax Contributions
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28
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3.7
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Rollovers
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30
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ARTICLE 4 EMPLOYER CONTRIBUTIONS
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30
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4.1
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Company Retirement Contributions
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30
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4.2
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Matching Contributions
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31
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4.3
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Reinstatement of Forfeited Account
Balances; Payment of Administrative Expenses
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33
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4.4
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Limitations on Contributions
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33
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4.5
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Limitations on After Tax
Contributions and Employer Matching Contributions
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34
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|
|
|
|
|
|
|
|
|
|
ARTICLE 5 ACCOUNTS
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
5.1
|
|
Maintenance of Accounts
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
5.2
|
|
Adjustments to Accounts; Statements Provided to Participants
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 6 VESTING AND FORFEITURES
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
6.1
|
|
Before Tax Contributions, After Tax Contributions, Qualified
|
|
|
|
|
|
|
|
|
Nonelective Contributions and Rollover Accounts
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
6.2
|
|
Vesting of Company Retirement Contributions Account
|
|
|
39
|
|
iv
|
|
|
|
|
|
|
|
|
|
|
6.3
|
|
Vesting of Employer Matching
Contributions Account and Profit Sharing Contributions Account
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
6.4
|
|
Forfeitures
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
6.5
|
|
Determination of Period of Service
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 7 INVESTMENT OF CONTRIBUTIONS
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
7.1
|
|
Investment Funds
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
7.2
|
|
Loan Fund
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
7.3
|
|
Investment of Employer and Participant Contributions
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
7.4
|
|
Change in Investment Elections
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
7.5
|
|
Change in Existing Investments
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 8 WITHDRAWALS DURING EMPLOYMENT
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
8.1
|
|
Withdrawal of After Tax Contributions
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
8.2
|
|
Withdrawals After Age 59-1/2
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
8.3
|
|
Withdrawal of Employer Matching Contributions
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
8.4
|
|
Hardship Withdrawals
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
8.5
|
|
Withdrawal of Rollover Accounts
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
8.6
|
|
Withdrawals of Certain Default Before Tax Contributions
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
8.7
|
|
Application for Withdrawals; Processing
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
8.8
|
|
Restrictions on Contributions After Certain Withdrawals
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
8.9
|
|
Limit on Number of Withdrawals
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
8.10
|
|
Effect of Withdrawals on Investments
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
8.11
|
|
Timing and Form of Payment of Withdrawals
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
8.12
|
|
Withdrawals Only Available to Employees
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 9 PAYMENT OF BENEFITS
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
9.1
|
|
Distribution of Benefits Upon Occurrence of Distribution Event
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
9.2
|
|
Payment of Benefits by Trustee; Form of Payment
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
v
|
|
|
|
|
|
|
|
|
|
|
9.3
|
|
Required Minimum Distributions
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
9.4
|
|
Payment to Participant's Estate
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
9.5
|
|
Incapacity of Payee
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
9.6
|
|
Plan Administrator Determines Payee
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
9.7
|
|
Rollover Distributions
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
9.8
|
|
Distributions Pursuant to Qualified Domestic Relations Orders
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 10 LOANS
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
10.1
|
|
Availability of Loans; Application for Loans
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
10.2
|
|
Terms of Loans
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
10.3
|
|
Events of Default
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
10.4
|
|
Accounting for Loans
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 11 ADMINISTRATION OF THE PLAN
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
11.1
|
|
Authority of Plan Administrator
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
11.2
|
|
Claims Procedure
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
11.3
|
|
Financial Statements
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
11.4
|
|
Liability of Plan Administrator
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 12 MANAGEMENT OF THE TRUST FUND
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
12.1
|
|
Designation of Trustee
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
12.2
|
|
Plan Assets Held in Trust
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
12.3
|
|
Appointment of Investment Manager
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 13 AMENDMENT OF THE PLAN
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
13.1
|
|
Amendment
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 14 DISCONTINUANCE OF THE PLAN
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
14.1
|
|
Right To Terminate Plan
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
14.2
|
|
Valuation of Trust Fund upon Termination
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
vi
|
|
|
|
|
|
|
|
|
|
|
14.3
|
|
Continuation of Trust
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
14.4
|
|
Plan Mergers and Transfers of Assets and Liabilities
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 15 STATEMENT OF INTENT
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
15.1
|
|
Qualification
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
15.2
|
|
Section 404(c) of ERISA
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
15.3
|
|
Responsibility of Named Fiduciaries
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
15.4
|
|
Legal Rights and Liabilities
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 16 TOP-HEAVY RULES
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
16.1
|
|
Applicability of Rules
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
16.2
|
|
Determination of Top-Heavy Status
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
16.3
|
|
Determination of Accrued Benefits
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
16.4
|
|
Vesting for Top-Heavy Years
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
16.5
|
|
Contributions for Top-Heavy Years
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
16.6
|
|
Certain Changes Effective January 1, 2002
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 17 GENERAL PROVISIONS
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
17.1
|
|
Nonalienation of Benefits
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
17.2
|
|
No Right to Continued Employment
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
17.3
|
|
Rules of Construction
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
17.4
|
|
Appendices
|
|
|
86
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 18 LAPSED BENEFITS
|
|
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
18.1
|
|
Notification to Participants and Beneficiaries
|
|
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
18.2
|
|
Reinstatement of Lapsed Benefits
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
APPENDICES
|
|
|
|
|
vii
FORESTAR SAVINGS AND RETIREMENT PLAN
This Plan is adopted, effective as of December 28, 2007, by Forestar Real Estate Group Inc.
The Plan is intended to be a qualified automatic enrollment arrangement described in Section
401(k)(13) of the Code, effective January 1, 2008.
ARTICLE 1
DEFINITIONS
As used herein, the following terms shall have the following respective meanings, unless a
different meaning is required by the context:
1.1
Accounts
means, as applicable, a Participants Company Retirement Contributions Account, Before Tax
Contributions Account, After Tax Contributions Account, Employer Matching Contributions Account,
Qualified Nonelective Contributions Account, Profit Sharing Contributions Account, Rollover
Account, and the Subaccounts maintained under such Accounts. The Plan Administrator may establish
such additional Accounts and Subaccounts as it may determine in its discretion.
1.2
Account Balance
means the aggregate balance of a Participants Accounts.
1.3
Affiliate Plan
means a defined contribution plan (other than this Plan) that is maintained by any member of
the Group and that is intended to be qualified under Section 401(a) of the Code.
1.4
After Tax Contributions
means the voluntary contributions made by a Participant pursuant to Section 3.1 hereof which
are neither deductible for federal income tax purposes nor reduce a Participants taxable income,
plus the amount of such contributions made by a Participant to a Merged Plan that are transferred
on behalf of a Participant to this Plan.
1.5
After Tax Contributions Account
means the separate account maintained for each Participant who has made After Tax
Contributions that accounts for the Participants share of the Trust Fund attributable to his After
Tax Contributions.
1.6
Approved Absence
means an Employees period of absence occurring by reason of the following events:
(a) service in the Armed Forces of the United States; provided, however, that the Employee has
re-employment rights under applicable laws and complies with the requirements of such laws and is
re-employed by the Group;
(b) an approved leave of absence for medical or disability reasons granted to an Employee
pursuant to his Employers established personnel rules and policies; or
(c) any other leave of absence approved by his Employer; provided, however, that no such leave
of absence shall be approved for more than six (6) months in the aggregate.
1.7
Automatic Contribution Arrangement
means the automatic enrollment and contribution provisions of Sections 2.1(b) and (d), 2.2(b)
and (c) and 4.2 hereof that are intended to constitute a qualified automatic contribution arrangement within the meaning of Treasury Regulation Section
1.401(k)-3(j)(1).
1.8
Automatic Contribution Employee
means any Employee other than an Employee who has an affirmative election in effect (that
remains in effect) on January 1, 2008, to (a) have Before Tax Contributions made on the Employees
behalf in a specified percentage of Compensation, or (b) not have Before Tax Contributions made on
the Employees behalf. An Employee shall cease to be an Automatic Contribution Employee
2
if the
Employee makes an election (that remains in effect) to (x) have Before Tax Contributions made on
his behalf in a different percentage of Compensation than provided for by Section 2.2(b) or 2.2(c)
hereof, or (y) not have any Before Tax Contributions made on his behalf.
1.9
Automatic Contribution Participant
means an Automatic Contribution Employee who becomes a Participant pursuant to Section
2.1(b)(ii) hereof.
1.10
Automatic Increase Participant
means (a) each Automatic Contribution Participant, other than an Automatic Contribution
Participant who, by Notice to the Plan Administrator, makes an election (that remains in effect)
not to have the automatic increases provided for by Section 2.2(c) hereof apply to the Participant,
and (b) each other Participant who, by Notice to the Plan Administrator, makes an election (that
remains in effect) to have Section 2.2(c) hereof apply.
1.11
Average Contribution Percentage
means
(a) For each Plan Year the average of ratios (calculated separately for each Employee) of: (i)
the sum of the employee contributions and employer matching contributions (within the meaning of
Section 401(m) of the Code) under the Plan on behalf of an Employee for the relevant Plan Year, to
(ii) that Employees Section 414 Compensation for the relevant Plan Year.
(b) The Average Contribution Percentage of any Employee who is a Highly Compensated Employee
for the Plan Year and who is eligible to make employee contributions or to have matching
contributions, qualified nonelective contributions or elective deferrals (as defined in Section
401(m)(4) of the Code) allocated to his account under two (2) or more plans described in Section
401(a) of the Code or arrangements
3
described in Section 401(k) of the Code that are maintained by
the Group shall be determined as if all such contributions and deferrals were made under a single
plan. If such plans or arrangements have different plan years, the Average Contribution Percentage
of the Highly Compensated Employee shall be determined by aggregating such contributions and
deferrals made by and/or on behalf of the Highly Compensated Employee, and the compensation (using
the definition of compensation set forth in the plan or arrangement being tested) received by the
Highly Compensated Employee, during the plan year of the plan or arrangement being tested.
(c) If the Plan satisfies the requirements of Section 401(a)(4) or Section 410(b) of the Code
only if aggregated with one (1) or more other plans or if one (1) or more other plans satisfy the
requirements of Section 401(a)(4) or Section 410(b) of the Code only if aggregated with the Plan,
the Average Contribution Percentages of Employees shall be determined as if all such plans were a
single plan. A plan may be
aggregated with this Plan for purposes of satisfying the requirements of Section 410(b) of the
Code only if such plan uses the same testing method as this Plan to satisfy the actual contribution
percentage test of Section 401(m) of the Code.
(d) To the extent permitted by regulations promulgated under Section 401(m) of the Code, the
Plan Administrator may elect to take into account elective deferrals (within the meaning of
Section 401(m) of the Code) and Qualified Nonelective Contributions, in calculating the Average
Contribution Percentage of Employees.
(e) To the extent prohibited by Treasury Regulation Section 1.401(m)-2(a)(5), the Plan
Administrator shall not take into account disproportionate matching contributions in calculating
the Average Contribution Percentage of Employees.
4
1.12
Before Tax Contributions
means the amount of Compensation deferred by a Participant pursuant to Section 3.1 hereof on a
before tax basis, plus the amount of elective deferrals (within the meaning of Section 402(g) of
the Code) that are transferred on behalf of a Participant to this Plan from a Merged Plan.
1.13
Before Tax Contributions Account
means the separate account maintained for each Participant who has made Before Tax
Contributions that accounts for the Participants share of the Trust Fund attributable to his
Before Tax Contributions.
1.14
Borrower
means any person who has an outstanding loan under Article 10 of this Plan.
1.15
Code
means the Internal Revenue Code of 1986, as amended, and shall also include all regulations
promulgated thereunder.
1.16
Company
means Forestar Real Estate Group Inc., a Delaware corporation, and any successor to such
corporation by merger, purchase, or otherwise.
1.17
Company Retirement Contributions
means contributions made by an Employer pursuant to Section 4.1 hereof, plus the amount of any
similar contributions (as determined by the Plan Administrator) that are transferred to this Plan
from a Merged Plan on behalf of a Participant.
1.18
Company Retirement Contributions Account
means the separate account for each Participant which shall account for his share of the Trust
Fund attributable to Company Retirement Contributions made on his behalf.
1.19
Compensation
means wages paid by an Employer to an Employee, as reported by the Employer in Box 1 on Form
W-2, and elective deferrals (within the meaning of Section 402(g)(3) of the Code) under any plan
sponsored by the Group,
5
payroll reduction contributions made on a before tax basis under any
cafeteria plan (within the meaning of Section 125 of the Code) or qualified transportation fringe
benefit plan (within the meaning of Section 132(f) of the Code) sponsored by the Group, but
excludes reimbursements or other expense allowances, fringe benefits (cash and noncash), moving
expenses, welfare benefits, deferred compensation, and, in the case of a Highly Compensated
Employee only, stock option income and payments made with respect to performance units or
restricted stock. If, for any Plan Year a Participants Compensation exceeds the two hundred
thousand
dollar ($200,000) limitation imposed by Section 401(a)(17) of the Code, as adjusted as provided
therein, such excess amount shall not be taken into account for such Plan Year for purposes of this
Section or any other provision of the Plan. Notwithstanding the foregoing, the definition of the
term Compensation under this Section 1.19 is a safe harbor definition of compensation set forth
in Treasury Regulations Section 1.414(s)-1(c)(3), as modified by Treasury Regulations Sections
1.414(s)-1(c)(4) and (5), and does not include any compensation amount that is not Section 415
Compensation.
1.20
Contributing Participant
shall mean a Participant who elects to make Before Tax Contributions and/or After Tax
Contributions to the Plan pursuant to Article 3 hereof.
1.21
Designated Enrollment Date
means the first day of each calendar month.
1.22
Distribution Event
means, with respect to a Participant: (a) the Participants retirement, death, disability, or
severance from employment; and (b) the termination of the Plan without establishment or maintenance
of an alternative defined contribution plan (as defined in Treasury Regulation Section 1.401(k) -
1(d)(4)).
6
Notwithstanding the foregoing, if a Participant has a change in job status from Employee
to Section 414(n) Leased Employee, such change in job status shall not constitute a Distribution
Event.
1.23
Eligible Borrower
means any Participant who has an Account Balance under this Plan or any alternate payee who
has a right to an Account Balance under this Plan, provided that such
Participant or alternate payee is a party in interest (within the meaning of Section 3(14) of
ERISA).
1.24
Employee
means a person who is employed by an Employer on a salaried (exempt and non-exempt), salaried
plus commission, or commission-only basis and who is not covered by a collective bargaining
agreement entered into with an Employer, unless such agreement, by specific reference to the Plan
provides for coverage under the Plan.
1.25
Employee Matters Agreement
means the Employee Matters Agreement by and among Temple-Inland Inc., Guaranty Financial Group
Inc. and the Company, entered into pursuant to the Transformation Plan announced by Temple-Inland
Inc. on February 26, 2007.
1.26
Employer
means each of the entities listed on Appendix I hereto, subject to such limitations or
restrictions as to participation by employees of such entities as may be reflected on such Appendix
I.
1.27
Employer Matching Contributions
means the contributions made by an Employer pursuant to Section 4.2 hereof, plus the amount of
any employer matching contributions (within the meaning of Section 401(m)(4) of the Code)
transferred on behalf of a Participant to this Plan from a Merged Plan.
7
1.28
Employer Matching Contributions Account
means the separate account for each Participant which shall account for his share of the Trust
Fund attributable to any Employer Matching Contributions made or transferred to this Plan on his
behalf.
1.29
ERISA
means the Employee Retirement Income Security Act of 1974, as now in effect or hereafter
amended and shall also include all regulations promulgated thereunder.
1.30
Funds
means the investment funds provided for by Section 7.1 hereof.
1.31
Group
means the Company, and any entity that is treated as a single employer together with the
Company pursuant to Sections 414(b), 414(c) or 414(m) of the Code or is required to be aggregated
with the Company pursuant to regulations under Section 414(o) of the Code. For the purpose under
the Plan of determining the Period of Service of a Participant, each entity shall be included in
the Group only for such period or periods during which it is treated as a single employer together
with the Company pursuant to Sections 414(b), 414(c) or 414(m) of the Code or is required to be
aggregated with the Company pursuant to regulations under Section 414(o) of the Code, except as
provided in Section 1.49 hereof.
1.32
Guaranty Plan
means the Guaranty Financial Group Inc. Savings and Retirement Plan (formerly, the
Temple-Inland Savings and Retirement Plan) maintained by the Guaranty Financial Group Inc.
1.33
Highly Compensated Employee
means any Employee who, with respect to the Group, is described in either clauses (a) or (b)
below:
8
(a) Was a 5-percent owner (as described in Section 414(q) of the Code) at any time during
the Plan Year or the twelve (12) month period preceding the Plan Year (the Lookback Year); or
(b) Received Section 415 Compensation from the Group in excess of eighty thousand dollars
($80,000) (as adjusted for cost-of-living increases) for the Lookback Year and was in the group of
employees for such year consisting of the top twenty percent of employees when ranked on the basis
of Section 415 Compensation during such year.
1.34
Hour of Service
means:
(a) An hour for which an employee is paid, or entitled to payment, for the performance of
duties for any member of the Group. Such hours will be credited to the employee for the
computation period in which the duties are performed; and
(b) An hour for which an employee is paid, or entitled to payment, by any member of the Group
on account of a period of time during which no duties are performed (irrespective of whether the
employment relationship has terminated) due to vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty or leave of absence. Hours under this paragraph will
be calculated and credited pursuant to Section 2530.200b-2 of the Department of Labor Regulations
which is incorporated herein by reference; and
(c) An hour for which back pay, irrespective of mitigation of damages, is either awarded or
agreed to by any member of the Group. An hour of service will not
be credited both under (a) or (b), as the case may be, and under this subsection (c). Such
hours will be credited to employees for the computation period or periods to which the
9
award or
agreement pertains rather than the computation period in which the award, agreement or payment is made.
(d) Hours of service shall be credited for any individual considered to be a Section 414(n)
Leased Employee.
1.35
Inactive Participant
means a Participant who is employed by the Group but who is not an Employee.
1.36
Investment Committee
means the Forestar Real Estate Group Inc. Investment Committee, as appointed by the Board of
Directors of the Company.
1.37
Loan
means a loan made pursuant to Article 10 hereof or that is treated as a Loan pursuant to
Section 10.2(j) hereof
1.38
Merged Plan
means a tax-qualified defined contribution plan that is merged into this Plan or from which
account balances are transferred (other than pursuant to a rollover) to this Plan, in either case
with the consent of the Board of Directors or President of the Company.
1.39
Merger Date
means the date as of which a Merged Plan is merged into this Plan or as of which account
balances are transferred to this Plan from a Merged Plan, as designated by the Plan Administrator.
1.40
Months of Participation
means the number of calendar months (with partial months being counted as full months) during
the period beginning (a) on the date on which an Employee provides Notice to the Plan Administrator
electing to make Payroll Savings Contributions hereunder, or (b) in the case of an Automatic
Contribution Employee, the day after the expiration of the election period set forth in Section
2.1(b)(ii) hereof, and ending on the date the Participant ceases to be employed by any member of
10
the Group. If the Plan Administrator determines that there are insufficient records to determine a
Participants Months of Participation pursuant to the foregoing provisions of this Section 1.40,
the Plan Administrator may determine a Participants Months of Participation using such methods and
assumptions as it determines necessary or appropriate in its sole discretion, provided that such
methods and assumptions are applied in a consistent and nondiscriminatory manner to similarly
situated Participants. In the case of a Participant described in Section 1.49(b) hereof, the
Participants Months of Participation shall include the Participants months of participation in
the Temple-Inland Savings Plan, the Guaranty Plan or the Merged Plan, as applicable.
1.41
Non-Highly Compensated Employee
means, with respect to a Plan Year, an Employee who is eligible to participate in the Plan
pursuant to Article 2 hereof and who is not a Highly Compensated Employee.
1.42
Non-Residential Loan
means any Loan that is not a Residential Loan.
1.43
Notice
means a notice, application or request provided by a Participant to a designated party in such
form (which may be written, telephonic, electronic, or another means of communication) as may be
specified by the party to receive such Notice.
1.44
One Year Break in Service
means a consecutive twelve (12) month Period of Severance during which an Employee does not
perform an Hour of Service and is not on an Approved Absence.
1.45
Participant
means (a) an Employee who is eligible to participate in the Plan under Article 2 hereof, and
(b) except for purposes of Articles 2 (other than Section
11
2.1(e) and 2.3), 3, 4, 8, 9, and 16
hereof, any person on whose behalf an Account is maintained under the Plan.
1.46
Participant Loan Subaccount
means the separate Subaccount maintained for each Participant who has an outstanding Loan and
to which the promissory note evidencing any such Loan shall be allocated.
1.47
Payroll Savings Contributions
means Before Tax Contributions and/or After Tax Contributions made by a Participant pursuant
to Section 3.1 hereof.
1.48
Period of Separation
means a period of time commencing with the date a person separates from service with the Group
and ending with the date that person resumes employment with the Group.
1.49
Period of Service
means:
(a) The period commencing on the date a person is credited with an Hour of Service on or after
December 28, 2007, and ending on the date a Period of
Severance begins, including any Period of Separation of less than twelve (12) consecutive
months. The determination of a Participants Period of Service shall be subject to the rules set
forth in Section 6.4 hereof. For purposes of determining a Participants Period of Service, the
Severance from Service Date of a Participant who is absent from service beyond the first
anniversary of the first day of absence for maternity or paternity reasons is the second
anniversary of the first day of such absence. The period between the first and second
anniversaries of the first day of absence from work shall be neither a Period of Service nor a
Period of Severance. For purposes of this paragraph, an absence from work for maternity or
paternity reasons means an absence (i) by reason of the pregnancy of the individual, (ii) by reason
of a birth of a child of the
12
individual, (iii) by reason of the placement of a child with the
individual in connection with the adoption of such child by such individual, or (iv) for purposes
of caring for such child for a period beginning immediately following such birth or placement.
(b) Notwithstanding Section 1.49(a) hereof:
(i) The Period of Service of a Participant whose service for vesting purposes under a Merged
Plan was determined on a basis other than hours of service shall include the service credited under
such plan as of its Merger Date (provided that if the Merged Plan was at any time an Affiliate
Plan, no duplication of credited service shall occur).
(ii) The Period of Service of a Participant whose service for vesting purposes under a Merged
Plan was determined based on hours of service shall consist of the following: (A) a number of
years equal to the number of years of service credited to the Participant before the plan year or
other computation period used for
determining years of service under the Merged Plan (the Computation Period) during which the
Merger Date occurs; (B) the greater of (I) the period of service that would be credited to the
Participant under the elapsed time method for his service during the entire Computation Period in
which the Merger Date occurs, or (II) the service taken into account for the Computation Period
that includes the Merger Date under the hours of service method as of the Merger Date; and (C) the
Period of Service credited to the Participant for service subsequent to the Merger Date commencing
on the day after the last day of the Computation Period in which the Merger Date occurs.
(iii) If a Participant transferred employment to an Employer from Temple-Inland Inc., any
member of the Temple-Inland Group (within the
13
meaning of the Employee Matters Agreement), the
Guaranty Financial Services Group Inc. or any member of the Guaranty Group (within the meaning of
the Employee Matters Agreement) and such employment transfer is covered by the Employee Matters
Agreement, the Participants Period of Service shall include the Participants Period of Service
credited to the Participant under the Temple-Inland Savings Plan or the Guaranty Plan, except to
the extent that the inclusion of such service would result in a duplication of credited service
with respect to any period.
(iv) An Employees Period of Service shall include prior service with a corporation or other
entity acquired by any member of the Group or from which any member of the Group acquired all or a
part of the assets of a trade or business to such extent as may be provided by the agreement
pursuant to which the applicable member of the Group acquired such corporation, other entity, or
assets of all or a part of a trade or business.
1.50
Period of Severance
means a period of time commencing on a persons Severance from Service Date and ending with
the date that person resumes his employment with the Group.
1.51
Plan
means the Forestar Savings and Retirement Plan.
1.52
Plan Administrator
means the individual or committee appointed by the Board of Directors or President of the
Company to manage and administer the Plan as provided in Article 11 hereof. The Plan Administrator
shall be a named fiduciary for the purposes of Section 402(a)(1) of ERISA, responsible for the
administration, operation and interpretation of the Plan.
14
1.53
Plan Year
means the calendar year commencing on January 1 and ending on the following December 31,
except that the first Plan Year of the Plan shall be the period beginning on December 28, 2007, and
ending on December 31, 2007.
1.54
Profit Sharing Contributions
means any profit sharing contributions transferred on behalf of a Participant to this Plan
from a Merged Plan.
1.55
Profit Sharing Contributions Account
means the separate account for each Participant which shall account for his share of the Trust
Fund attributable to any Profit Sharing Contributions made or transferred to the Plan on the
Participants behalf.
1.56
Qualified Nonelective Contributions
means the amount of any qualified nonelective contributions (within the meaning of Section
401(m)(4)(c) of the Code) transferred on behalf of a Participant to this Plan from a Merged Plan.
1.57
Qualified Nonelective Contributions Account
means the separate account maintained for each Participant who has been allocated Qualified
Nonelective Contributions that accounts for the Participants share of the Trust Fund attributable
to Qualified Nonelective Contributions.
1.58
Required Beginning Date
means the later of (a) April 1 of the calendar year following the calendar year in which a
Participant attains age 70-1/2, or (b) in the case of a Participant who is not a five percent (5%)
owner (as defined in Section 416 of the Code) with respect to the Plan Year during which the
Participant attains age 70-1/2, April 1 of the calendar year following the calendar year in which
the Participant has a severance from employment with the Group.
15
1.59
Residential Loan
means any Loan that is used to acquire any dwelling unit that within a reasonable period of
time is to be used (determined at the time the loan is made) as the principal residence of the
Eligible Borrower.
1.60
Rollover Account
means the separate account maintained for each Participant which shall account for his share
of the Trust Fund attributable to his Rollover Contributions.
1.61
Rollover Contributions
means rollover contributions made to the Plan pursuant to Section 3.7 hereof plus the amount
of any rollover contributions transferred on behalf of a Participant to this Plan from a Merged
Plan.
1.62
Section 414(n) Leased Employee
means any person who is not an employee of a recipient of the leased employees services
(recipient) if (a) such services are provided pursuant to an agreement between the recipient and
any other person (the leasing organization), (b) such person has performed such services for the
recipient (or for the recipient and related persons) on a substantially full-time basis for a
period of at least one year, and (c) such services are performed under the primary direction or
control by the recipient.
1.63
Section 414 Compensation
means wages paid by an Employer to an Employee, as reported by an Employer in Box 1 on Form
W-2, plus elective deferrals (within the meaning of Section 402(g)(3) of the Code) under any plan
sponsored by the Group and compensation reduction contributions made on a before tax basis under
any cafeteria plan (within the meaning of Section 125 of the Code) or qualified transportation
fringe benefit plan (within the meaning of Section 132(f) of the Code) sponsored by any member of
the Group, minus any compensation amount that is not Section 415
16
Compensation;
provided
,
however
, that the Plan Administrator may elect to (a) use any definition of compensation
permitted under Section 414(s) of the Code and the regulations thereunder for any Plan Year and/or
(b) limit the compensation taken into account with respect to an Employee to that portion of the
Plan Year during which the Employee was eligible to participate in the Plan. In no event may a
Participants Section 414 Compensation exceed the two hundred thousand
dollar ($200,000) limitation imposed by Section 401(a)(17) of the Code, as adjusted as provided
therein.
1.64
Section 415 Compensation
means
(a) Wages paid to an Employee by an Employer, as reported by an Employer in Box 1 on Form W-2,
plus elective deferrals (within the meaning of Section 402(g)(3) of the Code) under any plan
sponsored by the Group and compensation reduction contributions made on a before tax basis under
any cafeteria plan (within the meaning of Section 125 of the Code) or qualified transportation
fringe benefit plan (within the meaning of Section 132(f) of the Code) sponsored by any member of
the Group. Except as provided herein, Section 415 Compensation for a Plan Year is the compensation
actually paid or made available during such Plan Year. In no event may a Participants Section 415
Compensation exceed the two hundred thousand dollar ($200,000) limitation imposed by Section
401(a)(17) of the Code, as adjusted as provided therein.
(b) For Plan Years beginning on and after December 28, 2007, the term Section 415
Compensation shall also include compensation paid by the later of 2 1/2 months after a
Participants severance from employment with the Group or the end of the Plan Year that includes
the date of the Participants severance from employment with
17
the Group if the payment is: (i)
regular compensation for services during the Participants regular working hours, or compensation
for services outside the Participants regular working hours (such as overtime or shift
differential), commissions, bonuses, or other similar payments, and absent a severance from
employment, the payments would have been paid to the Participant while the Participant continued in
employment with the Group; or (ii) for unused accrued bona fide sick, vacation or other leave
that the Participant would have been able to use if employment with the Group had continued.
(c) Any payments not described in Sections 1.64(a) and 1.64(b) hereof shall not be considered
Section 415 Compensation if paid after severance from employment with the Group, even if they are
paid by the later of 2 1/2 months after the date of severance from employment or the end of the
Plan Year that includes the date of severance from employment, except (i) payments to an individual
who does not currently perform services for the Group by reason of qualified military service
(within the meaning of Section 414(u)(1) of the Code) to the extent the payments do not exceed the
amounts the individual would have received if the individual had continued to perform services for
the Group rather than entering qualified military service, or (ii) compensation paid to a
Participant who is permanently and totally disabled (within the meaning of Section 22(e)(3) of the
Code); provided that salary continuation applies to all Participants who are permanently and
totally disabled for a fixed or determinable period or the Participant was not a Highly Compensated
Employee immediately before becoming disabled.
1.65
Severance from Service Date
means the earlier of:
18
(a) the date a person terminates his employment with the Group by reason of quitting,
retirement, death or discharge, or
(b) the date twelve (12) consecutive months after the date a person remains absent from
service with the Group (with or without pay) for any reason other than quitting, retirement, death
or discharge.
1.66
Subaccounts
means the subaccounts established for each Participant that account for the investment of each
Participants Accounts in the funds described in Sections 7.1 and 10.4 hereof, and for such other
amounts as the Plan Administrator deems it necessary or appropriate to establish a subaccount.
1.67
Temple-Inland Savings Plan
means the Temple-Inland Salaried Savings Plan, Temple-Inland Non-Salaried Savings Plan,
Temple-Inland Plan for Union Employees, El Morro Corrugated Box Corporation Savings and Investment
Plan or Joint Venture Master 401(k) Plan, as applicable, each maintained by TIN Inc.
1.68
Trust Agreement
means the agreement between the Company and the Trustee, as provided for in Article 12 hereof,
as the same may hereafter be amended from time to time.
1.69
Trust Fund
means all the assets at any time held under the Plan by the Trustee as provided for in Article
12 hereof.
1.70
Trustee
means the trustee or trustees selected by the Board of Directors or President of the Company
which may at any time be acting as Trustee under the Trust Agreement.
1.71
Valuation Date
means (a) the last day of each calendar year that the New York Stock Exchange is open for
trading, and (b) except as otherwise determined by
19
either the Plan Administrator or the Trustee in
its sole discretion and either with or without prior notice to Participants, each other day (or
portion thereof) that the New York Stock Exchange is open for trading.
ARTICLE 2
ELIGIBILITY AND PARTICIPATION
2.1
Participation
.
(a) Each Employee who was a Participant in the Temple-Inland Savings Plan or the Guaranty Plan
as of December 27, 2007, and is employed by an Employer on December 28, 2007, shall be a
Participant in this Plan as of December 28, 2007.
(b) Each Employee not described in Section 2.1(a) hereof shall become a Participant as soon as
practicable after the earlier of (i) the Employees providing Notice to the Plan Administrator
pursuant to Section 2.2 hereof to elect to have Before Tax Contributions made on the Employees
behalf in a specified percentage of Compensation, or (ii) in the case of an Automatic Contribution
Employee, the expiration of thirty (30) days from the later of (A) the Employees most recent date
of hire as an Employee, or (B) the date the notice described in Section 2.1(d) hereof is provided
to the Employee, but not earlier than January 1, 2008, unless the Employee has elected, by Notice
to the Plan Administrator, not to have Before Tax Contributions made on his behalf;
provided
,
however
, that in no event shall an Employee become a Participant unless
he is an Employee as of the date he would otherwise become a Participant.
20
(c) Each Employee who does not become a Participant under Section 2.1(a) or 2.1(b) hereof
shall become a Participant as of the date as of which his Employer makes a Company Retirement
Contribution on his behalf pursuant to Section 4.1 hereof.
(d) Within a reasonable period of time before each Plan Year beginning on or after January 1,
2008, the Plan Administrator shall provide each Employee a written notice of the Automatic
Contribution Arrangement hereunder, which notice shall include the following information: (i) the
Employees rights and obligations under the Automatic Contribution Arrangement, (ii) the level of
Before Tax Contributions that will be made on the Employees behalf if the Employee does not make
an affirmative election to make Before Tax Contributions, (iii) the Employees right to elect not
to have Before Tax Contributions made on the Employees behalf (or to elect to have Before Tax
Contributions made in a different percentage of Compensation than provided in Sections 2.2(b) and
2.2(c) hereof), (iv) how contributions made by and on the Employees behalf under the Automatic
Contribution Arrangement will be invested in the absence of an investment election by the Employee,
(v) the reasonable period of time after receipt of such notice and before the Employees first
Before Tax Contribution for such Plan Year under the Automatic Contribution Arrangement during
which the Employee may make contribution and investment elections hereunder, and (vi) the
Employees right to withdraw Before Tax Contributions made under the Automatic Contribution
Arrangement pursuant to Section 8.6 hereof, and the procedures to elect such a withdrawal.
(e) Each Participant shall (i) provide Notice to the Plan Administrator designating a
beneficiary who shall receive any benefits payable pursuant to Section 9.1
21
hereof in the event of the death of the Participant, and (ii) agree to the terms of the Plan.
A Participant may designate one or more persons as beneficiary; provided, however, that if more
than one (1) person is named, the Participant shall indicate the shares and precedence of each
person. A married Participants spouse shall be deemed to be his beneficiary regardless of any
contrary designation on file or later filed with the Plan Administrator, unless the spouse consents
(acknowledging the effect of such consent) to the designation of a beneficiary other than the
spouse and such consent is witnessed by a notary public or the Plan Administrator. A Participant
may change his beneficiary from time to time by Notice to the Plan Administrator but only with the
written consent of his spouse (witnessed by the Plan Administrator or a notary public), if he has a
spouse at such time. The consent of a previously designated nonspouse beneficiary shall not be
required in any case. In the event the Participant fails to effectively designate a beneficiary as
to any distribution, such distribution shall be made to such deceased Participants spouse (as set
forth above) if living, if not, then to such deceased Participants estate.
(f) Notwithstanding the foregoing provisions of this Section 2.1, in no event shall (i) an
Employee be eligible to become a Participant in this Plan to the extent that becoming a Participant
would cause any plan maintained or formerly maintained by the Group to fail to satisfy the
requirements of Treasury Regulations Section 1.401(k)-1(d), or (ii) any person who is a leased
employee (including a Section 414(n) Leased Employee), a consultant or any other person who is not
classified by an Employer as an employee (not taking into account any retroactive reclassification
of any person as an Employee) be eligible to become a Participant in this Plan.
22
2.2
Enrollment as a Contributing Participant
.
(a) An Employee who is a Participant or who is eligible to become a Participant may elect to
become a Contributing Participant by providing Notice to the Plan Administrator authorizing the
deduction by his Employer of Payroll Savings Contributions from his Compensation and specifying the
Funds in which his Payroll Savings Contributions and other amounts shall be invested, subject to
the terms of Article 7 hereof.
(b) Notwithstanding anything herein to the contrary, an Automatic Contribution Participant
shall be deemed to have elected to contribute to the Plan as Before Tax Contributions three percent
(3%) of the Employees Compensation for the period beginning on the date on which the Participant
first becomes an Automatic Contribution Participant and ending on the last day of the Plan Year
next following the Plan Year in which the Participant first becomes an Automatic Contribution
Participant (the Initial Contribution Period). An Automatic Contribution Participant may elect
to change or suspend his contribution election at any time in accordance with Article 3 hereof.
(c) The percentage of Compensation that an Automatic Increase Participant contributes to the
Plan as Before Tax Contributions shall be increased by one percent (1%) effective as of the first
payroll period beginning on or after January 1 of each Plan Year beginning after the expiration of
the Participants Initial Contribution Period;
provided
,
however
, that no increase
with respect to an Automatic Increase Participant shall occur pursuant to this Section 2.2(c) if
the percentage of Compensation contributed to the Plan by the Automatic Increase Participant as
Before Tax
23
Contributions would exceed ten percent (10%). Unless an Automatic Contribution Participant
elects otherwise by providing Notice to the Plan Administrator, the Automatic Contribution
Participant shall be treated as an Automatic Increase Participant immediately upon becoming an
Automatic Contribution Participant. A Participant who is not an Automatic Contribution Participant
but who has elected to become an Automatic Increase Participant shall become an Automatic Increase
Participant as soon as practicable after the Plan Administrator receives Notice from the
Participant of such election. An Automatic Increase Participant may elect to cease to be an
Automatic Increase Participant at any time by providing Notice to the Plan Administrator, and such
election shall be effective as soon as practicable after the Plan Administrators receipt of such
Notice. Notwithstanding the foregoing, the rate of an Automatic Contribution Participants Before
Tax Contributions on January 1, 2008, shall not be less than the rate in effect as of December 31,
2007, unless the Automatic Contribution Participant elects a lower rate.
(d) The authorizations, designations and elections made pursuant to Section 2.1 hereof and
this Section 2.2 shall be deemed to be continuing as to current and succeeding Plan Years until
changed by prior Notice to the Plan Administrator. Notwithstanding the foregoing, in the case of a
Participant whose Before Tax Contributions are temporarily suspended under Section 8.4(c)(iii)
hereof, the Participants Before Tax Contribution election shall not apply during the suspension
period, and in the case of an Automatic Increase Participant, the rate of the Participants Before
Tax Contributions immediately after the expiration of the suspension period shall be the rate that
would have been in effect had the suspension not occurred.
24
(e) In the case of an Employee who becomes an Employee and a Participant in this Plan on
December 28, 2007, and who immediately prior to becoming a Participant was both (i) employed by
Temple-Inland Inc. or any member of the Temple-Inland Group (within the meaning of the Employee
Matters Agreement) and was a participant in the Temple-Inland Savings Plan, or (ii) employed by
Guaranty Financial Group Inc. or any member of the Guaranty Group (within the meaning of the
Employee Matters Agreement) and was a participant in the Guaranty Plan, such Participants (x)
affirmative elections under the applicable foregoing plan with respect to (A) making before tax
contributions and/or after tax contributions, (B) the investment of contributions made under the
applicable foregoing plan on the Participants behalf, and (y) designation of a beneficiary (or
beneficiaries) under the applicable foregoing plan, shall be treated as if made under, and with
respect to, this Plan and shall continue in effect under this Plan until changed in accordance with
the terms of this Plan.
(f) In the case of an Employee who becomes a Participant in this Plan and who immediately
prior to becoming a Participant was both employed by a member of the Group and was a participant in
a Merged Plan, then, if so determined by the Plan Administrator, such Participants (x) elections
under the Merged Plan with respect to (A) making before tax contributions and/or after tax
contributions, (B) the investment of contributions made under the Merged Plan by or on the
Participants behalf, and (y) designation of a beneficiary (or beneficiaries) under the Merged
Plan, shall be treated as if made under, and with respect to, this Plan and shall continue in
effect under this Plan until changed in accordance with the terms of this Plan.
2.3
No Participation by Non-Covered Employees
.
25
(a) Notwithstanding any provision of this Plan to the contrary, an Inactive Participant shall
not be eligible to make Payroll Savings Contributions under Article 3 hereof or be entitled to any
Employer Matching Contributions or Company Retirement Contributions under Article 4 hereof.
(b) If an Inactive Participant again becomes an Employee, he (i) may elect to resume making
Payroll Savings Contributions by giving prior Notice to the Plan Administrator, and such election
shall be effective as soon as practicable after the Plan Administrators receipt of such election,
and (ii) shall be eligible to be allocated Employer Matching Contributions and Company Retirement
Contributions, subject to, and in accordance with, the terms of Article 4 hereof.
(c) Notwithstanding any provision of this Plan to the contrary, an Employee who has rights
under Chapter 43 of Title 38, United States Code, resulting from qualified military service, shall
be credited with service and entitled to make Before Tax Contributions and After Tax Contributions
to this Plan and to be allocated Employer Matching Contributions and Company Retirement
Contributions to the extent required by applicable law and Section 414(u) of the Code.
ARTICLE 3
PARTICIPANT CONTRIBUTIONS
3.1
Payroll Savings Contributions
.
Each Participant may elect to make Payroll Savings Contributions to the Plan of any whole
percentage of his Compensation for each payroll period. The minimum amount of Payroll Savings
Contributions with respect to each payroll period shall be one percent (1%), and, except as
permitted pursuant to Section 3.6 hereof, the maximum
amount shall be fifty percent (50%). A
26
Participants Payroll Savings Contributions may
consist of any whole percentage of Before Tax Contributions and any whole percentage of After Tax
Contributions.
3.2
Suspension of Contributions
.
A Participant may voluntarily suspend his Payroll Savings Contributions by giving prior Notice
to the Plan Administrator, and such suspension shall be effective as soon as practicable after the
Plan Administrators receipt of such Notice. Subject to the requirements of Section 8.8 hereof, a
Participant may resume making Payroll Savings Contributions by giving prior Notice to the Plan
Administrator, and such election shall be effective as soon as practicable after the Plan
Administrators receipt of such election.
3.3
Changes in Contribution Elections
. A Participant may increase or decrease, subject to Section 3.1 hereof, the amount of his Before
Tax Contributions and/or After Tax Contributions by giving prior Notice to the Plan Administrator.
Such changes in Before Tax Contributions and/or After Tax Contributions shall become effective as
soon as practicable after receipt of Notice by the Plan Administrator.
3.4
Payment of Contributions
.
(a) Participants Payroll Savings Contributions shall be transferred to the Trustee under the
Plan on the earliest date that such amounts can reasonably be segregated from the Employers
general assets, but in no event later than the fifteenth (15th) day of the calendar month following
the month in which the Payroll Savings Contributions withheld would otherwise have been paid to the
Participant. In no event shall an Employer transfer a Before Tax Contribution to the Trustee on
behalf of a Participant prior to the date the Participant performs the services with respect to which the
Before Tax Contribution is being made (or the date the Compensation for such
27
services would be
currently available, if earlier) unless such pre-funding is to accommodate a bona fide
administrative concern and is not for the principal purpose of accelerating deductions for federal
income tax purposes.
(b) Participants Before Tax Contributions shall be treated under the Plan, ERISA and the Code
as nonforfeitable Employer contributions. Payroll Savings Contributions shall not be required to
be made from the current or accumulated profits of an Employer.
3.5
No Make-Up of Contributions
. Subject to Section 3.6 hereof, no Participant who fails to make the maximum amount of Payroll
Savings Contributions permitted under Section 3.1 hereof, or who voluntarily suspends his Payroll
Savings Contributions in accordance with Section 3.2 hereof, shall be permitted to make up such
contributions in any subsequent payroll period.
3.6
Limitations on Before Tax Contributions
.
(a) No Participant shall be permitted to have Before Tax Contributions made to the Plan during
any Plan Year to the extent such contributions, plus any elective deferrals under any other
tax-qualified plan, exceed the dollar limit imposed under Section 402(g) of the Code, as adjusted
in accordance therewith, except to the extent permitted under Section 3.6(b) hereof. A Participant
shall promptly notify the Plan Administrator if such limitation is exceeded and the amount of such
excess, plus gain or loss allocable thereto for the Plan Year, and the period beginning on the day
after the close of such Plan Year and ending seven (7) days prior to the date of distribution of
excess contributions for such Plan Year (the Gap Period), shall be distributed to such
Participant within three and one-half (3-1/2) months after the close of the Plan Year
28
during which
such excess contributions were made or as of such later date that is permissible under applicable
regulations as may be determined by the Plan Administrator. Except as otherwise determined by the
Plan Administrator, the income allocable to a Participants excess Before Tax Contributions for a
Plan Year, and the Gap Period for such Plan Year, shall be determined by multiplying the total
investment income or loss (including dividends, interest, realized gains or losses, and unrealized
appreciation or depreciation) allocated to the Participants Before Tax Contributions Account for
such Plan Year and Gap Period by a fraction: (i) the numerator of which is the amount of excess
Before Tax Contributions allocated to the Employees Before Tax Contributions Account for the Plan
Year; and (ii) the denominator of which is the Employees total Before Tax Contributions Account
balance as of the beginning of the Plan Year increased by the total of the Employees Before Tax
Contributions for the Plan Year and the Gap Period for such Plan Year.
(b) Participants who are eligible to make Before Tax Contributions hereunder and who have
attained age 50 before the close of the Plan Year shall be eligible to make catch-up
contributions in accordance with, and subject to the limitations of, Section 414(v) of the Code.
Such catch-up contributions shall not be taken into account for purposes of the provisions of the
Plan implementing the required limitations of Sections 402(g) and 415 of the Code. The Plan shall
not be treated as failing to satisfy the provisions of the Plan implementing the requirements of
Sections 401(k)(3), 410(b) or 416 of the Code, as applicable, by reason of Participants making such
catch-up contributions.
29
(c) Notwithstanding any other provision of the Plan, the Automatic Contribution Arrangement
provisions of Sections 2.1(b) and (d), 2.2(b) and (c) and 4.2 hereof are intended to constitute a
qualified automatic contribution arrangement within the meaning of Treasury Regulations Section
1.401(k)-3(j)(i), and satisfy the Actual Deferral Percentage test and Average Contribution
Percentage test (only with respect to Employer Matching Contributions) of Section 401(k) and (m),
respectively, of the Code.
3.7
Rollovers
. Employees may, subject to such rules as may be prescribed by the Plan Administrator, roll over
all or a portion of (a) an eligible rollover distribution (within the meaning of Section 402(c)(4)
of the Code), (b) a rollover amount (within the meaning of Section 403(a)(4) of the Code), or (c) a
rollover contribution (within the meaning of Section 408(d)(3)(A)(ii) of the Code) to this Plan,
(each, a Rollover Amount);
provided
,
however
, that (x) in no event may any
after-tax employee contributions be rolled over into this Plan, and (y) Rollover Amounts may be
transferred to the Plan only in the form of cash and/or, in the discretion of the Plan
Administrator, one or more participant loan notes. If, after an amount has been rolled over to
this Plan, the Plan Administrator determines that such amount was not a valid Rollover Amount, the
Plan Administrator shall distribute such amount to the applicable Participant, together with
earnings attributable thereto, within a reasonable period after such determination.
ARTICLE 4
EMPLOYER CONTRIBUTIONS
4.1
Company Retirement Contributions
.
As of the last day of each payroll period occurring after December 28, 2007, subject to
Section 4.4 hereof, the Employer shall make a Company Retirement Contribution to the Plan on behalf
of each Participant
30
who is an Employee of such Employer equal to three and one-half percent (3.5%)
of the Compensation earned by the Participant while an Employee during such payroll period.
Company Retirement Contributions shall be transferred by the Employer to the Trustee no later than
the last calendar day of the month next following the applicable payroll period. The Company may,
in its sole discretion, permit participating Employers to make additional Company Retirement
Contributions with respect to their respective Employees, which contributions, if made, shall be
allocated among such Employees in proportion to the Compensation earned by such Employees during
the applicable payroll period(s).
4.2
Matching Contributions
.
(a) Subject to Sections 4.4 and 4.5 hereof, each Employer shall make Employer Matching
Contributions to the Plan with respect to each Participant who is an Employee of that Employer in
an amount equal to one hundred percent (100%) of the first three percent (3%) of each such
Participants Compensation contributed to the Plan as Before Tax Contributions each payroll period
plus an amount equal to fifty percent (50%) of the next three percent (3%) of each such
Participants Compensation contributed to the Plan as Before Tax Contributions each payroll period.
Employer Matching Contributions made pursuant to this Section 4.2(a) shall be transferred to the
Trustee under the Plan concurrently with the delivery of the Participants Before Tax Contributions
and shall be allocated to the Accounts of the Participants on whose behalf they were made upon
receipt by the Trustee (or as soon as practicable thereafter). The contribution period for
Employer Matching Contributions shall be the Plan Year.
31
(b) Subject to Sections 4.4 and 4.5 hereof, in the event that the total amount of Employer
Matching Contributions made to the Plan with respect to a Participant for a Plan Year is less than
an amount equal to the sum of (i) one hundred percent (100%) of the first three percent (3%) of
such Participants Compensation contributed to the Plan as Before Tax Contributions for such Plan
Year, and (ii) fifty percent (50%) of the next three percent (3%) of such Participants
Compensation contributed to the Plan as Before Tax Contributions for such Plan Year (the sum of (a)
and (b) being the Total Match), the Employer shall make an additional Employer Matching
Contribution to the Plan with respect to the Participant for such Plan Year equal to the difference
between (x) the Total Match for such Plan Year, and (y) the amount of Employer Matching
Contributions made to the Plan on behalf of the Participant pursuant to Section 4.2(a) hereof for
such Plan Year (such additional contribution being a True-Up Contribution). Employer Matching
Contributions made pursuant to this Section 4.2(b) shall be transferred to the Trustee not later
than the date required under the Code in order for such contributions to be deductible for such
Plan Year for federal income tax purposes and shall be allocated to the Accounts of the
Participants on whose behalf they were made upon receipt by the Trustee (or as soon as practicable
thereafter). Notwithstanding the foregoing, an Employer may, in its
discretion, calculate and contribute to the Plan True-Up Contributions more frequently than on
a Plan Year basis.
(c) Notwithstanding Sections 4.2(a) and 4.2(b) hereof, the maximum amount of Employer Matching
Contributions made on behalf of a Highly Compensated Employee for any Plan Year shall be four
thousand five hundred dollars ($4,500).
32
(d) In no event shall an Employer transfer an Employer Matching Contribution made pursuant to
this Section 4.2 to the Trustee on behalf of a Participant prior to the date the Participant
performs the services with respect to which the Employer Matching Contribution is being made (or
the date the Compensation for such services would be currently available, if earlier) unless such
pre-funding is to accommodate a bona fide administrative concern and is not for the principal
purpose of accelerating deductions for federal income tax purposes.
4.3
Reinstatement of Forfeited Account Balances; Payment of Administrative Expenses
.
(a) Each Employer shall contribute to the Plan any amount necessary to reinstate any Company
Retirement Contributions, Employer Matching Contributions and Profit Sharing Contributions
previously forfeited pursuant to Section 6.3 hereof.
(b) To the extent not paid by the Trustee from the Trust Fund, each Employer shall pay its pro
rata share of all administrative expenses of the Plan and of all fees and retainers of the Plans
Trustee, consultants, auditors and counsel (who may, but need not, be counsel to the Company and to
the Trustee). All expenses directly relating to the investments of the Trust Fund such as taxes,
commissions, registration charges, etc. shall be paid by the Trustee from the Trust Fund.
4.4
Limitations on Contributions
. Notwithstanding any other provision of the Plan, the limitations imposed by Section 415 of the
Code are hereby incorporated by reference. For purposes of applying the limitations imposed by
Section 415 of the Code, compensation as referred to therein, shall mean Section 415
Compensation.
33
4.5
Limitations on After Tax Contributions and Employer Matching Contributions
.
(a) If the Average Contribution Percentage of Highly Compensated Employees for a Plan Year
would exceed the greater of: (i) the Average Contribution Percentage of Non-Highly Compensated
Employees for such Plan Year multiplied by one and one-fourth (1.25), or (ii) the lesser of: (A)
two percent (2%) plus the Average Contribution Percentage of Non-Highly Compensated Employees for
the preceding Plan Year, or (B) the Average Contribution Percentage of Non-Highly Compensated
Employees for the preceding Plan Year multiplied by two (2), the After Tax Contributions and/or
Employer Matching Contributions of the Highly Compensated Employees shall be reduced as set forth
in Section 4.5(b) hereof.
(b) In order to determine the amount by which Highly Compensated Employees After Tax
Contributions and/or Employer Matching Contributions must be reduced and identifying the Highly
Compensated Employees whose After Tax Contribution and/or Employer Matching Contributions shall be
reduced, the Plan Administrator shall:
(i) Determine the maximum Average Contribution Percentage for Highly Compensated Employees
permitted under Section 4.5(a) hereof;
(ii) Identify the Highly Compensated Employees with Average Contribution Percentages in excess
of the maximum percentage amount determined pursuant to the preceding clause (i);
(iii) Determine the dollar amount of the reduction in each such Highly Compensated Employees
After Tax Contributions and/or Employer Matching
34
Contributions that would be required so that the
Average Contribution Percentage of Highly Compensated Employees would not exceed the percentage
limit determined pursuant to the preceding clause (i), with the dollar amount of such reductions
being determined under a process whereby the Average Contribution Percentage of the Highly
Compensated Employee(s) with the highest Average Contribution Percentage(s) is reduced so that it
is equal to that of the Highly Compensated Employee(s) with the next highest Average Contribution
Percentage and repeating such process until the Average Contribution Percentage of Highly
Compensated Employees does not exceed the limits prescribed by Section 4.5(a) hereof; and
(iv) Cause After Tax Contributions and/or Employer Matching Contributions equal to the total
dollar amount of After Tax Contributions and/or Employer Matching Contributions determined pursuant
to the preceding clause (iii) (the Excess Contributions) to be refunded in accordance with
Sections 4.5(c) and 4.5(d) hereof to the Highly Compensated Employees identified therein.
(c) After Tax Contributions and/or Employer Matching Contributions of the Highly Compensated
Employee(s) with the highest total amount of After Tax Contributions and/or Employer Matching
Contributions shall be reduced by the amount required to cause the After Tax Contributions and/or
Employer Matching Contributions
of such Highly Compensated Employee(s) to be equal to the After Tax Contributions and/or
Employer Matching Contributions of the Highly Compensated Employee(s) who have the next highest
total amount of After Tax Contributions and/or Employer Matching Contributions;
provided
,
however
, if a lesser reduction would equal the amount of Excess Contributions, the lesser
reduction shall be made. The process provided for by the
35
preceding sentence shall be repeated
until the total amount of the reductions equals the amount of Excess Contributions. For purposes
of the foregoing, the reductions made to a Highly Compensated Employees After Tax Contributions
and/or Employer Matching Contributions pursuant to this Section 4.5(c) shall be made first from
After Tax Contributions, and then if necessary Employer Matching Contributions. If the Average
Contribution Percentage of any Employee who is a Highly Compensated Employee for a Plan Year is
determined taking into consideration employee after tax contributions and employer matching
contributions allocated to his accounts under two (2) or more plans or arrangements described in
Section 401(m) of the Code that are maintained by the Group, pursuant to Section 1.11 hereof, and
the employee after tax contributions and employer matching contributions of the Highly Compensated
Employee must be reduced to satisfy the requirements of Section 401(m) of the Code, only the
employee after-tax contributions and employer matching contributions made to the plan being
corrected shall be reduced.
(d) After Tax Contributions and/or any vested Employer Matching Contributions in excess of the
amount permitted under this Section 4.5, along with any gain or loss allocable thereto for the Plan
Year shall be distributed to the Highly Compensated Employees identified in Section 4.5(c) hereof
within two and one-half (2-1/2) months after the close of the relevant Plan Year (or as of such later date as may be
determined by the Plan Administrator, provided that such later date shall not be later than the
close of the Plan Year following the Plan Year in which the excess amounts were contributed). The
income allocable for a Plan Year to a Highly Compensated Employees excess After Tax Contributions
and/or Employer Matching Contributions
36
shall be determined by multiplying the total investment
income or loss (including dividends, interest, realized gains or losses, and unrealized
appreciation or depreciation) allocated to the Employees After Tax Contributions Account and/or
Employer Matching Contributions Account for such Plan Year by a fraction, (i) the numerator of
which is the amount of excess After Tax Contributions and/or Employer Matching Contributions
allocated to the Employees After Tax Contributions Account and/or Employer Matching Contributions
Account for the Plan Year; and (ii) the denominator of which is the Employees total After Tax
Contributions Account and/or Employer Matching Contributions Account balance as of the beginning of
the Plan Year increased by the total of the Employees After Tax Contributions and/or Employer
Matching Contributions for the Plan Year. Any nonvested Employer Matching Contributions that are
otherwise reduced pursuant to this Section 4.5 (together with any allocable gain or loss, as
determined in accordance with the preceding provisions of this Section 4.5(d)) shall be forfeited
within two and one-half (2-1/2) months after the close of the relevant Plan Year (or as of such
later date as may be determined by the Plan Administrator, provided that such later date shall not
be later than the close of the Plan Year following the Plan Year in which the excess amounts were
contributed) and used to reduce future Employer
contributions and shall not be considered a contribution for any purpose of the Plan, except
to the extent required by applicable regulations.
(e) The Plan Administrator at any time, in its sole discretion, and upon notice to the
affected Participants, may unilaterally reduce, on a prospective basis, the maximum percentage of
Compensation that Highly Compensated Employees may make as After Tax Contributions to the Plan.
37
(f) Notwithstanding any other provision of the Plan, the Automatic Contribution Arrangement
provisions of Sections 2.1(b) and (d), 2.2(b) and (c) and 4.2 hereof are intended to constitute a
qualified automatic contribution arrangement within the meaning of Treasury Regulations Section
1.401(k)-3(j)(i), and satisfy the Actual Deferral Percentage test and Average Contribution
Percentage test (only with respect to Employer Matching Contributions) of Sections 401(k) and (m),
respectively, of the Code. In determining whether the Plan satisfies the limitations of Section
4.5(a) hereof for a Plan Year with respect to After-Tax Contributions, the Plan Administrator may
elect to include or disregard all Employer Matching Contributions made hereunder on behalf of all
Employees for such Plan Year.
ARTICLE 5
ACCOUNTS
5.1
Maintenance of Accounts
. The Plan Administrator shall maintain for each Participant such Accounts as may be necessary to
reflect the portion of the Participants interest in the Trust Fund that is attributable to Company
Retirement Contributions, Before Tax Contributions, After Tax Contributions, Employer Matching
Contributions, Qualified Nonelective Contributions,
Profit Sharing Contributions and Rollover Contributions held by the Trustee on the Participants
behalf.
5.2
Adjustments to Accounts; Statements Provided to Participants
. As of each Valuation Date, the Accounts of each Participant shall be adjusted to reflect
contributions, withdrawals, distributions, income earned or accrued, and increase or decrease in
the value of Trust Fund assets since the preceding Valuation Date. Trust Fund earnings or losses
shall be allocated proportionately on the basis of Account
38
balances among the respective Accounts
and in a fair and equitable manner as determined by the Plan Administrator. The Plan Administrator
shall provide each Participant with a statement of his Account balances under the Plan on a
quarterly basis.
ARTICLE 6
VESTING AND FORFEITURES
6.1
Before Tax Contributions, After Tax Contributions, Qualified Nonelective Contributions
and Rollover Accounts
. The Before Tax Contributions Account, After Tax Contributions Account, Qualified Nonelective
Contributions Account and Rollover Account of a Participant shall be fully vested and
nonforfeitable at all times.
6.2
Vesting of Company Retirement Contributions Account
.
In the case of a Participant who is credited with at least one (1) Hour of Service on or after
January 1, 2008, the Participants Company Retirement Contributions Account shall be fully vested
and nonforfeitable upon the first to occur of the following: (a) the Participants completion of a
Period of Service of twenty-four (24) months, (b) the Participants attainment of age sixty-five
(65) (which shall be the Plans normal
retirement age) while an employee of the Group, (c) the Participants death while employed by
the Group, or (d) the Participants total disability while an employee of the Group, as certified
by either the Social Security Administration or the applicable Group members long-term disability
carrier.
6.3
Vesting of Employer Matching Contributions Account and Profit Sharing Contributions
Account
.
(a) In the case of a Participant who (i) is credited with at least one (1) Hour of Service on
or after January 1, 2008, but who is hired as an Employee prior to
39
such date pursuant to a transfer
of employment covered by the Employee Matters Agreement, and (ii) participated in the Temple-Inland
Savings Plan or Guaranty Plan, immediately prior to such transfer, the Participants Employer
Matching Contributions Account and Profit Sharing Contributions Account shall vest in accordance
with the following schedule:
|
|
|
If the Period of Service of the
|
|
The Vested Percentage of Employer
|
Participant, in Months, Equals or
|
|
Matching Contributions and Profit
|
Exceeds
|
|
Sharing Contributions Accounts Shall Be
|
|
|
|
twelve (12)
|
|
thirty-four (34)
|
twenty-four (24)
|
|
one hundred (100)
|
(b) In the case of a Participant who was hired as an Employee after December 31, 2007, the
Participants Employer Matching Contributions Account and Profit Sharing Contributions Account
shall vest in accordance with the following schedule:
|
|
|
|
|
The Vested Percentage of
|
|
|
Employer Matching Contributions
|
If the Period of Service of the
|
|
and Profit Sharing Contributions
|
Participant, in Months,
|
|
Accounts Shall Be
|
|
|
|
is less than twenty-four (24)
|
|
zero (0)
|
is at least twenty-four (24)
|
|
one hundred (100)
|
(c) Notwithstanding Sections 6.3(a) and (b) hereof, the Employer Matching Contributions
Account and Profit Sharing Contributions Account of any Participant shall be fully vested and
nonforfeitable upon the occurrence of any of the events described in clauses (a) through (d) of
Section 6.2 hereof. If a Participant makes a withdrawal or receives a distribution from any of his
Accounts (other than a distribution that results in the forfeiture of the nonvested portion of such
Account pursuant to Section
40
6.4 hereof) prior to the date that he has a vested percentage of one hundred percent (100%)
with respect to such Account, a separate subaccount shall be established for the balance of such
Account as of the time of distribution and the vested portion of such account shall be equal to
P(AB+D)-D, where P is the vested percentage at the relevant time; AB is the account balance at the
relevant time; D is the amount of the distribution; and the relevant time is the time at which,
under the Plan, the vested percentage in the Account cannot increase.
(d) For purposes of Sections 6.3(a) and (b) hereof, in the case of a Participant described in
Section 1.49(b)(iii) hereof who was an employee of Temple Inland Inc. (including any member of the
Temple-Inland Group (within the meaning of the Employee Matters Agreement)) or Guaranty Financial
Group Inc. (including any member of the Guaranty Group (within the meaning of the Employee
Matters Agreement)) on December 28, 2007, and who was continuously employed by Temple-Inland Inc.
and/or Guaranty Financial Group Inc. for the period beginning on such date and ending on the date
of a transfer of employment from Temple Inland Inc. or Guaranty Financial Group Inc. to an
Employer, the Participant shall be treated as being hired as an Employee before January 1, 2008.
(e) Notwithstanding the foregoing provisions of this Section 6.3, in the case of a Participant
who was a participant in a Merged Plan, the vested percentage of such Participants Company
Retirement Contributions Account, Employer Matching Contributions Account, Profit Sharing
Contributions Account and/or Subaccounts hereunder shall not be less than if the vesting schedule
under the Merged Plan applicable to amounts allocated to such Accounts and/or Subaccounts applied
to such Accounts
41
and/or Subaccounts under this Plan, except as otherwise provided in an Appendix hereto and
permitted under Section 411(a)(10) of the Code.
6.4
Forfeitures
.
(a) The nonvested portion (if any) of a Participants Accounts shall be forfeited as of the
earlier of (i) the last day of the Plan Year in which the Participant receives a distribution of
his entire vested Account Balance (provided such distribution is made not later than the end of the
second Plan Year following the Plan Year in which the Participant terminates employment with the
Group), or (ii) in case of a Participant who does not have a nonforfeitable right to any portion of
his Account Balance attributable to Employer contributions (including elective deferrals, within
the meaning of Section 402(g) of the Code), the last day of the Plan Year in which the Participant
incurs five (5) consecutive One Year Breaks in Service. If a former employee of the Group who has
forfeited the nonvested portion of his Accounts later resumes employment by the Group before he has
five (5) consecutive One Year Breaks in Service, that portion of his Accounts that was previously
forfeited shall be reinstated (unadjusted for Trust Fund earnings and/or losses subsequent to the
date of forfeiture) and he shall receive full credit for his previous Periods of Service. The
source of the reinstated funds shall first be from the then applicable forfeitures, and to the
extent necessary then from Employer contributions as provided in Section 4.4(a) hereof.
(b) Except to the extent provided in Sections 3.6, 4.4 and 4.5 hereof, forfeitures under the
Plan shall result only from a Participants termination of employment with the Group before
satisfying the vesting requirements of Sections 6.2 and 6.3 hereof. Forfeitures under the Plan
shall be used for the following purposes: (i) to
42
reinstate forfeited Accounts pursuant to Section 4.3 hereof; (ii) to reduce the amount of any
subsequent contributions of the applicable Employer under Article 4 hereof, and (iii) to reduce
administrative expenses of the Plan.
6.5
Determination of Period of Service
. In determining the Period of Service of a Participant for purposes of Sections 6.2 and 6.3
hereof, a Participant who has five (5) or more consecutive One Year Breaks in Service shall receive
credit for his Period of Service prior to such One Year Breaks in Service only if he had any
nonforfeitable interest in his Account Balance attributable to Employer contributions (including
elective deferrals within the meaning of Section 402(g) of the Code) at the time of his separation
from service with the Group. Notwithstanding the foregoing, in the case of any Participant who has
incurred five (5) consecutive One Year Breaks in Service, his Period of Service after such One Year
Breaks in Service shall not be taken into account for determining the vested percentage of his
Accounts attributable to periods prior to such five (5) consecutive One Year Breaks in Service.
ARTICLE 7
INVESTMENT OF CONTRIBUTIONS
7.1
Investment Funds
. Contributions made to the Plan shall be invested in accordance with the provisions of this
Article 7 (except as provided in Section 10.4 hereof) in such investment funds as the Investment
Committee may designate from time-to-time, provided that such investment funds shall include:
(a) A Fixed Income Fund, which shall be provided by such investment vehicle as may be
designated by the Investment Committee.
43
(b) A U.S. Treasury Fund, which shall be provided by such investment vehicle as may be
designated by the Investment Committee.
(c) A Balanced Fund, which shall be provided by such vehicle as may be designated by the
Investment Committee.
(d) A Retirement Savings Fund, which shall be provided by such vehicle as may be designated by
the Investment Committee.
(e) One or more Target Retirement Funds, which shall be provided by such vehicle(s) as may be
designated by the Investment Committee.
7.2
Loan Fund
. The Plan shall maintain a Loan Fund which shall consist of promissory notes evidencing Loans
made pursuant to Article 10 hereof.
7.3
Investment of Employer and Participant Contributions
. Contributions under the Plan shall be invested as follows:
(a) Payroll Savings Contributions, Employer Matching Contributions, Company Retirement
Contributions and Rollover Contributions, if any, shall be invested in accordance with the
investment elections made by Participants;
provided
,
however
, that in the case of
any Participant (including, but not limited to, an Automatic Contribution Participant) who does not
have in effect a valid investment election, such Participants Payroll Savings Contributions,
Employer Matching Contributions, Company Retirement Contributions and Rollover Contributions, if
any, shall be invested in the Target Retirement Fund appropriate for the Participants age. A
Participant may
direct, in one percent (1%) increments, that the Participants Payroll Savings Contributions,
Employer Matching Contributions, Company Retirement Contributions and Rollover Contributions, if
any, be invested in any of the Funds.
44
(b) Amounts transferred to this Plan from a Merged Plan shall be invested in the Funds in
accordance with rules specified by the Plan Administrator.
(c) Subaccounts shall be established for each Participant under each Fund to which
contributions on his behalf have been allocated.
7.4
Change in Investment Elections
. A Participant may change his investment election by giving prior Notice to the Plan
Administrator in accordance with rules prescribed by the Plan Administrator.
7.5
Change in Existing Investments
.
(a) In accordance with rules prescribed by the Plan Administrator, a Participant may transfer
all or any portion (in one percent (1%) increments) of his Before Tax Contributions Account, After
Tax Contributions Account, Employer Matching Contributions Account, Company Retirement
Contributions Account, Profit Sharing Contributions Account, Qualified Nonelective Contributions
Account and Rollover Account invested in any of the Funds to any of the other Funds.
(b) Transfers made pursuant to this Section 7.5 will be effected as of the close of business
on the Valuation Date that the transfer instruction is received by the Trustee if the instruction
is received on or before the Cut-Off Time, or as of the close of business on the next Valuation
Date, if the instruction is received after the Cut-Off Time or on a day that is not a Valuation
Date. Notwithstanding the foregoing, the Plan Administrator or the Trustee may, in its sole
discretion and either with or without prior
notice to Participants, suspend, delay, limit or restrict the execution of Participant
transfer elections for some or all Participants for such periods as the Plan Administrator or the
Trustee may determine in the event of electronic or other communications failures or for
45
purposes
of facilitating the merger of a Merged Plan into this Plan. For
purposes of this Section 7.5,
Cut-Off Time means the time prescribed by the Plan Administrator or the Trustee.
ARTICLE 8
WITHDRAWALS DURING EMPLOYMENT
8.1
Withdrawal of After Tax Contributions
. Subject to the provisions of this Article 8, a Participant may elect to withdraw all or any
portion of his After Tax Contributions Account.
8.2
Withdrawals After Age 59-1/2
. Subject to the provisions of this Article 8, a Participant who has attained age fifty-nine and a
half (59-1/2) and who has withdrawn all amounts available pursuant to Section 8.1 hereof may elect
to withdraw all or a portion of his Before Tax Contributions Account, Qualified Nonelective
Contributions Account, vested Company Retirement Contributions Account, vested Profit Sharing
Contributions Account and vested Employer Matching Contributions Account.
8.3
Withdrawal of Employer Matching Contributions
. Subject to the provisions of this Article 8, a Participant who has withdrawn all amounts
available pursuant to Sections 8.1 and 8.2 hereof may withdraw all or any portion of the vested
portion of his Employer Matching Contributions Account attributable to Employer Matching
Contributions made for Plan Years beginning before January 1, 2008;
provided
,
however
, that in the case of a Participant who does not have at least
sixty (60) Months of Participation before the date of such withdrawal, the Employer Matching
Contributions attributable to Plan Years beginning before January 1, 2008, actually made by the
Participants Employer (or predecessor employer) during the most recent
46
preceding twenty-four (24)
months may not be withdrawn, except as permitted by Section 8.2 hereof.
8.4
Hardship Withdrawals
.
(a) Subject to the provisions of this Article 8, a Participant may withdraw any amount, but
not less than five hundred dollars ($500), of his Before Tax Contributions (not including any
earnings thereon and reduced by the amount of any prior withdrawal of such contributions) from his
Before Tax Contributions Account on account of hardship. For purposes of this Plan a withdrawal is
on account of hardship only if: (i) the withdrawal is made because of an immediate and heavy
financial need of the Participant (as determined in accordance with Section 8.4(b) hereof), and
(ii) the withdrawal is necessary to satisfy such financial need (as determined in accordance with
Section 8.4(c) hereof).
(b) For purposes of this Section 8.4, a distribution is on account of an immediate and heavy
financial need of a Participant only if the distribution is on account of:
(i) expenses for (or necessary to obtain) medical care that would be deductible under Section
213(d) of the Code (determined without regard to whether the expenses exceed 7.5% of adjusted gross
income); or
(ii) costs directly related to the purchase of a principal residence of the Participant
(excluding mortgage payments); or
(iii) payment of tuition, related educational fees, and room and board expenses, for up to the
next twelve (12) months of post-secondary education for the
47
Participant, or the Participants
spouse, children, or dependents (as defined in Section 152 of the Code, without regard to Sections
152(b)(1), (b)(2) and (d)(1)(B) of the Code); or
(iv) the need to prevent the eviction of the Participant from his principal residence or
foreclosure of the mortgage on his principal residence; or
(v) payments for burial or funeral expenses for the Participants deceased parent, spouse,
children or dependents (as defined in Section 152 of the Code without regard to Section
152(d)(1)(B) of the Code); or
(vi) expenses for the repair of damage to the Participants principal residence that would
qualify for the casualty deduction under Section 165 of the Code (determined without regard to
whether the loss exceeds 10% of adjusted gross income); or
(vii) any other event or occurrence that the Commissioner of the Internal Revenue Service (the
Commissioner) may designate through the publication of revenue rulings, notices, and other
documents of general applicability as constituting immediate and heavy financial need.
(c) For purposes of this Section 8.4, a distribution is necessary to satisfy an immediate and
heavy financial need of a Participant only if all of the following requirements are satisfied:
(i) the distribution is not in excess of the amount of the immediate and heavy financial need
of the Participant;
(ii) the Participant has obtained all distributions, other than hardship distributions, and
all non-taxable (at the time of the loan) loans currently available under this Plan and all plans
maintained by the Group; and
48
(iii) the Participant is prohibited under the terms of the Plan or a legally enforceable
agreement from making elective contributions and employee contributions to the Plan and all other
plans maintained by the Group, to the extent required by applicable regulations, for six (6) months
after receipt of the hardship distribution.
(d) A distribution shall also be deemed to be necessary to satisfy an immediate and heavy
financial need to the extent prescribed by the Commissioner of the Internal Revenue Service through
the publication of revenue rulings, notices, and other documents of general applicability.
8.5
Withdrawal of Rollover Accounts
. Subject to the provisions of this Article 8, a Participant may withdraw all or a portion of his
Rollover Account.
8.6
Withdrawals of Certain Default Before Tax Contributions
. An Automatic Contribution Participant may elect, by providing Notice to the Plan Administrator not
later than ninety (90) days after the date of the first Before Tax Contribution made on the
Participants behalf pursuant to Section 2.2(b) hereof, to withdraw from his Before Tax
Contributions Account the aggregate amount of Before Tax Contributions made on his behalf with
respect to the first payroll period to which
Section 2.2(b) hereof applied to the Automatic Contribution Participant through the effective date
of the withdrawal election (adjusted for allocable gains and losses to the date of distribution,
calculated in accordance with Section 3.6(a) hereof). The date of the first Before Tax
Contribution made pursuant to Section 2.2(b) hereof is the date that the Compensation that is
subject to the cash or deferred election would otherwise have been included in the Automatic
Contribution Participants income. The effective date of the
49
Automatic Contribution Participants
election shall not be later than the last day of the payroll period that begins after the date the
election is made. Employer Matching Contributions made on the withdrawn Before Tax Contributions
shall be forfeited. If a Participant elects to withdraw his Before Tax Contributions under this
Section 8.6, he shall be deemed to have elected to not make Before Tax Contributions effective as
of the effective date of the withdrawal. The withdrawal rights under this Section 8.6, the
Automatic Contribution Arrangement provisions of 2.1(b) and (d) and 2.2(b) and (c) hereof and the
default investment provisions of Article 7 and Section 10.4 hereof are intended to constitute an
eligible automatic contribution arrangement under Section 414(w) of the Code.
8.7
Application for Withdrawals; Processing
. A request for a withdrawal shall be made by a Participant by providing Notice to the Plan
Administrator within such period of time as the Plan Administrator may prescribe, subject to
Section 8.6 hereof. The Plan Administrator shall evaluate the written application of a Participant
for a hardship withdrawal in accordance with a uniform and nondiscriminatory policy applicable to
all Participants similarly situated and shall direct the Trustee to make a hardship distribution to
such Participant upon a finding of such
hardship in accordance with the provisions of Section 8.4 hereof. A Participant making application
hereunder for a hardship withdrawal shall provide to the Plan Administrator such information and
representations as the Plan Administrator deems necessary or appropriate. Withdrawal request
Notices pursuant to this Article 8 that are properly made shall be processed by the Plan
Administrator and Trustee as soon as practicable after receipt, subject to complying with the
requirements of Section 402(f) of the Code.
50
8.8
Restrictions on Contributions After Certain Withdrawals
. A Participant who makes a withdrawal pursuant to Section 8.1 hereof shall be prohibited from
making any After Tax Contributions under this Plan until the next Designated Enrollment Date
following the expiration of six (6) months after the receipt of such a distribution. A Participant
who makes a withdrawal pursuant to Section 8.4 hereof shall be prohibited from making any Payroll
Savings Contributions under this Plan (or any elective contributions or employee contributions
under any plan maintained by the Group) and from exercising any stock options granted under any
Group plan, until the next Designated Enrollment Date following the expiration of six (6) months
after the receipt of such a distribution.
8.9
Limit on Number of Withdrawals
. A Participant may make only one withdrawal under Sections 8.1, 8.2 and 8.3 hereof in any
consecutive six (6) month period (except as otherwise permitted under rules adopted and
consistently applied in a uniform and nondiscriminatory manner by the Plan Administrator);
provided, however, that (a) concurrent withdrawals pursuant to such Sections shall be treated as a
single withdrawal, and (b) withdrawals made in connection with a withdrawal pursuant to Section 8.4
hereof shall be permitted without regard to the
foregoing restrictions of this Section 8.9 and shall not be taken into account for purposes of this
Section 8.9.
8.10
Effect of Withdrawals on Investments
. Withdrawals from a Participants Accounts pursuant to this Article 8 shall be charged to each
Fund, on a pro rata basis, in which the Participant has a Subaccount under the relevant Accounts.
Withdrawals made pursuant to this Article 8 shall be made as of the Valuation Date as of which the
51
withdrawal is processed by the
Trustee and a Participants Accounts shall be adjusted accordingly.
8.11
Timing and Form of Payment of Withdrawals
. All withdrawals pursuant to this Article 8 shall be paid in cash in a lump sum as of the
Valuation Date that authorized distribution directions are received by the Trustee, provided that
any applicable legal requirements have been satisfied.
8.12
Withdrawals Only Available to Employees
. A Participant may make a withdrawal pursuant to this Article 8 only if he is an employee of the
Group at the time of the withdrawal.
ARTICLE 9
PAYMENT OF BENEFITS
9.1
Distribution of Benefits Upon Occurrence of Distribution Event
.
(a) If a Distribution Event occurs with respect to a Participant, such Participant may, by
prior Notice to the Plan Administrator, elect to receive a distribution of his entire vested
Account Balance. As soon as practicable after receipt of a Participants distribution election
Notice, the Plan Administrator shall instruct the Trustee to distribute the Participants Account
Balance in accordance with the Participants
election; provided, however, that all distributions shall be subject to Section 9.1(d) hereof.
(b) As soon as practicable after the Plan Administrator receives notice of (i) the occurrence
of a Distribution Event with respect to a Participant whose vested Account Balance does not exceed
one thousand dollars ($1,000), or (ii) the death of a Participant, the Plan Administrator shall
instruct the Trustee to distribute the vested
52
Account Balance of such Participant to the
Participant (or in the case of a deceased Participant, the Participants beneficiary, as designated
in accordance with Section 2.1(e) hereof), subject to complying with the requirements of Section
9.1(d) hereof.
(c) If a Participant has no balance in his Before Tax Contributions Account and Qualified
Nonelective Contributions Account, and no portion of his Employer Matching Contributions Account,
Company Retirement Contributions Account and Profit Sharing Contributions Account is vested at the
time the Participant receives a distribution of his entire vested Account Balance, the Participant
shall be deemed to have received a distribution of his entire nonforfeitable interest in such
Accounts (which, since the Participant is not vested, is zero).
(d) In no event shall the Plan Administrator direct the Trustee to distribute a Participants
vested Account Balance prior to satisfying the requirements of Section 402(f) of the Code.
9.2
Payment of Benefits by Trustee; Form of Payment
. Except as provided in Section 9.3 hereof, all amounts that become distributable after a
Distribution Event pursuant to Section 9.1 hereof shall be paid in the form of a cash lump sum
payment as soon as practicable after the Trustee receives a distribution instruction
from the Plan Administrator and any applicable legal requirements have been satisfied. The amount
distributed to a Participant or beneficiary shall be equal to the applicable Participants Account
Balance as of the date that the Trustee processes the distribution instruction.
9.3
Required Minimum Distributions
. Notwithstanding any other provision of the Plan to the contrary (other than the Minimum
Distribution Appendix hereto), the vested portion of a Participants Account Balance shall be, or
begin to be, distributed to
53
the Participant not later than the Participants Required Beginning
Date. If, on or before a Participants Required Beginning Date, the Participant does not die and
does not elect to receive a distribution of his entire vested Account Balance in the form of a cash
lump sum payment, (a) the Participants vested Account Balance shall begin to be distributed to the
Participant on the Participants Required Beginning Date in accordance with regulations issued
under Section 401(a)(9) of the Code over the life of the Participant (or over a period not
extending beyond the life expectancy of the Participant), and (b) the Participant may elect, by
prior Notice to the Plan Administrator, after the Participants Required Beginning Date to
accelerate distribution of the Participants remaining Account Balance in the form of a cash lump
sum payment described in Section 9.2 hereof. If the Participant dies prior to the distribution of
his entire Account Balance, the Participants remaining Account Balance shall be distributed to his
beneficiary as soon as administratively practicable after the date of the Participants death in a
single lump sum cash payment described in Section 9.2 hereof.
9.4
Payment to Participants Estate
. If there is no person alive to receive and receipt for any payment due under the Plan, the Plan
Administrator shall direct that such payment or payments be made to the estate of the deceased
Participant or the last deceased payee, as the case may be.
9.5
Incapacity of Payee
. If any person who is entitled to receive any benefits hereunder is, in the sole and absolute
judgment of the Plan Administrator, legally, physically or mentally incapable of personally
receiving and receipting for any distributions, the Plan Administrator in its sole and absolute
discretion may instruct the Trustee to make distribution to such other person, persons, institution
or institutions as in
54
the judgment of the Plan Administrator shall then be maintaining or have
custody over such distributee. The Plan Administrator may rely upon the report of a duly licensed
physician with regard to capacity or may in its sole and absolute discretion first require persons
claiming benefits to obtain an appropriate court order determining such persons capacity.
9.6
Plan Administrator Determines Payee
. Except as otherwise provided by ERISA, the determination of the Plan Administrator as to the
identity of the proper payee for any payment and the amount properly payable shall be conclusive,
and payment in accordance with such determination shall, to the extent thereof, constitute a
complete discharge of all obligations to such payee under the Plan.
9.7
Rollover Distributions
.
(a) A Participant may elect, at the time and in the manner prescribed by the Plan
Administrator, to have any portion of an Eligible Rollover Distribution paid directly to an
Eligible Retirement Plan specified by the Participant as a Direct Rollover. Notwithstanding the
foregoing, a Participant shall not be entitled to elect a Direct
Rollover of an amount that is not in excess of any minimum dollar amount that the Plan
Administrator may prescribe from time to time in accordance with applicable regulations.
(b) For purposes of this Section 9.7, an Eligible Rollover Distribution is any distribution
of all or any portion of a Participants Accounts, except that an Eligible Rollover Distribution
shall not include (i) any distribution that is one of a series of substantially equal periodic
payments (paid not less frequently than annually) made for a specified period of ten years or more,
(ii) any distribution to the extent that such distribution is required under Section 401(a)(9) of
the Code, (iii) any hardship
55
distribution (within the meaning of Section 401(k)(2)(B)(i)(IV)), or
(iv) any withdrawal of default Before Tax Contributions under Section 8.6 hereof. A portion of a
distribution shall not fail to be an Eligible Rollover Distribution merely because such portion
consists of after-tax employee contributions not includible in gross income, but such portion may
be transferred only to an individual retirement account or individual retirement annuity described
in Section 408(a) or (b) of the Code, or to a qualified defined contribution plan described in
Section 401(a) or 403(a) of the Code that agrees to separately account for amounts so transferred,
including separately accounting for the portion of such distribution includible in gross income and
the portion of such distribution not so includible.
(c) For purposes of this Section 9.7, an Eligible Retirement Plan is an individual
retirement account described in Section 408(a) of the Code, an individual retirement annuity
described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code,
or a qualified trust described in Section 401(a) of the Code, that accepts the Participants
Eligible Rollover Distribution. The term Eligible
Retirement Plan shall also include an annuity contract described in Section 403(b) of the
Code and an eligible plan under Section 457(b) of the Code which is maintained by a state,
political subdivision of a state, or any agency or instrumentality of a state or political
subdivision of a state and which agrees to separately account for amounts transferred into such
plan from this Plan. Notwithstanding the foregoing, with respect to the portion of an Eligible
Rollover Distribution that is not includible in gross income (determined without regard to the
exclusion for net unrealized appreciation on employer securities), the term Eligible Retirement
Plan shall only include an individual
56
retirement account or annuity described in Section 408(a) or
(b) of the Code, or a qualified defined contribution plan under Section 401(a) or 403(a) of the
Code that agrees to separately account for such amounts, including separately accounting for the
portion of such distribution which is includible in gross income and the portion of such
distribution which is not so includible.
(d) The surviving spouse of a deceased Participant or a Participants spouse, former spouse,
or surviving spouse who is an alternate payee under a qualified domestic relations order (within
the meaning of Section 414(p) of the Code) shall be treated as a Participant for purposes of this
Section 9.7.
(e) For purposes of this Section 9.7, a Direct Rollover is a payment by the Plan to the
Eligible Retirement Plan specified by the Participant.
(f) Notwithstanding Sections 9.7(a) through (e) hereof, if a non-spouse beneficiary is
eligible to receive a distribution of a Participants Accounts, which distribution would otherwise
constitute an Eligible Rollover Distribution, and the non-spouse beneficiary is a designated
beneficiary (within the meaning of Treasury
Regulation Section 1.401(a)(9)-4), then to the extent permitted by Section 402(c) of the Code,
the non-spouse beneficiary may direct a trustee to trustee transfer of the distribution of the
Participants Accounts to an individual retirement account described in Section 408(a) of the Code
or an individual retirement annuity described in Section 408(b) of the Code (other than an
endowment contract) established for the purpose of receiving the distribution on behalf of the
non-spouse beneficiary, and (i) such transfer shall be treated as a Direct Rollover of an Eligible
Rollover Distribution for purposes of Section 402(c) of the Code, and (ii) such individual
retirement account or individual
57
retirement annuity shall be treated as an inherited individual
retirement account individual retirement annuity (within the meaning of Section 408(d)(3)(C)).
9.8
Distributions Pursuant to Qualified Domestic Relations Orders
. Notwithstanding any other provision of Article 8 hereof or this Article 9 to the contrary, all
or a portion of a Participants Accounts may be distributed at any time to an alternate payee
(within the meaning of Section 414(p) of the Code) pursuant to a qualified domestic relations
order (within the meaning of Section 414(p) of the Code) to the extent permitted by applicable
regulations.
ARTICLE 10
LOANS
10.1
Availability of Loans; Application for Loans
.
(a) Subject to the terms and conditions of this Article 10, the Plan Administrator may, in its
sole discretion, direct the Trustee to loan to an Eligible Borrower as of any Valuation Date an
amount from the Eligible Borrowers Accounts that is not less than $1,000 and that, when added to
any other Loan outstanding to the
Eligible Borrower does not exceed the lesser of (i) fifty percent (50%) of the Eligible
Borrowers vested Account Balance; or (ii) $50,000 reduced by the highest outstanding balance of
loans, during the twelve (12) month period immediately preceding the date the Loan is made, from
the Plan and from any other tax qualified retirement plan maintained by the Group.
(b) Loans shall be made available to Eligible Borrowers on a reasonably equivalent basis
without regard to race, color, religion, sex, age or national origin and after giving consideration
only to those factors which would be considered in a
58
normal commercial setting by an entity in the
business of making similar types of loans. Notwithstanding the foregoing, the Plan Administrator
may impose different terms and conditions on Loans made at different times and to different
Eligible Borrowers. The Plan Administrator may change the terms of any outstanding loan to the
extent required by applicable law.
(c) An application for a Loan shall be made by an Eligible Borrower by providing Notice to the
Plan Administrator within such period of time prior to the date of the Loan as the Plan
Administrator may prescribe.
10.2
Terms of Loans
.
(a) Loans shall bear a reasonable rate of interest established by the Plan Administrator that
will provide the Plan with a return commensurate with the interest rates charged by entities in the
business of lending money for loans which would be made under similar circumstances.
(b) Loans shall be adequately secured, but in no event shall more than fifty percent (50%) of
an Eligible Borrowers vested Account Balance under the Plan at
the time of the Loan be considered as security. The adequacy of such security shall be
determined by the Plan Administrator, in its sole discretion, in light of the type and amount of
security which would be required in the case of an otherwise identical transaction in a normal
commercial setting between unrelated parties on arms-length terms.
(c) The period of repayment for each Loan shall be arrived at by mutual agreement between the
Plan Administrator and an Eligible Borrower, but such
59
period shall not in any case exceed five (5)
years; provided, however, that a Residential Loan may have a term of up to twenty-five (25) years.
(d) An Eligible Borrower shall be permitted to have no more than two (2) outstanding Loans at
any time.
(e) Loan repayments by a Borrower who is an employee of the Group shall be made through
regular payroll deductions made not less frequently than quarterly from amounts otherwise payable
to the Eligible Borrower. Any Borrower who is not receiving any compensation from a member of the
Group from which payroll deductions can be made shall be required to make required Loan repayments
by money order or a certified or cashiers check delivered to the office of the Plan Administrator
on or before their respective due dates or otherwise in accordance with rules prescribed by the
Plan Administrator. Cash payments (including personal checks) shall not be accepted.
(f) A Borrower shall be permitted to prepay, without penalty, all of the outstanding balance
of a Loan and accrued interest thereon at any time; provided, however, that partial prepayments
shall not be permitted.
(g) Each Loan shall be evidenced by such documentation as may be required by the Plan
Administrator, including but not limited to an authorization from each Borrower who is an employee
of the Group to permit its Employer to effect repayment through regular payroll deductions.
(h) Notwithstanding any other provision of this Plan to the contrary, no distribution shall be
made to any Borrower from that portion of a Borrowers Before Tax Contributions Account that
secures one or more Loans made to such Borrower unless and until all such loans have been repaid.
60
(i) Each Loan shall have such additional terms and conditions as may be determined by the Plan
Administrator in its sole discretion, including, but not limited to, terms and conditions relating
to application and administration fees, events of default, prepayments, and required security.
(j) A loan that was made to a Participant under the terms of a Merged Plan and that is
transferred to this Plan in connection with the merger of the Merged Plan into this Plan or that
was rolled over into this Plan pursuant to Section 3.7 hereof shall be treated as a Loan hereunder
except that the terms of such a Loan shall be required to comply with the requirements of this
Article 10 only to the extent determined by the Plan Administrator in its discretion.
10.3
Events of Default
.
(a) The outstanding balance of any Loan shall, at the sole option of the Plan Administrator,
immediately become due and payable without further notice or demand, upon the occurrence, with
respect to a Borrower of any of the following events of default:
(i) any payment of principal or accrued interest on a Loan remains due and unpaid for a period
of ten (10) calendar days after the same becomes due and payable under the terms of the loan,
provided that the Plan Administrator is authorized to allow a grace period that does not continue
beyond the last day of the calendar quarter following the calendar quarter in which the required
payment was not made;
61
(ii) the commencement of a proceeding in bankruptcy, receivership or insolvency by or against
the Borrower, but only to the extent then permitted under applicable federal law;
(iii) the later of the termination of the employment of the Borrower with the Group for any
reason or the Borrower ceasing to be an Eligible Borrower;
(iv) the Borrower attempts to make an assignment for the benefit of creditors of that portion
of his Before Tax Contributions Account securing his Loan or in any other security for his Loan;
(v) a qualified domestic relations order (as such term is then defined in Section 414(p) of
the Code) with respect to the Borrower is received by the Plan Administrator; or
(vi) any Loan proceeds are used, directly or indirectly, by the Borrower to purchase or carry
securities (as such term is then defined for purposes of Regulation G of the Federal Reserve Board
as promulgated pursuant to Section 7 of the Securities and Exchange Act of 1934).
(b) Any payments of principal or interest on a Loan not paid when due shall bear such interest
thereafter as may be specified by the terms of the loan. The payment and acceptance of any sum or
sums at any time on account of a Loan after the occurrence of an event of default, or any failure
to act to enforce the rights granted hereunder upon the occurrence of an event of default, shall
not be a waiver of the right of acceleration set forth in Section 10.3(a) hereof.
62
(c) If an event of default and the acceleration of the outstanding balance of any Loan shall
occur as described in Section 10.3(a) hereof, the Plan Administrator shall have the right to
direct the Trustee to pursue any remedies available to a creditor at law or under the terms of the
Loan, including the right to execute on the security for the Loan in satisfaction of the
outstanding balance of the Loan; provided, however, that the Plan Administrator shall not have the
right to direct the Trustee to execute on any amounts credited to a Borrowers Before Tax
Contributions Account before the date on which such amounts may be distributed without adversely
affecting the tax-qualified status of the Plan.
10.4
Accounting for Loans
. A Participant Loan Subaccount shall be established as of the date a Loan is made to an Eligible
Borrower and an amount equal to the principal amount of the Loan shall be transferred from the
Eligible Borrowers Accounts to his Participant Loan Subaccount, with the amount transferred coming
(a) first from earnings allocated to the Eligible Borrowers Before Tax Contributions Account,
until exhausted, (b) second, from Before Tax Contributions, and (c) third, pro rata from the
Participants other Accounts based on the vested balance of such Accounts. The Loan shall be
treated as an investment of the
funds credited to the Eligible Borrowers affected Accounts. Cash equal to the amount of the Loan
shall be obtained by liquidating, on a pro rata basis, the investments allocated to the Subaccounts
under the affected Accounts. Payments of principal and interest on a Loan shall be credited to the
Borrowers Accounts that have a Loan Subaccount in proportion to the balances in such Subaccounts
and invested in the various Funds in the same proportion as the Eligible Borrowers current Before
Tax Contributions are invested; provided, however, if the
63
Borrower is not making any current Before
Tax Contributions to the Plan, the payments shall be invested in the Target Retirement Fund
appropriate for the Borrowers age.
ARTICLE 11
ADMINISTRATION OF THE PLAN
11.1
Authority of Plan Administrator
.
(a) The Plan shall be administered on behalf of the participating Employers by an
administrator (the Plan Administrator) appointed by the Board of Directors or President of the
Company.
(b) Except as otherwise provided herein, the Plan Administrator shall be solely responsible
for the administration, operation and interpretation of the Plan. The Plan Administrator shall
establish rules and regulations appropriate for the administration of the Plan. It shall have the
exclusive right and discretion to interpret the Plan and to decide any and all matters arising
thereunder or in connection with the administration of the Plan in its sole discretion, and it
shall endeavor to act, whether by general rules or by particular decisions, so as not to
discriminate in favor of any person or class of persons. Except as otherwise provided by ERISA,
such decisions, actions and records of the Plan
Administrator shall be conclusive and binding upon the Company, the Employers and all persons
having or claiming to have any right or interest in or under the Plan.
(c) The Plan Administrator may delegate to (i) any agent or agents of the Group, or (ii) any
employee or employees of the Group, severally or jointly, the authority to perform any act or
function in connection with the administration of the Plan. The Plan Administrator may also, in
its discretion, contract with one or more third parties to perform any act or function in
connection with the administration of the Plan and with
64
respect to such acts or functions,
references herein to the Plan Administrator shall be deemed to be references to such third party.
(d) The Plan Administrator shall maintain such records as are required under ERISA or under
the Code and such additional records as it deems necessary or appropriate showing the fiscal
transactions of the Plan.
11.2
Claims Procedure
.
(a) If any Participant, beneficiary or other payee (a claimant) claims to be entitled to a
benefit under the Plan and the Plan Administrator determines that such claim should be denied in
whole or in part, the Plan Administrator shall notify such claimant of its decision in writing
(which may be provided electronically). Such notification will be written in a manner calculated
to be understood by the claimant and will contain (i) specific reasons for the denial, (ii)
specific reference to pertinent Plan provisions, (iii) a description of any additional material or
information necessary for the claimant to perfect such claim and an explanation of why such
material or information is necessary, and (iv) a description of the Plans review procedures and
the time limits applicable to such procedures, including a statement of the claimants right to
bring a
civil action under Section 502(a) of ERISA following the rendering of an adverse decision on
review. Such notification will be given within a reasonable period of time, but not later than
ninety (90) days after the claim is received by the Plan Administrator, unless the Plan
Administrator determines that special circumstances require an extension of time for processing the
claim. If the Plan Administrator determines that such an extension of time is required, written
notice of the extension shall be provided to the claimant prior to the end of the initial ninety
(90) day period. The extension notice shall
65
indicate the special circumstances requiring the
extension of time and the date by which the Plan Administrator expects to render its decision. In
no event shall the extension exceed an additional ninety (90) days from the end of the initial
ninety (90) day period. Any electronic notification provided by the Plan Administrator under this
Section 11.2 shall comply with the standards imposed by 29 C.F.R. 2520.104b-1(c)(1)(i)-(iv).
(i) Within sixty (60) days after the date on which a claimant receives a written notice of a
denied claim, the claimant may file a written request with the Plan Administrator for a review of
the denied claim. If the claimant requests a review of the denied claim, the claimant shall be
entitled to submit to the Plan Administrator written comments, documents, records and other
information relating to the claim for benefits and to receive, upon request and free of charge,
reasonable access to, and copies of, all documents, records and other information relevant to the
claimants claim for benefits. The Plan Administrator shall perform its review taking into account
all comments, documents, records and other information submitted by the claimant relating to the
claim without regard to whether such information was submitted or considered in the initial benefit
determination. The Plan Administrator will notify the claimant of its
decision in writing (which may be provided electronically). If the claim is denied, the
notification will be written in a manner calculated to be understood by the claimant and will
contain (A) the specific reasons for the denial, (B) references to pertinent provisions of the
Plan, (C) a statement that the claimant is entitled to receive, upon request and free of charge,
reasonable access to, and copies of, all documents, records and other information relevant to the
claimants claim for benefits, and (D) a statement of the claimants right to bring an action under
Section 502(a) of ERISA.
66
(ii) The review provided for by Section 11.2(b)(i) will be made within a reasonable period of
time, but not later than sixty (60) days after the Plan Administrator receives the request for
review, unless the Plan Administrator determines that special circumstances require an extension of
time for processing the claim. If the Plan Administrator determines that an extension of time is
required, written notice of the extension shall be furnished to the claimant prior to the end of
the initial sixty (60) day period. The extension notice shall indicate the special circumstances
requiring the extension of time and the date by which the Plan Administrator expects to render its
decision. In no event shall the extension exceed an additional sixty (60) days from the end of the
initial sixty (60) day period. If the extension of time is needed due to the claimants failure to
submit information necessary to make a decision, the period during which the Plan Administrator
must make a decision shall be tolled from the date the extension notice is sent to the claimant
until the date the claimant responds to the request for additional information.
11.3
Financial Statements
. The Plan Administrator shall engage a qualified public accountant (as defined in Section
103(a)(3)(D) of ERISA) to prepare such audited financial statements of the operation of the Plan
as shall be required by ERISA or by the Code.
11.4
Liability of Plan Administrator
. The Plan Administrator (and each member of any committee that serves as the Plan Administrator)
shall not be liable for any act or omission on its own part, excepting only its own willful
misconduct or gross negligence except as is otherwise expressly provided by ERISA. To the fullest
extent permitted by applicable laws and to the extent not insured against by any insurance
67
company
pursuant to the provisions of any applicable insurance policy, the Company shall indemnify and save
harmless the Plan Administrator (and each member of any committee that serves as the Plan
Administrator) against any and all claims, demands, suits or proceedings in connection with the
Plan and Trust Fund that may be brought by Participants or their spouses or other designated
beneficiaries (or estates), Employees of participating Employers or by any other person,
corporation, entity, government or agency thereof; provided, however, that such indemnification
shall not apply with respect to acts or omissions of willful misconduct or gross negligence. The
Company may, at the Companys expense, settle any such claim or demand asserted or suit or
proceeding brought against the Plan Administrator (or any member of any committee that serves as
the Plan Administrator) when such settlement appears to be in the best interests of the Company.
ARTICLE 12
MANAGEMENT OF THE TRUST FUND
12.1
Designation of Trustee
. All contributions shall be made to, and held in trust by, the Trustee of the Plan, who shall be
appointed by the Board of Directors or President of the Company, with such powers in the Trustee as
to investment, reinvestment, control and disbursement of the Trust Fund as may be provided in the
Trust Agreement and shall be in accordance with the Plan and permitted under ERISA and under the
Code. The Board of Directors or President of the Company may remove any Trustee at any time, with
or without cause, upon reasonable notice, and upon such removal or upon the resignation of any
Trustee, the Board of Directors or President of the Company shall promptly designate a successor
Trustee.
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12.2
Plan Assets Held in Trust
.
(a) All assets held by the Trustee under the Trust Fund shall be held in trust for the
exclusive benefit of Participants or, if deceased, their spouses or other designated beneficiaries
(or estates), and no part of the corpus or income of the Trust Fund shall be used for, or diverted
to, purposes other than for the exclusive benefit of such persons under the Plan or for the payment
of reasonable expenses of administering the Plan; provided, however, that if any contribution is
made by an Employer as the result of a mistake of fact made in good faith or is conditioned on the
deductibility of such contribution under Section 404(a) of the Code, that Employer may direct the
Trustee to return within one (1) year after the date of the payment or after the date the deduction
is denied, whichever is applicable, the amount contributed by mistake of fact or the amount that is
not deductible, whichever is applicable. Earnings attributable to any excess Employer
contributions shall not be returned to that Employer, but losses shall reduce the
amount to be returned. All contributions to the Plan are conditioned on their deductibility
under Section 404 of the Code.
(b) No person shall have any interest in or right to any part of the earnings of the Trust
Fund, or any rights in, to or under the Trust Fund or any part of its assets except to the extent
expressly provided in the Plan. Notwithstanding anything herein to the contrary, the spouse,
former spouses, beneficiary or any other person claiming benefits on behalf of any Participant
shall have absolutely no rights whatsoever under the Plan prior to the death of that Participant
except as may otherwise be expressly provided under ERISA (e.g., spousal consent rights and
qualified domestic relations orders).
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12.3
Appointment of Investment Manager
. The Investment Committee may appoint one or more investment managers to manage any assets of
the Plan. As used herein, the term investment manager shall mean any person or entity who: (a)
has power to manage, acquire or dispose of any assets of the Plan; (b) is (i) registered as an
investment advisor under the Investment Advisors Act of 1940, (ii) a bank, as defined in that Act,
or (iii) an insurance company qualified, under the laws of more than one state, to perform services
described in (a) above; and (c) has acknowledged in a writing delivered to the Investment Committee
and the Trustee that it is a fiduciary with respect to the Plan. The Investment Committee shall be
a named fiduciary for purposes of Section 402(a)(2) of ERISA.
ARTICLE 13
AMENDMENT OF THE PLAN
13.1
Amendment
. The Plan may be wholly or partially amended or otherwise modified at any time by the Board of
Directors or President of the Company, or by the Plan Administrator with respect to Appendix I
hereto; provided, however, that:
(a) except as otherwise provided herein and permitted under the Code and under ERISA, no
amendment or modification shall be made at any time prior to the satisfaction of all liabilities
under the Plan with respect to Participants or, if deceased, their spouses or other designated
beneficiaries (or estates) and with respect to the expenses of the Plan which would permit any part
of the corpus or income of the Trust Fund to be used for, or diverted to, purposes other than for
the exclusive benefit of such persons under the Plan and for the payment of the expenses of the
Plan;
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(b) no amendment or modification shall have any retroactive effect so as to deprive any person
of any benefits already accrued, except that any amendment may be made retroactive which is
necessary to bring the Plan into conformity with governmental regulations in order to retain the
qualification of the Plan and Trust Fund under Sections 401(a), 401(k) and 501(a) of the Code or to
meet the requirements of ERISA and other applicable laws;
(c) no amendment or modification shall be made which substantially increases the duties or
liabilities of the Trustee, the Plan Administrator, the Investment Committee or any Employer
without the prior written consent of the party so affected; and
(d) no amendment shall be made which changes the vesting requirements in Article 6 hereof or
in Section 16.4 hereof, if applicable, unless each Participant whose Period of Service was at least
three (3) years as of the effective date of
such amendment is permitted to elect to remain under the pre-amendment vesting requirements
with respect to all of his Plan benefits accrued both before and after the effective date of such
amendment.
ARTICLE 14
DISCONTINUANCE OF THE PLAN
14.1
Right To Terminate Plan
. The Plan may be terminated, in whole or in part, at any time by the Board of Directors or
President of the Company, but only upon condition that such action is taken as shall render it
impossible for any part of the corpus or income of the Trust Fund to be used for, or diverted to,
purposes other than for the exclusive benefit of the Participants or, if deceased, their spouses or
other designated
71
beneficiaries (or estates) under the Plan and for the payment of reasonable costs
of administering the Plan, except as otherwise provided herein and permitted under ERISA and/or
under the Code. In the event of any termination of the Plan, in whole or in part, or the complete
discontinuance of contributions hereunder, the Employer Matching Contributions Account, Company
Retirement Contributions Account and any Profit Sharing Contributions Account of each Participant
affected by the partial or complete termination shall become fully vested and nonforfeitable.
14.2
Valuation of Trust Fund upon Termination
. If the Plan is terminated, in whole or in part, pursuant to Section 14.1, and the Board of
Directors or President of the Company determines that the Trust Fund shall be terminated, the Trust
Fund shall be revalued as of such date, and the current value of all Accounts shall be distributed
in accordance with Article 9.
14.3
Continuation of Trust
. If the Plan is terminated, in whole or in part, pursuant to Section 14.1, but the Board of
Directors or President of the Company determines that the Trust Fund shall be continued pursuant to
its terms and the provisions of this Section, no further contributions shall be made by either the
Participants or by the Employers, but the Trust Fund shall be administered as though the Plan were
otherwise in full force and effect. If the Trust Fund is subsequently terminated, the provisions
of Section 14.2 shall then apply.
14.4
Plan Mergers and Transfers of Assets and Liabilities
.
(a) No merger or consolidation with, or transfer of assets or liabilities to, any other
pension or retirement plan shall be made unless the benefits each Participant in the Plan would
receive if the other plan were terminated immediately after such
72
merger, consolidation or transfer
of assets and liabilities would be at least as great as the benefits he would have received had the
Plan been terminated immediately before such merger, consolidation or transfer.
(b) The Plan Administrator, in its sole discretion, may at any time (i) transfer to an
Affiliate Plan assets and liabilities relating to Participants who are covered by such Affiliate
Plan and (ii) accept the transfer of assets and liabilities to this Plan from an Affiliate Plan
with respect to Participants who have account balances under such Affiliate Plan. In the
discretion of the Plan Administrator, and in accordance with rules prescribed by the Plan
Administrator, assets may be transferred between this Plan and an Affiliate Plan either in cash or
in-kind.
(c) All transfers of account balances between this Plan and an Affiliate Plan and any merger
of a Merged Plan into this Plan shall comply with Sections
411(a)(10) of the Code (relating to changes in vesting schedules) and 411(d)(6) of the Code
(relating to reductions of accrued benefits and elimination of optional forms of benefit). To the
extent that an Affiliate Plan or a Merged Plan provides an optional form of benefit with respect to
all or a portion of an amount transferred to this Plan that is not otherwise available under this
Plan, such optional form of benefit shall nonetheless be provided under this Plan with respect to
such applicable portion of the transferred amount under the same terms and conditions as such
optional form of benefit was provided under the transferee Affiliate Plan or Merged Plan as of the
date of transfer, subject to such terms and conditions as the Plan Administrator may impose that
are consistent with the requirements of Section 411(d)(6) of the Code. The Plan Administrator may
establish such accounts and subaccounts as it deems necessary or appropriate to account for
73
amounts
transferred to the Plan pursuant to this Section 14.4(c). If the assets of any Merged Plan that
are transferred to this Plan in connection with a Plan Merger include one or more loan notes
evidencing one or more loans made to a participant in a Merged Plan, such loans shall be
administered in accordance with their respective terms except to the extent determined otherwise by
the Plan Administrator.
(d) Notwithstanding the provisions of Section 14.4(c) hereof, the merger of a Merged Plan into
this Plan or the transfer of account balances from a Merged Plan to this Plan shall, as of the
applicable Merger Date, constitute an amendment that (i) except as otherwise provided, is adopted
and effective as of the applicable Merger Date and (ii) causes all optional forms of benefit made
available under this Plan pursuant to Section 14.4(c) hereof that would not otherwise be available
hereunder (each, a Protected Benefit) to cease to be available hereunder to a Participant to the
maximum
extent permitted under Treasury Regulation Section 1.411(d)-4, provided that (A) the amendment
shall not apply with respect to any distribution to a Participant with an annuity starting date
that is earlier than the date on which such amendment is effective with respect to such Participant
and (B) no Protected Benefit shall cease to be available hereunder to a Participant unless the
Participant is entitled to elect to receive that portion of the Participants Account Balance that
could otherwise be paid in the form of the Protected Benefit in the form of a single-sum
distribution form that is otherwise identical (within the meaning of Treasury Regulation Section
1.411(d)-4) to the Protected Benefit.
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ARTICLE 15
STATEMENT OF INTENT
15.1
Qualification
. The Plan and the related Trust Agreement are intended and designed to qualify under Sections
401(a), 401(k), and 501(a) of the Code and the Plan is hereby designated a profit sharing plan for
purposes of Sections 401(a), 401(k), 402, 412 and 417 of the Code. Anything contained in the Plan
to the contrary notwithstanding, if the Internal Revenue Service determines that the Plan and the
related Trust Agreement do not meet the requirements of Sections 401(a), 401(k) and 501(a) of the
Code, then the Board of Directors and President of the Company shall be entitled to make such
modifications, alterations and amendments of the Plan and the related Trust Agreement as are
necessary to retain a favorable determination and such modifications, alterations and amendments
may be effective retroactively to the extent required to retain a favorable determination. The
Plan Administrator and/or the Company may, in their discretion, take any and all
such actions as they deemed necessary or appropriate with respect to the administration and
operation of the plan, including taking any corrective action authorized under the Internal Revenue
Service Employee Plans Compliance Resolution Program (or any successor or similar program), for
purposes of maintaining the Plans and Trusts compliance with the requirements of Sections 401(a),
401(k) and 501(a) of the Code.
15.2
Section 404(c) of ERISA
. This Plan is designed to satisfy the requirements of Section 404(c) (including 404(c)(5)) of
ERISA and the regulations thereunder.
75
15.3
Responsibility of Named Fiduciaries
. It is declared to be the express purpose and intention of the Plan that each named fiduciary
as such term is defined in Section 402(a)(2) of ERISA shall have individual responsibility for the
prudent execution of the specific functions and duties assigned to him, and none of such
responsibilities or any other responsibility shall be shared by two (2) or more of such named
fiduciaries unless such sharing shall be provided by a specific provision of the Plan or of the
Trust Agreement. Whenever one (1) named fiduciary is required by the Plan or by the Trust
Agreement to follow the directions of another named fiduciary, the two (2) named fiduciaries shall
not be deemed to have assigned a shared responsibility, but the responsibility of the named
fiduciary giving the directions shall be deemed his sole responsibility, and the responsibility of
the named fiduciary receiving those directions shall be to follow them insofar as such instructions
are on their face proper under applicable law and not prohibited under Section 4975(c) of the Code
or under Section 406 of ERISA.
15.4
Legal Rights and Liabilities
.
(a) It is further declared to be the express purpose and intention of the Plan that, except as
otherwise provided by ERISA, no liability whatsoever shall attach to or be incurred by the
shareholders, employees or directors of the Company or of any Employer or of any representatives
appointed hereunder by the Board of Directors or President of the Company under or by reason of any
of the terms and conditions of the Plan. Neither the establishment and maintenance of the Plan nor
any provision or amendment thereof nor any act or omission under or resulting from the operation of
the Plan shall be construed:
76
(b) as conferring upon any Employee, Participant, spouse, beneficiary or any other person,
firm, corporation or association, any legal or equitable right or claim against the Plan
Administrator, the Company, any Employer, the Trustee, or any shareholder, officer, employee or
director of any Employer, except to the extent that such right or claim shall be specifically and
expressly provided in the Plan or provided by law. Any and all such rights and claims, whether
arising by common law or in equity or created by statute, are hereby expressly waived and released
to the fullest extent permitted by law by every Employee on behalf of himself, his spouse or other
beneficiary and any and all other persons who might claim through him as a condition of and as a
part of the consideration for the contributions made by the Employers under the Plan and for the
receipt of benefits hereunder;
(c) as an agreement, consideration or inducement of employment or as affecting in any manner
the rights or obligations of the Employers or of any Employee to continue or to terminate the
employment relationship at any time; or
(d) as creating any responsibility or liability of the Plan Administrator, the Employers or
the Trustee for the validity or effect of the Plan or of any investment at any time included in the
Trust Fund.
ARTICLE 16
TOP-HEAVY RULES
16.1
Applicability of Rules
. The rules set forth in this Article 16 shall be applicable with respect to any Plan Year in
which the Plan is determined to be a Top-Heavy Plan. The provisions of this Article 16 shall be
applied only to the extent
77
necessary to comply with Section 416 of the Code and in a manner
consistent with all requirements imposed under Section 416 of the Code.
16.2
Determination of Top-Heavy Status
. The Plan shall be considered a Top-Heavy Plan with respect to any Plan Year if as of the last
calendar day of the immediately preceding Plan Year (the determination date):
(a) The present value of the Accrued Benefits of key employees (as such term is defined below)
exceeds sixty percent (60%) of the present value of the Accrued Benefits of all Participants and
former Participants other than former key employees (as such term is defined below); provided,
however, that the Accrued Benefits of any Participant who has not performed any services for the
Group as an employee during a five (5) year period ending on the determination date (as such term
is defined above) shall be disregarded; or
(b) the Plan is part of a required aggregation group (as such term is defined below) and the
required aggregation group is top-heavy; provided, however, that the Plan shall not be considered a
Top-Heavy Plan with respect to any Plan Year in which the Plan is part of a required or permissive
aggregation group (as such terms are defined below) which is not top-heavy. For purposes of this
Article 16, the term key employee shall have the meaning prescribed in Section 416(i) of the
Code and the regulations thereunder.
(c) For purposes of this Article 16, the term required aggregation group shall include:
(i) all qualified retirement plans maintained by the Group in which a key employee (as such
term is defined above) is a participant, and
78
(ii) any other qualified retirement plans maintained by the Group which enable any qualified
retirement plan described in the preceding clause (i) above to meet the requirements of Section
401(a)(4) or of Section 410 of the Code.
(d) For purposes of this Article 16, the term permissive aggregation group shall include all
qualified retirement plans that are part of a required aggregation group (as such term is defined
above) and any other qualified retirement plans maintained by the Group if such group will continue
to meet the requirements of Sections 401(a)(4) and 410 of the Code.
(e) Solely for the purpose of determining if the Plan, or any other plan included in a
required aggregation group of which the Plan is a part, is top-heavy (within the meaning of Section
416(g) of the Code), the Accrued Benefits of an Employee other than a key employee shall be
determined under:
(i) the method, if any, that uniformly applies for accrual purposes under all plans maintained
by the Group, or
(ii) if there is no such method, as if such benefit accrued not more rapidly than the slowest
accrual rate permitted under the fractional accrual rule of Section 411(b)(1)(C) of the Code.
16.3
Determination of Accrued Benefits
. For purposes of this Article 16, Accrued Benefits with respect to any Plan Year shall be
determined as of the determination date (as such term is defined in Section 16.2 hereof) for that
Plan Year based on Account balances as of the most recent Valuation Date within a consecutive
twelve (12) month period ending on such determination date; provided, however, that such Account
balances shall be adjusted to the extent required by Section 416 of the
79
Code to increase such
Account balances by the amount of any Employer or Participant contributions and of any rollovers or
plan-to-plan transfers (other than rollovers or plan-to-plan transfers which are initiated by a
Participant from any qualified retirement plan maintained by an unrelated employer after December
31, 1983) made and allocated after the Valuation Date but on or before such determination date and
by any distributions made to Participants prior to the Valuation Date during any of the five (5)
consecutive Years immediately preceding the Plan Year for which the determination as to whether the
Plan is a Top-Heavy Plan is being made (including distributions from a terminated plan which, if
not terminated, would have been part of a required aggregation group (as such term is defined in
Section 16.2 hereof) and to reduce such Account balances by any rollovers or plan-to-plan transfers
made to the Plan on or
before the Valuation Date which are initiated by a Participant from any qualified retirement
plan maintained by an unrelated employer.
16.4
Vesting for Top-Heavy Years
. Notwithstanding the provisions of Article 6, with respect to any Plan Year in which the Plan
is determined to be a Top-Heavy Plan, a Participants Accrued Benefit which is derived from
Employer Retirement or Matching contributions shall vest in accordance with the following vesting
schedule unless such Participants vested benefit percentage, as determined under Article 6, is
greater:
|
|
|
Period of Service
|
|
Vested Percentage of Employer Account Shall Be
|
Less than three (3) years
|
|
zero percent (0%)
|
Three (3) years or more
|
|
one hundred percent (100%)
|
provided
,
however
, that if the Plan becomes a Top-Heavy Plan and subsequently
ceases to be such, the vesting schedule shown above shall continue to apply but only with
80
respect
to those Participants whose Period of Service is equal to or greater than three (3) years as of the
last calendar day of the final Top-Heavy Year.
16.5
Contributions for Top-Heavy Years
. With respect to any Plan Year in which the Plan is a Top-Heavy Plan, the minimum amount of
Employer contributions to be allocated to the Accounts of any Employee who is eligible to be a
Participant (including forfeitures constructively allocated to that Participants Accounts and any
employer contributions and forfeitures allocated to that Participant under any other qualified
defined contribution plans maintained by the Group but excluding any employee elective
contributions) who had not separated from service with the Group as of the last calendar day of
that Plan Year, regardless of the number of Hours of Service completed by that Participant during
that
Plan Year, or whether the Employee declines to make mandatory contributions (if the Plan
otherwise requires same) and who is not a key employee (as such term is defined in Section 16.2
hereof) for that Plan Year, shall not be less than three percent (3%) of that Participants Section
415 Compensation in that Plan Year; provided, however, that the percentage of Section 415
Compensation allocated to the Employer Matching Contributions Account, Company Retirement
Contributions Account, and Qualified Nonelective Contributions Account of any Participant who is
not a key employee (as such term is defined in Section 16.2) under this Article with respect to
that Plan Year shall not exceed the highest percentage of Section 415 Compensation allocated to the
Employer Matching Contributions Account, Company Retirement Contributions Account, and Qualified
Nonelective Contributions Account of any Participant who is a key employee in that Plan Year.
Notwithstanding the foregoing, in the event that an Employee who is otherwise entitled to a minimum
benefit equal to three
81
percent (3%) of his Section 415 Compensation pursuant to this Section is a
participant in a defined benefit plan that is a part of this Plans required or permissive
aggregation group, such Employee shall only be entitled to a combined benefit (determined in
accordance with the requirements of Treasury Regulation § 1.416-1, Q&A M-12) under the plans equal
to the minimum benefit required under the defined benefit plan pursuant to Section 416 of the Code.
16.6
Certain Changes Effective January 1, 2002
.
(a) This Section 16.6 shall apply for purposes of determining whether the plan is a top-heavy
plan under Section 416(g) of the Code for Plan Years beginning after December 31, 2001, and whether
the Plan satisfies the minimum benefits
requirements of Section 416(c) of the Code for such years. This Section modifies the
foregoing provisions of this Article 16.
(b) The term key employee means any employee or former employee (including any deceased
employee) who at any time during the Plan Year that includes the determination date was an officer
of the employer having annual Section 415 Compensation greater than $130,000 (as adjusted under
Section 416(i)(1) of the Code for Plan Years beginning after December 31, 2002), a five-percent
owner of the employer, or a one-percent owner of the employer having annual Section 415
Compensation of more than $150,000. The determination of who is a key employee will be made in
accordance with Section 416(i)(1) of the Code and the applicable regulations and other guidance of
general applicability issued thereunder.
82
(c) This Section 16.6(c) shall apply for purposes of determining the present values of accrued
benefits and the amounts of account balances of employees as of the determination date.
(i) The present values of accrued benefits and the amounts of account balances of an employee
as of the determination date shall be increased by the distributions made with respect to the
employee under the Plan and any plan aggregated with the Plan under Section 416(g)(2) of the Code
during the one-year period ending on the determination date. The preceding sentence shall also
apply to distributions under a terminated plan which, had it not been terminated, would have been
aggregated with the Plan under Section 416(g)(2)(A)(i) of the Code. In the case of a distribution
made for a reason other than separation from service, death, or disability, this provision shall be
applied by substituting five-year period for one-year period.
(ii) The accrued benefits and accounts of any individual who has not performed services for
the employer during the one-year period ending on the determination date shall not be taken into
account.
(d) Employer matching contributions shall be taken into account for purposes of satisfying the
minimum contribution requirements of Section 416(c)(2) of the Code and the Plan. The preceding
sentence shall apply with respect to matching contributions under the Plan or, if the Plan provides
that the minimum contribution requirement shall be met in another plan, such other plan. Employer
matching contributions that are used to satisfy the minimum contribution requirements shall be
treated as matching contributions for purposes of the actual contribution percentage test and other
requirements of Section 401(m) of the Code.
83
(e) Notwithstanding the foregoing, in the event that an employee who is otherwise entitled to
a minimum benefit equal to three percent (3%) of his Section 415 Compensation pursuant to this
Section is a participant in a defined benefit plan that is a part of this Plans required or
permissive aggregation group, such employee shall only be entitled to a combined benefit
(determined in accordance with the requirements of Treasury Regulation § 1.416-1, Q&A M-12) under
the plans equal to the minimum benefit required under the defined benefit plan pursuant to Section
416 of the Code.
ARTICLE 17
GENERAL PROVISIONS
17.1
Nonalienation of Benefits
.
(a) To the fullest extent permitted by law, no benefits under the Plan shall be subject in any
manner, voluntarily or involuntarily, to anticipation, alienation, sale, transfer, assignment,
pledge, garnishment, encumbrance or charge, and any action by way of anticipation, alienation,
selling, transferring, assigning, pledging, garnishing, encumbering or charging the same shall be
void and of no effect, and no such benefits shall be in any manner liable for or subject to the
debts, contracts, liabilities, engagements or torts of the person entitled to such benefits. The
preceding sentence shall also apply to the creation, assignment or recognition of a right to any
benefit payable with respect to any Participant or to any beneficiary under the Plan pursuant to a
domestic relations order, unless such order is determined to be a qualified domestic relations
order as defined in Section 414(p) of the Code. The Plan Administrator shall establish such
procedures for evaluating and determining the status of any domestic relations order and
84
shall give
due notice to any affected parties (Participants and alternate payees) as required by law.
(b) Subject to any applicable provision of law to the contrary, if any Participant or any
beneficiary under the Plan shall become bankrupt or attempt to anticipate, alienate, sell,
transfer, assign, pledge, garnish, encumber or charge any benefits, then such benefits shall, in
the sole discretion of the Plan Administrator, cease and terminate. In that event, the Plan
Administrator shall hold or apply the benefits or any part thereof to or for such Participant or
beneficiary, his spouse or children or other
dependents, or any of them, in such manner and in such proportions as the Plan Administrator
shall, in its sole discretion, determine. This Section shall not be construed in such a manner as
to permit the Plan Administrator to make any assignment or otherwise to alienate any benefits in
contravention of requirements under the Code or under ERISA.
17.2
No Right to Continued Employment
. The establishment of the Plan shall not be construed as conferring any rights upon any person
for a continuation of employment, nor shall it be construed as limiting in any way the right of an
Employer to discharge any person or to treat him without regard to the effect which such treatment
might have upon him as a Participant under the Plan.
17.3
Rules of Construction
.
(a) The masculine pronoun wherever used shall include the feminine pronoun and the singular
shall include the plural unless the context clearly indicates the distinction.
85
(b) The headings of Articles and Sections herein are included solely for convenience of
reference and shall not affect the meaning or interpretation of any of the provisions of this Plan.
(c) Amendments made to this Plan from time to time, including amendments made pursuant to
amendments and restatements of this Plan, shall be effective and apply as of such dates, and shall
apply with respect to such Employees, Participants, and their beneficiaries, as shall be specified
in such amendments at the time of adoption, and the Plan shall be construed and applied
accordingly.
17.4
Appendices
.
Appendices to this Plan shall constitute a part of this Plan and, to the extent provided
therein, may establish special rules that apply to specified groups of Employees or Participants in
lieu of Plan terms that would otherwise apply.
ARTICLE 18
LAPSED BENEFITS
18.1
Notification to Participants and Beneficiaries
.
(a) If the Trustee mails by registered or certified mail, return receipt requested, to a
Participant or beneficiary entitled to a distribution hereunder at his last known address, a
notification that he is so entitled and said notification is returned as being undeliverable
because the addressee cannot be located at said address, then the Plan shall continue to maintain
the Participants Accounts which are invested in the various funds.
(b) If, by the last day of the Plan Year coinciding with or immediately following the fifth
(5th) anniversary of the date as of which such person first could not be located, said person has
not informed the Trustee of his whereabouts, his entire interest in
86
this Plan shall become a
forfeiture and shall be used to reduce any subsequent contributions required by his Employer as
provided in Section 6.4 hereof for the Plan Year in which it occurs. Thereafter such person shall
have no further right or interest therein except as provided in Section 18.2 hereof.
18.2
Reinstatement of Lapsed Benefits
.
(a) If a Participant or beneficiary prior to the Plan Year in which the Plan and Trust
terminate, duly claims and proves entitlement to a benefit which otherwise lapsed pursuant to
Section 18.1, such benefits as shall then be due, unadjusted for Trust
Fund earnings and/or losses subsequent to the date of forfeiture, shall be paid by the Plan as
soon as is administratively feasible.
(b) The reinstatement of lapsed benefits shall first be derived from forfeitures which
otherwise are allocable in the Plan Year of the reinstatement to be made pursuant to this Section
18.2 and if such forfeitures are not sufficient, such reinstatement to the extent necessary shall
then next be made from Employer contributions.
IN WITNESS WHEREOF, Forestar Real Estate Group Inc. has caused this Forestar Savings and
Retirement Plan to be executed as of this ___day of December, 2007.
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FORESTAR REAL ESTATE GROUP
INC.
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By:
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Name:
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Title:
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ATTEST:
Name:
Title:
87
APPENDIX I
List of Participating Employers as of December 28, 2007
Forestar Real Estate Group Inc.
MINIMUM DISTRIBUTION APPENDIX
1.
General Rules
.
1.1
Effective Date
. The provisions of this Appendix will apply for purposes of
determining required minimum distributions for calendar years beginning with the 2003 calendar
year.
1.2
Precedence
. The requirements of this Appendix will take precedence over any
inconsistent provisions of the Plan.
1.3
Requirements of Treasury Regulations Incorporated
. All distributions required
under this Appendix will be determined and made in accordance with the Treasury Regulations under
Section 401(a)(9) of the Code.
1.4
TEFRA Section 242(b)(2) Elections
. Notwithstanding the other provisions of this
Appendix, distributions may be made under a designation made before January 1, 1984, in accordance
with section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act (TEFRA) and the provisions
of the Plan that relate to section 242(b)(2) of TEFRA.
2.
Time and Manner of Distribution
.
2.1
Required Beginning Date
. The Participants entire interest will be distributed,
or begin to be distributed, to the Participant no later than the Participants Required Beginning
Date.
2.2
Death of Participant Before Distributions Begin
. If the Participant dies before
distributions begin, the Participants entire interest will be distributed, or begin to be
distributed, no later than as follows:
2
(a) If the Participants surviving spouse is the Participants sole Designated Beneficiary,
then, except as provided in Section 6 hereof, distributions to the surviving spouse will begin by
December 31 of the calendar year immediately following the calendar year in which the Participant
died, or by December 31 of the calendar year in which the Participant would have attained age 70
1/2, if later.
(b) If the Participants surviving spouse is not the Participants sole Designated
Beneficiary, then, except as provided in Section 6 hereof, distributions to the Designated
Beneficiary will begin by December 31 of the calendar year immediately following the calendar year
in which the Participant died.
(c) If there is no Designated Beneficiary as of September 30 of the year following the year of
the Participants death, the Participants entire interest will be distributed by December 31 of
the calendar year containing the fifth anniversary of the Participants death.
(d) If the Participants surviving spouse is the Participants sole Designated Beneficiary and
the surviving spouse dies after the Participant but before distributions to the surviving spouse
begin, this Section 2.2, other than Section 2.2(a), will apply as if the surviving spouse were the
Participant.
For purposes of this Section 2.2 and Section 4 hereof, unless Section 2.2(d) hereof applies,
distributions are considered to begin on the Participants Required Beginning Date. If Section
2.2(d) hereof applies, distributions are considered to begin on the date distributions are required
to begin to the surviving spouse under Section 2.2(a) hereof. If distributions under an annuity
purchased from an insurance company irrevocably commence to the Participant before the
Participants Required Beginning Date (or to the
3
Participants surviving spouse before the date distributions are required to begin to the surviving
spouse under Section 2.2(a) hereof), the date distributions are considered to begin is the date
distributions actually commence.
2.3
Forms of Distribution
. Unless the Participants interest is distributed in the
form of an annuity purchased from an insurance company or in a single sum on or before the Required
Beginning Date, as of the first Distribution Calendar Year, distributions will be made in
accordance with Sections 3 and 4 hereof. If the Participants interest is distributed in the form
of an annuity purchased from an insurance company, distributions thereunder will be made in
accordance with the requirements of Code Section 401(a)(9) and the Treasury Regulations.
3.
Required Minimum Distributions During Participants Lifetime
.
3.1
Amount of Required Minimum Distribution for Each Distribution Calendar Year
.
During the Participants lifetime, the minimum amount that will be distributed for each
Distribution Calendar Year is the lesser of:
(a) the quotient obtained by dividing the Participants Account Balance by the distribution
period in the Uniform Lifetime Table set forth in Section 1.401(a)(9)-9 of the Treasury
Regulations, using the Participants age as of the Participants birthday in the Distribution
Calendar Year; or
(b) if the Participants sole Designated Beneficiary for the Distribution Calendar Year is the
Participants spouse, the quotient obtained by dividing the Participants Account Balance by the
number in the Joint and Last Survivor Table set forth in Section 1.401(a)(9)-9 of the Treasury
Regulations, using the Participants and
4
spouses attained ages as of the Participants and spouses birthdays in the Distribution
Calendar Year.
3.2
Lifetime Required Minimum Distributions Continue Through Year of Participants
Death
. Required minimum distributions will be determined under this Section 3 beginning with
the first Distribution Calendar Year and up to and including the Distribution Calendar Year that
includes the Participants date of death.
4.
Required Minimum Distributions After Participants Death
.
4.1
Death on or After Date Distributions Begin
.
(a)
Participant Survived by Designated Beneficiary
. If the Participant dies on or
after the date distributions begin and there is a Designated Beneficiary, the minimum amount that
will be distributed for each Distribution Calendar Year after the year of the Participants death
is the quotient obtained by dividing the Participants Account Balance by the longer of the
remaining Life Expectancy of the Participant or the remaining Life Expectancy of the Participants
Designated Beneficiary, determined as follows:
(i) The Participants remaining Life Expectancy is calculated using the age of the Participant
in the year of death, reduced by one for each subsequent year.
(ii) If the Participants surviving spouse is the Participants sole Designated Beneficiary,
the remaining Life Expectancy of the surviving spouse is calculated for each Distribution Calendar
Year after the year of the Participants death using the surviving spouses age as of the spouses
birthday in that year. For Distribution Calendar Years after the year of the surviving spouses
death, the remaining Life
5
Expectancy of the surviving spouse is calculated using the age of the surviving spouse as of
the spouses birthday in the calendar year of the spouses death, reduced by one for each
subsequent calendar year.
(iii) If the Participants surviving spouse is not the Participants sole Designated
Beneficiary, the Designated Beneficiarys remaining Life Expectancy is calculated using the age of
the Beneficiary in the year following the year of the Participants death, reduced by one for each
subsequent year.
(b)
No Designated Beneficiary
. If the Participant dies on or after the date
distributions begin and there is no Designated Beneficiary as of September 30 of the year after the
year of the Participants death, the minimum amount that will be distributed for each Distribution
Calendar Year after the year of the Participants death is the quotient obtained by dividing the
Participants Account Balance by the Participants remaining Life Expectancy calculated using the
age of the Participant in the year of death, reduced by one for each subsequent year.
4.2
Death Before Date Distributions Begin
.
(a)
Participant Survived by Designated Beneficiary
. Except as provided in Section 6
hereof, if the Participant dies before the date distributions begin and there is a Designated
Beneficiary, the minimum amount that will be distributed for each Distribution Calendar Year after
the year of the Participants death is the quotient obtained by dividing the Participants Account
Balance by the remaining Life Expectancy of the Participants Designated Beneficiary, determined as
provided in Section 4.1 hereof.
6
(b)
No Designated Beneficiary
. If the Participant dies before the date distributions
begin and there is no Designated Beneficiary as of September 30 of the year following the year of
the Participants death, distribution of the Participants entire interest will be completed by
December 31 of the calendar year containing the fifth anniversary of the Participants death.
(c)
Death of Surviving Spouse Before Distributions to Surviving Spouse Are Required to
Begin
. If the Participant dies before the date distributions begin, the Participants
surviving spouse is the Participants sole Designated Beneficiary, and the surviving spouse dies
before distributions are required to begin to the surviving spouse under Section 2.2(a) hereof,
this Section 4.2 will apply as if the surviving spouse were the Participant.
5.
Definitions
.
5.1
Designated Beneficiary
means the individual who is designated as the beneficiary
pursuant to Section 2.1(e) of the Plan and is the designated beneficiary under Section 401(a)(9) of
the Code and Section 1.401(a)(9)-1, Q&A-4, of the Treasury Regulations.
5.2
Distribution Calendar Year
means a calendar year for which a minimum
distribution is required. For distributions beginning before the Participants death, the first
Distribution Calendar Year is the calendar year immediately preceding the calendar year which
contains the Participants Required Beginning Date. For distributions beginning after the
Participants death, the first Distribution Calendar Year is the calendar year in which
distributions are required to begin under Section 2.2 hereof. The required minimum distribution
for the Participants first Distribution Calendar Year will
7
be made on or before the Participants Required Beginning Date. The required minimum
distribution for other Distribution Calendar Years, including the required minimum distribution for
the Distribution Calendar Year in which the Participants Required Beginning Date occurs, will be
made on or before December 31 of that Distribution Calendar Year.
5.3
Life Expectancy
means life expectancy as computed by use of the Single Life
Table in Section 1.401(a)(9)-9 of the Treasury Regulations.
5.4
Participants Account Balance
means the Account balance as of the last Valuation
Date in the calendar year immediately preceding the Distribution Calendar Year (Valuation Calendar
Year) increased by the amount of any contributions made and allocated or forfeitures allocated to
the Account balance as of dates in the Valuation Calendar Year after the Valuation Date and
decreased by distributions made in the Valuation Calendar Year after the Valuation Date. The
Account balance for the Valuation Calendar Year includes any amounts rolled over or transferred to
the Plan either in the Valuation Calendar Year or in the Distribution Calendar Year if distributed
or transferred in the Valuation Calendar Year.
5.5
Required Beginning Date
means April 1 of the calendar year following the later
of (a) the calendar year in which the attains age 70
1
/
2
, or (b) the calendar year in which the
Participant retires; provided, however, that the preceding clause (b) shall not apply in the case
of any Participant who is a 5-percent owner (as defined in Section 416 of the Code) with respect to
the plan year ending in the calendar year in which the Participant attains age 70
1
/
2
.
8
6.
Election to Apply 5-Year Rule to Distributions to Designated Beneficiaries
. If the
Participant dies before distributions begin and there is a Designated Beneficiary, distribution to
the Designated Beneficiary is not required to begin by the date specified in Section 2.2 hereof,
but the Participants entire interest will be distributed to the Designated Beneficiary by December
31 of the calendar year containing the fifth anniversary of the Participants death. If the
Participants surviving spouse is the Participants sole Designated Beneficiary and the surviving
spouse dies after the Participant but before distributions to either the Participant or the
surviving spouse begin, this election will apply as if the surviving spouse were the Participant.
This election will apply to all distributions to Designated Beneficiaries.
9
EXHIBIT
99.1
December
[ ], 2007
Dear
Temple-Inland Stockholder:
February 25, 2007, the Board of Directors of Temple-Inland
Inc. approved a transformation plan to separate Temple-Inland
into three focused, stand-alone, public companies and sell our
strategic timberland. The plan included:
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Temple-Inland retaining its manufacturing operations
corrugated packaging and building products,
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Spinning off our financial services group Guaranty
Financial Group,
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Spinning off our real estate group Forestar Real
Estate Group, and
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Selling our strategic timberland.
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Each of the three public companies Temple-Inland,
Guaranty, and Forestar will benefit from greater
strategic focus, have appropriate capital structures to ensure
financial flexibility, and be well positioned to maximize
stockholder value. The majority of proceeds from the sale of
strategic timberland will be returned to stockholders through a
special dividend currently estimated to be approximately $1.1
billion, or $10.25 per share. The remaining proceeds will be
used to pay down debt.
We will effect the spin-off of Guaranty and Forestar by
distributing common stock on a pro rata basis through a dividend
to stockholders. The dividend will represent 100% of the
outstanding common stock of Guaranty and Forestar at the time of
the spin-off. We anticipate distributing shares of Guaranty and
Forestar on or about December 28, 2007 to stockholders of
record as of December 14, 2007.
Stockholder approval for the spin-off is not required, and you
are not obligated to take any action to participate in the
spin-off. You do not need to pay any consideration or surrender
or exchange your shares of Temple-Inland common stock. Following
the spin-off, Temple-Inland common stock will continue to trade
on the New York Stock Exchange under the symbol TIN,
Guaranty common stock is expected to trade on the New York Stock
Exchange under the symbol GFG, and Forestar common
stock is expected to trade on the New York Stock Exchange under
the symbol FOR.
We have received a ruling from the Internal Revenue Service
indicating the spin-off of each of Guaranty and Forestar will be
tax free to stockholders for U.S. federal income tax
purposes.
The enclosed information statement, provided to all
Temple-Inland stockholders, describes the spin-off of Forestar.
A separate information statement describing the spin-off of
Guaranty will also be provided to all Temple-Inland stockholders.
Sincerely,
Kenneth M. Jastrow, II
Chairman and Chief Executive Officer
December
[ ], 2007
Dear Forestar Real Estate Group Stockholder:
It is our pleasure to welcome you as a stockholder of our new
company. Our management team is excited about our spin-off from
Temple-Inland Inc., and is committed to realizing the potential
that exists for us as an independent company. Our vision is to
be the most admired and respected real estate company.
Forestar Real Estate Group is focused on maximizing and growing
long-term stockholder value through entitlement and development
of real estate, realization of value from natural resources, and
accelerated growth through strategic and disciplined investment
in real estate. We currently have real estate in nine states and
twelve markets encompassing about 374,000 acres located
primarily in growth corridors in the southern half of the United
States. We also own oil and gas mineral interests in about
622,000 net acres in Texas, Louisiana, Alabama and Georgia.
We expect to have our common shares listed on the New York Stock
Exchange under the symbol FOR in connection with the
distribution of our shares by Temple-Inland Inc.
We invite you to learn more about our company by reading the
enclosed information statement. You may also visit our website,
www.forestargroup.com, to learn more about our company and our
current development projects. We would like to thank you in
advance for your support as a stockholder in Forestar.
Sincerely,
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James M. DeCosmo
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Kenneth M. Jastrow, II
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President and Chief Executive Officer
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Chairman
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SUBJECT TO COMPLETION, DATED
DECEMBER 10, 2007
INFORMATION
STATEMENT
December [ ], 2007
Common
Stock
(par
value $1.00 per share)
We are sending this information statement to you to describe the
spin-off of Forestar Real Estate Group Inc. from Temple-Inland
Inc. We are currently a wholly-owned subsidiary of Temple-Inland
that holds the assets and liabilities primarily related to
Temple-Inlands real estate development and minerals
operations. On February 25, 2007, the board of directors of
Temple-Inland preliminarily approved a plan to separate
Temple-Inland into three focused, stand-alone, public companies:
one for its real estate business (Forestar Real Estate Group
Inc.), one for its financial services business (Guaranty
Financial Group Inc.), and one for its manufacturing operations
in corrugated packaging and building products (Temple-Inland).
Temple-Inland intends to accomplish this separation by
distributing the shares of common stock in Forestar and Guaranty
to Temple-Inland stockholders. Immediately following the
separation of Forestar and Guaranty, Temple-Inlands
stockholders will own all of the outstanding shares in each of
the three companies. Temple-Inland has received a private letter
ruling from the Internal Revenue Service that the distributions
qualify for tax-free treatment by stockholders for
U.S. federal income tax purposes, except for cash received
in lieu of any fractional share interests.
The distribution of our shares is expected to occur on
December 28, 2007, by way of a pro rata dividend to
Temple-Inland stockholders. You, as a Temple-Inland stockholder,
will be entitled to receive one share of Forestar common
stock for each three shares of Temple-Inland common stock
that you hold at the close of business on December 14,
2007, the record date of the distribution. In anticipation of
the spin-off, we recently converted from a Delaware limited
liability company to a Delaware corporation. Upon completion of
the distribution, we will be an independent, publicly-traded
company.
On the distribution date, the distribution agent will distribute
shares of our common stock to each eligible holder of
Temple-Inland common stock by crediting book-entry accounts with
that holders proportionate number of whole shares of our
common stock. The shares will be issued in book-entry form only,
which means that no physical stock certificates will be issued.
No fractional shares of our common stock will be issued. You
will receive the net cash value of any fractional share to which
you would otherwise have been entitled.
No stockholder action is necessary to receive the shares of
common stock to which you are entitled in the distribution,
which means that:
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you do not need to make any payment for the shares, and
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you do not need to surrender any shares of Temple-Inland common
stock to receive your shares of our common stock.
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No vote of Temple-Inland stockholders is required in
connection with this distribution. We are not asking you for a
proxy and you are not requested to send us a proxy.
All of the outstanding shares of our common stock are currently
owned by Temple-Inland. Accordingly, there currently is no
public trading market for our common stock. We have filed an
application to list our common stock on the New York Stock
Exchange under the ticker symbol FOR. Assuming that
our common stock is approved for listing on the NYSE, we
anticipate that a limited market, commonly known as a
when-issued trading market, for our common stock
will develop on or shortly before the record date for the
distribution and will continue up to and through the
distribution date. We anticipate that regular-way
trading of our common stock will begin on the first trading day
following the distribution date.
In reviewing this information statement, you should carefully
consider the matters described under the section entitled
Risk Factors
beginning on page 11.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved these
securities or determined if this information statement is
truthful or complete. Any representation to the contrary is a
criminal offense.
This information statement does not constitute an offer to
sell or the solicitation of an offer to buy any securities.
This information statement was first mailed to
Temple-Inland stockholders on or about
December [ ], 2007
TABLE OF
CONTENTS
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Page
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1
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11
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18
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20
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30
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31
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46
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47
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48
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54
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68
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97
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100
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107
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Stockholder Proposals for 2008 Annual Meeting
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113
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113
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114
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115
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F-1
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This information statement is being furnished solely to
provide information to Temple-Inland stockholders who will
receive shares of our common stock in the distribution. It is
not and is not to be construed as an inducement or encouragement
to buy or sell any of our securities or any securities of
Temple-Inland. This information statement describes our
business, the relationship between Temple-Inland and us, and how
the spin-off affects Temple-Inland and its stockholders, and
provides other information to assist you in evaluating the
benefits and risks of holding or disposing of our common stock
that you will receive in the distribution. You should be aware
of certain risks relating to the spin-off, our business and
ownership of our common stock, which are described under the
heading Risk Factors beginning on page 11 of
this information statement.
You should not assume that the information contained in this
information statement is accurate as of any date other than the
date on the cover. Changes to the information contained in this
information statement may occur after that date, and we
undertake no obligation to update the information, except in the
normal course of our public disclosure obligations and
practices.
We own or have rights to use certain trademarks, trade names
and logos in conjunction with our business, including our
distinctive leaf-star logo. Certain other
trademarks, trade names and logos of third parties may appear in
this information statement, including specifically PGA
Tour
®
and Tournament Players
Club
®
,
each of which are trademarks of PGA Tour, Inc. The display of
such third parties trademarks, trade names and logos is
for informational purposes only, and is not intended for
marketing or promotional purposes or as an endorsement of their
business or of any of their products or services
.
The following is a summary of material information discussed
in this information statement. This summary may not contain all
the details concerning the spin-off, our business, our common
stock or other information that may be important to you. You
should carefully review this entire information statement,
including the risk factors, to better understand the spin-off
and our business and financial position.
Except as otherwise indicated or unless the context otherwise
requires, the information included in this information statement
assumes the completion of the spin-off and all of the other
related transactions referred to in this information statement.
Unless the context otherwise requires, references in this
information statement to Forestar, we,
our and us refer to the real estate and
natural resources business that will be separated from
Temple-Inland Inc. in the spin-off under the name Forestar Real
Estate Group Inc., a Delaware corporation, and its subsidiaries.
Guaranty refers to Guaranty Financial Group Inc. and
its subsidiaries, the financial services business of
Temple-Inland, also to be separated, and
Temple-Inland refers to Temple-Inland Inc., a
Delaware corporation, and its subsidiaries, unless the context
otherwise requires. Unless otherwise indicated, information is
presented as of September 29, 2007, and references to
acreage owned includes all acres owned by ventures regardless of
our ownership interest in a venture.
OUR
COMPANY
Forestar Real Estate Group is a growth company committed to
maximizing long-term stockholder value. We own directly or
through ventures about 374,000 acres of real estate located
in nine states and twelve markets and about 622,000 net
acres of oil and gas mineral interests. We invest in strategic
growth corridors, which we define as markets with significant
growth characteristics for population, employment and household
formation. In 2006, we generated revenues of $225 million
and net income of $52 million.
We operate two business segments:
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Real estate, and
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Natural resources.
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Our real estate segment secures entitlements and develops
infrastructure on our lands, primarily for single-family
residential and mixed-use communities. We own approximately
304,000 acres located in a broad area around Atlanta,
Georgia, with the balance located primarily in Texas. We also
actively invest in new projects in our strategic growth
corridors, regions of accelerated growth across the southern
half of the United States that possess key demographic and
growth characteristics that we believe make them attractive for
long-term real estate investment.
Our real estate projects are located among the fastest growing
markets in the United States. We have 24 real estate
projects representing about 27,000 acres currently in the
entitlement process and 75 active development projects in seven
states and 11 markets encompassing approximately
17,000 remaining acres, comprised of about 30,000
residential lots and about 1,900 commercial acres. We sell land
for commercial uses to national retailers and local commercial
developers. We own and manage projects both directly and through
ventures. By using ventures, we achieve various business
objectives including more efficient capital deployment, risk
management, and leveraging a partners local market
contacts and expertise. Real estate segment revenues for 2006
were $180 million.
Our natural resources segment is focused on maximizing the value
from royalties and other lease revenues from our oil and gas
mineral interests located in Texas, Louisiana, Alabama and
Georgia. These operations have historically required low capital
investment, and we intend to use the cash flow generated by our
mineral interests to accelerate real estate value creation. In
addition, we sell wood fiber from our land, primarily in
Georgia, and lease land for recreational uses. Natural resources
segment revenues for 2006 were $45 million.
Our origins date back to the 1955 incorporation of
Lumbermens Investment Corporation, which in 2006 changed
its name to Forestar (USA) Real Estate Group Inc. We have a
decades-long legacy of residential and commercial real estate
development operations, primarily in Texas. In 1991, we and
Cousins Properties
1
Incorporated formed Temco Associates, LLC as a venture to
develop residential sites in Paulding County, Georgia, and in
2002 we and Cousins formed CL Realty, L.L.C. as a venture to
develop residential and mixed-use communities in Texas and
across the southeastern U.S. Those ventures continue today.
In 2001, we opened an office in the Atlanta area to manage
nearby land with a focus on its long-term real estate
development potential. In 2006, Temple-Inland began reporting
Forestar Real Estate Group as a separate business segment. We
believe our management team brings extensive knowledge,
experience and expertise to position us to maximize long-term
value for stockholders.
Our
Strengths
Forestar has a strong competitive position attributable to a
number of factors, including:
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Geographically diversified real estate portfolio with about
374,000 acres located in nine states and twelve markets,
which are among the fastest growing markets in the United States,
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Stable and significant cash flow from natural resources, which
will accelerate real estate value creation activities,
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Financial strength, with a balance sheet well positioned for
growth, and
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Management team with significant experience in entitlement,
development and acquisition of real estate, and management of
natural resources.
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Our
Strategy
Our strategy is to maximize and grow long-term stockholder value
through:
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Entitlement and development of real estate,
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Realization of value from natural resources, and
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Accelerated growth through strategic and disciplined investment
in real estate.
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We are focused on maximizing real estate values through the
entitlement and development of well-located residential and
mixed-use communities. We secure entitlements on our lands by
delivering thoughtful plans and balanced solutions that meet the
needs of the communities where we operate. Moving land through
the entitlement and development process creates significant real
estate value. Residential development activities target lot
sales to national and regional home builders who build quality
products and have strong and effective marketing and sales
programs. The lots we deliver in the majority of our communities
are for mid-priced homes, predominantly in the first and second
move-up categories, the largest segments of the new home market.
Commercial tracts are either sold to or ventured with a
commercial developer that specializes in the construction and
operation of income-producing properties.
We intend to maximize value from our oil and gas mineral
interests located in Texas, Louisiana, Alabama and Georgia by
increasing the acreage leased, lease rates and royalty
interests. These operations have historically required low
capital investment and we intend to use the cash flow generated
by our mineral interests to accelerate real estate value
creation activities. In addition, we realize value from our
undeveloped land by selling fiber and by managing it for future
real estate development and conservation uses. We also intend to
generate cash flow and create additional value through
recreational leases and water rights.
We are committed to growing our business and will continue to
reinvest our capital primarily in ten strategic growth corridors
through disciplined investment in real estate opportunities that
meet our investment criteria. In 2006, we invested
$74 million in ten new projects, representing over
2,400 acres located in three of our strategic growth
corridors.
Our real estate and natural resources assets in combination with
our strategy, financial strength, management expertise,
stewardship and continuous reinvestment in our business,
position Forestar to maximize long-term value for stockholders.
2
SUMMARY
REAL ESTATE PORTFOLIO AND ACTIVITY
The following table sets forth our real estate portfolio at
September 29, 2007, and our 2006 sales and entitlement
activity (including ventures).
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September 29, 2007
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For the Year 2006
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Value Chain
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Acres
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Lots
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Sales & Entitlement Activity
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Average Sales Price
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Developed & Under
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Development
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Commercial
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624
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Sold 278 acres
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$204,800 / acre
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Residential
|
|
|
1,817
|
|
|
|
5,195
|
|
|
|
Sold 3,539 lots
|
|
|
|
$48,200 / lot
|
|
Entitled
|
|
|
14,254
|
(a)
|
|
|
24,721
|
|
|
|
Entitled 2,151 acres - 5 projects
|
|
|
|
|
|
In Entitlement
|
|
|
26,750
|
|
|
|
|
|
|
|
Moved 4,890 acres into entitlement
|
|
|
|
|
|
Undeveloped Land
|
|
|
330,706
|
|
|
|
|
|
|
|
Sold 3,652 acres
|
|
|
|
$8,100 / acre
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
374,151
|
|
|
|
29,916
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Includes 1,266 commercial acres and 12,988 residential acres.
|
SUMMARY
FINANCIAL INFORMATION
The following table sets forth summary historical financial data
as of and for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
|
|
|
|
Nine Months
|
|
|
Year-End
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands, except number of employees)
|
|
|
For the period ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
142,373
|
|
|
$
|
225,560
|
|
|
$
|
155,487
|
|
|
$
|
169,301
|
|
Net income
|
|
$
|
24,689
|
|
|
$
|
51,844
|
|
|
$
|
34,897
|
|
|
$
|
28,436
|
|
At end of period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
692,963
|
|
|
$
|
620,174
|
|
|
$
|
543,944
|
|
|
$
|
517,700
|
|
Note payable to Temple-Inland and other debt
|
|
$
|
219,453
|
|
|
$
|
161,117
|
|
|
$
|
121,948
|
|
|
$
|
110,997
|
|
Temple-Inlands net
investment
(a)
|
|
$
|
433,656
|
|
|
$
|
418,052
|
|
|
$
|
381,290
|
|
|
$
|
368,659
|
|
Number of employees
|
|
|
82
|
|
|
|
62
|
|
|
|
48
|
|
|
|
49
|
|
|
|
|
(a)
|
|
Our operations are conducted within separate legal entities and
their subsidiaries or within segments or components of segments
of Temple-Inland. As a result of the different forms of
Temple-Inlands ownership in these operations,
Temple-Inlands net investment is shown instead of
stockholders equity.
|
Other
Information
We are a Delaware corporation. Our principal executive offices
are located at 1300 MoPac Expressway South, Suite 3S,
Austin, Texas 78746. Our telephone number is
512-433-5200.
Our web site is
www.forestargroup.com
. Information
contained on our web site does not constitute a part of this
information statement or the registration statement on
Form 10 of which it is a part.
3
SUMMARY
RISK FACTORS
An investment in our common stock involves risks associated
with our business, the spin-off and ownership of our common
stock. The following list of risk factors is not exhaustive.
Please read carefully the risks relating to these and other
matters described under the section entitled Risk
Factors beginning on page 11.
Risks
Relating to Our Business
|
|
|
|
|
A decrease in demand for new housing in the market regions where
we operate could decrease our profitability.
|
|
|
|
Both our real estate and natural resources businesses are
cyclical in nature.
|
|
|
|
Development of real estate entails a lengthy, uncertain, and
costly entitlement process.
|
|
|
|
The real estate and natural resource industries are highly
competitive and a number of entities with which we compete are
larger and have greater resources, and competitive conditions
may adversely affect our results of operations.
|
|
|
|
Our activities are subject to environmental regulations and
liabilities that could have a negative effect on our operating
results.
|
|
|
|
Our real estate operations are currently concentrated in Georgia
and Texas, and our oil and gas leases are currently concentrated
in Texas and Louisiana. As a result, our financial results are
dependent on the economic growth and strength of those areas.
|
|
|
|
If we are unable to retain or attract experienced real estate
development or natural resources management personnel, our
business may be adversely affected.
|
|
|
|
Our real estate development operations are increasingly
dependent upon national, regional, and local homebuilders, as
well as other strategic partners, who may have interests that
differ from ours and may take actions that adversely affect us.
|
Risks
Relating to the Spin-off
|
|
|
|
|
We may be unable to achieve some or all of the benefits that we
expect to achieve from our spin-off from Temple-Inland.
|
|
|
|
We have no operating history as an independent, publicly-traded
company upon which you can evaluate our performance, and
accordingly, our prospects must be considered in light of the
risks that any newly independent company encounters.
|
|
|
|
Our agreements with Temple-Inland and Guaranty may not reflect
terms that would have resulted from arms-length
negotiations among unaffiliated third parties.
|
|
|
|
Our historical and pro forma financial information are not
necessarily indicative of our results as a separate company and,
therefore, may not be reliable as an indicator of our future
financial results.
|
|
|
|
If the spin-off is determined to be taxable for
U.S. federal income tax purposes, we, our stockholders, and
Temple-Inland could incur significant U.S. federal income
tax liabilities.
|
|
|
|
We must abide by certain restrictions to preserve the tax-free
treatment of the spin-off and may not be able to engage in
desirable acquisitions and other strategic transactions
following the spin-off.
|
|
|
|
The ownership by our chairman, our executive officers and some
of our other directors of common stock, options or other equity
awards of Temple-Inland or Guaranty may create, or may create
the appearance of, conflicts of interest.
|
4
|
|
|
|
|
We may be unable to make, on a timely or cost-effective basis,
the changes necessary to operate as an independent,
publicly-traded company, and we may experience increased costs
after the spin-off or as a result of the spin-off.
|
|
|
|
Until the distribution occurs Temple-Inland has the sole
discretion to change the terms of the spin-off in ways that may
be unfavorable to us.
|
Risks
Relating to Our Common Stock
|
|
|
|
|
There is no existing market for our common stock and a trading
market that will provide adequate liquidity may not develop for
our common stock. In addition, once our common stock begins
trading, the market price of our shares may fluctuate widely.
|
|
|
|
Substantial sales of our common stock may occur following the
spin-off, which could cause our stock price to decline.
|
|
|
|
Your percentage ownership in our common stock may be diluted in
the future.
|
|
|
|
The terms of our spin-off from Temple-Inland, anti-takeover
provisions of our charter and bylaws, as well as Delaware law
and our stockholder rights agreement, may reduce the likelihood
of any potential change of control or unsolicited acquisition
proposal that you might consider favorable.
|
|
|
|
We currently do not intend to pay any dividends on our common
stock. Accordingly, investors in our common stock must rely upon
subsequent sales after price appreciation as the sole method to
realize a gain on an investment in our common stock.
|
THE
TRANSFORMATION PLAN
On February 25, 2007, the board of directors of
Temple-Inland unanimously authorized management of Temple-Inland
to pursue a transformation plan to spin off its real estate
business and its financial services business from Temple-Inland.
The spin-offs will occur through distributions to
Temple-Inlands stockholders of all of the shares of common
stock of Forestar, which will hold all of the assets and
liabilities of the real estate business of Temple-Inland, and
Guaranty, which will hold all of the assets and liabilities of
the financial services business of Temple-Inland. In addition,
Temple-Inland sold its strategic timberland on October 31,
2007 as part of the transformation plan.
We will enter into a separation and distribution agreement and
several other related agreements with Temple-Inland and Guaranty
to effect the separation and provide a framework for our
relationships with Temple-Inland and Guaranty after the
spin-off. These agreements will govern the relationships among
us, Guaranty, and Temple-Inland subsequent to the completion of
the spin-off and provide for the allocation among us, Guaranty,
and Temple-Inland of Temple-Inlands assets, liabilities
and obligations (including employee benefits and tax-related
assets and liabilities) attributable to periods prior to, at and
after our spin-off from Temple-Inland. For more information on
the separation and distribution agreement and related
agreements, see the section entitled Certain Relationships
and Related Party Transactions Agreements with
Temple-Inland and Guaranty beginning on page 100 of
this information statement.
Temple-Inlands board of directors believes that creating
three independent companies, each focused on its core business,
is the best way to manage these businesses for the benefit of
the stockholders and each of the companies, in both the short
and long term. Temple-Inland believes that the separation of the
businesses should not only enhance the strength of each
business, but should also improve the strategic, operational and
financial flexibility of each company. Although there can be no
assurance, Temple-Inland believes that, over time, the common
stock of Temple-Inland, Forestar and Guaranty should have a
greater aggregate market value, assuming the same market
conditions, than Temple-Inland common stock has in its current
configuration (adjusting for the sale of its strategic
timberland).
5
QUESTIONS
AND ANSWERS RELATING TO THE SPIN-OFF
The following are some of the questions that you may have
about the spin-off and answers to those questions. These
questions and answers are not meant to be a substitute for the
information contained in the remainder of this information
statement, including the section entitled The
Spin-off beginning on page 20. This information is
qualified in its entirety by the more detailed descriptions and
explanations contained elsewhere in this information statement.
We urge you to read this information statement carefully and in
its entirety.
|
|
|
Q:
|
|
What is the spin-off?
|
|
A:
|
|
The spin-off is the method by which Temple-Inland will separate
its existing business segments into three focused, stand-alone,
public companies. Following the spin-off, we will be a separate
company from Temple-Inland, and Temple-Inland will not retain
any ownership interest in us. The number of shares of
Temple-Inland common stock you own will not change as a result
of the spin-off, although the value of shares of Temple-Inland
common stock may initially decline as a result of the spin-off
of our company, the spin-off of Guaranty, and the sale of
Temple-Inlands strategic timberlands because the value of
those businesses will no longer be part of the value of
Temple-Inland common stock.
|
|
Q:
|
|
Why is the separation of Forestar from Temple-Inland
structured as a spin-off distribution?
|
|
|
|
A:
|
|
Temple-Inland believes that a spin-off distribution of shares of
Forestar and Guaranty to its stockholders is a tax-efficient way
to separate the businesses. Temple-Inland has received a private
letter ruling from the Internal Revenue Service that the
distribution qualifies for tax-tree treatment both to
Temple-Inland and to you, as a Temple-Inland stockholder, other
than with respect to any cash paid in lieu of fractional shares
as discussed below.
|
|
|
|
Q:
|
|
What is being distributed in the spin-off?
|
|
|
|
A:
|
|
Approximately 35.5 million shares of our common stock will
be distributed in the spin-off, based upon the number of shares
of Temple-Inland common stock outstanding on November 30,
2007. Approximately 35.5 million shares of Guaranty common
stock will also be distributed in a separate spin-off. The
shares of our common stock to be distributed by Temple-Inland
will constitute all of the issued and outstanding shares of our
common stock immediately after the spin-off. Each share of our
common stock will have attached to it one preferred stock
purchase right created under a stockholder rights agreement that
we expect our board will adopt prior to the spin-off. For more
information on the shares being distributed in the spin-off and
the stockholder rights agreement, see the sections entitled
Description of Our Capital Stock Common
Stock beginning on page 107 of this information
statement and Description of Our Capital
Stock Anti-takeover Effects of Our Stockholder
Rights Agreement, Our Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws, and Delaware
Law Stockholder Rights Agreement beginning on
page 111 of this information statement.
|
|
|
|
Q:
|
|
What will I receive in the spin-off?
|
|
|
|
A:
|
|
As a holder of Temple-Inland common stock, you will receive a
pro rata dividend of one share of our common stock (and a
related preferred stock purchase right) for every
three shares of Temple-Inland common stock that you hold on
the record date and do not subsequently sell in the
regular way market prior to the distribution date.
For more information on the spin-off distribution, see the
section entitled The Spin-off Distribution of
the Shares beginning on page 24 of this information
statement. You will also receive shares of Guaranty common stock
in its separate spin-off.
|
|
|
|
Q:
|
|
When will the distribution occur?
|
|
|
|
A:
|
|
We expect that the distribution agent will distribute shares of
our common stock, on behalf of Temple-Inland, on or about
December 28, 2007, which we refer to as the distribution
date.
|
6
|
|
|
Q:
|
|
Can Temple-Inland decide to cancel the distribution of the
shares of Forestar common stock even if all the conditions to
the spin-off have been satisfied?
|
|
|
|
A:
|
|
Yes. The distribution is subject to the satisfaction or waiver
of certain conditions. See the section entitled The
Spin-off Conditions to the Spin-off beginning
on page 29 of this information statement. Temple-Inland has
the right to terminate the distribution, even if all of the
conditions are satisfied, if at any time the board of directors
of Temple-Inland determines that the distribution is not in the
best interests of Temple-Inland and its stockholders or that
market conditions are such that it is not advisable to separate
the real estate business from Temple-Inland.
|
|
|
|
Q:
|
|
What do I have to do to participate in the spin-off?
|
|
|
|
A:
|
|
Nothing, but we urge you to read this entire document carefully.
If you are a holder of record of Temple-Inland common stock on
December 14, 2007, the record date for the spin-off, you
will not be required to pay any cash or deliver any other
consideration, including any shares of Temple-Inland common
stock, in order to receive shares of our common stock in the
spin-off. As discussed under the section entitled The
Spin-off Trading of Temple-Inland Common Stock
Between the Record Date and Distribution Date beginning on
page 29 of this information statement, if you sell your
shares of Temple-Inland common stock in the regular
way market after the record date and on or before the
distribution date, you also will be selling your right to
receive shares of our common stock in connection with the
spin-off. You are not being asked to provide a proxy with
respect to any of your shares of Temple-Inland common stock in
connection with the spin-off.
|
|
|
|
Q:
|
|
How will Temple-Inland distribute shares of Forestar common
stock to me?
|
|
|
|
A:
|
|
Holders of shares of Temple-Inland common stock on the record
date that do not subsequently sell their shares in the
regular way market on or before the distribution
date will receive shares of our common stock through the
transfer agents book-entry registration system. These
shares will not be in certificated form. Instead of certificates
representing shares of our common stock, if you are a registered
holder of Temple-Inland common stock, the distribution agent
will mail to you an account statement that indicates the number
of shares of our common stock that have been registered in
book-entry form in your name and the method by which you may
access your account. If you hold your Temple-Inland common stock
in street name through a bank or brokerage firm,
your bank or brokerage firm will credit your account for the
number of shares of our common stock that you are entitled to
receive in the distribution. For more information, see the
section entitled The Spin-off Distribution of
the Shares beginning on page 24 of this information
statement.
|
|
|
|
Q:
|
|
If I sell, on or before the distribution date, shares of
Temple-Inland common stock that I held on the record date, am I
still entitled to receive shares of Forestar common stock
distributable with respect to the shares of Temple-Inland common
stock I sold?
|
|
A:
|
|
Beginning on or shortly before the record date and continuing
through the distribution date for the spin-off,
Temple-Inlands common stock will begin to trade in two
markets on the NYSE: a regular way market and an
ex-distribution market. If you are a holder of
record of shares of Temple-Inland common stock as of the record
date for the spin-off and sell those shares in the regular
way market after the record date for the spin-off and
before the distribution date, you also will be selling the right
to receive the shares of our common stock in connection with the
spin-off. However, if you are a holder of record of shares of
Temple-Inland common stock as of the record date for the
spin-off and sell those shares in the
ex-distribution market after the record date for the
spin-off and before the distribution date, you will still
receive the shares of our common stock in the spin-off. For more
information, see the section entitled The
Spin-off Trading of Temple-Inland Common Stock
Between the Record Date and Distribution Date beginning on
page 29 of this information statement.
|
|
Q:
|
|
How will fractional shares be treated in the spin-off?
|
|
A:
|
|
We will not issue fractional shares of our common stock in the
spin-off. The distribution agent will aggregate all of the
fractional shares and sell them in the open market over several
trading days at then
|
7
|
|
|
|
|
prevailing prices. You will then receive a cash payment in the
amount of your proportionate share of the net sale proceeds,
based on the average gross selling price per share of our common
stock after making appropriate deductions for any required tax
withholdings. For more information on fractional shares, see the
section entitled The Spin-off Treatment of
Fractional Shares beginning on page 25 of this
information statement.
|
|
Q:
|
|
What if I hold shares of Temple-Inland common stock in the
Temple-Inland 401(k) plan?
|
|
A:
|
|
In connection with the spin-off, Forestar will establish a
401(k) plan for its employees. The Forestar plan will be
generally comparable to the Temple-Inland 401(k) plan, except it
will not have a company stock fund. Participants who hold
Temple-Inland common stock in their Temple-Inland 401(k) plan on
the date of the spin-off will receive shares of Forestar and
Guaranty common stock in their 401(k) plan account. The Forestar
and Guaranty shares will be allocated to these 401(k) plan
accounts in accordance with the spin-off distribution ratio. The
401(k) plan accounts for Forestar employees will be transferred
to the new Forestar 401(k) plan after the spin-off, but their
company stock fund account will remain in the Temple-Inland
401(k) plan for a period of time that will allow participants to
elect when to divest these shares.
|
|
Q:
|
|
What are the U.S. federal income tax consequences of the
spin-off to Temple-Inland stockholders?
|
|
|
|
A:
|
|
The spin-off is conditioned upon Temple-Inlands receipt of
a private letter ruling from the Internal Revenue Service, and
an opinion of tax counsel to the effect that the spin-off,
together with certain related transactions, will qualify as a
tax-free distribution for U.S. federal income tax purposes under
Sections 355 and 368(a)(1)(D) of the Internal Revenue Code
of 1986, as amended, which we refer to as the Code.
Temple-Inland
has received the private letter ruling and the opinion. Assuming
the spin-off so qualifies under the Code, you will recognize no
gain or loss for U.S. federal income tax purposes, and no amount
will be included in your income upon the receipt of shares of
our common stock pursuant to the spin-off. You will generally
recognize gain or loss with respect to cash received in lieu of
a fractional share of our common stock. For more information
regarding the private letter ruling, the tax opinion, and the
potential tax consequences to you of the spin-off, see the
section entitled The Spin-off Certain U.S.
Federal Income Tax Consequences of the Spin-off beginning
on page 25 of this information statement.
|
|
|
|
Q:
|
|
Does Forestar intend to pay cash dividends?
|
|
|
|
A:
|
|
After the spin-off, we do not intend to pay a cash dividend on
our common stock for the foreseeable future. Instead, we intend
to reinvest our available cash flow into our business. Our board
of directors is free to change our dividend policy at any time,
including to establish, increase, decrease or eliminate any
dividend. For more information about our expected dividend
policy, see the section entitled Dividend Policy
beginning on page 30 of this information statement.
|
|
|
|
Q:
|
|
What will the relationship be among Forestar, Guaranty, and
Temple-Inland following the spin-off?
|
|
A:
|
|
After the spin-off, Forestar, Guaranty, and Temple-Inland will
be independent, publicly-traded companies, and Temple-Inland
will no longer have any ownership interest in us. We will,
however, be parties to agreements that will define our ongoing
relationships after the spin-off. For example, under the terms
of a transition services agreement that we expect to enter into
with Temple-Inland and Guaranty prior to the consummation of the
spin-off, Temple-Inland will provide, generally at cost, for a
period up to 24 months after the spin-off, specified
support services primarily related to information technology. We
also lease office space from Guaranty. In addition, Kenneth M.
Jastrow, II will be our Chairman and the Chairman of
Guaranty. For more information on our relationships with
Temple-Inland and Guaranty after the spin-off, see the section
entitled Certain Relationships and Related Party
Transactions beginning on page 100 of this
information statement.
|
|
Q:
|
|
Who is the distribution agent for the spin-off? Who is the
transfer agent for Forestar common stock?
|
|
A:
|
|
Computershare Trust Company, N.A. is the distribution agent for
the spin-off and will be the transfer agent for our common stock.
|
8
|
|
|
Q:
|
|
Where will Forestar common stock trade?
|
|
|
|
A:
|
|
Currently, there is no public market for our common stock. We
have applied for the listing of our common stock on the New York
Stock Exchange under the symbol FOR.
|
|
|
|
Q:
|
|
When will Forestar common stock trade?
|
|
|
|
A:
|
|
We anticipate that trading may begin on a when-issued basis
shortly before the record date. When-issued trading refers to
trading in our stock before the record date for the distribution
and made conditionally because the securities of the spun-off
entity have not yet been distributed. When-issued trades
generally settle within four trading days after the distribution
date. On the first trading day following the distribution date,
any when-issued trading in our common stock will end and regular
way trading will begin. Regular way trading refers to trading
after our stock has been distributed and typically involves a
trade that settles on the third full trading day following the
date of distribution. Shares of our common stock generally will
be freely tradable after the spin-off. We cannot predict the
trading prices for our common stock before or after the
distribution date. For more information on the trading market
for our shares, see the section entitled The
Spin-off Listing and Trading of Our Common
Stock beginning on page 28 of this information
statement.
|
|
|
|
Q:
|
|
How will I determine my tax basis in the Forestar common
stock I receive in the spin-off?
|
|
A:
|
|
Shortly after the spin-off is completed, Temple-Inland will
provide you with information that will enable you to compute
your tax basis in each of Temple-Inland, Forestar, and Guaranty
common stock. Generally, your aggregate basis in the
Temple-Inland, Forestar, and Guaranty common stock after the
spin-offs will equal the aggregate basis of Temple-Inland common
stock held by you immediately before the spin-off, allocated
between your Temple-Inland common stock and the Forestar, and
Guaranty common stock you receive in the spin-offs in proportion
to the relative fair market value of each on the date of the
spin-offs.
|
|
|
|
|
|
You should consult your tax advisor about the particular
consequences of the spin-off to you, including the application
of U.S. federal, state, and local tax laws and foreign tax
laws.
|
|
|
|
Q:
|
|
Do I have appraisal rights?
|
|
A:
|
|
No. Holders of Temple-Inland common stock do not have
appraisal rights in connection with the spin-off.
|
|
Q:
|
|
Will Forestar incur any debt in the spin-off?
|
|
A:
|
|
Yes. Prior to the spin-off, we expect to enter into a
$300 million credit facility arranged by KeyBanc Capital
Markets. Borrowings will be secured by about 250,000 acres of
our land and other assets and will bear interest at the London
Interbank Offered Rate, or LIBOR, plus four percent. Prior
to the spin-off, we will draw under this credit facility to
repay our credit facility with Temple-Inland. For more
information on our credit facility and our debt, see the
sections entitled Description of Material
Indebtedness, Managements Discussion and
Analysis of Financial Condition and Results of Operations,
Capitalization, Pro Forma Financial
Information, and Certain Relationships and Related
Party Transactions.
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Q:
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Where can I get more information?
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A:
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If you have questions relating to the mechanics of the
distribution of Forestar shares, you should contact the
distribution agent:
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Computershare Trust Company, N.A.
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250 Royall Street
Canton, MA 02021
781-575-2879
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If your shares are held by a broker, bank, or other nominee, you
may call the information agent, D. F. King & Co.,
Inc., toll free at 1-888-567-1626.
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Before the spin-off, if you have questions relating to the
spin-off, you should contact:
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Investor Relations
1300 MoPac Expressway South
Austin, Texas 78746
Tel:
512-434-5587
Fax:
512-434-3750
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After the spin-off, if you have questions relating to Forestar,
you should contact:
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Forestar Real Estate Group Inc.
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Investor Relations
1300 MoPac Expressway South, Suite 3S
Austin, Texas 78746
512-433-5210
512-433-5203
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You should carefully consider each of the following risk
factors and all of the other information set forth in this
information statement. The risk factors generally have been
separated into three groups: (1) risks relating to our
business, (2) risks relating to the spin-off, and
(3) risks relating to ownership of our common stock. Based
on the information currently known to us, we believe that the
following information identifies the most significant risk
factors affecting our company in each of these categories. In
addition, past financial performance may not be a reliable
indicator of future performance and historical trends should not
be used to anticipate results or trends in future periods.
If any of the following risks and uncertainties develops into
actual events, these events could have a material adverse effect
on our business, financial condition, or results of operations.
In such case, the trading price of our common stock could
decline.
Risks
Relating to Our Business
A
decrease in demand for new housing in the markets where we
operate could decrease our profitability.
The residential development industry is cyclical and is
significantly affected by changes in general and local economic
conditions, such as employment levels, availability of financing
for home buyers, interest rates, consumer confidence and housing
demand. Adverse changes in these conditions generally, or in the
markets where we operate, could decrease demand for lots for new
homes in these areas. The
well-publicized
current market conditions include a general over-supply of
housing, significant tightening of mortgage credit (especially
sub-prime and non-conforming loans), decreased sales volumes for
both new and existing homes, and flat to declining home prices.
A further decline in housing demand could negatively affect our
real estate development activities, which could result in a
decrease in our revenues and earnings.
Furthermore, the market value of undeveloped land and buildable
lots held by us can fluctuate significantly as a result of
changing economic and real estate market conditions. If there
are significant adverse changes in economic or real estate
market conditions, we may have to hold land in inventory longer
than planned. Inventory carrying costs can be significant and
can result in losses in a poorly performing project or market.
Both
our real estate and natural resources businesses are cyclical in
nature.
The operating results of our business segments reflect the
general cyclical pattern of each segment. While the cycles of
each industry do not necessarily coincide, demand and prices in
each may drop substantially in an economic downturn. Real estate
development of residential lots is further influenced by new
home construction activity. Natural resources may be further
influenced by national and international commodity prices,
principally for oil and gas. Cyclical downturns may materially
and adversely affect our results of operations.
Development
of real estate entails a lengthy, uncertain, and costly
entitlement process.
Approval to develop real property entails an extensive
entitlement process involving multiple and overlapping
regulatory jurisdictions and often requiring discretionary
action by local governments. This process is often political,
uncertain and may require significant exactions in order to
secure approvals. Real estate projects must generally comply
with local land development regulations and may need to comply
with state and federal regulations. The process to comply with
these regulations is usually lengthy and costly and can be
expected to materially affect our real estate development
activities.
The
real estate and natural resource industries are highly
competitive and a number of entities with which we will compete
are larger and have greater resources, and competitive
conditions may adversely affect our results of
operations.
The real estate and natural resource industries in which we will
operate are highly competitive and are affected to varying
degrees by supply and demand factors and economic conditions,
including changes in
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interest rates, new housing starts, home repair and remodeling
activities, credit availability, and housing affordability. No
single company is dominant in any of our industries.
We compete with numerous regional and local developers for the
acquisition, entitlement, and development of land suitable for
development. We also compete with some of our national and
regional home builder customers who develop real estate for
their own use in homebuilding operations, many of which are
larger and have greater resources, including greater marketing
and technology budgets. Any improvement in the cost structure or
service of our competitors will increase the competition we face.
The competitive conditions in the real estate and natural
resource industries result in:
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difficulties in acquiring suitable land at acceptable prices;
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lower sales volumes;
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lower sale prices;
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increased development costs; and
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delays in construction.
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Our business and results of operations are negatively affected
by the existence of these conditions.
Our
activities are subject to environmental regulations and
liabilities that could have a negative effect on our operating
results.
Our operations are subject to federal, state, and local
provisions regulating the discharge of materials into the
environment and otherwise related to the protection of the
environment. Compliance with these provisions may result in
delays, may cause us to invest substantial funds to ensure
compliance with applicable environmental regulations and can
prohibit or severely restrict homebuilding activity in
environmentally sensitive regions or areas.
Our
real estate operations are currently concentrated in Georgia and
Texas, and our oil and gas leases are currently concentrated in
Texas and Louisiana. As a result, our financial results are
dependent on the economic growth and strength of those
areas.
The economic growth and strength of Georgia and Texas, where the
majority of our real estate development activity is located, and
of Texas and Louisiana, where our oil and gas leases are
located, are important factors in sustaining demand for our
activities. As a result, any adverse change to the economic
growth and health of those areas could materially adversely
affect our financial results. The future economic growth in
certain portions of Georgia in particular may be adversely
affected if its infrastructure, such as roads, utilities, and
schools, are not improved to meet increased demand. There can be
no assurance that these improvements will occur.
If we
are unable to retain or attract experienced real estate
development or natural resources management personnel, our
business may be adversely affected.
Our future success depends on our ability to retain and attract
experienced real estate development and natural resources
management personnel. The market for these employees is highly
competitive. If we cannot continue to retain and attract quality
personnel, our ability to effectively operate our business may
be significantly limited.
Our
real estate development operations are increasingly dependent
upon national, regional, and local homebuilders, as well as
other strategic partners, who may have interests that differ
from ours and may take actions that adversely affect
us.
We are highly dependent upon our relationships with national,
regional, and local homebuilders to purchase lots in our
residential developments. If homebuilders do not view our
developments as desirable locations for homebuilding operations,
our business will be adversely affected. Also, a national
homebuilder
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could decide to delay purchases of lots in one of our
developments due to adverse real estate conditions wholly
unrelated to our areas of operations.
We are also involved in strategic alliances or venture
relationships as part of our overall strategy for particular
developments or regions. These venture partners may bring
development experience, industry expertise, financing
capabilities, and local credibility or other competitive assets.
Strategic partners, however, may have economic or business
interests or goals that are inconsistent with ours or that are
influenced by factors unrelated to our business. We may also be
subject to adverse business consequences if the market
reputation of a strategic partner deteriorates.
A formal agreement with a venture partner may also involve
special risks such as:
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we may not have voting control over the venture;
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the venture partner may take actions contrary to our
instructions or requests, or contrary to our policies or
objectives with respect to the real estate investments;
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the venture partner could experience financial
difficulties; and
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actions by a venture partner may subject property owned by the
venture to liabilities greater than those contemplated by the
venture agreement or have other adverse consequences.
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Risks
Relating to the Spin-off
We may
be unable to achieve some or all of the benefits that we expect
to achieve from our spin-off from Temple-Inland.
We may not be able to achieve the full strategic and financial
benefits that we expect will result from our spin-off from
Temple-Inland or such benefits may be delayed or may not occur
at all. For example, there can be no assurance that analysts and
investors will regard our corporate structure as clearer and
simpler than the current Temple-Inland corporate structure or
place a greater value on our company as a stand-alone company
than on our businesses being a part of Temple-Inland. As a
result, in the future the aggregate market price of
Temple-Inlands common stock and Forestar and Guaranty
common stock as separate companies, assuming the same market
conditions, may be less than the market price per share of
Temple-Inlands common stock (adjusted for the sale of its
strategic timberland) had the spin-offs not occurred.
We
have no operating history as an independent, publicly-traded
company upon which you can evaluate our performance, and
accordingly, our prospects must be considered in light of the
risks that any newly independent company
encounters.
We have no experience operating as an independent,
publicly-traded company and performing various corporate
functions, including human resources, tax administration, legal
(including compliance with the Sarbanes-Oxley Act of 2002 and
with the periodic reporting obligations of the Securities
Exchange Act of 1934), treasury administration, investor
relations, internal audit, insurance, information technology and
telecommunications services, as well as the accounting for items
such as equity compensation and income taxes. We may be unable
to make, on a timely or cost-effective basis, the changes
necessary to operate as an independent, publicly-traded company,
and we may experience increased costs after the spin-off or as a
result of the spin-off. Our prospects must be considered in
light of the risks, expenses and difficulties encountered by
companies in the early stages of independent business
operations, particularly companies such as ours in highly
competitive markets.
Our
agreements with Temple-Inland and Guaranty may not reflect terms
that would have resulted from arms-length negotiations
among unaffiliated third parties.
The agreements we expect to enter into related to our spin-off
from Temple-Inland, including the separation and distribution
agreement, employee matters agreement, tax matters agreement and
transition services agreement, will be prepared in the context
of our spin-off from Temple-Inland while we are still part of
Temple-Inland and, accordingly, may not reflect terms that would
have resulted from arms-length
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negotiations among unaffiliated third parties. These agreements
relate to, among other things, the allocation of assets,
liabilities, rights, indemnifications and other obligations
between Temple-Inland, Guaranty, and us. For more information
about these agreements see the section entitled Certain
Relationships and Related Party Transactions
Agreements with Temple-Inland and Guaranty beginning on
page 100 of this information statement.
Our
historical and pro forma financial information are not
necessarily indicative of our results as a separate company and,
therefore, may not be reliable as an indicator of our future
financial results.
Our historical and pro forma financial information have been
created using our historical results of operations and
historical bases of assets and liabilities as part of
Temple-Inland. This historical financial information is not
necessarily indicative of what our results of operations,
financial position and cash flows would have been if we had been
a separate, stand-alone entity during the periods presented.
It is also not necessarily indicative of what our results of
operations, financial position, and cash flows will be in the
future and does not reflect many significant changes that will
occur in our capital structure, funding, and operations as a
result of the spin-off. While our historical results of
operations include all costs of Temple-Inlands real estate
development and minerals operations, our historical costs and
expenses do not include all of the costs that would have been or
will be incurred by us as an independent, publicly-traded
company. In addition, our historical financial information does
not reflect changes, many of which are significant, that will
occur in our cost structure, financing and operations as a
result of the spin-off. These changes include potentially
increased costs associated with reduced economies of scale and
purchasing power.
Our effective income tax rate as reflected in our historical
financial information also may not be indicative of our future
effective income tax rate. Among other things, the rate may be
materially affected by:
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changes in the mix of our earnings from the various
jurisdictions in which we operate;
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the tax characteristics of our earnings; and
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the timing and results of any reviews of our income tax filing
positions in the jurisdictions in which we transact business.
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If the
spin-off is determined to be taxable for U.S. federal income tax
purposes, we, our stockholders, and Temple-Inland could incur
significant U.S. federal income tax liabilities.
Temple-Inland has received a private letter ruling from the
Internal Revenue Service, or IRS, that the spin-off will qualify
for tax-free treatment under applicable sections of the Code. In
addition, Temple-Inland has received an opinion from tax counsel
that the spin-off so qualifies. The IRS ruling and the opinion
rely on certain representations, assumptions, and undertakings,
including those relating to the past and future conduct of our
business, and neither the IRS ruling nor the opinion would be
valid if such representations, assumptions, and undertakings
were incorrect. Moreover, the IRS private letter ruling does not
address all the issues that are relevant to determining whether
the spin-off will qualify for tax-free treatment.
Notwithstanding the IRS private letter ruling and opinion, the
IRS could determine that the spin-off should be treated as a
taxable transaction if it determines that any of the
representations, assumptions, or undertakings that were included
in the request for the private letter ruling are false or have
been violated or if it disagrees with the conclusions in the
opinion that are not covered by the IRS ruling. For more
information regarding the tax opinion and the private letter
ruling, see the section entitled The Spin-Off
Certain U.S. Federal Income Tax Consequences of the
Spin-off
beginning on page 25 of this information statement.
If the spin-off fails to qualify for tax-free treatment,
Temple-Inland would be subject to tax as if it had sold the
common stock of our company in a taxable sale for its fair
market value, and our initial public stockholders would be
subject to tax as if they had received a taxable distribution
equal to the fair market value of our common stock that was
distributed to them. Under the tax matters agreement between
Temple-Inland and us, we would generally be required to
indemnify Temple-Inland against any tax resulting from the
distribution to the extent that such tax resulted from
(1) an issuance of our equity securities, a redemption of
our equity securities, or our involvement in other acquisitions
of our equity securities, (2) other actions or
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failures to act by us, or (3) any of our representations or
undertakings being incorrect or violated. For a more detailed
discussion, see the section entitled Certain Relationships
and Related Party Transactions Agreements with
Temple-Inland and Guaranty Tax Matters
Agreement, beginning on page 104 of this information
statement. Our indemnification obligations to Temple-Inland and
its subsidiaries, officers, and directors are not limited by any
maximum amount. If we are required to indemnify Temple-Inland or
such other persons under the circumstances set forth in the tax
matters agreement, we may be subject to substantial liabilities.
We
must abide by certain restrictions to preserve the tax-free
treatment of the spin-off and may not be able to engage in
desirable acquisitions and other strategic transactions
following the spin-off.
To preserve the tax-free treatment of the spin-off to
Temple-Inland, under a tax matters agreement that we will enter
into with Temple-Inland and Guaranty, for the two-year period
following the distribution, we may be prohibited, except in
specified circumstances, from:
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issuing equity securities to satisfy financing needs,
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acquiring businesses or assets with equity securities, or
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engaging in mergers or asset transfers that could jeopardize the
tax-free status of the distribution.
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These restrictions may limit our ability to pursue strategic
transactions or engage in new business or other transactions
that may maximize the value of our business. For more
information, see the sections entitled The
Spin-off Certain U.S. Federal Income Tax
Consequences of the Spin-off and Certain
Relationships and Related Party Transactions
Agreements with Temple-Inland and Guaranty Tax
Matters Agreement beginning on pages 25 and 104,
respectively, of this information statement.
The
ownership by our chairman, our executive officers, and some of
our other directors of common stock, options, or other equity
awards of Temple-Inland or Guaranty may create actual or
apparent conflicts of interest.
Because of their current or former positions with Temple-Inland,
our chairman, substantially all of our executive officers,
including our Chief Executive Officer and our Chief Financial
Officer, and some of our non-employee director nominees, own
shares of common stock of Temple-Inland, options to purchase
shares of common stock of Temple-Inland, or other Temple-Inland
equity awards. Following Temple-Inlands distribution of
Guaranty to its stockholders, these officers and non-employee
directors will also own shares of common stock, options to
purchase shares of common stock, and other equity awards in
Guaranty. The individual holdings of shares of common stock,
options to purchase shares of common stock, or other equity
awards of Temple-Inland and Guaranty may be significant for some
of these persons compared with their total assets. In light of
our continuing relationships with Temple-Inland and Guaranty,
these equity interests may create actual or apparent conflicts
of interest when these directors and officers are faced with
decisions that could benefit or affect the equity holders of
Temple-Inland or Guaranty in ways that do not benefit or affect
us in the same manner.
We may
be unable to make, on a timely or cost-effective basis, the
changes necessary to operate as an independent, publicly-traded
company, and we may experience increased costs after the
spin-off or as a result of the spin-off.
Following the completion of our spin-off, Temple-Inland will be
obligated contractually to provide to us only those transition
services specified in a transition services agreement we expect
to enter into with Temple-Inland and Guaranty. We may be unable
to replace in a timely manner or on comparable terms the
services or other benefits that Temple-Inland previously
provided to us that are not specified in any transition services
agreement. After the expiration of the transition services
agreement, we may be unable to replace in a timely manner or on
comparable terms the services specified in the agreement. Upon
expiration of the transition services agreement, many of the
services that are covered in the agreement will have to be
provided internally or by unaffiliated third parties. We may
incur higher costs to obtain these services than we incurred
previously.
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In addition, if Temple-Inland does not continue to perform the
services that are called for under the transition services
agreement, we may not be able to operate our business as
effectively and our profitability may decline.
Until
the distribution occurs Temple-Inland has the sole discretion to
change the terms of the spin-off in ways that may be unfavorable
to us.
Until the distribution occurs Temple-Inland will have the sole
and absolute discretion to determine and change the terms of,
and whether to proceed with, the distribution, including the
establishment of the record date and distribution date. These
changes could be unfavorable to us. In addition, Temple-Inland
may decide at any time not to proceed with the spin-off.
Risks
Relating to Our Common Stock
There
is no existing market for our common stock, and a trading market
that will provide adequate liquidity may not develop for our
common stock. In addition, once our common stock begins trading,
the market price of our shares may fluctuate
widely.
There is currently no public market for our common stock. We
anticipate that on or prior to the record date for the
distribution, trading of shares of our common stock will begin
on a when-issued basis and will continue up and
through the distribution date. However, there can be no
assurance that an active trading market for our common stock
will develop as a result of the distribution or be sustained in
the future.
We cannot predict the prices at which our common stock may trade
after the distribution. The market price of our common stock may
fluctuate widely, depending upon many factors, some of which may
be beyond our control, including:
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a shift in our investor base;
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actual or anticipated fluctuations in our operating results due
to the seasonality of our business and other factors related to
our business;
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announcements by us or our competitors of significant
acquisitions or dispositions;
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the failure of securities analysts to cover our common stock
after the distribution;
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the operating and stock price performance of other comparable
companies;
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overall market fluctuations; and
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general economic conditions.
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Stock markets in general have experienced volatility that has
often been unrelated to the operating or financial performance
of a particular company. These broad market fluctuations may
adversely affect the trading price of our common stock.
Substantial
sales of our common stock may occur following the spin-off,
which could cause our stock price to decline.
The shares of our common stock that Temple-Inland distributes to
its stockholders generally may be sold immediately in the public
market. Although we have no actual knowledge of any plan or
intention on the part of any stockholder to sell our common
stock following the spin-off, it is possible that some
Temple-Inland stockholders, including possibly some of our
largest stockholders, may sell our common stock received in the
distribution for various reasons, including that our business
profile or market capitalization as an independent,
publicly-traded company does not fit their investment
objectives. Moreover, index funds tied to the
Standard & Poors 500 Index, the Russell
1000 Index, and other indices hold shares of Temple-Inland
common stock. To the extent our common stock is not included in
these indices after the distribution, certain of these index
funds may likely be required to sell the shares of our common
stock that they receive in the distribution. Also, some
employees of Temple-Inland and Guaranty may be unwilling to
continue to hold our common
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stock in their 401(k) plan accounts because they will not be
employed by us. In addition, participants in the Temple-Inland
401(k) Plan who retain the shares of Forestar common stock that
they receive in their Temple-Inland 401(k) Plan account will be
required to liquidate those shares within three years after the
distribution date. The sales of significant amounts of our
common stock or the perception in the market that this will
occur may result in the lowering of the market price of our
common stock.
Your
percentage ownership in our common stock may be diluted in the
future.
Your percentage ownership in our common stock may be diluted in
the future because of equity awards that have already been
granted and that we expect will be granted to our directors and
officers in the future. In addition, equity awards held by
Temple-Inland employees at the time of the spin-off will be
adjusted to include options to purchase our common stock.
Immediately after the spin-off, options to purchase
approximately 2,000,000 shares of our common stock will be
outstanding, and we will be obligated to settle other
outstanding equity awards with approximately 350,000 shares
of our common stock, each in accordance with the vesting and
other conditions applicable to such options and other awards.
Prior to the record date for the distribution, we expect
Temple-Inland will approve the Forestar Stock Incentive Plan,
which will provide for the grant of equity-based awards,
including restricted stock, restricted stock units, stock
options, stock appreciation rights, phantom equity awards and
other equity-based awards to our directors, officers and other
employees. In the future, we may issue additional equity
securities, subject to limitations imposed by the tax matters
agreement, in order to fund working capital needs, capital
expenditures and product development, or to make acquisitions
and other investments, which may dilute your ownership interest.
The
terms of our spin-off from Temple-Inland, anti-takeover
provisions of our charter and bylaws, as well as Delaware law
and our stockholder rights agreement, may reduce the likelihood
of any potential change of control or unsolicited acquisition
proposal that you might consider favorable.
The terms of our spin off from Temple-Inland could delay or
prevent a change of control that you may favor. An acquisition
or issuance of our common stock could trigger the application of
Section 355(e) of the Code. For a discussion of
Section 355(e) of the Code, please see the section entitled
The Spin Off Certain U.S. Federal Income
Tax Consequences of the Spin-off beginning on page 25
of this information statement. Under the tax matters agreement
we expect to enter into with Temple-Inland and Guaranty, we
would be required to indemnify Temple-Inland and Guaranty for
the resulting tax in connection with such an acquisition or
issuance and this indemnity obligation might discourage, delay
or prevent a change of control that you may consider favorable.
For a more detailed description of the tax matters agreement,
see the section entitled Certain Relationships and Related
Party Transactions Agreements with Temple-Inland and
Guaranty Tax Matters Agreement beginning on
page 104 of this information statement.
In addition, our certificate of incorporation and bylaws and
Delaware law contain provisions that could make it more
difficult for a third party to acquire us without the consent of
our board of directors. Our board of directors may classify or
reclassify any unissued shares of common stock or preferred
stock and may set the preferences, conversion, or other rights,
voting powers, and other terms of the classified or reclassified
shares. Our board of directors could establish a series of
preferred stock that could have the effect of delaying,
deferring, or preventing a transaction or a change in control
that might involve a premium price for our common stock or
otherwise be considered favorably by our stockholders. Our
certificate of incorporation and bylaws also provide for a
classified board structure.
Our bylaws provide that nominations of persons for election to
our board of directors and the proposal of business to be
considered at a stockholders meeting may be made only in
the notice of the meeting, by our board of directors or by a
stockholder who is entitled to vote at the meeting and has
complied with the advance notice procedures of our bylaws. Also,
under Delaware law, business combinations, including issuances
of equity securities, between us and any person who beneficially
owns 15 percent or more of our common stock or an affiliate
of such person, are prohibited for a three-year period unless
exempted by the statute. After this three-year period, a
combination of this type must be approved by a super-majority
stockholder vote, unless specific conditions are met or the
business combination is exempted by our board of directors.
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In addition, we expect to enter into a stockholder rights
agreement with a rights agent that will provide that in the
event of an acquisition of or tender offer for 20 percent
of our outstanding common stock, our stockholders shall be
granted rights to purchase our common stock at a significant
discount. The stockholder rights agreement could have the effect
of significantly diluting the percentage interest of a potential
acquirer and make it more difficult to acquire a controlling
interest in our common stock without the approval of our board
of directors to redeem the rights or amend the stockholder
rights agreement to permit the acquisition.
For a more detailed description of these effects, see the
section entitled Description of Our Capital
Stock Anti-takeover Effects of Our Stockholder
Rights Agreement, Our Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws, and Delaware
Law beginning on page 108 of this information
statement.
We
currently do not intend to pay any dividends on our common
stock. Accordingly, investors in our common stock must rely upon
subsequent sales after price appreciation as the sole method to
realize a gain on an investment in our common
stock.
We currently intend to retain any future earnings to support the
development and expansion of our business and do not anticipate
paying cash dividends in the foreseeable future. The declaration
and payment of any future dividends will be at the discretion of
our board of directors after taking into account various
factors, including without limitation, our financial condition,
earnings, capital requirements of our business, the terms of any
credit agreements to which we may be a party at the time, legal
requirements (including compliance with the IRS private letter
ruling), industry practice, and other factors that our board of
directors deems relevant. To the extent we do not pay dividends,
our stock may be less valuable because a return on investment
will only occur if and to the extent our stock price
appreciates, which may never occur. In addition, investors must
rely on sales of their common stock after price appreciation as
the only way to realize a return on their investment, and if the
price of our stock does not appreciate, then there will be no
return on investment. Investors seeking cash dividends should
not hold our common stock.
Additional
Risks
Additional
risks and uncertainties not presently known to us or that we
currently believe to be immaterial may also adversely affect our
business, financial condition or results of operations, the
spin-off, or the trading price of our common
stock.
The risks and uncertainties we face are not limited to those set
forth in the risk factors described above. Although we believe
that the risks identified above are our material risks in each
of these categories, our assessment is based on the information
currently known to us. Additional risks and uncertainties that
are not presently known to us or that we do not currently
believe to be material, if they occur, also may materially
adversely affect our business, financial condition or results of
operations, the spin-off, or the trading price of our common
stock.
CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This information statement and other materials we have filed or
may file with the Securities and Exchange Commission contain
forward-looking statements within the meaning of the
federal securities laws. These forward-looking statements are
identified by their use of terms and phrases such as
believe, anticipate,
could, estimate, likely,
intend, may, plan,
expect, and similar expressions, including
references to assumptions. These statements reflect our current
views with respect to future events and are subject to risk and
uncertainties. We note that a variety of factors and
uncertainties could cause our actual results to differ
significantly from the results discussed in the forward-looking
statements. Factors and uncertainties that might cause such
differences include, but are not limited to:
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general economic, market or business conditions;
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the opportunities (or lack thereof) that may be presented to us
and that we may pursue;
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future residential or commercial entitlements;
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expected development timetables and projected timing for sales
of lots or other parcels of land;
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development approvals and the ability to obtain such approvals;
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the anticipated price ranges of lots in our developments;
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the number, price, and timing of land sales or acquisitions;
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estimated land holdings for a particular use within a specified
time frame;
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absorption rates and expected gains on land and lot sales;
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the levels of resale inventory in our development projects and
the regions in which they are located;
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the development of relationships with strategic partners;
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the pace at which we release lots for sale;
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fluctuations in costs and expenses;
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demand for new housing;
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government energy policies;
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competitive actions by other companies;
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changes in laws or regulations and actions or restrictions of
regulatory agencies;
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the results of financing efforts, including our ability to
obtain financing on favorable terms, which can be affected by
various factors, including our credit ratings and general
economic conditions;
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the ability to complete merger, acquisition or divestiture
plans; regulatory or other limitations imposed as a result of a
merger, acquisition or divestiture; and the success of the
business following a merger, acquisition or divestiture; and
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the final resolutions or outcomes with respect to our contingent
and other corporate liabilities related to our business and any
related actions for indemnification made pursuant to the
separation and distribution agreement.
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Other factors, including the risk factors described in the
section of this information statement entitled Risk
Factors beginning on page 11, may also cause actual
results to differ materially from those projected by our
forward-looking statements. New factors emerge from time to time
and it is not possible for us to predict all such factors, nor
can we assess the impact of any such factor on our business or
the extent to which any factor, or combination of factors, may
cause results to differ materially from those contained in any
forward-looking statement.
Any forward-looking statement speaks only as of the date on
which such statement is made, and, except as required by law, we
expressly disclaim any obligation or undertaking to disseminate
any updates or revisions to any forward-looking statement to
reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of unanticipated
events.
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The following is a brief summary of the terms of the spin-off.
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Distributing company
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Temple-Inland Inc. After the distribution, Temple-Inland will
not own any shares of Forestar common stock.
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Spun-off company
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Forestar Real Estate Group Inc., a Delaware corporation and a
wholly-owned subsidiary of Temple-Inland. After the spin-off,
Forestar will be an independent, publicly-traded company.
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Reasons for the spin-off
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The Temple-Inland board of directors believes that creating
independent, focused companies is the best way to unlock the
full value of Temple-Inlands businesses in both the short
and long term. There will be an independent, publicly-traded
company for each of Temple-Inlands real estate business,
financial services business, and manufacturing operations in
corrugated packaging and building products. The Temple-Inland
board of directors considered this and other potential
opportunities and benefits in approving the spin-offs. See the
section below entitled Reasons for the
Spin-offs beginning on page 22 for a more detailed
description of the factors the board considered.
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Securities to be distributed
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All of the shares of common stock of Forestar owned by
Temple-Inland, which will be 100% of our shares of common stock
outstanding immediately prior to the distribution. Based on the
approximately 106 million shares of Temple-Inland common
stock outstanding on November 30, 2007, and applying the
distribution ratio of one share of Forestar common stock
for each three shares of Temple-Inland common stock,
approximately 35.5 shares of our common stock will be
distributed to Temple-Inland stockholders. The number of shares
of common stock that Temple-Inland will distribute to its
stockholders will be reduced to the extent that cash payments
are to be made in lieu of the issuance of fractional shares of
common stock.
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Record date
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The record date for the distribution is the close of business on
December 14, 2007.
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Distribution date
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The distribution date is on or about December 28, 2007.
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Distribution ratio
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On the distribution date, you will receive one share of Forestar
common stock (and a related preferred stock purchase right) for
each three shares of Temple-Inland common stock you hold on
the record date. Cash will be distributed in lieu of any
fractional shares to which you would otherwise be entitled.
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Trading market and symbol
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We have filed an application to list our common stock on the New
York Stock Exchange under the ticker symbol FOR. We
anticipate that, on or prior to the record date for the
distribution, trading in shares of our common stock will begin
on a when-issued basis and will continue up to and
including the distribution date. See the section below entitled
Trading of Temple-Inland Common Stock Between
the Record Date and Distribution Date, beginning on
page 29.
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Conditions to the spin-off
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The spin-off is subject to the satisfaction or waiver by
Temple-Inland of the following conditions:
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the Securities and Exchange Commission shall have
declared effective our registration statement on Form 10
and no stop order shall be in effect;
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all permits, registrations and consents required
under the securities or blue sky laws in connection with the
distribution shall have been received;
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Temple-Inland shall have received a private letter
ruling from the IRS and an opinion of tax counsel confirming the
tax-free status of the distribution for U.S. federal income tax
purposes;
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Temple-Inland shall have received an opinion from
its financial advisors that it has adequate surplus under
Delaware law to declare the spin-off dividend and that,
following the spin-off, each of Temple-Inland and Forestar will
be solvent and adequately capitalized;
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we shall have entered into one or more credit
facilities;
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the listing of our common stock on the New York
Stock Exchange shall have been approved, subject to official
notice of issuance;
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all material governmental approvals and other
consents necessary to consummate the distribution shall have
been received; and
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no order, injunction or decree issued by any court
of competent jurisdiction or other legal restraint or
prohibition preventing consummation of the distribution or any
of the related transactions is in effect.
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The fulfillment of the these conditions will not create any
obligation on Temple-Inlands part to effect the
distribution. Temple-Inland has the right not to complete the
distribution if, at any time, Temple-Inlands board of
directors determines, in its sole discretion, that the
distribution is not in the best interests of Temple-Inland or
its stockholders or that market conditions are such that it is
not advisable to separate the real estate business from
Temple-Inland.
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Background
to the Spin-offs
On February 25, 2007, the board of directors of
Temple-Inland preliminarily approved a transformation plan to
separate Temple-Inland into three focused, stand-alone, public
companies: one for its real estate business (Forestar Real
Estate Group Inc.), one for its financial services business
(Guaranty Financial Group Inc.), and one for its manufacturing
operations in corrugated packaging and building products
(Temple-Inland). The spin-offs will occur through the
distributions to Temple-Inlands stockholders on a pro rata
basis of all of the shares of common stock of Forestar, which
will hold all of the assets and liabilities of the real estate
development and minerals operations of Temple-Inland, and all of
the shares of common stock of Guaranty, which will hold all of
the assets and liabilities of the financial services business of
Temple-Inland.
In addition to the spin-offs, the transformation plan includes
Temple-Inlands sale of its strategic timberland, which was
completed on October 31, 2007 for approximately
$2.38 billion. The total consideration consisted almost
entirely of installment notes due in 2027. In
December 2007, Temple-Inland expects to pledge the
installment notes as collateral for a non-recourse loan. The net
cash proceeds from these transactions, after current taxes and
transaction costs, are anticipated to be approximately
$1.8 billion. Following the pledge of installment notes,
Temple-Inland expects to use the majority of these proceeds to
pay
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a special dividend, which is currently projected to be
approximately $1.1 billion, or $10.25 per share, to its
common stockholders. The remaining approximately
$700 million of the cash proceeds will be used to reduce
debt. The transaction includes a
20-year
fiber supply agreement for pulpwood and a
12-year
fiber supply agreement for sawtimber, the terms of which are
both subject to extension. Fiber will be purchased at market
prices.
Since February 25, 2007, the Temple-Inland board of
directors has met numerous times with and without members of
Temple-Inlands senior management team present to discuss
the transformation plan. In these meetings, the board
considered, among other things, the benefits to the businesses
and to Temple-Inland stockholders that are expected to result
from the spin-offs (see Reasons for the
Spin-offs below), the capital allocation strategies and
dividend policies for the spun-off companies, the allocation of
Temple-Inlands existing assets, liabilities and businesses
among the spun-off companies, the terms of certain commercial
relationships among the spun-off companies that will exist
following the spin-offs, the corporate governance arrangements
that will be in place at each company following the spin-offs,
and the appropriate members of senior management at each company
following the spin-offs.
In furtherance of this transformation plan, on November 29,
2007, the Temple-Inland board of directors approved the
distributions of all of the shares of our common stock and
Guarantys common stock held by Temple-Inland to holders of
Temple-Inland common stock. On or about December 28, 2007,
the distribution date, each Temple-Inland stockholder will
receive one share of our common stock (and a related
preferred stock purchase right) for every three shares of
Temple-Inland common stock, and one share of Guaranty common
stock (and a related preferred stock purchase right) for every
three shares of Temple-Inland common stock held at the
close of business on the record date, as described below.
Following the spin-offs, Temple-Inland will cease to own any of
the common stock in these companies, and Forestar and Guaranty
will be independent, publicly-traded companies. No vote of
Temple-Inlands stockholders is required or being sought in
connection with the spin-offs, and Temple-Inland stockholders
have no appraisal rights in connection with the spin-offs. You
will not be required to make any payment, surrender or exchange
your shares of Temple-Inland common stock or take any other
action to receive your shares of our common stock and
Guarantys common stock.
Reasons
for the Spin-offs
The Temple-Inland board of directors regularly reviews the
various businesses that Temple-Inland conducts to ensure that
Temple-Inlands resources are being properly utilized in a
manner that is in the best interests of Temple-Inland and its
stockholders. Over the last several years, Temple-Inland has
achieved increased revenues and earnings. During that time,
however, Temple-Inland concluded that operating as a
conglomerate made it difficult for analysts and the market
generally to understand its real value. The Temple-Inland board
of directors evaluated a number of strategic alternatives to
increase value and concluded that the spin-offs (and the sale of
Temple-Inlands strategic timberlands) would be the most
feasible and the most financially attractive approach to
continue maximizing value for its stockholders. The
Temple-Inland board of directors believes that creating
independent, focused companies is the best way to unlock the
full value of Temple-Inlands businesses in both the short
and long term.
Temple-Inland believes that the separation of its businesses
provides its stockholders and each separated company, including
us, with certain potential opportunities and benefits. Neither
we nor Temple-Inland can assure you that, following the
spin-off, any of these potential benefits will be realized to
the extent anticipated, or at all. The following are some of the
potential opportunities and benefits that the Temple-Inland
board of directors considered in approving the spin-offs:
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Allowing each of the companies to focus on their respective
core businesses.
The spin-offs will allow us,
Guaranty and Temple-Inland to become more tightly focused
companies with us focusing on the real estate
development and minerals operations, Guaranty focusing on its
financial services business, and Temple-Inland focusing on its
corrugated packaging and building products business, each as an
independent, publicly-traded company. Temple-Inlands lines
of business have financial and operational characteristics that
are distinct from those of our and Guarantys businesses.
The spin-offs will allow
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Temple-Inland to adopt more focused strategies around its core
businesses and will enable us and Guaranty to better focus on
the growth and development of our businesses. In addition, after
the spin-offs, the businesses within each company will no longer
need to compete internally for capital with businesses operating
in other industries.
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Facilitating tailored capital structures and selective
acquisitions.
Each independent, publicly-traded
company will have a capital structure designed to meet its
needs. The capital structure of each company is expected to
facilitate selective acquisitions, possibly using common stock
as currency, strategic alliances and partnerships, and internal
expansion that are important for the companies to remain
competitive in their respective industries. The Temple-Inland
board of directors believes that the anticipated aggregate
market value increase in the common stock, if achieved, should
permit each independent, publicly-traded company to effect
acquisitions with its common stock in a manner that preserves
capital with less dilution of the existing stockholders
interests than would occur by issuing pre-spin-off Temple-Inland
common stock.
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Achieving a higher aggregate market value for
stockholders.
Although there can be no assurance,
Temple-Inland believes that, over time, following the spin-offs,
the common stock of the independent, publicly-traded companies
should have a higher aggregate market value, on a fully
distributed basis and adjusting for the sale of the timberlands
and assuming the same market conditions, than if Temple-Inland
were not to complete the spin-offs.
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Enabling investors to invest directly in the separate
businesses.
Because our company, Guaranty and
Temple-Inlands other business segments operate primarily
in different industries, an equity investment in each company
may appeal to investors with different goals, interests and
concerns. The spin-offs will establish separate equity
securities for each of the companies and provide investors with
three investment options in companies focused on only one
industry or group of industries, which may be more attractive to
investors than the single investment option in one combined
company.
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Creating more effective management
incentives.
Each of the companies will be able to
create more effective management incentive and retention
programs, including options and restricted stock units, for each
of the
publicly-traded
companies. Following the spin-off, stock-based compensation and
other incentive awards awarded to employees of each of the
companies will be tied more directly to the market performance
of the company for which the employees work, improving the
ability for each company to attract, retain and motivate
qualified personnel.
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The Temple-Inland board of directors considered a number of
potentially negative factors in evaluating the spin-offs,
including
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the decreased capital available for investment,
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the loss of synergies, particularly in administrative and
support functions, from operating as one company,
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potential disruptions to the businesses as a result of the
spin-offs as management and our employees devote time and
resources to completing the spin-offs,
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the potential effect of the spin-offs on the anticipated credit
ratings of the separated companies as illustrated by
Moodys recent downgrade of Temple-Inlands credit
rating,
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risks associated with Temple-Inlands debt due in part to
the fact that a smaller asset base and revenue stream will be
available to service the debt,
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risks of being unable to achieve the benefits expected from the
spin-offs, including should the aggregate market values of the
separate company stocks not exceed the market value of
Temple-Inlands stock prior to the spin-off,
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the risk that the reaction of Temple-Inlands stockholders
to the spin-offs may not be favorable,
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the risk that the plan of execution might not be
completed, and
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the substantial one-time and ongoing costs of the spin-offs.
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The Temple-Inland board of directors concluded that the
potential benefits of the spin-offs outweighed these factors.
In view of the wide variety of factors considered in connection
with the evaluation of the spin-offs and the complexity of these
matters, the Temple-Inland board of directors did not find it
useful to, and did not attempt to, quantify, rank or otherwise
assign relative weights to the factors considered.
Distribution
of the Shares
On December 28, 2007, the distribution date, Temple-Inland
will effect the spin-off by distributing to holders of record of
its common stock (or their designees) as of December 14,
2007, the record date, a dividend of one share of our
common stock (and a related preferred stock purchase right) for
every three shares of Temple-Inland common stock held by
them on the record date and not subsequently sold in the
regular way market.
Prior to the spin-off, Temple-Inland will deliver all of the
issued and outstanding shares of our common stock to
Computershare Trust Company, N.A., the distribution agent. On
the distribution date, the shares of our common stock that you
are entitled to receive in the distribution will be issued
electronically to you or to your bank or brokerage firm on your
behalf by way of direct registration in book-entry form.
Registration in book-entry form refers to a method of recording
stock ownership when no physical stock certificates are issued
to stockholders, as is the case in this distribution. Commencing
on or shortly after the distribution date, if you are the
registered holder of Temple-Inland common stock, the
distribution agent will mail to you an account statement that
indicates the number of shares of our common stock that have
been registered in book-entry form in your name and the method
by which you may access your account and, if desired, trade your
shares of our common stock. If you hold your Temple-Inland
common stock in street name through a bank or
brokerage firm, your bank or brokerage firm will credit your
account for the number of shares of our common stock that you
are entitled to receive in the distribution. If you have any
questions concerning the mechanics of the distribution or of
having shares of our common stock registered in book-entry form,
we encourage you to contact Computershare Trust Company, N.A. at
the address or telephone number set forth on page 9 of this
information statement. If you have any questions concerning the
mechanics of having your shares held in street name,
we encourage you to contact your bank or brokerage firm.
Please note that if you are a stockholder of Temple-Inland on
the record date and you sell shares of Temple-Inland common
stock after the record date but on or before the distribution
date, you also will be selling your right to receive shares of
our common stock in the distribution. In this circumstance, the
buyer of those shares, and not you, the seller, will become
entitled to receive the shares of our common stock issuable in
the distribution in respect of the shares of Temple-Inland
common stock that you sold.
See the section on page 29
entitled Trading of Temple-Inland Common Stock
Between the Record Date and Distribution Date for more
information.
A delivery of a share of our common stock in connection with the
distribution also will constitute the delivery of a preferred
stock purchase right associated with the share. The existence of
the preferred stock purchase rights may deter a potential
acquiror from making a hostile takeover proposal or a tender
offer. For a more detailed discussion of these rights, see
Description of Our Capital Stock Anti-takeover
Effects of Our Stockholder Rights Agreement, Our Amended and
Restated Certificate of Incorporation and Amended and Restated
Bylaws, and Delaware Law Stockholder Rights
Agreement.
You are not being asked to take any action in connection with
the spin-off. You also are not being asked for a proxy or to
surrender any of your shares of Temple-Inland common stock for
shares of our common stock. The number of outstanding shares of
Temple-Inland common stock will not change as a result of the
spin-off, although the value of shares of Temple-Inland common
stock will be affected.
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Treatment
of Fractional Shares
Fractional shares of our common stock will not be issued as part
of the distribution nor credited to book-entry accounts. For
example, if you own fewer than three shares of
Temple-Inland common stock on the record date, which would
entitle you to receive less than one whole share of our common
stock, you will receive cash in lieu of any such fractional
shares. The distribution agent will aggregate all of the
fractional shares and sell them in the open market at then
prevailing market prices on behalf of you and similarly situated
stockholders over a period of several trading days. You will
receive cash in the amount of your proportionate share of the
net sale proceeds from the sale of the aggregated fractional
shares, based upon the average gross selling price per share of
our common stock after making appropriate deductions for any
required withholdings for U.S. federal income tax purposes.
See the section below entitled Certain
U.S. Federal Income Tax Consequences of the Spin-off
for a discussion of the U.S. federal income tax treatment
of the proceeds received from the sale of fractional shares. We
will bear the cost of brokerage fees incurred in connection with
these sales. If you are the registered holder of Temple-Inland
common stock, you will receive a check from the distribution
agent in an amount equal to your pro rata share of the aggregate
net cash proceeds of the sales. If you hold your Temple-Inland
common stock through a bank or brokerage firm, your bank or
brokerage firm will receive, on your behalf, your pro rata share
of the aggregate net cash proceeds of the sales and will
electronically credit your account for your share of such
proceeds.
We anticipate that these sales will occur as soon after the date
of the spin-off as practicable, as determined by the
distribution agent. Neither we, Temple-Inland nor the
distribution agent will guarantee any minimum sale price for the
fractional shares. The distribution agent will have the sole
discretion to select the broker-dealer(s) through which to sell
the shares and to determine when, how and at what price to sell
the shares. Further, neither the distribution agent nor the
selected broker-dealer(s) will be our affiliate or an affiliate
of Temple-Inland.
401(k)
Plan Shares
In connection with the spin-off, Forestar will establish a
401(k) plan for its employees. The Forestar plan will be
generally comparable to the Temple-Inland 401(k) plan, except it
will not have a company stock fund. Participants who hold
Temple-Inland common stock in their Temple-Inland 401(k) plan on
the date of the spin-off will receive shares of Forestar and
Guaranty common stock in their 401(k) plan account. The Forestar
and Guaranty shares will be allocated to these 401(k) plan
accounts in accordance with the spin-off distribution ratio. The
401(k) plan accounts for Forestar employees will be transferred
to the new Forestar 401(k) plan after the spin-off, but their
company stock fund account will remain in the Temple-Inland
401(k) plan for a period of time that will allow participants to
elect when to divest these shares.
Dividend
Reinvestment Plan
If you hold shares of Temple-Inland common stock in
Temple-Inlands dividend reinvestment plan, you will be
entitled to receive in the distribution shares of our common
stock in a direct registration position with Computershare Trust
Company, N.A., our transfer agent. Instructions will be provided
to you on how to transfer your shares to a different account. No
fractional shares of our common stock will be distributed. We do
not currently intend to have our own dividend reinvestment plan.
Certain
U.S. Federal Income Tax Consequences of the Spin-off
The following is a summary of certain material U.S. federal
income tax consequences relating to the spin-off. This summary
is based on the Code, the Treasury regulations promulgated under
the Code, and interpretations of the Code and the Treasury
regulations by the courts and the IRS, in effect as of the date
of this information statement, and all of which are subject to
change, possibly with retroactive effect. This summary does not
discuss all the tax considerations that may be relevant to you
in light of your particular circumstances, nor does it address
the consequences to Temple-Inland stockholders subject to
special treatment under the U.S. federal income tax laws,
including, without limitation:
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insurance companies;
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dealers or brokers in securities or currencies;
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tax-exempt organizations;
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financial institutions;
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mutual funds;
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pass-through entities and investors in such entities;
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holders who hold their shares as a hedge or as part of a
hedging, straddle, conversion, synthetic security, integrated
investment or other risk-reduction transaction;
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holders who are subject to alternative minimum tax; or
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holders who acquired their shares upon the exercise of employee
stock options or otherwise as compensation.
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In addition, this summary does not address the U.S. federal
income tax consequences to those Temple-Inland stockholders who
do not hold their Temple-Inland common stock as a capital asset.
Finally, this summary does not address any state, local or
foreign tax consequences.
You are urged to consult your own
tax advisor concerning the U.S. federal, state and local,
and
non-U.S. tax
consequences of the spin-off.
The spin-off is conditioned upon Temple-Inlands receipt of
a private letter ruling from the IRS and an opinion of tax
counsel, in each case, to the effect that the spin-off, together
with certain related transactions, will qualify as a tax-free
distribution for U.S. federal income tax purposes under
Sections 355 and 368(a)(1)(D) of the Code. Temple-Inland
has received the private letter ruling and the opinion. Assuming
the spin-off so qualifies, then for U.S. federal income tax
purposes:
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no gain or loss will be recognized by (and no amount will be
included in the income of) Temple-Inland common stockholders
upon their receipt of shares of our common stock in the spin-off;
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any cash received in lieu of fractional share interests in our
common stock will give rise to gain or loss equal to the
difference between the amount of cash received and the tax basis
allocable to the fractional share interests (determined as
described below), and such gain or loss will be capital gain or
loss if the Temple-Inland common stock on which the distribution
is made is held as a capital asset on the date of the spin-off;
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the aggregate basis of the Temple-Inland common stock, our
common stock, and Guaranty common stock in the hands of each
Temple-Inland common stockholder after the spin-off (including
any fractional interests to which the stockholder would be
entitled) will equal the aggregate basis of Temple-Inland common
stock held by the stockholder immediately before the spin-off,
allocated between the Temple-Inland common stock, our common
stock, and Guaranty common stock in proportion to the relative
fair market value of each on the date of the spin-off; and
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the holding period of the Forestar common stock received by each
Temple-Inland common stockholder will include the holding period
at the time of the spin-off for the Temple-Inland common stock
on which the distribution is made, provided that the
Temple-Inland common stock is held as a capital asset on the
date of the spin-off.
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Although a private letter ruling from the IRS generally is
binding on the IRS, if the factual representations or
assumptions made in the letter ruling request are untrue or
incomplete in any material respect, we will not be able to rely
on the ruling. Furthermore, the IRS will not rule on whether a
spin-off satisfies certain requirements necessary to obtain
tax-free treatment under Section 355 of the Code. Rather,
the ruling is based upon representations by Temple-Inland that
these conditions have been satisfied, and any inaccuracy in such
representations could invalidate the ruling. Therefore, in
addition to obtaining the ruling from the IRS, Temple-Inland has
received an opinion of tax counsel that the spin-off, together
with certain related transactions, will qualify as a tax-free
distribution for U.S. federal income tax purposes under
Sections 355 and 368(a)(1)(D) of the Code. The opinion
relies on the ruling as to matters covered by the ruling. In
addition,
26
the opinion is based on, among other things, certain
assumptions and representations as to factual matters made by
Temple-Inland and us, which if incorrect or inaccurate in any
material respect, would jeopardize the conclusions reached by
counsel in its opinion. The opinion will not be binding on the
IRS or the courts, and the IRS or the courts may not agree with
the opinion.
Notwithstanding receipt by Temple-Inland of the ruling and
opinion of counsel, the IRS could assert that the spin-off does
not qualify for tax-free treatment for U.S. federal income
tax purposes. If the IRS were successful in taking this
position, our initial public stockholders and Temple-Inland
could be subject to significant U.S. federal income tax
liability. In general, Temple-Inland would be subject to tax as
if it had sold the common stock of our company in a taxable sale
for its fair market value and our initial public stockholders
would be subject to tax as if they had received a taxable
distribution equal to the fair market value of our common stock
that was distributed to them. In addition, even if the spin-off
were to otherwise qualify under Section 355 of the Code, it
may be taxable to Temple-Inland (but not to Temple-Inlands
stockholders) under Section 355(e) of the Code, if the
spin-off were later deemed to be part of a plan (or series of
related transactions) pursuant to which one or more persons
acquire directly or indirectly stock representing a 50% or
greater interest in Temple-Inland or us. For this purpose, any
acquisitions of Temple-Inland stock or of our common stock
within the period beginning two years before the spin-off and
ending two years after the spin-off are presumed to be part of
such a plan, although we or Temple-Inland may be able to rebut
that presumption.
In connection with the spin-off, we and Temple-Inland will enter
into a tax matters agreement pursuant to which we will agree to
be responsible for certain liabilities and obligations following
the spin-off. In general, under the terms of the tax matters
agreement, in the event the spin-off, together with certain
related transactions, were to fail to qualify as a
reorganization for U.S. federal income tax purposes under
Sections 355 and 368(a)(1)(D) of the Code (including as a
result of Section 355(e) of the Code) and if such failure
was not the result of actions taken after the distribution by
Temple-Inland or us, we would be responsible for 15% of any such
taxes. If such failure was the result of actions taken after the
distribution by Temple-Inland, Guaranty, or us, the party
responsible for such failure would be responsible for all taxes
imposed on Temple-Inland to the extent that such taxes result
from such actions. For a more detailed discussion, see the
section entitled Certain Relationships and Related Party
Transactions Agreements with Temple-Inland and
Guaranty Tax Matters Agreement beginning on
page 104 of this information statement. Our indemnification
obligations to Temple-Inland and its subsidiaries, officers and
directors are not limited in amount or subject to any cap. If we
are required to indemnify Temple-Inland and its subsidiaries and
their respective officers and directors under the circumstances
set forth in the tax matters agreement, we may be subject to
substantial liabilities.
Current Treasury regulations require that if you are a holder of
Temple-Inland common stock who receives our common stock in the
spin-off and, immediately prior to the spin-off, own:
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at least five percent of the total outstanding stock of
Temple-Inland; or
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securities of Temple-Inland with an aggregate tax basis of
$1,000,000 or more
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then you must attach a statement relating to the spin-off to
your federal income tax return for the year in which the
spin-off occurs.
Information and backup withholding will apply with respect to
cash proceeds received in lieu of a fractional share of our
common stock only if such proceeds equal or exceed $20.
The foregoing is a summary of certain U.S. federal
income tax consequences of the spin-off under current law and is
for general information only. The foregoing does not purport to
address all U.S. federal income tax consequences or tax
consequences that may arise under the tax laws of other
jurisdictions or that may apply to particular categories of
stockholders. You should consult your tax advisor as to the
particular tax consequences of the spin-off, including the
application of U.S. federal, state, local and foreign tax
laws, and the effect of possible changes in tax laws that may
affect the tax consequences described above.
27
Results
of the Spin-off
After the spin-off, we will be an independent, publicly-traded
company owning and operating what had previously been
Temple-Inlands real estate development and minerals
operations. Immediately following the spin-off, we expect to
have outstanding approximately 35.5 million shares of our
common stock and approximately 4,500 holders of record of shares
of our common stock, based upon the number of shares of
Temple-Inland common stock outstanding and the number of record
holders of Temple-Inland common stock on November 30, 2007.
The actual number of shares to be distributed will be determined
on the record date.
The spin-off will not affect the number of outstanding
Temple-Inland shares or any rights of Temple-Inland
stockholders, although it will affect the market value of the
outstanding Temple-Inland common stock.
Listing
and Trading of Our Common Stock
Currently, there is no public market for our common stock, and
until the spin-off, no shares of our common stock are subject to
outstanding options or warrants to purchase, or securities
convertible into, our common stock. A condition to the spin-off
is the approval for listing of our common stock on the New York
Stock Exchange. We have applied to have our common stock listed
on the New York Stock Exchange under the symbol FOR.
After the spin-off, Temple-Inland common stock will continue to
be listed on the New York Stock Exchange under the symbol
TIN.
There currently is no trading market for our common stock,
although we expect that a limited market, commonly known as a
when-issued trading market, will develop shortly
before the record date for the distribution, and we expect
regular way trading of our common stock will begin
on the first trading day after the completion of the spin-off.
See the section below entitled Trading of
Temple-Inland Common Stock Between the Record Date and
Distribution Date for an explanation of
when-issued and regular way trading.
Neither we nor Temple-Inland can assure you as to the trading
price of our common stock after the spin-off or as to whether
the combined trading prices of our common stock, Guarantys
common stock, and Temple-Inlands common stock (on a fully
distributed basis and adjusting for the sale of
Temple-Inlands timberlands and assuming the same market
conditions) after the spin-off will be less than, equal to or
greater than the trading prices of Temple-Inlands common
stock prior to the spin-off. The trading price of our common
stock is likely to fluctuate significantly, particularly until
an orderly market develops. See the sections entitled Risk
Factors Risks Relating to the Spin-off and
Risk Factors Risks Relating to Our Common
Stock beginning on pages 13 and 16, respectively, of
this information statement.
The shares of our common stock distributed to
Temple-Inlands stockholders will be freely transferable,
except for shares received by individuals who are our
affiliates. Individuals who may be considered our affiliates
after the spin-off include individuals who control, are
controlled by or are under common control with us, as those
terms generally are interpreted for purposes of the federal
securities laws. This may include some or all of our executive
officers and directors. In addition, individuals who are
affiliates of Temple-Inland on the distribution date may be
deemed to be affiliates of ours. Individuals who are our
affiliates will be permitted to sell their shares of common
stock received in the spin-off only pursuant to an effective
registration statement under the Securities Act of 1933, an
appropriate exemption from registration such as the exemption
afforded by Section 4(1) of the Securities Act, or pursuant
to Rule 144. In general, under Rule 144, an affiliate
who receives shares of our common stock in the distribution is
entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of:
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1% of the then-outstanding shares of common stock; and
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the average weekly trading volume of the common stock during the
four calendar weeks preceding the date on which the notice of
the sale is filed with the Securities and Exchange Commission.
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Sales under Rule 144 are also subject to provisions
relating to notice, manner of sale, volume limitations and the
availability of current public information about us. As of the
distribution date, based on their holdings, as of
November 30, 2007, of Temple-Inland common stock and equity
awards in Temple-Inland stock that will be adjusted into equity
awards for our common stock, we estimate that our officers and
directors will collectively hold approximately
500,000 shares of our common stock that will be subject to
Rule 144.
28
Trading
of Temple-Inland Common Stock Between the Record Date and
Distribution Date
Beginning on or shortly before the record date and continuing
through the distribution date for the spin-off,
Temple-Inlands common stock will begin to trade in two
markets on the NYSE: a regular way market and an
ex-distribution market. During this time, shares of
Temple-Inland common stock that are sold on the regular way
market will include an entitlement to receive shares of our
common stock and Guaranty common stock distributable in the
spin-offs. Conversely, shares sold in the
ex-distribution market will not include an
entitlement to receive shares of our common stock or Guaranty
common stock distributable in the spin-offs, as the entitlement
will remain with the original holder. Therefore, if you own
shares of Temple-Inland common stock on the record date and
thereafter sell those shares in the regular way
market on or prior to the distribution date, you also will be
selling the shares of our common stock that would have been
distributed to you in the spin-off with respect to the shares of
Temple-Inland common stock you sell. If you own shares of
Temple-Inland common stock on the record date and thereafter
sell those shares in the ex-distribution market on
or prior to the distribution date, you will still receive the
shares of our common stock in the spin-off. On the first trading
day following the distribution date, shares of Temple-Inland
common stock will begin trading without any entitlement to
receive shares of our common stock.
Furthermore, we anticipate that, beginning on or shortly before
the record date and continuing through the distribution date,
there will be a when-issued market in our common
stock. When-issued trading refers to a sale or
purchase made conditionally because the security has been
authorized but not yet issued. The when-issued
trading market will be a market for shares of our common stock
that will be distributed to Temple-Inland stockholders on the
distribution date. If you own shares of Temple-Inland common
stock at the close of business on the record date, you will be
entitled to shares of our common stock distributed pursuant to
the distribution. You may trade this entitlement to shares of
our common stock, separately from the shares of Temple-Inland
common stock you own, on the when-issued market. On
the first trading day following the distribution date,
when-issued trading with respect to shares of our
common stock will end and regular way trading will
begin.
Incurrence
of Debt
Prior to the spin-off, we expect to enter into a
$300 million credit facility arranged by KeyBanc Capital
Markets. Borrowings will be secured by about 250,000 acres of
our land and other assets and will bear interest at LIBOR plus
four percent. Prior to the spin-off, we will draw under
this credit facility to repay our credit facility with
Temple-Inland. For more information on our credit facility and
our debt, see the sections in this information statement
entitled Description of Material Indebtedness,
Managements Discussion and Analysis of Financial
Condition and Results of Operations,
Capitalization, Pro Forma Financial
Information, and Certain Relationships and Related
Party Transactions.
Conditions
to the Spin-off
We expect that the distribution will be effective on
December 28, 2007, the distribution date, provided that,
among other conditions described in this information statement,
the following conditions shall have been satisfied or waived by
Temple-Inland:
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the Securities and Exchange Commission shall have declared
effective our registration statement on Form 10 and no stop
order shall be in effect;
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all permits, registrations and consents required under the
securities or blue sky laws in connection with the distribution
shall have been received;
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Temple-Inland shall have received a private letter ruling from
the IRS and an opinion of tax counsel confirming the tax-free
status of the distribution for U.S. federal income tax
purposes;
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Temple-Inland shall have received an opinion from its financial
advisors that it has adequate surplus under Delaware law to
declare the spin-off dividend and that, following the spin-off,
each of Temple-Inland and Forestar will be solvent and
adequately capitalized;
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we shall have entered into one or more credit facilities;
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the listing of our common stock on the New York Stock Exchange
shall have been approved, subject to official notice of issuance;
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all material governmental approvals and other consents necessary
to consummate the distribution shall have been received; and
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no order, injunction or decree issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing
consummation of the distribution or any of the related
transactions is in effect.
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The fulfillment of these conditions will not create any
obligation on Temple-Inlands part to effect the
distribution. Temple-Inland has the right not to complete the
distribution if, at any time, Temple-Inlands board of
directors determines, in its sole discretion, that the
distribution is not in the best interests of Temple-Inland or
its stockholders or that market conditions are such that it is
not advisable to separate the real estate business from
Temple-Inland.
Material
Changes to the Terms of the Spin-off
Temple-Inland will have the sole and absolute discretion to
determine (and change) the terms of, and whether to proceed
with, the distribution and, to the extent it determines to so
proceed, to determine the date of the distribution. We do not
intend to notify Temple-Inland stockholders of any modifications
to the terms of the spin-off that, in the judgment of its board
of directors, are not material. For example,
Temple-Inlands board of directors might consider material
such matters as significant changes to the distribution ratio,
the assets to be contributed or the liabilities to be assumed in
the spin-off. To the extent that the board of directors
determines that any modifications by Temple-Inland materially
change the terms of the distribution, we or Temple-Inland will
notify Temple-Inland stockholders in a manner reasonably
calculated to inform them about the modification as may be
required by law, by, for example, publishing a press release,
filing a current report on
Form 8-K,
or circulating a supplement to the information statement.
Reasons
for Furnishing this Information Statement
This information statement is being furnished solely to provide
information about us and about the spin-off to Temple-Inland
stockholders who will receive shares of our common stock in the
spin-off. It is not and should not be construed as an inducement
or encouragement to buy or sell any of our securities or any
securities of Temple-Inland. We believe that the information
contained in this information statement is accurate as of the
date set forth on the cover. Changes to the information
contained in this information statement may occur after that
date, and neither we nor Temple-Inland undertake any obligation
to update the information except in the normal course of our
respective public disclosure obligations and practices.
We do not intend to pay a cash dividend on our common stock for
the foreseeable future. Instead we intend to reinvest our
available cash flow into our business. The establishment,
declaration and payment of dividends will be at the sole
discretion of our board of directors and will be evaluated from
time to time in light of our financial condition, earnings,
capital requirements of our business, the terms of any credit
agreements to which we may be a party, legal requirements
(including compliance with the IRS private letter ruling),
industry practice and other factors that our board of directors
deems relevant. If we do declare a dividend, there can be no
assurance that we will continue to pay dividends.
30
DESCRIPTION
OF OUR BUSINESS
Overview
Forestar Real Estate Group is a growth company committed to
maximizing stockholder value. We own directly or through
ventures about 374,000 acres of real estate located in nine
states and twelve markets and about 622,000 net acres of
oil and gas mineral interests. We invest primarily in strategic
growth corridors, which we define as markets with significant
growth characteristics for population, employment and household
formation. In 2006, we generated revenues of $225 million
and net income of $52 million.
We operate two business segments:
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Real estate, and
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Natural resources.
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Our real estate segment secures entitlements and develops
infrastructure on our lands, primarily for single-family
residential and mixed-use communities. We own approximately
304,000 acres in a broad area around Atlanta, Georgia, with the
balance located primarily in Texas. We also actively invest in
new projects in our strategic growth corridors, regions of
accelerated growth across the southern half of the United States
that possess key demographic and growth characteristics that we
believe make them attractive for long-term real estate
investment.
Our real estate projects are located among the fastest growing
markets in the United States. We have 24 real estate
projects representing about 27,000 acres currently in the
entitlement process, and 75 active development projects in seven
states and 11 markets encompassing approximately
17,000 remaining acres, comprised of about 30,000
residential lots and about 1,900 commercial acres. We sell land
for commercial uses to national retailers and local commercial
developers. We own and manage projects both directly and through
ventures. By using ventures, we achieve various business
objectives including more efficient capital deployment, risk
management, and leveraging a partners local market
contacts and expertise.
Our natural resources segment is focused on maximizing the value
from royalties and other lease revenues from our oil and gas
mineral interests located in Texas, Louisiana, Alabama and
Georgia. These operations have historically required low capital
investment, and we intend to use the cash flow generated by our
mineral interests to accelerate real estate value creation
activities. In addition, we sell wood fiber from our land,
primarily in Georgia, and lease land for recreational uses.
Our origins date back to the 1955 incorporation of
Lumbermens Investment Corporation, which in 2006 changed
its name to Forestar (USA) Real Estate Group Inc. We have a
decades-long legacy of residential and commercial real estate
development operations, primarily in Texas. In 1991, we and
Cousins Properties Incorporated formed Temco Associates, LLC as
a venture to develop residential sites in Paulding County,
Georgia, and in 2002 we and Cousins formed CL Realty, L.L.C. as
a venture to develop residential and mixed-use communities in
Texas and across the southeastern U.S. Those ventures
continue today. In 2001, we opened an office in the Atlanta area
to manage nearby land with a focus on its long-term real estate
development potential. In 2006, Temple-Inland began reporting
Forestar Real Estate Group as a separate business segment.
Leveraging years of real estate development experience, we
believe our management team brings extensive knowledge and
expertise to position us to maximize long-term value for our
stockholders.
Strategy
Our strategy is to maximize and grow long-term stockholder value
through:
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Entitlement and development of real estate,
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Realization of value from natural resources, and
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Accelerated growth through strategic and disciplined investment
in real estate.
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We are focused on maximizing real estate values through the
entitlement and development of well-located residential and
mixed-use communities. We secure entitlements on our lands by
delivering thoughtful plans and balanced solutions that meet the
needs of the communities where we operate. Moving land through
the entitlement and development process creates significant real
estate value. Residential development activities target lot
sales to national and regional home builders who build quality
products and have strong and effective marketing and sales
programs. The lots we deliver in the majority of our communities
are for
mid-priced
homes, predominantly in the first and second move-up categories,
the largest segments of the new home market. Commercial tracts
are either sold to or ventured with a commercial developer that
specializes in the construction and operation of
income-producing properties.
We intend to maximize value from our oil and gas mineral
interests by increasing the acreage leased, lease rates and
royalty interests. These operations have historically required
low capital investment, and we intend to use the cash flow
generated by our mineral interests to accelerate real estate
value creation activities. In addition, we realize value from
our undeveloped land by selling fiber and by managing it for
future real estate development and conservation uses. We also
intend to generate cash flow and create additional value through
recreational leases and water rights.
We are committed to growing our business and will continue to
reinvest our capital primarily in ten strategic growth corridors
through disciplined investment in real estate opportunities that
meet our investment criteria. In 2006, we invested
$74 million in 10 new projects, representing over
2,400 acres located in three of our strategic growth
corridors.
Our real estate and mineral assets in combination with our
strategy, financial strength, management expertise, stewardship
and continuous reinvestment in our business, position Forestar
to maximize and grow long-term value for stockholders.
Real
Estate
In our real estate segment, we conduct a wide array of project
planning and management activities related to the acquisition,
entitlement, development and sale of real estate, primarily
residential and mixed-use communities. We own and manage our
projects either directly or through ventures, which we use to
achieve a variety of business objectives, including more
efficient capital deployment, risk management, and leveraging a
32
partners local market contacts and expertise. The
following map shows the states in which we own property and
conduct our real estate business.
Forestar
Real Estate Markets
We have real estate in nine states and 12 markets encompassing
about 374,000 acres, including approximately
304,000 acres located in a broad area around Atlanta,
Georgia, with the balance located primarily in Texas. We also
have real estate in Florida, Colorado, California, Utah,
Missouri, Alabama and Louisiana.
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Our strategy for creating value in our real estate segment is to
move acres up the value chain by moving land located in growth
corridors but not yet entitled, through the entitlement process,
and into development. The chart below depicts our real estate
value chain, including real estate owned through ventures.
Forestar
Real Estate Value Chain
Today, we have over 330,000 undeveloped acres located in the
path of population growth. As markets grow and mature, we will
secure the necessary entitlements, the timing for which varies
depending upon the size, location, use and complexity of a
project. We currently have about 27,000 acres in the
entitlement process, which includes obtaining zoning, other
governmental approvals, and access to utilities. We have about
17,000 acres entitled, developed, and under development,
comprised of about 30,000 residential lots and about 1,900
commercial acres. We use return criteria, which include return
on cost, internal rate of return, and return on cash, when
determining whether to invest initially or make additional
investment in a project. When investment in development meets
our return criteria, we will initiate the development process
with subsequent sale of lots to homebuilders or, for commercial
parcels, sale to or venture with commercial developers. We will
sell land at any point within the value chain when additional
investment in entitlement or development will not meet our
return criteria. In 2006, we sold 3,652 acres of
unentitled, undeveloped land at an average price of $8,100 per
acre.
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A summary of our 27,000 acres of real estate projects in the
entitlement
process
(a)
at third quarter-end 2007 follows:
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Project
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Project
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County
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Market
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Acres
(b)
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California
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Hidden Creek Estates
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Los Angeles
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Los Angeles
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700
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Terrace at Hidden Hills
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Los Angeles
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Los Angeles
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30
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Georgia
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Ball Ground
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Cherokee
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Atlanta
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500
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Burt Creek
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Dawson
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Atlanta
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990
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Cedar Creek Preserve
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Coweta
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Atlanta
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200
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Corinth Landing
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Coweta
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Atlanta
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800
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Crossing
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Coweta
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Atlanta
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230
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Fincher Road
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Cherokee
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Atlanta
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950
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Friendship Road
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Cherokee
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Atlanta
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110
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Garland Mountain
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Cherokee/Bartow
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Atlanta
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350
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Genesee
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Coweta
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Atlanta
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750
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Grove Park
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Coweta
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Atlanta
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160
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Jackson Park
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Jackson
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Atlanta
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690
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Lithia Springs
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Haralson
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Atlanta
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260
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Mill Creek
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Coweta
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Atlanta
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780
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Overlook
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Cherokee
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Atlanta
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510
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Pickens School
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Pickens
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Atlanta
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420
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Serenity
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Carroll
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Atlanta
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400
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Waleska
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Cherokee
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Atlanta
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150
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Wolf Creek
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Carroll
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Atlanta
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12,180
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Yellow Creek
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Cherokee
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Atlanta
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1,100
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Texas
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Lake Houston
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Harris/Liberty
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Houston
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3,630
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Entrada
(c)
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Travis
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Austin
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240
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Woodlake
Village
(c)
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Montgomery
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Houston
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620
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Total
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26,750
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(a)
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A project is deemed to be in the entitlement process when
customary steps necessary for the preparation and submittal of
an application, like conducting pre-application meetings or
similar discussions with governmental officials, have commenced,
or an application has been filed. Projects listed may have
significant steps remaining, and there is no assurance that
entitlements ultimately will be received.
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(b)
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Project acres, which are the total for the project regardless of
our ownership interest, are approximate. The actual number of
acres entitled may vary.
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(c)
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We own a 50 percent interest in these projects.
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The majority of our projects are single-family residential and
mixed-use communities. In some cases, commercial land uses
within a project enhance the desirability of the community by
providing convenient locations for resident support services. We
sometimes undertake projects consisting exclusively of
commercial tracts and, on occasion, we invest in a venture to
develop a single commercial project.
35
We develop lots for single-family homes and commercial tracts
that are substantially ready for construction of buildings for
retail, multifamily, office, industrial or other commercial
uses. We sell residential lots primarily to national and
regional homebuilders and, to a lesser extent, local
homebuilders. We have 75 active development projects in seven
states and 11 markets encompassing about 17,000 remaining
acres, comprised of about 30,000 residential lots and about
1,900 commercial acres. We focus our lot sales on the first and
second
move-up
primary housing categories, the largest segments of the new home
market. First and second
move-up
segments are homes priced above entry-level products yet below
the high-end and custom home segments.
Marketing and sales of residential lots to builders is usually
conducted directly, without the need for outside real estate
brokers. Although we may discuss potential interest with
selected builders prior to commencement of a project, we
typically do not receive a binding commitment to purchase lots
prior to making our initial investment. Terms for these lot sale
transactions follow industry norms, generally consisting of
option contracts with prescribed takedown schedules. Prescribed
takedown rates vary due to several factors, including builder
profile, product type, market conditions, and the number of
builders competing within a subdivision. Payment in full is
typically received at the closing of each lot takedown.
Commercial tracts are either sold to or ventured with a
commercial developer that specializes in the construction and
operation of income-producing properties, such as apartments,
retail centers, or office buildings. We sell land designated for
commercial uses to national retailers and to regional and local
commercial developers. As is typical for the industry, marketing
and sale of commercial tracts often involves outside real estate
brokers. We have about 1,900 acres of entitled land
designated for commercial use, including approximately
285 acres of commercial property in several parcels in or
near Antioch, California. The site is zoned for industrial uses
and fronts the San Joaquin river, which connects the
San Francisco Bay with the Stockton Deep Water Ship
Channel. Portions of this site were previously used by
Temple-Inland as a paper manufacturing operation and related
support facilities. Substantially all manufacturing facilities
have been removed.
Examples of two of our current significant mixed-use projects
include Cibolo Canyons in the San Antonio market area and
Towne West in the Atlanta market area.
Cibolo Canyons is planned as a 2,900 acre mixed-use
development comprising 1,749 residential lots of which 464 have
been sold as of September 2007 at an average price of $57,000
per lot. The residential component will include not only
traditional single-family homes but also an active adult section
and condominiums. Cibolo Canyons homebuilder customers include
Highland Homes, Meritage Homes and Newmark Homes, as well as
several regional and custom builders. Our commercial component
will include 145 acres designated for multi-family and
retail uses, of which 64 acres have been sold as of
September 2007. Currently under construction at Cibolo Canyons
is the JW Marriott San Antonio Hill Country
Resort & Spa, planned to include a 1,002 room
destination resort and two PGA
Tour
®
Tournament Players
Club
®
golf courses to be designed by Pete Dye and Greg Norman. We have
the right to receive revenues from hotel occupancy and sales
taxes generated within the resort through 2034 and to
reimbursement of certain infrastructure costs.
Towne West is a 971 acre mixed-use development just west of
Adairsville in Bartow County, Georgia, approximately
60 miles north of Atlanta and near the announced site of
the first Cabelas destination retail hunting, fishing and
outdoor store in the southeastern United States. Towne
Wests residential component is designed to include 2,550
lots on 650 acres, and its commercial component is designed
to include 121 acres. Planned amenities include a swimming
pool with clubhouse, tennis courts, and baseball and softball
fields.
36
A summary of activity within our 17,000 acres of projects in the
development process, which includes
entitled,
(a)
developed, and under development real estate projects, at third
quarter-end 2007 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
Lots
(c)
|
|
|
Commercial
Acres
(d)
|
|
|
|
|
|
|
|
|
|
Sold
|
|
|
|
|
|
Sold
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
Since
|
|
|
|
|
|
Since
|
|
|
|
|
Project
|
|
County
|
|
Market
|
|
Owned
(b)
|
|
Inception
|
|
|
Remaining
|
|
|
Inception
|
|
|
Remaining
|
|
|
Projects we own
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
California
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Joaquin River
|
|
Contra Costa
|
|
Oakland
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
285
|
|
Colorado
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buffalo Highlands
|
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Weld
|
|
Denver
|
|
100%
|
|
|
|
|
|
|
645
|
|
|
|
|
|
|
|
|
|
Johnstown Farms
|
|
Weld
|
|
Denver
|
|
100%
|
|
|
115
|
|
|
|
699
|
|
|
|
|
|
|
|
|
|
Pinery West
|
|
Douglas
|
|
Denver
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115
|
|
Stonebraker
|
|
Weld
|
|
Denver
|
|
100%
|
|
|
|
|
|
|
600
|
|
|
|
|
|
|
|
|
|
Westlake Highlands
|
|
Jefferson
|
|
Denver
|
|
100%
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
Texas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arrowhead Ranch
|
|
Hays
|
|
Austin
|
|
100%
|
|
|
|
|
|
|
232
|
|
|
|
|
|
|
|
5
|
|
Caruth Lakes
|
|
Rockwall
|
|
Dallas/Fort Worth
|
|
100%
|
|
|
245
|
|
|
|
629
|
|
|
|
|
|
|
|
|
|
Cibolo Canyons
|
|
Bexar
|
|
San Antonio
|
|
100%
|
|
|
464
|
|
|
|
1,285
|
|
|
|
64
|
|
|
|
81
|
|
Harbor Lakes
|
|
Hood
|
|
Dallas/Fort Worth
|
|
100%
|
|
|
196
|
|
|
|
256
|
|
|
|
|
|
|
|
14
|
|
Harbor Mist
|
|
Calhoun
|
|
Corpus Christi
|
|
100%
|
|
|
|
|
|
|
1,393
|
|
|
|
|
|
|
|
36
|
|
Hunters Crossing
|
|
Bastrop
|
|
Austin
|
|
100%
|
|
|
268
|
|
|
|
309
|
|
|
|
19
|
|
|
|
95
|
|
Katy Freeway
|
|
Harris
|
|
Houston
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
38
|
|
|
|
|
|
La Conterra
|
|
Williamson
|
|
Austin
|
|
100%
|
|
|
|
|
|
|
509
|
|
|
|
|
|
|
|
60
|
|
Maxwell Creek
|
|
Collin
|
|
Dallas/Fort Worth
|
|
100%
|
|
|
580
|
|
|
|
443
|
|
|
|
|
|
|
|
|
|
Oak Creek Estates
|
|
Comal
|
|
Austin
|
|
100%
|
|
|
|
|
|
|
648
|
|
|
|
13
|
|
|
|
|
|
The Colony
|
|
Bastrop
|
|
Austin
|
|
100%
|
|
|
347
|
|
|
|
1,078
|
|
|
|
22
|
|
|
|
50
|
|
The Gables at North Hill
|
|
Collin
|
|
Dallas/Fort Worth
|
|
100%
|
|
|
193
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
The Preserve at Pecan Creek
|
|
Denton
|
|
Dallas/Fort Worth
|
|
100%
|
|
|
138
|
|
|
|
681
|
|
|
|
|
|
|
|
9
|
|
The Ridge at Ribelin Ranch
|
|
Travis
|
|
Austin
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
161
|
|
|
|
40
|
|
Westside at Buttercup Creek
|
|
Williamson
|
|
Austin
|
|
100%
|
|
|
1,215
|
|
|
|
313
|
|
|
|
66
|
|
|
|
|
|
Other projects(10)
|
|
Various
|
|
Various
|
|
100%
|
|
|
2,880
|
|
|
|
125
|
|
|
|
233
|
|
|
|
48
|
|
Georgia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Towne West
|
|
Bartow
|
|
Atlanta
|
|
100%
|
|
|
|
|
|
|
2,550
|
|
|
|
|
|
|
|
121
|
|
Other projects(8)
|
|
Various
|
|
Atlanta
|
|
100%
|
|
|
|
|
|
|
1,485
|
|
|
|
|
|
|
|
40
|
|
Missouri and Utah
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other projects(3)
|
|
Various
|
|
Various
|
|
100%
|
|
|
775
|
|
|
|
242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,416
|
|
|
|
14,232
|
|
|
|
616
|
|
|
|
999
|
|
Projects in entities we consolidate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Texas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
City Park
|
|
Harris
|
|
Houston
|
|
75%
|
|
|
754
|
|
|
|
557
|
|
|
|
50
|
|
|
|
115
|
|
Lantana
|
|
Denton
|
|
Dallas/Fort Worth
|
|
55%
(e)
|
|
|
329
|
|
|
|
2,021
|
|
|
|
|
|
|
|
|
|
Light Farms
|
|
Collin
|
|
Dallas/Fort Worth
|
|
65%
|
|
|
|
|
|
|
2,501
|
|
|
|
|
|
|
|
|
|
Timber Creek
|
|
Collin
|
|
Dallas/Fort Worth
|
|
88%
|
|
|
|
|
|
|
654
|
|
|
|
|
|
|
|
|
|
Other projects(6)
|
|
Various
|
|
Various
|
|
Various
|
|
|
991
|
|
|
|
393
|
|
|
|
21
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,074
|
|
|
|
6,126
|
|
|
|
71
|
|
|
|
171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total owned and consolidated
|
|
|
|
|
|
|
|
|
9,490
|
|
|
|
20,358
|
|
|
|
687
|
|
|
|
1,170
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
Lots
(c)
|
|
|
Commercial
Acres
(d)
|
|
|
|
|
|
|
|
|
|
Sold
|
|
|
|
|
|
Sold
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
Since
|
|
|
|
|
|
Since
|
|
|
|
|
Project
|
|
County
|
|
Market
|
|
Owned
(b)
|
|
Inception
|
|
|
Remaining
|
|
|
Inception
|
|
|
Remaining
|
|
|
Projects in ventures that we account for using the equity
method
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Georgia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seven Hills
|
|
Paulding
|
|
Atlanta
|
|
50%
|
|
|
620
|
|
|
|
460
|
|
|
|
26
|
|
|
|
|
|
The Georgian
|
|
Paulding
|
|
Atlanta
|
|
38%
|
|
|
285
|
|
|
|
1,100
|
|
|
|
|
|
|
|
|
|
Other projects(5)
|
|
Various
|
|
Atlanta
|
|
Various
|
|
|
1,844
|
|
|
|
187
|
|
|
|
3
|
|
|
|
|
|
Texas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bar C Ranch
|
|
Tarrant
|
|
Dallas/Fort Worth
|
|
50%
|
|
|
173
|
|
|
|
1,008
|
|
|
|
|
|
|
|
|
|
Fannin Farms West
|
|
Tarrant
|
|
Dallas/Fort Worth
|
|
50%
|
|
|
224
|
|
|
|
219
|
|
|
|
|
|
|
|
|
|
Lantana
|
|
Denton
|
|
Dallas/Fort Worth
|
|
Various
(e)
|
|
|
1,755
|
|
|
|
93
|
|
|
|
2
|
|
|
|
78
|
|
Long Meadow Farms
|
|
Fort Bend
|
|
Houston
|
|
19%
|
|
|
594
|
|
|
|
1,590
|
|
|
|
24
|
|
|
|
186
|
|
Southern Trails
|
|
Brazoria
|
|
Houston
|
|
40%
|
|
|
232
|
|
|
|
830
|
|
|
|
|
|
|
|
|
|
Stonewall Estates
|
|
Bexar
|
|
San Antonio
|
|
25%
|
|
|
97
|
|
|
|
154
|
|
|
|
|
|
|
|
|
|
Summer Creek Ranch
|
|
Tarrant
|
|
Dallas/Fort Worth
|
|
50%
|
|
|
793
|
|
|
|
1,695
|
|
|
|
|
|
|
|
374
|
|
Summer Lakes
|
|
Fort Bend
|
|
Houston
|
|
50%
|
|
|
294
|
|
|
|
850
|
|
|
|
48
|
|
|
|
3
|
|
Village Park
|
|
Collin
|
|
Dallas/Fort Worth
|
|
50%
|
|
|
313
|
|
|
|
256
|
|
|
|
|
|
|
|
5
|
|
Waterford Park
|
|
Fort Bend
|
|
Houston
|
|
50%
|
|
|
|
|
|
|
493
|
|
|
|
|
|
|
|
37
|
|
Other projects(3)
|
|
Various
|
|
Various
|
|
Various
|
|
|
278
|
|
|
|
251
|
|
|
|
|
|
|
|
37
|
|
Florida
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other projects(3)
|
|
Various
|
|
Tampa
|
|
Various
|
|
|
473
|
|
|
|
372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total in ventures
|
|
|
|
|
|
|
|
|
7,975
|
|
|
|
9,558
|
|
|
|
103
|
|
|
|
720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined total
|
|
|
|
|
|
|
|
|
17,465
|
|
|
|
29,916
|
|
|
|
790
|
|
|
|
1,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
A project is deemed entitled when all major discretionary
land-use approvals have been received. Some projects may require
additional permits for development.
|
|
(b)
|
|
Interest owned reflects our net equity interest in the project,
whether owned directly or indirectly. There are some projects
that have multiple ownership structures within them.
Accordingly, portions of these projects may appear as owned,
consolidated, and/or accounted for on the equity method.
|
|
(c)
|
|
Lots are for the total project, regardless of our ownership
interest.
|
|
(d)
|
|
Commercial acres are for the total project, regardless of our
ownership interest, and are net developable acres, which may be
fewer than the gross acres available in the project.
|
|
(e)
|
|
The Lantana project consists of a series of 21 partnerships in
which our voting interests range from 25 percent to
55 percent. We account for eight of these partnerships
using the equity method and we consolidate the remaining
partnerships.
|
Our strategy includes not only entitlement and development on
our own lands but also accelerated growth through strategic and
disciplined investment in acquisitions that meet our investment
criteria. In 2006, we acquired ten real estate projects for
approximately $74 million. These projects are planned to
include approximately 2,080 single-family residential lots and
about 360 commercial acres. Two examples of our 2006
acquisitions are Pinery West near Denver, Colorado, and La
Conterra near Austin, Texas.
Pinery West is adjacent to the City of Parker in the
rapidly-growing Douglas County area south of Denver. This
mixed-use project includes about 320 acres of
partially-entitled property with frontage on a major
thoroughfare. The project plan is to secure additional
entitlements, install road and utility infrastructure, and sell
up to 22 separate parcels in multiple phases. About
115 acres are planned for industrial, retail and other
commercial uses, and about 20 acres are planned for
residential use. The balance of the property is planned as open
space.
38
La Conterra is a mixed-use project on about 180 acres in
Georgetown, approximately 25 miles north of Austin. The
project is planned for 509 single-family residential lots on
about 120 acres, with a
transit-oriented
district planned for the remaining 60 acres. Plans
for this community include entrance through a divided boulevard,
and an amenity center with a swimming pool and playground. We
anticipate marketing residential lots to national homebuilders
beginning in 2008.
Markets
We invest primarily in markets located within our strategic
growth corridors, which we define as areas with significant
growth characteristics for population, employment and household
formation. We believe these factors are the most influential on
the demand for new housing. We have identified ten strategic
growth corridors, located generally across the southern half of
the U.S., that we believe possess characteristics that make them
attractive long-term real estate investment opportunities.
Long-term demand for residential lots and commercial use land
parcels is substantially influenced by demographics such as
population growth, immigration, in-migration and household
formation. Near-term demand for new single-family housing is
primarily influenced by employment growth and affordability. Our
strategy to invest primarily in our strategic growth corridors
is designed to capitalize on opportunities afforded by both
long-term and near-term demographic and growth influences. This
strategy is also designed to reduce our exposure to localized
market volatility. Following is a map of our strategic growth
corridors.
Forestar
Strategic Growth Corridors
Our ten strategic growth corridors encompass 165,000 square
miles, or approximately 5% of the total land area in the
U.S. According to 2005 census data, 85 million people,
29% of the U.S. total, reside in these corridors. The
population density in these growth corridors is almost seven
times the national average and is projected to grow at nine
times the national average between 2000 and 2030. During that
time, the corridors
39
are projected to garner approximately 43% of the nations
population growth and 38% of total employment growth. Estimated
housing demand from these ten growth corridors from 2000 to 2030
exceeds 23 million new homes.
Forestar
Strategic Growth Corridors
I-85:
Stretches along the general line taken
by I-85 from Atlanta to Raleigh, spanning three states and a
portion of a fourth. The cities of Atlanta, Charlotte, Raleigh
and Birmingham lie within this corridor.
I-35:
Encompasses the areas generally along
the line of I-35 from Dallas to San Antonio. The major
cities within this corridor include Dallas/Ft. Worth,
Austin, and San Antonio.
I-5:
Includes the area along and around I-5,
running the length of California. It includes the major cities
in Northern California of San Francisco, San Jose, and
Sacramento, and in Southern California the major cities of Los
Angeles, San Diego, and Riverside.
Houston:
Includes the 15 counties in and
around the Houston area conforming mostly to the I-10, I-45 and
US-59 transportation infrastructure. Five of these counties are
coastal or have direct access to the Gulf of Mexico.
Denver:
Denvers growth areas encompass
the counties bordering I-25 running north and south and I-70
running east and west.
Nashville:
Formed by a triangle between
Nashville, Knoxville and Chattanooga. I-40 runs east/west
between Nashville and Knoxville and I-24 and I-75 connect
Chattanooga to Nashville and Knoxville, respectively.
Phoenix:
The area is accessed by several
highways including I-10 and I-8 running east/west, and I-17
going north/south.
Salt Lake:
Almost entirely north/south along
I-15 with the one exception of Summit County within Salt Lake
Citys outer loop 280 to the east.
Washington, D.C.:
Includes the District
of Columbia together with Maryland and Virginia.
Florida-SE Coast:
Spans three states and over
350 miles. The majority of the corridor, however, is along
the east coast following I-95 from Hilton Head, SC to Port St.
Lucie, FL, then west across Florida encompassing several
counties along the Gulf of Mexico, including the cities of
Tampa, St. Petersburg, and Orlando.
Competition
We face significant competition for the acquisition, entitlement
and development of real estate in our markets. Many of our
projects compete with other local developments that have similar
products and locations. We compete with other land owners for
the sale of our undeveloped land. In addition, we compete with
many national, regional and local developers and builders in
these markets. We may compete for investment opportunities,
financing, available land, raw materials and labor with entities
that possess greater financial, marketing and other resources
than us. Competition may increase the bargaining power of
property owners seeking to sell, and industry competition may
increase if there is future consolidation in the real estate
industry. These competitive market pressures sometimes make it
difficult to acquire, entitle, develop or sell land at prices
that meet our return criteria. Some of our real estate
competitors are well established and financially strong, may
have greater financial resources than we do, or may be larger
than us
and/or
have
lower cost of capital and operating costs than we have and
expect to have.
The land acquisition and development business is highly
fragmented. We are aware of no meaningful concentration of
market share by any one competitor. Enterprises of varying
sizes, from individuals or small companies to large
corporations, actively engage in the real estate development
business. Most competitors are local, privately-owned companies.
We have a few regional competitors and virtually no national
competitors other than national homebuilders that, depending on
business cycles, may enter or exit the real estate
40
development business in some locations to develop lots on which
they construct and sell homes. There are few national
homebuilders currently developing lots. During periods when
access to capital is restricted, participants with weaker
financial conditions tend to be less active. We believe the
current environment is one where participants with stronger
financial conditions will have a competitive advantage, and
where fewer participants will be active.
Natural
Resources
In our natural resources segment, we lease our oil and gas
mineral interests to exploration and production companies for
which we receive royalties and other revenues. We also sell wood
fiber from our land, primarily in Georgia, lease land for
hunting and other recreational uses, and manage our interests in
water rights.
Products
We own oil and gas mineral interests in approximately
622,000 net acres in Texas, Louisiana, Alabama and Georgia.
In the context of our mineral interests, net acres refers to the
gross number of surface acres multiplied by our percentage
ownership of the mineral interest. Our minerals revenue is
primarily from oil and gas royalty interests, and to a lesser
extent, bonus payments made at the inception of a new oil or gas
lease and delay rentals. Although we lease certain portions of
these oil and gas mineral interests to third parties for the
exploration and production of oil and gas, we do not drill wells
or engage in any other exploratory or extractive activities. We
do not estimate or maintain oil or gas reserve information
related to our mineral interests. Following is a map of our
Texas and Louisiana oil and gas mineral interests.
Forestar
Texas and Louisiana Oil and Gas Minerals
41
Our strategy for maximizing value from our oil and gas mineral
interests is to move acres up the minerals value chain by
increasing the acreage leased, lease rates and royalty
interests. The chart below depicts our minerals value chain.
Forestar
Minerals Value Chain
Of our 622,000 net acres of oil and gas mineral interests,
over 517,000 net acres are available for lease. Almost half
of the acres available for lease are in Georgia and Alabama,
which have historically had very little oil and gas exploration
activity. Included in mineral acreage available for lease is
about 46,000 net acres subject to a geophysical option. The
option gives the holder the right to lease these acres upon
satisfaction of certain conditions. We have over 73,000 net
acres leased for exploration activities, and about
32,000 net acres held by production from oil and gas wells.
Leasing mineral acres for exploration and production activities
creates significant value because we retain a royalty interest
in all revenues generated by the lessee from oil and gas
production activities. The significant terms of these
arrangements include granting the exploration company the rights
to any oil or gas it may find and requiring that drilling be
commenced within a specified period. In return we receive an
initial payment (bonus), subsequent payments if drilling has not
started within the specified period (delay rentals), and a
percentage interest in the value of any oil or gas found
(royalties). If no oil or gas is found during the required
period, all rights are returned to us. Capital requirements are
minimal and primarily consist of acquisition costs allocated to
mineral interests and administrative costs.
Most agreements are for a three-year term although a portion or
all of an agreement may be extended by the lessee if actual
production is occurring. Financial terms vary based on a number
of market factors including the location of the mineral
interest, the number of acres subject to the agreement, our
mineral interest, and proximity to transportation facilities
such as pipelines. From our retained royalty interests, we
received an average net price in 2006, 2005 and 2004 per barrel
of oil of $64.05, $56.61 and $37.77, respectively, and per
thousand cubic feet of gas of $7.70, $7.33 and $5.79,
respectively.
42
A summary of our oil and gas mineral interests owned, leased,
and held by production at third quarter-end 2007 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Acres
|
|
|
Net Acres
|
|
|
Held by
|
|
State
|
|
Owned
(a)
|
|
|
Leased
(b)
|
|
|
Production
(c)
|
|
|
Texas
|
|
|
244,000
|
|
|
|
59,000
|
|
|
|
25,000
|
|
Louisiana
|
|
|
121,000
|
|
|
|
5,000
|
|
|
|
7,000
|
|
Alabama
|
|
|
57,000
|
|
|
|
9,000
|
|
|
|
0
|
|
Georgia
|
|
|
200,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
622,000
|
|
|
|
73,000
|
|
|
|
32,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Texas and Louisiana net acres are calculated as the gross number
of surface acres multiplied by our percentage ownership of the
mineral interest. Alabama and Georgia net acres are calculated
as the gross number of surface acres multiplied by our estimated
percentage ownership of the mineral interest based on county
sampling.
|
|
(b)
|
|
Includes leases in primary lease term only.
|
|
(c)
|
|
Acres being held by production are producing oil or gas in
paying quantities.
|
We have over 350,000 acres of timber in various stages of
growth on our undeveloped land, and approximately
23,000 acres of timber under a long-term lease with a
purchase option that includes the underlying land. In 2006, we
sold at estimated market prices, primarily to Temple-Inland,
about 1,115,000 tons of timber from our lands. We intend to
manage our timberland in accordance with the Sustainable
Forestry
Initiative
®
program of Sustainable Forestry Initiative, Inc. or a similar
program. Over 285,000 acres of our land, primarily in Georgia,
are leased for recreational purposes. Most recreational leases
are for a three-year term but may be terminated by us on
30 days notice to the lessee.
We also have a 45 percent nonparticipating royalty interest
in groundwater produced or withdrawn for commercial purposes or
sold from approximately 1.38 million acres in Texas,
Louisiana, Georgia, and Alabama. We have not received any income
from this interest.
Markets
Oil and gas revenues are influenced by the prices of these
commodities as determined both regionally and on world trading
markets. Mineral leasing activity is influenced by the location
of our mineral interests relative to existing or projected oil
and gas reserves and by the proximity of successful extractive
efforts to our mineral interests. Our principal timber products
include pulpwood and sawtimber. We anticipate that we will sell
wood fiber to Temple-Inland under annual agreements at market
prices, primarily for use at Temple-Inlands Rome, Georgia
mill complex. It is likely that Temple-Inland will continue to
be our largest wood fiber customer. See Certain
Relationships and Related Party Transactions Fiber
Sales Agreement. We also sell wood fiber to other parties
at market prices.
Competition
We compete with others who own mineral interests in the vicinity
of our mineral interests. In locations where our mineral
interests are close to producing wells and proven reserves,
other parties will compete to lease our mineral interests.
Conversely, where our mineral interests are close to unproven
reserves we may receive nominal interest in leasing our
minerals. However, when oil and gas prices are higher, we are
likely to receive greater interest in leasing our minerals close
to unproven reserves because the economics for exploration
companies will support more speculative activities. Portions of
our Texas and Louisiana minerals are close to producing wells
and proven reserves.
We face significant competition from many public and private
landowners for the sale of our fiber. Some of these competitors
own similar timber assets that are located in the same or nearby
markets. However, due to its weight, the cost for transporting
wood fiber long distances is significant, resulting in a
competitive
43
advantage for timber that is located reasonably close to paper
and building products manufacturing facilities. A significant
portion of our wood fiber is reasonably close to such
facilities. We expect continued demand for our wood fiber.
Some of our competitors are well established and financially
strong, may have greater financial resources than we do, or may
be larger than us
and/or
have
lower cost of capital and operating costs than we have and
expect to have.
Legal
Structure
Forestar Real Estate Group Inc. is a Delaware corporation. The
following chart presents the ownership structure for our
significant subsidiaries and ventures. It does not contain all
our subsidiaries and ventures, some of which are immaterial
entities. Except as indicated, all subsidiaries shown are
100 percent owned by their immediate parent.
Facilities
Our principal executive offices are located in Austin, Texas,
where we lease approximately 23,000 square feet of office
space from Guaranty. We also lease office space in Dallas,
Texas, and in several locations near Atlanta, Georgia. We
believe these offices are suitable for conducting our business.
Employees
We have approximately 82 employees. None of our employees
participate in collective bargaining arrangements. We believe we
have a good relationship with our employees.
Environmental
Regulations
Our operations are subject to federal, state and local laws,
regulations and ordinances relating to protection of public
health and the environment. These laws may impose liability on
property owners or
44
operators for the costs of removal or remediation of hazardous
or toxic substances on real property, without regard to whether
the owner or operator knew, or was responsible for, the presence
of the hazardous or toxic substances. The presence of, or the
failure to properly remediate, such substances may adversely
affect the value of a property, as well as our ability to sell
the property or to borrow funds using that property as
collateral. Environmental claims generally are not covered by
our insurance programs.
The particular environmental laws that apply to any given
development site vary according to the sites location, its
environmental condition, and the present and former uses of the
site and adjoining properties. Environmental laws and conditions
may result in delays, may cause us to incur substantial
compliance or other costs and can prohibit or severely restrict
development activity in environmentally sensitive regions or
areas, which could negatively affect our results of operations.
We own approximately 285 acres in several parcels in or
near Antioch, California, portions of which were sites of a
Temple-Inland paper manufacturing operation and related support
facilities that were closed in 2002. Substantially all
manufacturing facilities have been removed from the sites.
Investigations conducted by Temple-Inland disclosed the need for
remediation of environmental impacts associated with the closure
of manufacturing operations, which remediation is being
conducted voluntarily with oversight by the California
Department of Toxic Substances Control, or DTSC. The DTSC issued
Certificates of Completion for approximately 180 acres in
2006, and we anticipate that Certificates of Completion will be
issued for the remaining approximately 105 acres in 2008.
We estimate the cost we will likely incur to complete
remediation activities and subsequent monitoring will be about
$2 million. We will have no right of indemnification from
Temple-Inland should our actual costs exceed our estimate.
Legal
Proceedings
We are involved directly or through ventures in various legal
proceedings that arise from time to time in the ordinary course
of doing business. We believe we have established adequate
reserves for any probable losses and that the outcome of any of
the proceedings should not have a material adverse effect on our
financial position or long-term results of operations or cash
flows. It is possible, however, that charges related to these
matters could be significant to results of operations or cash
flow in any single accounting period.
45
The following table shows our capitalization as of September
2007 on both a historical basis and pro forma basis giving
effect to our anticipated post-spin-off capital structure. This
table should be read in conjunction with our historical
financial statements included in this information statement and
the sections entitled Selected Historical Financial
Information, Pro Forma Financial Information,
Managements Discussion and Analysis of Financial
Condition and Results of Operations, Description of
Material Indebtedness, and Description of Our
Capital Stock.
The pro-forma capitalization is not necessarily indicative of
our capitalization had the spin-off and our anticipated
post-spin-off capital structure been completed on the date
assumed. The pro-forma capitalization below may not reflect the
capitalization or financial condition that would have resulted
had we been operating as an independent, publicly-traded company
at that date and is not necessarily indicative of our future
capitalization or financial condition.
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Pro Forma
|
|
|
|
(In thousands)
|
|
|
Note payable to Temple-Inland
|
|
$
|
146,018
|
|
|
$
|
|
|
Bank credit facility
|
|
|
|
|
|
|
152,768
|
|
Debt
|
|
|
73,435
|
|
|
|
73,435
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
219,453
|
|
|
|
226,203
|
|
|
|
|
|
|
|
|
|
|
Temple-Inlands net investment
|
|
|
433,656
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
Preferred stock, par value $0.01 per share, 25,000,000
authorized shares, none issued
|
|
|
|
|
|
|
|
|
Common stock, par value $1.00 per share, authorized
200,000,000 shares, issued 35,357,000 shares
|
|
|
|
|
|
|
35,357
|
|
Additional paid-in capital
|
|
|
|
|
|
|
404,076
|
|
Accumulated other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
433,656
|
|
|
|
439,433
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
653,109
|
|
|
$
|
665,636
|
|
|
|
|
|
|
|
|
|
|
46
SELECTED
HISTORICAL FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Nine Months
|
|
|
For the Year
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
(a)
|
|
|
2005
|
|
|
2004
|
|
|
2003
(a)
|
|
|
2002
|
|
|
|
(Dollars in thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
$
|
115,267
|
|
|
$
|
144,997
|
|
|
$
|
180,151
|
|
|
$
|
118,121
|
|
|
$
|
138,823
|
|
|
$
|
92,416
|
|
|
$
|
95,694
|
|
Natural resources
|
|
|
27,106
|
|
|
|
38,451
|
|
|
|
45,409
|
|
|
|
37,366
|
|
|
|
30,478
|
|
|
|
27,474
|
|
|
|
12,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
142,373
|
|
|
$
|
183,448
|
|
|
$
|
225,560
|
|
|
$
|
155,487
|
|
|
$
|
169,301
|
|
|
$
|
119,890
|
|
|
$
|
108,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate
(b)
|
|
$
|
39,730
|
|
|
$
|
54,832
|
|
|
$
|
70,271
|
|
|
$
|
46,418
|
|
|
$
|
43,370
|
|
|
$
|
21,259
|
|
|
$
|
27,290
|
|
Natural resources
|
|
|
19,050
|
|
|
|
30,232
|
|
|
|
33,016
|
|
|
|
24,850
|
|
|
|
18,653
|
|
|
|
14,463
|
|
|
|
1,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment earnings
|
|
|
58,780
|
|
|
|
85,064
|
|
|
|
103,287
|
|
|
|
71,268
|
|
|
|
62,023
|
|
|
|
35,722
|
|
|
|
28,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses not allocated to segments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
(12,255
|
)
|
|
|
(10,373
|
)
|
|
|
(14,048
|
)
|
|
|
(9,113
|
)
|
|
|
(10,433
|
)
|
|
|
(6,921
|
)
|
|
|
(7,109
|
)
|
Share-based
compensation
(a)
|
|
|
(1,878
|
)
|
|
|
(914
|
)
|
|
|
(1,275
|
)
|
|
|
(443
|
)
|
|
|
(154
|
)
|
|
|
(56
|
)
|
|
|
(6
|
)
|
Interest expense
|
|
|
(6,461
|
)
|
|
|
(4,680
|
)
|
|
|
(6,229
|
)
|
|
|
(6,439
|
)
|
|
|
(6,091
|
)
|
|
|
(5,591
|
)
|
|
|
(6,198
|
)
|
Other non-operating income
(expense)
(c)
|
|
|
454
|
|
|
|
8
|
|
|
|
79
|
|
|
|
483
|
|
|
|
535
|
|
|
|
552
|
|
|
|
965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
38,640
|
|
|
|
69,105
|
|
|
|
81,814
|
|
|
|
55,756
|
|
|
|
45,880
|
|
|
|
23,706
|
|
|
|
16,082
|
|
Income tax expense
|
|
|
(13,951
|
)
|
|
|
(25,196
|
)
|
|
|
(29,970
|
)
|
|
|
(20,859
|
)
|
|
|
(17,444
|
)
|
|
|
(8,456
|
)
|
|
|
(5,780
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
24,689
|
|
|
$
|
43,909
|
|
|
$
|
51,844
|
|
|
$
|
34,897
|
|
|
$
|
28,436
|
|
|
$
|
15,250
|
|
|
$
|
10,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At period or year-end:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
692,963
|
|
|
$
|
576,134
|
|
|
$
|
620,174
|
|
|
$
|
543,944
|
|
|
$
|
517,700
|
|
|
$
|
533,097
|
|
|
$
|
474,137
|
|
Note payable to Temple-Inland and other debt
|
|
|
219,453
|
|
|
|
111,391
|
|
|
|
161,117
|
|
|
|
121,948
|
|
|
|
110,997
|
|
|
|
143,337
|
|
|
|
81,146
|
|
Minority interest in consolidated ventures
|
|
|
8,172
|
|
|
|
9,060
|
|
|
|
7,746
|
|
|
|
7,292
|
|
|
|
8,078
|
|
|
|
2,558
|
|
|
|
|
|
Temple-Inlands net investment
|
|
|
433,656
|
|
|
|
425,101
|
|
|
|
418,052
|
|
|
|
381,290
|
|
|
|
368,659
|
|
|
|
354,155
|
|
|
|
343,837
|
|
Ratio of total debt to total capitalization
|
|
|
34%
|
|
|
|
21%
|
|
|
|
28%
|
|
|
|
24%
|
|
|
|
23%
|
|
|
|
29%
|
|
|
|
19%
|
|
|
|
|
(a)
|
|
In 2006, Temple-Inland adopted the modified prospective
application of SFAS No. 123 (revised December 2004),
Share-Based Payment.
As a result, share-based
compensation expense allocated to us increased by $153,000. In
2003, Temple-Inland voluntarily adopted the prospective
transition method of SFAS No. 148,
Accounting for
Stock-Based Compensation Transition and Disclosure,
an amendment of FASB Statement No. 123.
As a result,
Temple-Inland began allocating share-based compensation expense
to us.
|
|
(b)
|
|
Beginning in 2006, we eliminated our historical one-month lag in
accounting for our investment in our two largest real estate
ventures as financial information became more readily available.
The one-time effect of eliminating this one-month lag was to
increase our equity in earnings by about $1,104,000.
|
|
(c)
|
|
In 2006, other non-operating income included $459,000 expense
associated with early repayment of debt.
|
47
PRO
FORMA FINANCIAL INFORMATION
The pro forma financial information portrays how our spin off
from Temple-Inland might have affected our historical financial
information if it had occurred at third quarter-end 2007 for
balance sheet purposes and at the beginning of 2006 for income
statement purposes. As you read this, understand that the pro
forma financial information is presented for informational
purposes only and is not intended to show what our financial
position or results of operations would have been had we been
operating as an independent, publicly-traded company during
these periods or what our financial position or results of
operations might be in the future. The pro forma financial
information should be read with our historical financial
statements included in this information statement and the
section entitled Managements Discussion and Analysis
of Financial Condition and Results of Operations.
How we
prepared the Pro Forma Financial Information
We prepared the pro forma financial information based upon our
historical financial statements adjusted to reflect our estimate
of the effect of events that are directly attributable to the
spin-off, expected to have a continuing impact on our
operations, and are factually supportable. The pro forma
adjustments were derived from currently available information
and were based on assumptions that we believe are reasonable and
that reflect our current intentions.
Events
that are reflected in the Pro Forma Financial
Information
|
|
|
|
|
Repayment of a note payable to Temple-Inland with borrowings
under a new credit facility that we expect to have in place on
or prior to the spin-off.
|
|
|
|
Factually supportable incremental increases in expenses
principally related to officer and director compensation,
stock-based compensation and expenses identified at this point
for stand alone company functions we are developing, such as
benefit administration, governance, information technology
infrastructure, investor relations and tax services.
|
|
|
|
Our conversion from a limited liability company to a Delaware
corporation, the authorization of preferred stock, and
distribution of our common stock to the stockholders of
Temple-Inland.
|
Events
that are not reflected in the Pro Forma Financial
Information
|
|
|
|
|
Estimated non-recurring costs that we expect to incur as a
result of the spin-off are between $2,000,000 and $3,000,000,
including costs for signage, branding, employee recruitment,
software licenses and new information systems.
|
|
|
|
Incremental expenses for stand alone company functions and
arrangements that we are developing, such as benefit
administration, governance, information technology
infrastructure, investor relations, insurance, and tax services
and incentive and share-based compensation arrangements. These
services and arrangements are currently being provided by
Temple-Inland and the allocation of the cost of these services
is included in our historical results of operations, $7,128,000
in 2006 and $6,698,000 in first nine months 2007. We expect
Temple-Inland to continue to provide some of these services,
principally related to information technology, until we can
establish our own stand alone functions. Our current estimate of
the incremental annual cost of these services on a stand alone
basis over and above pro forma general and administrative
expense is between $2,000,000 to $4,000,000.
|
48
FORESTAR
REAL ESTATE GROUP INC.
UNAUDITED
PRO FORMA BALANCE SHEET
Third Quarter-End 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
Historical
|
|
|
Adjustment
|
|
|
Pro Forma
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
7,862
|
|
|
$
|
|
|
|
$
|
7,862
|
|
Prepaid expenses
|
|
|
2,130
|
|
|
|
|
|
|
|
2,130
|
|
Real estate
|
|
|
518,044
|
|
|
|
|
|
|
|
518,044
|
|
Investment in unconsolidated ventures
|
|
|
100,200
|
|
|
|
|
|
|
|
100,200
|
|
Receivables, net
|
|
|
3,688
|
|
|
|
|
|
|
|
3,688
|
|
Timber
|
|
|
55,884
|
|
|
|
|
|
|
|
55,884
|
|
Property and equipment, net
|
|
|
1,822
|
|
|
|
|
|
|
|
1,822
|
|
Other assets
|
|
|
3,333
|
|
|
|
12,527
|
(a)(b)
|
|
|
15,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
692,963
|
|
|
$
|
12,527
|
|
|
$
|
705,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
Accounts payable
|
|
$
|
6,198
|
|
|
$
|
|
|
|
$
|
6,198
|
|
Accrued employee compensation and benefits
|
|
|
2,802
|
|
|
|
|
|
|
|
2,802
|
|
Accrued interest
|
|
|
194
|
|
|
|
|
|
|
|
194
|
|
Accrued property taxes
|
|
|
6,694
|
|
|
|
|
|
|
|
6,694
|
|
Other accrued expenses
|
|
|
5,015
|
|
|
|
|
|
|
|
5,015
|
|
Deferred income taxes
|
|
|
4,374
|
|
|
|
|
|
|
|
4,374
|
|
Other liabilities
|
|
|
6,405
|
|
|
|
|
|
|
|
6,405
|
|
Note payable to Temple-Inland
|
|
|
146,018
|
|
|
|
(146,018
|
)
(a)
|
|
|
|
|
Debt
|
|
|
73,435
|
|
|
|
|
|
|
|
73,435
|
|
Bank credit facility
|
|
|
|
|
|
|
152,768
|
(a)
|
|
|
152,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
251,135
|
|
|
|
6,750
|
|
|
|
257,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority Interest in Consolidated Ventures
|
|
|
8,172
|
|
|
|
|
|
|
|
8,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TEMPLE-INLANDS NET INVESTMENT
|
|
|
433,656
|
|
|
|
(433,656
|
)
(b)(c)
|
|
|
|
|
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, par value $0.01 per share, authorized
25,000,000 shares, none issued
|
|
|
|
|
|
|
|
(c)
|
|
|
|
|
Common stock, par value $1.00 per share, authorized 200,000,000
shares, issued 35,357,000 shares
|
|
|
|
|
|
|
35,357
|
(c)
|
|
|
35,357
|
|
Additional paid-in capital
|
|
|
|
|
|
|
404,076
|
(c)
|
|
|
404,076
|
|
Accumulated other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity
|
|
|
433,656
|
|
|
|
5,777
|
|
|
|
439,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
|
$
|
692,963
|
|
|
$
|
12,527
|
|
|
$
|
705,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Please read the notes to the unaudited pro forma financial
statements.
49
FORESTAR
REAL ESTATE GROUP INC.
UNAUDITED
PRO FORMA STATEMENT OF INCOME
For the Year 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
Historical
|
|
|
Adjustment
|
|
|
Pro Forma
|
|
|
|
(In thousands, except per share)
|
|
|
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate sales
|
|
$
|
151,785
|
|
|
$
|
|
|
|
$
|
151,785
|
|
Commercial operating properties and other
|
|
|
28,366
|
|
|
|
|
|
|
|
28,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
|
180,151
|
|
|
|
|
|
|
|
180,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural resources and other
|
|
|
45,409
|
|
|
|
|
|
|
|
45,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225,560
|
|
|
|
|
|
|
|
225,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of real estate sales
|
|
|
(90,629
|
)
|
|
|
|
|
|
|
(90,629
|
)
|
Cost of commercial operating properties and other
|
|
|
(17,307
|
)
|
|
|
|
|
|
|
(17,307
|
)
|
Cost of natural resources and other
|
|
|
(5,238
|
)
|
|
|
|
|
|
|
(5,238
|
)
|
Other operating
|
|
|
(24,421
|
)
|
|
|
(1,600
|
)
|
|
|
(26,021
|
)
|
General and administrative
|
|
|
(16,141
|
)
|
|
|
(6,605
|
)
(b)
|
|
|
(22,746
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(153,736
|
)
|
|
|
(8,205
|
)
|
|
|
(161,941
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
|
71,824
|
|
|
|
(8,205
|
)
|
|
|
63,619
|
|
Equity in earnings of unconsolidated ventures
|
|
|
19,371
|
|
|
|
|
|
|
|
19,371
|
|
Minority interest in consolidated ventures
|
|
|
(3,231
|
)
|
|
|
|
|
|
|
(3,231
|
)
|
Interest expense
|
|
|
(6,229
|
)
|
|
|
(6,190
|
)
(a)
|
|
|
(12,419
|
)
|
Other non-operating income (expense)
|
|
|
79
|
|
|
|
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE TAXES
|
|
|
81,814
|
|
|
|
(14,395
|
)
|
|
|
67,419
|
|
Income tax expense
|
|
|
(29,970
|
)
|
|
|
5,273
|
(d)
|
|
|
(24,697
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
51,844
|
|
|
$
|
(9,122
|
)
|
|
$
|
42,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING
(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
36,275
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
36,949
|
|
NET INCOME PER
SHARE
(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
$
|
1.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
$
|
1.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Please read the notes to the unaudited pro forma financial
statements.
50
FORESTAR
REAL ESTATE GROUP INC.
UNAUDITED
PRO FORMA STATEMENT OF INCOME
First Nine Months 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
Historical
|
|
|
Adjustment
|
|
|
Pro Forma
|
|
|
|
(In thousands, except per share)
|
|
|
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate sales
|
|
$
|
95,570
|
|
|
$
|
|
|
|
$
|
95,570
|
|
Commercial operating properties and other
|
|
|
19,697
|
|
|
|
|
|
|
|
19,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
|
115,267
|
|
|
|
|
|
|
|
115,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural resources and other
|
|
|
27,106
|
|
|
|
|
|
|
|
27,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142,373
|
|
|
|
|
|
|
|
142,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of real estate sales
|
|
|
(45,147
|
)
|
|
|
|
|
|
|
(45,147
|
)
|
Cost of commercial operating properties and other
|
|
|
(11,764
|
)
|
|
|
|
|
|
|
(11,764
|
)
|
Cost of natural resources and other
|
|
|
(5,166
|
)
|
|
|
|
|
|
|
(5,166
|
)
|
Other operating
|
|
|
(19,948
|
)
|
|
|
(1,200
|
)
|
|
|
(21,148
|
)
|
General and administrative
|
|
|
(14,972
|
)
|
|
|
(4,575
|
)
(b)
|
|
|
(19,547
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(96,997
|
)
|
|
|
(5,775
|
)
|
|
|
(102,772
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
|
45,376
|
|
|
|
(5,775
|
)
|
|
|
39,601
|
|
Equity in earnings of unconsolidated ventures
|
|
|
4,310
|
|
|
|
|
|
|
|
4,310
|
|
Minority interest in consolidated ventures
|
|
|
(5,039
|
)
|
|
|
|
|
|
|
(5,039
|
)
|
Interest expense
|
|
|
(6,461
|
)
|
|
|
(6,434
|
)
(a)
|
|
|
(12,895
|
)
|
Other non-operating income (expense)
|
|
|
454
|
|
|
|
|
|
|
|
454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE TAXES
|
|
|
38,640
|
|
|
|
(12,209
|
)
|
|
|
26,431
|
|
Income tax expense
|
|
|
(13,951
|
)
|
|
|
4,395
|
(d)
|
|
|
(9,556
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
24,689
|
|
|
$
|
(7,814
|
)
|
|
$
|
16,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING
(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
35,315
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
35,968
|
|
NET INCOME PER
SHARE
(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
$
|
0.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
$
|
0.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Please read the notes to the unaudited pro forma financial
statements.
51
FORESTAR
REAL ESTATE GROUP INC.
Notes to
Unaudited Pro Forma Financial Statements
(a) We will repay the note payable to Temple-Inland with
borrowings under a new credit facility we expect to have in
place prior to the spin-off. Based on a commitment we have
received from the lead arranger for the lenders, the new credit
facility will allow us to borrow up to $300,000,000 repayable in
three years and secured by about 250,000 acres of our land
and other assets. We expect the borrowings will bear interest at
LIBOR plus four percent, and we will incur origination and other
fees of about $6,750,000.
To reflect this in the pro forma balance sheet, we decreased the
note payable to Temple-Inland $146,018,000 and increased bank
credit facility $152,768,000, the third quarter-end 2007 balance
of the note, and $6,750,000 in origination and other fees.
To reflect this in the pro forma income statement, we increased
interest expense $6,190,000, in 2006 and $6,434,000 in first
nine months 2007. This increase represents the incremental
increase in interest expense due to the higher interest rate on
the new debt, higher debt balance and the amortization of loan
fees. The interest expense on the new debt was calculated to be
$7,698,000 in 2006 and $9,306,000 in first nine months 2007
compared with the actual interest expense on the note payable to
Temple-Inland of $3,758,000 in 2006 and $4,560,000 in first nine
months 2007. The interest rate on the new debt was calculated to
be 9.13 percent in 2006 and 9.34 percent in first nine
months 2007 based on average LIBOR rates for the respective
periods plus four percent compared with the interest rate on the
note payable to Temple-Inland of 4.46 percent in 2006 and
4.58 percent in first nine months 2007. At September 2007,
the applicable rate on the new debt would have been
9.34 percent. A 1/8 percent change in that interest
rate would change the 2006 annual interest expense by $105,000.
The amortization of the loan fees over the three-year term of
the loan was calculated to be $2,250,000 in 2006 and $1,688,000
in first nine months 2007.
(b) We created our director compensation program and
increased the base salary of and granted an equity award to our
CEO. In addition, Temple-Inland contributed to us a fractional
ownership interest in its corporate aircraft. We are developing
and incurring incremental expenses for stand alone company
functions such as benefits administration, governance,
information technology infrastructure, investor relations and
tax services.
To reflect this in the pro forma balance sheet, we increased
other assets $5,777,000 and increased Temple-Inlands net
investment $5,777,000, our pro rata share of
Temple-Inlands third quarter-end 2007 carrying value of
the aircraft.
To reflect this in the pro forma income statements, we increased
general and administrative expenses $6,605,000 in 2006 and
$4,575,000 in first nine months 2007 and increased other
operating expenses $1,600,000 in 2006 and $1,200,000 in first
nine months 2007 to reflect the incremental increase in cost
associated with these matters. The incremental increase
represents the difference between our estimates of their costs
compared with the costs reflected in our historical financial
statements, both direct or allocated from Temple-Inland.
(c) We will authorize the issuance of preferred stock. In
addition, we assumed a distribution ratio of one share of
our stock for every three shares of Temple-Inland stock
outstanding.
To reflect this in the pro forma balance sheet, we increased
common stock $35,357,000 and additional paid-in capital
$404,076,000 and we decreased Temple-Inlands net
investment $439,433,000.
(d) We tax-effected the adjustments to the pro forma income
statement.
To reflect this in the pro forma income statement, we decreased
income tax expense $5,273,000 in 2006 and $4,395,000 in first
nine months 2007 using the historical effective tax rate of
37 percent in 2006 and the assumed annual effective tax
rate of 37 percent in 2007.
52
(e) We computed pro forma basic and diluted earnings per
share by dividing pro forma net income by weighted average
shares outstanding assuming a distribution ratio of
one share of our stock for every three shares of
Temple-Inland common stock outstanding as follows:
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
|
|
|
|
Nine Months
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Earnings for basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
Pro forma net income
|
|
$
|
16,875
|
|
|
$
|
42,722
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic
|
|
|
35,315
|
|
|
|
36,275
|
|
Dilutive effect of stock options
|
|
|
653
|
|
|
|
674
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted
|
|
|
35,968
|
|
|
|
36,949
|
|
|
|
|
|
|
|
|
|
|
The dilutive effect of stock options represents the dilutive
effect of Temple-Inlands stock options in first nine
months 2007 and in the year 2006 adjusted to reflect the assumed
distribution ratio. There were no common stock equivalents
excluded from the calculation.
53
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition
and results of operations covers periods prior to the spin-off
and related transactions. As a result, the discussion and
analysis of historical periods does not reflect the impact that
the spin-off and related transactions will have on us, including
leverage, debt service requirements, and differences between
administrative costs allocated to us by Temple-Inland and actual
administrative costs that we will incur as a separate public
company.
Our historical results may not be indicative of our future
performance and do not necessarily reflect what our financial
condition and results of operations would have been had we
operated as an independent, stand-alone entity during the
periods presented, particularly because changes will occur in
our operations and capitalization as a result of the spin-off
transactions. Please read Pro Forma Financial
Information.
In addition, the statements in the discussion and analysis
regarding industry outlook, our expectations regarding the
future performance of our business and the other non-historical
statements in the discussion and analysis are forward-looking
statements. These forward-looking statements are subject to
numerous risks and uncertainties, including, but not limited to,
the risks and uncertainties described in Risk
Factors and Cautionary Statement Concerning
Forward-Looking Statements. Our actual results may differ
materially from those contained in any forward-looking
statements.
Results
of Operations
Summary
Our strategy is to maximize and grow long-term stockholder value
through:
|
|
|
|
|
Entitlement and development of real estate
|
|
|
|
Realization of value from natural resources
|
|
|
|
Accelerated growth through strategic and disciplined investment
in real estate
|
A summary of our consolidated results follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
$
|
180,151
|
|
|
$
|
118,121
|
|
|
$
|
138,823
|
|
Natural resources
|
|
|
45,409
|
|
|
|
37,366
|
|
|
|
30,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
225,560
|
|
|
$
|
155,487
|
|
|
$
|
169,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
$
|
70,271
|
|
|
$
|
46,418
|
|
|
$
|
43,370
|
|
Natural resources
|
|
|
33,016
|
|
|
|
24,850
|
|
|
|
18,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment earnings
|
|
|
103,287
|
|
|
|
71,268
|
|
|
|
62,023
|
|
Expenses not allocated to segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
General & administrative
|
|
|
(14,048
|
)
|
|
|
(9,113
|
)
|
|
|
(10,433
|
)
|
Share-based compensation
|
|
|
(1,275
|
)
|
|
|
(443
|
)
|
|
|
(154
|
)
|
Interest expense
|
|
|
(6,229
|
)
|
|
|
(6,439
|
)
|
|
|
(6,091
|
)
|
Other non-operating income (expense)
|
|
|
79
|
|
|
|
483
|
|
|
|
535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
81,814
|
|
|
|
55,756
|
|
|
|
45,880
|
|
Income tax expense
|
|
|
(29,970
|
)
|
|
|
(20,859
|
)
|
|
|
(17,444
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
51,844
|
|
|
$
|
34,897
|
|
|
$
|
28,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
Significant aspects of our results of operations follow:
2006
|
|
|
|
|
Net income increased due to the continued strength for new
housing in the markets in which we operate and increased
activity within our natural resources segment.
|
|
|
|
Expenses increased as a result of costs associated with the
segmentation of the real estate business within Temple-Inland.
|
2005
|
|
|
|
|
Net income increased due to the continued strength for new
housing in the markets in which we operate and increased
activity within our natural resources segment.
|
2004
|
|
|
|
|
Net income included a sale of a multifamily housing development.
|
Current
Market Conditions
Current conditions in the residential development industry are
difficult due to an over supply of housing, declining sales
volume for existing and new homes, flat to declining sales
prices, and a significant tightening of mortgage credit,
especially sub-prime and non-conforming loans. A decline in
consumer confidence is also evident. All geographic markets and
products have not been affected to the same extent or with equal
severity, but most have experienced declines. It is likely these
conditions will continue into 2008 and possibly deteriorate
further.
Business
Segments
We operate two business segments:
|
|
|
|
|
Real estate, and
|
|
|
|
Natural resources.
|
We evaluate performance based on earnings before unallocated
expenses and income taxes. Segment earnings consists of
operating income, equity in earnings of unconsolidated ventures,
and minority interest expense in consolidated ventures.
Unallocated expenses consist of general and administrative
expense, share-based compensation, other non-operating income
and expense, and interest expense. The accounting policies of
the segments are the same as those described in the accounting
policy note to the combined and consolidated financial
statements.
Our operations are affected to varying degrees by supply and
demand factors and economic conditions including changes in
interest rates, new housing starts, real estate values,
employment levels, changes in the market prices for oil, gas,
and timber, and the overall strength of the U.S. economy.
Real
Estate
Our real estate segment conducts a wide array of project
planning and management activities related to the acquisition,
entitlement, development and sale of real estate, primarily
residential and mixed-use communities. We own and manage our
projects either directly or through ventures. Our real estate
segment revenues are principally derived from the sales of
residential and commercial real estate and to a lesser degree
from the operation of commercial properties, primarily a hotel.
55
A summary of our real estate results follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Revenues
|
|
$
|
180,151
|
|
|
$
|
118,121
|
|
|
$
|
138,823
|
|
Costs and expenses
|
|
|
(126,020
|
)
|
|
|
(87,829
|
)
|
|
|
(105,449
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,131
|
|
|
|
30,292
|
|
|
|
33,374
|
|
Equity in earnings of unconsolidated ventures
|
|
|
19,371
|
|
|
|
17,180
|
|
|
|
12,211
|
|
Minority interest expense in consolidated ventures
|
|
|
(3,231
|
)
|
|
|
(1,054
|
)
|
|
|
(2,215
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
70,271
|
|
|
$
|
46,418
|
|
|
$
|
43,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning in 2006, we eliminated our historical one-month lag in
accounting for our investment in our two largest real estate
ventures as financial information became more readily available.
The one-time effect of eliminating this one-month lag was to
increase our equity in earnings of unconsolidated ventures in
2006 by about $1,104,000.
Revenues and units sold consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands, except lots and acres)
|
|
|
Residential real estate
|
|
$
|
74,833
|
|
|
$
|
60,340
|
|
|
$
|
93,246
|
|
Commercial real estate
|
|
|
49,699
|
|
|
|
13,968
|
|
|
|
2,483
|
|
Undeveloped land
|
|
|
27,253
|
|
|
|
22,388
|
|
|
|
20,735
|
|
Commercial operating properties
|
|
|
19,590
|
|
|
|
17,349
|
|
|
|
18,657
|
|
Other
|
|
|
8,776
|
|
|
|
4,076
|
|
|
|
3,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
180,151
|
|
|
$
|
118,121
|
|
|
$
|
138,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate lots sold
|
|
|
1,710
|
|
|
|
1,355
|
|
|
|
1,232
|
|
Commercial real estate acres sold
|
|
|
220
|
|
|
|
264
|
|
|
|
46
|
|
Undeveloped land acres sold
|
|
|
3,441
|
|
|
|
3,067
|
|
|
|
2,919
|
|
Residential real estate revenues principally consist of the sale
of single-family lots except in 2004 which included a sale of a
multifamily housing development for $44,000,000. Excluding the
2004 multifamily sale, residential real estate revenues improved
in both 2005 and 2006 due to the continued strength for new
housing in the markets in which we operate.
Commercial real estate revenue in 2006 included $39,000,000 from
two sales aggregating 131 acres on which we recognized
income of $14,000,000.
Other revenue in 2006 included the sale of a country club
property for $4,300,000.
56
Information about our real estate projects and our ventures
follows:
|
|
|
|
|
|
|
Year-End
|
|
|
|
2006
|
|
Owned and consolidated ventures:
|
|
|
|
|
Entitled, developed, and under development land
|
|
|
|
|
Number of projects
|
|
|
48
|
|
Residential lots remaining
|
|
|
15,941
|
|
Commercial acres remaining
|
|
|
1,265
|
|
Undeveloped land
|
|
|
|
|
Number of projects
|
|
|
21
|
|
Acres in entitlement process
|
|
|
25,850
|
|
Acres undeveloped
|
|
|
327,850
|
|
Ventures accounted for using the equity method:
|
|
|
|
|
Ventures lot sales (for the year)
|
|
|
|
|
Lots sold
|
|
|
1,829
|
(a)
|
Revenue per lot sold
|
|
$
|
53,619
|
|
Ventures entitled, developed, and under development land
|
|
|
|
|
Number of projects
|
|
|
23
|
|
Residential lots remaining
|
|
|
10,816
|
|
Commercial acres remaining
|
|
|
675
|
|
Ventures undeveloped land
|
|
|
|
|
Acres sold
|
|
|
211
|
|
Acres remaining
|
|
|
6,384
|
|
|
|
|
(a)
|
|
The elimination of the previously mentioned one month reporting
lag resulted in a one-time increase in the number of lots sold
of 122 lots.
|
Natural
Resources
Our natural resources segment manages our oil and gas mineral
interests, timber, and recreational leases. Our natural
resources segment revenues are principally derived from lease
royalties, bonus payments, and delay rentals associated with our
oil and gas mineral interests, the sale of timber, and to a
lesser degree from recreational leases of our lands.
A summary of our natural resources results follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Revenues
|
|
$
|
45,409
|
|
|
$
|
37,366
|
|
|
$
|
30,478
|
|
Costs and expenses
|
|
|
(12,393
|
)
|
|
|
(12,516
|
)
|
|
|
(11,825
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
33,016
|
|
|
$
|
24,850
|
|
|
$
|
18,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Minerals
|
|
$
|
27,980
|
|
|
$
|
21,049
|
|
|
$
|
13,439
|
|
Timber
|
|
|
14,313
|
|
|
|
14,209
|
|
|
|
14,509
|
|
Recreational leases and other
|
|
|
3,116
|
|
|
|
2,108
|
|
|
|
2,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
45,409
|
|
|
$
|
37,366
|
|
|
$
|
30,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57
Mineral revenues are principally derived from royalties and
other lease revenue. Mineral revenues fluctuate based on changes
in the market prices for oil and gas and the number of acres
leased. We sold about 1,115,000 tons of timber in 2006, 959,000
tons in 2005, and 1,052,000 tons in 2004, the majority of which
was sold to Temple-Inland based on an estimate of market prices
at the time of delivery. Average price paid per ton was $13 in
2006, $15 in 2005, and $14 in 2004. Timber revenue fluctuates
based on changes in tons sold and in the market prices of timber.
It is likely that oil, gas, and timber prices, the number of
mineral acres leased and tons of timber sold will continue to
fluctuate in 2007.
Expenses
Not Allocated to Segments
Unallocated expenses represent expenses managed on a
company-wide basis and include general and administrative
expenses, share-based compensation, and interest expense.
The change in general and administrative expense in 2006 was due
to increased compensation and benefits and other support costs
related to the segmentation of the real estate business within
Temple-Inland.
Share-based compensation is allocated from Temple-Inland and
represents the expense of Temple-Inland share-based awards
granted to our employees. The changes in 2006 and in 2005 were
primarily due to increases in Temple-Inlands share price
related to awards to be settled in cash.
The change in interest expense in 2006 was primarily related to
the payoff of a senior bank credit facility at a weighted
average rate of 6.04 percent, the funding for which came from
borrowings under our credit facility with Temple-Inland at a
weighted average rate of 4.20 percent.
Income
Taxes
Our effective tax rate, which is income tax as a percentage of
income before taxes, was 37 percent in 2006,
37 percent in 2005, and 38 percent in 2004. We
anticipate that our effective tax rate in 2007 will be about
37 percent.
Capital
Resources and Liquidity
Sources
and Uses of Cash
Our principal operating cash requirements are for the
acquisition and development of real estate, either directly or
indirectly through ventures, taxes, interest, and compensation.
Our principal sources of cash are proceeds from the sale of real
estate and timber, the cash flow from minerals and operating
properties, and borrowings. Operating cash flows are also
affected by the timing of the payment of real estate development
expenditures and the collection of proceeds from the eventual
sale of the real estate, the timing of which can vary
substantially depending on many factors including the size of
the project, state and local permitting requirements, and
availability of utilities. Working capital is subject to
operating needs, the timing of sales of real estate and timber,
the timing of collection of mineral royalties or mineral lease
payments, collection of receivables, reimbursement from utility
or improvement districts, and the payment of payables and
expenses.
Cash
Flows from Operating Activities
Cash flows from our real estate development activities are
classified as operating cash flows. Cash flows related to the
operation or sale of natural resources including minerals,
timber, and recreational leases are also classified as operating
cash flows.
Net cash (used for) provided by operations was $(29,071,000) in
2006, $22,044,000 in 2005, and $30,889,000 in 2004. In 2006, our
expenditures for real estate development and acquisition
significantly exceeded our non-cash real estate cost of sales
principally due to the investment in ten new real estate
projects for $74,000,000. In both 2005 and 2004, our real estate
development and acquisition expenditures slightly exceeded our
non-cash real estate cost of sales.
58
Cash
Flows from Investing Activities
Capital contributions to and capital distributions from
unconsolidated ventures are classified as investing activities.
In addition, our expenditures related to reforestation
activities in our natural resources segment are classified as
investing activities.
In 2006, net cash provided by investing activities was
$7,410,000 as capital distributions we received from our
unconsolidated ventures exceeded our contributions. Net cash
(used for) investing activities was $(6,482,000) in 2005 and
$(8,093,000) in 2004 as our contributions to unconsolidated
ventures exceeded the distributions we received in both years.
Cash
Flows from Financing Activities
Net cash provided by (used for) financing activities was
$19,069,000 in 2006, $(16,831,000) in 2005, and $(49,114,000) in
2004. In 2006, the increase in our debt, including borrowings
under our credit facility with Temple-Inland, funded our
expenditures for real estate development and acquisition in
excess of the net distributions we received from our ventures.
In 2005, the increase in our debt and cash flow from operations
funded our net contributions to our ventures.
Liquidity
and Contractual Obligations
At year-end 2006 our contractual obligations consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due or Expiring by Year
|
|
|
|
Total
|
|
|
2007
|
|
|
2008-9
|
|
|
2010-11
|
|
|
Thereafter
|
|
|
|
(In thousands)
|
|
|
Note payable to
Temple-Inland
(a)
|
|
$
|
110,506
|
|
|
$
|
|
|
|
$
|
110,506
|
|
|
$
|
|
|
|
$
|
|
|
Debt
(a)
|
|
|
50,611
|
|
|
|
6,649
|
|
|
|
35,762
|
|
|
|
8,200
|
|
|
|
|
|
Contractual interest payments on fixed rate debt
|
|
|
3,467
|
|
|
|
1,822
|
|
|
|
1,645
|
|
|
|
|
|
|
|
|
|
Purchase and development
obligations
(b)
|
|
|
4,437
|
|
|
|
4,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
11,098
|
|
|
|
1,002
|
|
|
|
1,734
|
|
|
|
1,515
|
|
|
|
6,847
|
|
Venture contributions
|
|
|
14,157
|
|
|
|
14,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
194,276
|
|
|
$
|
28,067
|
|
|
$
|
149,647
|
|
|
$
|
9,715
|
|
|
$
|
6,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Denotes items included in our balance sheet.
|
|
(b)
|
|
Development obligations include aggregate amounts in excess of
$500,000.
|
Purchase and development obligations are purchase commitments
for land acquisition and land development. Purchase obligations
for land acquisition represent obligations under option
contracts with specific performance provisions, of which we
currently have none. Development obligations represent
engineering and construction contracts for land development.
Our operating lease obligations are for timberland, facilities,
and equipment.
Venture contributions represent commitments to contribute a
stated amount to a venture as and when needed by the venture. We
have excluded from the table contributions that may be made in
the ordinary course of business for which there is no commitment
to contribute an amount that is quantifiable or identifiable to
specific dates.
Our sources of short-term funding are our operating cash flows
and borrowings under our credit facility with Temple-Inland. Our
contractual obligations due in 2007 will likely be paid from
operating cash flows and
59
from our unused borrowing capacity. At year-end 2006, we had
$89,494,000 in unused borrowing capacity under our credit
facility with Temple-Inland.
|
|
|
|
|
|
|
Credit Facility with
|
|
|
|
Temple-Inland
|
|
|
|
(In thousands)
|
|
|
Committed
|
|
$
|
200,000
|
|
Less: borrowings
|
|
|
(110,506
|
)
|
|
|
|
|
|
Unused borrowing capacity at year-end 2006
|
|
$
|
89,494
|
|
|
|
|
|
|
Our credit facility with Temple-Inland expires on
December 31, 2008.
We have other long-term liabilities, principally deferred taxes,
that are not included in the table because they do not have
scheduled maturities. At year-end 2006, our deferred tax
liability was $14,438,000.
Off-Balance
Sheet Arrangements
From time to time, we enter into off-balance sheet arrangements
to facilitate our operating activities. At year-end 2006, our
off-balance sheet unfunded arrangements, excluding contractual
interest payments, purchase and development obligations, and
operating lease obligations, included in the table of
contractual obligations, consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiring by Year
|
|
|
|
Total
|
|
|
2007
|
|
|
2008-9
|
|
|
2010-11
|
|
|
Thereafter
|
|
|
|
(In thousands)
|
|
|
Performance bonds, letters of credit and recourse obligations
|
|
$
|
30,889
|
|
|
$
|
24,965
|
|
|
$
|
3,974
|
|
|
$
|
72
|
|
|
$
|
1,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance bonds, letters of credit, and recourse obligations
are primarily for our real estate development activities and
include $13,267,000 of performance bonds and letters of credit
we provided on behalf of certain ventures. Our venture partners
also provide bonds and letters of credit. Generally these
performance bonds or letters of credit would be drawn on due to
lack of specific performance by the ventures, such as failure to
deliver streets and utilities in accordance with local codes and
ordinances.
Accounting
Policies
Critical
Accounting Estimates
In preparing our financial statements, we follow generally
accepted accounting principles, which in many cases require us
to make assumptions, estimates, and judgments that affect the
amounts reported. Our significant accounting policies are
included in
Note 1 to the Combined and Consolidated
Financial Statements.
Many of these principles are
relatively straightforward. There are, however, a few accounting
policies that are critical because they are important in
determining our financial condition and results and involve
significant assumptions, estimates, and judgments that are
difficult to determine. We have to make these assumptions,
estimates, and judgments currently about matters that are
inherently uncertain, such as future economic conditions,
operating results, and valuations, as well as our intentions. As
the difficulty increases, the level of precision decreases,
meaning actual results can, and probably will, differ from those
currently estimated. We base our assumptions, estimates, and
judgments on a combination of historical experiences and other
factors that we believe are reasonable. These policies are
discussed below and include:
|
|
|
|
|
Investment in Real Estate and Cost of Real Estate Sales
In allocating cost to real estate owned and real
estate sold, we must estimate current and future real estate
values. Our estimates of future real estate values sometimes
must extend over periods 15 to 20 years from today and are
dependent on numerous assumptions including our intentions and
future market and economic conditions. In addition, when we sell
real estate from projects that are not finished, we must
estimate future development costs through completion.
Differences between our estimates and actual results will affect
future carrying values and operating results.
|
60
|
|
|
|
|
Impairment of Long-Lived Assets
Measuring
assets for impairment requires estimating future fair values
based on our intentions as to holding periods, future operating
cash flows and the residual value of assets under review,
primarily undeveloped land. Depending on the asset under review,
we use varying methods to determine fair value, such as
discounting expected future cash flows, determining resale
values by market, or applying a capitalization rate to net
operating income using prevailing rates in a given market.
Changes in economic conditions, demand for real estate, and the
projected net operating income for a specific property will
inevitably change our estimates.
|
To date, we have recognized no significant changes in estimates
related to these two policies.
Pending
Accounting Pronouncements
There are four new accounting pronouncements that we will adopt
in 2007 or will be required to adopt in 2008, none of which are
expected to have a significant effect on our financial position,
results of operations, or cash flows. Please read
Note 1
to the Combined and Consolidated Financial Statements
.
Effects
of Inflation
Inflation has had minimal effects on operating results the past
three years. Our real estate, timber, and property and equipment
are carried at historical costs. If carried at current
replacement costs, the cost of real estate sold, timber cut, and
depreciation expense would have been significantly higher than
what we reported.
Litigation
Matters
We are involved in various legal proceedings that arise from
time to time in the ordinary course of doing business. We
believe we have established adequate reserves for any probable
losses, and we do not believe that the outcome of any of these
proceedings should have a material adverse effect on our
financial position, long-term results of operations, or cash
flow. It is possible, however, that charges related to these
matters could be significant to results of operations or cash
flows in any one accounting period.
Quantitative
and Qualitative Disclosures About Market Risk
Interest
Rate Risk
The following table illustrates the estimated effect on our
pre-tax income of immediate, parallel, and sustained shifts in
interest rates for the next 12 months at year-end 2006,
with comparative year-end 2005 information. This estimate
assumes that debt reductions from contractual payments will be
replaced with short-term, variable-rate debt; however, that may
not be the financing alternative we choose.
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
At Year-End
|
|
Change in Interest Rates
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
+2%
|
|
$
|
(2,422
|
)
|
|
$
|
(1,674
|
)
|
+1%
|
|
|
(1,211
|
)
|
|
|
(837
|
)
|
-1%
|
|
|
1,211
|
|
|
|
837
|
|
-2%
|
|
|
2,422
|
|
|
|
1,674
|
|
Our interest rate risk is principally related to our
variable-rate debt. Interest rate changes impact earnings due to
the resulting increase or decrease in the cost of our
variable-rate debt. The interest rate sensitivity change from
year-end 2005 is principally due to an increase in variable-rate
debt.
Foreign
Currency Risk
We have no exposure to foreign currency fluctuations.
61
Commodity
Price Risk
We have no significant exposure to commodity price fluctuations.
ANALYSIS
OF FIRST NINE MONTHS 2007 AND 2006
Results
of Operations
Summary
A summary of our consolidated results follows:
|
|
|
|
|
|
|
|
|
|
|
First Nine Months
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Real estate
|
|
$
|
115,267
|
|
|
$
|
144,997
|
|
Natural resources
|
|
|
27,106
|
|
|
|
38,451
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
142,373
|
|
|
$
|
183,448
|
|
|
|
|
|
|
|
|
|
|
Segment earnings:
|
|
|
|
|
|
|
|
|
Real estate
|
|
$
|
39,730
|
|
|
$
|
54,832
|
|
Natural resources
|
|
|
19,050
|
|
|
|
30,232
|
|
|
|
|
|
|
|
|
|
|
Total segment earnings
|
|
|
58,780
|
|
|
|
85,064
|
|
Expenses not allocated to segments:
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
(12,255
|
)
|
|
|
(10,373
|
)
|
Share-based compensation
|
|
|
(1,878
|
)
|
|
|
(914
|
)
|
Interest expense
|
|
|
(6,461
|
)
|
|
|
(4,680
|
)
|
Other non-operating income (expense)
|
|
|
454
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
38,640
|
|
|
|
69,105
|
|
Income tax expense
|
|
|
(13,951
|
)
|
|
|
(25,196
|
)
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
24,689
|
|
|
$
|
43,909
|
|
|
|
|
|
|
|
|
|
|
Significant aspects of our results of operations in first nine
months 2007 follow:
|
|
|
|
|
Net income decreased as a result of the overall decline in the
housing industry and a reduction in activity within our natural
resources segment.
|
|
|
|
Expenses increased as a result of costs associated with the
development of corporate functions in preparation for our
spin-off.
|
|
|
|
Interest expense increased as a result of higher debt levels and
higher interest rates.
|
Our operations are affected to varying degrees by supply and
demand factors and economic conditions including changes in
interest rates; new housing starts; real estate values;
employment levels; market prices for oil, gas and timber; and
the overall strength of the U.S. economy.
62
Real
Estate
A summary of our real estate results follows:
|
|
|
|
|
|
|
|
|
|
|
First Nine Months
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Revenues
|
|
$
|
115,267
|
|
|
$
|
144,997
|
|
Costs and expenses
|
|
|
(74,808
|
)
|
|
|
(103,812
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
40,459
|
|
|
|
41,185
|
|
Equity in earnings of unconsolidated ventures
|
|
|
4,310
|
|
|
|
15,542
|
|
Minority interest expense in consolidated ventures
|
|
|
(5,039
|
)
|
|
|
(1,895
|
)
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
39,730
|
|
|
$
|
54,832
|
|
|
|
|
|
|
|
|
|
|
Revenues and units sold consist of:
|
|
|
|
|
|
|
|
|
|
|
First Nine Months
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except lots and acres)
|
|
|
Residential real estate
|
|
$
|
47,575
|
|
|
$
|
58,167
|
|
Commercial real estate
|
|
|
34,587
|
|
|
|
45,961
|
|
Undeveloped land
|
|
|
13,408
|
|
|
|
17,706
|
|
Commercial operating properties
|
|
|
15,502
|
|
|
|
14,874
|
|
Other
|
|
|
4,195
|
|
|
|
8,289
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
115,267
|
|
|
$
|
144,997
|
|
|
|
|
|
|
|
|
|
|
Residential real estate lots sold
|
|
|
865
|
|
|
|
1,370
|
|
Commercial real estate acres sold
|
|
|
145
|
|
|
|
186
|
|
Undeveloped land acres sold
|
|
|
1,924
|
|
|
|
2,389
|
|
Revenue for first nine months 2007 includes $23,000,000 related
to the sale of 73 acres of commercial real estate on which
we recognized a gain of $14,000,000. Revenue for first nine
months 2006 includes $39,000,000 related to the sale of
131 acres of undeveloped commercial real estate on which we
recognized a gain of $14,000,000. Excluding these commercial
real estate gains, the decline in segment operating income is
primarily due to a decrease in sales of undeveloped land, and a
decrease in sales of residential real estate resulting from the
overall decline in the housing industry. We expect these trends
to continue through 2008. Other revenue in 2006 included the
sale of land leased to a country club for $4,300,000.
In third quarter 2007, we entered into agreements to facilitate
third-party construction and ownership of a resort hotel, spa
and golf facilities at our Cibolo Canyons mixed-use development
near San Antonio, Texas. Under the agreements, we
transferred to third-party owners about 700 acres of
undeveloped land with a carrying value of about $8,000,000, and
we agreed to transfer to them about $38,000,000 ($10,000,000 by
year-end 2007, of which $6,000,000 has been funded; $18,000,000
in
2008-9;
and $10,000,000 in
2010-11).
In
exchange, the third-party owners assigned to us certain rights
under an Economic Development Agreement, including the right to
receive hotel occupancy and sales taxes generated within the
resort through 2034. In addition, the construction of the resort
hotel and golf facilities will satisfy a condition to our right
to obtain reimbursement of certain infrastructure costs under an
Ad Valorem Tax and Non Resort Sales and Use Tax Public
Improvement Financing Agreement between us and a special purpose
improvement district.
63
Information about our real estate projects and our real estate
ventures follows:
|
|
|
|
|
|
|
|
|
|
|
Third Quarter-End
|
|
|
|
2007
|
|
|
2006
|
|
|
Owned and consolidated ventures:
|
|
|
|
|
|
|
|
|
Entitled, developed, and under development land
|
|
|
|
|
|
|
|
|
Number of projects
|
|
|
53
|
|
|
|
41
|
|
Residential lots remaining
|
|
|
20,358
|
|
|
|
12,378
|
|
Commercial acres remaining
|
|
|
1,170
|
|
|
|
944
|
|
Undeveloped land
|
|
|
|
|
|
|
|
|
Number of projects
|
|
|
22
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
Acres in entitlement process
|
|
|
25,890
|
|
|
|
26,150
|
|
Acres undeveloped
|
|
|
324,449
|
|
|
|
329,744
|
|
Ventures accounted for using the equity method:
|
|
|
|
|
|
|
|
|
Ventures Lot sales (for the first nine months)
|
|
|
|
|
|
|
|
|
Lots sold
|
|
|
533
|
|
|
|
1,420
|
(a)
|
Revenue per lot sold
|
|
$
|
55,755
|
|
|
$
|
54,085
|
|
Ventures Entitled, developed, and under development land
|
|
|
|
|
|
|
|
|
Number of projects
|
|
|
22
|
|
|
|
22
|
|
Residential lots remaining
|
|
|
9,558
|
|
|
|
11,210
|
|
Commercial acres remaining
|
|
|
720
|
|
|
|
675
|
|
Ventures Undeveloped land
|
|
|
|
|
|
|
|
|
Number of projects
|
|
|
2
|
|
|
|
1
|
|
Acres in the entitlement process
|
|
|
860
|
|
|
|
620
|
|
Acres undeveloped
|
|
|
6,258
|
|
|
|
6,480
|
|
|
|
|
(a)
|
|
The elimination of the previously mentioned one month reporting
lag resulted in a one-time increase in the number of lots sold
of 122 lots.
|
In our owned and consolidated ventures, residential lots
remaining increased at third quarter-end 2007 due to completing
the entitlement process on nine projects representing about
3,900 residential lots and an additional 5,400 residential lots
in eight new projects.
Natural
Resources
A summary of our natural resources results are as follows:
|
|
|
|
|
|
|
|
|
|
|
First Nine Months
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Revenues
|
|
$
|
27,106
|
|
|
$
|
38,451
|
|
Costs and expenses
|
|
|
(8,056
|
)
|
|
|
(8,219
|
)
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
19,050
|
|
|
$
|
30,232
|
|
|
|
|
|
|
|
|
|
|
Revenues consist of:
|
|
|
|
|
|
|
|
|
|
|
First Nine Months
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Minerals
|
|
$
|
16,257
|
|
|
$
|
24,128
|
|
Timber
|
|
|
10,329
|
|
|
|
11,265
|
|
Recreational leases and other
|
|
|
520
|
|
|
|
3,058
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
27,106
|
|
|
$
|
38,451
|
|
|
|
|
|
|
|
|
|
|
64
The change in revenues was principally due to a decrease in
mineral revenues associated with a decrease in the volume of
natural gas produced and a decrease in the price of natural gas.
Expenses
Not Allocated to Segments
The change in general and administrative expenses in first nine
months 2007 was due to increased costs associated with the
development of corporate functions in preparation for our
spin-off.
The change in share-based compensation was principally due to
the effect of a higher share price for Temple-Inland stock
related to awards to be settled in cash and an increase in
awards granted.
The change in interest expense was due to a higher average debt
balance and higher interest rate.
Income
Taxes
Our effective tax rate was 37 percent in first nine months
2007 and 36 percent in first nine months 2006. We
anticipate that our effective tax rate in 2007 will be about
37 percent.
Capital
Resources and Liquidity
Sources
and Uses of Cash
Our principal operating cash requirements are for the
acquisition and development of real estate, either directly or
indirectly through ventures, taxes, interest, and compensation.
Our principal sources of cash are proceeds from the sale of real
estate and timber, the cash flow from minerals and operating
properties, and borrowings. Operating cash flows are also
affected by the timing of the payment of real estate development
expenditures and the collection of proceeds from the eventual
sale of the real estate, the timing of which can vary
substantially depending on many factors including the size of
the project, state and local permitting requirements, and
availability of utilities. Working capital is subject to
operating needs, the timing of sales of real estate and timber,
the timing of collection of mineral royalties or mineral lease
payments, collection of receivables, reimbursement from utility
or improvement districts, and the payment of payables and
expenses.
Cash
Flows from Operating Activities
Cash flows from our real estate development activities are
classified as operating cash flows. Cash flows related to
natural resources, including minerals, timber, and recreational
leases, are also classified as operating cash flows.
Net cash (used for) provided by operations was ($42,261,000) in
first nine months 2007 and ($2,302,000) in first nine months
2006. In first nine months 2007 our expenditures for real estate
development and acquisition exceeded our non-cash real estate
cost of sales principally due to the investment in six new real
estate projects for $44,971,000.
Cash
Flows from Investing Activities
Capital contributions to and capital distributions from
unconsolidated ventures are classified as investing activities.
In addition, our expenditures related to reforestation
activities in our natural resources segment are classified as
investing activities.
Net cash (used for) provided by investing activities was
($9,466,000) in first nine months 2007 and $13,796,000 in first
nine months 2006 as capital distributions we received from our
unconsolidated ventures exceeded our capital contributions.
Cash
Flows from Financing Activities
Net cash (used for) provided by financing activities was
$49,239,000 in first nine months 2007 and $(16,438,000) in the
first nine months 2006. In first nine months 2007, the increase
in our debt, including borrowings under our credit facility with
Temple-Inland, funded our expenditures for real estate
development
65
and acquisition. In first nine months 2006, the increase in our
debt and net distributions received from our ventures funded our
net expenditures for real estate development and acquisition.
Liquidity,
Contractual Obligations, and Off-Balance Sheet
Arrangements
There have been no significant changes in our contractual
obligations and off-balance sheet arrangements since year-end
2006 except for the following:
In third quarter 2007, we entered into agreements to facilitate
third-party construction and ownership of a resort hotel, spa
and golf facilities at our Cibolo Canyons mixed-use development
near San Antonio, Texas. Under these agreements, we agreed
to transfer to the the third-party owners about $38,000,000
($10,000,000 by year-end 2007, of which about $6,000,000 has
been funded; $18,000,000 in
2008-9;
and
$10,000,000 in
2010-11).
To
support our commitment, Temple-Inland has guaranteed or issued
letters of credit totaling $30,000,000, of which about
$24,000,000 is outstanding at third-quarter end 2007. Prior to
the spin-off, we anticipate we will replace any unfunded
Temple-Inland guarantees or letters of credit with letters of
credit issued under our new credit facility.
Our sources of short-term funding are our operating cash flows
and borrowings under our credit facility with Temple-Inland. At
third quarter-end 2007, we had $53,982,000 in unused borrowing
capacity under our credit facility with Temple-Inland.
|
|
|
|
|
|
|
Credit Facility with
|
|
|
|
Temple-Inland
|
|
|
|
(In thousands)
|
|
|
Committed
|
|
$
|
200,000
|
|
Less: borrowings
|
|
|
(146,018
|
)
|
|
|
|
|
|
Unused borrowing capacity at third quarter-end 2007
|
|
$
|
53,982
|
|
|
|
|
|
|
Based on a commitment we have received from the lead arranger
for the lenders, our new credit facility will allow us to borrow
up to $300,000,000 repayable in three years and secured by about
250,000 acres of our land and other assets. It is
anticipated that we will repay the borrowings from Temple-Inland
with borrowings under this new facility.
Accounting
Policies
Critical
Accounting Policies and Estimates
There were no changes in our critical accounting policies from
those at year-end 2006.
Recent
Accounting Standards
Beginning January 2007, we adopted one new accounting
pronouncement, which did not have a significant effect on our
financial position, results of operations or cash flows. Please
read
Note 1 to the Unaudited Combined and Consolidated
Financial Statements.
Litigation
Matters
There were no significant changes in the status of our
litigation since year-end 2006.
66
Quantitative
and Qualitative Disclosures About Market Risk
Interest
Rate Risk
The following table illustrates the estimated effect on our
pre-tax income of immediate, parallel, and sustained shifts in
interest rates for the next 12 months at third quarter-end 2007,
with comparative year-end 2006 information. This estimate
assumes that debt reductions from contractual payments will be
replaced with short-term, variable-rate debt; however, that may
not be the financing alternative we choose.
|
|
|
|
|
|
|
|
|
|
|
Third
|
|
|
|
|
|
|
Quarter-End
|
|
|
Year-End
|
|
Change in Interest Rates
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
+2%
|
|
$
|
(3,418
|
)
|
|
$
|
(2,422
|
)
|
+1%
|
|
|
(1,710
|
)
|
|
|
(1,211
|
)
|
-1%
|
|
|
1,710
|
|
|
|
1,211
|
|
-2%
|
|
|
3,418
|
|
|
|
2,422
|
|
Our interest rate risk is principally related to our
variable-rate debt. Interest rate changes impact earnings due to
the resulting increase or decrease in the cost of our
variable-rate debt. The interest rate sensitivity change from
year-end 2006 is principally due to an increase in variable-rate
debt.
We will repay the note payable to Temple-Inland with borrowings
under a new credit facility we expect to have in place prior to
the spin-off. However, our interest rate risk will not change
significantly because both credit facilities will bear interest
at variable rates.
Foreign
Currency Risk
There was no change in our foreign currency risk since year-end
2006.
Commodity
Price Risk
There was no change in our commodity price risk since year-end
2006.
67
Directors
and Executive Officers
The following table sets forth information as of
November 30, 2007 regarding the individuals who are
expected to serve as members of our board of directors and as
our executive officers following the spin-off. Temple-Inland
will elect our directors prior to the consummation of the
spin-off.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
James M. DeCosmo
|
|
|
49
|
|
|
Director nominee and Chief Executive Officer
|
Christopher L. Nines
|
|
|
36
|
|
|
Chief Financial Officer
|
Craig A. Knight
|
|
|
60
|
|
|
Chief Investment Officer
|
Charles T. Etheredge, Jr.
|
|
|
44
|
|
|
Executive Vice President
|
David M. Grimm
|
|
|
47
|
|
|
Chief Administrative Officer, General Counsel and Secretary
|
Charles D. Jehl
|
|
|
39
|
|
|
Chief Accounting Officer
|
Kenneth M. Jastrow, II
|
|
|
60
|
|
|
Chairman of the Board
|
Louis R. Brill
|
|
|
66
|
|
|
Director nominee
|
Kathleen Brown
|
|
|
62
|
|
|
Director nominee
|
William G. Currie
|
|
|
60
|
|
|
Director nominee
|
James A. Johnson
|
|
|
63
|
|
|
Director nominee
|
Thomas H. McAuley
|
|
|
62
|
|
|
Director nominee
|
William Powers, Jr.
|
|
|
61
|
|
|
Director nominee
|
James A. Rubright
|
|
|
60
|
|
|
Director nominee
|
Richard M. Smith
|
|
|
61
|
|
|
Director nominee
|
James M. DeCosmo has served as our President and Chief Executive
Officer since 2006. He has served as Group Vice President of
Temple-Inland since 2005, and previously served as Vice
President, Forest from 2000 to 2005 and as Director of Forest
Management from 1999 to 2000. Prior to joining Temple-Inland, he
held various land management positions throughout the
southeastern United States.
Christopher L. Nines has served as our Chief Financial Officer
since April 2007. He joined
Temple-Inland
in 2001 as Corporate Finance Director and has served as Director
of Investor Relations since 2003. Prior to joining
Temple-Inland, he was Senior Vice President of Finance for
ConnectSouth Communications, Inc. from 2000 to 2001.
Craig A. Knight has served as our Chief Investment Officer since
2006. He joined Temple-Inland in 1994 as President of
Lumbermens Investment Corporation, which changed its name
in 2006 to Forestar (USA) Real Estate Group Inc. Prior to
joining Temple-Inland, Mr. Knight was a principal in the
real estate development firm of Heath and Knight Properties from
1991 to 1994, and was a partner with Centre Development
from 1978 to 1994.
Charles T. Etheredge, Jr. has served as our Executive Vice
President since 2006. He joined Temple-Inland in 1992 as a
member of Guaranty Banks commercial real estate lending
segment, where he served as Senior Vice President and Managing
Director for the Eastern Region from 1999 to 2006, and as
Vice President and Division Manager from 1997 to 1999.
David M. Grimm has served as our Chief Administrative Officer
and Secretary since April 2007, in addition to holding the
office of General Counsel and Secretary since 2006.
Mr. Grimm has served
Temple-Inland
as Group General Counsel from 2005 to 2006, Associate General
Counsel from 2003 to 2005, Senior Corporate Attorney from 1993
to 2003, and Corporate Attorney from 1992 to 1993. Prior to
joining
Temple-Inland,
Mr. Grimm was an attorney in private practice in Dallas,
Texas.
Charles D. Jehl has served as our Chief Accounting officer since
2006. He served as Chief Operations Officer and Chief Financial
Officer of Guaranty Insurance Services, Inc. from 2005 to 2006,
and as Senior
68
Vice President and Controller from 2000 to 2005. From 1989 to
1999, Mr. Jehl held various financial management positions
within Temple-Inlands financial services segment.
Kenneth M. Jastrow, II will become Chairman of our board
upon the completion of the spin-off. Until the spin-off,
Mr. Jastrow will continue to serve as Chairman of the Board
and Chief Executive Officer of
Temple-Inland,
positions he has held since 2000. Mr. Jastrow previously
served Temple-Inland in various capacities since 1991, including
President, Chief Operating Officer, Chief Financial Officer, and
Group Vice President. Mr. Jastrow also serves on the boards
of MGIC Investment Corporation and KB Home, for which he
currently serves as acting lead director.
Louis R. Brill is expected to join our board prior to the
completion of the spin-off. He was Vice President and Chief
Accounting Officer for Temple-Inland from 2000 until his
retirement in 2006. He joined
Temple-Inland
in 1999 as Vice President and Controller. From 1976 through
1999, Mr. Brill was a partner of Ernst & Young
LLP.
Kathleen Brown is expected to join our board prior to the
completion of the spin-off. She currently serves as Senior
Advisor, Goldman, Sachs & Co., where she heads the
Western Region of the Public Sector and Infrastructure Group.
She joined Goldman, Sachs & Co. in 2001.
Ms. Brown served as Treasurer of the State of California
from 1991 through 1994. Her private sector experience includes
work as an attorney with the law firm of
OMelveny & Myers and service as President of the
Private Bank for the Investment Management Group at Bank of
America. Ms. Brown was the Democratic Party nominee for
Governor of California in 1994, co-chair of the Presidential
Commission on Capital Budgeting, and a board member of the Los
Angeles Unified School District. She currently serves on the
board of the Los Angeles Chamber of Commerce.
William G. Currie is expected to join our board prior to the
completion of the spin-off. Mr. Currie has had a 35-plus
year career with Universal Forest Products, Inc., one of the
United States leading manufacturers and distributors of
wood and wood-alternative products. Since 1989 he has served as
Chief Executive Officer and since 2006 he has served as
Executive Chairman of the Board of Universal Forest Products,
previously serving as Vice Chairman since 2000.
James A. Johnson is expected to join our board prior to the
completion of the spin-off. He served on the board of
Temple-Inland from 2000 through 2007. Mr. Johnson is Vice
Chairman of Perseus LLC, a merchant bank and private equity fund
management firm, which Mr. Johnson joined in 2001.
Mr. Johnson served as Chairman and Chief Executive Officer
of Johnson Capital Partners until 2001, as Chairman of the
Executive Committee of the Board of Fannie Mae in 1999 and as
Chairman and Chief Executive Officer of Fannie Mae from 1991
through 1998. He also serves on the boards of Target
Corporation, The Goldman Sachs Group, Inc., KB Home, and
UnitedHealth Group.
Thomas H. McAuley is expected to join our board prior to the
completion of the spin-off. He is the President of Inland
Capital Markets Groups, Inc., a subsidiary of the Inland Real
Estate Group, a Chicago, Illinois based real estate and
financial services company, a position he has held since 2005.
From 1995 to 2003, he was Chairman and Chief Executive Officer
of IRT Property Company, an Atlanta, Georgia based Real Estate
Investment Trust traded on the NYSE. Prior to this position, he
was Regional Partner with Faison & Associates, a
Charlotte, North Carolina real estate development and management
company. He is a licensed real estate broker in Florida, Georgia
and South Carolina and has been a member of the International
Council of Shopping Centers since 1984 and the National
Association of Real Estate Investment Trusts since 1995. He
currently serves on the boards of directors of Inland Real
Estate Corporation, The Westervelt Company (formerly Gulf States
Paper Company), Bank of Atlanta and RBC Centura Card Bank.
William Powers, Jr. is expected to join our board prior to
the completion of the spin-off. He has been President of the
University of Texas at Austin since 2006. He is also a
University Distinguished Teaching Professor and holds the Hines
H. Baker and Thelma Kelley Baker Chair in Law at the University
of Texas School of Law, where he served as Dean from 2000 to
2005. Other university appointments have been with the Southern
Methodist University School of Law, the University of Michigan
School of Law, and the University of Washington School of Law.
He served as Chair of the Special Investigation Committee, Enron
Corp., which in 2002 produced the Powers Report.
69
James A. Rubright is expected to join our board prior to the
completion of the spin-off. He is Chairman and Chief Executive
Officer of Rock-Tenn Company, one of North Americas
leading manufacturers of packaging products, merchandising
displays and recycled paperboard. Mr. Rubright joined
Rock-Tenn Company, as Chief Executive Officer in 1999.
Previously, he served as Executive Vice President of Sonat Inc.
in Birmingham, Alabama, overseeing its interstate natural gas
pipeline and energy marketing businesses. Prior to joining Sonat
Inc. he was a partner at the law firm of King &
Spalding LLP in Atlanta, Georgia. Mr. Rubright also serves
on the boards of AGL Resources Inc., an energy company, and
Oxford Industries, Inc., a manufacturer and seller of branded
and private label apparel. Mr. Rubright currently serves as
Chairman of the Board of the American Forest & Paper
Association, a trade association for wood, paper and wood
products.
Richard M. Smith is expected to join our board prior to the
completion of the spin-off. He has served on the board of
Temple-Inland since 2006. Mr. Smith is Chairman and
Editor-in-Chief
of Newsweek. Prior to becoming Chairman in 1998, he served as
President from 1991 until 1998. Mr. Smith was Chairman of
the Magazine Publishers of America from 1996 to 1997 and the
founding chairman of the Magazine Publishers of Americas
New Media Committee. Mr. Smith previously served on the
board of the American Society of Magazine Editors.
The Board
of Directors
Effective upon the spin-off, we expect that our board of
directors will consist of ten to twelve directors. Our
certificate of incorporation will provide that the directors
will be divided into three classes, which will as nearly as
possible be equal in size. One class will be elected for a term
expiring at the annual meeting of stockholders to be held in
2008, another class will be elected for a term expiring at the
annual meeting of stockholders to be held in 2009, and another
class will be elected for a term expiring at the annual meeting
of stockholders to be held in 2010, with each class to hold
office until its successors are elected and qualified.
Commencing with the annual meeting of stockholders to be held in
2008, directors for each class will be elected at the annual
meeting of stockholders held in the year in which the term for
that class expires, and thereafter will serve for a term of
three years.
Director
Independence
Prior to the spin-off, our board of directors will adopt
corporate governance guidelines that will set forth our director
independence standards. In order for a director to be considered
independent, the board of directors must
affirmatively determine that the director has no material
relationship with us. In each case, the board will consider all
relevant facts and circumstances. We will designate directors
such that at least a majority of our directors will be
independent, in accordance with our corporate governance
guidelines and the rules of the New York Stock Exchange.
All directors other than Messrs. Jastrow, DeCosmo and
Brill are expected to meet the New York Stock Exchange corporate
governance listing standards for independence. Mr. DeCosmo
does not meet these independence standards because he is one of
our officers. Messrs. Jastrow and Brill do not meet these
standards because of their prior employment with Temple-Inland,
which, under the NYSE independence standards, will preclude
independence until three years after termination of such
employment, or 2010 for Mr. Jastrow and 2009 for
Mr. Brill.
There is no family relationship between any of the individuals
who are expected to serve as members of our board of directors
and as our executive officers following the spin-off.
Board
Committees
Our board of directors will establish three committees: an Audit
Committee, a Management Development and Executive Compensation
Committee (which we refer to as the Compensation Committee), and
a Nominating and Governance Committee. All members of the Audit
Committee, the Compensation Committee and the Nominating and
Governance Committee will be independent directors under the New
York Stock Exchange corporate governance listing standards. Each
of our committees will be governed by a written
70
charter, which will be approved by our board of directors and
will be available on our website at
www.forestargroup.com
following the spin-off. Any changes to the committee
charters will be reflected on our website.
Our board committees will have the following functions:
Audit
Committee
The Audit Committee will:
|
|
|
|
|
assist the board in its oversight of:
|
|
|
|
|
|
the integrity of our financial statements;
|
|
|
|
compliance with legal and regulatory requirements;
|
|
|
|
the independent registered public accounting firms
qualifications and independence;
|
|
|
|
the performance of the internal audit function and independent
registered public accounting firm; and
|
|
|
|
|
|
prepare the report that the rules of the Securities and Exchange
Commission require be included in the annual proxy statement.
|
The Audit Committee will have the sole authority to retain,
compensate, and terminate the independent registered public
accounting firm. We will appoint members to the Audit Committee
prior to the spin-off. All members of the Audit Committee will
be financially literate and independent as defined in the NYSE
corporate governance listing standards. There will be at least
one audit committee financial expert serving on the Audit
Committee.
Management
Development and Executive Compensation Committee (Compensation
Committee)
The Compensation Committee will be responsible for:
|
|
|
|
|
determining and approving, either as a committee or together
with other independent directors (as directed by the board) the
CEOs compensation;
|
|
|
|
establishing the compensation philosophies, goals, and programs
for executive officers;
|
|
|
|
advising the board on the performance, salaries, and incentive
compensation of the executive officers;
|
|
|
|
establishing compensation plans for non-executive employees and
approving annual bonus pools;
|
|
|
|
advising the board with respect to employee benefit programs;
|
|
|
|
advising the board with respect to equity and long-term
incentive plans;
|
|
|
|
advising the board regarding management succession and
development plans;
|
|
|
|
conducting an annual review of executive officers expense
reports;
|
|
|
|
conducting an annual review of executive officers personal
usage of company-owned facilities and equipment;
|
|
|
|
reviewing our practices and policies with respect to equal
employment opportunities;
|
|
|
|
performing an annual performance evaluation of the committee; and
|
|
|
|
preparing a Compensation Committee report on executive
compensation for inclusion in our annual proxy statement filed
with the Securities and Exchange Commission.
|
The Compensation Committee may engage a compensation consultant
to provide market data regarding executive compensation and
advice about proposed compensation programs and amounts.
71
We will appoint members to the Compensation Committee prior to
the spin-off. All members of the Compensation Committee will be
independent as defined in the New York Stock Exchange corporate
governance listing standards.
Nominating
and Governance Committee
The Nominating and Governance Committee will be responsible for:
|
|
|
|
|
periodically reviewing the structure of the board, at least
annually, to assure that the proper skills and experience are
represented on the board;
|
|
|
|
recommending nominees to serve on the board of directors;
|
|
|
|
reviewing potential conflicts of prospective board members;
|
|
|
|
recommending the size of the board;
|
|
|
|
recommending the membership of the committees;
|
|
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reviewing relevant corporate governance issues;
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reviewing performance and qualifications of board members before
they stand for reelection;
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reviewing stockholder proposals and recommending to the board
action to be taken regarding stockholder proposals;
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reviewing outside directorships in other publicly held companies
by our senior officers;
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acting in an advisory capacity to the board of directors
regarding activities that relate to issues of social and public
concern, and significant legislative, regulatory and social
trends; and
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recommending director compensation to the full board.
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The Nominating and Governance Committee may engage a
compensation consultant to provide market data regarding
director compensation and advice about proposed director
compensation programs and amounts.
We will appoint members to the Nominating and Governance
Committee prior to the spin-off. All members of the Nominating
and Governance Committee will be independent as defined in the
New York Stock Exchange corporate governance listing standards.
Executive
Committee
Our board also will have the authority to establish an Executive
Committee, which would have the authority to exercise all the
authority of the board of directors in the management of the
business and affairs except:
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matters related to the composition of the board;
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changes in the bylaws; and
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certain other significant corporate matters.
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Corporate
Governance
In accordance with the rules of the New York Stock Exchange,
after the spin-off, our board will meet in regularly scheduled
executive sessions without management and at least once a year
in executive session with only independent directors.
We will expect all board members to attend our annual meeting of
stockholders, health permitting.
In addition, we will adopt a code of ethics for senior financial
officers, including our Chief Executive Officer, Chief Financial
Officer and Chief Accounting Officer, as well as standards of
business conduct and
72
ethics, applicable to all of our directors and employees.
Waivers, if any, of our code of ethics for senior financial
officers will be disclosed on our website.
After the spin-off, our code of ethics for senior financial
officers, standards of business conduct and ethics, corporate
governance guidelines and charters for the Audit Committee,
Compensation Committee and Nominating and Governance Committee
will be posted on our website at
www.forestargroup.com
under the heading Corporate Governance. We will
provide a copy of these documents, without charge, to any
stockholder upon request.
Communications
with Directors
After the spin-off, procedures for stockholders and other
interested persons to send communications to our board will be
posted on our website at
www.forestargroup.com
.
Director
Nominating Process
The Nominating and Governance Committee will select nominees on
the basis of recognized achievements and their ability to bring
various skills and experience to the deliberations of the board,
as will be described in more detail in the corporate governance
guidelines. Nominees will be required to be independent as
defined in the corporate governance listing standards of the New
York Stock Exchange and will not have a prohibited conflict of
interest with our business. Priority will be given to
individuals with outstanding business experience and who
currently serve or have served as the chief executive officer of
a company.
The Nominating and Governance Committee will consider director
candidates recommended by the directors. After reviewing a
potential directors qualifications, a suitable candidate
will be invited to meet with our Chief Executive Officer and
full board to determine if the candidate is a good fit with the
rest of our board.
The Nominating and Governance Committee will consider director
candidates recommended by stockholders who are entitled to vote
for the election of directors at the annual meeting of
stockholders and comply with the notice procedures set forth in
our bylaws. Candidates recommended by stockholders that are made
in this manner will be evaluated in the same manner as other
candidates.
Director
Compensation
We anticipate adopting the following fee schedule for service by
our outside directors:
Director
Fee Schedule
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Annual Retainer Fee
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$50,000 (paid $12,500 per quarter)
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Annual Non-executive Chair Retainer
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$250,000 (paid $62,500 per quarter)
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Annual Audit Committee Chair Retainer
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$15,000
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Annual Other Committee Chair Retainer
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$5,000
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Meeting Fees
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$1,500 for each meeting in excess of
5 per year for the board of directors and
Executive Committee combined; $1,500
for each meeting in excess of 5 per
year for each committee
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Annual Restricted Stock Unit Grant
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$75,000
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Mr. DeCosmo will not receive a fee for his service on our
board other than his compensation as an employee.
Mr. Jastrows Non-executive Chair Retainer is not
eligible for a match under the fee deferral plan described below.
73
Fee
Deferral Plan
Instead of immediate payment in cash, directors will be able to
defer all fees into restricted stock units (a promise to make a
payment measured by the value of our common stock), or RSUs,
payable in common stock at retirement. The RSUs will be credited
quarterly based on the closing price of our common stock on
regularly scheduled board meeting dates. RSUs will have an
aggregate value of 1.5 times the amount of fees deferred except
for the non-executive chair retainer which will have an
aggregate value of one times the amount of fees deferred. RSUs
are vested when granted. Dividends will be credited as
additional RSUs if and when paid to stockholders. At retirement,
a director is paid the number of shares of common stock equal to
the number of RSUs credited to his or her account.
For example, assume a director defers fees on a date when our
closing stock price is $25. The $12,500 quarterly fee times 1.5
= $18,750 initial value. The $18,750 is divided by the closing
stock price of $25 on the date of deferral = 750 RSUs. At
retirement, the director receives 750 shares of common
stock. Additional shares would be credited and paid to the
extent any dividends are paid on the underlying shares.
The directors fee deferral plan provides for accelerating
payment in the event the directors service terminates due
to a change in control.
Stock
Ownership Guidelines
Directors will be required to own stock or RSUs equal to
$150,000 (3 times their $50,000 annual retainer) by the end of
three years from initial election.
Insurance
and Indemnification
All directors will be covered under our business travel accident
insurance policy while traveling on our business. They will also
be covered under our director and officer liability insurance
policies for claims alleged in connection with their service as
a director. We will enter into indemnification agreements with
each of our directors agreeing to indemnify them to the fullest
extent permitted by law for claims alleged in connection with
their service as a director.
Director
Compensation Pre-Spin Off
In 2006, Mr. Jastrow was an employee of Temple-Inland and
director of Temple-Inland and Guaranty Bank. As a result, he
received no compensation for service as a director other than
his employee pay. Prior to the spin-off, two of our director
nominees served on Temple-Inlands board: James A. Johnson
and Richard M. Smith. We have computed the value of the fees our
director nominees earned under the Temple-Inland director
compensation programs for 2006 as shown in the following chart
in accordance with SEC requirements. We calculated the aggregate
grant date fair value of phantom stock and stock options in
accordance with Financial Accounting Standards Board Statement
of Financial Accounting Standards No. 123R, or
FAS 123R. Assumptions used in the FAS 123R calculation
are described in Note 1 Share-Based
Compensation to the Consolidated Financial Statements contained
in Temple-Inlands 2006
Form 10-K.
FAS 123R requires us to calculate the value of the RSUs
acquired through deferral of fees and match using the stock
price on the date the fees are earned. However, directors do not
receive any payment for the Temple-Inland fees until they retire
from the Temple-Inland board. At retirement, a director receives
actual shares of common stock (or the cash equivalent for fees
earned in 2006 and 2007) equal in value to the RSUs shares
credited to their account. The value of the shares and cash
credited on the date the director retires may be different than
the value of RSUs received at the time the fee is earned. The
RSUs credited to and stock options held by directors will be
adjusted following the distribution in the same way applicable
to awards held by our named executive officers, as described
below, under Executive Compensation
Compensation Actions in Preparation for the Spin-off
Existing Equity Awards beginning on page 86 of this
information statement. Moreover, the fees shown below are not
representative of fees that will be earned under the
post-spin-off director compensation program.
74
DIRECTOR
COMPENSATION FOR FISCAL YEAR 2006
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Change in Pension
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Value and
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Nonqualified
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Non-Equity
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Deferred
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Fees Earned or
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Option
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Incentive Plan
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Compensation
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All Other
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Paid in Cash
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Stock Awards
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Awards
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Compensation
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Earnings
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Compensation
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Total
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Name(1)
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($)
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($)(2)
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($)(3)
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($)
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($)
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($)(5)
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($)
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(a)
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(b)
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(c)
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(d)
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(e)
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(f)
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(g)
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(h)
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James A. Johnson(4)
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$
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0
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$
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296,275
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$
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0
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$
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0
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$
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0
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$
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11,000
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$
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307,275
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Richard M. Smith
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$
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0
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$
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62,708
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$
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195,400
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$
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0
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$
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0
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$
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0
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$
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258,108
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(1)
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Mr. Jastrow was an employee of Temple-Inland prior to the
spin-off and received no compensation for his service as a
director other than employee pay.
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(2)
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Temple-Inland paid no cash fees in 2006. The fees shown in
column (c) consist of fees that were earned in 2006 but
deferred until retirement. The deferred fees earn a match of
133% and are converted into phantom shares. The resulting
phantom shares credited to each directors account in 2006,
along with the directors normal retirement date, are as
follows: Mr. Johnson 6,477 shares, normal
retirement date in 2016; Mr. Smith
1,647 shares, normal retirement date in 2018.
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(3)
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At fiscal year end 2006, our directors held the following
aggregate number of Temple-Inland stock options:
Mr. Johnson 36,000; Mr. Smith
20,000. Expiration dates for these options range from 2009
through 2017. To see option exercise prices, vesting dates, and
terms for each directors options, you may look at each
directors latest Form 4 under Investor Relations, SEC
Filings, on Temple-Inlands website at
www.templeinland.com.
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(4)
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Temple-Inland directors may retire at any time, but must retire
by the annual meeting following their 72nd birthday. Under a
plan that was frozen in 2000, Mr. Johnson will receive, at
retirement, a lump-sum payment of $35,000 from Temple-Inland as
a retirement benefit. Retirement benefits will be paid to
Mr. Johnsons surviving spouse if he does not live to
receive the payment. This plan was discontinued in 2000 and no
additional accruals will be made under the Temple-Inland plan.
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(5)
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In 2006, the Temple-Inland Foundation, a tax-exempt foundation
funded by contributions from
Temple-Inland
and Guaranty Bank, made a $5,000 donation to a charity or
educational institution chosen by each director.
Temple-Inland
directors are also eligible for the Foundations matching
gifts program, which matches donations made by employees and
directors
3-for-1
for
the first $1,000;
2-for-1
for
the next $1,000; and
1-for-1
for
the next $1,000, for total possible matching donations of up to
$6,000 per person.
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Executive
Compensation
We have separated our discussion of executive compensation into
the following sections:
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The philosophy, oversight, objectives, methodology, and elements
of the executive compensation program we intend to implement in
connection with the spin-off
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Compensation actions we have taken in preparation for the
spin-off
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Historical compensation of our named executive officers (those
executives named in the summary compensation table on
page 88 of this information statement) prior to the
spin-off under the Temple-Inland executive compensation program
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Compensation
Discussion and Analysis
Compensation
Philosophy
Our compensation programs will be focused on creating long-term
stockholder value, and will emphasize performance measurements
such as return on assets and real estate value creation as our
primary measurements. Our executive compensation program also
will be designed to attract and retain high-performing
75
executives and to motivate and reward our executives for
superior performance of specific corporate and individual goals.
Compensation
Oversight
Our Compensation Committee will be composed entirely of
independent, outside directors and will establish and administer
compensation programs and philosophies. Our Chief Administrative
Officer and our CEO will work closely with our Compensation
Committee and recommend executive compensation amounts, except
that the CEO will not participate in discussions regarding his
own compensation. These executives will consult with the other
executive officers about compensation amounts for executives and
other employees who report to them. Our Compensation Committee
will have final approval of all compensation amounts or formulas
applicable to benefit plans in which executive officers
participate.
Our Compensation Committee will also
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establish, administer, and approve bonus programs for
non-executive employees and approve the aggregate amount of
bonus pools for each business segment. Each executive officer
will recommend individual bonus amounts for employees under his
or her direction, and the CEO will approve or revise the
individual amounts;
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approve all stock award recipients and the amount of each award.
No executive will be involved in setting the amount or exercise
price of the awards;
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delegate to the CEO the responsibility for approving health and
welfare programs for all employees. Executive officers
participate in the same health and welfare programs as other
salaried employees; and
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delegate to certain of our executive officers the responsibility
of maintaining the tax qualification status of our 401(k) plan,
to approve 401(k) plan provisions and formulas applicable to
employees who are not executive officers, and to oversee the
administration of the 401(k) and other benefit plans.
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In addition, an investment committee, whose members will be
executive officers, will oversee 401(k) plan fund choices. This
investment committee will report annually to the board.
Objectives
of the Executive Compensation Program
Our executive compensation program is designed to attract,
retain, and motivate key executives to maximize real estate
value creation, or REVC, and performance. We define REVC as the
value created by moving property through the development process
while meeting or exceeding our return expectations. Cash bonuses
will be considered on an annual basis based on overall REVC and
achievement of individual performance objectives. Stock awards
will reward long-term performance and align our executives
interests with stockholders by encouraging stock ownership. Both
cash bonuses and stock awards will be designed to align the
executives interests with our business strategy and
motivate performance to maximize REVC and achievement of
individual performance objectives. Stock awards will also help
retain executives because they will contain forfeiture
provisions if the executive terminates employment other than for
retirement, death or disability. A 401(k) plan match and health
and welfare benefits will help retain executives. Change in
control agreements will help ensure that our executives continue
to work in the best interests of our stockholders and help
alleviate concerns during any potential change in control
situations that might otherwise lead the executives to work
somewhere else, or otherwise to work other than in the best
interests of the company or its stockholders.
Compensation
Methodology
Peer Groups.
In connection with the spin-off,
the Temple-Inland Compensation Committee benchmarked the various
elements of our executive compensation program in order to gauge
our compensation levels relative to the 50th percentile of
the market and our competitors. Temple-Inland retained Hewitt
Associates,
76
LLC, or Hewitt, to assist with payroll and compensation issues
relative to the spin-off. Hewitt, our management team and the
Temple-Inland Compensation Committee selected the following
companies for the initial review:
Avatar
Holdings Inc.
Bluegreen
Corporation
Consolidated-Tomoka
Land Co.
Crescent
Real Estate Equities Company
Forest
City Enterprises, Inc.
GenCorp
Inc.
Plum
Creek Timber Company, Inc.
Rayonier
Inc.
The
St. Joe Company
Tejon
Ranch Company
WCI
Communities, Inc.
We will continue to refine this peer group following the
spin-off.
Compensation Consultant.
It is anticipated
that we will engage one or more compensation consultants
(collectively referred to as Compensation Consultant) after the
spin-off. We anticipate that the Compensation Consultant will
provide annual market and other specific information on
executive pay and also attend our Compensation Committee
meetings on request of the Compensation Committee. Our
Compensation Committee periodically will meet in executive
session with the Compensation Consultant. The Compensation
Consultant also will serve as consultant to the Nominating and
Governance Committee on director compensation.
With the Compensation Committees approval, we will also
retain the Compensation Consultant to prepare the change in
control calculations for disclosure in the proxy statement and
to model the number of shares to be requested for new stock
plans. From time to time, the Compensation Consultant
occasionally may perform limited assignments for us regarding
non-executive employees on a non-exclusive basis along with
other compensation consultants.
After the spin-off, we will continue to employ several methods
to benchmark our executive compensation practices against other
companies. First, we anticipate using publicly available market
surveys to match the roles of our named executive officers to
roles in the surveys. Second, we intend to conduct total
compensation studies which will be reviewed for accuracy and
appropriateness by our Compensation Consultant. Third, we
anticipate that our Compensation Consultant will conduct an
analysis of the named executive officers to assist us with
establishing a budget for overall long-term incentive awards and
will assist our Compensation Committee with setting compensation
for the named executive officers. For further comparison, we
will evaluate the base salary, annual incentive awards, and
long-term incentives provided to the named executive officers of
the companies in our peer group. We will extract this data from
publicly available sources.
Determination of CEO Pay and Evaluation of CEO
Performance.
Our full board will complete an
evaluation of the CEO each year from information compiled
confidentially and first provided to the Compensation Committee.
The Compensation Committee will report the results of that
review to the full board in executive session. Factors evaluated
will include financial and non-financial performance measures
and objectives, including leadership, ethics, strategic
planning, financial results, succession planning, human
resources/equal employment opportunity, communications, external
relations, and board relations.
Our independent directors will determine CEO pay with assistance
from the Compensation Committee and Compensation Consultant.
77
Elements
of Executive Compensation.
We will provide our named executive officers with a competitive
compensation package that includes the following elements:
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Cash compensation including salaries, commissions and annual
bonuses based on performance measurements;
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Stock awards including options and performance-based restricted
stock;
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401(k) plan and a supplemental executive retirement plan, or
SERP;
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Health and welfare benefits; and
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Change in control agreements.
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Salaries.
We will strive to maintain salaries
at competitive levels considering the performance and longevity
of the employees service. To ensure that our compensation
remains competitive, the Compensation Committee from time to
time will review information from independent surveys of the
peer group companies listed above. Since the market for
executive talent extends beyond any particular industry, the
survey data will include both companies in our industry as well
as companies outside our industry. At the request of the
Compensation Committee, the Compensation Consultant will use
data from the peer group companies to establish the relationship
between revenues and compensation from which a market value of
pay can be calculated for a specific revenue size, using a
statistical technique known as regression analysis, as well as
other recognized and standard techniques. Surveys indicate base
salaries for most of our named executive officers during 2006
were generally in the mid-ranges of the applicable comparative
companies. In making its salary decisions, our Compensation
Committee will place emphasis on the particular executives
experience, responsibilities, and performance. No specific
formula will be applied to determine the weight of each factor.
We anticipate that our Compensation Committee will adopt a
policy of using incentive bonus awards rather than base salary
to reward outstanding performance.
We anticipate requesting that the Compensation Committee
increase the base salaries of our named executive officers,
other than our CEO, as of the spin-off to remain competitive
with market practices, support executive recruitment and
retention objectives and establish internal equity among
executives. These increases are intended to reflect the
additional responsibilities that the named executive officers
will incur in connection with their new roles as managers of a
publicly-traded company. In addition, they will be consistent
with practice among our competitors as reflected in the peer
group described above.
Bonuses.
Bonuses will be based largely on our
performance and the employees personal performance in
meeting specified objectives. Our Compensation Committee will
also consider the degree to which the employees actions
have laid the groundwork for future earnings. The types and
relative importance of specific financial and other business
factors will vary among the executives depending on their
positions and the particular operations or functions for which
they are responsible. For example, executives may be given a
bonus for accomplishing specific objectives or projects,
including successful completion of acquisitions, entitlements,
or developments.
We intend to adopt, subject to our sole stockholders
approval, an incentive bonus plan. All of our named executive
officers will participate under the plan following the spin-off.
We anticipate that under the bonus formula, each named executive
officer will be eligible to receive a bonus payment if he meets
pre-established performance criteria. Our Compensation Committee
will retain discretion to pay less than the amount indicated by
any bonus formula that is adopted.
We expect that the executives annual bonus opportunity as
a percent of salary will be set at the 50th percentile of
our peer group, with upside potential to reward for above-target
performance, and downside potential if a threshold performance
level is not met. Individual targets will vary according to
role, in accordance with market practice. These bonus
opportunities are intended to reflect the substantial
responsibilities that our named executive officers will incur in
connection with their new roles as managers of a
publicly-traded
company and reflect our pay-for-performance philosophy.
78
Stock Incentive Awards.
We plan to adopt the
Forestar Real Estate Group 2007 Stock Incentive Plan, or SIP, an
incentive stock plan. No awards have been granted under this
plan to date. However, the plan will give us the ability to
provide our eligible employees, including each of our named
executive officers, grants of stock compensation awards based on
our shares in the future if our Compensation Committee
determines that it is in our best interest and that of our
stockholders to do so. For performance-based equity grants, we
will use performance metrics that are appropriate for the size,
scope and industry of our company. From time to time, we intend
to grant equity awards to our executive officers outside the
annual award process, such as in connection with the hiring of a
new executive, for retention purposes, to reward exemplary
performance,
and/or
for
promotional recognition. The CEO will provide initial award
recommendations to our Compensation Committee for approval. We
will not have a program, plan, or practice specifically designed
to coordinate the grant of ad hoc awards with the release of
information about us. We will adopt standardized grant dates for
our equity awards to ensure that there is no potential
discretion in selecting the timing of the awards.
The expected principal features of the SIP are summarized below.
General.
Awards granted under the SIP may be
in the form of stock options, stock appreciation rights,
restricted stock, restricted stock units, performance units,
other stock-based awards or any combination of those awards. The
SIP provides that awards may be made under the SIP for ten years
following the spin-off.
Administration.
Under the terms of the SIP,
the SIP will be administered by our Compensation Committee, or
by such other committee or subcommittee as may be appointed by
our board, and which consists entirely of two or more
outside directors within the meaning of Section
162(m) of the Code. Unless and until the board appoints any
other committee or subcommittee, the SIP will be administered by
our Compensation Committee. Under the terms of the SIP, our
Compensation Committee can make rules and regulations and
establish such procedures for the administration of the SIP as
it deems appropriate.
Shares Available.
The SIP provides that the
aggregate number of shares of our common stock that may be
subject to awards under the SIP cannot exceed 3,650,000, subject
to adjustment in certain circumstances to prevent dilution or
enlargement. No more than 1,825,000 shares may be granted as
awards that are not options. No participant may be granted
awards covering in excess of 200,000 shares per year. Shares
underlying awards that expire or are forfeited or terminated
without being exercised will again be available for the grant of
additional awards within the limits provided by the SIP. In
addition, shares that expire or are forfeited or terminated
without being exercised or that are settled for cash will again
be available for the grant of additional awards under the SIP,
within the limits provided by the SIP.
Eligibility.
The SIP provides for awards to
our directors, officers, and employees. As of the date of the
spin-off, we anticipate that there will be approximately 45
directors, officers and employees eligible to participate in the
SIP. Our named executive officers and each of the directors are
among the individuals who will be eligible to receive awards
under the SIP.
Stock Options.
Subject to the terms and
provisions of the SIP, options to purchase common stock may be
granted to eligible individuals at any time and from time to
time as determined by our Compensation Committee. Options may be
granted as incentive stock options, within the meaning of
Section 422 of the Code, or as non-qualified stock options.
Subject to the limits provided in the SIP, our Compensation
Committee determines the number of options granted to each
recipient. Each option grant will be evidenced by a stock option
agreement that specifies whether the options are intended to be
incentive stock options or non-qualified stock options and such
additional limitations, terms and conditions as our Compensation
Committee may determine.
The exercise price for each option granted is determined in
accordance with the method as defined in the SIP, except that
the option exercise price may not be less than 100% of the fair
market value of a share of our common stock on the date of grant.
All options granted under the SIP will expire no later than ten
years from the date of grant. The method of exercising an option
granted under the SIP will be set forth in the stock option
agreement for that particular option.
79
At the discretion of our Compensation Committee, a stock option
agreement evidencing the award of stock options may contain
limitations on the exercise of options under certain
circumstances upon or after the termination of employment or in
the event of death, disability or retirement. Stock options are
nontransferable except by will or by the laws of descent and
distribution or, in the case of non-qualified stock options, as
otherwise expressly permitted by our Compensation Committee. The
granting of an option does not afford the recipient the rights
of a stockholder, and such rights accrue only after the exercise
of an option and the registration of shares of our common stock
in the recipients name.
Restricted Stock.
The SIP provides for the
award of shares of our common stock that are subject to
forfeiture and restrictions on transferability, or Restricted
Stock, as set forth in the SIP and as may be otherwise
determined by our Compensation Committee. Except for these
restrictions and any others imposed by our Compensation
Committee, upon the grant of Restricted Stock the recipient will
have rights of a stockholder with respect to the Restricted
Stock, including the right to vote the Restricted Stock and to
receive all dividends and other distributions paid or made with
respect to the Restricted Stock. During the restriction period
set by our Compensation Committee, the recipient may not sell,
transfer, pledge, exchange or otherwise encumber the Restricted
Stock. Any award of Restricted Stock will be subject to vesting
during a restriction period following the date of grant, and
vesting may be conditioned upon the achievement of service or
performance goals established by our Compensation Committee.
Restricted Stock Units.
The SIP authorizes our
Compensation Committee to grant restricted stock units.
Restricted stock units are not shares of our common stock and do
not entitle the recipients to the rights of a stockholder, but
rather entitle the holder upon their settlement to the value of
one share of our common stock. Restricted stock units granted
under the SIP may or may not be subject to performance
conditions. The recipient may not sell, transfer, pledge or
otherwise encumber restricted stock units granted under the SIP
prior to their vesting. Restricted stock units will be settled
in shares of our common stock or cash, in an amount based on the
fair market value of our common stock on the settlement date.
Any award of restricted stock units will be subject to vesting
during a restriction period following the date of grant, and
vesting may be conditioned upon the achievement of certain
service or performance goals established by our Compensation
Committee.
Performance Units.
The SIP provides for the
award of performance units. The payment of the value of a
performance unit is conditioned upon the achievement of
performance goals to be set by the Compensation Committee in
granting the performance unit and may be paid in cash, shares of
our common stock, or a combination thereof. The maximum value of
the cash that may be paid to a participant pursuant to a
performance unit granted in any year is $5,000,000.
Other Stock-Based Awards.
The SIP also
provides for grants of other stock-based awards under the plan
with terms determined by our Compensation Committee.
Performance Goals.
The SIP provides that
performance goals may be established by the committee in
connection with the grant of Restricted Stock, RSUs, performance
units or other stock-based awards. In the case of an award
intended to qualify for the performance-based compensation
exception of Section 162(m) of the Code, such goals shall
be based on the attainment of specified levels of one or more of
the following measures: satisfactory internal or external
audits, achievement of balance sheet or income statement
objectives, cash flow, customer satisfaction metrics and
achievement of customer satisfaction goals, dividend payments,
earnings (including before or after taxes, interest,
depreciation, and amortization), earnings growth, earnings per
share, economic value added, expenses, improvement of financial
ratings, internal rate of return, market share, net asset value,
net income, net operating gross margin, net operating profit
after taxes, or NOPAT, net sales growth, NOPAT growth, operating
income, operating margin, pro forma income, regulatory
compliance, return measures (including return on assets,
designated assets, capital, committed capital, net capital
employed, equity, sales, or stockholder equity, and return
versus the companys cost of capital), revenues, real
estate value creation, sales, stock price (including growth
measures and total stockholder return), comparison to stock
market indices, implementation or completion of one or more
projects or transactions, working capital, or any other
objective goals that the Compensation Committee establishes.
Performance goals may be absolute in their terms or measured
against or in relationship to other companies. Performance goals
may be particular to
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an award recipient or the department, branch, affiliate, or
division in which the award recipient works, or may be based on
the performance of the company, one or more affiliates, or the
company and one or more affiliates, and may cover such period as
the Compensation Committee may specify. Such performance goals
will be set by our Compensation Committee within the time period
and other requirements prescribed by Section 162(m) of the
Code and the regulations promulgated thereunder.
Change in Control.
Vesting of awards may be
accelerated in the event of certain change in control situations.
Awards Under the SIP.
Because it is within the
discretion of our Compensation Committee to determine which
officers and employees receive awards and the amount and type of
awards received, it is not presently possible to determine the
number of individuals to whom awards will be made in the future
under the SIP or the amount of the awards.
Following the spin-off, we anticipate requesting the
Compensation Committee to make grants of awards under the SIP.
The initial grants made following the spin-off will include
special launch grant amounts to the named executive
officers, excluding the CEO, and a number of other members of
the management team. The purpose of such launch
grants will be to align the interests of the management
team with the interests of our stockholders commencing
immediately upon the spin-off.
Amendment.
Our board may amend, alter or
discontinue the SIP at any time. No such amendment or
termination, however, may impair the rights of any holder of
outstanding awards without his or her consent, and no award may
be amended or otherwise subject to any action that would be
treated, for accounting purposes, as a repricing of
such award.
Federal Income Tax Consequences.
The following
is a summary of certain federal income tax consequences of
awards made under the SIP, based upon the laws in effect on the
date hereof. The discussion is general in nature and does not
take into account a number of considerations which may apply in
light of the circumstances of a particular participant under the
SIP. The income tax consequences under applicable state and
local tax laws may not be the same as under federal income tax
laws.
Non-Qualified Stock Options.
A participant
will not recognize taxable income at the time of grant of a
non-qualified stock option, and we will not be entitled to a tax
deduction at such time. A participant will recognize
compensation taxable as ordinary income (and subject to income
tax withholding in respect of an employee) upon exercise of a
non-qualified stock option equal to the excess of the fair
market value of the shares purchased over their exercise price,
and we generally will be entitled to a corresponding deduction.
Incentive Stock Options.
A participant will
not recognize taxable income at the time of grant of an
incentive stock option. A participant will not recognize taxable
income (except for purposes of the alternative minimum tax) upon
exercise of an incentive stock option. If the shares acquired by
exercise of an incentive stock option are held for the longer of
two years from the date the option was granted and one year from
the date the shares were transferred, any gain or loss arising
from a subsequent disposition of such shares will be taxed as
long-term capital gain or loss, and we will not be entitled to
any deduction. If, however, such shares are disposed of within
such two or one year periods, then in the year of such
disposition the participant will recognize compensation taxable
as ordinary income equal to the excess of the lesser of the
amount realized upon such disposition and the fair market value
of such shares on the date of exercise over the exercise price
(although there will be no withholding obligation), and we
generally will be entitled to a corresponding deduction.
Restricted Stock.
A participant will not
recognize taxable income at the time of grant of shares of
Restricted Stock, and we will not be entitled to a tax deduction
at such time, unless the participant makes an election under
Section 83(b) of the Code to be taxed at such time. If such
election is made, the participant will recognize compensation
taxable as ordinary income (and subject to income tax
withholding in respect of an employee) at the time of the grant
equal to the excess of the fair market value of the shares at
such time over the amount, if any, paid for such shares. If such
election is not made, the participant will recognize
compensation taxable as ordinary income (and subject to income
tax
81
withholding in respect of an employee) at the time the
restrictions lapse in an amount equal to the excess of the fair
market value of the shares at such time over the amount, if any,
paid for such shares. We generally are entitled to a
corresponding deduction at the time the ordinary income is
recognized by the participant, except to the extent the
deduction limits of Section 162(m) of the Code apply. In
addition, a participant receiving dividends with respect to
Restricted Stock for which the above-described election has not
been made and prior to the time the restrictions lapse will
recognize compensation taxable as ordinary income (and subject
to income tax withholding in respect of an employee), rather
than dividend income. We will generally be entitled to a
corresponding deduction, except to the extent the deduction
limits of Section 162(m) of the Code apply.
Restricted Stock Units.
A participant will not
recognize taxable income at the time of grant of a restricted
stock unit, and we will not be entitled to a tax deduction at
such time. A participant will recognize compensation taxable as
ordinary income (and subject to income tax withholding in
respect of an employee) at the time of settlement of the award
equal to the fair market value of any shares delivered and the
amount of cash paid by us, and we generally will be entitled to
a corresponding deduction, except to the extent the deduction
limits of Section 162(m) of the Code apply.
Performance Units.
A participant will not
recognize taxable income at the time of grant of performance
units, and we will not be entitled to a tax deduction at such
time. A participant will recognize compensation taxable as
ordinary income (and subject to income tax withholding in
respect of an employee) at the time of settlement of the award
equal to the fair market value of any shares or property
delivered and the amount of cash paid by us, and we generally
will be entitled to a corresponding deduction, except to the
extent the deduction limits of Section 162(m) of the Code
apply.
Section 162(m).
Section 162(m) of
the Code limits the deductibility of certain compensation of the
CEO and the next three most highly compensated officers of
publicly-held corporations, other than the CFO. Compensation
paid to such an officer during a year in excess of
$1 million that is not performance-based (or does not
comply with other exceptions) would not be deductible on our
federal income tax return for that year. It is intended that
compensation attributable to stock options granted under the SIP
will qualify as performance-based. Our Compensation Committee
will evaluate from time to time the relative benefits to us of
qualifying other awards under the SIP for deductibility under
Section 162(m) of the Code.
Stock
Ownership Guidelines.
To further align our executives financial interests with
those of our stockholders, we anticipate adopting the following
minimum stock ownership guidelines for our named executive
officers:
Value of
Ownership of Stock as a Multiple of Annual Salary
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Multiple of
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Position
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Salary
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Chief Executive Officer
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5x
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Other Named Executive Officers
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3x
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Shares owned by the executive and their immediate family members
will count toward the ownership guidelines. Shares held in our
401(k) plan, Restricted Stock, performance stock units, and
performance units also will count.
The named executive officers will have five years following
the spin-off or their initial election to meet the stock
ownership guidelines.
Retirement and 401(k) Plan.
We will offer a
401(k) plan after the spin-off. Employees who transfer to us
from Temple-Inland in connection with the spin-off will receive
vesting credit under our 401(k) plan for the years of service
they were continuously employed by Temple-Inland.
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Our 401(k) plan will allow us to match an employees
contribution in accordance with the following formula: for each
dollar that an employee contributes to their 401(k) savings
account, we will contribute a match of $1 up to 3% of the
employees compensation; thereafter, for each dollar that
an employee contributes of their next 3% of pay, we will
contribute a match of $0.50. The maximum annual matching
contribution will be $4,500 for any employee considered highly
compensated for the year under Section 414(q)(1)(B) of the
Code (earnings of $100,000 in 2007). The match is vested 100%
after two years of employment. In addition, we will make a
retirement contribution equal to 3.5% of the employees
compensation. The retirement contribution is vested after
two years of employment. Employees will be offered a wide
range of investment choices under the plan for their payroll
contributions, and our match and retirement contribution will be
invested proportionally in the same funds selected by the
employees for their own payroll contributions. Our 401(k) plan
will not grant extra years of credited service to executives.
Extra years of credited service will be granted only under our
change in control agreements, but not for any other reason.
The Code limits the amount of compensation that can be used in
calculations under a tax-qualified defined contribution
retirement plan such as our 401(k) plan. In 2007, this limit was
$225,000. Because we wish to provide our executives with a
continuing ability to save for their retirement, we will credit
under the SERP an amount equal to 3.5% of the executives
pay in excess of this limit. The SERP, which is not a tax
qualified plan, is unfunded and contains a provision for
acceleration of payment in the event of a change in control. The
SERP will not cover pay that is based on commissions.
Health and Welfare Benefits.
We will offer the
same health and welfare benefits to all salaried employees.
These benefits include medical benefits, dental benefits, vision
benefits, life insurance, salary continuation for short-term
disability, long-term disability insurance, accidental death and
dismemberment insurance, dependent care spending account, health
care spending account, health savings account, and other similar
benefits.
Change in Control Agreements.
We entered into
change in
control/severance
agreements with selected executives, including the named
executive officers other than the CEO. The CEO is party to an
employment agreement the terms of which are summarized below
under Compensation Action in Preparation for
Spin-off Employment Agreement. We believe that
the change in
control/severance
agreements will help us to attract and retain our named
executive officers by reducing the personal uncertainty and
anxiety that arises from the possibility of a future business
combination. During a potential change in control, we do not
want executives leaving to pursue other employment out of
concern for the security of their jobs or being unable to
concentrate on their work. To enable executives to focus on the
best interest of our stockholders, we offer change in control
agreements that generally provide severance benefits to
executives whose employment terminates as a result of a change
in control. These agreements generally require a double
trigger of both a change in control and a termination of
employment before any benefits are paid.
For the first two years following the spin-off, however, only a
qualifying termination of employment (as defined in the
agreements) is required for the named executive officers with
change in control/severance agreements because Forestar assumed
the responsibility for their Temple-Inland change in control
agreements at the spin-off. Mr. DeCosmo had a severance
contract with Temple-Inland requiring payments of three times
his compensation and all other named executive officers had
severance contracts with Temple-Inland requiring payments of
twice their compensation upon a qualifying termination of
employment following a change in control of Temple-Inland.
The following events constitute a change in control for purposes
of the change in control agreements:
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any person or entity acquiring or becoming beneficial owner as
defined in SEC regulations of 20% or more of the combined voting
power of our securities;
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the pre-event directors ceasing to constitute a majority of our
directors within any
24-month
period;
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consummation of a merger, consolidation, or recapitalization
(unless the directors continue to represent a majority of the
directors on the board, at least 60% of the pre-event ownership
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survives, and, in the event of a recapitalization, no person
owns 20% or more of the voting power of the securities);
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the stockholders approve a liquidation or dissolution;
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consummation of an agreement to sell, lease, or dispose of
substantially all the assets of Forestar; or
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any other event that the board determines to be a change in
control.
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Our Stock Incentive Plan uses similar change in control events
including:
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acquisition of 20% voting power through a tender or exchange
offer;
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the board or stockholders approve a consolidation or merger;
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the board or stockholders approve a liquidation or
dissolution; or
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the board or stockholders approve a sale, lease, exchange or
transfer of substantially all assets.
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As noted above, payments under the change in control/severance
agreements are generally triggered by two events, a change in
control plus a qualifying termination of employment. A
qualifying termination of employment includes both involuntary
termination without cause and voluntary termination by the
executive for good reason. Good reason includes assignment of
duties substantially inconsistent with the executives
status as a senior executive officer, substantial reduction in
base salary, relocation of place of employment more than
50 miles, failure to pay compensation, or failure to
provide benefits or a reduction in benefits.
Under the change in control/severance agreements and Stock
Incentive Plan, the named executive officers other than
Mr. DeCosmo would receive the following under qualifying
circumstances:
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their current cycle bonus pro rated if the termination is before
the end of the first half of the cycle; full bonus if during the
second half of the cycle;
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lump sum severance equal to two times their current salary and
two times target bonus, or if higher, the salary or actual bonus
in any of the last three years;
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health and welfare benefits provided for two years at no
greater cost;
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acceleration of vesting of all options, restricted shares,
restricted stock units, and performance stock units;
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two years of additional service credit for SERP benefits, if any;
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lump sum payment equal to two years match under our
401(k) plan;
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any retiree medical benefits to which the executive is entitled;
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reimbursement for outplacement services not to exceed 15% of
base salary and target bonus; and
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two years continuation of perquisites.
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The change in control agreements also contain
gross-up
provisions in the event the officer is required to pay excise
tax on these amounts. The gross up will only be paid if the
change in control payments exceed 110% of the amount that would
not be subject to excise tax; otherwise, payments are reduced to
the maximum amount that will not trigger the excise tax.
The amount of severance and benefits was determined based on
competitive market practices for executives at this level.
Executives at this level generally require a longer timeframe to
find comparable jobs because there are fewer jobs at this level
in the market. The executives often have a large percentage of
their personal wealth dependent on the status of our company,
given the requirement to hold a multiple of their salary in
stock and the fact that a large part of their compensation is
stock-based.
In exchange for the promise of this compensation and benefits,
the executive agrees to continue working during any potential
change in control event until the earliest of six months
from the potential change in
84
control event, until the date of the change in control event, or
until the executive is terminated by the company or terminates
employment for good reason.
Executive Perquisites.
We intend to take a
minimalist approach to perquisites. We will provide umbrella
insurance coverage and club memberships for our executives.
Severance Benefits.
Generally speaking,
severance is a matter that is individually negotiated with the
executive and the amount depends on the circumstances of his or
her departure. As discussed below, the CEO is the only executive
who has an employment agreement with pre-established severance
benefits, other than the change in control/agreements discussed
above. In return for the post-employment benefits, the CEO
agrees not to compete with us for two years after departure.
Clawback of Compensation.
If an
executive leaves under circumstances that call into question
whether any compensation amounts paid to him or her were validly
earned, we would pursue any legal rights we deemed appropriate
under the circumstances.
Tax Deductibility Policy.
Section 162(m)
of the Code generally limits the tax deductibility of
compensation of the CEO and the other three most highly
compensated executive officers (other than the CFO) of a
publicly-held company to $1 million per executive unless
the compensation constitutes performance-based
compensation. We intend that compensation paid to our named
executive officers not be subject to the limitation on tax
deductibility under Section 162(m) of the Code so long as
this can be achieved in a manner consistent with our other
compensation objectives.
Compensation
Actions in Preparation for the Spin-off
Base Salary Increase.
The following salary
increase for the CEO has been approved by our board after
considering market data provided by Hewitt:
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Current
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Anticipated
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Annual
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Annual
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Executive
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Title
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Salary Rate
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Salary Rate
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James M. DeCosmo
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President and Chief Executive Officer
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$
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309,000
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$
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500,000
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This increase brings Mr. DeCosmos salary to a level
that is consistent with our peer group benchmarking.
Equity Award.
Mr. DeCosmo was also given
on May 4, 2007 an award of 25,000 shares of
Temple-Inland restricted stock that will vest on May 4,
2010. The market price of Temple-Inland common stock on
May 4, 2007 was $61.23.
Employment Agreement.
We executed an
employment agreement with Mr. DeCosmo on August 9,
2007 that will become effective as of the spin-off. The
agreement has a three-year term, but is automatically extended
by one year on the first anniversary of the effective date and
each anniversary thereafter unless notice of nonrenewal is given
at least one year in advance of such anniversary date.
During the term of the agreement, Mr. DeCosmo will receive
a base salary, which may not be reduced below its level at the
time the agreement becomes effective ($500,000) or any increase
subsequently granted. He will be eligible for a
performance-based annual cash bonus, employee benefits, equity
(long-term incentive plan) grants, and umbrella insurance. There
are no parameters on the performance-based annual cash bonus,
such as a maximum amount, and it is entirely within the
discretion of our Compensation Committee except that it shall be
substantially no less favorable than the bonus program
applicable to our other senior executives.
Upon a qualifying termination of employment (defined generally
in the same manner as under the change in control agreements
described above) during the first two years following the
effective date of the agreement or within two years following a
change in control (defined in the same manner as under the
change in control agreements described above), Mr. DeCosmo
would be generally entitled to the same benefits (including
excise tax gross-up protection) as described above under the
change in control agreements, except that Mr. DeCosmo would
receive a multiple of three times pay and benefits, and also
would be credited with three extra years of service for purposes
of determining his eligibility for any retiree medical or life
insurance benefits. If
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Mr. DeCosmo were to experience such a qualifying
termination of employment after the first two years of the
agreement and not within two years following a change in
control, he would be entitled to those same benefits, except
that the severance would be based on two times salary and bonus,
health and welfare benefits and perquisites would continue for
two years, and imputed service credit would be limited to an
additional two years. Upon termination of employment for death
or disability, Mr. DeCosmo would receive a cash lump-sum payment
equal to the sum of his annual base salary and a pro-rata
portion of his annual target bonus. Mr. DeCosmo would be
required to execute a release of claims, and he has agreed that
he will not compete with us for two years following his
termination of employment for any reason.
Retirement Benefits.
All liabilities for
accrued benefits under Temple-Inlands qualified defined
benefit plan for the Forestar named executive officers will be
retained by Temple-Inland. The actuarial present values of the
accumulated pension benefits of our named executive officers who
participate in Temple-Inlands qualified defined benefit
plan and SERP as of the end of 2006, as well as other
information about each of Temple-Inlands defined benefit
pension plans, are reported in the Pension Benefits table on
page 93.
In connection with the spin-off, Mr. DeCosmo will receive a
distribution in 2008 of all amounts he has accrued under the
Temple-Inland SERP, which is estimated to be approximately
$169,910. This amount will be paid by Temple-Inland.
Existing Equity Awards.
Each of the named
officers is currently employed by us or Temple-Inland. In such
capacity, the named officers were granted stock options and
other equity awards with respect to Temple-Inland common stock.
Details with respect to such grants as of the end of 2006 are
set forth below under the table entitled Outstanding
Equity Awards at Year-End 2006.
In connection with the spin-offs of Forestar and Guaranty, all
outstanding options will be equitably adjusted into three
separate options: one relating to Guaranty common stock, one
relating to Forestar common stock, and one relating to
Temple-Inland common stock. Such adjustment is expected to be
made so that immediately following the distribution the number
of shares relating to each option and the per share option
exercise price of the original Temple-Inland stock option will
be proportionally allocated among the three types of stock
options based upon the distribution ratios and relative per
share trading prices of the Forestar, Guaranty, and
Temple-Inland common stock immediately following the
distribution. All Forestar and Guaranty options issued as part
of this adjustment and the Temple-Inland options will continue
to be subject to their current vesting schedules. Further, for
purposes of vesting and the post-termination exercise periods
applicable to such stock options, Temple-Inlands
Compensation Committee determined that continued employment with
Forestar, Guaranty, or Temple-Inland will be viewed as continued
employment with the issuer of the options.
Restricted Stock and RSUs and performance stock units will be
adjusted in the same manner stockholders of Temple-Inland have
their shares adjusted, including participation in quarterly
dividends and special dividends, and will continue to vest over
the normal vesting cycle. These equitable adjustments are
intended to preserve the economic value of the awards
immediately prior to the distribution.
Historical
Compensation of Our Executive Officers Prior to Spin Off Under
The Temple-Inland Executive Compensation Program
The following tables contain compensation information for
services in all capacities to Temple-Inland for the periods
shown for our CEO, CFO, and three other executive officers who
for fiscal 2006 had the highest compensation. We refer to these
persons collectively as our named executive officers. All of the
information included in these tables reflects compensation
earned by the individuals for services with Temple-Inland and
its subsidiaries. All references in the following tables to
stock options, Restricted Stock, PSUs, and RSUs, relate to
awards of stock options, Restricted Stock, PSUs and RSUs granted
by Temple-Inland in regard to Temple-Inland common stock.
Temple-Inlands Compensation Committee generally attempts
to maintain a balance between the different elements of
compensation, but has not established specific allocation
formulae to determine the proportion of each element of
compensation in relation to the other elements.
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Bonus
In 2006, incentive compensation, including bonus, stock awards,
options and non-equity incentive compensation, was determined by
the Temple-Inland Compensation Committee for Mr. DeCosmo
and Mr. Knight based on recommendations of the
Temple-Inland CEO, and using market data provided by Hewitt
Associates based on Mr. DeCosmos position as CEO of a
business unit and Mr. Knights position as Chief Real
Estate Officer for Temple-Inland. The market data consisted of
pay for CEOs of business units in general industry of the size
of Temple-Inlands real estate operations, as reflected in
Hewitts database from salary surveys it conducts.
Temple-Inlands Compensation Committee reviewed this data
and made its subjective determination of each component of pay
based on Mr. DeCosmos and Mr. Knights
position and responsibilities relative to that of other senior
executives of Temple-Inland (internal pay equity) and the
results of their operations.
The Temple-Inland Compensation Committee determined an aggregate
bonus pool amount for all other real estate business unit
employees based on the financial results of the real estate
operations and its successful positioning as a separate business
segment, which Mr. DeCosmo allocated to individual
employees, including Mr. Etheredge and Mr. Jehl, based
on his business judgment concerning their positions and results.
Mr. Nines worked for Temple-Inland during 2006, and his
compensation was determined by the CEO of Temple-Inland based on
his business judgment concerning Mr. Nines position
and results.
Stock
Awards
Under plans approved by Temple-Inland stockholders,
Temple-Inlands Compensation Committee may grant three
types of stock awards to executive officers: options, restricted
stock units, and performance stock units. A dollar value is
established for the stock awards in consultation with
Temple-Inlands compensation consultant after reviewing
competitive market data as described above. The dollar value of
the awards may be at or above the mid-range of what other
companies may offer in any given year. The Temple-Inland
Compensation Committee determined the stock awards for
Mr. DeCosmo and Mr. Knight in connection with its
determination of their total compensation described above. The
stock awards and options granted by the Temple-Inland
Compensation Committee to the other named executive officers
were based on recommendations of Mr. DeCosmo. Restricted
stock units contain a minimum return threshold, while
performance units are only paid if Temple-Inlands
performance is in the top half compared with its peer group. As
discussed below, in light of the transformation events, the
Temple-Inland Compensation Committee converted all outstanding
performance stock units to restricted stock units with 1%
minimum ROI criteria. The Temple-Inland Compensation Committee
also considers previous grants, tenure, and responsibilities of
the executives.
The amounts and forms of compensation reported below do not
necessarily reflect the compensation these persons will receive
following the spin-off, which could be higher or lower, because
historical compensation was determined by Temple-Inland and
future compensation levels will be determined based on the
compensation policies, programs and procedures to be established
by our Compensation Committee.
87
SUMMARY
COMPENSATION TABLE FOR YEAR 2006
|
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|
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|
|
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Change in
|
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|
|
|
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|
|
|
|
|
|
|
|
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|
|
|
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|
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Pension Value
|
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|
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|
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|
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and
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|
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|
|
|
|
|
|
|
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|
|
|
|
|
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Nonqualified
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
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Non-Equity
|
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Deferred
|
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|
|
|
|
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|
|
|
|
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|
|
|
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Stock
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Option
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Incentive Plan
|
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Compensation
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All Other
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Salary
|
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Bonus
|
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Awards(1)
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Awards
|
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Compensation
|
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Earnings(2)
|
|
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Compensation(3)
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Total
|
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Name and Principal Position
|
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Year
|
|
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($)
|
|
|
($)
|
|
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($)
|
|
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($)
|
|
|
($)
|
|
|
($)
|
|
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($)
|
|
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($)
|
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(a)
|
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(b)
|
|
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(c)
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(d)
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(e)
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(f)
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(g)
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(h)
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(i)
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(j)
|
|
|
James M. DeCosmo
|
|
|
2006
|
|
|
$
|
294,231
|
|
|
$
|
0
|
|
|
$
|
450,584
|
|
|
$
|
118,183
|
|
|
$
|
740,000
|
|
|
$
|
33,920
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|
|
$
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34,351
|
|
|
$
|
1,671,268
|
|
President and CEO
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Christopher L. Nines
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2006
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|
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$
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148,317
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|
|
$
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300,000
|
|
|
$
|
82,498
|
|
|
$
|
44,701
|
|
|
$
|
0
|
|
|
$
|
5,672
|
|
|
$
|
8,550
|
|
|
$
|
589,738
|
|
Chief Financial Officer
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Craig A. Knight
|
|
|
2006
|
|
|
$
|
222,596
|
|
|
$
|
550,000
|
|
|
$
|
223,952
|
|
|
$
|
154,125
|
|
|
$
|
0
|
|
|
$
|
5,243
|
|
|
$
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7,000
|
|
|
$
|
1,162,916
|
|
Chief Investment Officer
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Charles T. Etheredge, Jr.
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2006
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$
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205,892
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|
$
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225,000
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|
|
$
|
42,953
|
|
|
$
|
30,033
|
|
|
$
|
0
|
|
|
$
|
9,624
|
|
|
$
|
64,674
|
|
|
$
|
578,177
|
|
Executive Vice President
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|
|
|
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|
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|
|
|
|
|
|
|
|
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|
|
|
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Charles D. Jehl
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2006
|
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$
|
165,769
|
|
|
$
|
300,000
|
|
|
$
|
44,059
|
|
|
$
|
24,808
|
|
|
$
|
0
|
|
|
$
|
8,911
|
|
|
$
|
5,200
|
|
|
$
|
548,747
|
|
Chief Accounting Officer
|
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|
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|
|
(1)
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|
The fair value of restricted stock, performance stock units, and
stock options was determined in accordance with Statement of
Financial Accounting Standards No. 123(R). Fair value of
the option awards was determined using the Black-Scholes-Merton
option pricing model. The following table lists the fair values
by grant date:
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|
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Estimated
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|
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Expected
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Fair Value
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Expected
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Stock
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Risk-Free
|
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|
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of Options
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Dividend
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Price
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|
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Interest
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|
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Life of
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|
|
|
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Grant Date
|
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Granted
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Yield
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Volatility
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Rate
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Option
|
|
|
|
|
|
2/7/2003
|
|
$
|
5.81
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|
|
|
2.5
|
%
|
|
|
29.3
|
%
|
|
|
2.9
|
%
|
|
|
8
|
|
|
|
|
|
5/7/2003
|
|
$
|
6.60
|
|
|
|
2.5
|
%
|
|
|
29.3
|
%
|
|
|
3.9
|
%
|
|
|
8
|
|
|
|
|
|
2/6/2004
|
|
$
|
8.31
|
|
|
|
2.9
|
%
|
|
|
28.8
|
%
|
|
|
4.2
|
%
|
|
|
8
|
|
|
|
|
|
2/4/2005
|
|
$
|
11.13
|
|
|
|
2.3
|
%
|
|
|
28.2
|
%
|
|
|
4.1
|
%
|
|
|
8
|
|
|
|
|
|
2/3/2006
|
|
$
|
11.53
|
|
|
|
2.4
|
%
|
|
|
25.1
|
%
|
|
|
4.4
|
%
|
|
|
6
|
|
|
|
|
|
|
|
|
(2)
|
|
Represents the change in the actuarial present value of
accumulated pension benefits from September 30, 2005 to
September 30, 2006. There were no above-market or
preferential earnings on deferred compensation.
|
|
(3)
|
|
Mr. DeCosmos compensation includes $13,614 in
mortgage subsidies, $4,707 in country club dues, $9,370
relocation expense reimbursement, $1,250 personal liability
(umbrella) insurance policy imputed income, and a charitable
gift award. Mr. Etheredges compensation includes
$57,244 in relocation expenses. Amounts for each officer,
including Mr. DeCosmo and Mr. Etheredge, include a
$4,000 company match under a 401(k) plan and matching gifts
for charitable contributions under a charitable foundation
program.
|
STOCK-BASED COMPENSATION
Additional information about stock-based compensation awards
granted and vested in 2006 and awards outstanding at year-end
2006 follows.
88
The following table summarizes grants of stock-based
compensation awards made in 2006 to the named executive officers.
2006
GRANTS OF PLAN-BASED AWARDS
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Option
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
Awards:
|
|
|
Exercise
|
|
|
Grant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
or Base
|
|
|
Date Fair
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of
|
|
|
Securities
|
|
|
Price of
|
|
|
Value of
|
|
|
|
|
|
|
Estimated Future Payouts Under Non-equity Incentive Plan
Awards
|
|
|
Estimated Future Payouts Under Equity Incentive Plan
Awards(1)
|
|
|
Stock or
|
|
|
Underlying
|
|
|
Option
|
|
|
Stock and
|
|
|
|
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Units
|
|
|
Options
|
|
|
Awards
|
|
|
Option
|
|
Name
|
|
Grant Date
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
(#)(1)
|
|
|
(#)(2)
|
|
|
($/Sh)(3)
|
|
|
Awards
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)
|
|
|
(g)
|
|
|
(h)
|
|
|
(i)
|
|
|
(j)
|
|
|
(k)
|
|
|
(l)
|
|
|
DeCosmo
|
|
|
2/3/2006
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
15,900
|
|
|
|
18,400
|
|
|
|
18,400
|
|
|
|
0
|
|
|
|
18,450
|
|
|
$
|
46.20
|
|
|
$
|
1,062,809
|
|
Nines
|
|
|
2/3/2006
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2,625
|
|
|
|
6,400
|
|
|
$
|
46.20
|
|
|
$
|
195,067
|
|
Knight
|
|
|
2/3/2006
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
5,625
|
|
|
|
7,500
|
|
|
|
0
|
|
|
|
5,000
|
|
|
|
10,000
|
|
|
$
|
46.20
|
|
|
$
|
692,800
|
|
Etheredge
|
|
|
2/3/2006
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2,100
|
|
|
|
5,125
|
|
|
$
|
46.20
|
|
|
$
|
156,111
|
|
Jehl
|
|
|
2/3/2006
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2,100
|
|
|
|
5,125
|
|
|
$
|
46.20
|
|
|
$
|
156,111
|
|
|
|
|
(1)
|
|
The dollar value is calculated by multiplying the number of
shares awarded by the average of the high and low NYSE sales
price of unrestricted stock on the date of grant. The amount
shown for Mr. DeCosmo includes 8,400 restricted stock units
that are vested if minimum return on investment, or ROI,
criteria are met (1% ROI over fiscal years 2006, 2007, and
2008). It also included performance-based restricted stock units
(Performance Stock Units): Mr. DeCosmo-10,000 and
Mr. Knight-7,500. Performance stock units were originally
granted subject to performance criteria under which the awards
would vest 0%, 75%, or 100% depending upon Temple-Inlands
achievement of certain ROI performance criteria during the
three-year
vesting period (fiscal years 2006, 2007 and 2008 are referred to
as the Award Period) as compared with its peer group. No payment
would be made unless Temple-Inlands average ROI ranking as
compared to the peer group over the award period is in the first
or second quartile of ROI rankings. If Temple-Inlands
average ROI over the award period placed it within the first
quartile, up to 100% of the performance stock units may be paid.
If
Temple-Inlands
average ROI over the award period placed it within the second
quartile, up to 75% of the performance stock units may be paid.
The Compensation Committee retained discretion to reduce the
size of the award, but not to increase it. On August 9,
2007 the Compensation Committee determined that the performance
criteria would be frustrated by the spin-off and other
transformation events, and converted all of the performance
stock units to restricted stock units with 1% minimum ROI
criteria that will vest on the third anniversary of the original
grant. Mr. DeCosmos restricted stock units were
canceled on August 9, 2007 and new units in the same amount
and vesting at the original vesting date were issued so that the
1% minimum ROI criteria could be updated. The restricted stock
units have a potential vesting date of February 3, 2009.
Cash compensation will be paid equal to the amount of regular
quarterly dividends these shares would otherwise earn.
|
|
(2)
|
|
Options to purchase Temple-Inland common stock. Exercise prices
have never been repriced. Withholding taxes may be paid with
exercised shares. No general or freestanding stock appreciation
rights, or SARS, were granted. All grants to the named executive
officers include a provision for acceleration of vesting in
certain change of control situations. All options awarded to the
executives become exercisable in 25% increments on
February 3 of 2007, 2008, 2009, and 2010 and have a ten
year term expiring February 3, 2016.
|
|
(3)
|
|
Valued by averaging the high and the low sales prices of
Temple-Inland stock on the NYSE on the board meeting date when
the grants were approved. The closing price on such date was
$45.79.
|
89
OUTSTANDING
EQUITY AWARDS AT YEAR-END 2006
The following table summarizes stock-based compensation awards
outstanding at year-end 2006 for the named executive officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
Incentive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plans:
|
|
|
Market or
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Payout
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
Unearned
|
|
|
Value of
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Number of
|
|
|
Value of
|
|
|
Shares,
|
|
|
Unearned
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Shares or
|
|
|
Shares or
|
|
|
Units or
|
|
|
Shares,
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
Units of
|
|
|
Units of
|
|
|
Other
|
|
|
Units or Other
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
Option
|
|
|
|
|
|
Stock That
|
|
|
Stock That
|
|
|
Rights That
|
|
|
Rights That
|
|
|
|
|
|
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Exercise
|
|
|
Option
|
|
|
Have Not
|
|
|
Have Not
|
|
|
Have Not
|
|
|
Have Not
|
|
|
|
|
|
|
|
|
|
Options (#)
|
|
|
Options (#)
|
|
|
Price
|
|
|
Expiration
|
|
|
Vested
|
|
|
Vested
|
|
|
Vested
|
|
|
Vested
|
|
|
Grant
|
|
|
Vesting
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
($)
|
|
|
Date
|
|
|
(#)(1)
|
|
|
($)(1)
|
|
|
(#)
|
|
|
(#)(1)
|
|
|
Date
|
|
|
Date
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)
|
|
|
(g)
|
|
|
(h)
|
|
|
(i)
|
|
|
(j)
|
|
|
(k)
|
|
|
James M. DeCosmo
|
|
|
2,000
|
|
|
|
|
|
|
$
|
27.64
|
|
|
|
02/04/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/00
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
|
|
|
|
$
|
25.65
|
|
|
|
02/02/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/02/01
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
|
|
|
|
|
$
|
27.66
|
|
|
|
02/01/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/01/02
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
|
|
|
|
$
|
21.51
|
|
|
|
02/07/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/07/03
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
|
|
|
|
$
|
30.02
|
|
|
|
02/06/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/06/04
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
|
|
|
|
|
$
|
37.07
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
$
|
21.51
|
|
|
|
02/07/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/07/03
|
|
|
|
02/07/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,250
|
|
|
$
|
30.02
|
|
|
|
02/06/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/06/04
|
|
|
|
02/06/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,250
|
|
|
$
|
30.02
|
|
|
|
02/06/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/06/04
|
|
|
|
02/06/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
|
$
|
37.07
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
02/04/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
|
$
|
37.07
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
02/04/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
|
$
|
37.07
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
02/04/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,612
|
|
|
$
|
46.20
|
|
|
|
02/06/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,613
|
|
|
$
|
46.20
|
|
|
|
02/06/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,612
|
|
|
$
|
46.20
|
|
|
|
02/06/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,613
|
|
|
$
|
46.20
|
|
|
|
02/06/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
800
|
|
|
$
|
36,824
|
|
|
|
|
|
|
|
|
|
|
|
02/02/01
|
|
|
|
02/02/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
$
|
92,060
|
|
|
|
|
|
|
|
|
|
|
|
02/06/04
|
|
|
|
02/06/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
|
$
|
276,180
|
|
|
|
6,000
|
|
|
$
|
276,180
|
|
|
|
02/04/05
|
|
|
|
02/04/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,400
|
|
|
$
|
386,652
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
$
|
460,300
|
|
|
|
02/06/04
|
|
|
|
02/03/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,500
|
|
|
|
35,450
|
|
|
|
|
|
|
|
|
|
|
|
17,200
|
|
|
$
|
791,716
|
|
|
|
16,000
|
|
|
$
|
736,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher L. Nines
|
|
|
500
|
|
|
|
|
|
|
$
|
23.05
|
|
|
|
08/01/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
08/01/03
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500
|
|
|
$
|
23.05
|
|
|
|
08/01/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
08/01/03
|
|
|
|
08/01/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,250
|
|
|
$
|
30.02
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/06/04
|
|
|
|
02/06/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,250
|
|
|
$
|
30.02
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/06/04
|
|
|
|
02/06/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,250
|
|
|
$
|
37.07
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
02/04/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,250
|
|
|
$
|
37.07
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
02/04/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,250
|
|
|
$
|
37.07
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
02/04/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,600
|
|
|
$
|
46.20
|
|
|
|
02/03/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,600
|
|
|
$
|
46.20
|
|
|
|
02/03/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,600
|
|
|
$
|
46.20
|
|
|
|
02/03/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,600
|
|
|
$
|
46.20
|
|
|
|
02/03/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
$
|
92,060
|
|
|
|
|
|
|
|
|
|
|
|
02/06/04
|
|
|
|
02/06/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
|
$
|
4,603
|
|
|
|
|
|
|
|
|
|
|
|
02/01/02
|
|
|
|
02/01/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
$
|
92,060
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
02/04/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,625
|
|
|
$
|
120,829
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500
|
|
|
|
13,150
|
|
|
|
|
|
|
|
|
|
|
|
6,725
|
|
|
$
|
309,552
|
|
|
|
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
Incentive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plans:
|
|
|
Market or
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Payout
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
Unearned
|
|
|
Value of
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Number of
|
|
|
Value of
|
|
|
Shares,
|
|
|
Unearned
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Shares or
|
|
|
Shares or
|
|
|
Units or
|
|
|
Shares,
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
Units of
|
|
|
Units of
|
|
|
Other
|
|
|
Units or Other
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
Option
|
|
|
|
|
|
Stock That
|
|
|
Stock That
|
|
|
Rights That
|
|
|
Rights That
|
|
|
|
|
|
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Exercise
|
|
|
Option
|
|
|
Have Not
|
|
|
Have Not
|
|
|
Have Not
|
|
|
Have Not
|
|
|
|
|
|
|
|
|
|
Options (#)
|
|
|
Options (#)
|
|
|
Price
|
|
|
Expiration
|
|
|
Vested
|
|
|
Vested
|
|
|
Vested
|
|
|
Vested
|
|
|
Grant
|
|
|
Vesting
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
($)
|
|
|
Date
|
|
|
(#)(1)
|
|
|
($)(1)
|
|
|
(#)
|
|
|
(#)(1)
|
|
|
Date
|
|
|
Date
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)
|
|
|
(g)
|
|
|
(h)
|
|
|
(i)
|
|
|
(j)
|
|
|
(k)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Craig A. Knight
|
|
|
8,000
|
|
|
|
|
|
|
$
|
27.75
|
|
|
|
02/06/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/06/98
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
|
$
|
27.64
|
|
|
|
02/04/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/00
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
|
|
|
|
$
|
25.65
|
|
|
|
02/02/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/02/01
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
|
|
|
|
|
$
|
27.66
|
|
|
|
02/01/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/01/02
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
|
|
|
|
|
$
|
21.51
|
|
|
|
02/07/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/07/03
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
|
|
|
|
$
|
30.02
|
|
|
|
02/06/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/06/04
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,250
|
|
|
|
|
|
|
$
|
37.07
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
$
|
21.51
|
|
|
|
05/01/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/07/03
|
|
|
|
02/07/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,250
|
|
|
$
|
30.02
|
|
|
|
02/06/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/06/04
|
|
|
|
02/06/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,250
|
|
|
$
|
30.02
|
|
|
|
02/06/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/06/04
|
|
|
|
02/06/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,250
|
|
|
$
|
37.07
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
02/04/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,250
|
|
|
$
|
37.07
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
02/04/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,250
|
|
|
$
|
37.07
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
02/04/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
$
|
46.20
|
|
|
|
02/03/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
$
|
46.20
|
|
|
|
02/03/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
$
|
46.20
|
|
|
|
02/03/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
$
|
46.20
|
|
|
|
02/03/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
800
|
|
|
$
|
36,824
|
|
|
|
|
|
|
|
|
|
|
|
02/01/01
|
|
|
|
02/02/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
$
|
92,060
|
|
|
|
|
|
|
|
|
|
|
|
02/06/04
|
|
|
|
02/06/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
$
|
92,060
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
02/04/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
|
$
|
230,150
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,500
|
|
|
$
|
345,225
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
03/15/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,250
|
|
|
|
18,750
|
|
|
|
|
|
|
|
|
|
|
|
17,300
|
|
|
$
|
796,319
|
|
|
|
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
Incentive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plans:
|
|
|
Market or
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Payout
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
Unearned
|
|
|
Value of
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Number of
|
|
|
Value of
|
|
|
Shares,
|
|
|
Unearned
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Shares or
|
|
|
Shares or
|
|
|
Units or
|
|
|
Shares,
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
Units of
|
|
|
Units of
|
|
|
Other
|
|
|
Units or Other
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
Option
|
|
|
|
|
|
Stock That
|
|
|
Stock That
|
|
|
Rights That
|
|
|
Rights That
|
|
|
|
|
|
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Exercise
|
|
|
Option
|
|
|
Have Not
|
|
|
Have Not
|
|
|
Have Not
|
|
|
Have Not
|
|
|
|
|
|
|
|
|
|
Options (#)
|
|
|
Options (#)
|
|
|
Price
|
|
|
Expiration
|
|
|
Vested
|
|
|
Vested
|
|
|
Vested
|
|
|
Vested
|
|
|
Grant
|
|
|
Vesting
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
($)
|
|
|
Date
|
|
|
(#)(1)
|
|
|
($)(1)
|
|
|
(#)
|
|
|
(#)(1)
|
|
|
Date
|
|
|
Date
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)
|
|
|
(g)
|
|
|
(h)
|
|
|
(i)
|
|
|
(j)
|
|
|
(k)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles T. Etheredge, Jr.
|
|
|
500
|
|
|
|
|
|
|
$
|
27.66
|
|
|
|
02/01/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/01/02
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500
|
|
|
|
|
|
|
$
|
21.51
|
|
|
|
02/07/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/07/03
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
800
|
|
|
|
|
|
|
$
|
30.02
|
|
|
|
02/06/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/06/04
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
|
|
|
|
|
$
|
37.07
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500
|
|
|
$
|
21.51
|
|
|
|
02/07/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/07/03
|
|
|
|
02/07/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
|
$
|
30.02
|
|
|
|
02/06/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/06/04
|
|
|
|
02/06/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
|
$
|
30.02
|
|
|
|
02/06/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/06/04
|
|
|
|
02/06/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
|
$
|
37.07
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
02/04/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
|
$
|
37.07
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
02/04/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
|
$
|
37.07
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
02/04/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,281
|
|
|
$
|
46.20
|
|
|
|
02/03/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,281
|
|
|
$
|
46.20
|
|
|
|
02/03/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,281
|
|
|
$
|
46.20
|
|
|
|
02/03/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,282
|
|
|
$
|
46.20
|
|
|
|
02/03/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
600
|
|
|
$
|
27,618
|
|
|
|
|
|
|
|
|
|
|
|
02/06/04
|
|
|
|
02/06/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
600
|
|
|
$
|
27,618
|
|
|
|
|
|
|
|
|
|
|
|
02/06/05
|
|
|
|
02/06/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,100
|
|
|
$
|
96,663
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,200
|
|
|
|
8,625
|
|
|
|
|
|
|
|
|
|
|
|
3,300
|
|
|
$
|
151,899
|
|
|
|
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles D. Jehl
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500
|
|
|
$
|
23.05
|
|
|
|
08/01/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
08/01/03
|
|
|
|
08/01/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
|
$
|
30.02
|
|
|
|
02/06/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/06/04
|
|
|
|
02/06/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
|
$
|
30.02
|
|
|
|
02/06/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/06/04
|
|
|
|
02/06/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
|
$
|
37.07
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
02/04/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
|
$
|
37.07
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
02/04/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
|
$
|
37.07
|
|
|
|
02/04/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
02/04/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,281
|
|
|
$
|
46.20
|
|
|
|
02/03/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,281
|
|
|
$
|
46.20
|
|
|
|
02/03/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,281
|
|
|
$
|
46.20
|
|
|
|
02/03/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,282
|
|
|
$
|
46.20
|
|
|
|
02/03/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
600
|
|
|
$
|
27,618
|
|
|
|
|
|
|
|
|
|
|
|
02/06/04
|
|
|
|
02/06/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
600
|
|
|
$
|
27,618
|
|
|
|
|
|
|
|
|
|
|
|
02/04/05
|
|
|
|
02/04/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,100
|
|
|
$
|
96,663
|
|
|
|
|
|
|
|
|
|
|
|
02/03/06
|
|
|
|
02/03/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.625
|
|
|
|
|
|
|
|
|
|
|
|
3,300
|
|
|
$
|
151,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Value based on the closing market price of Temple-Inlands
common stock on December 29, 2006 of $46.03. Restricted
stock units vest three years after the date of grant. Restricted
stock units awarded in 2006 to Mr. DeCosmo vest three years
after the date of grant if minimum ROI criteria are met.
Performance stock units vest three years after the date of grant
and were subject to satisfaction of performance criteria, but
(as described above) the performance units were canceled and new
restricted stock units were issued with minimum 1% ROI criteria
due to the spin-off. Market value shown assumes all performance
criteria are met and the maximum value is paid.
|
92
2006
OPTION EXERCISES AND STOCK VESTED
The following table summarizes stock-based compensation awards
exercised or vested in 2006 by the named executive officers. No
restricted shares or performance shares vested in 2006. The
shares shown in columns (d) and (e) below are
dividends earned on phantom stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
Shares Acquired
|
|
|
Value Realized
|
|
|
Shares Acquired
|
|
|
Value Realized
|
|
|
|
|
Name of Executive Officer
|
|
on Exercise
|
|
|
Upon Exercise
|
|
|
on Vesting
|
|
|
Upon Vesting
|
|
|
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
|
|
|
James M. DeCosmo
|
|
|
0
|
|
|
$
|
0
|
|
|
|
49
|
|
|
$
|
2,140
|
|
|
|
|
|
Christopher L. Nines
|
|
|
6,350
|
|
|
$
|
98,664
|
|
|
|
49
|
|
|
$
|
2,137
|
|
|
|
|
|
Craig A. Knight
|
|
|
19,650
|
|
|
$
|
353,725
|
|
|
|
50
|
|
|
$
|
2,136
|
|
|
|
|
|
Charles T. Etheredge, Jr.
|
|
|
0
|
|
|
$
|
0
|
|
|
|
16
|
|
|
$
|
640
|
|
|
|
|
|
Charles D. Jehl
|
|
|
1,800
|
|
|
$
|
27,945
|
|
|
|
14
|
|
|
$
|
639
|
|
|
|
|
|
2006
PENSION BENEFITS
The following table summarizes the actuarial present value of
the accumulated benefits under our pension plans at year-end
2006 for the named executive officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Present Value of
|
|
|
Payments
|
|
|
|
|
|
Years Credited
|
|
|
Accumulated
|
|
|
During Last
|
|
|
|
|
|
Service
|
|
|
Benefit
|
|
|
Fiscal Year
|
|
Name
|
|
Plan Name
|
|
(#)
|
|
|
($)
|
|
|
($)
|
|
(a)
|
|
(b)
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
James M. DeCosmo
|
|
Temple-Inland
Retirement Plan
|
|
|
7.25
|
|
|
$
|
83,170
|
|
|
$
|
|
|
|
|
Supplemental
Retirement Plan(2)
|
|
|
7.25
|
|
|
$
|
24,445
|
|
|
$
|
|
|
Christopher L. Nines
|
|
Temple-Inland
Retirement Plan
|
|
|
5.583
|
|
|
$
|
22,571
|
|
|
$
|
|
|
|
|
Supplemental
Retirement Plan(2)
|
|
|
5.583
|
|
|
$
|
248
|
|
|
$
|
|
|
Craig K. Knight
|
|
Temple-Inland
Retirement Plan
|
|
|
0
|
|
|
$
|
0
|
|
|
$
|
|
|
|
|
Supplemental
Retirement Plan
|
|
|
0
|
|
|
$
|
0
|
|
|
$
|
|
|
Charles T. Etheredge, Jr.
|
|
Temple-Inland
Retirement Plan
|
|
|
0
|
|
|
$
|
0
|
|
|
$
|
|
|
|
|
Supplemental
Retirement Plan
|
|
|
0
|
|
|
$
|
0
|
|
|
$
|
|
|
Charles D. Jehl
|
|
Temple-Inland
Retirement Plan
|
|
|
0
|
|
|
$
|
0
|
|
|
$
|
|
|
|
|
Supplemental
Retirement Plan
|
|
|
0
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
(1)
|
|
Mr. DeCosmo and Mr. Nines participated in
Temple-Inlands defined benefit plan. Retirement benefits
under the tax qualified defined benefit plan are calculated
using final average compensation based on the highest five of
the employees last ten years of service. Final average
compensation normally includes salaries and bonuses, but the
Board can designate a payment as ineligible under the plan.
Final average compensation excludes other forms of compensation
such as dividends, severance pay, relocation, long-term
disability, stock options, restricted stock units, and
performance stock units. The formula for normal retirement is
.95% of final average compensation plus .65% of final average
compensation in excess of Social Security covered
|
93
|
|
|
|
|
compensation multiplied by years of service up to 35 years
and .8% of final average compensation multiplied by years of
service over 35 years. For example, assume an employee has
a final average pay of $1 million and has worked for
40 years. His pension is determined as follows: [((.0095 x
$1,000,000) + (.0065 x ($1,000,000−$48,816))) x 35] +
(.008 x $1,000,000 x 5) = $588,894 (annual life only benefit).
Five years of service or attainment of age 65 is required
to vest in the retirement benefit. Normal retirement age is 65,
but benefits are generally not reduced for retirement at
age 62 if the executive has 20 years of vesting
service. Lump sum distributions for benefits with a present
value greater than $10,000 are not permitted under this plan.
Benefits are paid in the form of a monthly annuity for the life
of the executive and his or her spouse or other contingent
annuitant depending on the option the executive selects. The
amount of the monthly benefit is affected by the age or life
expectancy of the employee and spouse and how much will be paid
to the survivor if the employee dies based on the payment
election selected by the employee. However, the total value of
the benefit does not vary. For example, assume Employee A
and Employee B each have accrued benefits with a total
value of $100,000. Employee A is age 65 and
Employee B is 55. Employee A will receive a larger
monthly benefit than Employee B because Employee B is
younger and has a longer life expectancy, so his or her payments
are spread over a longer time. Early retirement may be taken at
age 55 or later if the employee has five years of service,
but benefits are reduced for each year prior to age 62 by
factors ranging from 3% to 6% based on years of service.
|
|
|
|
Until the spin-off Mr. DeCosmo and Mr. Nines are
participants in a Temple-Inland Supplemental Executive
Retirement Plan, a non-qualified pension plan that covers pay in
excess of the limits set by Section 401(a)(17) of the Code
(which, in 2006, was $220,000). These amounts will be
distributed to Mr. DeCosmo and Mr. Nines following the
spin-off.
|
2006
NONQUALIFIED DEFERRED COMPENSATION
The following table summarizes deferred compensation for 2006
for the named executive officers:
NONQUALIFIED
DEFERRED COMPENSATION YEAR 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
|
|
|
Registrant
|
|
|
Aggregate
|
|
|
Aggregate
|
|
|
Aggregate
|
|
|
|
Contributions
|
|
|
Contributions
|
|
|
Earnings
|
|
|
Withdrawals/
|
|
|
Balance
|
|
|
|
in Last FY
|
|
|
in Last FY
|
|
|
in Last FY
|
|
|
Distributions
|
|
|
at Last FYE
|
|
Name
|
|
($)
|
|
|
($)(1)
|
|
|
($)(1)
|
|
|
($)
|
|
|
($)(2)
|
|
(a)
|
|
(b)
|
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
James M. DeCosmo
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
172
|
|
|
$
|
0
|
|
|
$
|
7,917
|
|
Chris Nines
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
169
|
|
|
$
|
0
|
|
|
$
|
7,779
|
|
Craig A. Knight
|
|
$
|
0
|
|
|
$
|
93
|
|
|
$
|
5,321
|
|
|
$
|
0
|
|
|
$
|
177,142
|
|
Charles T. Etheredge, Jr.
|
|
$
|
0
|
|
|
$
|
7,381
|
|
|
$
|
2,294
|
|
|
$
|
0
|
|
|
$
|
83,401
|
|
Charles D. Jehl
|
|
$
|
0
|
|
|
$
|
8,604
|
|
|
$
|
357
|
|
|
$
|
0
|
|
|
$
|
20,988
|
|
|
|
|
(1)
|
|
Earnings include dividend equivalent units credited under the
Temple-Inland phantom stock plan equal to the amount of
dividends that would be earned on these units if they were
actual Temple-Inland common stock as follows: Messrs.
DeCosmo$172; Nines$169; Knight$171;
Etheredge$51; and Jehl$50. This is the same dividend
rate paid to Temple-Inland stockholders of $.25 per share per
quarter in 2006 and is not preferential. Earnings on defined
contribution retirement plan accounts for 2006 were based on the
rate earned under Vanguards Intermediate-Term Treasury
Fund, the same fund used in the underlying tax-qualified defined
contribution plan. None of the above named executive officers
participated in setting this rate, which was selected by
Temple-Inland when the plan was established. In 2006, the
earnings rate for this fund was 3.14%. The defined contribution
retirement account is distributed in cash at age 65 or
earlier if the executive retires and requests it.
|
|
(2)
|
|
None of the amounts in the other columns were previously
reported.
|
POTENTIAL
PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
In 2000, Temple-Inlands Board of Directors authorized
change in control agreements for its key officers and for key
officers of its subsidiaries, including the operations now known
as Forestar. Temple-Inlands Compensation Committee
determined each component of the change in control agreements
following advice on general industry
94
practices prepared by Watson Wyatt, a consultant retained by
Temple-Inland. Senior officers were given agreements providing
for severance of three times their salary, bonus, and benefits.
Less senior executives were given agreements providing for two
times their salary, bonus, and benefits. Because
Temple-Inlands businesses are cyclical in nature, the
definition of bonus was set as the highest target
bonus in the last three years. Temple-Inlands Compensation
Committee likewise adopted its retirement program and death and
disability provisions in its retirement and stock plans based on
its review of general industry market practices and market
practices relative to the paper and forest products industry.
Temple-Inlands Compensation Committee reviews each element
of its compensation periodically. In 2007, Temple-Inlands
Compensation Committee conducted a thorough review of change in
control agreements and determined to maintain its current
practices based on the paper and forest products industry market
practices and its own experience concerning the importance of
these agreements in recruiting executives.
The following table summarizes the estimated amounts our named
executive officers would have become entitled to under the
Temple-Inland change in control and termination agreements
(which are substantially similar to ours described above)
assuming different termination events occurred at year-end 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of
|
|
|
Value of
|
|
|
Value of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Year
|
|
|
Stock
|
|
|
Restricted
|
|
|
Performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonus
|
|
|
Options
|
|
|
Stock That
|
|
|
Stock That
|
|
|
Retirement
|
|
|
Welfare
|
|
|
|
|
|
Excise Tax
|
|
|
Aggregate
|
|
|
|
Severance
|
|
|
Payment
|
|
|
That Vest
|
|
|
Vests
|
|
|
Vests(3)
|
|
|
Benefits
|
|
|
Benefits
|
|
|
Outplacement
|
|
|
& Gross-Up
|
|
|
Payments
|
|
|
James M. DeCosmo, Chairman and CEO
|
Change In Control(4)
|
|
$
|
2,194,863
|
|
|
$
|
408,000
|
|
|
$
|
208,846
|
|
|
$
|
405,064
|
|
|
$
|
1,123,132
|
|
|
$
|
467,989
|
|
|
$
|
23,096
|
|
|
$
|
45,000
|
|
|
$
|
1,749,861
|
|
|
$
|
6,625,851
|
|
Retirement(6)
|
|
$
|
|
|
|
$
|
408,000
|
|
|
$
|
208,846
|
|
|
$
|
405,064
|
|
|
$
|
1,123,132
|
|
|
$
|
203,562
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,348,604
|
|
Death
|
|
$
|
|
|
|
$
|
408,000
|
|
|
$
|
208,846
|
|
|
$
|
405,064
|
|
|
$
|
1,123,132
|
|
|
$
|
90,989
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,236,031
|
|
Disability
|
|
$
|
|
|
|
$
|
408,000
|
|
|
$
|
208,846
|
|
|
$
|
405,064
|
|
|
$
|
1,123,132
|
|
|
$
|
203,562
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,348,604
|
|
Voluntary Termination(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
467,989
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
467,989
|
|
Involuntary Termination(2)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
203,562
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
203,562
|
|
Christopher L. Nines, Chief Financial Officer
|
Change In Control(4)
|
|
$
|
919,174
|
|
|
$
|
300,000
|
|
|
$
|
85,116
|
|
|
$
|
309,552
|
|
|
$
|
|
|
|
$
|
74,538
|
|
|
$
|
18,592
|
|
|
$
|
22,500
|
|
|
$
|
568,098
|
|
|
$
|
2,297,570
|
|
Retirement(6)
|
|
$
|
|
|
|
$
|
300,000
|
|
|
$
|
85,116
|
|
|
$
|
309,552
|
|
|
$
|
|
|
|
$
|
41,253
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
735,921
|
|
Death
|
|
$
|
|
|
|
$
|
300,000
|
|
|
$
|
85,116
|
|
|
$
|
309,552
|
|
|
$
|
|
|
|
$
|
20,858
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
715,526
|
|
Disability
|
|
$
|
|
|
|
$
|
300,000
|
|
|
$
|
85,116
|
|
|
$
|
309,552
|
|
|
$
|
|
|
|
$
|
41,253
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
735,921
|
|
Voluntary Termination(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
41,253
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
41,253
|
|
Involuntary Termination(2)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
41,253
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
41,253
|
|
Craig A. Knight, Chief Investment Officer
|
Change In Control(4)
|
|
$
|
1,577,600
|
|
|
$
|
550,000
|
|
|
$
|
134,926
|
|
|
$
|
328,347
|
|
|
$
|
345,225
|
|
|
$
|
184,856
|
|
|
$
|
17,042
|
|
|
$
|
33,750
|
|
|
$
|
959,208
|
|
|
$
|
4,130,954
|
|
Retirement(5)
|
|
$
|
|
|
|
$
|
550,000
|
|
|
$
|
134,926
|
|
|
$
|
328,347
|
|
|
$
|
345,225
|
|
|
$
|
169,271
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,527,769
|
|
Death
|
|
$
|
|
|
|
$
|
550,000
|
|
|
$
|
134,926
|
|
|
$
|
328,347
|
|
|
$
|
345,225
|
|
|
$
|
169,271
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,527,769
|
|
Disability
|
|
$
|
|
|
|
$
|
550,000
|
|
|
$
|
134,926
|
|
|
$
|
328,347
|
|
|
$
|
345,225
|
|
|
$
|
169,271
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,527,769
|
|
Voluntary Termination(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
169,271
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
169,271
|
|
Involuntary Termination(2)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
169,271
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
169,271
|
|
Charles T. Etheredge, Jr., Executive Vice President
|
Change In Control(4)
|
|
$
|
964,862
|
|
|
$
|
250,000
|
|
|
$
|
60,340
|
|
|
$
|
151,899
|
|
|
$
|
|
|
|
$
|
111,216
|
|
|
$
|
22,816
|
|
|
$
|
33,750
|
|
|
$
|
436,828
|
|
|
$
|
2,031,711
|
|
Retirement(5)
|
|
$
|
|
|
|
$
|
250,000
|
|
|
$
|
60,340
|
|
|
$
|
151,899
|
|
|
$
|
|
|
|
$
|
81,053
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
543,292
|
|
Death
|
|
$
|
|
|
|
$
|
250,000
|
|
|
$
|
60,340
|
|
|
$
|
151,899
|
|
|
$
|
|
|
|
$
|
81,053
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
543,292
|
|
Disability
|
|
$
|
|
|
|
$
|
250,000
|
|
|
$
|
60,340
|
|
|
$
|
151,899
|
|
|
$
|
|
|
|
$
|
81,053
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
543,292
|
|
Voluntary Termination(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
81,053
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
81,053
|
|
Involuntary Termination(2)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
81,053
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
81,053
|
|
Charles D. Jehl, Chief Accounting Officer
|
Change in Control(4)
|
|
$
|
979,600
|
|
|
$
|
300,000
|
|
|
$
|
35,050
|
|
|
$
|
156,502
|
|
|
$
|
|
|
|
$
|
51,294
|
|
|
$
|
22,689
|
|
|
$
|
27,750
|
|
|
$
|
532,157
|
|
|
$
|
2,105,042
|
|
Retirement(5)
|
|
$
|
|
|
|
$
|
300,000
|
|
|
$
|
35,050
|
|
|
$
|
156,502
|
|
|
$
|
|
|
|
$
|
18,687
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
510,239
|
|
Death
|
|
$
|
|
|
|
$
|
300,000
|
|
|
$
|
35,050
|
|
|
$
|
156,502
|
|
|
$
|
|
|
|
$
|
18,687
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
510,239
|
|
Disability
|
|
$
|
|
|
|
$
|
300,000
|
|
|
$
|
35,050
|
|
|
$
|
156,502
|
|
|
$
|
|
|
|
$
|
18,687
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
510,239
|
|
Voluntary Termination(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
18,687
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
18,687
|
|
Involuntary Termination(2)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
18,687
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
18,687
|
|
|
|
|
(1)
|
|
Termination not for cause or by executive for good reason.
During the two-year period following the spin-off, benefits will
be the same as those set forth for Change in Control.
|
|
(2)
|
|
Termination for cause or by executive without good reason.
|
|
(3)
|
|
Except in the case of a change in control, assumes performance
criteria is met.
|
|
(4)
|
|
Assumes a target bonus based on 12.5% ROI, and that the IRS
considers the whole payment to be a parachute
payment subject to the 20% excise tax.
|
|
(5)
|
|
Payable in a lump sum.
|
|
(6)
|
|
Payable in a series of monthly installments.
|
95
TREATMENT
OF STOCK AWARDS OTHER THAN UPON CHANGE IN CONTROL
In 2006, none of the named executive officers had an employment
contract or an agreement providing for severance payments in the
event of termination of employment other than upon a change in
control event. Under the Temple-Inland Stock Incentive Plan, an
employee whose employment terminates has three months to
exercise any options that are exercisable. All other options and
all restricted stock units and performance stock units are
forfeited. The employee retains any dividends earned prior to
termination.
Termination
by Death, Disability or Retirement
Except as provided under Mr. DeCosmos employment
agreement described above, on termination of employment by death
or disability, executives receive no payment other than through
life insurance or disability insurance purchased by the
executive and available to salaried employees generally. Mr.
DeCosmo would receive a cash lump-sum payment equal to the sum
of his annual base salary and a pro-rata portion of his annual
target bonus. Under our Stock Incentive Plan, all options will
immediately vest upon death or total disability and will remain
exercisable for 12 months (death) or 36 months
(disability). Restricted stock units and performance stock units
will vest immediately, but performance stock units will only be
paid if performance criteria are met.
At year-end 2006, Mr. Knight was eligible for early
retirement. In addition to the pension benefits described
elsewhere in this information statement, if he retired effective
December 31, 2006 he would have received a pro-rated
vesting of his 2,667 restricted stock units. At
December 31, 2006, no portion of Mr. Knights
Temple-Inland performance stock units would vest.
Compensation
Committee Interlocks and Insider Participation
Mr. DeCosmo is our only executive officer who will serve as a
member of our board of directors, but he will not serve on our
Compensation Committee. Following the spin-off, none of our
executive officers will serve as a member of the compensation
committee of any entity that has one or more executive officers
serving on our Compensation Committee.
96
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Before the spin-off, all of the outstanding shares of our common
stock are and will be owned beneficially and of record by
Temple-Inland. None of our directors, director nominees or the
persons expected to become our executive officers currently owns
any shares of our common stock, but those who own Temple-Inland
common stock will receive shares of our common stock in the
spin-off on the same basis as the shares held by other
Temple-Inland stockholders.
There were 106,110,796 shares of Temple-Inland common stock
outstanding on November 30, 2007. The following table sets
forth the number and percentage of outstanding shares of
Temple-Inland common stock beneficially owned as of such date,
unless otherwise specified, by (1) each person who is known
by us to beneficially own more than 5 percent of
Temple-Inland common stock, (2) each director and each
person nominated to serve as a director, (3) each of our
named executive officers listed in the Summary
Compensation Table and (4) all of our directors, director
nominees and executive officers as a group. Each person or
entity listed below has sole voting power and sole investment
power with respect to such shares, except as otherwise noted.
The address of each director, director nominee and executive
officer is
c/o Forestar
Real Estate Group, 1300 MoPac Expressway South, Austin, Texas
78746.
The table also sets forth the number and percentage of our
shares of common stock each of these persons and entities is
expected to receive in the spin-off, assuming that there are no
changes in their holdings of Temple-Inland common stock after
November 30, 2007 and assuming a distribution ratio of
one share of our common stock for every three shares
of Temple-Inland common stock held as of the record date, with
no fractional shares. Following the spin-off, we will have
outstanding an aggregate of approximately 35,500,000 shares
of our common stock based on 106,110,796 shares of
Temple-Inland common stock outstanding on November 30,
2007, excluding treasury shares and assuming no exercise of
Temple-Inland options, and applying the distribution ratio. The
beneficial owners listed in the table may have also been granted
stock-based awards whose value is derived from the value of
Temple-Inland common stock, including options, restricted stock,
restricted stock units, and performance stock units. These
stock-based awards are not shown in the table because, except in
the limited cases specified in the employee matters agreement,
the awards will be adjusted based on the market price of shares
of our common stock on the distribution date and, therefore, we
cannot estimate the number of shares of common stock that,
immediately after the spin-off, each person will be entitled to
acquire within 60 days. See the section entitled
Management Executive Compensation
Compensation Actions in Preparation for the Spin-off
Existing Equity Awards beginning on page 86 of this
information statement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares Beneficially Owned
|
|
|
Name and Address
|
|
Temple-Inland
|
|
Forestar
|
|
Percent
|
of Beneficial Owner
|
|
Common Stock
|
|
Common Stock
|
|
of Class(1)
|
|
5% or Greater Holders
|
|
|
|
|
|
|
|
|
|
|
|
|
Carl C. Icahn and affiliated entities
|
|
|
10,366,491(2)
|
|
|
|
3,455,497
|
|
|
|
9.77
|
%
|
c/o Icahn
Associates Corp.
|
|
|
|
|
|
|
|
|
|
|
|
|
767 Fifth Avenue, 47th Floor
|
|
|
|
|
|
|
|
|
|
|
|
|
New York, New York 10153
|
|
|
|
|
|
|
|
|
|
|
|
|
Franklin Mutual Advisers, LLC
|
|
|
8,867,911(3)
|
|
|
|
2,955,970
|
|
|
|
8.36
|
%
|
101 John F. Kennedy Parkway
|
|
|
|
|
|
|
|
|
|
|
|
|
Short Hills, NJ 07078
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Employee Directors(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
Kenneth M. Jastrow, II(7)
|
|
|
1,291,656
|
|
|
|
420,552
|
|
|
|
1.22
|
%
|
Louis R. Brill**
|
|
|
42,086
|
|
|
|
14,028
|
|
|
|
*
|
|
Kathleen Brown**
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
William G. Currie**
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
James A. Johnson**
|
|
|
41,600
|
|
|
|
13,866
|
|
|
|
*
|
|
Thomas H. McAuley**
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
William Powers, Jr.**
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares Beneficially Owned
|
|
|
Name and Address
|
|
Temple-Inland
|
|
Forestar
|
|
Percent
|
of Beneficial Owner
|
|
Common Stock
|
|
Common Stock
|
|
of Class(1)
|
|
James A. Rubright**
|
|
|
630
|
|
|
|
210
|
|
|
|
*
|
|
Richard M. Smith**
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
Named Executive Officers(4)(5)(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
James M. DeCosmo
|
|
|
45,102
|
|
|
|
15,034
|
|
|
|
*
|
|
Christopher L. Nines
|
|
|
11,850
|
|
|
|
3,950
|
|
|
|
*
|
|
Craig A. Knight
|
|
|
48,966
|
|
|
|
16,322
|
|
|
|
*
|
|
Charles T. Etheredge, Jr.
|
|
|
8,391
|
|
|
|
2,797
|
|
|
|
*
|
|
Charles D. Jehl
|
|
|
3,238
|
|
|
|
1,079
|
|
|
|
*
|
|
All of the above executive officers and directors and other
executive officers as a group (14 persons)(6)
|
|
|
1,493,519
|
|
|
|
497,840
|
|
|
|
1.41
|
%
|
|
|
|
*
|
|
Represents less than 1% of outstanding shares of common stock.
|
|
**
|
|
Director nominee.
|
|
|
|
(1)
|
|
Represents the percentage of Temple-Inland common stock
outstanding on November 30, 2007, and the percentage of our
common stock that we expect to be outstanding based on the
expected number of our shares to be distributed.
|
|
|
|
(2)
|
|
Based solely on information reported on Schedule 13D/A (the
Report), dated November 21, 2007 and filed with
the SEC on November 21, 2007, by High River Limited
Partnership (High River), Hopper Investments, LLC
(Hopper), Barberry Corp., Icahn Partners Master
Fund LP (Icahn Master), Icahn Partners Master
Fund II LP (Icahn Master II), Icahn Partners
Master Fund III LP (Icahn Master III), Icahn
Offshore LP, Icahn Partners LP (Icahn Partners),
Icahn Onshore LP, Icahn Partners Holding LP, IPH GP LLC
(IPH), Icahn Enterprises Holdings LP, Icahn
Enterprises G.P. Inc., Beckton Corp. and Carl C. Icahn. The
Report indicates that 2,407,447 shares of common stock are
held of record by High River; 3,285,356 shares of common
stock for which it holds a call option expiring
February 20, 2008 are held of record by Icahn Master;
888,293 shares of common stock for which it holds a call
option expiring February 20, 2008 are held of record
by Icahn Master II; 336,907 shares of common stock for
which it holds a call option expiring February 20,
2008 are held of record by Icahn Master III; and
3,448,488 shares of common stock are held of record by
Icahn Partners (collectively, the Record Holders).
The Report states that Barberry Corp. is the sole member of
Hopper, which is the general partner of High River; Beckton
Corp. is the sole stockholder of Icahn Enterprises G.P. Inc.,
which is the general partner of Icahn Enterprises Holdings LP,
which is the sole member of IPH, which is the general partner of
Icahn Partners Holding LP, which is the general partner of each
of Icahn Offshore LP and Icahn Onshore LP; Icahn Offshore LP is
the general partner of each of Icahn Master, Icahn
Master II and Icahn Master III; Icahn Onshore LP is the
general partner of Icahn Partners. The Report further states
that each of Barberry Corp. and Beckton Corp. is
100 percent owned by Carl C. Icahn and, as such,
Mr. Icahn is in a position indirectly to determine the
voting and investment decisions made by each of the Record
Holders.
|
|
|
|
(3)
|
|
Based solely on information reported on
Form 13F-HR
for the quarter ended September 30, 2007 and filed with the SEC
on November 8, 2007 by Franklin Resources, Inc., as
reporting manager for Franklin Mutual Advisers, LLC. Separately,
Franklin Mutual Advisers, LLC, in its capacity as investment
advisor for numerous investment advisory clients, reported
beneficial ownership of 10,010,013 shares on
Schedule 13G/A, dated January 19, 2007 and filed with
the SEC on February 1, 2007, and indicated sole voting and
investment power with respect to such shares. Because the number
of shares reported on the Schedule 13G/A does not represent
the reported percentage of ownership in Temple-Inland common
stock by Franklin Mutual Advisers, LLC, we have applied
Regulation S-K
Item 403, Instruction 3, in determining the number of
shares of common stock beneficially owned.
|
98
|
|
|
(4)
|
|
Includes shares of common stock issuable upon exercise of
qualifying options within 60 days from August 31,
2007: Messrs. Jastrow 959,313;
Brill 13,000; Johnson 36,000;
DeCosmo 31,862; Nines 5,100;
Knight 41,750; Etheredge 6,781 and
Jehl 2,581: and all directors and executive officers
(14 persons) as a group 1,096,387.
|
|
|
|
(5)
|
|
Includes shares held by trustees under Temple-Inland 401(k)
plans for Messrs. Jastrow 8,450;
DeCosmo 1,220; Nines 820;
Knight 5,216; Etheredge 565 and
Jehl 57; and all directors and executive officers
(14 persons) as a group 16,328. SEC rules
consider these shares to be beneficially owned.
|
|
|
|
(6)
|
|
Includes 150 shares owned by relatives of all directors and
executive officers (14 persons) as a group. SEC rules
consider these shares to be beneficially owned, but the
individuals disclaim any beneficial interest in such shares.
|
|
|
|
(7)
|
|
Includes 71,312 shares pledged by Mr. Jastrow as
security for a revolving line of credit against which no amounts
were outstanding as of October 31, 2007.
|
99
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Following the spin-off, we will operate as an independent,
publicly-traded company. To effect the spin-off and to provide a
framework for our initial relationship with Temple-Inland and
Guaranty, we expect to enter into certain agreements with
Temple-Inland and Guaranty. The following is a summary of the
expected material terms of those agreements. We urge you to read
the full text of the agreements, forms of which will be filed
with our registration statement on Form 10 of which this
information statement is a part. Additional or modified
agreements, arrangements, and transactions, which will be
negotiated at arms length, may be entered into between or
among Temple-Inland, Guaranty and us after the spin-off.
Related
Party Transaction Policy
We have adopted a written policy and procedures for the review,
approval or ratification of any related party transactions. The
policy provides that any transaction, arrangement or
relationship between us and a related party must be reviewed by
the Nominating and Governance Committee, unless pre-approved
under the policy. The policy deems the following transactions,
arrangements or relationships to be pre-approved:
|
|
|
|
|
compensation arrangements required to be reported under the
director compensation section of the proxy statement,
|
|
|
|
compensation arrangements required to be reported under the
executive compensation section of the proxy statement,
|
|
|
|
business expense reimbursements,
|
|
|
|
transactions with an entity in which the related party owns less
than 10% of the other entity,
|
|
|
|
transactions with an entity in which the related party is a
director only,
|
|
|
|
transactions with an entity in which the related party is not an
executive officer, and
|
|
|
|
indebtedness for transactions in the ordinary course of business.
|
Under the policy, the Nominating and Governance Committee, in
the course of the review of a potentially material related party
transaction, will consider, among other things, whether the
transaction is in our best interest, whether the transaction is
entered into on an arms length basis, whether the
transaction conforms to our code of business conduct and ethics
and whether the transaction impacts a directors
independence under the New York Stock Exchange independence
listing standards.
Agreements
with Temple-Inland and Guaranty
We will enter into a separation and distribution agreement and
several other agreements with Temple-Inland and Guaranty to
effect the separation and provide a framework for our
relationships with Temple-Inland and Guaranty after the
separation. These agreements will govern the relationships
between the parties subsequent to the completion of the
transformation plan and provide for the allocation between the
parties of Temple-Inlands assets, liabilities, and
obligations (including employee benefits and tax-related assets
and liabilities) attributable to periods prior to our separation
from Temple-Inland. In addition to the separation and
distribution agreement (which contains many of the key
provisions related to our separation from Temple-Inland and the
distribution of our shares of common stock to Temple-Inland
stockholders), these agreements include:
|
|
|
|
|
the tax matters agreement;
|
|
|
|
the transition services agreement; and
|
|
|
|
the employee matters agreement.
|
The terms of the agreements described below that will be in
effect following our separation have not yet been finalized.
Changes to the terms of these agreements, some of which may be
material, may be made prior
100
to our separation from Temple-Inland. No changes may be made
after our separation from Temple-Inland without our consent if
such changes would adversely affect us.
Separation
Costs
Temple-Inland expects to incur pre-tax costs of approximately
$25 million for professional services including, legal,
accounting, financial advisors, and other business consultants
related to the spin-off of Forestar and Guaranty.
We expect to incur pre-tax separation costs of between
$2,000,000 and $4,000,000 for:
|
|
|
|
|
building the required information systems to run our company on
a stand-alone basis; and
|
|
|
|
relocating and recruiting employees.
|
Certain of the separation costs, primarily costs for the
development of new information systems, are expected to be
capitalized.
Separation
and Distribution Agreement
The separation and distribution agreement will set forth our
agreements with Temple-Inland and Guaranty regarding the
principal transactions necessary to effect the separation. It
will also set forth other agreements that govern certain aspects
of our relationship with Temple-Inland and Guaranty after the
completion of the transformation plan. We intend to enter into
the separation and distribution agreement before the
distribution of our common stock to Temple-Inland stockholders.
Transfer of Assets and Assumption of
Liabilities.
The separation and distribution
agreement will identify assets to be transferred, liabilities to
be assumed, and contracts to be assigned to each of us,
Guaranty, and Temple-Inland as part of Temple-Inlands
transformation plan, and will describe when and how these
transfers, assumptions, and assignments will occur, although,
many of the transfers, assumptions, and assignments will have
already occurred prior to the parties entering into the
separation and distribution agreement. In particular, the
separation and distribution agreement will provide that, subject
to the terms and conditions contained in the separation and
distribution agreement:
|
|
|
|
|
All of the assets and liabilities (including whether accrued,
contingent, or otherwise) associated with the real estate
development and minerals operations of Temple-Inland will be
retained by or transferred to us or one of our subsidiaries.
|
|
|
|
All of the assets and liabilities (including whether accrued,
contingent, or otherwise) associated with the financial services
business of Temple-Inland will be retained by or transferred to
Guaranty or one of its subsidiaries.
|
|
|
|
All of the assets and liabilities (including whether accrued,
contingent, or otherwise) associated with the manufacturing and
corrugated products business of Temple-Inland will be retained
by or transferred to Temple-Inland or one of its subsidiaries
(other than us, Guaranty, or one of our or its subsidiaries).
|
|
|
|
Liabilities (including whether accrued, contingent, or
otherwise) related to, arising out of or resulting from
businesses of Temple-Inland that were previously terminated or
divested will be allocated among the parties to the extent
formerly owned or managed by or associated with such parties or
their respective businesses.
|
|
|
|
Each party or one of its subsidiaries will assume or retain any
liabilities (including under applicable federal and state
securities laws) relating to, arising out of or resulting from
any registration statement or similar disclosure document that
offers for sale by such party any security after the separation.
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Each party or one of its subsidiaries will assume or retain any
liabilities (including under applicable federal and state
securities laws) relating to, arising out of or resulting from
any
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registration statement or similar disclosure document that
offers for sale any security prior to the separation to the
extent such liabilities arise out of, or result from, matters
related to their respective businesses.
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Temple-Inland will assume or retain any liability relating to,
arising out of or resulting from any registration statement or
similar disclosure document related to the separation (including
the Form 10 and this information statement), but only to
the extent such liability derives from a material misstatement
or omission contained in the portions of this information
statement that relate to Temple-Inland. Forestar and Guaranty
will assume or retain any other liability relating to, arising
out of or resulting from their registration statements or
similar disclosure documents related to the separation
(including, in the case of Forestar, this information statement
and the registration statement on Form 10 of which it is a
part).
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Except as otherwise provided in the separation and distribution
agreement or any ancillary agreement, we will be responsible for
any costs or expenses incurred by us or Temple-Inland in
connection with the separation other than costs and expenses
relating to legal counsel, financial advisors, and accounting
advisory work related to the separation.
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The allocation of liabilities with respect to taxes will be
governed solely by the tax matters agreement.
Except as may expressly be set forth in the separation and
distribution agreement or any ancillary agreement, all assets
will be transferred on an as is, where
is basis and the respective transferees will bear the
economic and legal risks that any conveyance will prove to be
insufficient to vest in the transferee good title, free and
clear of any security interest, that any necessary consents or
governmental approvals are not obtained, and that any
requirements of laws or judgments are not complied with.
Information in this information statement with respect to the
assets and liabilities of the parties following the separation
is presented based on the allocation of such assets and
liabilities pursuant to the separation and distribution
agreement, unless the context otherwise requires. Certain of the
liabilities and obligations to be assumed by one party or for
which one party will have an indemnification obligation under
the separation and distribution agreement and the other
agreements relating to the separation are, and following the
separation may continue to be, the legal or contractual
liabilities or obligations of another party. Each such party
that continues to be subject to such legal or contractual
liability or obligation will rely on the applicable party that
assumed the liability or obligation or the applicable party that
undertook an indemnification obligation with respect to the
liability or obligation, as applicable, under the separation and
distribution agreement, to satisfy the performance and payment
obligations or indemnification obligations with respect to such
legal or contractual liability or obligation.
Further Assurances.
To the extent that any
transfers of assets or assumptions of liabilities contemplated
by the separation and distribution agreement have not been
consummated on or prior to the date of the separation, the
parties will agree to cooperate to effect such transfers or
assumptions as promptly as practicable following the date of the
separation. In addition, each of the parties will agree to
cooperate with each other and use commercially reasonable
efforts to take or to cause to be taken all actions, and to do,
or to cause to be done, all things reasonably necessary under
applicable law or contractual obligations to consummate and make
effective the transactions contemplated by the separation and
distribution agreement and the ancillary agreements.
The Distribution.
The separation and
distribution agreement will also govern the rights and
obligations of the parties regarding the proposed distribution.
Prior to the distribution, we will distribute to Temple-Inland
as a stock dividend the number of shares of our common stock
distributable in the distribution. Temple-Inland will cause its
agent to distribute to Temple-Inland stockholders as of the
applicable record date all the issued and outstanding shares of
our common stock. Temple-Inland will have the sole and absolute
discretion to determine (and change) the terms of, and whether
to proceed with, the distribution and, to the extent it
determines to so proceed, to determine the date of the
distribution.
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Conditions.
The separation and distribution
agreement will provide that the distribution is subject to
several conditions that must be satisfied or waived by
Temple-Inland in its sole discretion, including our conversion
to a Delaware corporation:
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the Securities and Exchange Commission shall have declared
effective our registration statement on Form 10 and no stop
order shall be in effect;
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all permits, registrations and consents required under the
securities or blue sky laws in connection with the distribution
shall have been received;
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Temple-Inland shall have received a private letter ruling from
the IRS and an opinion of tax counsel confirming the tax-free
status of the distribution for U.S. federal income tax
purposes;
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Temple-Inland shall have received an opinion from its financial
advisors that it has adequate surplus under Delaware law to
declare the spin-off dividend and that, following the spin-off,
each of Temple-Inland and Forestar will be solvent and
adequately capitalized;
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we shall have entered into one or more credit facilities;
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the listing of our common stock on the New York Stock Exchange
shall have been approved, subject to official notice of issuance;
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all material governmental approvals and other consents necessary
to consummate the distribution shall have been received; and
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no order, injunction or decree issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing
consummation of the distribution or any of the related
transactions shall be in effect.
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The fulfillment of these conditions will not create any
obligation on Temple-Inlands part to effect the
distribution. Temple-Inland has the right not to complete the
distribution if, at any time, Temple-Inlands board of
directors determines, in its sole discretion, that the
distribution is not in the best interests of Temple-Inland or
its stockholders or that market conditions are such that it is
not advisable to separate the real estate business from
Temple-Inland.
Releases and Indemnification.
Except as
otherwise provided in the separation and distribution agreement
or any ancillary agreement, each party will release and forever
discharge the other party and its subsidiaries and affiliates
from all liabilities existing or arising from any acts or events
occurring or failing to occur or alleged to have occurred or to
have failed to occur or any conditions existing or alleged to
have existed on or before the separation. The releases will not
extend to obligations or liabilities under any agreements
between the parties that remain in effect following the
separation pursuant to the separation and distribution agreement
or any ancillary agreement.
In addition, the separation and distribution agreement will
provide for cross-indemnities that, except as otherwise provided
in the separation and distribution agreement, are principally
designed to place financial responsibility for the obligations
and liabilities of our business with us, financial
responsibility for the obligations and liabilities of
Guarantys business with Guaranty, and financial
responsibility for the obligations and liabilities of
Temple-Inlands business with Temple-Inland. Specifically,
each party will, and will cause its subsidiaries and affiliates
to, indemnify, defend and hold harmless the other parties, their
affiliates and subsidiaries and each of their officers,
directors, employees, and agents for any losses arising out of
or otherwise in connection with:
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the liabilities each such party assumed or retained pursuant to
the separation and distribution agreement;
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the operation of each such partys business, whether prior
to or after the distribution; and
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any breach by such party of the separation and distribution
agreement or ancillary agreement.
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Indemnification with respect to taxes will be governed solely by
the tax matters agreement.
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Legal Matters.
Except as otherwise set forth
in the separation and distribution agreement (or as further
described below), each party to the separation and distribution
agreement will assume the liability for, and control of, all
pending and threatened legal matters related to its own business
or assumed or retained liabilities and will indemnify the other
party for any liability arising out of or resulting from such
assumed legal matters. Each party to a claim will agree to
cooperate in defending any claims against the other party for
events that took place prior to, on or after the date of
separation.
Insurance.
Following the separation, we will
be responsible for obtaining and maintaining our own insurance
coverage and will no longer be an insured party under
Temple-Inlands insurance policies, except in specified
circumstances to be set forth in the separation and distribution
agreement.
Other Matters Governed by the Separation and Distribution
Agreement.
Other matters governed by the
separation and distribution agreement include access to
financial and other information, intellectual property,
confidentiality, access to and provision of records and
treatment of outstanding guarantees and similar credit support.
Tax
Matters Agreement
The tax matters agreement with Temple-Inland and Guaranty
generally will govern Temple-Inlands, Guarantys and
our respective rights, responsibilities and obligations after
the distribution with respect to taxes, including ordinary
course of business taxes and taxes, if any, incurred as a result
of any failure of the spin-off, together with certain related
transactions, to qualify as a tax-free distribution for
U.S. federal income tax purposes within the meaning of
Sections 355 and 368(a)(1)(D) of the Code (including as a
result of Section 355(e) of the Code). Under the tax
matters agreement, we expect that, with certain exceptions, we
generally will be responsible for the payment of all income and
non-income taxes attributable to our operations, and the
operations of our direct and indirect subsidiaries, whether or
not such tax liability is reflected on a consolidated or
combined tax return filed by Temple-Inland.
Notwithstanding the foregoing, we expect that, under the tax
matters agreement, we also generally will be responsible for any
taxes imposed on Temple-Inland that arise from the failure of
the spin-off, together with certain related transactions, to
qualify as a tax-free distribution for U.S. federal income
tax purposes within the meaning of Sections 355 and
368(a)(1)(D) of the Code, to the extent such failure to qualify
is attributable to actions, events or transactions relating to
our stock, assets or business, or a breach of the relevant
representations or covenants made by us in the tax matters
agreement. In addition, we generally will be responsible for 15%
of any taxes that arise from the failure of the spin-off,
together with certain related transactions, to qualify as a
tax-free distribution for U.S. federal income tax purposes
within the meaning of Sections 355 and 368(a)(1)(D) of the
Code, if such failure is for any reason for which neither we nor
Temple-Inland is responsible. The tax matters agreement also is
expected to impose restrictions on our and Temple-Inlands
ability to engage in certain actions following our separation
from Temple-Inland and to set forth the respective obligations
among us, Guaranty and Temple-Inland with respect to the filing
of tax returns, the administration of tax contests, assistance
and cooperation and other matters.
Transition
Services Agreement
The transition services agreement with Temple-Inland and
Guaranty will provide for an orderly transition to being an
independent, publicly-traded company. Under the transition
services agreement, Temple-Inland or Guaranty will agree to
provide us with various services, including services relating to
environmental management, telecommunications and information
technology.
Under the transition services agreement, we will pay a fee to
Temple-Inland or Guaranty, as the case may be, for these
services, which fee is generally intended to allow Temple-Inland
or Guaranty, as the case may be, to recover all of their direct
and indirect costs, without profit. The transition services
agreement is being negotiated in the context of a
parent-subsidiary relationship and in the context of the
separation of Temple-Inland into three companies. Unless
specifically indicated below, all services to be provided under
the transition services agreement will be provided for a
specified period of time not to exceed 24 months, although
the parties may mutually agree to terminate some or all of those
services in advance of the specified time
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period. After the expiration of the arrangements contained in
the transition services agreement, we may not be able to replace
these services in a timely manner or on terms and conditions,
including cost, as favorable as those we have received from
Temple-Inland. We are developing a plan to increase our own
internal capabilities in the future to reduce our reliance on
Temple-Inland and Guaranty for these services. We will have the
right to receive reasonable information with respect to the
charges to us by Temple-Inland and Guaranty and other service
providers for transition services provided by them.
Employee
Matters Agreement
The employee matters agreement with Temple-Inland and Guaranty
will allocate liabilities and responsibilities relating to
employee compensation and benefit plans and programs and other
related matters in connection with the separation, including the
treatment of outstanding incentive awards and certain retirement
and welfare benefit obligations. The employee matters agreement
will also provide that outstanding Temple-Inland stock options
and other stock-based incentive compensation awards will be
equitably adjusted in connection with the distribution. For
further information see Management Executive
Compensation Compensation Actions In Preparation for
the Spin-off Existing Equity Awards beginning
on page 86 of this information statement.
Our participation in the Temple-Inland benefit plan arrangements
will cease effective with the spin-off, but our benefit plans
generally will credit service with Temple-Inland before the
spin-off. We expect the employee matters agreement will provide
as a general matter that we and each of Temple-Inland and
Guaranty will retain liability for employees historically
associated with our and their respective businesses. However,
Temple-Inland will retain all liabilities under its
tax-qualified pension plan, its SERP, and its stock deferral and
payment plan.
Corporate
Aircraft
We will enter into an agreement with Temple-Inland pursuant to
which Temple-Inland will contribute to us an undivided
15 percent interest in aircraft currently owned by
Temple-Inland. Temple-Inland will also contribute an undivided
15 percent interest to Guaranty and retain the remaining
interest. Under the terms of the agreement, we will pay
15 percent of the fixed costs associated with ownership of
the aircraft and will pay our portion of the variable costs of
operation based on our usage. The agreement will have a two-year
term at which time it can be renewed or terminated. The joint
owners can renew the agreement by written amendment, and no
consideration is due from any of the joint owners upon renewal
of the agreement. If not renewed, the agreement terminates at
the earlier of the end of the two-year term or if any third
party acquires more than a 20% ownership interest in any of the
joint owners. Upon termination of the agreement, any joint owner
has the right of first refusal to buy the other joint
owners interest for cash at a value determined by a
qualified appraiser. If the right of first refusal is not
exercised, the aircraft will be offered for sale by a broker at
a value determined by a qualified appraiser. The net proceeds
from the sale would be distributed to the joint owners based on
their ownership interest.
Office
Space Lease
We lease 23,000 square feet of office space in Austin,
Texas from Guaranty pursuant to an existing lease that expires
in 2013. We are currently discussing amending the lease for a
shorter term.
Fiber
Sales Agreement
We anticipate that we will sell timber to Temple-Inland under
annual agreements at market prices, primarily for use at
Temple-Inlands Rome, Georgia mill complex.
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Director
Interlocks
Kenneth M. Jastrow, II, Temple-Inlands current CEO and
Chairman, will be our Chairman and Guarantys Chairman
after the spin-off. Mr. Jastrow will resign from his
positions at Temple-Inland at or shortly prior to the spin-off.
In addition, James A. Johnson and Richard M. Smith will serve as
directors for both Forestar and Temple-Inland.
Messrs. Jastrow, Johnson and Smith have agreed to recuse
themselves from any matters related to Forestar arising under
the separation agreements.
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DESCRIPTION
OF OUR CAPITAL STOCK
The following description is a summary of the material terms
of our capital stock and reflects our certificate of
incorporation and bylaws that will be in effect at the time of
the spin-off. We urge you to read the full text of our amended
and restated certificate of incorporation, our amended and
restated bylaws, and our stockholder rights agreement, forms of
which will be filed as exhibits to our registration statement on
Form 10 of which this information statement is a part, as
well as related provisions of the General Corporation Law of the
State of Delaware because they are the legal documents and
provisions governing your rights as a stockholder in our
company.
Sales of
Unregistered Securities
In the past three years, we have not sold any of our securities,
including sales of reacquired securities, new issues, securities
issued in exchange for property, services, or other securities,
and new securities resulting from the modification of
outstanding securities, that were not registered under the
Securities Act of 1933.
Authorized
Capital Stock
Immediately following the distribution, our authorized capital
stock will consist of 200 million shares of common stock,
par value $1.00 per share, and 25 million shares of
preferred stock, par value $0.01 per share.
Common
Stock
Shares Outstanding.
Immediately
following the distribution, we expect that approximately
35.5 million shares of our common stock will be issued and
outstanding based upon approximately 106 million shares of
Temple-Inland common stock that we expect to be outstanding on
the record date and applying the distribution ratio of
one share of our common stock for every three shares
of Temple-Inland common stock held as of the record date. All
outstanding shares of our common stock, when issued, will be
fully paid and non-assessable. This means the full purchase
price for the outstanding shares of our common stock has been
paid and the holders of such shares will not be assessed any
additional amounts for such shares. Any additional shares of
common stock that we may issue in the future will also be fully
paid and non-assessable.
Dividends.
Subject to prior dividend
rights of the holders of any preferred shares, holders of shares
of our common stock will be entitled to receive dividends when,
as and if declared by our board out of funds legally available
for that purpose. For more information, see Dividend
Policy beginning on page 30 of this information
statement.
Voting Rights.
Each outstanding share
of our common stock will be entitled to one vote per share on
each matter to be voted on by the holders of our common stock.
The holders of our common stock will not be entitled to
cumulative voting of their shares in elections of directors.
Other Rights.
In the event of any
liquidation, dissolution, or winding up of our company, after
the satisfaction in full of the liquidation preferences of
holders of any preferred shares, holders of shares of our common
stock will be entitled to ratable distribution of the remaining
assets available for distribution to stockholders. The shares of
our common stock will not be subject to redemption by operation
of a sinking fund or otherwise. Holders of shares of our common
stock will not be entitled to pre-emptive rights.
Preferred
Stock
Our amended and restated certificate of incorporation will
authorize our board, without the approval of our stockholders,
to issue shares of our preferred stock and to fix by resolution
the designations, preferences, and relative, participating,
optional, or other special rights, and such qualifications,
limitations, or restrictions on such shares, including, without
limitation, redemption rights, dividend rights, liquidation
preferences, and conversion or exchange rights of any class or
series of preferred stock, and to fix the number of classes or
series of preferred stock, the number of shares constituting any
such class or series and the voting powers for each class or
series.
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The authority possessed by our board to issue preferred stock
could potentially be used to discourage attempts by third
parties to obtain control of our company through a merger,
tender offer, proxy contest, or otherwise by making such
attempts more difficult or more costly. Our board may issue
preferred stock with voting rights or conversion rights that, if
exercised, could adversely affect the voting power of the
holders of common stock. There are no current agreements or
understandings with respect to the issuance of preferred stock
and our board has no present intention to issue any shares of
preferred stock, other than pursuant to the stockholder rights
agreement discussed below. As of the completion of the
distribution, 200,000 shares of our junior participating
cumulative preferred stock will be reserved for issuance upon
exercise of our preferred stock purchase rights (see
Stockholder Rights Agreement).
Anti-takeover
Effects of Our Stockholder Rights Agreement, Our Amended and
Restated Certificate of Incorporation and Amended and Restated
Bylaws and Delaware Law
Our stockholder rights agreement, which we expect to enter into
with a rights agent prior to the distribution date, and some
provisions of our amended and restated certificate of
incorporation and amended and restated bylaws and Delaware law
could make the following more difficult:
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acquisition of us by means of a tender offer or merger;
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acquisition of us by means of a proxy contest or
otherwise; or
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removal of our incumbent officers and directors.
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Our stockholder rights agreement, which is summarized below, and
certain provisions in our amended and restated certificate of
incorporation and amended and restated bylaws, which are
summarized below, are expected to discourage coercive takeover
practices and inadequate takeover bids. The provisions
summarized below are designed to encourage persons seeking to
acquire control of us to first negotiate with our board. We
believe that the benefits of the potential ability to negotiate
with the proponent of an unsolicited proposal to acquire or
restructure us outweigh the disadvantages of discouraging those
proposals because negotiation with such proponent could result
in an improvement of their terms.
Election
and Removal of Directors
Our amended and restated certificate of incorporation provides
that our board is divided into three classes. The term of the
first class of directors expires at our 2008 annual meeting of
stockholders, the term of the second class of directors expires
at our 2009 annual meeting of stockholders and the term of the
third class of directors expires at our 2010 annual meeting of
stockholders. At each of our annual meetings of stockholders,
the successors of the class of directors whose term expires at
that meeting of stockholders will be elected for a three-year
term, one class being elected each year by our stockholders. In
addition, a director may only be removed from office for cause
by the affirmative vote of holders of a majority of shares of
common stock entitled to vote in the election of directors. This
system of electing and removing directors may discourage a third
party from waging a proxy contest or otherwise attempting to
obtain control of us because it generally makes it more
difficult for stockholders to replace a majority of the
directors.
Size
of Board and Vacancies
Our amended and restated certificate of incorporation and
amended and restated bylaws provide that our board will fix the
exact number of directors to comprise our board. Newly created
directorships resulting from any increase in our authorized
number of directors will be filled by a majority of our board
then in office and any vacancies in our board resulting from
death, resignation, retirement, disqualification, removal from
office or other cause will be filled generally by the majority
vote of our remaining directors in office, even if less than a
quorum is present, except that any vacancy caused by the removal
of a director for cause by a majority vote of our stockholders
may be filled by a majority vote of our stockholders.
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Elimination
of Stockholder Action by Written Consent
Our amended and restated certificate of incorporation and
amended and restated bylaws expressly eliminate the right of our
stockholders to act by written consent. Stockholder action must
take place at the annual or a special meeting of our
stockholders.
Stockholder
Meetings
Under our amended and restated certificate of incorporation and
amended and restated bylaws, special meetings of our
stockholders may only be called by our Chairman or pursuant to a
written request by a majority of our entire board.
Requirements
for Advance Notification of Stockholder Nominations and
Proposals
Our amended and restated bylaws will have advance notice
procedures for stockholders to make nominations of candidates
for election as directors or to bring other business before a
meeting of the stockholders. The business to be conducted at an
annual meeting will be limited to business properly brought
before the annual meeting by or at the direction of our board or
a duly authorized committee thereof or by a stockholder of
record who has given timely written notice to our secretary of
that stockholders intention to bring such business before
the meeting.
Our amended and restated bylaws will govern stockholder
nominations of candidates for election as directors except with
respect to the rights of holders of our preferred stock. Under
our amended and restated bylaws, nominations of persons for
election to our board may be made at an annual meeting by a
stockholder of record on the date of giving notice to our
secretary and as of the record date for the determination of
stockholders entitled to vote at the meeting, if the stockholder
submits a timely notice of nomination. A notice of a stockholder
nomination will be timely only if it is delivered to us at our
principal executive offices not less than 75 days nor more
than 100 days prior to the anniversary date of the
immediately preceding annual meeting of stockholders. However,
if the annual meeting is called for a date more than
50 days prior to the anniversary date, notice must be
received not later than the close of business on the
10th day following the day on which such notice of the
meeting date was mailed or public disclosure of the meeting date
was made, whichever occurs first.
The notice of a stockholder nomination must contain specified
information, including, without limitation:
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the name, age, business and, if known, residence addresses of
each nominee;
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the principal occupation or employment of such nominee;
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the number of shares of our common stock beneficially owned by
each such nominee and the nominating stockholder;
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the consent of each nominee to serve as a director if so
elected; and
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any other information concerning the nominee that would be
required to be included in a proxy statement or other filings
pursuant to the proxy rules of the SEC.
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Our amended and restated bylaws will govern the notification
process of all other stockholder proposals to be brought before
an annual meeting. Under our amended and restated bylaws, notice
of a stockholder proposal will be timely only if it is delivered
to us at our principal executive offices not less than
75 days nor more than 100 days prior to the
anniversary of the date of the immediately preceding annual
meeting of stockholders. However, in the event that the annual
meeting is called for a date more than 50 days prior to the
anniversary date, notice must be received not later than the
close of business on the 10th day following the day on
which such notice of the meeting date was mailed or public
disclosure of the meeting date was made, whichever occurs first.
The notice of a stockholder proposal must contain specified
information as described in our amended and restated bylaws.
If the chairman of the meeting determines that the stockholder
nomination or proposal was not properly brought before the
meeting in accordance with the provisions of our amended and
restated bylaws, that person
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will not be eligible for election as a director or that business
will not be conducted at the meeting, as the case may be.
The advance notice provisions may preclude a contest for the
election of directors or the consideration of stockholder
proposals if the proper procedures are not followed.
Additionally, the advance notice provisions may deter a third
party from conducting a solicitation to elect its own slate of
directors or approve its own proposal, without regard to whether
consideration of those nominees or proposals might be harmful or
beneficial to us and our stockholders.
Delaware
Anti-takeover Law
Upon the distribution, we will be governed by Section 203
of the General Corporation Law of the State of Delaware, or the
DGCL.
Section 203, subject to certain exceptions, prohibits a
Delaware corporation from engaging in any business combination
with any interested stockholder for a period of three years
following the time that such stockholder became an interested
stockholder, unless:
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prior to such time, the board of directors of the corporation
approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder;
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upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced,
excluding specified shares; or
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at or subsequent to such time, the business combination is
approved by the board of directors and authorized at an annual
or special meeting of stockholders, by the affirmative vote of
at least
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2
/
3
%
of the outstanding voting stock that is not owned by the
interested stockholder. The stockholders cannot authorize the
business combination by written consent.
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The application of Section 203 may limit the ability of
stockholders to approve a transaction that they may deem to be
in their best interests.
In general, Section 203 defines business
combination to include:
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any merger or consolidation involving the corporation and the
interested stockholder;
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any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of 10% or more of the assets of the corporation to
or with the interested stockholder;
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subject to certain exceptions, any transaction that results in
the issuance or transfer by the corporation of any of its stock
to the interested stockholder;
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any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested
stockholder; or
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the receipt by the interested stockholder of the benefit of any
loans, advances, guarantees, pledges or other financial benefits
provided by or through the corporation.
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In general, Section 203 defines an interested
stockholder as any person that, together with affiliates
and associates, owns, or within three years prior to the
determination of interested stockholder status did own, 15% or
more of a corporations voting stock.
The existence of this provision may have an anti-takeover effect
with respect to transactions not approved in advance by our
board of directors and the anti-takeover effect includes
discouraging attempts that might result in a premium over the
market price for the shares of our common stock.
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Amendment
of Amended and Restated Bylaws
Our amended and restated bylaws and amended and restated
certificate of incorporation provide that the bylaws may only be
amended by the vote of a majority of our board or by the
affirmative vote of at least 80% of the voting power of the
outstanding stock entitled to vote generally in the election of
our board.
Amendment
of the Amended and Restated Certificate of
Incorporation
Our amended and restated certificate of incorporation will
provide that the provisions relating to:
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the size, classification, election, removal, nomination and
filling of vacancies with respect to the board of directors;
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stockholder action by written consent and ability to call
special meetings; and
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any provision relating to the amendment of any of these
provisions;
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may only be amended by the affirmative vote of at least 80% of
the voting power of the outstanding stock entitled to vote
generally in the election of our board. As provided by Delaware
law, any other provision of our amended and restated certificate
of incorporation may only be amended by the vote of a majority
of the voting power of the outstanding stock entitled to vote
generally in the election of our board.
No
Cumulative Voting
Our amended and restated certificate of incorporation does not
provide for cumulative voting in the election of directors.
Undesignated
Preferred Stock
The authorization in our amended and restated certificate of
incorporation of undesignated preferred stock makes it possible
for our board to issue our preferred stock with voting or other
rights or preferences that could impede the success of any
attempt to change control of us. The provision in our amended
and restated certificate of incorporation authorizing such
preferred stock may have the effect of deferring hostile
takeovers or delaying changes of control of our management.
Stockholder
Rights Agreement
We expect to enter into a stockholder rights agreement with a
rights agent on or prior to the distribution date. Pursuant to
the stockholder rights agreement, one preferred stock purchase
right will be issued for each outstanding share of our common
stock. Each right issued will be subject to the terms of the
stockholder rights agreement.
Our board believes that the stockholder rights agreement will
protect our stockholders from coercive or otherwise unfair
takeover tactics. In general terms, our stockholder rights
agreement works by imposing a significant penalty upon any
person or group that acquires 20% or more of our outstanding
common stock, without the approval of our board.
We provide the following summary description below. Please note,
however, that this description is only a summary, is not
complete, and should be read together with our entire
stockholder rights agreement, a form of which is filed as an
exhibit to the registration statement of which this information
statement forms a part. Our board will authorize the issuance of
one right for each share of our common stock outstanding on the
date the distribution is completed.
The Rights.
Our rights will initially
trade with, and will be inseparable from, our common stock. Our
rights will not be represented by certificates. New rights will
accompany any new shares of common stock we issue after the date
the separation is completed until the date on which the rights
are separated from our common stock and exercisable as described
below.
111
Exercise Price.
Each right will allow
its holder to purchase from us one one-thousandth of a share of
our junior participating cumulative preferred stock, which we
refer to as our preferred stock, for $100, once the rights
become separated from our common stock and exercisable. Prior to
its exercise, a right does not give its holder any dividend,
voting or liquidation rights.
Exercisability.
Each right will not be
separated from our common stock and exercisable until:
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ten business days after the public announcement that a person or
group has become an acquiring person by acquiring
beneficial ownership of 20% or more of our outstanding common
stock or, if earlier,
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ten business days (or a later date determined by our board
before the rights are separated from our common stock) after a
person or group begins or publicly announces an intention to
begin a tender or exchange offer that, if completed, would
result in that person or group becoming an acquiring person.
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Until the date the rights become exercisable, book-entry
ownership of our common stock will evidence the rights, and any
transfer of shares of our common stock will constitute a
transfer of the rights associated with the shares of common
stock. After the date the rights separate from our common stock,
our rights will be evidenced by book-entry credits. Any of our
rights held by an acquiring person will be void and may not be
exercised.
Consequences
of a Person or Group Becoming an Acquiring
Person.
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Flip In.
If a person or group becomes an
acquiring person, all holders of our rights except the acquiring
person may, for the then applicable exercise price, purchase
shares of our common stock with a market value of twice the then
applicable exercise price, based on the market price of our
common stock prior to such acquisition.
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Flip Over.
If we are acquired in a merger or
similar transaction after the date the rights become
exercisable, all holders of our rights except the acquiring
person may, for the then applicable exercise price, purchase
shares of the acquiring corporation with a market value of twice
the then applicable exercise price, based on the market price of
the acquiring corporations stock prior to such merger.
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Expiration.
Our rights will expire in
December 2017, unless earlier redeemed by the board in
accordance with the stockholder rights agreement.
Redemption.
Our board may redeem our
rights for $0.001 per right at any time before a person or group
becomes an acquiring person. If our board redeems any of our
rights, it must redeem all of our rights. Once our rights are
redeemed, the only right of the holders of our rights will be to
receive the redemption price of $0.001 per right. The redemption
price will be adjusted if we have a stock split or issue stock
dividends on our common stock.
Exchanges.
After a person or group
becomes an acquiring person, but before an acquiring person owns
50% or more of our outstanding common stock, our board may
extinguish the rights by exchanging one share of our common
stock or an equivalent security for each right, other than
rights held by the acquiring person.
Anti-Dilution Provisions.
The purchase
price for one one-thousandth of a share of our preferred stock,
the number of shares of our preferred stock issuable upon the
exercise of a right and the number of our outstanding rights may
be subject to adjustment in order to prevent dilution that may
occur from a stock dividend, a stock split or a reclassification
of our preferred stock. No adjustments to the purchase price of
our preferred stock will be required until the cumulative
adjustments would amount to at least 1% of the purchase price.
Amendments.
The terms of our
stockholder rights agreement may be amended by our board without
the consent of the holders of our common stock. After the rights
separate from our common stock and become exercisable, the board
may not amend the agreement in a way that adversely affects the
interests of the holders of the rights.
112
Restrictions
on Payment of Dividends
Delaware corporate law allows a corporation to pay dividends
only out of surplus, as determined under Delaware law.
Transfer
Agent and Registrar; Rights Agent
The transfer agent and registrar for our common stock, and
rights agent for our stockholder rights agreement, is
Computershare Trust Company, N.A.
NYSE
Listing
We have filed an application to list our shares of common stock
on the New York Stock Exchange. We expect that our shares will
trade under the ticker symbol FOR.
STOCKHOLDER
PROPOSALS FOR 2008 ANNUAL MEETING
We plan to hold our 2008 annual meeting of stockholders on
May 13, 2008. Stockholders interested in submitting a
proposal for consideration at our 2008 annual meeting must do so
by sending such proposal to our Corporate Secretary at 1300
MoPac Expressway South, Suite 3S, Austin, Texas 78746.
Under the Securities and Exchange Commissions proxy rules,
the deadline for submission of proposals for inclusion in the
proxy materials for our 2008 annual meeting is a reasonable time
before we begin to print and mail our proxy statement. We have
determined that this deadline is January 17, 2008.
Accordingly, in order for a stockholder proposal to be
considered for inclusion in our proxy materials for our 2008
annual meeting, the proposal must be received by our Corporate
Secretary on or before January 17, 2008 and comply with the
procedures set forth in
Rule 14a-8
under the Securities Exchange Act of 1934. Any stockholder
proposal received after January 17, 2008 will not be
considered for inclusion in our 2008 proxy materials. Under our
bylaws, in order for a stockholder proposal submitted outside of
Rule 14a-8,
and therefore not included in our proxy materials, to be
considered timely for our 2008 annual meeting, written notice of
such proposal must be received by our Corporate Secretary not
less than 75 days nor more than 100 days prior to the
anniversary date of the immediately preceding annual meeting of
stockholders. For purposes of our 2008 annual meeting, our
bylaws deem May 15, 2008 as the anniversary date of our
preceding annual meeting. Accordingly, written notice of the
proposal must be received no earlier than February 5, 2008
and no later than March 1, 2008. We reserve the right to
reject, rule out of order, or take other appropriate action with
respect to any proposal that does not comply with these and
other applicable requirements, including conditions established
by the SEC.
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
The following is a summary of relevant provisions of our amended
and restated certificate of incorporation, our amended and
restated bylaws, the form of indemnification agreement that we
expect to enter into with each of our directors and certain
provisions of the DGCL. We urge you to read the full text of
these documents, forms of which are filed with our registration
statement on Form 10 of which this information statement is
a part, as well as the referenced provisions of the DGCL because
they are the legal documents and provisions that will govern
matters of indemnification with respect to our directors and
officers.
We are incorporated under the laws of the state of Delaware.
Section 145 of the DGCL provides that a corporation may
indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action,
suit or proceeding whether civil, criminal, administrative or
investigative (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses
(including attorneys fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in
good faith and in a manner he reasonably believed to be in or
not opposed to
113
the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. A similar standard is
applicable in the case of derivative actions, except that
indemnification only extends to expenses (including
attorneys fees) incurred in connection with the defense or
settlement of such action, and the statute requires court
approval before there can be any indemnification where the
person seeking indemnification has been found liable to the
corporation. The statute provides that it is not exclusive of
other indemnification that may be granted by a
corporations by-laws, disinterested director vote,
stockholder vote, agreement or otherwise.
Our amended and restated bylaws will provide for the
indemnification of directors, officers and certain authorized
representatives of the corporation to the fullest extent
permitted by the DGCL, except that our bylaws will provide for
indemnification in a derivative action or suit initiated by a
director, officer or authorized representative of the
corporation only if our board of directors authorized the
initiation of that action or suit. In addition, as permitted by
the DGCL, our amended and restated certificate of incorporation
will provide that our directors shall have no personal liability
to us or our stockholders for monetary damages for breach of
fiduciary duty as a director, except (1) for any breach of
the directors duty of loyalty to us or our stockholders,
(2) for acts or omissions not in good faith or which
involve intentional misconduct or knowing violation of law,
(3) under Section 174 of the DGCL or (4) for any
transaction from which a director derived an improper personal
benefit.
In connection with the spin-off, we intend to enter into
individual indemnification agreements with each member of our
board of directors and each of our executive officers. The
indemnification agreements will be intended to assure that our
directors and executive officers are indemnified to the maximum
extent permitted under applicable law.
DESCRIPTION
OF MATERIAL INDEBTEDNESS
We expect to have in place a $300 million credit facility,
which will provide us with a $150 million revolving credit
and a $150 million term loan, both maturing in 36 months.
Borrowings will bear interest at LIBOR plus four percent. The
facility will be secured by about 250,000 acres of our land and
other assets. The lead arranger for the facility is KeyBanc
Capital Markets. The facility will have a provision that will
allow us, with the consent of the administrative agent, to
increase the total availability under the facility by up to
$200 million.
The primary bank credit agreement will contain various covenants
that limit, among other things, subsidiary indebtedness, liens,
and certain fundamental business changes. The covenants will
also require us to meet certain financial tests: ratio of net
indebtedness to EBITDA, EBITDA to net interest expense, and a
liquidity test described below. The liquidity covenant will
require us to maintain undrawn availability on the revolving
credit subject to proforma compliance with all covenants plus
unrestricted cash in an amount of at least $35 million. In
addition, we will be required to maintain tangible net worth of
at least $350 million plus 85% of future net equity
proceeds plus 50% of all future positive quarterly income and
our ratio of total funded debt to adjusted asset value, as
defined in the agreement, may not exceed 40% measured on a
quarterly basis.
The primary bank credit facility is expected to be signed in
fourth quarter 2007 and available to us to draw upon at the
separation. Prior to the separation, we estimate about
$150 million will be drawn down and the proceeds
distributed to Temple-Inland to satisfy certain intercompany
debt.
114
WHERE
YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form 10 with the
SEC with respect to the shares of our common stock (and related
preferred stock purchase rights) being distributed as
contemplated by this information statement. This information
statement is a part of, and does not contain all of the
information set forth in, the registration statement and the
exhibits and schedules to the registration statement. For
further information with respect to the spin-off, our company
and our common stock, please refer to the registration
statement, including its exhibits. Statements made in this
information statement relating to any contract or other document
are only summaries of provisions of such contract or other
document, and you should refer to the exhibits attached to the
registration statement for forms of the actual contract or
document. You may review and copy the registration statement,
including its exhibits, at the SECs public reference room,
located at 100 F Street, N.E., Washington, D.C.
20549, as well as on the Internet web site maintained by the SEC
at
www.sec.gov
. Please call the SEC at
1-800-SEC-0330
for further information on the operation of the public reference
room.
In connection with the spin-off, we will become subject to the
information and reporting requirements of the Exchange Act and,
in accordance with the Exchange Act, we will file periodic
reports, proxy statements and other information with the SEC.
Our future filings will be available from the SEC as described
above.
After the spin-off, we will make available free of charge
through our Internet web site (
www.forestargroup.com
) our
annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
proxy statements, reports filed pursuant to section 16, and
amendments to those reports as soon as reasonably practicable
after we file these materials with the SEC. You may also request
a copy of our future SEC filings at no cost, by writing or
telephoning us at:
Forestar Real Estate Group
1300 MoPac Expressway South, Suite 3S
Austin, Texas 78746
(512) 433-5200
We will furnish holders of our common stock with annual reports
containing consolidated financial statements prepared in
accordance with U.S. generally accepted accounting
principles and audited and reported on, with an opinion
expressed, by an independent registered public accounting firm.
You should rely only on the information contained in this
information statement or to which we have referred you. We have
not authorized any person to provide you with different
information or to make any representation not contained in this
information statement.
Information contained on any web site referenced in this
information statement is not incorporated by reference into this
information statement or the registration statement of which
this information statement is a part.
115
Index
to Financial Statements
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Page
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Audited Financial Statements
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F-2
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F-3
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F-4
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F-5
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F-6
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F-7
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F-25
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Unaudited Interim Combined and Consolidated Financial Statements
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F-29
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F-30
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F-31
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F-32
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F-1
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Managers and Member of Forestar Real Estate Group
LLC, a wholly owned subsidiary of Temple-Inland Inc.:
We have audited the accompanying combined and consolidated
balance sheets of Forestar Real Estate Group LLC, a wholly owned
subsidiary of Temple-Inland Inc., as of December 30, 2006
and December 31, 2005, and the related combined and
consolidated statements of income, Temple-Inlands net
investment, and cash flows for each of the three years in the
period ended December 30, 2006. Our audits also included
the financial statement schedule listed in the Index at
Item 15(a). These financial statements and schedule are the
responsibility of Forestar Real Estate Group LLC management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Companys internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the combined and
consolidated financial position of Forestar Real Estate Group
LLC at December 30, 2006 and December 31, 2005, and
the combined and consolidated results of its operations and its
cash flows for each of the three years in the period ended
December 30, 2006 in conformity with U.S. generally
accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set
forth therein.
Austin, Texas
August 9, 2007
F-2
Forestar
Real Estate Group LLC
COMBINED AND CONSOLIDATED BALANCE SHEETS
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At Year-End
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2006
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2005
|
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(In thousands)
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|
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ASSETS
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Cash and cash equivalents
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|
$
|
10,350
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|
|
$
|
12,942
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Prepaid expense
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|
|
2,378
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|
|
|
2,369
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Real estate
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|
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447,817
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|
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|
373,150
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Investment in unconsolidated ventures
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|
|
90,444
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|
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76,846
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Receivables, net of allowance for bad debts of $226 in 2006 and
2005
|
|
|
6,091
|
|
|
|
11,326
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|
Timber
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58,966
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|
|
|
60,998
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Property and equipment, net of accumulated depreciation of
$2,387 in 2006 and $2,273 in 2005
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1,688
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|
|
|
1,755
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Other assets
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|
|
2,440
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|
|
|
4,558
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|
|
|
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TOTAL ASSETS
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$
|
620,174
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|
|
$
|
543,944
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|
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LIABILITIES AND TEMPLE-INLANDS NET INVESTMENT
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Accounts payable
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$
|
4,838
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|
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$
|
4,042
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|
Accrued employee compensation and benefits
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|
|
2,114
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|
|
|
660
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|
Accrued interest
|
|
|
210
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|
|
|
121
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|
Accrued property taxes
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|
|
4,577
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|
|
|
3,124
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Other accrued expenses
|
|
|
2,810
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|
|
|
4,336
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|
Deferred income taxes
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|
|
14,438
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|
|
|
19,349
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Other liabilities
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|
4,272
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|
|
|
1,782
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Note payable to Temple-Inland
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|
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110,506
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|
|
|
12,829
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Debt
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50,611
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|
|
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109,119
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|
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Total Liabilities
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194,376
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|
|
|
155,362
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Minority Interest in Consolidated Ventures
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|
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7,746
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|
|
|
7,292
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Temple-Inlands Net Investment
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418,052
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|
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|
381,290
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|
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|
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TOTAL LIABILITIES AND TEMPLE-INLANDS NET INVESTMENT
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$
|
620,174
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$
|
543,944
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Please read the notes to the financial statements.
F-3
Forestar
Real Estate Group LLC
COMBINED AND CONSOLIDATED STATEMENTS OF INCOME
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For the Year
|
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|
2006
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2005
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2004
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|
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(In thousands)
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REVENUES
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|
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|
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Real estate sales
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$
|
151,785
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|
|
$
|
96,696
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|
|
$
|
116,464
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|
Commercial operating properties and other
|
|
|
28,366
|
|
|
|
21,425
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|
|
|
22,359
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|
|
|
|
|
|
|
|
|
|
|
|
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|
Real estate
|
|
|
180,151
|
|
|
|
118,121
|
|
|
|
138,823
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|
Natural resources and other
|
|
|
45,409
|
|
|
|
37,366
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|
|
|
30,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225,560
|
|
|
|
155,487
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|
|
|
169,301
|
|
|
|
|
|
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|
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COSTS AND EXPENSES
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Cost of real estate sales
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|
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(90,629
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)
|
|
|
(57,404
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)
|
|
|
(71,848
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)
|
Cost of commercial operating properties and other
|
|
|
(17,307
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)
|
|
|
(16,212
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)
|
|
|
(23,837
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)
|
Cost of natural resources and other
|
|
|
(5,238
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)
|
|
|
(4,733
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)
|
|
|
(4,627
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)
|
Other operating
|
|
|
(24,421
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)
|
|
|
(21,113
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)
|
|
|
(16,333
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)
|
General and administrative
|
|
|
(16,141
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)
|
|
|
(10,439
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)
|
|
|
(11,216
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(153,736
|
)
|
|
|
(109,901
|
)
|
|
|
(127,861
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
|
71,824
|
|
|
|
45,586
|
|
|
|
41,440
|
|
Equity in earnings of unconsolidated ventures
|
|
|
19,371
|
|
|
|
17,180
|
|
|
|
12,211
|
|
Minority interest in consolidated ventures
|
|
|
(3,231
|
)
|
|
|
(1,054
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)
|
|
|
(2,215
|
)
|
Interest expense
|
|
|
(6,229
|
)
|
|
|
(6,439
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)
|
|
|
(6,091
|
)
|
Other non-operating income (expense)
|
|
|
79
|
|
|
|
483
|
|
|
|
535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE TAXES
|
|
|
81,814
|
|
|
|
55,756
|
|
|
|
45,880
|
|
Income tax expense
|
|
|
(29,970
|
)
|
|
|
(20,859
|
)
|
|
|
(17,444
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
51,844
|
|
|
$
|
34,897
|
|
|
$
|
28,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Please read the notes to the financial statements.
F-4
Forestar
Real Estate Group LLC
COMBINED AND CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
CASH PROVIDED BY (USED FOR) OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
51,844
|
|
|
$
|
34,897
|
|
|
$
|
28,436
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
2,355
|
|
|
|
2,249
|
|
|
|
2,781
|
|
Deferred income taxes
|
|
|
(4,912
|
)
|
|
|
1,578
|
|
|
|
(1,328
|
)
|
Equity in earnings of unconsolidated ventures
|
|
|
(19,371
|
)
|
|
|
(17,180
|
)
|
|
|
(12,211
|
)
|
Distributions of earnings of unconsolidated ventures
|
|
|
1,519
|
|
|
|
4,090
|
|
|
|
4,305
|
|
Minority interest in consolidated ventures
|
|
|
3,231
|
|
|
|
1,054
|
|
|
|
2,215
|
|
Distributions to minority interest
|
|
|
(517
|
)
|
|
|
(1,989
|
)
|
|
|
(2,870
|
)
|
Non-cash real estate cost of sales
|
|
|
85,949
|
|
|
|
53,741
|
|
|
|
70,250
|
|
Real estate development and acquisition expenditures
|
|
|
(159,246
|
)
|
|
|
(65,117
|
)
|
|
|
(73,605
|
)
|
Other changes in real estate
|
|
|
|
|
|
|
2,730
|
|
|
|
10,626
|
|
Cost of timber cut and in 2004 asset impairments
|
|
|
3,441
|
|
|
|
3,218
|
|
|
|
4,466
|
|
Other
|
|
|
286
|
|
|
|
653
|
|
|
|
(185
|
)
|
Changes in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
2,357
|
|
|
|
(2,586
|
)
|
|
|
(919
|
)
|
Prepaid expenses and other
|
|
|
452
|
|
|
|
1,926
|
|
|
|
47
|
|
Accounts payable and other accrued liabilities
|
|
|
3,541
|
|
|
|
1,830
|
|
|
|
(1,119
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,071
|
)
|
|
|
21,094
|
|
|
|
30,889
|
|
CASH PROVIDED BY (USED FOR) INVESTING
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, equipment, software, and reforestation
|
|
|
(3,991
|
)
|
|
|
(1,616
|
)
|
|
|
(1,922
|
)
|
Investment in unconsolidated ventures
|
|
|
(17,611
|
)
|
|
|
(29,612
|
)
|
|
|
(15,971
|
)
|
Return of investment in unconsolidated ventures
|
|
|
22,208
|
|
|
|
20,830
|
|
|
|
8,481
|
|
Notes receivable sold or collected
|
|
|
5,493
|
|
|
|
3,767
|
|
|
|
212
|
|
Proceeds from sale of property and equipment
|
|
|
1,311
|
|
|
|
1,099
|
|
|
|
1,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,410
|
|
|
|
(5,532
|
)
|
|
|
(8,093
|
)
|
CASH PROVIDED BY (USED FOR) FINANCING
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable to Temple-Inland, net
|
|
|
97,678
|
|
|
|
1,802
|
|
|
|
382
|
|
Payments of debt
|
|
|
(89,144
|
)
|
|
|
(29,733
|
)
|
|
|
(36,343
|
)
|
Proceeds from issuance of debt
|
|
|
30,636
|
|
|
|
38,882
|
|
|
|
11,966
|
|
Dividends and other transfers to Temple-Inland
|
|
|
(20,241
|
)
|
|
|
(27,931
|
)
|
|
|
(25,124
|
)
|
Other
|
|
|
140
|
|
|
|
149
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,069
|
|
|
|
(16,831
|
)
|
|
|
(49,114
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(2,592
|
)
|
|
|
(1,269
|
)
|
|
|
(26,318
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
12,942
|
|
|
|
14,211
|
|
|
|
40,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at year-end
|
|
$
|
10,350
|
|
|
$
|
12,942
|
|
|
$
|
14,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Please read the notes to the financial statements.
F-5
Forestar
Real Estate Group LLC
COMBINED AND CONSOLIDATED STATEMENTS OF
TEMPLE-INLANDS
NET INVESTMENT
|
|
|
|
|
|
|
Temple-Inlands
|
|
|
|
Net Investment
|
|
|
|
(In thousands)
|
|
|
Balance at year-end 2003
|
|
$
|
354,155
|
|
Net income
|
|
|
28,436
|
|
Net transfers (to) from Temple-Inland
|
|
|
(13,932
|
)
|
|
|
|
|
|
Balance at year-end 2004
|
|
$
|
368,659
|
|
Net income
|
|
|
34,897
|
|
Net transfers (to) from Temple-Inland
|
|
|
(22,266
|
)
|
|
|
|
|
|
Balance at year-end 2005
|
|
$
|
381,290
|
|
Net income
|
|
|
51,844
|
|
Net transfers (to) from Temple-Inland
|
|
|
(15,082
|
)
|
|
|
|
|
|
Balance at year-end 2006
|
|
$
|
418,052
|
|
|
|
|
|
|
Please read the notes to the financial statements.
F-6
Forestar
Real Estate Group LLC
NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS
|
|
Note 1
|
Summary
of Significant Accounting Policies
|
Background
On February 26, 2007, Temple-Inland announced that its
Board of Directors had preliminarily approved a transformation
plan which included the spin-off of its real estate operations
to Temple-Inland shareholders as an independent publicly held
company. Prior to the spin-off, Temple-Inland will contribute
the assets, liabilities, operations and cash flow of its real
estate development and minerals operations to us. We are
currently a limited liability company that will convert to a
Delaware corporation before the spin-off. Our operations will
consist of the real estate segment of Temple-Inland and several
smaller real estate operations and assets previously included in
Temple-Inlands other business segments, and the minerals
operations previously included in Temple-Inlands forest
products segment.
The terms Forestar, we, and
our in these financial statements refer to the
operations that will be spun off to Temple-Inland shareholders.
We conduct a wide array of project planning and management
activities related to the acquisition, entitlement, development
and sale of real estate, primarily residential and mixed-use
communities. We own and manage our projects either directly or
through ventures. We have real estate projects in nine states
and 12 markets encompassing about 376,000 acres,
including approximately 306,000 acres of land located in a
broad area around Atlanta, Georgia, with the balance located
principally in Texas. We secure entitlements and develop
infrastructure on these lands, focusing on single-family
residential and mixed-use communities. We also own commercial
operating properties, and about 623,000 net acres of oil
and gas mineral interests. In addition, of our
376,000 acres, over 350,000 acres have timber. Our revenues
are principally derived from sales of developed and undeveloped
real estate and timber, operations of commercial income
producing properties, and mineral interests and recreational
leases.
Basis
of Presentation
Our combined and consolidated financial statements reflect the
historical accounts of the real estate development and minerals
operations to be contributed to us and have been derived from
the historical financial statements and accounts of
Temple-Inland. These operations were conducted within separate
legal entities and their subsidiaries or within segments or
components of segments of Temple-Inland. As a result, this is
the first time we have issued separate historical financial
statements for these operations. In addition, as a result of the
different forms of Temple-Inlands ownership in these
operations, Temple-Inlands net investment is shown instead
of stockholders equity.
These financial statements also include all subsidiaries,
ventures, and other entities in which we have a controlling
interest and variable interest entities of which we are the
primary beneficiary. We eliminate all material intercompany
accounts and transactions. Minority interest in consolidated
pass through entities is recognized before income taxes. We
account for our investment in other entities in which we have
significant influence over operations and financial policies
using the equity method (we recognize our share of the
entities income or loss and any preferential returns and
treat distributions as a reduction of our investment). We
account for our investment in other entities in which we do not
have significant influence over operations and financial
policies using the cost method (we recognize as income only
distribution of accumulated earnings).
We prepare our financial statements in accordance with generally
accepted accounting principles, which require us to make
estimates and assumptions about future events. Actual results
can, and probably will, differ from those we currently estimate.
Examples of significant estimates include those related to
allocating costs to real estate and measuring assets for
impairment.
F-7
Forestar
Real Estate Group LLC
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Historical earnings per share are not presented since our common
stock that will be issued in the spin-off was not part of the
capital structure of Temple-Inland for the periods presented. We
will present basic and diluted earnings per share for Forestar
in the first report issued after the effective date of the
spin-off.
Our fiscal year ends on the Saturday closest to
December 31, which from time to time means that a fiscal
year will include 53 weeks instead of 52 weeks. All of
the periods presented had 52 weeks. Fiscal year 2006 ended
on December 30, 2006, fiscal year 2005 ended on
December 31, 2005, and fiscal year 2004 ended on
January 1, 2005. We intend to change our year-end to
December 31 upon completion of the spin-off.
We have historically used Temple-Inland as a source of capital
and for services such as environmental, finance, financial
reporting, human resources, internal audit, insurance, legal,
tax and technology. The estimated costs of these services were
allocated to us and are included in general and administrative
expense. In addition, we have also included other expenses
incurred by Temple-Inland but not directly attributable to us
such as costs associated with investor relations and executive
officers. The allocations were based on actual usage or in some
cases estimated usage based on Temple-Inlands net
investment in us relative to its other segments, revenues,
operating profits, employee count, or similar measures. These
allocated costs, which include salaries and benefits, totaled
$7,128,000 in 2006, $4,684,000 in 2005, and $3,649,000 in 2004.
We believe the assumptions and methodology used to derive the
allocations in our financial statements are reasonable; however,
they may not necessarily be indicative of what expenses would
have been had we been a separate standalone company in the past
or what expenses might be incurred in the future. We have no
practical way of determining what expenses we would have
incurred if we would have been a standalone company in the past.
Cash
and Cash Equivalents
Cash and cash equivalents include cash and other short-term
instruments with original maturities of three months or less.
Cash
Flows
Expenditures for the acquisition and development of real estate
are classified as operating activities. Expenditures for the
acquisition of commercial operating properties are classified as
investing activities.
Capitalized
Software
We capitalize purchased software costs as well as the direct
internal and external costs associated with software we develop
for our own use. We amortize these capitalized costs using the
straight-line method over estimated useful lives ranging from
three to seven years. The carrying value of capitalized software
was $1,071,000 at year-end 2006 and $22,000 at year-end 2005 and
is included in other assets. The amortization of these
capitalized costs was $6,000 in 2006, $9,000 in 2005 and $8,000
in 2004 and is included in general and administrative expense.
Environmental
Obligations and Asset Retirement Obligations
We recognize environmental remediation liabilities on an
undiscounted basis when environmental assessments or remediation
are probable and we can reasonably estimate the cost. We adjust
these liabilities as further information is obtained or
circumstances change. We currently do not have any asset
retirement obligations.
F-8
Forestar
Real Estate Group LLC
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Fair
Value of Financial Instruments
In the absence of quoted market prices, we estimate the fair
value of financial instruments. Our estimates are affected by
the assumptions we make, including the discount rate and
estimates of the amount and timing of future cash flows. Where
these fair values approximate carrying value, no separate
disclosure of fair value is shown.
Impairment
of Long-Lived Assets
We review long-lived assets held for use for impairment when
events or circumstances indicate that their carrying value may
not be recoverable. Impairment exists if the carrying amount of
the long-lived asset is not recoverable from the undiscounted
cash flows expected from its use and eventual disposition. We
determine the amount of the impairment loss by comparing the
carrying value of the long-lived asset to its estimated fair
value. In the absence of quoted market prices, we determine
estimated fair value generally based on the present value of
future probability weighted cash flows expected from the use and
eventual disposition of the long-lived asset.
Income
Taxes
We are included in Temple-Inlands consolidated tax return.
Our income tax expense was computed as if we filed a separate
tax return. We provided deferred income taxes using current tax
rates for temporary differences between the financial accounting
carrying value of assets and liabilities and their tax
accounting carrying values. We recognize and value income tax
exposures for the various taxing jurisdictions where we operate
based on laws, elections, commonly accepted tax positions, and
management estimates. We include tax penalties and interest in
income tax expense.
Mineral
Interests
We acquire real estate that may include the sub-surface rights
associated with the property, including minerals. We lease our
mineral interests to third party exploration and production
entities and retain a royalty interest. We use the successful
efforts method to account for our mineral interests. We do not
incur exploration, development, geological or geophysical costs,
and we do not drill wells. We capitalize the costs of acquiring
mineral interests.
We amortize the cost assigned to unproved interests, principally
acquisition costs, using the straight-line method over
appropriate periods based on our experience, generally no longer
than 10 years. Costs assigned to individual unproven
interests are minimal and amortized on an aggregate basis.
When we lease these interests to third party oil and gas
exploration and production entities, any related unamortized
costs are accounted for using the cost recovery method from the
cash proceeds received from lease bonus payments.
The unamortized costs of our oil and gas mineral interests were
not material at year-end 2006 and 2005 and are included in other
assets. The amortization of these costs was not material in
2006, 2005 or 2004 and is included in other operating expenses.
We do not know the oil and gas reserves related to our royalty
interests. We do not make such estimates, and the lessees do not
make this reserve information available to us.
Property
and Equipment
We carry property and equipment at cost less accumulated
depreciation. We capitalize the cost of significant additions
and improvements, and we expense the cost of repairs and
maintenance. We capitalize
F-9
Forestar
Real Estate Group LLC
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
interest costs incurred on major construction projects. We
depreciate these assets using the straight-line method over
their estimated useful lives as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
Value
|
|
|
|
Estimated
|
|
|
At Year-End
|
|
|
|
Useful Lives
|
|
|
2006
|
|
|
|
|
|
|
(In thousands)
|
|
|
Buildings and building improvements
|
|
|
10 to 40 years
|
|
|
$
|
1,845
|
|
Office and other equipment
|
|
|
2 to 10 years
|
|
|
|
2,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,075
|
|
Less accumulated depreciation
|
|
|
|
|
|
|
(2,387
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,688
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense of property and equipment was $341,000 in
2006, $364,000 in 2005 and $399,000 in 2004. We expense
operating leases ratably over the shorter of the useful life or
the lease term.
Real
Estate
We carry real estate at the lower of cost or fair value less
cost to sell. We capitalize interest costs and property taxes
once development begins, and we continue to capitalize
throughout the development period. We also capitalize
infrastructure, improvements, amenities, and other development
costs incurred during the development period. We determine the
cost of real estate sold using the relative sales value method.
When we sell real estate from projects that are not finished, we
include in the cost of real estate sold estimates of future
development costs though completion, allocated based on relative
sales values. These estimates of future development costs are
reevaluated at least annually, with any adjustments being
allocated prospectively to the remaining units available for
sale.
Commercial properties are carried at cost less accumulated
depreciation computed using the straight-line method over their
estimated useful lives (three to 39 years).
We have agreements with utility or improvement districts,
principally in Texas, whereby we agree to convey to the
districts water, sewer and other infrastructure related assets
we have constructed in connection with projects within their
jurisdiction. The reimbursement for these assets ranges from 70
to 100 percent of allowable cost as defined by the
district. The transfer is consummated and we receive payment
when the districts have a sufficient tax base to support funding
of their bonds. The cost we incur in constructing these assets
is included in capitalized development costs, and upon
collection, we remove the assets from capitalized development
costs. We provide an allowance, which is not significant, to
reflect our past experiences related to claimed allowable
development costs.
Revenue
Real
Estate
We recognize revenue from sales of real estate when a sale is
consummated, the buyers initial investment is adequate,
any receivables are probable of collection, the usual risks and
rewards of ownership have been transferred to the buyer, and we
do not have significant continuing involvement with the real
estate sold. If we determine that the earnings process is not
complete, we defer recognition of any gain until earned.
We exclude from revenue amounts we collect from utility or
improvement districts related to the conveyance of water, sewer,
and other infrastructure related assets. We also exclude from
revenue amounts we collect for timber sold on land being
developed. These proceeds reduce capitalized development costs.
F-10
Forestar
Real Estate Group LLC
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We recognize revenue from hotel room sales and other guest
services when rooms are occupied and other guest services have
been rendered.
We exclude from revenue amounts we collect from customers that
represent sales tax or other taxes that are based on the sale.
These amounts are included in other accrued expenses until paid.
Natural
Resources
We recognize revenue from mineral bonus payments when we have
received an executed agreement with the exploration company
transferring the rights to any oil or gas it may find and
requiring drilling be done within a specified period, the
payment has been collected, and we have no obligation to refund
the payment. We recognize revenue from delay rentals if drilling
has not started within the specified period, when the payment
has been collected, and we have no further obligation. We
recognize revenue from mineral royalties when the minerals have
been delivered to the buyer, the value is determinable, and we
are reasonably sure of collection.
We recognize revenue from timber sales upon passage of title,
which occurs at delivery; when the price is fixed and
determinable; and we are reasonably sure of collection.
We recognize revenue from hunting and recreational leases on the
straight-line basis over the lease term if we are reasonably
sure of collection.
Share-Based
Compensation
We participate in Temple-Inlands share-based compensation
plans and as a result certain of our employees received
share-based compensation awards under those plans. The expense
for those awards was allocated to us by Temple-Inland and was
determined by Temple-Inland using the following accounting
principles:
|
|
|
|
|
Beginning January 2006, Temple-Inland adopted the modified
prospective application method contained in Statement of
Financial Accounting Standards No. 123 (revised December
2004),
Share-Based Payment
(SFAS 123(R))
,
to
account for share-based payments. As a result, Temple-Inland
applied this pronouncement to new awards or modifications of
existing awards in 2006. Prior to adopting SFAS 123(R),
Temple-Inland had been expensing, over the service period, the
fair value of share-based compensation awards granted, modified,
or settled in 2003 through 2005, using the prospective
transition method of accounting contained in
SFAS No. 148,
Accounting for Stock-Based
Compensation Transition and Disclosure, an amendment
of FASB Statement No. 123.
|
|
|
|
Prior to 2003, Temple-Inland used the intrinsic value method in
accounting for stock options. As a result, Temple-Inland did not
allocate to us share-based compensation expense related to those
stock options granted prior to 2003 in 2005 and 2004.
|
F-11
Forestar
Real Estate Group LLC
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table illustrates the effect on our net income as
if the fair value method had been applied to the options granted
to our employees prior to 2003:
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Net income, as reported
|
|
$
|
34,897
|
|
|
$
|
28,436
|
|
Add: Share-based compensation expense, net of related tax
effects, included in the determination of reported net income
|
|
|
277
|
|
|
|
95
|
|
Deduct: Total share-based compensation expense, net of related
tax effects, determined under the fair value based method for
all awards
|
|
|
(321
|
)
|
|
|
(163
|
)
|
|
|
|
|
|
|
|
|
|
Pro forma net income
|
|
$
|
34,853
|
|
|
$
|
28,368
|
|
|
|
|
|
|
|
|
|
|
Please read Note 12 for additional information about
share-based compensation.
Timber
We carry timber at cost, less the cost of timber cut. We expense
the cost of timber cut based on the relationship of the timber
carrying value to the estimated volume of recoverable timber
multiplied by the amount of timber cut. We include the cost of
timber cut in cost of natural resources in the income statement
and in non-cash expenses in the statement of cash flows. We
determine the estimated volume of recoverable timber using
statistical information and other data related to growth rates
and yields gathered from physical observations, models, and
other information gathering techniques. Changes in yields are
generally due to adjustments in growth rates and similar matters
and are accounted for prospectively as changes in estimates. We
capitalize reforestation costs incurred in developing viable
seedling plantations (up to two years from planting), such as
site preparation, seedlings, planting, fertilization, insect and
wildlife control, and herbicide application. We expense all
other costs, such as property taxes and costs of forest
management personnel, as incurred. Once the seedling plantation
is viable, we expense all costs to maintain the viable
plantations, such as fertilization, herbicide application,
insect and wildlife control, and thinning, as incurred.
Pending
Accounting Pronouncements
SFAS No. 157,
Fair Value Measures
This new standard defines fair value,
establishes a framework for measuring fair value, and expands
disclosures about fair value measurements. This guidance applies
to fair value measurements already required or permitted and
will be effective for our first quarter 2008. Based on our
current understanding, we do not expect that adoption will have
a significant effect on our earnings or financial position.
FASB Interpretation No. 48,
Accounting for Uncertainty
in Income Taxes
(FIN 48) This
interpretation clarifies the accounting for and disclosure of
uncertainties associated with certain aspects of measurement and
recognition of income taxes. This guidance lowers the
recognition threshold from more likely than not to
reasonably possible, changes the valuation method
from a single amount to a probable weighted-average amount, and
is effective for us beginning first quarter 2007. We do not
expect that adoption will have a significant effect on our
earnings or financial position.
SFAS No. 150,
Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity
The provisions of this standard that address the
accounting for certain mandatorily redeemable non-controlling
interests have been deferred indefinitely pending further FASB
action. The deferred provisions would principally affect the way
we account for minority interests in partnerships we control;
the classification of such interests as liabilities, which we
presently do; and accounting for changes in the fair value of
the minority interest by a charge to earnings, which we
currently do not do. While the effect of the deferred provisions
would be dependent on the changes in the fair value of the
partnerships net assets, it is possible
F-12
Forestar
Real Estate Group LLC
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
that the future effects could be significant. Because the
minority interests are not readily marketable, it is difficult
to determine their fair value. However, we believe the
difference between the carrying value of the minority interests
and their estimated fair value was not significant at year-end
2006 or 2005.
SFAS No. 159,
The Fair Value Option for Financial
Assets and Financial Liabilities
SFAS No. 159 permits the election of
fair value as the initial and subsequent measurement method for
many financial assets and liabilities. Subsequent changes in the
fair value would be recognized in earnings as they occur.
Electing the fair value option requires the disclosure of the
fair value of those assets and liabilities on the balance sheet
or in the notes to the financial statements.
SFAS No. 159 is effective for our first quarter 2008.
We do not anticipate electing this option.
Real estate consists of:
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Entitled, developed, and under development land
|
|
$
|
292,534
|
|
|
$
|
233,130
|
|
Undeveloped land
|
|
|
133,170
|
|
|
|
117,187
|
|
Commercial operating properties
|
|
|
43,020
|
|
|
|
41,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
468,724
|
|
|
|
392,107
|
|
Accumulated depreciation
|
|
|
(20,907
|
)
|
|
|
(18,957
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
447,817
|
|
|
$
|
373,150
|
|
|
|
|
|
|
|
|
|
|
Included in entitled, developed, and under development land are
the estimated cost of assets we expect to convey to utility or
improvement districts of $14,213,000 in 2006 and $3,050,000 in
2005. These costs relate to water, sewer and other
infrastructure assets for which the utility or improvement
districts have agreed to reimburse us. We billed these districts
$12,357,000 in 2006 and $4,413,000 in 2005 and we collected from
these districts $10,701,000 in 2006 and $4,421,000 in 2005. We
expect to collect the remaining amounts billed in 2006 within
12 months.
Depreciation expense primarily related to commercial operating
properties was $2,008,000 in 2006, $1,876,000 in 2005, and
$2,374,000 in 2004 and is included in other operating expense.
Please read Schedule III for additional information.
F-13
Forestar
Real Estate Group LLC
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 3
|
Investment
in Unconsolidated Ventures
|
At year-end 2006, we had ownership interests ranging from 25 to
50 percent in 15 ventures that we account for using the
equity method. Our two largest ventures at year-end 2006 are CL
Realty and Temco, in both of which we own a 50 percent
interest and an unrelated publicly-held company owns the other
50 percent interest.
Combined summarized balance sheet information for our ventures
accounted for using the equity method follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At Year-End 2006
|
|
|
At Year-End 2005
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
CL Realty
|
|
|
Temco
|
|
|
Ventures
|
|
|
Total
|
|
|
CL Realty
|
|
|
Temco
|
|
|
Ventures
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Real estate
|
|
$
|
113,289
|
|
|
$
|
58,273
|
|
|
$
|
44,666
|
|
|
$
|
216,228
|
|
|
$
|
106,156
|
|
|
$
|
60,698
|
|
|
$
|
51,048
|
|
|
$
|
217,902
|
|
Total assets
|
|
|
117,779
|
|
|
|
65,765
|
|
|
|
99,523
|
|
|
|
283,067
|
|
|
|
106,084
|
|
|
|
68,286
|
|
|
|
74,880
|
|
|
|
249,250
|
|
Borrowings, principally
non-recourse
(a)
|
|
|
5,357
|
|
|
|
3,745
|
|
|
|
56,407
|
|
|
|
65,509
|
|
|
|
1,814
|
|
|
|
4,645
|
|
|
|
68,367
|
|
|
|
74,826
|
|
Total liabilities
|
|
|
9,456
|
|
|
|
4,979
|
|
|
|
67,469
|
|
|
|
81,904
|
|
|
|
2,330
|
|
|
|
8,595
|
|
|
|
72,264
|
|
|
|
83,189
|
|
Equity
|
|
|
108,323
|
|
|
|
60,786
|
|
|
|
32,054
|
|
|
|
201,163
|
|
|
|
103,754
|
|
|
|
59,691
|
|
|
|
2,616
|
|
|
|
166,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our investment in real estate ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our share of their
equity
(b)
|
|
|
54,162
|
|
|
|
30,393
|
|
|
|
13,919
|
|
|
|
98,474
|
|
|
|
51,877
|
|
|
|
29,846
|
|
|
|
3,448
|
|
|
|
85,171
|
|
Unrecognized deferred
gain
(c)
|
|
|
(7,416
|
)
|
|
|
|
|
|
|
(614
|
)
|
|
|
(8,030
|
)
|
|
|
(8,325
|
)
|
|
|
|
|
|
|
|
|
|
|
(8,325
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in real estate ventures
|
|
$
|
46,746
|
|
|
$
|
30,393
|
|
|
$
|
13,305
|
|
|
$
|
90,444
|
|
|
$
|
43,552
|
|
|
$
|
29,846
|
|
|
$
|
3,448
|
|
|
$
|
76,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-14
Forestar
Real Estate Group LLC
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Combined summarized income statement information for our
ventures accounted for using the equity method follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
CL Realty
|
|
$
|
51,367
|
|
|
$
|
42,823
|
|
|
$
|
16,091
|
|
Temco
|
|
|
51,470
|
|
|
|
31,239
|
|
|
|
27,890
|
|
Other ventures
|
|
|
33,053
|
|
|
|
108,966
|
|
|
|
62,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
135,890
|
|
|
$
|
183,028
|
|
|
$
|
106,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
CL Realty
|
|
$
|
16,892
|
|
|
$
|
11,362
|
|
|
$
|
3,539
|
|
Temco
|
|
|
16,986
|
|
|
|
8,566
|
|
|
|
10,461
|
|
Other ventures
|
|
|
(2,609
|
)
|
|
|
72,698
|
|
|
|
15,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
31,269
|
|
|
$
|
92,626
|
|
|
$
|
29,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our equity in their earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
CL
Realty
(c)(d)
|
|
$
|
8,431
|
|
|
$
|
5,681
|
|
|
$
|
1,769
|
|
Temco
(d)
|
|
|
8,493
|
|
|
|
4,283
|
|
|
|
5,230
|
|
Other
ventures
(b)
|
|
|
1,538
|
|
|
|
5,730
|
|
|
|
3,474
|
|
Recognition of deferred
gain
(c)
|
|
|
909
|
|
|
|
1,486
|
|
|
|
1,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
19,371
|
|
|
$
|
17,180
|
|
|
$
|
12,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Includes current maturities of debt of $12,375,000 in 2006 and
$10,484,000 in 2005.
|
|
(b)
|
|
Our share of the equity in other ventures, reflects our
ownership interests ranging from 25 to 50 percent, excluding
venture losses that exceed our investment where we are not
obligated to fund those losses. Our equity in earnings of
partnerships in 2005 and 2004 included a number of partnerships
in which we owned a five to ten percent interest. Our
investments in these partnerships were liquidated prior to
year-end 2005. At year-end 2006, we have no real estate ventures
that are accounted for using the cost method.
|
|
(c)
|
|
In 2003, we contributed real estate with a $13,800,000 carrying
value to CL Realty in exchange for $13,800,000 cash and a
50 percent interest in the partnership. We deferred the
$14,587,000 gain on the sale and are recognizing it as the
partnership sells the real estate to third parties. The deferred
gain is reflected as an offset to our investment in
unconsolidated ventures.
|
|
(d)
|
|
Beginning in 2006, we eliminated our historic one-month lag in
accounting for our investment in CL Realty and Temco as
financial information became more readily available. The
one-time effect of eliminating this one-month lag was to
increase our equity in earnings for 2006 by $754,000 for
CL Realty and $350,000 for Temco.
|
In 2006, we invested $17,611,000 in these ventures and received
$23,727,000 in distributions, in 2005 we invested $29,612,000
and received $23,970,000 in distributions, and in 2004 we
invested $15,971,000 and received $12,786,000 in distributions.
Distributions include both return of investments and
distributions of earnings.
F-15
Forestar
Real Estate Group LLC
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We provide development services for some of these ventures for
which we receive a fee. Fees for these services were $729,000 in
2006, $1,126,000 in 2005, and $765,000 in 2004 and are included
in real estate revenues.
In 2005, Temco purchased about 7,000 acres of timber and
timberland from Temple-Inland. This acreage was purchased
pursuant to the terms of a long-standing option agreement, which
was about to expire.
Receivables consists of:
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Seller financing notes receivable, average interest rate of 7.8%
in 2006 and 5.5% in 2005
|
|
$
|
1,729
|
|
|
$
|
5,785
|
|
Notes receivable, average interest rate of 9.6% in 2006 and 2005
|
|
|
1,755
|
|
|
|
2,389
|
|
Accrued interest and other
|
|
|
2,833
|
|
|
|
3,378
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,317
|
|
|
$
|
11,552
|
|
Allowance for bad debts
|
|
|
(226
|
)
|
|
|
(226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,091
|
|
|
$
|
11,326
|
|
|
|
|
|
|
|
|
|
|
Seller financing notes receivable are generally secured by a
deed of trust with a 10 percent down payment and mature
through 2009. In November 2006, we ceased providing seller
financing in connection with the sale of residential lots.
Notes receivable are funds advanced to potential venture
partners and will be converted to an equity interest in a
venture or collected. It is anticipated that these notes will be
satisfied by year-end 2008.
Other receivables are miscellaneous operating receivables
arising in the normal course of business. We expect to collect
$1,300,000 in 2007 and the remainder in 2008.
We own timber on over 350,000 acres located primarily in
Georgia. We capitalized reforestation expenditures of $1,409,000
in 2006, $1,553,000 in 2005, and $1,501,000 in 2004. The cost of
timber cut was $3,441,000 in 2006, $3,218,000 in 2005, and
$3,749,000 in 2004.
Debt consists of:
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Senior bank credit facility average interest rate of
6.04% in 2005
|
|
$
|
|
|
|
$
|
74,000
|
|
7.3% secured promissory note maturing in 2008
|
|
|
16,978
|
|
|
|
17,486
|
|
Other indebtedness due through 2011 at variable interest rates
based on prime (8.25% at year-end 2006) and at fixed
interest rates ranging from 6.00% to 9.50% secured primarily by
real estate including non-recourse debt of consolidated ventures
|
|
|
33,633
|
|
|
|
17,633
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
50,611
|
|
|
$
|
109,119
|
|
|
|
|
|
|
|
|
|
|
F-16
Forestar
Real Estate Group LLC
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Our debt agreements contain terms, conditions, and financial
covenants customary for such agreements including minimum levels
of interest coverage and limitations on leverage. At year-end
2006, we had complied with the terms, conditions, and financial
covenants of these agreements.
At year-end 2006, commercial operating properties having a book
value of $23,500,000 were subject to liens in connection with
$16,978,000 of debt, and entitled developed and under
development land having a book value of $87,865,000 were subject
to liens in connection with $33,633,000 of debt. Please read
Schedule III for additional information.
Maturities of our debt during the next five years are:
2007 $6,649,000; 2008 $30,821,000;
2009 $4,941,000; 2010 $0;
2011 $8,200,000; and thereafter $0.
We capitalized and deducted from interest expense interest
incurred on real estate development projects of $543,000 in
2006, $1,444,000 in 2005, and $1,018,000 in 2004. We paid
interest of $4,309,000 in 2006, $7,171,000 in 2005, and
$6,133,000 in 2004 of which $2,881,000 in 2006 was paid to
Temple-Inland.
|
|
Note 7
|
Fair
Value of Financial Instruments
|
The carrying values of financial assets and liabilities,
including cash, receivables, and accounts payable at year-end
2006 and 2005 approximate fair values because of the short
maturity of these instruments. The carrying amount of notes
receivable and notes payable approximates fair value at year-end
2006 and 2005 since the notes are at floating rates or fixed
rates, which approximate current market rates for notes with
similar risks and maturities.
Income tax expense consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Current tax provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
(29,954
|
)
|
|
$
|
(16,327
|
)
|
|
$
|
(15,892
|
)
|
State and other
|
|
|
(4,928
|
)
|
|
|
(2,954
|
)
|
|
|
(2,880
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,882
|
)
|
|
|
(19,281
|
)
|
|
|
(18,772
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
|
3,708
|
|
|
|
(1,416
|
)
|
|
|
1,192
|
|
State and other
|
|
|
1,204
|
|
|
|
(162
|
)
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,912
|
|
|
|
(1,578
|
)
|
|
|
1,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
(29,970
|
)
|
|
$
|
(20,859
|
)
|
|
$
|
(17,444
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes (paid) refunded to Temple-Inland, net
|
|
$
|
(125
|
)
|
|
$
|
(3,444
|
)
|
|
$
|
(4,698
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2006, Texas enacted a margin tax to replace the franchise
tax, which for us results in a lower overall Texas tax rate. As
a result, in 2006 we recognized a one-time, non-cash benefit of
$780,000 related to the reduction of previously provided
deferred state income taxes.
In 2006, the Internal Revenue Service completed the examinations
of Temple-Inlands tax returns through 2003.
F-17
Forestar
Real Estate Group LLC
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A reconciliation of the federal statutory rate to the effective
income tax rate on continuing operations follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Federal statutory rate
|
|
|
35%
|
|
|
|
35%
|
|
|
|
35%
|
|
State, net of federal benefit
|
|
|
3
|
|
|
|
3
|
|
|
|
4
|
|
Other
|
|
|
(1)
|
|
|
|
(1)
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
37%
|
|
|
|
37%
|
|
|
|
38%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant components of deferred taxes are:
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Deferred Tax Liabilities:
|
|
|
|
|
|
|
|
|
Real estate
|
|
$
|
(9,237
|
)
|
|
$
|
(16,003
|
)
|
Timber
|
|
|
(6,439
|
)
|
|
|
(6,878
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,676
|
)
|
|
|
(22,881
|
)
|
|
|
|
|
|
|
|
|
|
Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
Employee benefits
|
|
|
829
|
|
|
|
325
|
|
Accruals not deductible until paid
|
|
|
409
|
|
|
|
2,964
|
|
Other
|
|
|
|
|
|
|
243
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
1,238
|
|
|
|
3,532
|
|
Less valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,238
|
|
|
|
3,532
|
|
|
|
|
|
|
|
|
|
|
Net Deferred Tax Liability
|
|
$
|
(14,438
|
)
|
|
$
|
(19,349
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Note 9
|
Litigation
and Environmental Contingencies
|
We are involved in various legal proceedings that arise from
time to time in the ordinary course of doing business and
believe that adequate reserves have been established for any
probable losses.
Liabilities in connection with environmental remediation arise
from time to time in the ordinary course of doing business and
we believe we have established adequate reserves for any
probable losses.
We do not believe that the outcome of any of these proceedings
should have a significant adverse effect on our financial
position, long-term results of operations or cash flows. It is
possible, however, that charges related to these matters could
be significant to our results or cash flows in any one
accounting period.
|
|
Note 10
|
Commitments
and Other Contingencies
|
We lease timberland, facilities, and equipment under operating
lease agreements. Future minimum rental commitments under
non-cancelable operating leases having a remaining term in
excess of one year are: 2007 $1,002,000;
2008 $864,000; 2009 $870,000;
2010 $791,000; 2011 $724,000; and
thereafter $6,847,000.
Rent expense on timberland was $414,000 in 2006, $392,000 in
2005 and $368,000 in 2004. Other rent expense was $445,000 in
2006, $328,000 in 2005, and $261,000 in 2004.
F-18
Forestar
Real Estate Group LLC
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In connection with our unconsolidated venture operations, we
have provided performance bonds and letters of credit
aggregating $13,267,000 at year-end 2006. Generally these
performance bonds and letters of credit would be drawn on due to
lack of specific performance by the ventures, such as failure to
deliver streets and utilities in accordance with local codes and
ordinances. In addition, we own a 25 percent interest in a
venture to which all the members have committed to make
additional proportionate capital contributions, our share of
which is $14,157,000.
|
|
Note 11
|
Segment
Information
|
We operate two business segments: real estate and natural
resources. Real estate secures entitlements and develops
infrastructure on our lands for single-family residential and
mixed-use communities, and manages our undeveloped land and our
commercial operating properties. Natural resources manages our
mineral interests, timber, and recreational leases.
We evaluate performance based on segment earnings before
unallocated expenses and income taxes. Segment earnings consists
of operating income, equity in earnings of unconsolidated
ventures, and minority interest expense in consolidated
ventures. Unallocated expenses consist of corporate general and
administrative expense, share-based compensation, other
non-operating income (expense), and interest expense. The
accounting policies of the segments are the same as those
described in the accounting policy note to the combined and
consolidated financial statements. Our revenues are derived from
our U.S. operations and all of our assets are located in
the U.S. No single customer accounts for more than
10 percent of our revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses Not
|
|
|
|
|
|
|
|
|
|
Natural
|
|
|
Allocated to
|
|
|
|
|
|
|
Real Estate
|
|
|
Resources
|
|
|
Segments
(a)
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
For the year or at year-end 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
180,151
|
|
|
$
|
45,409
|
|
|
$
|
|
|
|
$
|
225,560
|
|
Depreciation and amortization
|
|
|
2,298
|
|
|
|
57
|
|
|
|
|
|
|
|
2,355
|
|
Equity in earnings of unconsolidated ventures
|
|
|
19,371
|
|
|
|
|
|
|
|
|
|
|
|
19,371
|
|
Income (loss) before taxes
|
|
|
70,271
|
|
|
|
33,016
|
|
|
|
(21,473
|
)
|
|
|
81,814
|
|
Total assets
|
|
|
546,911
|
|
|
|
59,414
|
|
|
|
13,849
|
|
|
|
620,174
|
|
Investment in unconsolidated ventures
|
|
|
90,444
|
|
|
|
|
|
|
|
|
|
|
|
90,444
|
|
Capital
expenditures
(b)
|
|
|
2,558
|
|
|
|
1,433
|
|
|
|
|
|
|
|
3,991
|
|
For the year or at year-end 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
118,121
|
|
|
$
|
37,366
|
|
|
$
|
|
|
|
$
|
155,487
|
|
Depreciation and amortization
|
|
|
2,184
|
|
|
|
65
|
|
|
|
|
|
|
|
2,249
|
|
Equity in earnings of unconsolidated ventures
|
|
|
17,180
|
|
|
|
|
|
|
|
|
|
|
|
17,180
|
|
Income (loss) before taxes
|
|
|
46,418
|
|
|
|
24,850
|
|
|
|
(15,512
|
)
|
|
|
55,756
|
|
Total assets
|
|
|
467,155
|
|
|
|
61,478
|
|
|
|
15,311
|
|
|
|
543,944
|
|
Investment in unconsolidated ventures
|
|
|
76,846
|
|
|
|
|
|
|
|
|
|
|
|
76,846
|
|
Capital
expenditures
(b)
|
|
|
63
|
|
|
|
1,553
|
|
|
|
|
|
|
|
1,616
|
|
For the year or at year-end 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
138,823
|
|
|
$
|
30,478
|
|
|
$
|
|
|
|
$
|
169,301
|
|
Depreciation and amortization
|
|
|
2,686
|
|
|
|
95
|
|
|
|
|
|
|
|
2,781
|
|
Equity in earnings of unconsolidated ventures
|
|
|
12,211
|
|
|
|
|
|
|
|
|
|
|
|
12,211
|
|
Income (loss) before taxes
|
|
|
43,370
|
|
|
|
18,653
|
|
|
|
(16,143
|
)
|
|
|
45,880
|
|
Total assets
|
|
|
437,173
|
|
|
|
63,518
|
|
|
|
17,009
|
|
|
|
517,700
|
|
Investment in unconsolidated ventures
|
|
|
53,423
|
|
|
|
|
|
|
|
|
|
|
|
53,423
|
|
Capital
expenditures
(b)
|
|
|
421
|
|
|
|
1,501
|
|
|
|
|
|
|
|
1,922
|
|
|
|
|
(a)
|
|
Expenses not allocated to segments consists of:
|
F-19
Forestar
Real Estate Group LLC
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Corporate general and administrative
|
|
$
|
(8,911
|
)
|
|
$
|
(5,818
|
)
|
|
$
|
(7,371
|
)
|
Expense allocation from Temple-Inland (see Note 15)
|
|
|
(5,137
|
)
|
|
|
(3,295
|
)
|
|
|
(3,062
|
)
|
Share-based compensation allocation from Temple-Inland (see
Note 12)
|
|
|
(1,275
|
)
|
|
|
(443
|
)
|
|
|
(154
|
)
|
Interest expense
|
|
|
(6,229
|
)
|
|
|
(6,439
|
)
|
|
|
(6,091
|
)
|
Other non-operating income (expense)
|
|
|
79
|
|
|
|
483
|
|
|
|
535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(21,473
|
)
|
|
$
|
(15,512
|
)
|
|
$
|
(16,143
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b)
|
|
Consists of expenditures for property and equipment and
reforestation.
|
|
|
Note 12
|
Share-Based
Compensation
|
We participate in Temple-Inlands share-based compensation
plans and as a result certain of our employees received
share-based compensation awards under these plans. Those
shareholder approved share-based compensation plans permit
awards to key employees in the form of restricted or performance
units, restricted stock, or options to purchase shares of
Temple-Inland common stock. The awards are generally granted
annually in February.
After the spin-off, our employees will no longer receive new
awards under the Temple-Inland share-based compensation plans.
It is anticipated that all outstanding share-based awards will
be equitably adjusted into three separate awards: one related to
Forestar common stock, one related to Temple-Inland common
stock, and one related to Guaranty common stock. Such adjustment
is expected to be made so that immediately following the
spin-off the number of shares relating to each award and, for
options, the per share option exercise price of the original
Temple-Inland stock option, will be proportionally allocated
between Forestar, Guaranty, and Temple-Inland awards based on
relative per share trading prices of their common stock
immediately following the spin-off. These equitable adjustments
are intended to preserve the economic value of the awards
immediately prior to the spin-off. All Forestar and Guaranty
awards issued as part of this adjustment and the Temple-Inland
awards will continue to be subject to their current vesting
schedules.
The expense for the share-based compensation awards granted to
our employees was allocated to us by Temple-Inland. Information
about these Temple-Inland awards follows:
Restricted
or performance units
Restricted or performance units generally have a three-year
term; vest after three years from the date of grant or the
attainment of stated ROI based performance goals, generally
measured over a three-year period; and are settled in cash or
common stock as determined on the date of grant. The restricted
and performance units provide for accelerated vesting upon
retirement, death, disability, or if there is a change in
control. A
F-20
Forestar
Real Estate Group LLC
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
bonus deferral plan is also offered that can be settled in cash
or stock. A summary of activity for 2006 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average Grant
|
|
|
Aggregate
|
|
|
|
Temple-Inland
|
|
|
Date Fair Value
|
|
|
Current
|
|
|
|
Shares
|
|
|
Per Share
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In thousands)
|
|
|
Not vested beginning of 2006
|
|
|
12
|
|
|
$
|
33
|
|
|
|
|
|
Granted
|
|
|
39
|
|
|
|
46
|
|
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not vested year-end 2006
|
|
|
51
|
|
|
|
43
|
|
|
$
|
2,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not vested year-end 2006 subject to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Time vesting requirements
|
|
|
27
|
|
|
|
|
|
|
$
|
1,259
|
|
Performance requirements
|
|
|
24
|
|
|
|
|
|
|
|
1,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
|
|
|
|
|
|
|
$
|
2,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not vested year-end 2006 to be settled in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
45
|
|
|
|
|
|
|
$
|
2,046
|
|
Stock
|
|
|
6
|
|
|
|
|
|
|
|
295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
|
|
|
|
|
|
|
$
|
2,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no vested restricted or performance units to be
settled at year-end 2006.
Restricted
stock
Restricted stock awards generally vest after three to six years,
and provide for accelerated vesting upon retirement, death,
disability, or if there is a change in control. Compensation
costs are recognized ratably over the service period. There were
no restricted stock awards granted in 2006. There were 13,000
restricted stock awards outstanding at year-end 2006 with a
weighted average grant date fair value of $36 per share and an
aggregate current value of $589,000 or $46.03 per share. There
were no restricted stock awards that vested in 2006.
F-21
Forestar
Real Estate Group LLC
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock
options
Stock options have a ten-year term, generally become exercisable
ratably over four years and provide for accelerated or continued
vesting upon retirement, death, disability, or if there is a
change in control. Options are granted with an exercise price
equal to the market value of Temple-Inland common stock on the
date of grant. A summary of activity for 2006 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
Intrinsic Value
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
(Current value
|
|
|
|
Temple-Inland
|
|
|
Exercise Price
|
|
|
Contractual
|
|
|
less exercise
|
|
|
|
Shares
|
|
|
Per Share
|
|
|
Term
|
|
|
price)
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In years)
|
|
|
(In thousands)
|
|
|
Outstanding beginning of 2006
|
|
|
154
|
|
|
$
|
28
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
47
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(27
|
)
|
|
|
28
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding year-end 2006
|
|
|
174
|
|
|
|
33
|
|
|
|
7
|
|
|
$
|
2,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable year-end 2006
|
|
|
87
|
|
|
|
27
|
|
|
|
5
|
|
|
$
|
1,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The intrinsic value of options exercised was $497,000 in 2006,
$286,000 in 2005, and $338,000 in 2004.
Temple-Inland estimated the fair value of the options granted
using the Black-Scholes-Merton option-pricing model and the
following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Expected dividend yield
|
|
|
2.4%
|
|
|
|
2.3%
|
|
|
|
2.9%
|
|
Expected stock price volatility
|
|
|
25.1%
|
|
|
|
28.2%
|
|
|
|
28.8%
|
|
Risk-free interest rate
|
|
|
4.4%
|
|
|
|
4.2%
|
|
|
|
4.4%
|
|
Expected life of options in years
|
|
|
6
|
|
|
|
8
|
|
|
|
8
|
|
Weighted average estimated fair value of options granted
|
|
$
|
11.53
|
|
|
$
|
11.13
|
|
|
$
|
8.31
|
|
The expected life of options was based on historical experience.
The expected stock price volatility was based on historical
prices of Temple-Inland common stock for a period corresponding
to the expected life of the options with appropriate
consideration given to current conditions and events. Historical
data was used to estimate pre-vesting forfeitures stratified
into two groups based on job level.
Share-based
compensation expense
Pre-tax share-based compensation expense allocated to us by
Temple-Inland consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Restricted or performance units cash
|
|
$
|
635
|
|
|
$
|
82
|
|
|
$
|
|
|
Restricted or performance units stock
|
|
|
224
|
|
|
|
194
|
|
|
|
64
|
|
Stock options
|
|
|
416
|
|
|
|
167
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax share-based compensation expense
|
|
$
|
1,275
|
|
|
$
|
443
|
|
|
$
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-22
Forestar
Real Estate Group LLC
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Pre-tax share-based compensation expense included in other
operating and general and administrative expense follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
General and administrative
|
|
$
|
1,096
|
|
|
$
|
368
|
|
|
$
|
113
|
|
Other operating
|
|
|
179
|
|
|
|
75
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,275
|
|
|
$
|
443
|
|
|
$
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of awards granted to retirement-eligible
employees and expensed at the date of grant was $153,000 in
2006, all of which was related to stock options. The amount of
share-based compensation capitalized was not significant.
Unrecognized share-based compensation for all awards not vested
was $1,996,000 at year-end 2006. It is likely that this cost
will be recognized as expense over the next four years.
|
|
Note 13
|
Pension
and Postretirement Plans
|
We participate in Temple-Inlands pension and
postretirement plans and as a result certain of our employees
are entitled to receive benefits under those plans. The pension
and postretirement expense for our employees allocated to us by
Temple-Inland was $716,000 in 2006, $946,000 in 2005, and
$433,000 in 2004.
After the spin-off, our employees will no longer participate in
the Temple-Inland post-retirement plans, and as a result, will
not accrue any additional benefits. The liability for their
benefits as of the spin-off date will be retained by
Temple-Inland.
|
|
Note 14
|
Summary
of Quarterly Results of Operations (Unaudited)
|
Selected quarterly financial results for 2006 and 2005 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
2006
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
(In thousands)
|
|
|
Total revenues
|
|
$
|
60,107
|
|
|
$
|
54,545
|
|
|
$
|
68,796
|
|
|
$
|
42,112
|
|
Operating income
|
|
|
25,997
|
|
|
|
15,095
|
|
|
|
19,038
|
|
|
|
11,694
|
|
Equity in earnings of unconsolidated ventures
|
|
|
10,154
|
|
|
|
3,538
|
|
|
|
1,850
|
|
|
|
3,829
|
|
Income before taxes
|
|
|
33,994
|
|
|
|
17,044
|
|
|
|
18,067
|
|
|
|
12,709
|
|
Net income
|
|
|
21,213
|
|
|
|
11,418
|
|
|
|
11,278
|
|
|
|
7,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
2005
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
(In thousands)
|
|
|
Total revenues
|
|
$
|
36,417
|
|
|
$
|
35,285
|
|
|
$
|
36,306
|
|
|
$
|
47,479
|
|
Operating income
|
|
|
8,063
|
|
|
|
9,509
|
|
|
|
9,562
|
|
|
|
18,452
|
|
Equity in earnings of unconsolidated ventures
|
|
|
4,062
|
|
|
|
4,277
|
|
|
|
4,929
|
|
|
|
3,912
|
|
Income before taxes
|
|
|
10,550
|
|
|
|
12,165
|
|
|
|
12,740
|
|
|
|
20,301
|
|
Net income
|
|
|
6,603
|
|
|
|
7,614
|
|
|
|
7,974
|
|
|
|
12,706
|
|
F-23
Forestar
Real Estate Group LLC
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 15
|
Related
Party Transactions
|
We reimburse Temple-Inland for expenses incurred on our behalf
and allocated to us. Additional allocated expense incurred by
Temple-Inland but not directly attributable to us are reflected
as capital contributions, net of tax. Please read Note 1
for additional information.
A summary of allocated expenses from Temple-Inland follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Legal, human resources and other administrative costs
|
|
$
|
2,178
|
|
|
$
|
1,986
|
|
|
$
|
1,842
|
|
Variable compensation
|
|
|
1,146
|
|
|
|
372
|
|
|
|
196
|
|
Accounting and finance
|
|
|
954
|
|
|
|
785
|
|
|
|
871
|
|
Information technology support
|
|
|
664
|
|
|
|
33
|
|
|
|
35
|
|
Internal audit, governance and other
|
|
|
195
|
|
|
|
119
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,137
|
|
|
|
3,295
|
|
|
|
3,062
|
|
Share based compensation
|
|
|
1,275
|
|
|
|
443
|
|
|
|
154
|
|
Pension and postretirement
|
|
|
716
|
|
|
|
946
|
|
|
|
433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,128
|
|
|
$
|
4,684
|
|
|
$
|
3,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We pay income taxes to Temple-Inland as if we filed a separate
income tax return. Please read Note 8 for additional
information. In addition, rent paid to a subsidiary of
Temple-Inland was $178,000 in 2006, $151,000 in 2005, and
$151,000 in 2004.
Natural resources and other revenues include sales of timber to
Temple-Inland of $8,867,000 in 2006, $9,615,000 in 2005 and
$10,649,000 in 2004. Cost of natural resources and other
includes cost of timber sold to Temple-Inland of $2,140,000 in
2006, $2,001,000 in 2005, and $2,560,000 in 2004.
Temple-Inland
Credit Facility
In 2006, we established a credit facility with Temple-Inland.
Under this facility, when we need funds we borrow and when we
have excess funds we use them to repay amounts borrowed.
Borrowings under this agreement accrued interest at
4.86 percent at year-end 2006. In 2006, the average daily
balance was $84,313,000, the maximum month-end balance was
$110,506,000, the weighted average interest rate on borrowing
was 4.46 percent, and the related interest expense was
$3,758,000. Before we established the credit facility with
Temple-Inland, we supported our cash needs through our
operations, intercompany payables, or capital contributions from
Temple-Inland.
A summary of the activity in the Temple-Inland credit facility
and intercompany payables follows:
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Beginning balance
|
|
$
|
12,829
|
|
|
$
|
11,027
|
|
Additions
|
|
|
186,777
|
|
|
|
5,688
|
|
Repayments
|
|
|
(89,100
|
)
|
|
|
(3,886
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
110,506
|
|
|
$
|
12,829
|
|
|
|
|
|
|
|
|
|
|
Additions to the Temple-Inland credit facility consist of
acquisition and development costs, venture contributions, and
other operating, general and administrative expenses, and income
taxes. Repayments to the
F-24
Forestar
Real Estate Group LLC
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Temple-Inland credit facility are made when our daily sources of
funds from operations exceed our uses of funds.
|
|
Note 16
|
Other
Information (Unaudited)
|
As part of its transformation plan, Temple-Inland will
contribute certain assets to Forestar. In addition, expenses
incurred by Temple-Inland on our behalf have been allocated to
us. As a result, the amounts previously reported by
Temple-Inland for its real estate segment differ from those
included in this Form 10 for Forestar. A reconciliation
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Originally
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported by
|
|
|
|
|
|
|
|
|
As Reported in
|
|
|
|
Temple-Inland for
|
|
|
|
|
|
Allocated
|
|
|
This Form 10
|
|
|
|
Real Estate Segment
|
|
|
Reclassification
(a)
|
|
|
Expenses
(b)
|
|
|
for Forestar
|
|
|
|
(In thousands)
|
|
|
For the year or at year-end 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
175,339
|
|
|
$
|
50,221
|
|
|
|
|
|
|
$
|
225,560
|
|
Depreciation and amortization
|
|
|
2,250
|
|
|
|
105
|
|
|
|
|
|
|
|
2,355
|
|
Income (loss) before taxes
|
|
|
61,939
|
|
|
|
25,410
|
|
|
|
(5,535
|
)
|
|
|
81,814
|
|
Total assets
|
|
|
544,063
|
|
|
|
76,111
|
|
|
|
|
|
|
|
620,174
|
|
Capital expenditures
|
|
|
2,558
|
|
|
|
1,433
|
|
|
|
|
|
|
|
3,991
|
|
For the year or at year-end 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
113,071
|
|
|
$
|
42,416
|
|
|
|
|
|
|
$
|
155,487
|
|
Depreciation and amortization
|
|
|
2,047
|
|
|
|
202
|
|
|
|
|
|
|
|
2,249
|
|
Income (loss) before taxes
|
|
|
43,293
|
|
|
|
16,201
|
|
|
|
(3,738
|
)
|
|
|
55,756
|
|
Total assets
|
|
|
422,055
|
|
|
|
121,889
|
|
|
|
|
|
|
|
543,944
|
|
Capital expenditures
|
|
|
63
|
|
|
|
1,553
|
|
|
|
|
|
|
|
1,616
|
|
For the year or at year-end 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
152,265
|
|
|
$
|
17,036
|
|
|
|
|
|
|
$
|
169,301
|
|
Depreciation and amortization
|
|
|
2,620
|
|
|
|
161
|
|
|
|
|
|
|
|
2,781
|
|
Income (loss) before taxes
|
|
|
36,115
|
|
|
|
12,981
|
|
|
|
(3,216
|
)
|
|
|
45,880
|
|
Total assets
|
|
|
380,507
|
|
|
|
137,193
|
|
|
|
|
|
|
|
517,700
|
|
Capital expenditures
|
|
|
421
|
|
|
|
1,501
|
|
|
|
|
|
|
|
1,922
|
|
|
|
|
(a)
|
|
Reclassified to reflect the transfer of an additional
138,000 acres of real estate and timber, principally
undeveloped land, about 623,000 net acres of oil and gas
mineral interests, and several small real estate development
projects and assets previously included in Temple-Inlands
other business segments. These reclassifications were made as if
they had occurred at the beginning of the earliest period
presented and they were made based on carrying values or
historical amounts. Total assets include cash and cash
equivalents which were previously not allocated to the real
estate segment in the historical Temple-Inland financial
statements.
|
|
(b)
|
|
Please read Note 1 for additional information.
|
|
|
Note 17
|
Supplemental
Oil and Gas Disclosures (unaudited)
|
We lease our oil and gas mineral interests, principally those in
Louisiana and Texas, to third party oil and gas exploration and
production entities for the exploration and production of oil
and gas.
F-25
Forestar
Real Estate Group LLC
NOTES TO
THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Mineral interest acquisition costs were immaterial and we
incurred no exploration or development costs in 2006, 2005 and
2004. The unamortized costs of our oil and gas mineral interests
were not material at year-end 2006 and 2005.
Our royalty revenues are contractually defined and based on a
percentage of production and are received in cash. Our royalty
revenues fluctuate based on changes in the market prices for oil
and gas and other factors affecting the third party oil and gas
exploration and production entities including the cost of
development and production.
Information about the results of operations of our oil and gas
mineral interests follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Royalty revenues
|
|
$
|
17,381
|
|
|
$
|
15,767
|
|
|
$
|
10,248
|
|
Production costs
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion, amortization and valuation provisions
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative expenses
|
|
|
(1,675
|
)
|
|
|
(1,420
|
)
|
|
|
(1,079
|
)
|
Income tax expenses
|
|
|
(5,029
|
)
|
|
|
(4,601
|
)
|
|
|
(2,930
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results of operations
|
|
$
|
10,677
|
|
|
$
|
9,746
|
|
|
$
|
6,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other lease revenues, principally bonus and delay rentals, were
$10,599,000 in 2006, $5,282,000 in 2005 and $3,192,000 in 2004.
Estimates of oil and gas reserve information related to our
royalty interests are unknown to us. We do not make such
estimates and our lessees do not make this information available
to us. Our share of oil and gas produced related to our royalty
interests follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Oil (barrels)
|
|
|
114,047
|
|
|
|
101,909
|
|
|
|
127,661
|
|
Gas (thousands of cubic feet (Mcf))
|
|
|
805,904
|
|
|
|
1,216,136
|
|
|
|
631,051
|
|
F-26
FORESTAR
REAL ESTATE GROUP AND CONSOLIDATED VENTURES
SCHEDULE III COMBINED AND CONSOLIDATED REAL
ESTATE AND ACCUMULATED DEPRECIATION
Year-End 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs Capitalized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsequent to Acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial Cost to Company
|
|
|
Improvements
|
|
|
|
|
|
Gross Amount Carried at End of Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings &
|
|
|
less Cost of
|
|
|
Carrying
|
|
|
Land & Land
|
|
|
Buildings &
|
|
|
|
|
|
Accumulated
|
|
|
Date of
|
|
|
Date
|
|
Description
|
|
Encumbrances
|
|
|
Land
|
|
|
Improvements
|
|
|
Sales and Other
|
|
|
Costs
(a)
|
|
|
Improvements
|
|
|
Improvements
|
|
|
Total
|
|
|
Depreciation
|
|
|
Construction
|
|
|
Acquired
|
|
|
|
(Dollars in thousands)
|
|
Entitled, Developed, and Under Development Projects:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CALIFORNIA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contra Costa County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Joaquin River
|
|
|
|
|
|
$
|
12,225
|
|
|
$
|
279
|
|
|
$
|
(3,517
|
)
|
|
|
|
|
|
$
|
8,708
|
|
|
$
|
279
|
|
|
$
|
8,987
|
|
|
$
|
(88
|
)
|
|
|
|
|
|
|
|
|
COLORADO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Douglas County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pinery West
|
|
$
|
5,475
|
|
|
|
7,308
|
|
|
|
|
|
|
|
293
|
|
|
|
|
|
|
|
7,601
|
|
|
|
|
|
|
|
7,601
|
|
|
|
|
|
|
|
2006
|
|
|
|
2006
|
|
Weld County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buffalo Highlands
|
|
|
|
|
|
|
3,001
|
|
|
|
|
|
|
|
334
|
|
|
|
|
|
|
|
3,335
|
|
|
|
|
|
|
|
3,335
|
|
|
|
|
|
|
|
2006
|
|
|
|
2005
|
|
Johnstown Farms
|
|
|
|
|
|
|
2,749
|
|
|
|
|
|
|
|
7,764
|
|
|
$
|
188
|
|
|
|
10,701
|
|
|
|
|
|
|
|
10,701
|
|
|
|
|
|
|
|
2002
|
|
|
|
2002
|
|
Stonebraker
|
|
|
|
|
|
|
3,878
|
|
|
|
|
|
|
|
488
|
|
|
|
|
|
|
|
4,366
|
|
|
|
|
|
|
|
4,366
|
|
|
|
|
|
|
|
2005
|
|
|
|
2005
|
|
TEXAS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bastrop County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hunters Crossing
|
|
|
|
|
|
|
3,613
|
|
|
|
|
|
|
|
8,006
|
|
|
|
308
|
|
|
|
11,927
|
|
|
|
|
|
|
|
11,927
|
|
|
|
|
|
|
|
2001
|
|
|
|
2001
|
|
The Colony
|
|
|
1,072
|
|
|
|
6,728
|
|
|
|
427
|
|
|
|
5,336
|
|
|
|
38
|
|
|
|
12,102
|
|
|
|
427
|
|
|
|
12,529
|
|
|
|
|
|
|
|
1999
|
|
|
|
1999
|
|
Bexar County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cibolo Canyons
|
|
|
|
|
|
|
25,568
|
|
|
|
|
|
|
|
21,199
|
|
|
|
220
|
|
|
|
46,987
|
|
|
|
|
|
|
|
46,987
|
|
|
|
|
|
|
|
2004
|
|
|
|
1986
|
|
Olympia Hills
|
|
|
|
|
|
|
3,330
|
|
|
|
|
|
|
|
(1,458
|
)
|
|
|
584
|
|
|
|
2,456
|
|
|
|
|
|
|
|
2,456
|
|
|
|
|
|
|
|
|
|
|
|
1995
|
|
Burnet County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Double Horn Creek
|
|
|
|
|
|
|
2,087
|
|
|
|
|
|
|
|
850
|
|
|
|
45
|
|
|
|
2,982
|
|
|
|
|
|
|
|
2,982
|
|
|
|
|
|
|
|
1999
|
|
|
|
1999
|
|
Calhoun County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caracol
|
|
|
7,366
|
|
|
|
8,603
|
|
|
|
|
|
|
|
4,527
|
|
|
|
|
|
|
|
13,130
|
|
|
|
|
|
|
|
13,130
|
|
|
|
|
|
|
|
2006
|
|
|
|
2006
|
|
Collin County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maxwell Creek
|
|
|
|
|
|
|
9,904
|
|
|
|
|
|
|
|
1,822
|
|
|
|
234
|
|
|
|
11,960
|
|
|
|
|
|
|
|
11,960
|
|
|
|
|
|
|
|
2000
|
|
|
|
2000
|
|
The Gables at North Hill
|
|
|
|
|
|
|
2,160
|
|
|
|
|
|
|
|
(302
|
)
|
|
|
63
|
|
|
|
1,921
|
|
|
|
|
|
|
|
1,921
|
|
|
|
|
|
|
|
2004
|
|
|
|
2001
|
|
Comal County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oakcreek Estates
|
|
|
|
|
|
|
1,921
|
|
|
|
|
|
|
|
3,943
|
|
|
|
62
|
|
|
|
5,926
|
|
|
|
|
|
|
|
5,926
|
|
|
|
|
|
|
|
2006
|
|
|
|
2005
|
|
Denton County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lantana
|
|
|
19,660
|
|
|
|
31,451
|
|
|
|
|
|
|
|
13,374
|
|
|
|
|
|
|
|
44,825
|
|
|
|
|
|
|
|
44,825
|
|
|
|
|
|
|
|
2000
|
|
|
|
1999
|
|
The Preserve at Pecan Creek
|
|
|
|
|
|
|
5,855
|
|
|
|
|
|
|
|
3,851
|
|
|
|
119
|
|
|
|
9,825
|
|
|
|
|
|
|
|
9,825
|
|
|
|
|
|
|
|
2006
|
|
|
|
2005
|
|
Harris County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
City Park
|
|
|
60
|
|
|
|
3,946
|
|
|
|
|
|
|
|
4,239
|
|
|
|
1,595
|
|
|
|
9,780
|
|
|
|
|
|
|
|
9,780
|
|
|
|
|
|
|
|
2002
|
|
|
|
2001
|
|
Katy Freeway
|
|
|
|
|
|
|
1,710
|
|
|
|
704
|
|
|
|
1,640
|
|
|
|
|
|
|
|
1,710
|
|
|
|
2,344
|
|
|
|
4,054
|
|
|
|
(1,992
|
)
|
|
|
|
|
|
|
|
|
Hood County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harbor Lakes
|
|
|
|
|
|
|
3,514
|
|
|
|
|
|
|
|
9,123
|
|
|
|
258
|
|
|
|
12,895
|
|
|
|
|
|
|
|
12,895
|
|
|
|
(403
|
)
|
|
|
2000
|
|
|
|
1998
|
|
Nueces County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tortuga Dunes
|
|
|
|
|
|
|
12,080
|
|
|
|
|
|
|
|
141
|
|
|
|
|
|
|
|
12,221
|
|
|
|
|
|
|
|
12,221
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
Rockwall County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caruth Lakes
|
|
|
|
|
|
|
1,624
|
|
|
|
|
|
|
|
5,373
|
|
|
|
63
|
|
|
|
7,060
|
|
|
|
|
|
|
|
7,060
|
|
|
|
|
|
|
|
1997
|
|
|
|
1996
|
|
Tarrant County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kingsridge
|
|
|
|
|
|
|
2,383
|
|
|
|
|
|
|
|
(1,393
|
)
|
|
|
66
|
|
|
|
1,056
|
|
|
|
|
|
|
|
1,056
|
|
|
|
|
|
|
|
2002
|
|
|
|
2001
|
|
The Parks at Deer Creek
|
|
|
|
|
|
|
3,538
|
|
|
|
|
|
|
|
666
|
|
|
|
350
|
|
|
|
4,554
|
|
|
|
|
|
|
|
4,554
|
|
|
|
|
|
|
|
1999
|
|
|
|
1998
|
|
Travis County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Presidio at Judges Hill
|
|
|
|
|
|
|
1,500
|
|
|
|
|
|
|
|
740
|
|
|
|
|
|
|
|
2,240
|
|
|
|
|
|
|
|
2,240
|
|
|
|
|
|
|
|
2006
|
|
|
|
2006
|
|
The Ridge at Ribelin Ranch
|
|
|
|
|
|
|
23,751
|
|
|
|
|
|
|
|
(16,366
|
)
|
|
|
|
|
|
|
7,385
|
|
|
|
|
|
|
|
7,385
|
|
|
|
|
|
|
|
2006
|
|
|
|
2006
|
|
Williamson County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Westside at Buttercup Creek
|
|
|
|
|
|
|
13,149
|
|
|
|
|
|
|
|
(2,888
|
)
|
|
|
147
|
|
|
|
10,408
|
|
|
|
|
|
|
|
10,408
|
|
|
|
|
|
|
|
1993
|
|
|
|
1993
|
|
Chandler Road Properties
|
|
|
|
|
|
|
3,552
|
|
|
|
|
|
|
|
(689
|
)
|
|
|
|
|
|
|
2,863
|
|
|
|
|
|
|
|
2,863
|
|
|
|
|
|
|
|
2004
|
|
|
|
2004
|
|
La Conterra
|
|
|
|
|
|
|
4,024
|
|
|
|
|
|
|
|
266
|
|
|
|
|
|
|
|
4,290
|
|
|
|
|
|
|
|
4,290
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
MISSOURI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clay County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Somerbrook
|
|
|
|
|
|
|
3,061
|
|
|
|
|
|
|
|
(348
|
)
|
|
|
10
|
|
|
|
2,723
|
|
|
|
|
|
|
|
2,723
|
|
|
|
|
|
|
|
2003
|
|
|
|
2001
|
|
UTAH
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weber County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fort Bingham Estates
|
|
|
|
|
|
|
3,284
|
|
|
|
|
|
|
|
(761
|
)
|
|
|
33
|
|
|
|
2,556
|
|
|
|
|
|
|
|
2,556
|
|
|
|
|
|
|
|
2003
|
|
|
|
1998
|
|
Other
|
|
|
|
|
|
|
24,037
|
|
|
|
|
|
|
|
(17,699
|
)
|
|
|
2,653
|
|
|
|
8,991
|
|
|
|
|
|
|
|
8,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Entitled, Developed,
and Under Development Projects
|
|
$
|
33,633
|
|
|
$
|
235,534
|
|
|
$
|
1,410
|
|
|
$
|
48,554
|
|
|
$
|
7,036
|
|
|
$
|
289,484
|
|
|
$
|
3,050
|
|
|
$
|
292,534
|
|
|
$
|
(2,483
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-27
FORESTAR
REAL ESTATE GROUP AND CONSOLIDATED VENTURES
SCHEDULE III COMBINED AND CONSOLIDATED REAL
ESTATE AND ACCUMULATED
DEPRECIATION (Continued)
Year-End 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs Capitalized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsequent to Acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial Cost to Company
|
|
|
Improvements
|
|
|
|
|
|
Gross Amount Carried at End of Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings &
|
|
|
less Cost of
|
|
|
Carrying
|
|
|
Land & Land
|
|
|
Buildings &
|
|
|
|
|
|
Accumulated
|
|
|
Date of
|
|
|
Date
|
|
Description
|
|
Encumbrances
|
|
|
Land
|
|
|
Improvements
|
|
|
Sales and Other
|
|
|
Costs
(a)
|
|
|
Improvements
|
|
|
Improvements
|
|
|
Total
|
|
|
Depreciation
|
|
|
Construction
|
|
|
Acquired
|
|
|
|
(Dollars in thousands)
|
|
Undeveloped Land:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALABAMA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cherokee County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
$
|
3,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,544
|
|
|
|
|
|
|
$
|
3,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cleburne County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
2,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,486
|
|
|
|
|
|
|
|
2,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CALIFORNIA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Los Angeles County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land In Entitlement Process
|
|
|
|
|
|
|
3,219
|
|
|
|
|
|
|
$
|
2,847
|
|
|
|
|
|
|
|
6,066
|
|
|
|
|
|
|
|
6,066
|
|
|
|
|
|
|
|
|
|
|
|
1997
|
|
GEORGIA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banks County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
2,821
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
2,836
|
|
|
|
|
|
|
|
2,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bartow County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
6,680
|
|
|
|
|
|
|
|
102
|
|
|
|
|
|
|
|
6,782
|
|
|
|
|
|
|
|
6,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land In Entitlement Process
|
|
|
|
|
|
|
520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
520
|
|
|
|
|
|
|
|
520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carroll County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
5,471
|
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
5,511
|
|
|
|
|
|
|
|
5,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land In Entitlement Process
|
|
|
|
|
|
|
12,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,021
|
|
|
|
|
|
|
|
12,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chattooga County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
1,951
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
1,965
|
|
|
|
|
|
|
|
1,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cherokee County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
4,679
|
|
|
|
|
|
|
|
93
|
|
|
|
|
|
|
|
4,772
|
|
|
|
|
|
|
|
4,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land In Entitlement Process
|
|
|
|
|
|
|
3,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,034
|
|
|
|
|
|
|
|
3,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coweta County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
2,777
|
|
|
|
|
|
|
|
241
|
|
|
|
|
|
|
|
3,018
|
|
|
|
|
|
|
|
3,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land In Entitlement Process
|
|
|
|
|
|
|
2,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,895
|
|
|
|
|
|
|
|
2,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dawson County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
3,259
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
3,266
|
|
|
|
|
|
|
|
3,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land In Entitlement Process
|
|
|
|
|
|
|
1,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,104
|
|
|
|
|
|
|
|
1,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elbert County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
2,012
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
2,015
|
|
|
|
|
|
|
|
2,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floyd County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
3,623
|
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
3,656
|
|
|
|
|
|
|
|
3,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gilmer County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
3,571
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
3,591
|
|
|
|
|
|
|
|
3,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gordon County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
2,834
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
2,848
|
|
|
|
|
|
|
|
2,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hall County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
1,207
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
1,225
|
|
|
|
|
|
|
|
1,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Haralson County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
9,607
|
|
|
|
|
|
|
|
121
|
|
|
|
|
|
|
|
9,728
|
|
|
|
|
|
|
|
9,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land In Entitlement Process
|
|
|
|
|
|
|
278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
278
|
|
|
|
|
|
|
|
278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Heard County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
9,586
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
9,633
|
|
|
|
|
|
|
|
9,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jackson County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
1,166
|
|
|
|
|
|
|
|
126
|
|
|
|
|
|
|
|
1,292
|
|
|
|
|
|
|
|
1,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land In Entitlement Process
|
|
|
|
|
|
|
885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
885
|
|
|
|
|
|
|
|
885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lumpkin County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
3,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,645
|
|
|
|
|
|
|
|
3,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Meriwether County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
2,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,027
|
|
|
|
|
|
|
|
2,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pickens County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
4,068
|
|
|
|
|
|
|
|
73
|
|
|
|
|
|
|
|
4,141
|
|
|
|
|
|
|
|
4,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Polk County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
3,164
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
3,190
|
|
|
|
|
|
|
|
3,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Troup County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
4,877
|
|
|
|
|
|
|
|
459
|
|
|
|
|
|
|
|
5,336
|
|
|
|
|
|
|
|
5,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-28
FORESTAR
REAL ESTATE GROUP AND CONSOLIDATED VENTURES
SCHEDULE III COMBINED AND CONSOLIDATED REAL
ESTATE AND ACCUMULATED
DEPRECIATION (Continued)
Year-End 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs Capitalized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsequent to Acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial Cost to Company
|
|
|
Improvements
|
|
|
|
|
|
Gross Amount Carried at End of Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings &
|
|
|
less Cost of
|
|
|
Carrying
|
|
|
Land & Land
|
|
|
Buildings &
|
|
|
|
|
|
Accumulated
|
|
|
Date of
|
|
|
Date
|
|
Description
|
|
Encumbrances
|
|
|
Land
|
|
|
Improvements
|
|
|
Sales and Other
|
|
|
Costs
(a)
|
|
|
Improvements
|
|
|
Improvements
|
|
|
Total
|
|
|
Depreciation
|
|
|
Construction
|
|
|
Acquired
|
|
|
|
(Dollars in thousands)
|
|
TEXAS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anderson County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
1,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,062
|
|
|
|
|
|
|
|
1,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Angelina County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
1,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,308
|
|
|
|
|
|
|
|
1,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Houston County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
1,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,632
|
|
|
|
|
|
|
|
1,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rusk County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
422
|
|
|
|
|
|
|
|
422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sabine County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
401
|
|
|
|
|
|
|
|
401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Augustine County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
1,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,358
|
|
|
|
|
|
|
|
1,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped Land
|
|
|
|
|
|
|
5,907
|
|
|
|
|
|
|
|
1,491
|
|
|
|
|
|
|
|
7,398
|
|
|
|
|
|
|
|
7,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land In Entitlement Process
|
|
|
|
|
|
|
4,225
|
|
|
|
|
|
|
|
2,054
|
|
|
|
|
|
|
|
6,279
|
|
|
|
|
|
|
|
6,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Undeveloped Land
|
|
$
|
|
|
|
$
|
125,326
|
|
|
$
|
|
|
|
$
|
7,844
|
|
|
$
|
|
|
|
$
|
133,170
|
|
|
$
|
|
|
|
$
|
133,170
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Operating Properties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TEXAS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Travis County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radisson Hotel & Suites
|
|
$
|
16,978
|
|
|
|
|
|
|
$
|
16,316
|
|
|
$
|
25,435
|
|
|
|
|
|
|
|
|
|
|
$
|
41,751
|
|
|
$
|
41,751
|
|
|
$
|
(18,251
|
)
|
|
|
|
|
|
|
|
|
Hood County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harbor Lakes
|
|
|
|
|
|
|
|
|
|
|
1,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,269
|
|
|
|
1,269
|
|
|
|
(173
|
)
|
|
|
2000
|
|
|
|
1998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Operating Properties
|
|
$
|
16,978
|
|
|
$
|
|
|
|
$
|
17,585
|
|
|
$
|
25,435
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
43,020
|
|
|
$
|
43,020
|
|
|
$
|
(18,424
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
50,611
|
|
|
$
|
360,860
|
|
|
$
|
18,995
|
|
|
$
|
81,833
|
|
|
$
|
7,036
|
|
|
$
|
422,654
|
|
|
$
|
46,070
|
|
|
$
|
468,724
|
|
|
$
|
(20,907
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
We do not capitalize carrying costs until development begins.
|
F-29
FORESTAR
REAL ESTATE GROUP AND CONSOLIDATED VENTURES
SCHEDULE III COMBINED AND CONSOLIDATED REAL
ESTATE AND
ACCUMULATED DEPRECIATION (Continued)
Year-End 2006
Reconciliation of real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Balance at beginning of year
|
|
$
|
392,107
|
|
|
$
|
383,798
|
|
|
$
|
394,833
|
|
Amounts capitalized
|
|
|
178,835
|
|
|
|
74,858
|
|
|
|
83,506
|
|
Amounts retired or adjusted
|
|
|
(102,218
|
)
|
|
|
(66,549
|
)
|
|
|
(94,541
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at close of period
|
|
$
|
468,724
|
|
|
$
|
392,107
|
|
|
$
|
383,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of accumulated depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
(18,957
|
)
|
|
$
|
(18,273
|
)
|
|
$
|
(20,629
|
)
|
Depreciation expense
|
|
|
(2,008
|
)
|
|
|
(1,829
|
)
|
|
|
(2,373
|
)
|
Amounts retired or adjusted
|
|
|
58
|
|
|
|
1,145
|
|
|
|
4,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at close of period
|
|
$
|
(20,907
|
)
|
|
$
|
(18,957
|
)
|
|
$
|
(18,273
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-30
Forestar
Real Estate Group LLC
UNAUDITED COMBINED AND CONSOLIDATED BALANCE
SHEETS
|
|
|
|
|
|
|
|
|
|
|
Third
|
|
|
|
|
|
|
Quarter-End
|
|
|
Year-End
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
7,862
|
|
|
$
|
10,350
|
|
Prepaid expenses
|
|
|
2,130
|
|
|
|
2,378
|
|
Real estate
|
|
|
518,044
|
|
|
|
447,817
|
|
Investment in unconsolidated ventures
|
|
|
100,200
|
|
|
|
90,444
|
|
Receivables, net of allowance for bad debts of $226 in 2007 and
2006
|
|
|
3,688
|
|
|
|
6,091
|
|
Timber
|
|
|
55,884
|
|
|
|
58,966
|
|
Property and equipment, net of accumulated depreciation of
$3,557 in 2007 and $2,387 in 2006
|
|
|
1,822
|
|
|
|
1,688
|
|
Other assets
|
|
|
3,333
|
|
|
|
2,440
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
692,963
|
|
|
$
|
620,174
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND TEMPLE-INLANDS NET INVESTMENT
|
Accounts payable
|
|
$
|
6,198
|
|
|
$
|
4,838
|
|
Accrued employee compensation and benefits
|
|
|
2,802
|
|
|
|
2,114
|
|
Accrued interest
|
|
|
194
|
|
|
|
210
|
|
Accrued property taxes
|
|
|
6,694
|
|
|
|
4,577
|
|
Other accrued expenses
|
|
|
5,015
|
|
|
|
2,810
|
|
Deferred income taxes
|
|
|
4,374
|
|
|
|
14,438
|
|
Other liabilities
|
|
|
6,405
|
|
|
|
4,272
|
|
Note payable to Temple-Inland
|
|
|
146,018
|
|
|
|
110,506
|
|
Debt
|
|
|
73,435
|
|
|
|
50,611
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
251,135
|
|
|
|
194,376
|
|
Minority Interest in Consolidated Ventures
|
|
|
8,172
|
|
|
|
7,746
|
|
Temple-Inlands Net Investment
|
|
|
433,656
|
|
|
|
418,052
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND TEMPLE-INLANDS NET INVESTMENT
|
|
$
|
692,963
|
|
|
$
|
620,174
|
|
|
|
|
|
|
|
|
|
|
Please read the notes to the unaudited financial statements.
F-31
Forestar
Real Estate Group LLC
UNAUDITED COMBINED AND CONSOLIDATED
STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
First Nine Months
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
REVENUES
|
|
|
|
|
|
|
|
|
Real estate sales
|
|
$
|
95,570
|
|
|
$
|
121,834
|
|
Commercial operating properties and other
|
|
|
19,697
|
|
|
|
23,163
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
|
115,267
|
|
|
|
144,997
|
|
Natural resources and other
|
|
|
27,106
|
|
|
|
38,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142,373
|
|
|
|
183,448
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES
|
|
|
|
|
|
|
|
|
Cost of real estate sales
|
|
|
(45,147
|
)
|
|
|
(76,831
|
)
|
Cost of commercial operating properties and other
|
|
|
(11,764
|
)
|
|
|
(12,710
|
)
|
Cost of natural resources and other
|
|
|
(5,166
|
)
|
|
|
(3,907
|
)
|
Other operating
|
|
|
(19,948
|
)
|
|
|
(18,018
|
)
|
General and administrative
|
|
|
(14,972
|
)
|
|
|
(11,852
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(96,997
|
)
|
|
|
(123,318
|
)
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
|
45,376
|
|
|
|
60,130
|
|
Equity in earnings of unconsolidated ventures
|
|
|
4,310
|
|
|
|
15,542
|
|
Minority interest in consolidated ventures
|
|
|
(5,039
|
)
|
|
|
(1,895
|
)
|
Interest expense
|
|
|
(6,461
|
)
|
|
|
(4,680
|
)
|
Other non-operating income (expense)
|
|
|
454
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE TAXES
|
|
|
38,640
|
|
|
|
69,105
|
|
Income tax expense
|
|
|
(13,951
|
)
|
|
|
(25,196
|
)
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
24,689
|
|
|
$
|
43,909
|
|
|
|
|
|
|
|
|
|
|
Please read the notes to the unaudited financial statements.
F-32
Forestar
Real Estate Group LLC
UNAUDITED COMBINED AND CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
First Nine Months
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
CASH PROVIDED BY (USED FOR) OPERATIONS
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
24,689
|
|
|
$
|
43,909
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
2,001
|
|
|
|
1,744
|
|
Deferred income taxes
|
|
|
(10,064
|
)
|
|
|
(4,229
|
)
|
Equity in earnings of unconsolidated ventures
|
|
|
(4,310
|
)
|
|
|
(15,542
|
)
|
Distributions of earnings of unconsolidated ventures
|
|
|
2,054
|
|
|
|
848
|
|
Minority interest in consolidated ventures
|
|
|
5,039
|
|
|
|
1,895
|
|
Distributions to minority interests
|
|
|
(5,335
|
)
|
|
|
(269
|
)
|
Non-cash real estate cost of sales
|
|
|
40,256
|
|
|
|
72,797
|
|
Real estate development and acquisition expenditures
|
|
|
(118,705
|
)
|
|
|
(108,582
|
)
|
Other changes in real estate
|
|
|
6,126
|
|
|
|
(350
|
)
|
Impairment, cost of timber cut and other non-cash expenses
|
|
|
6,092
|
|
|
|
2,940
|
|
Other
|
|
|
(610
|
)
|
|
|
1,157
|
|
Changes in:
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
4,886
|
|
|
|
(1,162
|
)
|
Prepaid assets and other
|
|
|
342
|
|
|
|
721
|
|
Accounts payable and other accrued liabilities
|
|
|
5,278
|
|
|
|
1,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42,261
|
)
|
|
|
(2,302
|
)
|
|
|
|
|
|
|
|
|
|
CASH PROVIDED BY (USED FOR) INVESTING
|
|
|
|
|
|
|
|
|
Property, equipment, software, and reforestation
|
|
|
(2,430
|
)
|
|
|
(2,566
|
)
|
Investment in unconsolidated ventures
|
|
|
(10,932
|
)
|
|
|
(6,846
|
)
|
Return of investment in unconsolidated ventures
|
|
|
3,239
|
|
|
|
17,893
|
|
Notes receivable sold
|
|
|
491
|
|
|
|
4,004
|
|
Proceeds from sale of property and equipment
|
|
|
166
|
|
|
|
1,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,466
|
)
|
|
|
13,796
|
|
|
|
|
|
|
|
|
|
|
CASH PROVIDED BY (USED FOR) FINANCING
|
|
|
|
|
|
|
|
|
Note payable to Temple-Inland, net
|
|
|
39,174
|
|
|
|
51,368
|
|
Payments of debt
|
|
|
(9,791
|
)
|
|
|
(87,365
|
)
|
Proceeds from issuance of debt
|
|
|
32,615
|
|
|
|
25,441
|
|
Investments of capital by minority interest
|
|
|
726
|
|
|
|
145
|
|
Dividends and other transfers to Temple-Inland
|
|
|
(13,485
|
)
|
|
|
(6,027
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
49,239
|
|
|
|
(16,438
|
)
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(2,488
|
)
|
|
|
(4,944
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
10,350
|
|
|
|
12,942
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at period-end
|
|
$
|
7,862
|
|
|
$
|
7,998
|
|
|
|
|
|
|
|
|
|
|
Please read the notes to the unaudited financial statements
F-33
Forestar
Real Estate Group LLC
NOTES TO THE UNAUDITED COMBINED
AND
CONSOLIDATED FINANCIAL STATEMENTS
|
|
Note 1
|
Nature of
Business and Basis of Presentation
|
Background
On February 26, 2007, Temple-Inland announced that its
Board of Directors had preliminarily approved a transformation
plan which included the spin-off of its real estate operations
to Temple-Inland shareholders as an independent publicly held
company. Prior to the spin-off, Temple-Inland will contribute
the assets, liabilities, operations and cash flow of its real
estate development and minerals operations to us. On
October 31, 2007, we converted from a limited liability
company to a Delaware corporation. Our operations will consist
of the real estate segment of Temple-Inland, several smaller
real estate operations and assets previously included in
Temple-Inlands other business segments, and the minerals
operations previously included in Temple-Inlands forest
products segment.
Basis
of Presentation
Our combined and consolidated financial statements reflect the
historical accounts of the real estate development and minerals
operations to be contributed to us and have been derived from
the historical financial statements and accounts of
Temple-Inland. We prepared the accompanying unaudited interim
combined and consolidated financial statements in accordance
with generally accepted accounting principles and Securities and
Exchange Commission requirements for interim financial
statements. As a result, they do not include all of the
information and disclosures required by generally accepted
accounting principles for complete financial statements.
However, in our opinion, all adjustments considered necessary
for a fair presentation have been included. These adjustments
are normal recurring accruals, except as noted. These interim
operating results are not necessarily indicative of the results
that may be expected for the entire year. These combined and
consolidated financial statements should be read in conjunction
with our audited combined and consolidated financial statements
for year-end 2006.
We prepare our financial statements in accordance with generally
accepted accounting principles, which require us to make
estimates and assumptions about future events. Actual results
can, and probably will, differ from those we currently estimate.
Examples of significant estimates include those related to
allocating costs to real estate and measuring assets for
impairment.
Historical earnings per share are not presented since our common
stock that will be issued in the spin-off was not part of the
capital structure of Temple-Inland for the periods presented. We
will present basic and diluted earnings per share for Forestar
in the first report issued after the effective date of the
spin-off.
New
Accounting Pronouncement
Beginning in January 2007, we adopted Financial Accounting
Standards Board (FASB) Interpretation No. 48, Accounting
for Uncertainty in Income Taxes (FIN 48). This
pronouncement clarifies the accounting for and disclosure of
uncertainties associated with certain aspects of measurement and
recognition of income taxes. The adoption of FIN 48 did not
result in any adjustments to our financial statements. We do not
have any unrecognized tax benefits at the beginning of 2007 or
third quarter-end 2007 which would affect our effective rate if
recognized.
F-34
Forestar
Real Estate Group LLC
NOTES TO
THE UNAUDITED COMBINED
AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Real estate consists of:
|
|
|
|
|
|
|
|
|
|
|
Third
|
|
|
|
|
|
|
Quarter-End
|
|
|
Year-End
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Entitled, developed, and under development land
|
|
$
|
356,371
|
|
|
$
|
292,534
|
|
Undeveloped land
|
|
|
138,596
|
|
|
|
133,170
|
|
Commercial operating properties
|
|
|
43,378
|
|
|
|
43,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
538,345
|
|
|
|
468,724
|
|
Accumulated depreciation
|
|
|
(20,301
|
)
|
|
|
(20,907
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
518,044
|
|
|
$
|
447,817
|
|
|
|
|
|
|
|
|
|
|
Included in entitled, developed, and under development land are
the estimated cost of assets we expect to convey to utility or
improvement districts of $40,409,000 at third quarter-end 2007
and $14,213,000 at year-end 2006. These costs relate to water,
sewer and other infrastructure assets for which the utility or
improvement districts have agreed to reimburse us. We billed
these districts $27,282,000 in first nine months 2007 and
$6,614,000 in first nine months 2006, and we collected from
these districts $4,727,000 in first nine months 2007 and
$2,394,000 in first nine months 2006. We expect to collect the
remaining amounts billed in first nine months 2007 when these
districts achieve adequate tax bases to support payment, which
is typically within 12 to 24 months.
Depreciation expense primarily related to commercial operating
properties was $1,493,000 for first nine months 2007 and
$1,514,000 for the first nine months 2006 and is included in
other operating expense.
In third quarter 2007, we entered into agreements to facilitate
third-party construction and ownership of a resort hotel, spa
and golf facilities at our Cibolo Canyons mixed-use development
near San Antonio, Texas. Under the agreements, we
transferred to the third-party owners about 700 acres of
undeveloped land with a carrying value of about $8,000,000 and
we agreed to transfer about $38,000,000 ($10,000,000 by year-end
2007, of which $6,000,000 has been funded; $18,000,000 in
2008-9;
and
$10,000,000 in
2010-11).
In
exchange, the third-party owners assigned to us certain rights
under an Economic Development Agreement, including the right to
receive hotel occupancy and sales taxes generated within the
resort through 2034. In addition, the construction of the resort
hotel and golf facilities will satisfy a condition to our right
to obtain reimbursement of certain infrastructure costs under an
Ad Valorem Tax and Non Resort Sales and Use Tax Public
Improvement Financing Agreement between us and a special purpose
improvement district. Our cost associated with this resort is
included in our entitled, developed, and under development land.
Any hotel occupancy and sales taxes collected will be applied to
reduce our cost in the project until there are no uncertainties
as to recoverability. For income tax purposes this transaction
has been accounted for as a sale and a deferred tax asset has
been recorded for the tax on the related gain.
F-35
Forestar
Real Estate Group LLC
NOTES TO
THE UNAUDITED COMBINED
AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 3
|
Investment
in Unconsolidated Ventures
|
Combined summarized balance sheet information for our ventures
accounted for using the equity method follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter-End 2007
|
|
|
Year-End 2006
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
CL Realty
|
|
|
Temco
|
|
|
Ventures
|
|
|
Total
|
|
|
CL Realty
|
|
|
Temco
|
|
|
Ventures
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Real estate
|
|
$
|
120,515
|
|
|
$
|
59,460
|
|
|
$
|
62,361
|
|
|
$
|
242,336
|
|
|
$
|
113,289
|
|
|
$
|
58,273
|
|
|
$
|
44,666
|
|
|
$
|
216,228
|
|
Total assets
|
|
|
129,405
|
|
|
|
63,916
|
|
|
|
106,097
|
|
|
|
299,418
|
|
|
|
117,779
|
|
|
|
65,765
|
|
|
|
99,523
|
|
|
|
283,067
|
|
Borrowings, principally
non-recourse
(a)
|
|
|
4,783
|
|
|
|
3,444
|
|
|
|
61,141
|
|
|
|
69,368
|
|
|
|
5,357
|
|
|
|
3,745
|
|
|
|
56,407
|
|
|
|
65,509
|
|
Total liabilities
|
|
|
15,136
|
|
|
|
4,619
|
|
|
|
72,381
|
|
|
|
92,136
|
|
|
|
9,456
|
|
|
|
4,979
|
|
|
|
67,469
|
|
|
|
81,904
|
|
Equity
|
|
|
114,269
|
|
|
|
59,297
|
|
|
|
33,716
|
|
|
|
207,282
|
|
|
|
108,323
|
|
|
|
60,786
|
|
|
|
32,054
|
|
|
|
201,163
|
|
Our investment in real estate ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our share of their
equity
(b)
|
|
|
57,134
|
|
|
|
29,649
|
|
|
|
21,100
|
|
|
|
107,883
|
|
|
|
54,162
|
|
|
|
30,393
|
|
|
|
13,919
|
|
|
|
98,474
|
|
Unrecognized deferred
gain
(c)
|
|
|
(7,069
|
)
|
|
|
|
|
|
|
(614
|
)
|
|
|
(7,683
|
)
|
|
|
(7,416
|
)
|
|
|
|
|
|
|
(614
|
)
|
|
|
(8,030
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in real estate ventures
|
|
$
|
50,065
|
|
|
$
|
29,649
|
|
|
$
|
20,486
|
|
|
$
|
100,200
|
|
|
$
|
46,746
|
|
|
$
|
30,393
|
|
|
$
|
13,305
|
|
|
$
|
90,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined summarized income statement information for our
ventures accounted for using the equity method follows:
|
|
|
|
|
|
|
|
|
|
|
First Nine Months
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
CL Realty
|
|
$
|
5,823
|
|
|
$
|
38,590
|
|
Temco
|
|
|
5,374
|
|
|
|
38,689
|
|
Other ventures
|
|
|
12,195
|
|
|
|
29,422
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
23,392
|
|
|
$
|
106,701
|
|
|
|
|
|
|
|
|
|
|
Earnings:
|
|
|
|
|
|
|
|
|
CL Realty
|
|
$
|
4,152
|
|
|
$
|
15,060
|
|
Temco
|
|
|
511
|
|
|
|
11,816
|
|
Other ventures
|
|
|
1,712
|
|
|
|
2,851
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,375
|
|
|
$
|
29,727
|
|
|
|
|
|
|
|
|
|
|
Our equity in their earnings:
|
|
|
|
|
|
|
|
|
CL
Realty
(c)(d)
|
|
$
|
2,076
|
|
|
$
|
7,514
|
|
Temco(d)
|
|
|
255
|
|
|
|
5,908
|
|
Other
ventures
(b)
|
|
|
1,632
|
|
|
|
1,391
|
|
Recognition of deferred
gain
(c)
|
|
|
347
|
|
|
|
729
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,310
|
|
|
$
|
15,542
|
|
|
|
|
|
|
|
|
|
|
F-36
Forestar
Real Estate Group LLC
NOTES TO
THE UNAUDITED COMBINED
AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
(a)
|
|
Includes current maturities of debt of $7,468,000 at third
quarter-end 2007 and $12,375,000 at year-end 2006.
|
|
(b)
|
|
Our share of the equity in other ventures, reflects our
ownership interests ranging from 25 to 50 percent,
excluding venture losses that exceed our investment where we are
not obligated to fund those losses.
|
|
(c)
|
|
In 2003, we contributed real estate with a $13,800,000 carrying
value to CL Realty in exchange for $13,800,000 cash and a
50 percent interest in the partnership. We deferred the
$14,587,000 gain on the sale and are recognizing it as the
partnership sells the real estate to third parties. The deferred
gain is reflected as an offset to our investment in
unconsolidated ventures.
|
|
(d)
|
|
Beginning in 2006, we eliminated our historic one-month lag in
accounting for our investment in CL Realty and Temco as
financial information became more readily available. The
one-time effect of eliminating this one-month lag was to
increase our equity in earnings for 2006 by $754,000 for CL
Realty and $350,000 for Temco.
|
In first nine months 2007 we invested $10,932,000 in these
ventures and received $5,293,000 in distributions, and in first
nine months 2006 we invested $6,846,000 and received $18,741,000
in distributions. Distributions include both return of
investments and distributions of earnings.
We provide development services for some of these ventures for
which we receive a fee. Fees for these services were $313,000 in
first nine months 2007 and $621,000 in first nine months 2006
and are included in real estate revenues.
|
|
Note 4
|
Receivables
and Other Assets
|
Receivables consists of:
|
|
|
|
|
|
|
|
|
|
|
Third
|
|
|
|
|
|
|
Quarter-End
|
|
|
Year-End
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Seller financing notes receivable, average interest rate of 7.9%
in 2007 and 7.8% in 2006
|
|
$
|
494
|
|
|
$
|
1,729
|
|
Notes receivable, average interest rate of 9.6% in 2007 and 2006
|
|
|
1,315
|
|
|
|
1,755
|
|
Accrued interest and other
|
|
|
2,105
|
|
|
|
2,833
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,914
|
|
|
$
|
6,317
|
|
Allowance
|
|
|
(226
|
)
|
|
|
(226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,688
|
|
|
$
|
6,091
|
|
|
|
|
|
|
|
|
|
|
Seller financing notes receivable are generally secured by a
deed of trust with a 10 percent down payment and mature
through 2009. In November 2006, we ceased providing seller
financing in connection with the sale of residential lots.
Notes receivable are funds advanced to potential venture
partners and will be converted to an equity interest in a
venture or collected. It is anticipated that these notes will be
satisfied by year-end 2008.
Other receivables are miscellaneous operating receivables
arising in the normal course of business. We expect to collect
$840,000 in 2007 and the remainder in 2008.
The carrying value of capitalized software was $2,021,000 at
third quarter-end 2007 and $1,071,000 at year-end 2006 and is
included in other assets.
F-37
Forestar
Real Estate Group LLC
NOTES TO
THE UNAUDITED COMBINED
AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We capitalized reforestation expenditures of $411,000 in first
nine months 2007 and $1,057,000 in first nine months 2006. The
cost of timber cut was $3,493,000 in first nine months 2007 and
$2,463,000 in first nine months 2006.
Debt consists of:
|
|
|
|
|
|
|
|
|
|
|
Third
|
|
|
|
|
|
|
Quarter-End
|
|
|
Year-End
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
7.3% secured promissory note maturing in 2008
|
|
$
|
16,571
|
|
|
$
|
16,978
|
|
Other indebtedness due through 2011 at variable interest rates
based on prime (7.75% at third quarter-end 2007) and at
fixed interest rates ranging from 6.00% to 9.50% secured
primarily by real estate including non-recourse debt of
consolidated ventures
|
|
|
56,864
|
|
|
|
33,633
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
73,435
|
|
|
$
|
50,611
|
|
|
|
|
|
|
|
|
|
|
Our debt agreements contain terms, conditions, and financial
covenants customary for such agreements including minimum levels
of interest coverage and limitations on leverage. At third
quarter-end 2007, we had complied with the terms, conditions,
and financial covenants of these agreements.
At third quarter-end 2007, commercial operating properties
having a book value of $22,564,000 were subject to liens in
connection with $16,571,000 of debt, and entitled development
and under development land having a book value of $138,305,000
were subject to liens in connection with $56,864,000 of debt.
We capitalized and deducted from interest expense interest
incurred on real estate development projects of $555,000 in
first nine months 2007 and $346,000 in first nine months 2006.
We paid interest of $4,791,000 in first nine months 2007, of
which $2,344,000 was paid to Temple-Inland, and $2,073,000 in
first nine months 2006, all of which was related to third party
debt.
F-38
Forestar
Real Estate Group LLC
NOTES TO
THE UNAUDITED COMBINED
AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 7
|
Segment
Information
|
We operate two business segments: real estate and natural
resources.
We evaluate performance based on segment earnings before
unallocated expenses and income taxes. Unallocated expenses
consist of corporate general and administrative expense,
share-based compensation, other non-operating income (expense),
and interest expense. The accounting policies of the segments
are the same as those described in the accounting policy note to
the combined and consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses Not
|
|
|
|
|
|
|
|
|
|
Natural
|
|
|
Allocated to
|
|
|
|
|
|
|
Real Estate
|
|
|
Resources
|
|
|
Segments
(a)
|
|
|
Total
|
|
|
For the first nine months 2007 or at third quarter-end
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
115,267
|
|
|
$
|
27,106
|
|
|
$
|
|
|
|
$
|
142,373
|
|
Depreciation and amortization
|
|
|
1,962
|
|
|
|
39
|
|
|
|
|
|
|
|
2,001
|
|
Equity in earnings of unconsolidated ventures
|
|
|
4,310
|
|
|
|
|
|
|
|
|
|
|
|
4,310
|
|
Income (loss) before taxes
|
|
|
39,730
|
|
|
|
19,050
|
|
|
|
(20,140
|
)
|
|
|
38,640
|
|
Total assets
|
|
|
624,592
|
|
|
|
56,308
|
|
|
|
12,063
|
|
|
|
692,963
|
|
Investment in unconsolidated ventures
|
|
|
100,200
|
|
|
|
|
|
|
|
|
|
|
|
100,200
|
|
Capital
expenditures
(b)
|
|
|
2,020
|
|
|
|
410
|
|
|
|
|
|
|
|
2,430
|
|
For the first nine months 2006 or at third quarter-end
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
144,997
|
|
|
$
|
38,451
|
|
|
$
|
|
|
|
$
|
183,448
|
|
Depreciation and amortization
|
|
|
1,702
|
|
|
|
42
|
|
|
|
|
|
|
|
1,744
|
|
Equity in earnings of unconsolidated ventures
|
|
|
15,542
|
|
|
|
|
|
|
|
|
|
|
|
15,542
|
|
Income (loss) before taxes
|
|
|
54,832
|
|
|
|
30,232
|
|
|
|
(15,959
|
)
|
|
|
69,105
|
|
Total assets
|
|
|
505,201
|
|
|
|
60,053
|
|
|
|
10,880
|
|
|
|
576,134
|
|
Investment in unconsolidated ventures
|
|
|
79,310
|
|
|
|
|
|
|
|
|
|
|
|
79,310
|
|
Capital
expenditures
(b)
|
|
|
1,510
|
|
|
|
1,056
|
|
|
|
|
|
|
|
2,566
|
|
|
|
|
(a)
|
|
Expenses not allocated to segments consists of:
|
|
|
|
|
|
|
|
|
|
|
|
First Nine Months
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
General and administrative
|
|
$
|
(7,598
|
)
|
|
$
|
(6,636
|
)
|
Expense allocation from Temple Inland (see Note 9)
|
|
|
(4,657
|
)
|
|
|
(3,737
|
)
|
Share based compensation allocation from Temple-Inland (see
Note 8)
|
|
|
(1,878
|
)
|
|
|
(914
|
)
|
Interest expense
|
|
|
(6,461
|
)
|
|
|
(4,680
|
)
|
Other non-operating income (expense)
|
|
|
454
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(20,140
|
)
|
|
$
|
(15,959
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(b)
|
|
Consists of expenditures for property and equipment and
reforestation.
|
F-39
Forestar
Real Estate Group LLC
NOTES TO
THE UNAUDITED COMBINED
AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 8
|
Share-Based
Compensation
|
The expense for the share-based compensation awards granted to
our employees was allocated to us by Temple-Inland. Information
about these Temple-Inland awards follows:
Restricted
or performance units
A summary of activity for the first nine months 2007 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average Grant
|
|
|
Aggregate
|
|
|
|
Temple-Inland
|
|
|
Date Fair Value
|
|
|
Current
|
|
|
|
Shares
|
|
|
Per Share
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In thousands)
|
|
|
Not vested beginning of 2007
|
|
|
51
|
|
|
$
|
43
|
|
|
|
|
|
Granted
|
|
|
66
|
|
|
|
55
|
|
|
|
|
|
Vested
|
|
|
(6
|
)
|
|
|
30
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not vested second quarter-end 2007
|
|
|
111
|
|
|
|
51
|
|
|
$
|
5,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no vested restricted or performance units to be
settled at third quarter-end 2007.
Restricted
stock
There were 11,000 restricted stock awards outstanding at third
quarter-end 2007 with a weighted average grant date fair value
of $37.07 per share and an aggregate current value of $579,000.
The fair value of restricted stock vested in first nine months
2007 was $92,000.
Stock
options
A summary of activity for the first nine months 2007 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
Intrinsic Value
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
(Current value
|
|
|
|
Temple-Inland
|
|
|
Exercise Price
|
|
|
Contractual
|
|
|
less exercise
|
|
|
|
Shares
|
|
|
Per Share
|
|
|
Term
|
|
|
price)
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In years)
|
|
|
(In thousands)
|
|
|
Outstanding beginning of 2007
|
|
|
174
|
|
|
$
|
33
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
53
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at third quarter-end 2007
|
|
|
227
|
|
|
|
37
|
|
|
|
7
|
|
|
$
|
3,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at third quarter-end 2007
|
|
|
123
|
|
|
|
29
|
|
|
|
5
|
|
|
$
|
2,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-40
Forestar
Real Estate Group LLC
NOTES TO
THE UNAUDITED COMBINED
AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Temple-Inland estimated the fair value of the options granted
using the Black-Scholes-Merton option-pricing model and the
following assumptions:
|
|
|
|
|
|
|
|
|
|
|
First Nine Months
|
|
|
|
2007
|
|
|
2006
|
|
|
Expected dividend yield
|
|
|
2.3
|
%
|
|
|
2.4
|
%
|
Expected stock price volatility
|
|
|
22.8
|
%
|
|
|
25.1
|
%
|
Risk-free interest rate
|
|
|
4.9
|
%
|
|
|
4.4
|
%
|
Expected life of options in years
|
|
|
6
|
|
|
|
6
|
|
Weighted average estimated fair value of options granted
|
|
$
|
12.47
|
|
|
$
|
11.53
|
|
Share-based
compensation expense
Pre-tax share-based compensation expense allocated to us by
Temple-Inland consists of:
|
|
|
|
|
|
|
|
|
|
|
First Nine Months
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Restricted or performance units cash
|
|
$
|
1,360
|
|
|
$
|
394
|
|
Restricted or performance units stock
|
|
|
108
|
|
|
|
172
|
|
Stock options
|
|
|
410
|
|
|
|
348
|
|
|
|
|
|
|
|
|
|
|
Pre-tax share-based compensation expense
|
|
$
|
1,878
|
|
|
$
|
914
|
|
|
|
|
|
|
|
|
|
|
The liability for restricted or performance units to be settled
in cash is included in other liabilities.
Pre-tax share-based compensation expense included in other
operating and general and administrative expense is as follows:
|
|
|
|
|
|
|
|
|
|
|
First Nine Months
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
General and administrative
|
|
$
|
1,669
|
|
|
$
|
776
|
|
Other operating
|
|
|
209
|
|
|
|
138
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,878
|
|
|
$
|
914
|
|
|
|
|
|
|
|
|
|
|
The fair value of awards granted to retirement-eligible
employees and expensed at the date of grant was $166,000 in
first nine months 2007, all of which was related to stock
options. There was no share-based compensation capitalized in
first nine months of 2007 or first nine months of 2006.
Unrecognized share-based compensation for all awards not vested
was $4,753,000 at third quarter-end 2007. It is likely that this
cost will be recognized as expense over the next four years.
|
|
Note 9
|
Related
Party Transactions
|
We reimburse Temple-Inland for expenses incurred on our behalf
and allocated to us. Additional allocated expense incurred by
Temple-Inland but not directly attributable to us are reflected
as capital contributions, net of tax.
F-41
Forestar
Real Estate Group LLC
NOTES TO
THE UNAUDITED COMBINED
AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of allocated expenses from Temple-Inland follows:
|
|
|
|
|
|
|
|
|
|
|
First Nine Months
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Legal, human resources and other administrative costs
|
|
$
|
2,050
|
|
|
$
|
1,598
|
|
Variable compensation
|
|
|
638
|
|
|
|
796
|
|
Accounting and finance
|
|
|
1,110
|
|
|
|
707
|
|
Information technology support
|
|
|
702
|
|
|
|
495
|
|
Internal audit, governance and other
|
|
|
157
|
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,657
|
|
|
|
3,737
|
|
Share based compensation
|
|
|
1,878
|
|
|
|
914
|
|
Pension and postretirement
|
|
|
163
|
|
|
|
537
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,698
|
|
|
$
|
5,188
|
|
|
|
|
|
|
|
|
|
|
Natural resources and other revenues include sales of timber to
Temple-Inland of $8,997,000 in first nine months 2007 and
$6,073,000 in first nine months 2006. Cost of natural resources
and other includes cost of timber sold to Temple-Inland of
$3,042,000 in first nine months 2007 and $1,328,000 in first
nine months 2006.
Temple-Inland
Credit Facility
In 2006, we established a credit facility with Temple-Inland.
Under this facility, when we need funds we borrow and when we
have excess funds we use them to repay amounts borrowed.
Borrowings under this agreement accrued interest at
4.71 percent at third quarter-end 2007. In first nine
months 2007, the average daily balance was $132,851,000, the
maximum month-end balance was $146,018,000, the weighted average
interest rate on borrowing was 4.58 percent, and the
related interest expense was $4,560,000. In first nine months
2006, the average daily balance was $85,284,000, the maximum
month-end balance was $97,918,000, the weighted average interest
rate on borrowings was 4.60 percent, and the related
interest expense was $2,942,000.
A summary of the activity in the Temple-Inland credit facility
follows:
|
|
|
|
|
|
|
|
|
|
|
First Nine Months
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Beginning balance
|
|
$
|
110,506
|
|
|
$
|
12,829
|
|
Additions
|
|
|
104,262
|
|
|
|
137,368
|
|
Repayments
|
|
|
(68,750
|
)
|
|
|
(86,001
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
146,018
|
|
|
$
|
64,196
|
|
|
|
|
|
|
|
|
|
|
Additions to the Temple-Inland credit facility consist of
acquisition and development costs, venture contributions, and
other operating, general and administrative expenses, and income
taxes. Repayments to the Temple-Inland credit facility are made
when our daily sources of funds from operations exceed our uses
of funds.
F-42
Forestar
Real Estate Group LLC
NOTES TO
THE UNAUDITED COMBINED
AND CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 10
|
Other
Information (Unaudited)
|
As part of its transformation plan, Temple-Inland will
contribute certain assets to Forestar. In addition, expenses
incurred on our behalf by Temple-Inland have been allocated to
us. As a result, the amounts previously reported by
Temple-Inland for its real estate segment differ from those
included in this Form 10 for Forestar. A reconciliation
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Originally
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported by
|
|
|
|
|
|
|
|
|
|
|
|
|
Temple-Inland
|
|
|
|
|
|
|
|
|
As Reported in
|
|
|
|
for Real Estate
|
|
|
|
|
|
Allocated
|
|
|
This Form 10
|
|
|
|
Segment
|
|
|
Reclassification
(a)
|
|
|
Expenses
(b)
|
|
|
for Forestar
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
For the first nine months or at third quarter-end 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
106,279
|
|
|
$
|
36,094
|
|
|
|
|
|
|
$
|
142,373
|
|
Depreciation and amortization
|
|
|
1,950
|
|
|
|
51
|
|
|
|
|
|
|
|
2,001
|
|
Income (loss) before taxes
|
|
|
31,319
|
|
|
|
13,155
|
|
|
|
(5,834
|
)
|
|
|
38,640
|
|
Total assets
|
|
|
624,079
|
|
|
|
68,884
|
|
|
|
|
|
|
|
692,963
|
|
Capital expenditures
|
|
|
2,020
|
|
|
|
410
|
|
|
|
|
|
|
|
2,430
|
|
For the first nine months or at third quarter-end 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
141,238
|
|
|
$
|
42,210
|
|
|
|
|
|
|
$
|
183,448
|
|
Depreciation and amortization
|
|
|
1,684
|
|
|
|
60
|
|
|
|
|
|
|
|
1,744
|
|
Income (loss) before taxes
|
|
|
50,200
|
|
|
|
23,120
|
|
|
|
(4,215
|
)
|
|
|
69,105
|
|
Total assets
|
|
|
502,711
|
|
|
|
73,423
|
|
|
|
|
|
|
|
576,134
|
|
Capital expenditures
|
|
|
1,510
|
|
|
|
1,056
|
|
|
|
|
|
|
|
2,566
|
|
|
|
|
(a)
|
|
Reclassified to reflect the transfer of an additional
138,000 acres of real estate and timber, principally
undeveloped land, about 622,000 net acres of mineral
interests, and several small real estate development projects
and assets previously included in Temple-Inlands other
business segments. These reclassifications were made as if they
had occurred at the beginning of the earliest period presented
and they were made based on historical carrying amounts.
|
|
(b)
|
|
Represents an allocation of expenses incurred by Temple-Inland
but not directly attributable to us.
|
F-43