exv10w1



 





Exhibit 10.1




Execution Copy




REVOLVING AND TERM CREDIT AGREEMENT




DATED AS OF DECEMBER 14, 2007




AMONG




FORESTAR (USA) REAL ESTATE GROUP INC.,

as Borrower,




FORESTAR REAL ESTATE GROUP INC. AND

THE WHOLLY OWNED SUBSIDIARIES

OF BORROWER SIGNATORY HERETO,

as Guarantors,




AND




KEYBANK NATIONAL ASSOCIATION,

as a Lender, Swing Line Lender and Agent




AND




THE OTHER LENDERS WHICH MAY BECOME

PARTIES TO THIS AGREEMENT




AND




GENERAL ELECTRIC CREDIT CORPORATION and

AgFIRST FARM CREDIT BANK,

as Co-Syndication Agents,




AND




KEYBANC CAPITAL MARKETS

as Sole Arranger and Sole Book Runner




 









 





TABLE OF CONTENTS




	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	§1.	 	DEFINITIONS AND RULES OF INTERPRETATION	 	 	1	 
	 
	 	§1.1	 	Definitions	 	 	1	 
	 
	 	§1.2	 	Rules of Interpretation	 	 	25	 
	 
	 	 	 	 	 	 	 	 
	§2.	 	LOANS AND LETTERS OF CREDIT	 	 	26	 
	 
	 	§2.1	 	Commitment to Lend	 	 	26	 
	 
	 	§2.2	 	Notes	 	 	28	 
	 
	 	§2.3	 	Interest on Loans	 	 	29	 
	 
	 	§2.4	 	Unused Facility Fee	 	 	30	 
	 
	 	§2.5	 	Reduction and Termination of Revolving Commitment	 	 	30	 
	 
	 	§2.6	 	Requests for Loans	 	 	31	 
	 
	 	§2.7	 	Funds for Loans	 	 	31	 
	 
	 	§2.8	 	Use of Proceeds	 	 	32	 
	 
	 	§2.9	 	Increase in Commitments	 	 	32	 
	 
	 	§2.10	 	Letters of Credit	 	 	34	 
	 
	 	 	 	 	 	 	 	 
	§3.	 	REPAYMENT AND PREPAYMENT OF THE LOANS	 	 	37	 
	 
	 	§3.1	 	Amortization; Stated Maturity	 	 	37	 
	 
	 	§3.2	 	Mandatory Prepayments	 	 	37	 
	 
	 	§3.3	 	Optional Prepayments	 	 	38	 
	 
	 	§3.4	 	Partial Prepayments	 	 	38	 
	 
	 	§3.5	 	Effect of Prepayments	 	 	38	 
	 
	 	 	 	 	 	 	 	 
	§4.	 	CERTAIN GENERAL PROVISIONS	 	 	39	 
	 
	 	§4.1	 	Conversion Options; Number of LIBOR Contracts	 	 	39	 
	 
	 	§4.2	 	Certain Fees	 	 	39	 
	 
	 	§4.3	 	Letter of Credit Fees	 	 	40	 
	 
	 	§4.4	 	Funds for Payments	 	 	40	 
	 
	 	§4.5	 	Computations	 	 	41	 
	 
	 	§4.6	 	Inability to Determine LIBOR Rate	 	 	41	 
	 
	 	§4.7	 	Illegality	 	 	41	 
	 
	 	§4.8	 	Additional Interest	 	 	41	 
	 
	 	§4.9	 	Additional Costs, Etc.	 	 	42	 
	 
	 	§4.10	 	Capital Adequacy	 	 	43	 
	 
	 	§4.11	 	Indemnity by Borrower	 	 	44	 
	 
	 	§4.12	 	Interest on Overdue Amounts; Late Charge	 	 	44	 
	 
	 	§4.13	 	Certificate	 	 	44	 
	 
	 	§4.14	 	Limitation on Interest	 	 	44	 
	 
	 	 	 	 	 	 	 	 
	§5.	 	COLLATERAL SECURITY; RELEASES	 	 	45	 
	 
	 	§5.1	 	Collateral	 	 	45	 
	 
	 	§5.2	 	Appraisals; Evaluations; Adjusted Value	 	 	45	 
	 
	 	§5.3	 	Release of Mortgaged Property	 	 	47	 
	 
	 	§5.4	 	Additional Mineral Rights Leases	 	 	48	 
	 
	 	§5.5	 	Addition of Negative Pledge Properties to the Borrowing Base Assets	 	 	48	 






 









 






	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	 
	 	§5.6	 	Operating Account	 	 	49	 
	 
	 	§5.7	 	Advance Account	 	 	49	 
	 
	 	§5.8	 	Tax Parcels	 	 	50	 
	 
	 	 	 	 	 	 	 	 
	§6.	 	REPRESENTATIONS AND WARRANTIES	 	 	50	 
	 
	 	§6.1	 	Corporate Authority, Etc.	 	 	50	 
	 
	 	§6.2	 	Approvals	 	 	51	 
	 
	 	§6.3	 	Title to Properties; Leases	 	 	51	 
	 
	 	§6.4	 	Financial Statements	 	 	51	 
	 
	 	§6.5	 	No Material Changes	 	 	52	 
	 
	 	§6.6	 	Franchises, Patents, Copyrights, Etc.	 	 	52	 
	 
	 	§6.7	 	Litigation	 	 	52	 
	 
	 	§6.8	 	No Materially Adverse Contracts, Etc.	 	 	52	 
	 
	 	§6.9	 	Compliance with Organizational Documents, Other Instruments, Laws, Etc.	 	 	52	 
	 
	 	§6.10	 	Tax Status	 	 	53	 
	 
	 	§6.11	 	No Event of Default	 	 	53	 
	 
	 	§6.12	 	Investment Company Act	 	 	53	 
	 
	 	§6.13	 	Reserved	 	 	53	 
	 
	 	§6.14	 	Setoff, Etc.	 	 	53	 
	 
	 	§6.15	 	Certain Transactions	 	 	53	 
	 
	 	§6.16	 	Employee Benefit Plans	 	 	54	 
	 
	 	§6.17	 	Regulations T, U and X	 	 	54	 
	 
	 	§6.18	 	Environmental Compliance	 	 	54	 
	 
	 	§6.19	 	Loan Documents	 	 	56	 
	 
	 	§6.20	 	Mortgaged Properties and Negative Pledge Properties	 	 	56	 
	 
	 	§6.21	 	Reserved	 	 	58	 
	 
	 	§6.22	 	Brokers	 	 	58	 
	 
	 	§6.23	 	Ownership	 	 	58	 
	 
	 	§6.24	 	OFAC	 	 	58	 
	 
	 	§6.25	 	No Fraudulent Intent	 	 	59	 
	 
	 	§6.26	 	Transaction in Best Interests of  Loan Parties; Consideration	 	 	59	 
	 
	 	§6.27	 	Solvency	 	 	59	 
	 
	 	§6.28	 	No Bankruptcy Filing	 	 	59	 
	 
	 	§6.29	 	Other Debt	 	 	59	 
	 
	 	§6.30	 	Tax Shelter Representation	 	 	60	 
	 
	 	 	 	 	 	 	 	 
	§7.	 	AFFIRMATIVE COVENANTS OF LOAN PARTIES	 	 	60	 
	 
	 	§7.1	 	Punctual Payment	 	 	60	 
	 
	 	§7.2	 	Maintenance of Office	 	 	60	 
	 
	 	§7.3	 	Records and Accounts	 	 	60	 
	 
	 	§7.4	 	Financial Statements, Certificates and Information	 	 	61	 
	 
	 	§7.5	 	Notices	 	 	62	 
	 
	 	§7.6	 	Existence; Maintenance of Properties	 	 	64	 
	 
	 	§7.7	 	Insurance	 	 	64	 
	 
	 	§7.8	 	Taxes	 	 	65	 






ii









 







	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	 
	 	§7.9	 	Inspection of Mortgaged Properties, Negative Pledge Properties and Books	 	 	66	 
	 
	 	§7.10	 	Compliance with Laws, Contracts, Licenses, and Permits	 	 	66	 
	 
	 	§7.11	 	Sweep of Certain Funds in Operating
Accounts of Loan Parties and Subsidiaries	 	 	66	 
	 
	 	§7.12	 	Further Assurances	 	 	67	 
	 
	 	§7.13	 	Project Approvals	 	 	67	 
	 
	 	§7.14	 	Timber Affirmative Covenants	 	 	67	 
	 
	 	§7.15	 	Plan Assets	 	 	68	 
	 
	 	§7.16	 	Failure to Consummate Spin-off Transaction	 	 	68	 
	 
	 	§7.17	 	Business Operations	 	 	68	 
	 
	 	§7.18	 	Registered Servicemark	 	 	69	 
	 
	 	§7.19	 	Mineral Activities	 	 	69	 
	 
	 	§7.20	 	More Restrictive Agreements	 	 	69	 
	 
	 	§7.21	 	Additional Subsidiaries; Additional Guarantors	 	 	69	 
	 
	 	§7.22	 	Future Advances Tax Payment	 	 	70	 
	 
	 	 	 	 	 	 	 	 
	§8.	 	CERTAIN NEGATIVE COVENANTS OF LOAN PARTIES	 	 	70	 
	 
	 	§8.1	 	Restrictions on Indebtedness	 	 	70	 
	 
	 	§8.2	 	Restrictions on Liens, Etc.	 	 	72	 
	 
	 	§8.3	 	Restrictions on Investments	 	 	74	 
	 
	 	§8.4	 	Merger, Consolidation	 	 	76	 
	 
	 	§8.5	 	Sale and Leaseback	 	 	76	 
	 
	 	§8.6	 	Compliance with Environmental Laws	 	 	76	 
	 
	 	§8.7	 	Distributions	 	 	78	 
	 
	 	§8.8	 	Asset Sales	 	 	78	 
	 
	 	§8.9	 	[RESERVED]	 	 	80	 
	 
	 	§8.10	 	Restriction on Prepayment of Indebtedness	 	 	80	 
	 
	 	§8.11	 	[RESERVED]	 	 	80	 
	 
	 	§8.12	 	Negative Pledges, Restrictive Agreements, etc.	 	 	80	 
	 
	 	§8.13	 	Organizational Documents	 	 	81	 
	 
	 	§8.14	 	Affiliate Transactions	 	 	81	 
	 
	 	§8.15	 	Management Fees, Expenses, etc.	 	 	81	 
	 
	 	§8.16	 	Deposit Account Control Agreements	 	 	82	 
	 
	 	§8.17	 	[RESERVED]	 	 	82	 
	 
	 	§8.18	 	Modification of Certain Agreements	 	 	82	 
	 
	 	 	 	 	 	 	 	 
	§9.	 	FINANCIAL COVENANTS OF BORROWER	 	 	82	 
	 
	 	§9.1	 	Corporate Financial Covenants of Loan Parties	 	 	83	 
	 
	 	§9.2	 	Borrowing Base Covenants	 	 	83	 
	 
	 	 	 	 	 	 	 	 
	§10.	 	CLOSING CONDITIONS	 	 	83	 
	 
	 	§10.1	 	Loan Documents	 	 	84	 
	 
	 	§10.2	 	Certified Copies of Organizational Documents	 	 	84	 
	 
	 	§10.3	 	Resolutions	 	 	84	 
	 
	 	§10.4	 	Incumbency Certificate; Authorized Signers	 	 	84	 
	 
	 	§10.5	 	Opinion of Counsel	 	 	84	 






iii









 






	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	 
	 	§10.6	 	Payment of Fees	 	 	85	 
	 
	 	§10.7	 	Insurance	 	 	85	 
	 
	 	§10.8	 	Performance; No Default	 	 	85	 
	 
	 	§10.9	 	Representations and Warranties	 	 	85	 
	 
	 	§10.10	 	Proceedings and Documents	 	 	85	 
	 
	 	§10.11	 	Mortgaged Property Documents	 	 	85	 
	 
	 	§10.12	 	Surveys and Title Policies	 	 	86	 
	 
	 	§10.13	 	Compliance Certificate	 	 	86	 
	 
	 	§10.14	 	Miscellaneous Documents	 	 	86	 
	 
	 	§10.15	 	Other Documents	 	 	86	 
	 
	 	§10.16	 	No Condemnation/Taking	 	 	86	 
	 
	 	§10.17	 	Post Spin-off Available Liquidity	 	 	86	 
	 
	 	§10.18	 	No Litigation	 	 	86	 
	 
	 	§10.19	 	Other	 	 	87	 
	 
	 	 	 	 	 	 	 	 
	§11.	 	CONDITIONS TO ALL BORROWINGS AND LETTERS OF CREDIT	 	 	87	 
	 
	 	§11.1	 	Representations True; No Default	 	 	87	 
	 
	 	§11.2	 	No Legal Impediment	 	 	87	 
	 
	 	§11.3	 	Borrowing Documents	 	 	87	 
	 
	 	 	 	 	 	 	 	 
	§12.	 	EVENTS OF DEFAULT; ACCELERATION; ETC.	 	 	87	 
	 
	 	§12.1	 	Events of Default and Acceleration	 	 	87	 
	 
	 	§12.2	 	Limitation of Cure Periods	 	 	90	 
	 
	 	§12.3	 	Termination of Commitments	 	 	90	 
	 
	 	§12.4	 	Remedies	 	 	91	 
	 
	 	§12.5	 	Distribution of Collateral Proceeds	 	 	91	 
	 
	 	 	 	 	 	 	 	 
	§13.	 	SETOFF	 	 	92	 
	 
	 	 	 	 	 	 	 	 
	§14.	 	THE AGENT	 	 	93	 
	 
	 	§14.1	 	Authorization	 	 	93	 
	 
	 	§14.2	 	Employees and Agents	 	 	93	 
	 
	 	§14.3	 	No Liability	 	 	93	 
	 
	 	§14.4	 	No Representations	 	 	94	 
	 
	 	§14.5	 	Payments	 	 	95	 
	 
	 	§14.6	 	Holders of Notes	 	 	96	 
	 
	 	§14.7	 	Indemnity	 	 	96	 
	 
	 	§14.8	 	Agent as Lender	 	 	96	 
	 
	 	§14.9	 	Resignation	 	 	96	 
	 
	 	§14.10	 	Duties in the Case of Enforcement	 	 	97	 
	 
	 	§14.11	 	Request for Agent Action	 	 	97	 
	 
	 	§14.12	 	Removal of Agent	 	 	98	 
	 
	 	§14.13	 	Bankruptcy	 	 	98	 
	 
	 	 	 	 	 	 	 	 
	§15.	 	EXPENSES	 	 	98	 
	 
	 	 	 	 	 	 	 	 
	§16.	 	INDEMNIFICATION	 	 	99	 






iv









 






	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	§17.	 	SURVIVAL OF COVENANTS, ETC.	 	 	100	 
	 
	 	 	 	 	 	 	 	 
	§18.	 	ASSIGNMENT AND PARTICIPATION	 	 	101	 
	 
	 	§18.1	 	Conditions to Assignment by Lenders	 	 	101	 
	 
	 	§18.2	 	Register	 	 	103	 
	 
	 	§18.3	 	New Notes	 	 	103	 
	 
	 	§18.4	 	Participations	 	 	103	 
	 
	 	§18.5	 	Pledge by Lender	 	 	103	 
	 
	 	§18.6	 	No Assignment by Borrower	 	 	104	 
	 
	 	§18.7	 	Cooperation; Disclosure	 	 	104	 
	 
	 	§18.8	 	Mandatory Assignment	 	 	104	 
	 
	 	§18.9	 	Co-Agents	 	 	105	 
	 
	 	§18.10	 	Treatment of Certain Information; Confidentiality	 	 	105	 
	 
	 	§18.11	 	Withholding Tax	 	 	106	 
	 
	 	 	 	 	 	 	 	 
	§19.	 	NOTICES	 	 	107	 
	 
	 	 	 	 	 	 	 	 
	§20.	 	RELATIONSHIP	 	 	109	 
	 
	 	 	 	 	 	 	 	 
	§21.	 	GOVERNING LAW; CONSENT TO JURISDICTION AND SERVICE	 	 	110	 
	 
	 	 	 	 	 	 	 	 
	§22.	 	HEADINGS	 	 	110	 
	 
	 	 	 	 	 	 	 	 
	§23.	 	COUNTERPARTS; INTEGRATION; EFFECTIVENESS; ELECTRONIC EXECUTION	 	 	110	 
	 
	 	 	 	 	 	 	 	 
	§24.	 	ENTIRE AGREEMENT, ETC.	 	 	111	 
	 
	 	 	 	 	 	 	 	 
	§25.	 	WAIVER OF JURY TRIAL AND CERTAIN DAMAGE CLAIMS	 	 	111	 
	 
	 	 	 	 	 	 	 	 
	§26.	 	DEALINGS WITH THE BORROWER	 	 	112	 
	 
	 	 	 	 	 	 	 	 
	§27.	 	CONSENTS, AMENDMENTS, WAIVERS, ETC.	 	 	112	 
	 
	 	 	 	 	 	 	 	 
	§28.	 	SEVERABILITY	 	 	114	 
	 
	 	 	 	 	 	 	 	 
	§29.	 	NO UNWRITTEN AGREEMENTS	 	 	115	 
	 
	 	 	 	 	 	 	 	 
	§30.	 	ACKNOWLEDGMENT OF INDEMNITY OBLIGATIONS	 	 	115	 
	 
	 	 	 	 	 	 	 	 
	§31.	 	REPLACEMENT OF NOTES	 	 	115	 
	 
	 	 	 	 	 	 	 	 
	§32.	 	TIME IS OF THE ESSENCE	 	 	115	 
	 
	 	 	 	 	 	 	 	 
	§33.	 	RIGHTS OF THIRD PARTIES	 	 	115	 
	 
	 	 	 	 	 	 	 	 
	§34.	 	GUARANTY	 	 	116	 
	 
	 	§34.1	 	The Guaranty	 	 	116	 
	 
	 	§34.2	 	Obligations Unconditional	 	 	116	 
	 
	 	§34.3	 	Reinstatement	 	 	117	 
	 
	 	§34.4	 	Certain Waivers	 	 	118	 






v









 






	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	 
	 	§34.5	 	Remedies	 	 	118	 
	 
	 	§34.6	 	Rights of Contribution	 	 	118	 
	 
	 	§34.7	 	Guaranty of Payment; Continuing Guaranty	 	 	119	 
	 
	 	§34.8	 	Special Provisions Applicable to Guarantors	 	 	119	 






EXHIBITS AND SCHEDULES




	 	 	 
	Exhibit A-1
	 	Form of Revolving Loan Note
	Exhibit A-2
	 	Form of Term Loan Note
	Exhibit A-3
	 	Form of Swing Line Note
	Exhibit B
	 	Form of Compliance Certificate
	Exhibit C
	 	Form of Assignment and Assumption Agreement
	Exhibit D-1
	 	Form of Request for Loan
	Exhibit D-2
	 	Form of Request for Swing Line Loan
	Exhibit E
	 	Form of Borrowing Base Certificate
	Exhibit F
	 	Patriot Act and OFAC Transferee and Assignee Identifying Information Form
	Exhibit G
	 	Form of Letter of Credit Request
	Exhibit H
	 	Form of Joinder Agreement (Guarantor)
	Schedule 1.1
	 	Lenders and Commitments
	Schedule 2
	 	Mortgaged Property Documents
	Schedule 3
	 	Mortgaged Properties
	Schedule 4
	 	Mineral Rights Leases
	Schedule 5
	 	Timberland
	Schedule 6
	 	High Value Timberland
	Schedule 7
	 	Raw Entitled Land
	Schedule 8
	 	Entitled Land Under Development
	Schedule 9
	 	Non-Appraised Entitled Land
	Schedule 10
	 	Valuations
	Schedule 11
	 	Excluded Subsidiaries as of Closing Date
	Schedule 6.1(b)
	 	Subsidiaries
	Schedule 6.7
	 	Litigation
	Schedule 6.10
	 	Open Audit Periods
	Schedule 6.15
	 	Transactions with Affiliates
	Schedule 6.20(f)
	 	Unresolved Real Estate Claims or Disputes
	Schedule 6.20(g)
	 	Material Real Estate Agreements
	Schedule 6.23
	 	Legal Structure
	Schedule 6.29
	 	Permitted Existing Indebtedness
	Schedule 8.2
	 	Permitted Liens
	Schedule 8.3
	 	Investments







vi










 





REVOLVING AND TERM CREDIT AGREEMENT




     THIS REVOLVING AND TERM CREDIT AGREEMENT (this “Agreement”) is made the 14th day of
December, 2007, by and among FORESTAR (USA) REAL ESTATE GROUP INC., a Delaware corporation, as
borrower (“Borrower”), having its principal place of business at 1300 South MoPac
Expressway, Austin, Texas 78746, FORESTAR REAL ESTATE GROUP INC., a Delaware corporation
(“Forestar Group”), and the wholly owned, direct and indirect Subsidiaries of Borrower now
or hereafter signatory hereto, as guarantors (collectively with Forestar Group,
“Guarantors”), KEYBANK NATIONAL ASSOCIATION, a national banking association
(“KeyBank”), as Swing Line Lender, and with the other lending institutions that are or may
become parties hereto pursuant to §18 as lenders (“Lenders”), KEYBANK NATIONAL ASSOCIATION,
as administrative agent (“Agent”) for itself and the other Lenders, GENERAL ELECTRIC CREDIT
CORPORATION and AgFIRST FARM CREDIT BANK, as Co-Syndication Agents, and KEYBANC CAPITAL MARKETS, as
sole arranger and sole bookrunner.



RECITALS 




     WHEREAS, Borrower has requested that Lenders make available to it both a revolving credit
facility and a term loan facility;



     WHEREAS, the Revolving Lenders (as hereinafter defined) are willing to make such revolving
credit facility available to Borrower, which will include a Swing Line Commitment (as hereinafter
defined) and a letter of credit sub-facility, and the Term Lenders (as hereinafter defined) are
willing to make such term loan facility available to Borrower, all upon the terms and conditions
contained herein; and



     NOW, THEREFORE, in consideration of the recitals herein and the mutual covenants and
agreements contained herein, the parties hereto hereby agree as follows:



§1. DEFINITIONS AND RULES OF INTERPRETATION



          §1.1 Definitions




     The following terms shall have the meanings set forth in this §1 or elsewhere in the
provisions of this Agreement referred to below:



     Acquisition Expenditures. The amount of any hard and soft costs incurred by any Loan
Party, any of their respective Subsidiaries and any of the Joint Ventures in connection with the
acquisition of unimproved Real Estate, including the purchase price thereof, and reasonable and
customary, out-of-pocket transactional costs and expenses paid by any Loan Party in connection with
such acquisition, for which such Loan Party shall provide or cause to be provided to Agent, upon
Agent’s request from time to time, invoices, settlement statements and other supporting
documentation in respect thereof (and which, with respect to any Real Estate included in the
Borrowing Base Assets, have otherwise been properly accounted for by such Loan Party in the



 









 




Borrowing Base Certificates submitted to Agent), but excluding therefrom general
administrative and overhead costs and Development Expenditures.




     Adjusted Asset Value. For the Loan Parties, as of any date of determination, the sum
of the following, without duplication: (a) the aggregate amount of unrestricted cash and cash
equivalents; (b) the Timberland Value; (c) the High Value Timberland Amount; (d) the Raw Entitled
Land Value; (e) the Entitled Land Under Development Value; (f) the Non-Appraised Entitled Land
Value; (g) the Mineral Business Enterprise Value; (h) all other Real Estate owned by the Loan
Parties, valued at book value without regard to any Indebtedness; and (i) all assets held by Joint
Ventures, valued at book value without regard to any Indebtedness at the Joint Venture level,
provided however, that only the Loan Parties’ respective pro rata share of such Joint Venture
assets shall be taken into account for purposes of this definition. Notwithstanding anything to
the contrary contained in this definition, in the event Borrower requests that Agent order and
review an Appraisal of any assets described in clauses (h) or (i) of this definition, then such
assets shall be valued at the lower of book value or appraised value as set forth in such
Appraisal.



     Advance Account. The account established with Agent pursuant to §5.7.



     Affected Lender. See §18.8.



     Affiliates. As applied to any Person, any other Person directly or indirectly
controlling, controlled by, or under common control with, that Person. For purposes of this
definition, “control” (including, with correlative meanings, the terms “controlling”, “controlled
by” and “under common control with”), as applied to any Person, means (a) the possession, directly
or indirectly, of the power to vote fifty percent (50%) or more of the stock, shares, voting trust
certificates, beneficial interests, partnership interests, member interests or other interests
having voting power for the election of directors of such Person or otherwise to direct or cause
the direction of the management and policies of that Person, whether through the ownership of
voting securities or by contract or otherwise, or (b) the ownership of (i) a general partnership
interest, (ii) a managing member’s interest in a limited liability company or (iii) a limited
partnership interest or preferred stock (or other ownership interest) representing fifty percent
(50%) or more of the outstanding limited or general partnership interests, preferred stock or other
ownership interests of such Person. With respect to the Loan Parties, Temple-Inland and its
Affiliates (other than Forestar Group and its Subsidiaries) shall not be deemed to be an Affiliate
as of the Closing Date through and including the Spin-off Effective Date. After the Spin-off
Effective Date, the Loan Parties and Temple-Inland shall not be deemed to be under common control
for purposes hereof solely due to the fact that Forestar Group and Temple-Inland have common
stockholders.



     Agent. KeyBank, acting as Administrative Agent for itself and the other Lenders, its
successors and assigns.



     Agent’s Office. Agent’s office located at 127 Public Square, Cleveland, Ohio 44114,
or at such other location as Agent may designate from time to time by notice to Borrower and the
other Lenders.



     Agent’s Special Counsel. Powell Goldstein LLP or such other counsel as may be
selected by Agent.



2









 





     Agreement. This Revolving and Term Credit Agreement, including the Schedules
and Exhibits hereto.



     Agreement Regarding Fees. The Agreement Regarding Fees dated as of December 14, 2007,
among Agent, Arranger and Borrower regarding certain fees payable by Borrower in connection with
this Agreement.



     Applicable Approval Percentage. For purposes of the definitions of Required Lenders
and Requisite Class Lenders, the Applicable Approval Percentage shall be either (i) sixty-six and
two-thirds percent (66-2/3%) in connection with any amendment, consent or waiver relating to the
provisions of §5, §8, §9 or §12 (including applicable definitions), and (ii) in all other cases,
fifty percent (50%).



     Appraisal. An appraisal of the value of Real Estate determined on a fair market value
basis, performed by an independent MAI appraiser selected by Agent who is not an employee of
Borrower, Agent or a Lender, the form and substance of each such appraisal and the identity of the
appraiser to be in accordance with regulatory laws and policies (both regulatory and internal)
applicable to Lenders and otherwise acceptable to Agent.



     Arranger. KeyBanc Capital Markets.



     Assignment and Assumption Agreement. See §18.1.



     Assignment of Leases and Rents. Collectively, the Assignments of Leases and Rents
(Timber), dated as of even date herewith, from Borrower in favor of Agent, as the same may be
amended, restated, supplemented, consolidated or otherwise modified from time to time, pursuant to
which there shall be assigned to Agent for the benefit of Lenders a security interest in the
interest of Borrower as lessor with respect to all Leases (including Timber leases) of all or any
part of the Real Estate owned by Borrower, each such assignment to be in form and substance
satisfactory to Agent.



     Assignment of Mineral Rights Leases. The Assignment of Leases, Rents and Royalties
(Minerals), dated as of even date herewith, from Forestar Minerals LLC and any other Loan Party
(other than Borrower) that is a party to a Mineral Rights Lease, in favor of Agent, as the same may
be amended, restated, supplemented, consolidated or otherwise modified from time to time, pursuant
to which there shall be assigned to Agent for the benefit of Lenders a security interest in the
interest of Forestar Minerals LLC or any other applicable Loan Party as lessor with respect to all
Mineral Rights Leases, such assignment to be in form and substance satisfactory to Agent.



     Assignment of Rights to Joint Venture Distributions. The Assignment and Security
Agreement regarding Joint Venture Distributions dated as of the Closing Date, executed by and among
the Loan Parties that from time to time own Equity Interests in any Joint Venture, in favor of
Agent for the benefit of Agent and Lenders.



     Available Liquidity. As of any date of determination, an amount equal to the sum of
(a) the amount available for drawing under the Revolving Commitment (subject to pro forma
compliance with all covenants, including, without limitation, §9.2(b)) plus (b)
unrestricted cash



3









 




plus (c) Cash Equivalents which are not pledged or encumbered and the use of which is
not restricted by the terms of any agreement.




     Balance Sheet Date. December 31, 2006.



     Base Rate. The greater of (a) the variable annual rate of interest announced from
time to time by Agent at Agent’s Office as its “prime rate” or (b) one-half of one percent (0.5%)
above the Federal Funds Effective Rate (rounded upwards, if necessary, to the next one-eighth of
one percent). The Base Rate is a reference rate and does not necessarily represent the lowest or
best rate being charged to any customers. Any change in the rate of interest payable hereunder
resulting from a change in the Base Rate shall become effective as of the opening of business on
the day on which such change in the Base Rate becomes effective, without notice or demand of any
kind.



     Base Rate Loans. Those Loans bearing interest by reference to the Base Rate.



     Bonus Payment. The initial payment received upon execution and delivery of a new
Mineral Rights Lease.



     Borrower. As defined in the preamble hereto.



     Borrower’s Knowledge or Knowledge. The actual knowledge of the chief executive
officer, Principal Financial Officer, chief financial officer (if different from the Principal
Financial Officer), general counsel or vice-president-land management of Borrower, after having
conducted a reasonable investigation and inquiry thereof; provided, however, the foregoing shall
not be deemed to require Borrower to obtain any written environmental site assessment reports.



     Borrowing Base. As of any date of determination, the sum of the following percentages
of the Borrowing Base Assets:




	 	(a)	 	thirty-five percent (35%) of Timberland Value; plus
	 
	 	(b)	 	twenty-five percent (25%) of High Value Timberland Amount;
plus
	 
	 	(c)	 	forty percent (40%) of Raw Entitled Land Value; plus
	 
	 	(d)	 	forty-five percent (45%) of Entitled Land Under Development
Value; plus
	 
	 	(e)	 	sixty percent (60%) of Mineral Business Enterprise Value;




provided, however, that the Borrowing Base shall be reduced by the amounts, if any,
by which (i) the portion of the Borrowing Base accounted for by clause (b) of this definition would
exceed fifteen percent (15%) of the Borrowing Base, and (ii) the portion of the Borrowing Base
accounted for by clause (c) of this definition would exceed twenty-five percent (25%) of the
Borrowing Base.




     Borrowing Base Assets. Collectively, the Timberland, the High Value Timberland, the
Raw Entitled Land, the Entitled Land Under Development and the Mineral Business, subject to
§9.2(a).



     Borrowing Base Certificate. See §7.4(e).



4









 





     Business Day. Any day other than a Saturday, Sunday or other day on which commercial
banks are authorized to close under the Laws of, or are in fact closed in, the state of New York,
the state of Texas, the state where Agent’s Office is located and, if such day relates to any
Eurodollar Rate Loan, means any such day on which dealings in Dollar deposits are conducted by and
between banks in the London interbank Eurodollar market.



     Capitalized Lease. A lease under which a Person is the lessee or obligor, the
discounted future rental payment obligations under which are required to be capitalized on the
balance sheet of the lessee or obligor in accordance with GAAP.



     Cash Equivalents. Investments of the type described in §8.3(a) through (f).



     CERCLA. See §6.18.



     Change of Control. A Change of Control shall exist upon the occurrence of any of the
following:



          (a) except for any change of control resulting from Forestar Group ceasing to be a wholly
owned Subsidiary of Temple-Inland upon consummation of the Spin-off Transaction, a transaction in
which any “person” or “group” (within the meaning of Section 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934, as amended) becomes the “beneficial owner” (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934, as amended), directly or indirectly, of a sufficient number of
shares of all classes of stock then outstanding of Forestar Group ordinarily entitled to vote in
the election of directors, empowering such “person” or “group” to elect a majority of the Board of
Directors of Forestar Group, who did not have such power before such transaction; or




          (b) Borrower ceases for any reason to be a wholly owned, direct Subsidiary of Forestar Group.




     Class. With respect to Lenders, the Revolver Lenders and Term Lenders, and with
respect to Loans, Revolving Loans and Term Loans.



     Closing Date. The first date on which all of the conditions set forth in §10 and §11
have been satisfied or waived in writing by Agent.



     Code. The Internal Revenue Code of 1986, as amended.



     Collateral. All of the property, rights and interests of Borrower and Guarantors
which are or are intended to be subject to the security interests, security title, liens and
mortgages created by the Security Documents, including, without limitation, the Mortgaged Property.



     Collateral Assignment of Timber Purchase Agreement. The Collateral Assignment
executed by the Borrower in respect of the Timber Purchase Agreement, which Collateral Assignment
shall be in form and substance satisfactory to Agent.



     Commitment. With respect to each Lender, the amount set forth on Schedule 1.1
hereto as the amount of such Lender’s Commitment to make or maintain Loans to Borrower, or purchase



5









 




participations in Swing Line Loans in accordance with §2.1, or purchase participations in
Letters of Credit issued by Agent for the account of Borrower in accordance with §2.10, in each
case as the same may be changed from time to time in accordance with the terms of this Agreement,
including, without limitation, §2.9.




     Commitment Percentage. With respect to each Lender, the percentage set forth on
Schedule 1.1 hereto as such Lender’s percentage of the aggregate Commitments of all of
Lenders.



     Compliance Certificate. See §7.4(c).



     Consolidated or combined. With reference to any term defined herein, that term as
applied to the accounts of a Person and its Subsidiaries, determined on a consolidated or combined
basis in accordance with GAAP.



     Consolidated Tangible Net Worth. The amount by which Consolidated Total Assets
exceeds Consolidated Total Liabilities less, to the extent included in Consolidated Total Assets,
the sum of:



          (a) the total book value of all assets of a Person and its Subsidiaries properly classified as
intangible assets under GAAP, including such items as good will, the purchase price of acquired
assets in excess of the fair market value thereof, trademarks, trade names, service marks, brand
names, copyrights, patents and licenses, and rights with respect to the foregoing; plus




          (b) all amounts representing any write-up in the book value of any assets of a Person and its
Subsidiaries resulting from a revaluation thereof subsequent to the Balance Sheet Date; plus




          (c) all amounts representing minority interests which are applicable to third parties.




     Consolidated Total Assets. All assets of a Person and its Subsidiaries determined on a
consolidated basis in accordance with GAAP.



     Consolidated Total Liabilities. All liabilities of a Person and its Subsidiaries and
their allocable share of liabilities of their respective Subsidiaries determined on a consolidated
basis in accordance with GAAP, and all Indebtedness of such Person and its Subsidiaries, whether or
not so classified.



     Conversion Request. A notice given by Borrower to Agent of its election to convert or
continue a Loan in accordance with §4.1.



     Default. See §12.1.



     Default Rate. See §4.12.



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     Delay Rental Payment. The payment received by any Loan Party from time to time in the
event the tenant or lessee under any Mineral Rights Lease does not commence drilling within the
applicable timeframe established under such Mineral Rights Lease.



     Deposit Account Bank. Each bank or other financial institution at which any Loan
Party maintains a deposit account, that has entered into a Deposit Account Control Agreement.



     Deposit Account Control Agreement. Each deposit account control agreement, in form
and substance satisfactory to Agent, from time to time executed by a Deposit Account Bank in favor
of Agent for the benefit of Agent and Lenders, each applicable Loan Party and Agent.



     Development. A residential community, commercial development, mixed use residential
and commercial community or industrial development or any other project or development developed by
Borrower or by any Loan Party or Joint Venture.



     Development Expenditures. The amount of any hard and soft costs incurred by any Loan
Party or any of the Joint Ventures in connection with the development of the Developments
attributable to zoning, permitting, design, site improvement, amenities, and construction of
infrastructure in connection with the Developments for which such Loan Party shall provide or cause
to be provided to Agent, upon Agent’s request from time to time, invoices, work orders and other
supporting documentation with respect thereto, and which, with respect to any Development on Real
Estate included in the Borrowing Base Assets, have otherwise been properly accounted for by such
Loan Party in the Borrowing Base Certificates submitted to Agent, including infrastructure costs,
but excluding therefrom general administrative and overhead costs, and Acquisition Expenditures.



     Distribution. With respect to any Person, the declaration or payment of any cash,
cash flow, dividend or distribution (whether in the form of cash or property) on or in respect of
any shares of any class of capital stock, partnership interest, membership interest or other
beneficial interest of such Person; the purchase, redemption, exchange or other retirement for
value of any shares of any class of capital stock, partnership interest, membership interest or
other beneficial interest of such Person, directly or indirectly through a Subsidiary of such
Person or otherwise; the return of capital (whether in the form of cash or property) by a Person to
its shareholders, partners, members or other beneficial owners as such; or any other distribution
on or in respect of any shares of any class of capital stock, partnership interest, membership
interest or other beneficial interest of such Person.



     Distribution and Separation Agreement. The Separation and Distribution to be dated on
or about the Spin-off Effective Date, by and among Temple-Inland, Forestar Group and Guaranty
Financial Group Inc., executed and delivered in connection with the Spin-off Transaction.



     Dollars or $. Dollars in lawful currency of the United States of America.



     Domestic Lending Office. Initially, the office of each Lender designated as such in
Schedule 1.1 hereto; thereafter, such other office of such Lender, if any, located within
the United States that will be making or maintaining Base Rate Loans.



7









 





     Drawdown Date. The date on which any Loan ( other than a Swing Line Loan) is made or
is to be made, and the date on which any Loan is converted to a Loan of the other Type.



     EBITDA. With respect to any Person for any fiscal period, the sum of (a) Net Income
of such Person, plus (b) to the extent the following have been deducted in the calculation
of Net Income for such period, (i) interest expense, (ii) federal, state and local income taxes
paid or accrued, (iii) depletion, depreciation and amortization expense and (iv) all non-recurring
non-cash expenses or charges (excluding any such non-cash item to the extent that it represents an
accrual or reserve for potential cash items in any future period or amortization of a prepaid cash
item that was paid in a prior period), minus (c) all non-recurring non-cash items
increasing Net Income of such Person for such period (excluding any such non-cash item to the
extent it represents the reversal of an accrual or reserve for potential cash item in any prior
period), all determined without duplication and in accordance with GAAP.



     Eligible Assignee: (a) Any Lender or any Affiliate of a Lender; (b) any commercial
bank, savings bank, savings and loan association or similar financial institution which (i) has
total assets of $5,000,000,000 or more, (ii) is “well capitalized” within the meaning of such term
under the regulations promulgated under the auspices of the Federal Deposit Insurance Corporation
Improvement Act of 1991, (iii) in the sole judgment of Agent, is engaged in the business of lending
money and extending credit, and buying loans or participations in loans under credit facilities
substantially similar to those extended under this Agreement, and (iv) in the sole judgment of
Agent, is operationally and procedurally able to meet the obligations of a Lender hereunder to the
same degree as a commercial bank; (c) any insurance company in the business of writing insurance
which (i) has total assets of $5,000,000,000 or more (ii) is “best capitalized” within the meaning
of such term under the applicable regulations of the National Association of Insurance
Commissioners, and (iii) meets the requirements set forth in subclauses (iii) and (iv) of clause
(b) above; and (d) any other financial institution having total assets of $5,000,000,000
(including a mutual fund or other fund under management of any investment manager having under its
management total assets of $5,000,000,000 or more, and any of its Related Funds) which meets the
requirement set forth in subclauses (iii) and (iv) of clause (b) above; provided that each Eligible
Assignee must (A) be organized under the Laws of the United States of America, any state thereof or
the District of Columbia, or, if a commercial bank, be organized under the Laws of the United
States of America, any State thereof or the District of Columbia, the Cayman Islands or any country
which is a member of the Organization for Economic Cooperation and Development, or a political
subdivision of such a country, (B) act under the Loan Documents through a branch, agency or funding
office located in the United States of America, (C) be exempt from withholding of tax on payments
hereunder and deliver the documents related thereto pursuant to the Internal Revenue Code as in
effect from time to time, and (D) not be Borrower, a Guarantor or an Affiliate of Borrower or any
Guarantor or a competitor of the Loan Parties.



     Employee Benefit Plan. Any employee benefit plan within the meaning of §3(3) of ERISA
maintained or contributed to by Borrower or any ERISA Affiliate, other than a Multiemployer Plan.



     Entitled Land Under Development. Real Estate owned in fee simple absolute by any Loan
Party and described in Schedule 8 as of November 24, 2007 together with all other Real
Estate acquired thereafter, in each case for which all material required zoning, utilities and
development



8









 




permits and approvals have been obtained, and which Loan Party has commenced construction for
a Development.




     Entitled Land Under Development Value. As of any date of determination, the aggregate
value of all Entitled Land Under Development valued on the basis of an “as is”, MAI Appraisal
covering at least seventy-five percent (75%) of the remaining Lot portfolio and at least
seventy-five percent (75%) of the remaining commercial acreage (both as selected by Agent), with
all other Entitled Land Under Development to be valued and included in the Borrowing Base at its
book value. The initial Entitled Land Under Development Value shall be determined based upon an
“as is”, MAI Appraisal ordered by and approved by Agent prior to the Closing Date. All Development
Expenditures incurred by the Loan Parties with respect to the development of the Entitled Land
Under Development subsequent to the most recent Appraisal shall be added to the Entitled Land Under
Development Value, and such amount shall also be reduced by the value of any parcels or Lots sold
since the prior Appraisal date, in each case without duplicating any post-closing adjustments
resulting from any updated Appraisals. Entitled Land Under Development Value shall also be
increased or decreased, as the case may be, as and to the extent provided in the definition of
Non-Appraised Entitled Land Value, without duplication.



     Environmental Engineer. Any firm of independent professional engineers or other
scientists generally recognized as expert in the detection, analysis and remediation of Hazardous
Substances and related environmental matters and reasonably acceptable to Agent.



     Environmental Laws. See §6.18(a).



     Environmental Reports. See §6.18



     EPA. See §6.18(b).



     Equity Interests. With respect to any Person, all shares of capital stock,
partnership interests, membership interests in a limited liability company or other ownership in
participation or equivalent interests (however designated, whether voting or non-voting) of such
Person’s equity capital (including any warrants, options or other purchase rights with respect to
the foregoing), whether now outstanding or issued after the Closing Date.



     Equity Offering. The issuance and sale by Forestar Group subsequent to the date of
this Agreement of any equity securities of Forestar Group to investors.



     Equity Plan. The Forestar Real Estate Group Inc. 2007 Stock Incentive Plan dated
November 28, 2007, and any other similar plan for granting of equity interests to employees,
directors and eligible consultants or contractors as adopted from time to time by the Forestar
Group Board of Directors.



     ERISA. The Employee Retirement Income Security Act of 1974, as amended and in effect
from time to time and any rules and regulations promulgated pursuant thereto.



     ERISA Affiliate. Any Person which is treated as a single employer with Borrower under
§414 (b) or (c) of the Code.



9









 





     ERISA Reportable Event. A reportable event with respect to a Guaranteed Pension Plan
within the meaning of §4043 (c) of ERISA and the regulations promulgated thereunder as to which the
requirement of notice has not been waived.



     Event of Default. See §12.1.



     Excluded Subsidiary. The Subsidiaries listed on Schedule 11, together with
any and all direct or indirect, wholly owned Subsidiaries created or acquired by any Loan Party
subsequent to the Closing Date, which additional Subsidiary (i) has assets with a book value less
than two and one-half percent (2.5%) of the consolidated book value of Borrower and its
Subsidiaries, determined as of the last day of each fiscal quarter of Borrower, or (ii) which is an
SPE Subsidiary; provided, however, that the Excluded Subsidiaries other than SPE
Subsidiaries shall not, collectively, have assets whose book value exceeds five percent (5%) of the
consolidated book value of Borrower and its Subsidiaries.



     Extended Letter of Credit. See §2.10(l).



     Facility Fee. See §2.4.



     Federal Funds Effective Rate. For any day, the rate per annum equal to the weighted
average of the rates on overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers, as published for such day (or, if such day is not a
Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day that is a Business Day, the average of the quotations for
such day on such transactions received by Agent from three (3) Federal funds brokers of recognized
standing selected by Agent. Any change in the Federal Funds Effective Rate shall become effective
as of the opening of business on the day on which such change in the Federal Funds Effective Rate
becomes effective, without notice or demand of any kind.



     Forestar Form 10. The Registration Statement on Form 10, filed by Forestar Group on
August 10, 2007, as amended on September 26, 2007, October 24, 2007, November 13, 2007, November
29, 2007 and December 10, 2007 (File Number 001-33662), with the SEC, as in effect on the Closing
Date.



     Forestar Group. Forestar Real Estate Group Inc., a Delaware corporation, and
successor by conversion to Forestar Real Estate Group LLC, a Delaware limited liability company.



     Funded Debt. With respect to any Person, all outstanding Indebtedness of such Person,
other than (i) Indebtedness described in clause (f) of the definition of Indebtedness herein, and
(ii) Indebtedness in respect of Trade Letters of Credit.



     GAAP. Generally accepted accounting principles in the United States, applied on a
basis consistent with the principles used in preparing Forestar Group’s audited consolidated
financial statements as of the Balance Sheet Date and for the fiscal year then ended, as such
principles may be revised as a result of changes in such accounting principles implemented by
Forestar Group and its consolidated Subsidiaries subsequent to such date. If at any time any
change in GAAP would affect the computation of any financial ratio or requirement set forth herein
and Borrower or the Required Lenders shall so request, Agent, Lenders, and Loan Parties shall
negotiate in



10









 




good faith to amend such ratio or requirement to preserve the original intent thereof in light
of such change in GAAP (subject to the approval of the Required Lenders); provided that,
until so amended, such ratio or requirement shall continue to be computed in accordance with GAAP
prior to such change therein.




     Guaranteed Obligations. See §34.1.



     Guaranteed Pension Plan. Any employee pension benefit plan within the meaning of
§3(2) of ERISA maintained or contributed to by Borrower or any ERISA Affiliate the benefits of
which are guaranteed on termination in full or in part by the PBGC pursuant to Title IV of ERISA,
other than a Multiemployer Plan.



     Guarantors. Forestar Group, the wholly owned, direct and indirect Subsidiaries of
Borrower signatory to this Agreement as guarantors, and all other wholly owned, direct and indirect
Subsidiaries of Borrower hereafter created or acquired (whether by acquisition of Equity Interests,
merger or otherwise) by Borrower or Forestar Group (other than Excluded Subsidiaries) that execute
and deliver a joinder to the Guaranty Agreement pursuant to §7.21.



     Guaranty Agreement. The agreements of Guarantors set forth in §34 of this Agreement
and any guaranties of the Obligations (or portions thereof) executed by a Guarantor in favor of
Agent, for the benefit of Lenders, after the date hereof, all such guaranties to be in form and
substance reasonably satisfactory to Agent as of the date such guaranties are delivered, and as the
same may be modified or amended hereafter.



     Hazardous Substances. See §6.18(b).



     Hedge Agreement. Any interest rate cap, collar, floor, forward rate or swap agreement
or similar protective agreement regarding the hedging of interest rate risk exposure now or
hereafter entered into between Borrower and any Lender with respect to the Loans.



     High Value Timberland. The Real Estate owned in fee simple absolute by a Loan Party
and described on Schedule 6 hereof as of November 24, 2007, together with any other Real
Estate hereafter acquired in fee simple absolute by any Loan Party on which, or on a portion of
which, Timber is located, and for which the applicable Loan Party shall have commenced the
entitlement process by submitting, or beginning to prepare, one or more applications for the
zoning, utilities, access and subdivision approvals, licenses and permits required in order to
commence construction and installation of the infrastructure improvements for a Development, but
for which all necessary approvals, licenses and permits have not yet been received.



     High Value Timberland Amount. As of any determination date, the lesser of (a)
the result obtained by multiplying the total acreage of High Value Timberland by the amount set
forth on Schedule 10 under the heading “High Value Timberland”, and (b) the value of the
High Value Timberland as determined by the most recent evaluations performed by an MAI appraiser
covering at least seventy-five percent (75%) of the total acreage of the High Value Timberland (as
selected by Agent), with the remainder of the High Value Timberland valued at the average per acre
price determined in the evaluations performed by an MAI appraiser.



     Increasing Lender. See §2.9.



11









 





     Incurred Interest. For Forestar Group and its Subsidiaries on a Consolidated basis,
for any fiscal period, the aggregate amount of all interest paid, accrued or capitalized during
such period, excluding loan fees.



     Indebtedness. With respect to any Person means: (a) all indebtedness for money
borrowed and any obligations evidenced by bonds, debentures, notes or similar debt instruments; (b)
all liabilities secured by any mortgage, deed of trust, deed to secure debt, pledge, security
interest, lien, charge or other encumbrance existing on property owned or acquired subject thereto,
whether or not the liability secured thereby shall have been assumed; (c) all guarantees,
endorsements and other contingent obligations whether direct or indirect in respect of indebtedness
of others, including any obligation to supply funds to or in any manner to invest directly or
indirectly in a Person, to purchase indebtedness, or to assure the owner of indebtedness against
loss through an agreement to purchase goods, supplies or services for the purpose of enabling the
debtor to make payment of the indebtedness held by such owner, through indemnity or otherwise, and
the obligation to reimburse the issuer in respect of any letter of credit; (d) any obligation as a
lessee or obligor under a Capitalized Lease; (e) all reimbursement obligations with respect to
letters of credit or similar instruments issued by a Person; and (f) all indebtedness, obligations
or other liabilities under or with respect to (i) interest rate swap, collar, cap or similar
agreements providing interest rate protection and (ii) foreign currency exchange agreements.



     Indemnity Agreement. The Indemnity Agreement Regarding Hazardous Materials, made by
Forestar Group and Borrower in favor of Agent and Lenders, dated as of even date herewith, pursuant
to which such Loan Parties agree to indemnify Agent and Lenders with respect to Hazardous
Substances and Environmental Laws, such Indemnity Agreement to be in form and substance
satisfactory to Agent, as the same may be amended, restated, consolidated, supplemented or
otherwise modified from time to time.



     Interest Coverage Ratio. For any Test Period, the ratio of (i) EBITDA of Forestar
Group and its Subsidiaries for such period, calculated on a Consolidated basis in accordance with
GAAP, plus (to the extent deducted in the calculation of Net Income) all non-cash compensation
expenses to officers, directors and employees of such Persons, to (ii) Incurred Interest for such
period.



     Interest Payment Date. With respect to each Loan, the first day of each calendar
month during the term of such Loan.



     Interest Period. With respect to each LIBOR Rate Loan, (a) initially, the period
commencing on the Drawdown Date of such Loan and ending one (1), two (2), three (3) or six (6), or,
if available to all Lenders, nine (9) or twelve (12) months thereafter and (b) thereafter, each
period commencing on the day following the last day of the immediately preceding Interest Period
applicable to such LIBOR Rate Loan and ending on the last day of one of the periods set forth
above, as selected by Borrower in a Loan Request or Conversion Request; provided that all
of the foregoing provisions relating to Interest Periods are subject to the following:



               (i) the first day of each Interest Period must be a Business Day.



               (ii) if any Interest Period with respect to a LIBOR Rate Loan would otherwise end on a day
that is not a Business Day, such Interest Period shall be extended to the



12









 




next succeeding Business Day, unless such Business Day falls in the next calendar month, in
which case the Interest Period shall end on the next preceding Business Day;




               (iii) if Borrower shall fail to give notice as provided in §4.1, Borrower shall be deemed to
have requested a conversion of the affected LIBOR Rate Loan to a Base Rate Loan on the last day of
the then current Interest Period with respect thereto; and



               (iv) no Interest Period relating to any LIBOR Rate Loan shall extend beyond the Maturity Date.



     Investments. With respect to any Person, all shares of capital stock, partnership
interests, limited liability company interests or other ownership interests, evidences of
Indebtedness and other securities issued by any other Person, all loans, advances, or extensions of
credit to, or contributions to the capital of, any other Person, all purchases of the securities or
business or integral part of the business of any other Person and commitments to make such
purchases and all interests in real property; provided, however, that the term
“Investment” shall not include (i) equipment, inventory and other tangible personal
property acquired in the ordinary course of business, or (ii) current trade and customer accounts
receivable for services rendered in the ordinary course of business and payable in accordance with
customary trade terms. In determining the aggregate amount of Investments outstanding at any
particular time: (a) the amount of any investment represented as a guaranty shall be taken at not
less than the principal amount of the obligations guaranteed and still outstanding; (b) there shall
be included as an Investment all interest accrued with respect to Indebtedness constituting an
Investment unless and until such interest is paid; (c) there shall be deducted in respect of each
such Investment any amount received as a return of capital (but only by repurchase, redemption,
retirement, repayment, liquidating dividend or liquidating distribution); (d) there shall not be
deducted or increased in respect of any Investment any amounts received as earnings on such
Investment, whether as dividends, interest or otherwise, except that accrued interest included as
provided in the foregoing clause (b) may be deducted when paid; and (e) there shall not be deducted
from, or added to, the aggregate amount of Investments any decrease or increase, respectively, in
the value thereof.



     Joinder Agreement (Guarantor). An agreement in the form attached hereto and made a
part hereof as Exhibit H, whereby a Person shall become an additional joint and several
Guarantor pursuant to §7.21.



     Joint Venture. Any Person (including non-wholly owned Subsidiaries) in which any of
the Loan Parties is directly the owner of any Equity Interest, provided that such Equity Interest
(taken together with all Equity Interests, if any, owned by any other Loan Parties in such Person)
constitute less than all of the issued and outstanding Equity Interests of such Person.



     KeyBank. KeyBank National Association, a national banking association.



     Leases. Leases, licenses and agreements whether written or oral, relating to the use
or occupancy of any Mortgaged Property, Negative Pledge Property or other Real Estate, including,
without limitation, hunting leases, Timber leases and Mineral Rights Leases.



13









 





     Lenders. KeyBank and the other lending institutions which may become parties to this
Agreement, pursuant to § 18 hereof, as is defined in the first paragraph of this Agreement, to
include Revolving Lenders, Term Lenders and as the context requires, Swing Line Lender.



     Letter of Credit. An irrevocable standby letter of credit issued by Agent (in its
capacity as letter of credit issuer) pursuant to §2.10 for the account of any Loan Party in respect
of obligations of any Loan Party incurred pursuant to contracts made or performances undertaken or
to be undertaken in the ordinary course of its such Loan Party’s business which is payable upon
presentation of a sight draft and other documents described in the Letter of Credit, if any, as
originally issued pursuant to this Agreement or as amended, modified, extended, renewed or
supplemented.



     Letter of Credit Fees. The fees due in connection with the Outstanding Letters of
Credit pursuant to §4.3.



     Letter of Credit Request. A written request from Borrower to Agent in the form of
Exhibit G attached hereto, requesting the issuance of a Letter of Credit pursuant to
§2.10(b).



     LIBOR Lending Office. Initially, the office of each Lender designated as such in
Schedule 1.1 hereto; thereafter, such other office of such Lender, if any, that shall be
making or maintaining LIBOR Rate Loans.



     LIBOR Rate. As applicable to any LIBOR Rate Loan, the rate per annum as determined on
the basis of the offered rates for deposits in Dollars, for a period of time comparable to the
Interest Period for such LIBOR Rate Loan which appears on the Reuters Screen LIBOR01 Page as of
11:00 a.m. London time on the day that is two (2) LIBOR Business Days preceding the first day of
the Interest Period for such LIBOR Rate Loan; provided, however, if the rate
described above does not appear on such service on any applicable interest determination date, the
LIBOR Rate shall be the rate (rounded upward, if necessary, to the nearest one hundred-thousandth
of a percentage point), determined on the basis of the offered rates for deposits in Dollars for a
period of time comparable to the Interest Period for such LIBOR Rate Loan which are offered by four
(4) major banks in the London interbank market at approximately 11:00 a.m. London time, on the day
that is two (2) LIBOR Business Days preceding the first day of the Interest Period for the LIBOR
Rate Loan as selected by Agent. The principal London office of each of the four (4) major London
banks will be requested to provide a quotation of its Dollar deposit offered rate. If at least two
such quotations are provided, the rate for that date will be the arithmetic mean of the quotations.
If fewer than two quotations are provided as requested, the rate for that date will be determined
on the basis of the rates quoted for loans in Dollars to leading European banks for a period of
time comparable to the Interest Period for such LIBOR Rate Loan offered by major banks in New York
City at approximately 11:00 a.m. (eastern time), on the day that is two (2) LIBOR Business Days
preceding the first day of the Interest Period for the LIBOR Rate Loan. In the event that Agent is
unable to obtain any such quotation as provided above, it will be deemed that the LIBOR Rate for a
LIBOR Rate Loan cannot be determined. In such event, the Loan shall bear interest at the Base
Rate. In the event that the Board of Governors of the Federal Reserve System shall impose a
Reserve Percentage with respect to LIBOR deposits of Agent, then for any period during which such
Reserve Percentage shall apply, the LIBOR Rate shall be equal to the amount determined above
divided by an amount equal to one (1) minus the Reserve Percentage.



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     LIBOR Rate Loans. Those Loans bearing interest calculated by reference to the LIBOR
Rate.



     Liens. See §8.2.



     Loan or Loans. Collectively, the aggregate Revolving Loans, Term Loans and Swing Line
Loans to be made by Lenders hereunder, as applicable, which Revolving Loans, Term Loans and Swing
Line Loans may be, at the request of the applicable Lender, evidenced by the Revolving Loan Notes,
the Term Loan Notes and the Swing Line Note, as the case may be. Amounts drawn under a Letter of
Credit shall be converted into Revolving Loans as provided in §2.10.



     Loan Documents. Collectively, this Agreement, the Notes, the Security Documents, the
Hedge Agreements, and all other documents, instruments or agreements now or hereafter assumed,
executed or delivered by or on behalf of any Loan Party in favor of the Agent or the Lenders in
connection with the Loans, as the same may be amended, modified, renewed, extended, consolidated,
supplemented or restated from time to time.



     Loan Parties. Collectively, Borrower and the Guarantors, any of which may be
sometimes referred to individually as a Loan Party.



     Loan Request. See §2.6.



     Lot or Lots. An individual residential lot located or to be located on Entitled Land
Under Development or Non-Appraised Entitled Land and designated on the final subdivision plat, map
or filing (or in the case of Entitled Land Under Development or Non-Appraised Entitled Land, an
individual lot designated on an approved tentative tract map, preliminary plat map, preliminary
subdivision plat or similar plat or map) and including any related community or commercial lot(s)
relating to the amenities for that Development.



     Material Adverse Effect. A materially adverse effect on (a) the business, assets,
liabilities, condition (financial or otherwise), or results of operations of the Loan Parties taken
as a whole, (b) the ability of any Loan Party to perform its obligations under the Loan Documents,
(c) the validity or enforceability of any of the Loan Documents, or (d) the rights, benefits or
interests of Lenders and Agent in and to this Agreement, any other Loan Document or the Collateral.



     Maturity Date. December 1, 2010, or such earlier date on which the Loans shall become
due and payable pursuant to the terms hereof.



     Mineral Activity. The exploration, extraction, mining, processing, production,
storage, transportation or handling of any coal, oil, gas or any other mineral.



     Mineral Business. The business of Borrower or any of the other Loan Parties
consisting of realizing lease and royalty payments from oil and gas mineral interests.



     Mineral Business Enterprise Value. As of any date of determination, an amount equal
to the product of (a) the sum of (i) annualized EBITDA of the Loan Parties from the Mineral
Business (excluding Bonus Payments and Delay Rental Payments to the extent included therein)



15









 




for the most recently completed two (2) fiscal quarters plus (ii) Bonus Payments and Delay
Rental Payments for the most recently completed four (4) fiscal quarters, multiplied by (b) four
(4).




     Mineral Rights Lease. Any Lease, joint operating agreement or other agreement
pursuant to which any Loan Party grants one or more third-parties the right to conduct Mineral
Activity on Real Estate owned or leased by such Loan Party or in which such Loan Party has rights.



     Moody’s. Moody’s Investors Service, Inc.



     Mortgaged Property Documents. See Schedule 2 attached hereto and by this
reference made a part hereof.



     Mortgaged Property or Mortgaged Properties. Individually and collectively, the
property described on Schedule 3 attached hereto and by this reference incorporated herein,
which has been conveyed as security for the Obligations pursuant to the Security Deeds, and any
other property which may be added as a Mortgaged Property pursuant to §5.4 hereof.



     Multiemployer Plan. Any multiemployer plan within the meaning of §3(37) of ERISA to
which Borrower or any ERISA Affiliate is making, or is required to make, contributions.



     Negative Pledge Property or Negative Pledge Properties. Individually and
collectively, any and all Real Estate owned in fee simple absolute by any of the Loan Parties other
than (i) the Mortgaged Properties and (ii) Real Estate which is subject to a Permitted Lien
securing Permitted Indebtedness other than the Obligations.



     Net Income. With respect to Forestar Group and its Subsidiaries for any Test Period,
the net income (or deficit) of such Persons, after deduction of all expenses, taxes and other
property charges, determined in accordance with GAAP.



     Net Sale Proceeds. With respect to the sale of any Lots or all or any portion of any
Mortgaged Property, the gross sales price payable by the purchaser thereof (net of any rebates or
discounts) less all reasonable and customary costs of sale that are charged to sellers of property
and standard for such market in a given jurisdiction, including without limitation, title insurance
charges, escrow fees, seller’s legal fees, prorated real estate taxes, transfer taxes and real
estate brokers’ commissions.



     Non-Appraised Entitled Land. The Real Estate described on Schedule 9 hereof
as of the November 24, 2007 and Real Estate acquired thereafter from time to time, in each case
consisting of Real Estate owned in fee simple absolute by any Loan Party or a Joint Venture for
which all material required zoning, utilities and development permits and approvals have been
obtained in connection with a proposed Development, but for which an Appraisal has not been
obtained by such Loan Party and provided to Agent. Once an Appraisal meeting the applicable
requirements of this Agreement shall have been obtained and provided to Agent, such Real Estate (if
owned by a Loan Party) shall thereafter cease to be Non-Appraised Entitled Land and shall instead
be treated under this Agreement and the other Loan Documents as Raw Entitled Land or Entitled Land
Under Development, as the case may be.



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     Non-Appraised Entitled Land Value. As of any date of determination, the aggregate
value of all Non-Appraised Entitled Land valued at current book value. Non-Appraised Entitled Land
Value shall not be included in the Borrowing Base except as follows: with respect to any
Non-Appraised Entitled Land acquired and owned by a Loan Party after the Closing Date and for which
the Appraisal required to convert such Non-Appraised Entitled Land into Raw Entitled Land or
Entitled Land Under Development (as the case may be) shall have not been obtained, the book value
of such Non-Appraised Entitled Land shall temporarily be included in the Borrowing Base as part of
Raw Entitled Land Value or Entitled Land Under Development Value (depending upon whether such
Non-Appraised Entitled Land would qualify as Raw Entitled Land or Entitled Land Under Development
if the requisite Appraisal had been obtained) through and including the sixtieth (60th)
day after the acquisition of such Non-Appraised Entitled Land by the applicable Loan Party. If the
Appraisal described in the definition of Raw Entitled Land or Entitled Land Under Development (as
applicable) is not delivered to Agent within such sixty (60)-day timeframe, such Non-Appraised
Entitled Land Value shall immediately and automatically be removed from the Borrowing Base. Upon
delivery of such Appraisal to Agent, whether before or after such sixty (60)-day period expires,
such Non-Appraised Entitled Land shall thereafter cease to be Non-Appraised Entitled Land and shall
instead be treated under this Agreement and the other Loan Documents as Raw Entitled Land or
Entitled Land Under Development, as the case may be



     Non-Consenting Lender. See §18.8.



     Non-Recourse Assets. Real Estate (other than Mortgaged Property), all rights related
thereto (including contract rights), the improvements and Leases thereon and the rents and profits
thereof and all proceeds of any of the foregoing which are of the type customarily transferred or
in respect of which security interests or mortgages are customarily granted in connection with the
non-recourse financing of Real Estate and which, to the extent permitted under this Agreement, are
sold, transferred or otherwise conveyed by the Borrower or a Subsidiary to an SPE Subsidiary or
directly to the provider(s) of such financing (or an agent on its or their behalf) in connection
with the incurrence of Non-Recourse Indebtedness permitted under §8.1.



     Non-Recourse Indebtedness. Indebtedness of a Person which is secured by one or more
parcels of Real Estate (other than Mortgaged Property) and related Non-Recourse Assets and is not a
general obligation of any Loan Party or any of their respective wholly owned Subsidiaries other
than the applicable SPE Subsidiary (except for Permitted Recourse Undertakings), the holder of such
Indebtedness having recourse solely to the Non-Recourse Assets securing such Indebtedness or other
assets of Persons that are not Loan Parties or wholly owned Subsidiaries of any Loan Party other
than the applicable SPE Subsidiary (except in connection with Permitted Recourse Undertakings).



     Notes. See §2.2.



     Notice. See §19.



     Obligations. All indebtedness, obligations and liabilities of Borrower and Guarantors
to any of Lenders and Agent, individually or collectively, under this Agreement or any of the other
Loan Documents or in respect of any of the Loans or the Notes, or other instruments at any time
evidencing any of the foregoing, whether existing on the date of this Agreement or arising or



17









 




incurred hereafter, direct or indirect, joint or several, absolute or contingent, matured or
unmatured, liquidated or unliquidated, secured or unsecured, arising by contract, operation of law
or otherwise (including, without limitation, advances made by Agent to protect or preserve the
Collateral or the security interests therein), and including interest and fees that accrue after
the commencement by or against any Loan Party of any proceeding under the United States Bankruptcy
Code or other similar federal or State law, naming such Person as the debtor in such proceeding,
regardless of whether or not such interest and fees are allowed claims in such proceeding. To the
extent this definition of “Obligations” is referenced in any Security Document, the definition
shall also include any Indebtedness, obligations and liabilities of Borrower under any and all
Hedge Agreements.




     OFAC Review Process. That certain review process established by Agent to determine if
any potential transferee of any interests or any assignee of any portion of the Loans or any of
their members, officers or partners are a party with whom Agent and any Lender are restricted from
doing business under (i) the regulations of OFAC, including those Persons named on OFAC’s Specially
Designated and Blocked Persons list, or (ii) any other statute, executive order or other
governmental action or list (including the September 24, 2001 Executive Order Blocking Property and
Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism.



     Operating Accounts. See §5.6.



     Organizational Document. With respect to any Person other than a natural person, its
articles or certificate of incorporation, formation or organization, partnership agreement,
operating agreement, by-laws and all shareholder agreements, voting trusts and similar arrangements
applicable to any of its authorized Equity Interests.



     Outstanding. With respect to the Loans, the aggregate unpaid principal thereof as of
any date of determination. With respect to issued Letters of Credit, the aggregate undrawn amounts
under issued Letters of Credit as of any date of determination.



     Patriot Act Customer Identification Process. That certain customer identification and
review process established by Agent pursuant to the requirements of 31 U.S.C. §5318(1) and 31
C.F.R. §103.121 to verify the identity of all permitted transferees of interests in Borrower and
any assignees of a portion of the Loan hereunder.



     PBGC. The Pension Benefit Guaranty Corporation created by §4002 of ERISA and any
successor entity or entities having similar responsibilities.



     Permitted Existing Indebtedness. Indebtedness of the Loan Parties and their
Subsidiaries, or any of them, which is outstanding on the Closing Date and identified on
Schedule 6.29.



     Permitted Liens. Liens, security interests and other encumbrances permitted by §8.2.



     Permitted Recourse Undertakings. Representations, warranties, covenants,
environmental indemnities, and “bad acts” or similarly limited guarantees entered into by Borrower
or any Subsidiary of Borrower in connection with Non-Recourse Indebtedness which are customary for
non-recourse real estate financings.



18









 





     Permitted Refinancing Indebtedness. Any Indebtedness of the Loan Parties issued in
exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease
or refund, Permitted Existing Indebtedness, Indebtedness otherwise permitted by this Agreement or
other Permitted Refinancing Indebtedness of such Person, provided, that:



          (a) the principal amount of such Indebtedness (not including accrued or capitalized interest
and premiums, fees and expenses) does not exceed the then outstanding principal amount of the
Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded; and




          (b) no Default or Event of Default has occurred and is continuing or would result from the
issuance or origination of such Indebtedness.




     Person. Any individual, corporation, partnership, limited liability company, trust,
unincorporated association, business, or other legal entity, and any government or any governmental
agency or political subdivision thereof.



     Plan Asset Regulations. The regulations promulgated under ERISA at 29 CFR 2510.3-101,
as amended and in effect from time to time.



     Plan Assets. Assets of any Employee Benefit Plan subject to Part 4, Subtitle A, Title
I of ERISA.



     Pledge and Security Agreement. The Pledge and Security Agreement dated as of the
Closing Date executed by the Loan Parties for the purpose of pledging and granting a first priority
security interest in and to all Equity Interests now or hereafter owned by them in any other Loan
Party and (if and to the extent no consent is required at all or the necessary consents have been
obtained) in any of their respective Joint Ventures.



     Pledged Deposit Account. The main operating account pledged by Borrower to Agent for
the benefit of Lenders as Collateral for the Obligations.



     Prepayment Fee. With respect to each repayment or prepayment, in whole or in part, of
any of the outstanding principal balance of the Term Loans, an amount equal to the principal amount
so prepaid, multiplied by (a) two percent (2%) for any repayment or prepayment of Term Loans made
prior to the first anniversary of the Closing Date, or (b) one percent (1%) for each repayment or
prepayment of the Term Loans made on or after the first anniversary of the Closing Date and prior
to the date which is eighteen (18) months after the Closing Date. No Prepayment Fee will apply to
any repayment or prepayment of the Term Loans, or any portion thereof, made on or after the date
which is eighteen (18) months after the Closing Date.



     Principal Financial Officer. The primary officer or the authorized agent of Borrower
or Forestar Group, as the case may be, responsible for the preparation and certification of
financial statements.



     Prior Letter of Credit. Any letter of credit issued prior to the Closing Date for the
account of any of the Loan Parties and which will remain outstanding after the Closing Date.



19









 





     Project Approvals. See §6.20(a).



     Raw Entitled Land. The Real Estate described on Schedule 7 hereof as of
November 24, 2007 and the Real Estate acquired thereafter from time to time, in each case
consisting of Real Estate owned in fee simple absolute by any Loan Party (i) that is suitable for
Development and (ii) for which all major discretionary land-use approvals have been received.



     Raw Entitled Land Value. As of any date of determination, the aggregate value of all
Raw Entitled Land valued on the basis of an “as is”, MAI Appraisal covering at least seventy-five
percent (75%) of the remaining Lot portfolio and at least seventy-five percent (75%) of the
remaining commercial acreage (both as selected by Agent), with all other Raw Entitled Land to be
valued at book value. The initial Raw Entitled Land Value shall be determined based upon an “as
is”, MAI Appraisal ordered by and approved by Agent prior to Closing. All costs incurred by
Borrower and the applicable Guarantors with respect to the development of the Raw Entitled Land
subsequent to the Appraisal shall be added to the Raw Entitled Land Value Amount, and such amount
shall also be reduced by the value of any parcels or lots sold since the prior Appraisal date, in
each case without duplicating any post-closing adjustments resulting from any updated Appraisals.
Raw Entitled Land Value shall also be increased or decreased, as the case may be, as and to the
extent provided in the definition of Non-Appraised Entitled Land Value, without duplication.



     RCRA. See §6.18(a).



     Real Estate. All real property at any time owned or leased (as lessee or sublessee)
by any Loan Party or their respective Subsidiaries or Joint Ventures including, without limitation,
the Mortgaged Properties and the Negative Pledge Properties.



     Record. The grid attached to any Note, or the continuation of such grid, or any other
similar record, including computer records, maintained by Agent with respect to any Loan referred
to in such Note.



     Reference Bank. KeyBank.



     Register. See §18.2.



     Reimbursement Agreement. The applications made and agreements entered into between
Agent and (i) Borrower and (ii) any other Loan Party relating to a Letter of Credit on the form
then in use by Agent as its standard form agreement with respect to similar letters of credit.



     Related Fund. With respect to any fund that invests in loans, any other fund that
invests in loans that is managed by the same investment advisor as such Lender or by an Affiliate
of such Lender or such investment advisor.



     Related Parties. With respect to any Person, such Person’s Affiliates and the
partners, directors, officers, employees, agents and advisors of such Person and of such Person’s
Affiliates.



     Release. See §6.18(c) (iii). 



20









 





     Request for Swing Line Loan. See §2.6(b).



     Required Lenders. As of any date, the Lender or Lenders whose aggregate Commitment
Percentage exceeds the Applicable Approval Percentage. For purposes of this definition, a
Revolving Lender (other than Swing Line Lender) shall be deemed to hold a Swing Line Loan or
participate in a Letter of Credit to the extent such Lender has acquired a participation therein
under the terms of this Agreement and has not failed to perform its obligations in respect of such
participation.



     Requirements. Any applicable federal or state law or governmental regulation, or any
local ordinance, order or regulation, including but not limited to laws, regulations, or ordinances
relating to zoning, building use and occupancy, subdivision control, fire protection, health,
sanitation, safety, handicapped access, historic preservation and protection, tidelands, wetlands,
flood control and Environmental Laws, including without limitation, the Americans With Disabilities
Act or any state laws regarding disability requirements, or any lease, agreement, covenant or
instrument to which any Mortgaged Property or Negative Pledge Property, or any Loan Party as the
owner of such Real Estate, may be subject.



     Requisite Class Lenders. At any time of determination, (i) for the Revolving Lenders,
Revolving Lenders holding more than the Applicable Approval Percentage of the aggregate Revolving
Loans (or if there are no Revolving Loans Outstanding, of the Revolving Commitment) and (ii) for
the Term Lenders, Term Lenders holding more than the Applicable Approval Percentage of the
aggregate Outstanding principal amount of Term Loans. For purposes of this definition, a Revolving
Lender (other than Swing Line Lender) shall be deemed to hold a Swing Line Loan or participate in a
Letter of Credit to the extent such Lender has acquired a participation therein under the terms of
this Agreement and has not failed to perform its obligations in respect of such participation.



     Reserve Percentage. As of any date, the maximum aggregate reserve requirement
(including all basic, supplemental, marginal and other reserves) which is imposed on member banks
of the Federal Reserve System against “Euro-currency Liabilities” as defined in Regulation D. The
LIBOR Rate for each outstanding LIBOR Rate Loan shall be adjusted automatically as of the effective
date of any change in the Reserve Percentage.



     Revenues/Capital Expenditures Ratio. For any Test Period, the ratio of Total Revenues
for such period to Total Capital Expenditures for such period.



     Revolving Commitment. With respect to each Revolving Lender, the amount set forth on
Schedule 1.1 hereto as the amount of such Lender’s commitment to make or maintain Revolving
Loans to Borrower, to purchase participations in Swing Line Loans made by Swing Line Lender
pursuant to §2.1(c), or to purchase participations in Letters of Credit issued by Agent for the
account of any Loan Party in accordance with §2.10, as the same may be changed from time to time in
accordance with the terms of this Agreement, including without limitation, §2.9.



     Revolving Commitment Percentage. With respect to each Revolving Lender, the
percentage set forth on Schedule 1.1 hereto as such Revolving Lender’s percentage of the
aggregate Revolving Commitments of all Revolving Lenders.



21









 





     Revolving Credit Exposure. For any Revolving Lender as of any date of determination,
such Lender’s Revolving Commitment Percentage of the sum of (i) all Revolving Loans then
Outstanding, (ii) all Outstanding Letters of Credit, and (iii) any Swing Line Loans then
Outstanding.



     Revolving Lenders. The Lenders having Revolving Commitments, together with their
permitted successors and assigns.



     Revolving Loan. Collectively, the amounts advanced from time to time by Revolving
Lenders to Borrower under the Revolving Commitments for Revolving Loans, not to exceed $265,000,000
at any time Outstanding; subject, however, to increase in accordance with §2.9.



     Revolving Loan Notes. See §2.2.



     Rights Agreement. The Rights Agreement dated as of December 11, 2007 between Forestar
Group and ComputerShare Trust Company, N.A., as Rights Agent thereunder, providing for the issuance
to Forestar Group’s stockholders, under the circumstances described therein, of certain rights to
acquire shares of Series A junior participating preferred stock of Forestar Group, on the terms and
conditions set forth in such agreement.



     S&P. Standard & Poor’s Ratings Service, a division of The McGraw-Hill Companies.



     SARA. See §6.18(a).



     SEC. United States Securities and Exchange Commission.



     Security Deeds. Collectively, the deed of trust, mortgage and/or deed to secure debt
from or assumed by any Loan Party in favor of Agent for the benefit of Lenders (or to trustees
named therein acting on behalf of Agent for the benefit of Lenders), pursuant to which such Loan
Party shall have conveyed or granted a mortgage lien upon or conveyed security title to each
Mortgaged Property as security for the Obligations, each such deed of trust, mortgage and deed to
secure debt to be in form and substance satisfactory to Agent.



     Security Documents. Collectively, the Security Deeds, the Assignment of Leases and
Rents, the Assignment of Mineral Rights Leases, the Collateral Assignment of Timber Purchase
Agreement, the Assignment of Rights to Joint Venture Distributions, the Indemnity Agreement,
Deposit Account Control Agreements and any further collateral assignments now or hereafter
delivered by a Loan Party to Agent for the benefit of Lenders, including, without limitation, UCC-1
financing statements filed or recorded in connection therewith, as each may be further amended,
modified, renewed, consolidated, supplemented or extended, from time to time.



     SPE Subsidiary. A bankruptcy remote or other special purpose entity which is a
Subsidiary and which is formed for the purpose of, and engages in no material business other than,
issuing or incurring Non-Recourse Indebtedness and, in connection therewith, owning Non-Recourse
Assets and pledging or transferring interests therein.



     Spin-off Effective Date. The date on which the Spin-off Transaction is completed,
which date is expected to be December 28, 2007.



22









 





     Spin-off Tax Sharing Agreement. The Tax Sharing Agreement, to be dated as of the
Spin-off Effective Date, between Temple-Inland and Forestar Group.



     Spin-off Transaction. The transfer of certain assets and liabilities of Temple-Inland
and certain of its Affiliates to the Loan Parties as contemplated by Temple-Inland’s distribution
of all of its shares of Forestar Group to Temple-Inland’s stockholders as contemplated by the
Distribution and Separation Agreement and as described in the Forestar Form 10, the making of the
initial Loans hereunder, repayment of intercompany indebtedness and the related transactions
contemplated by the parties thereto in connection with each thereof.



     Standby Letters of Credit. All Letters of Credit issued by the Agent for the account
of any Loan Party pursuant to the terms set forth in this Agreement other than Trade Letters of
Credit.



     State. A state of the United States of America, or the District of Columbia.



     Subsequent Lender. See §2.9



     Subsidiary. Any corporation, association, partnership, limited liability company,
trust or other business or legal entity of which the designated parent shall at any time own,
directly or indirectly through a Person or Persons, a greater than fifty percent (50%) ownership
interest.



     Survey. With respect to each Mortgaged Property and each Negative Pledge Property, an
instrument survey of such Mortgaged Property or such Negative Pledge Property from time to time
obtained by or otherwise in the possession of Borrower or any Guarantor, whether a “boundary-only”
or “as-built” survey.



     Swing Line Commitment. Swing Line Lender’s obligation to make Swing Line Loans
pursuant to §2.1(c) in an amount up to, but not exceeding, $25,000,000, at any time Outstanding.



     Swing Line Lender. KeyBank, together with its respective successors and assigns.



     Swing Line Loan. A loan made by Swing Line Lender to Borrower pursuant to §2.1(c).



     Swing Line Note. The promissory note of Borrower payable to the order of Swing Line
Lender in a face principal amount equal to the amount of the Swing Line Commitment as originally in
effect and otherwise duly completed, substantially in the form of Exhibit “A-3”.



     Temple-Inland. Temple-Inland Inc., a Delaware corporation.



     Temple Inland Agreements shall mean the Distribution and Separation Agreement, the
Timber Purchase Agreement and the Spin-off Tax Sharing Agreement.



     Term Commitment. With respect to each Term Lender, the amount set forth on
Schedule 1.1 hereto as the amount of such Lender’s commitment to make or maintain Term
Loans to Borrower on the Closing Date, as the same may be changed from time to time in accordance
with the terms of this Agreement, including, without limitation, §2.9.



23









 





     Term Commitment Percentage. With respect to each Term Lender, the percentage set
forth on Schedule 1.1 hereto as such Term Lender’s percentage of the aggregate Term
Commitments of all Term Lenders, or once the Term Loans have been made, such Term Lender’s
percentage of the Outstanding Term Loans.



     Term Lenders. Each Lender having a Term Commitment or making a Term Loan to Borrower
pursuant to this Agreement, together with their successors and permitted assigns.



     Term Loan. Collectively, the amounts advanced on the Closing Date by Term Lenders to
Borrower under the Term Commitments for Term Loans, not to exceed $175,000,000 in the aggregate;
subject, however, to increase in accordance with §2.9.



     Term Loan Notes. See §2.2.



     Test Period. See §9.1(a).



     Timber. Any trees of any age, species, or condition, whether standing, lying, growing
or to be grown, alive or dead and now or hereafter at any time located on the Timberland.



     Timber Purchase Agreement. That certain Timber Purchase Agreement, to be dated on or
before the Spin-off Effective Date, between TIN Inc. and Borrower, as amended, extended, renewed,
restated or otherwise modified from time to time in accordance with §7.14(e).



     Timberland. The Real Estate owned in fee simple absolute by any Loan Party and
described on Schedule 5 hereof, together with any other Real Estate (other than High Value
Timberland, Raw Entitled Land or Entitled Land Under Development) hereafter acquired in fee simple
absolute by any Loan Party on which, or on a portion of which, Timber is located.



     Timberland Value. Except for High Value Timberland, an amount equal to the lesser of
(a) the amount per acre set forth on Schedule 10 under the heading “Timberland Value”
multiplied by the total acreage of Timberland and (b) the per acre amount for Timberland determined
in the most recent evaluation update pursuant to §5.2(b).



     Title Policy. With respect to each parcel of Mortgaged Property, any policy or
owner’s title insurance issued to Borrower or the applicable Guarantor, from time to time obtained
by or otherwise in the possession of Borrower or any Guarantor.



     Total Capital Expenditures. For the relevant period, the aggregate amount of all
Development Expenditures and Acquisition Expenditures incurred by Borrower (for Borrower and its
consolidated Joint Ventures) and its Subsidiaries, plus (without duplication) such parties’ pro
rata share of all such expenditures incurred by unconsolidated Joint Ventures.



     Total Funded Debt. As of any date of determination, an amount equal to one hundred
percent (100%) of all Funded Debt of any Loan Party, plus any Loan Party’s pro rata share
of the Funded Debt of their respective Joint Ventures.



     Total Leverage Ratio. As of any date of determination, the ratio of Total Funded Debt
to Adjusted Asset Value, expressed as a percentage.




24











 





     Total Revenues. For the relevant period, the aggregate amount of all gross revenues
derived from the operations of Forestar Group and its Subsidiaries, plus their pro rata share of
operating revenues from unconsolidated Joint Ventures.



     Trade Letters of Credit. All trade or documentary Letters of Credit issued by Agent
for the account of any Loan Party pursuant to the terms set forth in this Agreement, in connection
with the purchase by any Loan Party of goods or services in the ordinary course of business.



     Type. As to any Loan, its nature as a Base Rate Loan or a LIBOR Rate Loan.



     Voting Interests. Stock, partnership, membership or similar ownership interests of
any class or classes (however designated), the holders of which are at the time entitled, as such
holders, (a) to vote for the election of a majority of the directors (or persons performing similar
functions) of the corporation, association, partnership, limited liability company, trust or other
business entity involved, or (b) to control, manage, or conduct the business of the corporation,
partnership, limited liability company, association, trust or other business entity involved.



          §1.2 Rules of Interpretation




          (a) A reference to any document or agreement shall include such document or agreement as
amended, modified or supplemented from time to time in accordance with its terms and the terms of
this Agreement.




          (b) The singular includes the plural and the plural includes the singular.




          (c) A reference to any law includes any amendment or modification to such law.




          (d) A reference to any Person includes its permitted successors and permitted assigns.




          (e) Accounting terms not otherwise defined herein have the meanings assigned to them by GAAP
applied on a consistent basis by the accounting entity to which they refer.




          (f) The words “include”, “includes” and “including” are not limiting.




          (g) The words “approval” and “approved” as the context so determines, means an approval in
writing given to the party seeking approval after full and fair disclosure to the party giving
approval of all material facts necessary in order to determine whether approval should be granted.




          (h) All terms not specifically defined herein or by GAAP, which terms are defined in the
Uniform Commercial Code as in effect in the State of New York, have the meanings assigned to them
therein.




          (i) Reference to a particular “§”, refers to that section of this Agreement unless otherwise
indicated.





25









 








          (j) The words “herein”, “hereof”, “hereunder” and words of like import shall refer to this
Agreement as a whole and not to any particular section or subdivision of this Agreement.




          (k) All references in this Agreement to “Cleveland time” shall refer to prevailing time in
Cleveland, Ohio.




§2. LOANS AND LETTERS OF CREDIT




          §2.1 Commitment to Lend.




          (a) Revolving Loans. Subject to the terms and conditions set forth in this Agreement,
each of the Revolving Lenders severally agrees to lend to Borrower, and Borrower may borrow (and
repay and reborrow) from time to time between the Closing Date and the Maturity Date upon notice by
Borrower to Agent given in accordance with §2.6, such sums as are requested by Borrower for the
purposes set forth in §2.8 up to a maximum aggregate principal amount outstanding (after giving
effect to all amounts requested) at any one time equal to the lesser of (a) such Lender’s
Revolving Commitment, and (b) such Lender’s Revolving Commitment Percentage of (i) the Borrowing
Base less (ii) the aggregate principal amount of Term Loans Outstanding or being funded on
such date of determination; provided, that, in all events no Default or Event of Default
shall have occurred and be continuing; and provided, further, that the Outstanding
principal amount of the Revolving Loans and Swing Line Loans (after giving effect to all amounts
requested), plus the Outstanding Letters of Credit, shall not at any time exceed the aggregate
Revolving Commitments of all Revolving Lenders or cause a violation of the covenant set forth in
§9.2(b). The Revolving Loans shall be made pro rata in accordance with each Revolving Lender’s
Revolving Commitment Percentage. Each request for a Revolving Loan hereunder shall constitute a
representation and warranty by Borrower that all of the conditions set forth in §10 and §11, as
applicable, have been satisfied on the date of such request. No Revolving Lender shall have any
obligation to make Revolving Loans to Borrower in an aggregate principal amount outstanding which,
together with such Lender’s participation interest in Swing Line Loans and Outstanding Letters of
Credit, exceeds such Lender’s Revolving Commitment.




          (b) Term Loans. Subject to the terms and conditions set forth in this Agreement, each
of the Term Lenders severally agrees to lend to Borrower, and Borrower may borrow on the Closing
Date, upon notice by Borrower to Agent given in accordance with §2.6, an amount equal to such
Lender’s Term Commitment; provided, that, in all events no Default or Event of Default
shall have occurred and be continuing; and provided, further, that the outstanding
principal amount of the Term Loans (after giving effect to all amounts requested), shall not at any
time exceed the aggregate Term Commitments of all Term Lenders or cause a violation of the covenant
set forth in §9.2(b). The Term Loans shall be made pro rata in accordance with each Term Lender’s
Term Commitment Percentage. Borrower’s request for the Term Loans hereunder shall constitute a
representation and warranty by Borrower that all of the conditions set forth in §10 and §11, as
applicable, have been satisfied on the date of such request. No Term Lender shall have any
obligation to make Term Loans to Borrower after the Spin-off Effective Date or in a principal
amount of more than the principal face amount of such Lender’s Term Commitment.




26









 








          (c) Swing Line Loans. (i) Subject to the terms and conditions hereof, from time to
time from the Closing Date to but excluding the fifth (5th) day prior to the Maturity
Date, Swing Line Lender agrees to make Swing Line Loans to Borrower in an aggregate principal
amount at any one time Outstanding up to, but not exceeding Swing Line Commitment;
provided, that in all events no Default or Event of Default shall have occurred and be
continuing; and provided, further, that the sum of (A) the Outstanding principal
amount of the Revolving Loans and the Swing Line Loans (after giving effect to the Swing Line Loan
being requested), plus (B) the Outstanding Letters of Credit shall not exceed the aggregate
Revolving Commitments of the Revolving Lenders or cause a violation of the covenant set forth in
§9.2(b). If at any time the aggregate principal amount of the Swing Line Loans Outstanding at such
time exceeds the Swing Line Commitment in effect at such time, Borrower shall promptly pay Agent
for the account of Swing Line Lender the amount of such excess. Subject to the terms and
conditions of this Agreement, Borrower may borrow, repay and reborrow Swing Line Loans hereunder.




               (ii) Swing Line Loans shall bear interest at a per annum rate equal to the rate of interest
borne by Base Rate Loans. Interest payable on Swing Line Loans is solely for the account of Swing
Line Lender, subject to the participation rights of each Revolving Lender that has fully funded its
participation interest in such Swing Line Loans pursuant to §2.1(c)(v). All accrued and unpaid
interest on Swing Line Loans shall be payable by Borrower on the dates and in the manner provided
in §3 with respect to interest on Base Rate Loans (except as Swing Line Lender and Borrower may
otherwise agree in writing in connection with any particular Swing Line Loan).



               (iii) Each Swing Line Loan shall be in the minimum amount of $1,000,000 and integral multiples
of $100,000 or such other minimum amounts agreed to by Swing Line Lender and Borrower from time to
time. Any voluntary prepayment of a Swing Line Loan must be in integral multiples of $100,000 or
the aggregate principal amount of all outstanding Swing Line Loans (or such other minimum amounts
upon which Swing Line Lender and Borrower may agree in writing) and in connection with any such
prepayment, Borrower must give Swing Line Lender prior written notice thereof no later than 10:00
a.m. (Cleveland time) on the date of such prepayment.



               (iv) Borrower agrees to repay each Swing Line Loan within five (5) days after the date such
Swing Line Loan was made; provided, that the proceeds of a Swing Line Loan may not be used to repay
a Swing Line Loan. Notwithstanding the foregoing, Borrower shall repay the entire outstanding
principal amount of, and all accrued but unpaid interest on, the Swing Line Loans on the Maturity
Date (or such earlier date as Swing Line Lender and Borrower may agree in writing). In lieu of
demanding repayment of any outstanding Swing Line Loan from Borrower, Swing Line Lender may, on
behalf of Borrower (which hereby irrevocably directs Swing Line Lender to act on its behalf for
such purpose), request a borrowing of Base Rate Loans from the Revolving Lenders in an amount equal
to the principal balance of such Swing Line Loan, provided that the proposed advance of a Base Rate
Loan meets all other requirements for such Advance in this Loan Agreement. The amount limitations
of §2.6(a) shall not apply to any borrowing of Base Rate Loans made pursuant to this subsection.
Swing Line Lender shall give notice to Agent of any such borrowing of Base Rate Loans not later
than 12:00 noon (Cleveland time) on the proposed date of such borrowing and Agent shall give prompt
notice of such borrowing to the Revolving Lenders. No later than 2:00 p.m. (Cleveland time) on
such date, each



27









 




Revolving Lender will make available to Agent at the Agent’s Head Office for the account of
Swing Line Lender, in immediately available funds, the proceeds of the Base Rate Loan to be made by
such Revolving Lender and, to the extent of such Base Rate Loan, such Revolving Lender’s
participation in the Swing Line Loan so repaid shall be deemed to be funded by such Base Rate Loan.
Agent shall pay the proceeds of such Base Rate Loans to Swing Line Lender, which shall apply such
proceeds to repay such Swing Line Loan.




               (v) At the time each Swing Line Loan is made, each Revolving Lender shall automatically (and
without any further notice or action) be deemed to have purchased from Swing Line Lender, without
recourse or warranty, an undivided interest and participation to the extent of such Lender’s
Revolving Commitment Percentage in such Swing Line Loan. If the Revolving Lenders are prohibited
from making Revolving Loans required to be made under this subsection for any reason, including
without limitation, the occurrence of any Default or Event of Default described in §12.1.(h) or
§12.1.(i), upon notice from Agent or Swing Line Lender, each Revolving Lender severally agrees to
pay to Agent for the account of Swing Line Lender in respect of such participation the amount of
such Lender’s Revolving Commitment Percentage of each outstanding Swing Line Loan. If such amount
is not in fact made available to Agent by any Revolving Lender, Swing Line Lender shall be entitled
to recover such amount on demand from such Revolving Lender, together with accrued interest thereon
for each day from the date of demand thereof, at the Federal Funds Effective Rate. If such
Revolving Lender does not pay such amount forthwith upon demand therefor by Agent or Swing Line
Lender, and until such time as such Revolving Lender makes the required payment, Swing Line Lender
shall be deemed to continue to have outstanding Swing Line Loans in the amount of such unpaid
participation obligation for all purposes of the Loan Documents (other than those provisions
requiring the other Revolving Lenders to purchase a participation therein). Further, such
Revolving Lender shall be deemed to have assigned any and all payments made of principal and
interest on its Revolving Loans, and any other amounts due such Revolving Lender hereunder, to
Swing Line Lender to fund Swing Line Loans in the amount of the participation in Swing Line Loans
that such Revolving Lender failed to purchase pursuant to this Section until such amount has been
purchased (as a result of such assignment or otherwise).



               (vi) A Revolving Lender’s obligation to make payments in respect of a participation in a Swing
Line Loan shall be absolute and unconditional and shall not be affected by any circumstance
whatsoever, including without limitation, (i) any claim of setoff, counterclaim, recoupment,
defense or other right which such Revolving Lender or any other Person may have or claim against
Agent, Swing Line Lender or any other Person whatsoever, (ii) the occurrence or continuation of a
Default or Event of Default (including without limitation, any of the Defaults or Events of Default
described in §12.1.(h) or §12.1.(i)) or the termination of any Lender’s Revolving Commitment, (iii)
the existence (or alleged existence) of an event or condition which has had or could have a
Material Adverse Effect, (iv) any breach of any Loan Document by Agent, any Lender or any Loan
Party or (v) any other circumstance, happening or event whatsoever, whether or not similar to any
of the foregoing.



          §2.2 Notes.




     If requested by a Lender, the Revolving Loans of such Lender shall be evidenced by separate
revolving promissory notes of Borrower in favor of the Revolving Lenders in



28









 




substantially the form of Exhibit A-1 (“Revolving Loan Notes”), the Term Loans
of such Lender shall be evidenced by separate term promissory notes of Borrower in favor of the
Term Lenders in substantially the form of Exhibit A-2 hereto (“Term Loan Notes”),
and the Swing Line Loans of such Lender shall be evidenced by the Swing Line Note in substantially
the form of Exhibit A-3 hereto (“Swing Line Note”), each initially dated as of even
date with this Agreement and completed with appropriate insertions (collectively, the Revolving
Loan Notes, the Term Loan Notes, the Swing Line Note, any substitute or replacement notes therefor
and any new Revolving Loan Notes or Term Loan Notes issued in connection with the increase of the
Revolving Commitment or the Term Commitment, or both, pursuant to §2.9 of this Agreement, the
“Notes”). A Revolving Loan Note shall be payable to the order of each Revolving Lender in
the principal face amount equal to such Lender’s Revolving Commitment, or, if less, the outstanding
amount of all Revolving Loans made by such Lender, plus interest accrued thereon, as set forth
below. A Term Loan Note shall be payable to the order of each Lender in the principal face amount
equal to such Lender’s Term Commitment, or, if less, the outstanding amount of all Term Loans made
by such Lender, plus interest accrued thereon, as set forth below. The Swing Line Note shall be
payable to the order of the Swing Line Lender in the principal face amount equal to the Swing Line
Commitment, or, if less, the Outstanding amount of all Swing Line Loans made by Swing Line Lender,
plus interest accrued thereon, as set forth in §2.1(c)(ii). Each such Note shall be issued by
Borrower to the applicable Lender and shall be duly executed and delivered by an authorized officer
of Borrower. Borrower irrevocably authorizes Agent to make or cause to be made, at or about the
time of the Drawdown Date of any Loan or the time of receipt of any payment of principal thereof,
an appropriate notation on Agent’s Record reflecting the making of such Loan or the receipt of such
payment. The Outstanding amount of the Loans set forth on Agent’s Record shall be prima facie
evidence of the principal amount thereof owing and unpaid to each Lender, but the failure to
record, or any error in so recording, any such amount on Agent’s Record shall not limit or
otherwise affect the obligations of Borrower, hereunder or under any Note to make payments of
principal of or interest on any Note when due.




          §2.3 Interest on Loans.




          (a) Each LIBOR Rate Loan shall bear interest for the period commencing with the Drawdown Date
thereof and ending on the last day of the Interest Period with respect thereto or the date on which
such LIBOR Rate Loan is converted to a Base Rate Loan at a rate per annum equal to the sum of (i)
the LIBOR Rate plus (ii) the applicable percentage for such Loan as set forth on the table below:




	 	 	 	 	 
	Loan	 	Percentage	 
	 
	 	 	 	 
	Revolving Loans
	 	Four percent (4.0%)
	Term Loans
	 	Four percent (4.0%)






          (b) Each Base Rate Loan shall bear interest for the period commencing with the Drawdown Date
thereof and ending on the date on which such Base Rate Loan is repaid or




29









 







converted to a LIBOR Rate Loan at a rate per annum equal to the sum of (i) the Base Rate plus
(ii) the applicable percentage for such Loan as set forth on the table below:




	 	 	 
	Loan	 	Percentage
	 
	 	 
	Revolving Loans
	 	Two percent (2.0%)
	Term Loans
	 	Two percent (2.0%)






          (c) Borrower promises to pay interest on the Loans in arrears on each Interest Payment Date
with respect thereto.




          (d) Base Rate Loans and LIBOR Rate Loans may be converted to Loans of the other Type as
provided in §4.1.




          §2.4 Unused Facility Fee.




          Borrower agrees to pay to Agent for the account of the Revolving Lenders in accordance with
their respective Revolving Commitment Percentages an unused facility fee (the “Facility
Fee”) calculated at the rate of thirty-five one-hundredths of one percent (0.35%) per annum on
the average daily amount by which the aggregate Revolving Commitments from time to time exceed the
sum of the Outstanding Revolving Loans, the Outstanding Swing Line Loans and the Outstanding
Letters of Credit during each fiscal quarter or portion thereof commencing on the Effective Date
and ending on the Maturity Date; provided, however, that at any time and for so
long as the average daily amount of the sum of the Outstanding Revolving Loans, the Outstanding
Swing Line Loans and the Outstanding Letters of Credit during any fiscal quarter exceeds fifty
percent (50%) of the aggregate Revolving Commitments, the Facility Fee shall be reduced to
one-fourth of one percent (0.25%) per annum for any such period. The Facility Fee shall be payable
quarterly in arrears on the first day of each fiscal quarter of Borrower for the immediately
preceding fiscal quarter, with a final payment due and payable on the Maturity Date. Any payment
due under this Section shall be prorated for any partial fiscal quarter. The Facility Fee shall be
fully earned when due and non-refundable when paid.




          §2.5 Reduction and Termination of Revolving Commitment.




     Borrower shall have the right at any time and from time to time upon five (5) Business Days’
prior written notice to Agent to reduce by $1,000,000 or an integral multiple of $1,000,000 in
excess thereof (provided that in no event shall the Revolving Commitments be reduced in such manner
to an amount less than $75,000,000 unless all Obligations are being repaid or prepaid and this
Agreement is terminated) or to terminate entirely the unborrowed portion of the Revolving
Commitments, whereupon the Revolving Commitments of Revolving Lenders shall be reduced pro rata in
accordance with their respective Revolving Commitment Percentages of the amount specified in such
notice or, as the case may be, terminated, any such termination or reduction to be without penalty
except as otherwise set forth in §4.8; provided, however, that no such termination
or reduction shall be permitted if, after giving effect thereto, the sum of Outstanding Revolving
Loans, Outstanding Swing Line Loans and Outstanding Letters of Credit would exceed




30









 







the Revolving Commitments of all Revolving Lenders as so terminated or reduced; and
provided, further that the termination of the Revolving Commitments by Borrower as
herein provided shall require Borrower to contemporaneously repay all Outstanding Term Loans, all
accrued interest thereon and (as applicable) any prepayment fee required by §3.2(b), on the
effective date of such termination. Promptly after receiving any notice from Borrower delivered
pursuant to this §2.5, Agent will notify Lenders of the substance thereof. Upon the effective date
of any such reduction or termination, Borrower shall pay to Agent for the respective accounts of
Lenders the full amount of any facility fee under §2.4 then accrued on the amount of the reduction.
No reduction or termination of the Commitment may be reinstated.




          §2.6 Requests for Loans.




          (a) Borrower shall give to Agent written notice in the form of Exhibit D-1 hereto (or
telephonic notice confirmed in writing in the form of Exhibit D-1 hereto) of each Loan
(other than a Swing Line Loan) requested hereunder (a “Loan Request”) by 12:00 noon
(Cleveland time) on the Business Day prior to the proposed Drawdown Date with respect to Base Rate
Loans and three (3) Business Days prior to the proposed Drawdown Date with respect to LIBOR Rate
Loans. Each such notice shall specify with respect to the requested Loan the proposed principal
amount of such Loan, the Type of Loan, the initial Interest Period (if applicable) for such Loan
and the Drawdown Date. Each such notice shall also contain a statement that the conditions to
borrowing set forth in §11 hereof have been satisfied. Promptly upon receipt of any such notice,
Agent shall notify each of Lenders thereof. Each such Loan Request shall be irrevocable and
binding on Borrower and shall obligate Borrower to accept the Loan requested from Lenders on the
proposed Drawdown Date. Subject to §2.1(c)(iv), each Loan Request shall be (a) for a Base Rate
Loan in a minimum aggregate amount of $1,000,000 or an integral multiple of $100,000 in excess
thereof; or (b) for a LIBOR Rate Loan in a minimum aggregate amount of $2,000,000 or an integral
multiple of $100,000 in excess thereof; provided, however, that there shall be no
more than eight (8) LIBOR Rate Loans outstanding at any one time.




          (b) Borrower shall give to Agent and Swing Line Lender written notice in the form of
Exhibit D-2 hereto (or telephonic notice confirmed in writing in the form of Exhibit
D-2 hereto) of each Swing Line Loan requested hereunder (a “Request for Swing Line
Loan”) by 1:00 p.m. (Cleveland time) on the Business Day of the proposed borrowing of a Swing
Line Loan. On the date of the requested Swing Line Loan and subject to satisfaction of the
applicable conditions set forth in §11 for all borrowings, Swing Line Lender will make the proceeds
of such Swing Line Loan available to Borrower in Dollars, in immediately available funds, at the
account specified by Borrower in its Request for Swing Line Loan not later than 3:00 p.m.
(Cleveland time) on such date. Each such Request for Swing Line Loan shall also contain a
statement that the conditions to borrowing set forth in §11 hereof have been satisfied.




          §2.7 Funds for Loans.




          (a) Not later than 2:00 p.m. (Cleveland time) on the proposed Drawdown Date of any Loans other
than Swing Line Loans, each of Lenders will make available to Agent, at Agent’s Office, in
immediately available funds, the amount of such Lender’s Commitment Percentage of the amount of the
requested Loans which may be disbursed pursuant to §2.1. Upon



31









 






receipt from each Lender of such amount, and upon receipt of the documents required by §10 (in
the case of Loans to be made on the Closing Date only) and §11 and the satisfaction of the other
conditions set forth therein, to the extent applicable, Agent will make available to Borrower the
aggregate amount of such Loans made available to Agent by the Lenders by crediting such amount to
the account of Borrower maintained at Agent’s Head Office. The failure or refusal of any Lender to
make available to Agent at the aforesaid time and place on any Drawdown Date the amount of its
Commitment Percentage of the requested Loans shall not relieve any other Lender from its several
obligation hereunder to make available to Agent the amount of such other Lender’s Commitment
Percentage of any requested Loans, including any additional Loans that may be requested subject to
the terms and conditions hereof to provide funds to replace those not advanced by the Lender so
failing or refusing. In the event of any such failure or refusal, the Lenders not so failing or
refusing shall be entitled to a priority secured position as against the Lender or Lenders so
failing or refusing to make available to Borrower the amount of its or their Commitment Percentage
for such Loans as provided in §12.4.




          (b) Unless Agent shall have been notified by any Lender prior to the applicable Drawdown Date
that such Lender will not make available to Agent such Lender’s Commitment Percentage of a proposed
Loan, Agent may in its discretion assume that such Lender has made such Loan available to Agent in
accordance with the provisions of this Agreement and Agent may, if it chooses, in reliance upon
such assumption make such Loan available to Borrower, and such Lender shall be liable to Agent for
the amount of such advance. If such Lender does not pay such corresponding amount upon Agent’s
demand therefor, Agent will promptly notify Borrower, and Borrower shall promptly pay such
corresponding amount to Agent. Agent shall also be entitled to recover from the Lender or
Borrower, as the case may be, interest on such corresponding amount in respect of each day from the
date such corresponding amount was made available by Agent to Borrower to the date such
corresponding amount is recovered by Agent at a per annum rate equal to (i) from Borrower at the
applicable rate for such Loan or (ii) from a Lender at the Federal Funds Effective Rate.




          §2.8 Use of Proceeds.




     Borrower will use the proceeds of the Loans solely (i) to pay closing costs and expenses in
connection with this Agreement and the other Loan Documents; (ii) to refinance existing
Indebtedness of Forestar Group or Borrower owing to Temple-Inland; (iii) to fund Borrower’s working
capital and general corporate needs which include, without limitation, the construction and sale of
Lots, the acquisition and development of real estate and the making of other Investments and the
making of Distributions, in each case as permitted by this Agreement; and (iv) for such other
purposes as may be approved in writing from time to time by the Required Lenders.




          §2.9 Increase in Commitments.




     At any time prior to December 14, 2009, Agent may, at the request of Borrower, increase, from
time to time, but not more than four (4) times in the aggregate, the total Revolving Commitments or
the total Term Commitments, or both, by (i) admitting additional Lenders hereunder (each a
“Subsequent Lender”), and/or (ii) increasing the Revolving Commitment of




32









 







any Revolving Lender and/or the Term Commitment of any Term Lender, as the case may be (each
an “Increasing Lender”), subject to the following conditions:




          (a) each Subsequent Lender shall meet the conditions for assignee under §18.1;




          (b) if requested by the applicable Lender, Borrower executes new Revolving Loan Notes or Term
Loan Notes, or both, as applicable, payable to the order of each Subsequent Lender, or a
replacement Revolving Loan Note or Term Loan Note (or both, as applicable) payable to the order of
each Increasing Lender;




          (c) each Subsequent Lender executes and delivers to Agent a signature page to this Agreement;




          (d) Borrower and Agent shall have executed modifications of the Security Documents and other
Loan Documents to reflect the increase in the Revolving Commitments or the Term Loan Commitments
(or both, as applicable) and Borrower shall have paid to Agent any and all documentary stamp tax,
non-recurring intangible tax or other taxes imposed in connection with the recording of such
modifications of the Security Documents or increase in the Revolving Loan amount or the Term Loan
amount (or both, as applicable);




          (e) the allocation of the increased Commitments by Borrower as between the Revolving
Commitments and the Term Commitments shall be subject to Agent’s consent (not to be unreasonably
withheld or delayed);




          (f) after giving effect to the admission of any Subsequent Lender or the increase in the
Revolving Commitment or the Term Commitment (or both, as the case may be) of any Increasing Lender,
the sum of all Revolving Commitments and all Term Commitments and (without duplication) Outstanding
Term Loans does not exceed $500,000,000;




          (g) each increase in the Revolving Commitments or the Term Commitments (as applicable) shall
be in the amount of at least $10,000,000, or a greater integral multiple of $5,000,000;




          (h) no admission of any Subsequent Lender shall increase the Revolving Commitments or the Term
Commitments (or both, as applicable) of any existing Lender without the written consent of such
Lender;




          (i) all of the representations and warranties of Borrower in the Loan Documents shall be true
and correct in all material respects as of the effective date of the increase in the total
Commitment (or if such representations and warranties by their terms relate solely to an earlier
date, then as of such earlier date);




          (j) no Default or Event of Default exists or would result therefrom;




          (k) no Lender, including, but not limited to KeyBank, shall be an Increasing Lender without
the written consent of such Lender;




33









 








          (l) no increase in the total Commitment will be implemented unless Subsequent Lenders or
Increasing Lenders, or a combination thereof commit to fund each such increase in accordance with
the terms and conditions of this Agreement; and




          (m) Borrower shall have executed such other modifications and documents and made such other
deliveries as Agent may reasonably require and shall pay or reimburse Agent and Agent’s Special
Counsel for all fees (including any fees specified in the Agreement Regarding Fees), expenses and
costs in connection with the foregoing and Borrower shall also pay such Loan fees and placement
fees, if any, as may be required for such increase in the Revolving Commitments or the Term
Commitments (or both, as applicable).



After adding the Revolving Commitment or the Term Commitment (or both, as applicable) of any
Increasing Lender or Subsequent Lender, Agent shall promptly provide each Lender and Borrower with
a new Schedule 1.1 to this Agreement (and each Lender acknowledges that its Commitment
Percentage under Schedule 1.1 and allocated portion of the Outstanding Revolving Loans,
Swing Line Loans and Letters of Credit on the one hand, or the Outstanding Term Loans on the other
(or both, as applicable), will change in accordance with its pro rata share of the increased
Revolving Commitments or Term Commitments (or both, as applicable). Unless and until the total
Revolving Commitments of all Revolving Lenders and/or Term Commitments of all Term Lenders have
been increased in accordance with this §2.9, Borrower shall not be permitted any disbursement
beyond the amount of the initial Commitment.




          §2.10 Letters of Credit.




          (a) Issuance of Letters of Credit. Subject to the terms and conditions set forth in
this Agreement, at any time and from time to time from the Closing Date through the day that is
thirty (30) days prior to the Maturity Date, Agent shall issue such Letters of Credit as Borrower
may request upon the delivery of a Letter of Credit Request to Agent, provided that (i) no
Default or Event of Default shall have occurred and be continuing, (ii) upon the issuance of such
Letter of Credit, the Outstanding Letters of Credit shall not exceed $100,000,000, (iii) upon the
issuance of such Letter of Credit, the amount of all Outstanding Letters of Credit, Swing Line
Loans and Revolving Loans shall not exceed the aggregate Revolving Commitments of all Revolving
Lenders, (iv) the conditions set forth in §10 and §11, as applicable, shall have been satisfied,
(v) upon the issuance of such Letter of Credit, the amount of all Outstanding Letters of Credit and
Outstanding Loans shall not result in a violation of the covenant set forth in §9.2(b), (vi) in no
event shall any amount drawn under a Letter of Credit be available for reinstatement or a
subsequent drawing under such Letter of Credit, and (vii) the term of any Letter of Credit shall
not exceed the Maturity Date. The foregoing requirements shall not limit the ability of Borrower
to obtain Letters of Credit in face amounts that are not rounded to the nearest $1,000 or other
amount. Each Letter of Credit shall be issued pursuant to a Reimbursement Agreement; provided that
to the extent any of the terms of the Reimbursement Agreement are contrary to the terms of this
Agreement, the terms of this Agreement shall control. Each Revolving Lender acknowledges and
agrees that, if and to the extent Agent agrees to reimburse or otherwise indemnify the issuer of
any Prior Letter of Credit for draws thereunder or other obligations of a Loan Party arising in
connection therewith, such Revolving Lender shall be deemed to have purchased a participation in
such reimbursement or indemnification obligation of Agent in an amount equal to its Revolving
Commitment Percentage of the amount of each such Prior Letter of Credit (if any).




34









 







The Outstanding amount under any Letter of Credit shall reduce on a dollar for dollar basis
the amount available to be drawn under the Revolving Commitments as a Revolving Loan.




          (b) Letter of Credit Requests. Each Letter of Credit Request shall be submitted by
Borrower to Agent at least five (5) Business Days prior to the date upon which the requested Letter
of Credit is to be issued. Each Letter of Credit Request shall be executed by an authorized
officer of Borrower. Agent shall be entitled to conclusively rely on such Person’s authority to
request a Letter of Credit on behalf of Borrower. Agent shall have no duty to verify the
authenticity of any signature appearing on a Letter of Credit Request. Each such Letter of Credit
Request shall contain (i) a statement as to whether such Letter of Credit is a Standby Letter of
Credit or a Trade Letter of Credit, and (ii) a certification that the conditions to the issuance of
such Letter of Credit set forth in §11 hereof have been satisfied. Borrower shall further deliver
to Agent such additional applications and documents as Agent reasonably may require, in conformity
with the then standard practices of its letter of credit department, in connection with the
issuance of such Letter of Credit. Following the receipt of a Letter of Credit Request, Agent
shall promptly notify each of the Revolving Lenders of the Letter of Credit Request. Borrower
assumes all risks with respect to the use of the Letters of Credit, under §2.10(i).




          (c) Agent Approval. Subject to the conditions set forth in this Agreement, Agent if
it reasonably approves of the Letter of Credit Request, shall issue the Letter of Credit on or
before five (5) Business Days following receipt of the documents required in §2.10(b), or at such
later date as Borrower may direct in writing. Each Letter of Credit shall be in form and substance
satisfactory to Agent in its sole discretion.




          (d) Lender Participation. Upon the issuance of a Letter of Credit, each Revolving
Lender shall be deemed to have purchased a participation therein from Agent in an amount equal to
its Revolving Commitment Percentage of the amount of such Letter of Credit.




          (e) Amounts Drawn Considered Loans. If and to the extent that any amounts are drawn
upon any Letter of Credit, the amounts so drawn shall, unless reimbursed by Borrower on the date
such draw is honored by Agent, from the date of payment thereof by Agent, be considered Revolving
Loans for all purposes hereunder, bearing interest as provided in §2.3. All such Revolving Loans
shall initially be Base Rate Loans. Revolving Lenders shall be required to make such Revolving
Loans regardless of whether all of the conditions to disbursement set forth in §11 have been
satisfied.




          (f) Bankruptcy. If after the issuance of a Letter of Credit by Agent, but prior to
the funding of any portion thereof by Agent or a Lender, one of the events described in §12.1(g),
(h) or (i) shall have occurred, each Lender will immediately transfer to Agent in immediately
available funds an amount equal to such Lender’s Revolving Commitment Percentage of the Outstanding
Letters of Credit, such amount to be held by Agent as security for the payment of the Letters of
Credit.




          (g) Repayment to Lenders. Whenever at any time after Agent has received from any
Revolving Lender such Revolving Lender’s payment of funds under a Letter of Credit and thereafter
Agent receives any payment on account thereof, then Agent will distribute to such Revolving Lender
its participating interest in such amount (appropriately adjusted in the case of interest payments
to reflect the period of time during which such Revolving Lender’s



35









 






participating interest was outstanding and funded); provided, however, that in
the event that such payment received by Agent is required to be returned, such Revolving Lender
will return to Agent any portion thereof previously distributed by Agent to it.




          (h) Funds for Draws. Upon the receipt by Agent of any draw or other presentation for
payment of a Letter of Credit and the payment of any amount under a Letter of Credit, Agent shall,
without notice to or the consent of Borrower, direct Revolving Lenders to fund to Agent in
accordance with §2.7 on or before 2:00 p.m. (Cleveland time) on the next Business Day their
respective Revolving Commitment Percentages of the amount so paid by Agent. The proceeds of such
funding shall be paid to Agent to reimburse Agent for the payment made by it under the Letter of
Credit. The provisions of §2.7 shall apply to any Revolving Lender or Lenders failing or refusing
to fund its Revolving Commitment Percentage of any such draw.




          (i) Risks. The Obligations of the Loan Parties to Agent and Revolving Lenders under
this Agreement in connection with the issuance of a Letter of Credit shall be absolute,
unconditional and irrevocable, and shall be paid and performed strictly in accordance with the
terms of this Agreement, notwithstanding any of the following circumstances: (i) any improper use
which may be made of any Letter of Credit or any improper acts or omissions of any beneficiary or
transferee of any Letter of Credit in connection therewith; (ii) the existence of any claim,
set-off, defense or any right which any Loan Party may have at any time against any beneficiary or
any transferee of any Letter of Credit (or persons or entities for whom any such beneficiary or any
such transferee may be acting) or Revolving Lenders (other than the defense of payment to Revolving
Lenders in accordance with the terms of this Agreement) or any other person, whether in connection
with any Letter of Credit, this Agreement, any other Loan Document, or any unrelated transaction;
(iii) any statement or any other documents presented to Agent under any Letter of Credit proving to
be insufficient, forged, fraudulent or invalid in any respect or any statement therein being untrue
or inaccurate in any respect whatsoever; (iv) any breach of any agreement between any Loan Party
and any beneficiary or transferee of any Letter of Credit; (v) any irregularity in the transaction
with respect to which any Letter of Credit is issued, including any fraud by the beneficiary or any
transferee of such Letter of Credit; and (vi) payment by Agent under any Letter of Credit against
presentation of a sight draft or a certificate which does not comply with the terms of such Letter
of Credit in any non-material respect; provided, that Borrower shall not be precluded from
asserting any claim for damages suffered by any Loan Party to the extent caused by the bad faith,
willful misconduct or gross negligence of Agent in determining whether a request presented under
any Letter of Credit issued by it complied on its face with the terms of such Letter of Credit.




          (j) Non-Renewal; Cash Collateral. Agent may, at its option, during the existence of a
Default or Event of Default, elect not to renew any Letter of Credit by giving written notice of
non-renewal to Borrower at least thirty (30) days prior to the expiration date of such Letter of
Credit. Agent may, in its discretion at any time and from time to time while there exists any
Event of Default, make a Revolving Loan in an amount equal to all or any portion of the Outstanding
Letters of Credit hereunder (including fee amounts due), and hold the proceeds thereof in an
interest bearing account as collateral security for such Obligations (and such account shall be
subject to Agent’s right to setoff against such amounts under §13 hereof), provided that
Agent shall promptly notify Borrower of such action and the application of the proceeds thereof



36









 






and further provided that all interest earned on proceeds so held shall be
applied as and when available to reduce any Obligations outstanding hereunder or, if there are no
Obligations outstanding, such interest shall be paid over to Borrower.




          (k) Subsequent Issuance. The issuance of any supplement, modification, amendment,
renewal or extension to or of any Letter of Credit shall be treated in all respects the same as the
issuance of a new Letter of Credit.




          (l) Extended Letters of Credit; Cash Collateral. Notwithstanding the contrary
provisions of §2.10(a), Letters of Credit may be issued with expiry dates later than the scheduled
Maturity Date upon the terms and conditions set forth in this §2.10(l) (any such Letter of Credit,
an “Extended Letter of Credit”). No Extended Letter of Credit shall have an expiry date
later than one (1) year after the scheduled Maturity Date. From the date that is five (5) days
prior to the scheduled Maturity Date and at all times thereafter when any Extended Letters of
Credit are Outstanding, Borrower shall maintain cash collateral in a special purpose interest
bearing collateral account in the name of Borrower, but subject to the sole dominion and control of
Agent, in an amount not less than one hundred five percent (105%) of the aggregate Extended Letters
of Credit then Outstanding.



§3. REPAYMENT AND PREPAYMENT OF THE LOANS




          §3.1 Amortization; Stated Maturity.




          (a) Term Loan Amortization. Commencing on January 1, 2010 and continuing on the first
day of each calendar month thereafter through and including November 1, 2010, Borrower shall pay to
Agent for the account of Term Lenders equal monthly installments, each in the amount of one-twelfth
(1/12th) of one percent (1%) of the aggregate principal amount of the Term Loans
Outstanding on December 31, 2009, which amounts shall be applied against the then Outstanding
principal balance of the Term Loans.




          (b) Maturity Date. Borrower promises to pay on the Maturity Date, and there shall
become absolutely due and payable on the Maturity Date, the entire Outstanding principal amount of
all Loans outstanding on such date, together with any and all accrued and unpaid interest thereon.




          §3.2 Mandatory Prepayments.




          (a) Loans Exceed Commitments or Borrowing Base. If at any time the sum of the
aggregate Outstanding principal amount of the Loans (including Swing Line Loans) plus the amount of
Outstanding Letters of Credit exceeds the aggregate Commitments, or the aggregate Outstanding
principal balance of the Loans (including Swing Line Loans) plus the amount of Outstanding Letters
of Credit exceeds the Borrowing Base, then Borrower shall pay within five (5) days of written
demand from Agent the amount of such excess to Agent for the respective accounts of Lenders, as
applicable, for application to the Revolving Loans as provided in §3.4, together with any
additional amounts payable pursuant to §4.8; provided however that until such time as Borrower has
paid such amount to Agent for the respective accounts of the appropriate Revolving Lenders pursuant
to the preceding clause, Revolving Lenders shall have no obligation to make additional funds
available to Borrower pursuant to this Agreement.




37









 








          (b) Prepayment Fee relating to Term Loan. Contemporaneously with each mandatory
prepayment, in whole or in part, and from whatever source, of the Outstanding principal of the Term
Loans prior to June 14, 2009, Borrower shall pay the applicable Prepayment Fee to Agent for the
account of Term Lenders.




          §3.3 Optional Prepayments.




     Borrower shall have the right, at its election, to prepay the outstanding amount of the Loans,
as a whole or in part, at any time without penalty or premium, provided that if any full or partial
prepayment of the outstanding amount of any LIBOR Rate Loans is made on a date that is not the last
day of the Interest Period relating thereto, such payment shall be accompanied by the amount
payable pursuant to §4.8. Borrower shall give Agent, no later than 10:00 a.m., Cleveland time, at
least three (3) Business Days prior written notice of any prepayment pursuant to this §3.3, in each
case specifying the proposed date of payment of Loans, the principal amount of the Term Loans to be
prepaid (if any), the principal amount of the Revolving Loans to be prepaid (if any), and the date
on which such prepayment is to be made. Notice of prepayment, once given, shall be irrevocable,
and such amount shall become due and payable on the specified prepayment date. Contemporaneously
with each optional prepayment, in whole or in part, of the Outstanding principal of the Term Loans
prior to June 14, 2009, Borrower shall pay the applicable Prepayment Fee to Agent for the account
of Term Lenders.




          §3.4 Partial Prepayments.




     Each partial prepayment of the Loans under §3.3 shall be in the minimum amount of $1,000,000
or an integral multiple of $100,000 in excess thereof (unless the applicable Loan is being prepaid
in full or unless the Loan is being prepaid in part pursuant to §5.3), and each partial prepayment
of the Loans under §3.2 and §3.3 shall be accompanied by the payment of accrued interest on the
principal prepaid to the date of payment and, after payment of such interest, shall be applied, in
the absence of instruction by Borrower, first to the principal of Revolving Loans or Term Loans (as
applicable) that are Base Rate Loans, and then to the Revolving Loans or Term Loans (as applicable)
that are LIBOR Rate Loans; provided, however, that no such partial prepayment shall
reduce the aggregate principal amount of the Loans to an amount that is less than $10,000,000.
Each partial prepayment of Outstanding principal of the Term Loans shall be applied in inverse
order of maturity.




          §3.5 Effect of Prepayments.




     Amounts of the Revolving Loans and Swing Line Loans prepaid prior to the Maturity Date may be
reborrowed as and to the extent provided in §2. Except as otherwise expressly provided herein, all
payments shall be applied, (a) first to any fees or other charges then due and payable hereunder or
under the other Loan Documents (other than amounts payable under any Hedge Agreements), (b) next to
any Default Rate interest accrued and outstanding, (c) next to any interest accrued and outstanding
on Swing Line Loans, (d) next to any interest accrued and outstanding on Base Rate Loans, (e) next
to any interest accrued, outstanding, and payable on any LIBOR Rate Loans, (f) next to any
Outstanding principal on any Swing Line Loans, (g) next to any Outstanding principal on any
Revolving Loans that are Base Rate Loans, (h) next to any Outstanding principal on any Revolving
Loans that are LIBOR Rate Loans, (i) next to any Outstanding principal on any Term Loans that are
Base Rate Loans, and (j) next to any




38









 







Outstanding principal on any Term Loans that are LIBOR Rate Loans. Amounts applied pursuant
to clauses (d) and (e) of this Section shall be applied ratably and without preference or priority
as between Revolving Loans and Term Loans.




§4. CERTAIN GENERAL PROVISIONS




          §4.1 Conversion Options; Number of LIBOR Contracts.




          (a) Borrower may elect from time to time to convert any of the outstanding Loans to a Loan of
another Type and such Loan shall thereafter bear interest as a Base Rate Loan or a LIBOR Rate Loan,
as applicable; provided that (i) with respect to any such conversion of a LIBOR Rate Loan
to a Base Rate Loan, Borrower shall give Agent at least three (3) Business Days’ prior written
notice of such election, and such conversion shall only be made on the last day of the Interest
Period with respect to such LIBOR Rate Loan; (ii) with respect to any such conversion of a Base
Rate Loan to a LIBOR Rate Loan, Borrower shall give Agent at least three (3) LIBOR Business Days’
prior written notice of such election and the Interest Period requested for such Loan; the
principal amount of the Loan so converted shall be in a minimum aggregate amount of $2,000,000 or
an integral multiple of $100,000 in excess thereof; and (iii) no Loan may be converted into a LIBOR
Rate Loan when any Event of Default has occurred and is continuing. All or any part of the
outstanding Loans of any Type may be converted as provided herein, provided that no partial
conversion shall result in a Base Rate Loan in an aggregate principal amount of less than
$1,000,000 or a LIBOR Rate Loan in an aggregate principal amount of less than $2,000,000 and that
the aggregate principal amount of each Loan shall be an integral multiple of $100,000. On the date
on which such conversion is being made, each Lender shall take, to the extent it deems it necessary
to do so, such action as is necessary to transfer its Commitment Percentage of such Loans to its
Domestic Lending Office or its LIBOR Lending Office, as the case may be. Each Conversion Request
relating to the conversion of a Base Rate Loan to a LIBOR Rate Loan shall be irrevocable by
Borrower.




          (b) Any Loan may be continued as such Type upon the expiration of an Interest Period with
respect thereto by compliance by Borrower with the terms of §4.1; provided that no LIBOR
Rate Loan may be continued as such when any Event of Default has occurred and is continuing, but
shall be automatically converted to a Base Rate Loan on the last day of the Interest Period
relating thereto ending during the continuance of any Default or Event of Default.




          (c) In the event that Borrower does not notify Agent of its election hereunder with respect to
any Loan, such Loan shall be automatically converted to a Base Rate Loan at the end of the
applicable Interest Period.




          (d) There shall be no more than eight (8) LIBOR Rate Loans outstanding at any one time.




          §4.2 Certain Fees.




          Borrower agrees to pay to KeyBank certain fees for services rendered or to be rendered in
connection with the Loans as provided in the Agreement Regarding Fees. All such fees shall be
fully earned when due and non-refundable when paid.




39









 








          §4.3 Letter of Credit Fees.




     Borrower shall pay to Agent Agent’s customary issuance fee, not to exceed $400.00 per Letter
of Credit, and a Letter of Credit Fee with respect to each Letter of Credit issued under this
Agreement. The Letter of Credit Fee with respect to all Letters of Credit shall be equal to three
and one-half percent (3.5%) per annum on the average of the amount of the Letters of Credit
Outstanding for any given month. All Letter of Credit Fees shall be paid monthly in arrears on the
first day of each calendar month. Upon receipt of the Letter of Credit Fee, Agent shall deduct and
retain one-eighth of one percent (0.125%) per annum of the Outstanding Letters of Credit as a fee
due to Agent and shall remit to each Revolving Lender a portion of the remaining Letter of Credit
Fee equal to each such Revolving Lender’s Commitment Percentage of the remaining Letter of Credit
Fee.




          §4.4 Funds for Payments.




          (a) All payments of principal, interest, facility fees, Letter of Credit Fees, Agent’s fees,
closing fees and any other amounts due hereunder or under any of the other Loan Documents shall be
made to Agent, for the respective accounts of Lenders and Agent, as the case may be, at Agent’s
Office, no later than 1:00 p.m. (Cleveland time) on the day when due, in each case in lawful money
of the United States in immediately available funds.




          (b) All payments by Borrower hereunder and under any of the other Loan Documents shall be made
without setoff or counterclaim and free and clear of and without deduction for any taxes, levies,
imposts, duties, charges, fees, deductions, withholdings, compulsory loans, restrictions or
conditions of any nature now or hereafter imposed or levied by any jurisdiction or any political
subdivision thereof or taxing or other authority therein (other than franchise taxes or taxes based
upon or measured by the income or profits of Agent or any Lender) unless Borrower is compelled by
law to make such deduction or withholding. If any such obligation is imposed upon Borrower with
respect to any amount payable by it hereunder or under any of the other Loan Documents, Borrower
will pay to Agent, for the account of Lenders or (as the case may be) Agent, on the date on which
such amount is due and payable hereunder or under such other Loan Document, such additional amount
in Dollars as shall be necessary to enable Lenders or Agent to receive the same net amount which
Lenders or Agent would have received on such due date had no such obligation been imposed upon
Borrower. Borrower will deliver promptly to Agent certificates or other valid vouchers for all
taxes or other charges deducted from or paid with respect to payments made by Borrower hereunder or
under such other Loan Document.




          (c) Each Lender organized under the laws of a jurisdiction outside the United States, if
requested in writing by Borrower (but only so long as such Lender remains lawfully able to do so),
shall provide Borrower with such duly executed form(s) or statement(s) which may, from time to
time, be prescribed by law and, which, pursuant to applicable provisions of (i) an income tax
treaty between the United States and the country of residence of such Lender, (ii) the Code, or
(iii) any applicable rules or regulations in effect under (i) or (ii) above, indicates the
withholding status of such Lender; provided that nothing herein (including without limitation the
failure or inability to provide such form or statement) shall relieve Borrower of its obligations
under §4.4(b). In the event that Borrower shall have delivered the certificates or vouchers



40









 






described above for any payments made by Borrower and such Lender receives a refund of any
taxes paid by Borrower pursuant to §4.4(b), such Lender will pay to Borrower the amount of such
refund promptly upon receipt thereof; provided that if at any time thereafter such Lender
is required to return such refund, Borrower shall promptly repay to such Lender the amount of such
refund.




          §4.5 Computations.




     All computations of interest on the Loans and of other fees to the extent applicable shall be
based on a 360-day year (or, in the case of interest on Base Rate Loans, a 365/366-day year) and
paid for the actual number of days elapsed. Except as otherwise provided in the definition of the
term “Interest Period” with respect to LIBOR Rate Loans, whenever a payment hereunder or under any
of the other Loan Documents becomes due on a day that is not a Business Day, the due date for such
payment shall be extended to the next succeeding Business Day, and interest shall accrue during
such extension. The outstanding amount of the Loans as reflected on the records of Agent from time
to time shall be considered prima facie evidence of such amount.



          §4.6 Inability to Determine LIBOR Rate.




     In the event that at any time Agent shall determine in the exercise of its good faith business
judgment that adequate and reasonable methods do not exist for ascertaining the LIBOR Rate, Agent
shall forthwith give notice of such determination (which shall be conclusive and binding on
Borrower and Lenders) to Borrower and Lenders. In such event (a) any Loan Request with respect to
LIBOR Rate Loans shall be automatically withdrawn and shall be deemed a request for Base Rate Loans
and (b) each LIBOR Rate Loan will automatically become a Base Rate Loan at the end of the current
Interest Period, and the obligations of Lenders to make LIBOR Rate Loans shall be suspended until
Agent determines that the circumstances giving rise to such suspension no longer exist, whereupon
Agent shall so notify Borrower and Lenders.



          §4.7 Illegality.




     Notwithstanding any other provisions herein, if any present or future law, regulation, treaty
or directive or the interpretation or application thereof shall make it unlawful, or any central
bank or other governmental authority having jurisdiction over a Lender or its LIBOR Lending Office
shall assert that it is unlawful, for any Lender to make or maintain LIBOR Rate Loans, such Lender
shall forthwith give notice of such circumstances to Agent and Borrower and thereupon (a) the
commitment of Lenders to make LIBOR Rate Loans or convert Loans of another type to LIBOR Rate Loans
shall forthwith be suspended and (b) the LIBOR Rate Loans then outstanding shall be converted
automatically to Base Rate Loans.



          §4.8 Additional Interest.




     If any LIBOR Rate Loan or any portion thereof is repaid or is converted to a Base Rate Loan
for any reason on a date which is prior to the last day of the Interest Period applicable to such
LIBOR Rate Loan, or if repayment of the Loans has been accelerated as provided in §12.1, Borrower
will pay to Agent upon demand for the account of Lenders in accordance with their respective
Commitment Percentages, in addition to any amounts of interest otherwise payable hereunder, any
amounts required to compensate Lenders for any losses, costs or expenses (but not



41









 




loss of profit) which may reasonably be incurred as a result of such payment or conversion,
including, without limitation, an amount equal to daily interest for the unexpired portion of such
Interest Period on the LIBOR Rate Loan or portion thereof so repaid or converted at a per annum
rate equal to the excess, if any, of (a) the interest rate calculated on the basis of the LIBOR
Rate applicable to such LIBOR Rate Loan (excluding any spread over such LIBOR Rate) minus
(b) the yield obtainable by Agent upon the purchase of debt securities customarily issued by the
Treasury of the United States of America which have a maturity date most closely approximating the
last day of such Interest Period (it being understood that the purchase of such securities shall
not be required in order for such amounts to be payable and that a Lender shall not be obligated or
required to have actually obtained funds at the LIBOR Rate or to have actually reinvested such
amount as described above).




          §4.9 Additional Costs, Etc.




     Subject to §4.4, if any present or future applicable law, or any amendment or modification of
present applicable law, which expression, as used herein, includes statutes, rules and regulations
thereunder and legally binding interpretations thereof by any competent court or by any
governmental or other regulatory body or official with appropriate jurisdiction charged with the
administration or the interpretation thereof and requests, directives, instructions and notices at
any time or from time to time hereafter made upon or otherwise issued to any Lender or Agent by any
central bank or other fiscal, monetary or other authority (whether or not having the force of law),
shall:



          (a) subject any Lender or Agent to any tax, levy, impost, duty, charge, fee, deduction or
withholding of any nature with respect to this Agreement, the other Loan Documents, such Lender’s
Commitment, a Letter of Credit or the Loans (other than franchise taxes and taxes based upon or
measured by the income or profits of such Lender or Agent), or




          (b) materially change the basis of taxation (except for changes in taxes on income or profits)
of payments to any Lender of the principal of or the interest on any Loans or any other amounts
payable to any Lender under this Agreement or the other Loan Documents, or




          (c) impose or increase or render applicable any special deposit, reserve, assessment,
liquidity, capital adequacy or other similar requirements (whether or not having the force of law)
against assets held by, or deposits in or for the account of, or Loans or Letters of Credit by, or
commitments of an office of any Lender, or




          (d) impose on any Lender or Agent any other conditions or requirements with respect to this
Agreement, the other Loan Documents, the Loans, such Lender’s Commitment, a Letter of Credit or any
class of loans or commitments of which any of the Loans or Letters of Credit or such Lender’s
Commitment forms a part, and the result of any of the foregoing is




               (i) to increase the cost to any Lender of making, funding, issuing, renewing, extending or
maintaining any of the Loans or Letters of Credit or such Lender’s Commitment, or




42











 





               (ii) to reduce the amount of principal, interest or other amount payable to such Lender or
Agent hereunder on account of such Lender’s Commitment or any of the Loans or Letters of Credit, or



               (iii) to require such Lender or Agent to make any payment or to forego any interest or other
sum payable hereunder, the amount of which payment or foregone interest or other sum is calculated
by reference to the gross amount of any sum receivable or deemed received by such Lender or Agent
from Borrower hereunder; then, and in each such case, Borrower will, within fifteen (15) days of demand made by such Lender
or (as the case may be) Agent at any time and from time to time and as often as the occasion
therefor may arise, pay to such Lender or Agent such additional amounts as such Lender or Agent
shall determine in good faith to be sufficient to compensate such Lender or Agent for such
additional cost, reduction, payment or foregone interest or other sum. Each Lender and Agent in
determining such amounts may use any reasonable averaging and attribution methods, generally
applied by such Lender or Agent. Notwithstanding the foregoing, Borrower shall have the right, in
lieu of making the payment referred to in this §4.9, to prepay the Loans of the applicable Lender
within fifteen (15) days of such demand and avoid the payment of the amounts otherwise due under
this §4.9 or to cause the applicable Lender to assign its Loans and Commitments in accordance with
§18.8, provided, however, that Borrower shall be required to pay together with such prepayment of
the Loan all other costs, damages and expenses otherwise due under this Agreement as a result of
such prepayment.




          §4.10 Capital Adequacy.




     If after the date hereof any Lender determines that (a) the adoption of or change in any law,
rule, regulation, guideline, directive or request (whether or not having the force of law)
regarding capital requirements for banks or bank holding companies or any change in the
interpretation or application thereof by any governmental authority, central bank or comparable
agency charged with the administration thereof, or (b) compliance by such Lender or its parent bank
holding company with any guideline, request or directive of any such entity regarding capital
adequacy or any amendment or change in interpretation of any existing guideline, request or
directive (whether or not having the force of law), has the effect of reducing the return on such
Lender’s or such holding company’s capital as a consequence of such Lender’s commitment to make
Loans hereunder to a level below that which such Lender or holding company could have achieved but
for such adoption, change or compliance (taking into consideration such Lender’s or such holding
company’s then existing policies with respect to capital adequacy and assuming the full utilization
of such entity’s capital) by any amount deemed by such Lender to be material, then such Lender may
notify Borrower thereof. Borrower agrees to pay to such Lender the amount of such reduction in the
return on capital as and when such reduction is determined, upon presentation by such Lender of a
statement of the amount setting for the Lender’s calculation thereof. In determining such amount,
such Lender may use any reasonable averaging and attribution methods. Notwithstanding the
foregoing, Borrower shall have the right, in lieu of making the payment referred to in this §4.10,
to prepay the Loans of the applicable Lender within fifteen (15) days of such demand and avoid the
payment of the amounts otherwise due under this §4.10 or to cause the applicable Lender to assign
its Loans and Commitments in accordance with §18.8, provided, however, that Borrower shall be
required to pay together with such prepayment



43









 




of the Loan all other fees, costs, damages and expenses otherwise due under this Agreement as
a result of such prepayment.




          §4.11 Indemnity by Borrower.




     Borrower agrees to indemnify each Lender and to hold each Lender harmless from and against any
loss, cost or expense that such Lender may sustain or incur as a consequence of (a) default by
Borrower in payment of the principal amount of or any interest on any LIBOR Rate Loans as and when
due and payable, including any such loss or expense arising from interest or fees payable by such
Lender to lenders of funds obtained by it in order to maintain its LIBOR Rate Loans, or (b) default
by Borrower in making a borrowing or conversion after Borrower has given (or is deemed to have
given) a Conversion Request, or (c) default by Borrower in making the payments or performing their
obligations under §§4.8, 4.9, 4.10 or 4.12.



          §4.12 Interest on Overdue Amounts; Late Charge.




     Following the occurrence and during the continuance of any Event of Default, and regardless of
whether or not Lenders shall have accelerated the maturity of the Loans, at the election of the
Required Lenders, all Loans shall bear interest payable on demand at a rate per annum equal to two
percent (2%) above the rate that would otherwise be applicable at such time (the “Default
Rate”), until such amount shall be paid in full (after as well as before judgment), or if such
rate shall exceed the maximum rate permitted by law, then at the maximum rate permitted by law. In
addition, Borrower shall pay Agent, for the account of the applicable Lenders, a late charge equal
to five percent (5%) of any amount of interest and/or principal payable on the Loans or any other
amounts payable hereunder or under the Loan Documents, which is not paid within ten (10) days of
the date when due. Such late charge is and shall be deemed to be a charge to compensate Agent and
Lenders for administrative services and costs incurred in connection with the related delinquent
payment and shall under no circumstances constitute or be deemed to be a charge for the use of
money.



          §4.13 Certificate.




     A certificate setting forth any amounts payable pursuant to §4.8, §4.9, §4.10, §4.11 or §4.12
and a reasonably detailed explanation and calculation of such amounts which are due, submitted by
any Lender or Agent to Borrower, shall be conclusive in the absence of manifest error.



          §4.14 Limitation on Interest.




     Notwithstanding anything in this Agreement to the contrary, all agreements between Borrower
and Lenders and Agent, whether now existing or hereafter arising and whether written or oral, are
hereby limited so that in no contingency, whether by reason of acceleration of the maturity of any
of the Obligations or otherwise, shall the interest contracted for, charged or received by Lenders
exceed the maximum amount permissible under applicable law. If, from any circumstance whatsoever,
interest would otherwise be payable to Lenders in excess of the maximum lawful amount, the interest
payable to Lenders shall be reduced to the maximum amount permitted under applicable law; and if
from any circumstance Lenders shall ever receive anything of value deemed interest by applicable
law in excess of the maximum lawful amount, an



44









 




amount equal to any excessive interest shall be applied to the reduction of the principal
balance of the Obligations and to the payment of interest or, if such excessive interest exceeds
the unpaid balance of principal of the Obligations, such excess shall be refunded to Borrower. All
interest paid or agreed to be paid to Lenders shall, to the extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full period until payment in full of the
principal of the Obligations (including the period of any renewal or extension thereof) so that the
interest thereon for such full period shall not exceed the maximum amount permitted by applicable
law. This section shall control all agreements between Borrower and Lenders and Agent.




§5. COLLATERAL SECURITY; RELEASES




          §5.1 Collateral.




     The Obligations shall be secured by (i) a perfected first priority lien or security title and
security interest to be held by Agent for the benefit of Lenders in the Mortgaged Properties and
certain personal property of Loan Parties related to the Mortgaged Properties, pursuant to the
terms of the Security Deeds, (ii) a perfected first priority security interest to be held by Agent
for the benefit of Lenders in the Leases pursuant to the Security Deeds and the Assignment of
Leases and Rents, in the Mineral Rights Leases pursuant to the Assignment of Mineral Rights Leases,
and in the Timber Purchase Agreement pursuant to the Collateral Assignment of Timber Purchase
Agreement, (iii) a perfected first priority security interest to be held by Agent for the benefit
of Lenders in the Pledged Deposit Account and all monies, instruments and investments from time to
time held therein, (iv) a perfected first priority pledge of and security interest in all issued
and outstanding Equity Interests held by any Loan Party in another Loan Party or in any Joint
Venture pursuant to the Pledge and Security Agreement, provided that in the event a pledge of or
security interest in such Equity Interests in any Joint Venture pursuant to the Pledge and Security
Agreement is not permitted under the Organizational Documents of the applicable Joint Venture or
pursuant to any other agreement, then such security interest shall be limited to an assignment of
such Loan Party’s rights to any distributions made or to be made by such Joint Venture in favor of
Agent for the benefit of Lenders pursuant to the Assignment of Rights to Joint Venture
Distributions, such Equity Interests or rights shall not be included as Collateral, and (v) such
additional collateral, if any, as the Loan Parties may agree to grant and Agent for the benefit of
Lenders from time to time may accept as security for the Obligations.



          §5.2 Appraisals; Evaluations; Adjusted Value.




          (a) Agent on behalf of Lenders shall require evaluations of the High Value Timberland
performed by MAI appraisers, selected and engaged by Agent, which will be ordered by Agent and
reviewed and approved by Agent from time to time, each of said evaluations to cover a minimum of
seventy-five percent (75%), by acreage, of the High Value Timberland (as selected by Agent) in
order to determine the current High Value Timberland Amount. Such evaluations shall set forth the
specific Appraised Value of the High Value Timberland. On an annual basis, Borrower shall cause
the value of such properties to be re-evaluated. Borrower agrees to pay to Agent on demand all
reasonable out-of-pocket costs of all such evaluations and re-evaluations. Notwithstanding
anything to the contrary contained in this paragraph, however, so long as no Event of Default shall
have occurred and be continuing and regulatory requirements




45









 







of any Lender generally applicable to real estate loans of the category made under this
Agreement as reasonably interpreted by such Lender shall not require such evaluations more
frequently than annually, Borrower shall not be required to pay for such evaluations more often
than once in any period of twelve (12) consecutive months.




          (b) Agent on behalf of Lenders shall require annual updates of the evaluation with respect to
the Timberland performed by any third-party consultant selected and engaged by Agent, which will be
ordered by Agent and reviewed and approved by Agent from time to time in order to determine the
current Timberland Value, and Borrower shall pay to Agent on demand all reasonable out-of-pocket
costs of all such evaluation updates; provided, however, that so long as no Event
of Default shall have occurred and be continuing and regulatory requirements of any Lender
generally applicable to real estate loans of the category made under this Agreement as reasonably
interpreted by such Lender shall not require such evaluation updates more frequently than annually,
Borrower shall not be required to pay for such evaluation updates more often than once in any
period of twelve (12) consecutive months.




          (c) Agent on behalf of Lenders shall require “as is” Appraisals of the Raw Entitled Land and
Entitled Land Under Development, in each case performed by MAI appraisers selected and engaged by
Agent, which Appraisals will be ordered by Agent and reviewed and approved by Agent from time to
time, and will cover a minimum of seventy-five percent (75%) of the remaining Lot portfolio and
seventy-five percent (75%) of the remaining commercial acreage (both as selected by Agent) in order
to determine the current Raw Entitled Land Value and the Entitled Land Under Development Value, as
the case may be. On an annual basis, such properties shall be reappraised. Borrower agrees to pay
to Agent on demand all reasonable out-of-pocket costs of all such Appraisals and reappraisals.
Notwithstanding anything to the contrary contained in this paragraph, however, so long as no Event
of Default shall have occurred and be continuing and regulatory requirements of any Lender
generally applicable to real estate loans of the category made under this Agreement as reasonably
interpreted by such Lender shall not require such Appraisals or reappraisals more frequently than
annually, Borrower shall not be required to pay for such Appraisals or reappraisals more often than
once in any period of twelve (12) consecutive months.




          (d) In the event that Agent shall advise Borrower in writing, on the basis of any Appraisal
(or update of an existing Appraisal or evaluation), that the Borrowing Base is insufficient to
comply with the requirements of §9.2(b), then until the Borrowing Base is increased or the
Outstanding principal amount of the Loans is reduced such that the Borrowing Base is in compliance
with §9.2(b), Revolving Lenders and Swing Line Lender shall not be required to make advances under
§2.1, Agent shall not be required to issue any Letter of Credit under §2.10, and Borrower shall
make the mandatory prepayment (if any) required under the provisions of §3.2(a).




          (e) Borrower acknowledges that Agent may, upon five (5) Business Days prior notice to
Borrower, make changes or adjustments to the value set forth in any Appraisal as may be required by
Agent in the exercise of its good faith business judgment and after consultation with Borrower, and
that Agent is not bound by the value set forth in any Appraisal performed pursuant to this
Agreement and does not make any representations or warranties with respect to any such Appraisal.
Borrower further agrees that Lenders and Agent shall have no liability as a




46









 







result of or in connection with any such Appraisal for statements contained in such Appraisal,
including without limitation, the accuracy and completeness of information, estimates, conclusions
and opinions contained in such Appraisal, or variance of such Appraisal from the fair value of such
property that is the subject of such Appraisal given by the local tax assessor’s office, or
Borrower’s idea of the value of such property.




          §5.3 Release of Mortgaged Property.




     Provided no Default or Event of Default shall have occurred hereunder and be continuing (or
would exist immediately after giving effect to the transactions contemplated by this §5.3), Agent
shall release a Mortgaged Property or any portion thereof, from the lien or security title of the
Security Documents encumbering the same upon the request of Borrower subject to and upon the
following terms and conditions:



          (a) Borrower shall deliver to Agent written notice of its desire to obtain such release no
later than five (5) Business Days prior to the date on which such release is to be effected;




          (b) if the Mortgaged Property to be released in connection with any sale or related series of
sales contains more than 10,000 acres in the aggregate or is valued in excess of $30,000,000 in the
aggregate (based on the higher of book value or the gross sale price for such transaction or
related series of transactions), Borrower shall submit to Agent with such request a Compliance
Certificate prepared using the financial statements of Borrower most recently provided or required
to be provided to Agent under §6.4 or §7.4, adjusted in the best good faith estimate of Borrower to
give effect to the proposed release, and demonstrating that no Default or Event of Default with
respect to the covenants referred to therein shall exist after giving effect to such release;




          (c) all release documents to be executed by Agent shall be in form and substance reasonably
satisfactory to Agent;




          (d) such release shall be in connection with a bona fide, arm’s-length sale of the property to
be released to an unaffiliated third-party, or the transfer of such property to a Joint Venture as
a capital contribution or sale, in either case for reasonably equivalent value or consideration,
otherwise permitted under the terms of this Agreement;




          (e) if the Mortgaged Property to be released in connection with any sale or related series of
sales contains more than 10,000 acres in the aggregate or is valued in excess of $30,000,000 in the
aggregate (based on the higher of book value or the gross sale price for such transaction or
related series of transactions), Borrower shall submit to Agent a Borrowing Base Certificate,
giving pro forma effect to the proposed transaction, demonstrating that immediately after giving
effect to the proposed sale and release, Borrower will remain in compliance with the Borrowing Base
requirements under this Agreement; and




          (f) if only a portion of any Mortgaged Property is to be released, and the portion of the
Mortgaged Property to be released in connection with any sale or related series of sales contains
more than 10,000 acres in the aggregate or is valued in excess of $30,000,000 in the aggregate
(based on the higher of book value or the gross sale price for such transaction or




47









 







related series of transactions), Borrower shall have provided Agent with evidence satisfactory
to Agent (in its sole discretion) that the remaining portion of such Mortgaged Property will comply
with all material Requirements, and have all necessary access, utility easements and other
easements, rights-of-way or similar rights so that the applicable Loan Party’s ability to use the
remaining portion of the Mortgaged Property for its intended purpose will not be materially
diminished or impaired.




          §5.4 Additional Mineral Rights Leases.




     Within forty-five (45) days after the end of each fiscal quarter of Forestar Group, Borrower
will deliver to Agent a supplement to Schedule 4, setting forth the list of all new Mineral
Rights Leases in effect as of the end of that quarter and any Mineral Rights Leases no longer in
effect as of the end of that quarter, whereupon Schedule 4 shall automatically be deemed to
have been modified accordingly, without the necessity of any approval of Lenders or Agent. Without
limiting the generality of §7.12, Borrower and the other applicable Loan Parties agree to execute
and deliver any and all additional documents, instruments or agreements as Agent may reasonably
request from time to time in order to further evidence or perfect Agent’s security interest in the
Loan Parties’ right, title and interest in, to and under the additional Mineral Rights Leases.



          §5.5 Addition of Negative Pledge Properties to the Borrowing Base Assets.




     After the Closing Date, so long as no Default or Event of Default shall have occurred and be
continuing, subject to the satisfaction by Borrower of the conditions set forth in this §5.5,
Borrower shall have the right to request that a Negative Pledge Property be added to the Borrowing
Base Assets. Real Estate constituting Negative Pledge Property not initially included as a
Borrowing Base Asset shall be added to the Borrowing Base Assets if, as and when the following
conditions precedent shall have been satisfied:



          (a) such Real Estate satisfies all of the following conditions, unless otherwise waived in
writing by the Required Lenders:




               (i) such Real Estate is owned in fee simple absolute by Borrower or a Guarantor, subject only
to Permitted Liens;



               (ii) such Real Estate is not mortgaged to secure any Indebtedness (other than pursuant to any
pre-existing mortgage, deed of trust or deed to secure debt which will be cancelled and satisfied
of record in connection with the acquisition thereof by the applicable Loan Party); and



               (iii) such Real Estate constitutes either (A) Timberland, (B) High Value Timberland, (C) Raw
Entitled Land, or (D) Entitled Land Under Development.



          (b) After giving effect to the inclusion of such Real Estate in the Borrowing Base Assets as a
Negative Pledge Property, each of the representations and warranties made by or on behalf of
Borrower and the other Loan Parties contained in this Agreement, the other Loan Documents or in any
document or instrument delivered pursuant to or in connection with this Agreement shall be true in
all material respects both as of the date as of which it was made and




48









 







shall also be true as of the time of the addition of such Negative Pledge Property, with the
same effect as if made at and as of that time (it being understood and agreed that any
representation or warranty which by its terms is made as of a specified date shall only be required
to be true and correct in all material respects only as of such specified date); and




          (c) Borrower shall pay or reimburse Agent and Agent’s Special Counsel for all fees, expenses
and costs in connection with the foregoing.




          §5.6 Operating Account.




     Borrower shall cause its main operating account (the “Operating Account”) to be
subject to a Deposit Account Control Agreement reasonably acceptable to Agent among Agent, the
applicable Loan Party and the subject banking institution. Upon the occurrence and during the
continuation of any Event of Default, Agent may direct the Deposit Account Bank where such
Operating Account is held to sweep all funds on deposit in the Operating Account to an account
designated by Agent on a daily basis pursuant to the terms of the applicable Deposit Account
Control Agreement. Borrower hereby grants to Agent a first-in-priority security interest in and to
all funds now or at any time hereafter held on deposit in such Operating Account to secure the
payment and performance of the Obligations, and Agent shall have all rights and remedies available
to a secured party under the Uniform Commercial Code with respect to such funds.



          §5.7 Advance Account.




     On the Closing Date, Agent shall open an account at Agent’s Head Office in the name of
Borrower to facilitate the funding of the Loans (the “Advance Account”). The sole
signatory on the Advance Account shall be Borrower. The Advance Account shall be a non-interest
bearing account.



          (a) Deposits of Loans to the Advance Account. The proceeds of all Loans shall be
deposited by Agent to the Advance Account, and all Loans shall accrue interest from the date of
deposit in the Advance Account. Provided no Event of Default has occurred and is continuing,
Borrower shall have access to all funds contained in the Advance Account. Upon withdrawal of Loan
proceeds from the Advance Account, Borrower shall apply such Loan proceeds as permitted under §2.8.




          (b) Funds Following an Event of Default. Upon the occurrence of an Event of Default,
Agent may terminate Borrower’s rights to access or direct the application of funds on deposit in
the Advance Account. Thereafter, Agent shall either hold all or any portion of the funds on
deposit as security for the Obligations or apply all or any portion of such funds in satisfaction
of any part of the Obligations.




          (c) Security Interest. Borrower hereby grants to Agent a perfected, first-in-priority
security interest in and to all funds now or at any time hereafter held on deposit in the Advance
Account to secure the payment and performance of the Obligations, subject to Permitted Liens
described in section 8.2(i), and Agent shall have all rights and remedies available to a secured
party under the Uniform Commercial Code with respect to such funds.




49









 








          §5.8 Tax Parcels.




          Borrower covenants and agrees to use commercially reasonable efforts to, within twelve (12)
months after the Closing Date, develop a schedule identifying the tax parcel identification number
or numbers corresponding to Borrower’s compartment numbers for each Mortgaged Property. Borrower
agrees to provide Agent with such schedule within said twelve (12)-month period.




§6. REPRESENTATIONS AND WARRANTIES




     Borrower and each of the other Loan Parties (as applicable) represents and warrants to Agent
and Lenders as follows:



          §6.1 Corporate Authority, Etc.




          (a) Organization; Good Standing. Borrower is a Delaware corporation duly organized
pursuant to its certificate of incorporation filed with the Secretary of State of Delaware and is
validly existing under the laws of the State of Delaware. Each other Loan Party is a corporation,
partnership or limited liability company duly organized, validly existing, and in good standing
under the laws of its state of incorporation or formation. Each Loan Party (i) has all requisite
power to own its respective properties and conduct its respective business as now conducted and as
presently contemplated, and (ii) is duly authorized to do business in each other jurisdiction where
a failure to be so authorized in such other jurisdiction could reasonably be expected to have a
materially adverse effect on the business, assets or financial condition of such Person.




          (b) Subsidiaries and Joint Ventures. Except as disclosed on Schedule 6.1(b),
as of the Closing Date, Forestar Group does not have any Subsidiaries or Joint Ventures.
Schedule 6.1(b) sets forth as of the Closing Date, for each Person set forth thereon, a
complete and accurate statement of (a) the percentage ownership of each such Person by Forestar
Group or any other Loan Party (as applicable), (b) the State or other jurisdiction of
incorporation, organization or formation, as appropriate, of each such Person, and (c) each State
in which each such Person is qualified to do business on the Closing Date.




          (c) Authorization. The execution, delivery and performance of this Agreement and the
other Loan Documents to which the Loan Parties, or any of them, are or are to become a party and
the transactions contemplated hereby and thereby (i) are within the authority of such Person, (ii)
have been duly authorized by all necessary proceedings on the part of such Person, (including any
required stockholder, partner or member approval), (iii) do not and will not conflict with or
result in any breach or contravention of any provision of law, statute, rule or regulation to which
such Person is subject or any judgment, order, writ, injunction, license or permit applicable to
such Person, except for such conflicts or breaches that, individually and the aggregate, could not
reasonably be expected to have a Material Adverse Effect, (iv) do not and will not conflict with or
constitute a default (whether with the passage of time or the giving of notice, or both) under any
provision of the Organizational Documents of, or any mortgage, indenture, agreement, contract or
other instrument binding upon, such Person or any of its




50









 







properties or to which such Person is subject, except for such conflicts or defaults that,
individually and in the aggregate, could not reasonably be expected to have a Material Adverse
Effect and (v) do not and will not result in or require the imposition of any Lien or other
encumbrance on any of the properties, assets or rights of such Person except for the Liens and
security title granted by the Loan Documents.




          (d) Enforceability. The execution and delivery of this Agreement and the other Loan
Documents to which the Loan Parties, or any of them, are or are to become a party are valid and
legally binding obligations of such Person enforceable in accordance with the respective terms and
provisions hereof and thereof, except as enforceability is limited by bankruptcy, insolvency,
reorganization, moratorium or other laws relating to or affecting generally the enforcement of
creditors’ rights and except to the extent that availability of the remedy of specific performance
or injunctive relief is subject to the discretion of the court before which any proceeding therefor
may be brought.




          §6.2 Approvals.




     The execution, delivery and performance by the Loan Parties, or any of them, of this Agreement
and the other Loan Documents to which they are or are to become a party and the transactions
contemplated hereby and thereby do not require the approval or consent of, or filing with, any
Person or the authorization, consent or approval of, or any license or permit issued by, or any
filing or registration with, or the giving of any notice to, any court, department, board,
commission or other governmental agency or authority other than those already obtained and the
filing of the Security Documents in the appropriate records office with respect thereto.



          §6.3 Title to Properties; Leases.




     The Loan Parties and their Subsidiaries own all of their respective assets reflected on the
consolidated balance sheet of Forestar Group (including, without limitation, the Mortgaged
Properties and the Negative Pledge Properties), subject to no rights of others, including any
mortgages, leases, conditional sales agreements, title retention agreements, liens or other
encumbrances except Permitted Liens. Without limiting the foregoing, the Loan Parties and their
Subsidiaries have good and marketable fee simple or leasehold title to all real and personal
property reasonably necessary for the operation of its business in whole, free from all liens or
encumbrances of any nature whatsoever, except for Permitted Liens.



          §6.4 Financial Statements.




     Borrower has furnished or caused to be furnished to each of Lenders: (a) the audited balance
sheet of Forestar Group and its Subsidiaries as of the Balance Sheet Date and the related
statements of operations and cash flows for the period then ended certified by Forestar Group’s
Principal Financial Officer as fairly presenting the financial position of such Persons for such
period, (b) the pro forma balance sheet of Forestar Group and its Subsidiaries as of the Balance
Sheet Date, and (c) projected profit and loss statements and cash flow statements of Forestar Group
and its Subsidiaries, prepared on a quarterly basis for the next two (2) calendar years. Such
balance sheets, operating statements and cash flow statements described in clause (a) have been
prepared in accordance with GAAP (other than the inclusion of footnotes) and fairly present in all
material respects the financial condition of Borrower and its Subsidiaries as of such date



51









 




and the results of the operations of Borrower and its Subsidiaries, for such periods. There
are no liabilities, contingent or otherwise, of Borrower or any Subsidiary of Borrower involving
material amounts not disclosed in said financial statements and the related notes thereto. All
projections and estimates have been prepared in good faith on the basis of reasonable assumptions
and represent the best estimate of future performance by the party supplying the same, it being
agreed that projections are subject to uncertainties and contingencies and that no assurance can be
given that any projection will be realized.




          §6.5 No Material Changes.




     As of the Closing Date there has occurred no materially adverse change in the financial
condition or business of Forestar Group and any of its Subsidiaries, taken as a whole, as shown on
or reflected in the balance sheet of Forestar Group or its Subsidiaries as of September 29, 2007,
or its statement of income or cash flows for the fiscal quarter then ended, other than changes in
the ordinary course of business that have not had any materially adverse effect either individually
or in the aggregate on the business or financial condition of Borrower and its Subsidiaries.



          §6.6 Franchises, Patents, Copyrights, Etc.




     Each Loan Party and its Subsidiaries possesses all franchises, patents, copyrights,
trademarks, trade names, service marks, licenses and permits, and rights in respect of the
foregoing, adequate for the conduct of their business substantially as now conducted without known
conflict with any rights of others except where the failure to so possess could not, individually
and in the aggregate, reasonably be expected to have a Material Adverse Effect. The Mortgaged
Properties and the Negative Pledge Properties are not owned or operated under or by reference to
any registered or protected trademark, tradename, servicemark or logo.



          §6.7 Litigation.




     As of the Closing Date, except as described on Schedule 6.7 hereto, there are no
actions, suits, proceedings or investigations of any kind pending or to the Borrower’s Knowledge,
threatened, against any Loan Party or their Subsidiaries or any of the Mortgaged Properties or the
Negative Pledge Properties before any court, tribunal, administrative agency or board, mediator or
arbitrator that, if adversely determined, individually or in the aggregate could reasonably be
expected to have a Material Adverse Effect. As of the Closing Date, there are no judgments
outstanding against or affecting any Loan Party, any of their respective Subsidiaries or any of the
Collateral.



          §6.8 No Materially Adverse Contracts, Etc.




     No Loan Party or any of their Subsidiaries is a party to any mortgage, indenture, or other
material contract or agreement or other instrument that has had or is reasonably expected, in the
judgment of the members, partners or officers of such Person, to have a Material Adverse Effect.



          §6.9 Compliance with Organizational Documents, Other Instruments, Laws, Etc.




     No Loan Party or any of its respective Subsidiaries is in violation of any provision of its
Organizational Documents, or any decree, order, judgment, statute, license, rule or regulation, in



52









 




any of the foregoing cases in a manner that could reasonably be expected to result in the
imposition of substantial penalties or materially and adversely affect the financial condition,
properties or business of such Person.




          §6.10 Tax Status.




     Each Loan Party and its Subsidiaries (a) has made or filed all federal and all other material
tax returns, reports and declarations required by any jurisdiction to which it is subject, except
to the extent such Person has obtained a valid extension of the deadline to file such return, (b)
has paid all material taxes and other material governmental assessments and charges shown or
determined to be due on such returns, reports and declarations, except those being contested in
good faith and by appropriate proceedings, and (c) has set aside on its books provisions reasonably
adequate for the payment of all taxes for periods subsequent to the periods to which such returns,
reports or declarations apply, if applicable or required. There are no unpaid taxes or assessments
in any material amount claimed to be due by the taxing authority of any jurisdiction or pursuant to
any private agreement except for those that are being contested as permitted by this Agreement.
The charges, accruals and reserves on the books of the Loan Parties and their Subsidiaries in
respect of taxes are, in the reasonable good faith judgment of the Loan Parties, adequate. As of
the Closing Date, no Loan Party or any of their Subsidiaries has been audited, or has knowledge of
any pending audit, by the Internal Revenue Service or any other taxing authority, except that
audits for the periods specified on Schedule 6.10 with respect to the consolidated tax
returns of Temple-Inland remain open.



          §6.11 No Event of Default.




     No Default or Event of Default has occurred and is continuing.



          §6.12 Investment Company Act.




     No Loan Party or any of their Subsidiaries is an “investment company”, or an “affiliated
company” or a “principal underwriter” of an “investment company”, as such terms are defined in the
Investment Company Act of 1940.



          §6.13 Reserved.




          §6.14 Setoff, Etc.




     Borrower and Guarantors are the owners of the Collateral free from any lien, security
interest, encumbrance or other claim or demand, except those encumbrances permitted in the Security
Deeds or Permitted Liens.



          §6.15 Certain Transactions.




     Except as set forth in Schedule 6.15 hereto or as otherwise permitted pursuant to
§8.14, none of the partners, members, officers, trustees, directors, or employees of any Loan Party
or any of their respective wholly-owned Subsidiaries is a party to any transaction with any of
their Affiliates or their members, employees, officers, trustees and directors (other than
employment and severance agreements relating to services as partners, members, employees, officers,
trustees



53









 




and directors), including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal property to or from, or
otherwise requiring payments to or from any Affiliate, partner, member, officer, trustee, director
or such employee or, to Borrower’s Knowledge, any limited liability company, corporation,
partnership, trust or other entity in which any Affiliate, partner, member, officer, trustee,
director, or any such employee has a substantial interest or is an officer, director, trustee,
partner or member.




          §6.16 Employee Benefit Plans.




     Borrower and each ERISA Affiliate has fulfilled its obligations under the minimum funding
standards of ERISA and the Code with respect to each Guaranteed Pension Plan and is in compliance
in all material respects with the presently applicable provisions of ERISA and the Code with
respect to each Employee Benefit Plan. Neither Borrower nor any ERISA Affiliate has (a) sought a
waiver of the minimum funding standard under Section 412 of the Code in respect of any Employee
Benefit Plan, (b) failed to make any contribution or payment to any Guaranteed Pension Plan, or
made any amendment to any Guaranteed Pension Plan, which has resulted in the imposition of a Lien
or the posting of a bond or other security under ERISA or the Code, or (c) incurred any liability
under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of
ERISA. None of the assets of Borrower constitute a Plan Asset.



          §6.17 Regulations T, U and X.




     No portion of any Loan is to be used for the purpose of purchasing or carrying any “margin
security” or “margin stock” as such terms are used in Regulations T, U and X of the Board of
Governors of the Federal Reserve System, 12 C.F.R. Parts 220, 221 and 224. The Loan Parties and
their Subsidiaries are not engaged, and will not engage, principally or as one of their important
activities in the business of extending credit for the purpose of purchasing or carrying any
“margin security” or “margin stock” as such terms are used in Regulations T, U and X of the Board
of Governors of the Federal Reserve System, 12 C.F.R. Parts 220, 221 and 224.



          §6.18 Environmental Compliance.




     The Loan Parties have delivered to Agent true and complete copies of all written environmental
site assessment reports in the possession of any of the Loan Parties with respect to the Mortgaged
Properties (collectively, the “Environmental Reports”) and makes the following
representations and warranties:



          (a) Except as disclosed in the Forestar Form 10, to Borrower’s Knowledge, no Loan Party, their
respective Subsidiaries, is in material violation, or alleged material violation at the Mortgaged
Properties and the Negative Pledge Properties, of any applicable judgment, decree, code, order,
law, rule of common law, license, rule or regulation pertaining to environmental matters, including
without limitation, those arising under the Resource Conservation and Recovery Act
(“RCRA”), the Comprehensive Environmental Response, Compensation and Liability Act of 1980
as amended (“CERCLA”), the Superfund Amendments and Reauthorization Act of 1986
(“SARA”), the Federal Clean Water Act, the Federal Clean Air Act, the Toxic Substances
Control Act, or any applicable state or local statute, regulation, ordinance, order or decree
relating to the environment (hereinafter “Environmental Laws”). To Borrower’s




54









 







Knowledge, any violation reflected in the Environmental Reports involving any of the Real
Estate would not reasonably be expected to have a Material Adverse Effect.




          (b) Except as disclosed in the Forestar Form 10, to Borrower’s Knowledge, no Loan Party or any
of their respective Subsidiaries has received written notice from any third party including,
without limitation, any federal, state or local governmental authority, (i) that it has been
identified by the United States Environmental Protection Agency (“EPA”) as a potentially
responsible party under CERCLA with respect to a site listed on the National Priorities List, 40
C.F.R. Part 300 Appendix B (1986); (ii) that any hazardous waste, as defined by 42 U.S.C. §9601(5),
any hazardous substances as defined by 42 U.S.C. §9601(14), any pollutant or contaminant as defined
by 42 U.S.C. §9601(33) or any toxic substances or hazardous materials or other chemicals or
substances regulated by any Environmental Laws (“Hazardous Substances”) which it has
generated, transported or disposed of have been found at any site at, on or under the Real Estate
for which a federal, state or local agency or other third party has conducted or has ordered that
any Loan Party or their respective Subsidiaries conduct a remedial investigation, removal or other
response action pursuant to any Environmental Law; or (iii) that it is or shall be a named party to
any claim, action, cause of action, complaint, or legal or administrative proceeding (in each case,
contingent or otherwise) arising out of any third party’s incurrence of costs, expenses, losses or
damages of any kind whatsoever in connection with the release of Hazardous Substances.




          (c) (i) To Borrower’s Knowledge, except as disclosed in any Environmental Reports provided to
Agent on or before the date hereof and except as disclosed in the Forestar Form 10, or with respect
to Real Estate which becomes a Mortgaged Property after the date hereof, the Environmental Reports
with respect thereto provided to Agent, (1) no portion of the Mortgaged Property or Negative Pledge
Property has been used by Borrower as a landfill or for dumping or for the handling, processing,
storage or disposal of Hazardous Substances except in material compliance with applicable
Environmental Laws, and (2) no underground tank for Hazardous Substances has been operated by
Borrower on the Mortgaged Property or Negative Pledge Property except in material compliance with
applicable Environmental Laws; (ii) in the course of any activities conducted by any Loan Party, or
any of its respective wholly-owned Subsidiaries, no Hazardous Substances have been generated or are
being used on any Mortgaged Property or Negative Pledge Property, except in the ordinary course of
business and in material compliance with applicable Environmental Laws; (iii) to Borrower’s
Knowledge, there has been no past or present releasing, spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, disposing or dumping (a “Release”) of
Hazardous Substances on, upon, into or from any Mortgaged Property or Negative Pledge Property,
which Release could reasonably be expected to have a Material Adverse Effect; (iv) to Borrower’s
Knowledge, there have been no Releases on, upon, from or into any real property in the vicinity of
any Mortgaged Property or Negative Pledge Property, which, through soil or groundwater
contamination, may have come to be located on, and which could reasonably be expected to have a
Material Adverse Effect; and (v) to Borrower’s Knowledge, any Hazardous Substances that have been
generated on any Mortgaged Property or Negative Pledge Property by Borrower have been transported
off-site, treated and disposed of in material compliance with applicable Environmental Laws.




          (d) To Borrower’s Knowledge and except as disclosed in the Forestar Form 10, no Loan Party or
any of its wholly-owned Subsidiaries or any Mortgaged Property or Negative




55









 







Pledge Property is subject to any applicable Environmental Law requiring the giving of notice
to any governmental agency or the recording or delivery to other Persons of an environmental
disclosure document or statement by virtue of the transactions set forth herein and contemplated
hereby, or as a condition to the recording of the Security Deeds or to the effectiveness of any
other transactions contemplated hereby.




          (e) This §6.18 shall set forth the sole and exclusive representations and warranties made by
the Borrower with regard to Environmental Laws, Hazardous Substances, or any other environmental,
health or safety matter.




          §6.19 Loan Documents.




     All of the representations and warranties of the Loan Parties made in this Agreement and the
other Loan Documents or any document or instrument delivered by any Loan Party to Agent or Lenders
pursuant to or in connection with any of such Loan Documents are true and correct in all material
respects, and no Loan Party has failed to disclose such information as is necessary to make such
representations and warranties not misleading. The information, reports, financial statements,
exhibits and schedules (excluding projections which have been proposed in good faith) furnished by
the Loan Parties to Agent and Lenders in connection with the negotiation, preparation or delivery
of this Agreement and the other Loan Documents or included herein or therein or delivered pursuant
hereto or thereto, do not contain any untrue statement of material fact or omit to state any
material fact necessary to make the statements herein or therein not misleading. All written
information furnished after the date hereof by the Loan Parties to Agent or Lenders in connection
with this Agreement and the other Loan Documents and the transactions contemplated hereby and
thereby will be true, correct and accurate in every material respect and shall not omit to state
any material fact necessary to make the statements herein or therein not misleading, or (in the
case of projections) based on reasonable estimates, on the date as of which such information is
stated or certified; it being recognized by Agent and Lenders that any projections and forecasts
provided by Loan Parties are subject to significant uncertainties and contingencies, many of which
are beyond the control of the Loan Parties.



          §6.20 Mortgaged Properties and Negative Pledge Properties.




          The Loan Parties make the following representations and warranties concerning each Mortgaged
Property and each Negative Pledge Property:




          (a) No Required Mortgaged Property and Negative Pledge Property Consents, Permits,
Etc. Neither Borrower nor any other Loan Party has received any written notice of, has
Knowledge of, any approvals, consents, licenses, permits, utility installations and connections
(including, without limitation, drainage facilities), curb cuts and street openings, required by
applicable laws, rules, ordinances or regulations or any agreement affecting the Mortgaged Property
and the Negative Pledge Property for the maintenance, operation, servicing and use of the Mortgaged
Property and the Negative Pledge Property for its current use (hereinafter referred to as the
“Project Approvals”) which have not been granted, effected, or performed and completed (as
the case may be), or any fees or charges therefor which have not been fully paid, or which are no
longer in full force and effect. No Project Approvals (including, without limitation, any railway
siding agreements) will terminate, or become void or voidable or terminable on any foreclosure sale
of the Mortgaged Property and the Negative Pledge Property pursuant to the




56









 







applicable Security Deed. There are no outstanding suits, orders, decrees or judgments
relating to building use and occupancy, fire, health, sanitation or other violations affecting,
against, or with respect to, the Mortgaged Property and the Negative Pledge Property or any part
thereof, which, if adversely determined, either singly or in the aggregate could reasonably be
expected to have a Material Adverse Effect.




          (b) No Violations. Neither Borrower nor any other Loan Party has received notice of,
or has any Knowledge of, any violation of any applicable Requirements, Project Approvals or any
other restrictions or agreements by which any Loan Party or the Mortgaged Property or Negative
Pledge Property is bound which violation, either singly or in the aggregate with other such
violations, could reasonably be expected to have a Material Adverse Effect.




          (c) Insurance. Neither Borrower nor any other Loan Party has received any written
notice from any insurer or its agent requiring performance of any work with respect to the
Mortgaged Property and the Negative Pledge Property or canceling or threatening to cancel any
policy of insurance, and the Mortgaged Property and the Negative Pledge Property complies in all
material respects with the requirements of all of Borrower’s insurance carriers.




          (d) Real Property and other Taxes; Special Assessments. There are no unpaid or
outstanding real estate or other taxes or assessments on or against the Mortgaged Property and the
Negative Pledge Property or any part thereof, including, without limitation, any payments in lieu
of taxes, which are payable by Borrower, any other Loan Party or any of their respective
Subsidiaries (except only real estate or other taxes or assessments that are not yet delinquent or
subject to any penalties, interest or other late charges, or are being contested as permitted under
this Agreement, or which have been adequately reserved against in accordance with GAAP). There are
no unpaid or outstanding gross receipts, rent or sales taxes payable by Borrower, any other Loan
Party or any of their respective Subsidiaries with respect to the use and operation of the
Mortgaged Property and the Negative Pledge Property which are due and payable. No abatement
proceedings are pending with reference to any real estate taxes or private assessments assessed
against the Mortgaged Property and the Negative Pledge Property. There are no betterment
assessments or other special assessments presently pending with respect to any portion of the
Mortgaged Property and the Negative Pledge Property, and neither Borrower nor any other Loan Party
has received any written notice of any such special assessment being contemplated.




          (e) Eminent Domain; Casualty. As of the Closing Date, there are no pending eminent
domain proceedings against the Mortgaged Property or the Negative Pledge Property or any part
thereof, and, to Borrower’s Knowledge, no such proceedings are presently threatened or contemplated
by any taking authority. Neither the Mortgaged Property, the Negative Pledge Property nor any part
thereof is, as of the Closing Date, materially damaged or injured as a result of any fire,
explosion, accident, flood or other casualty.




          (f) Unresolved Real Estate Disputes. Except as may be disclosed to Agent or on
Schedule 6.20(f), there are no unresolved claims or disputes relating to access to any
portion of the Real Estate that could reasonably be expected to have a material adverse effect on
the intended use of such Real Estate by the Loan Parties or their respective Subsidiaries, or
otherwise have, either singly or in the aggregate, a Material Adverse Effect.




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          (g) Material Real Property Agreements; No Options. Except as set forth in
Schedule 6.20(g), there are no material agreements pertaining to the management or
operation of the Mortgaged Property or the Negative Pledge Property other than as described in this
Agreement; and no person or entity has any right of first refusal, right of first offer or other
option to acquire the Mortgaged Property or any portion thereof or interest therein. Each
reaffirmation of the representation and warranty contained in this sub-paragraph (g) shall take
into account the most recent update of Schedule 6.20(g) delivered to Agent pursuant to
§7.4(i) and shall be deemed reaffirmed as of the most recent date any update to said Schedule
6.20(g) was required to have been delivered to Agent pursuant to §7.4(i), whether or not any
such update is so delivered.




          (h) Mineral Rights Leases. Schedule 4 contains a true and correct list of all
Mineral Rights Leases as of November 24, 2007 and, subsequent thereto, as of the most recent update
of Schedule 4 delivered to agent pursuant to §5.4.




          §6.21 Reserved.




          §6.22 Brokers.




     Borrower has not engaged or otherwise dealt with any broker, finder or similar entity in
connection with this Agreement or the Loans contemplated hereunder.



          §6.23 Ownership.




     As of the Closing Date, the Equity Interests owned by the Loan Parties in Borrower, in each
other Loan Party and in each other Person in which they own any Equity Interests are set forth in
Schedule 6.23. Except for Equity Interests granted pursuant to the Equity Plan or as set
forth on Schedule 6.23, as of the Closing Date there are no (a) outstanding rights to
purchase, options, warrants or similar rights pursuant to which Forestar Group, Borrower or any of
their respective Subsidiaries may be required to issue, sell, repurchase or redeem any of its
Equity Interests or (b) voting rights agreements with respect to such Equity Interests. The Equity
Interests so specified on Schedule 6.23 are fully paid and non-assessable and are owned by
the applicable Person, directly or indirectly, free and clear of all Liens (other than Permitted
Liens).



          §6.24 OFAC.




     No Loan Party or any of their respective Subsidiaries or any Joint Venture is (or will be) a
person with whom Agent is restricted from doing business under OFAC (including, those Persons named
on OFAC’s Specially Designated and Blocked Persons list) or under any statute, executive order
(including, the September 24, 2001 Executive Order Blocking Property and Prohibiting Transactions
With Persons Who Commit, Threaten to Commit, or Support Terrorism), or other governmental action
and is not and shall not engage in any dealings or transactions or otherwise be associated with
such persons. In addition, the Loan Parties hereby agree to provide Agent with any additional
information that Agent deems necessary from time to time in order to ensure compliance with all
applicable laws concerning money laundering and similar activities.



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          §6.25 No Fraudulent Intent.




     Neither the execution and delivery of this Agreement or any of the other Loan Documents nor
the performance of any actions required hereunder or thereunder is being undertaken by Borrower or
any other Loan Party with or as a result of any actual intent by any of such Persons to hinder,
delay or defraud any entity to which any of such Persons is now or will hereafter become indebted.



          §6.26 Transaction in Best Interests of Loan Parties; Consideration.




     The transactions evidenced by this Agreement and the other Loan Documents are in the best
interests of the Loan Parties. The direct and indirect benefits to inure to the Loan Parties
pursuant to this Agreement and the other Loan Documents constitute substantially more than
“reasonably equivalent value” (as such term is used in Section 548 of the Bankruptcy Code) and
“valuable consideration,” “fair value,” and “fair consideration,” (as such terms are used in any
applicable state fraudulent conveyance law), in exchange for the Obligations of the Loan Parties
pursuant to this Agreement and the other Loan Documents.



          §6.27 Solvency.




     As of the Closing Date and after giving affect to the transactions contemplated by this
Agreement and the other Loan Documents, including all of the Loans made or to be made, and Letters
of Credit issued or to be issued, hereunder, with respect to the Loan Parties taken as a whole, (a)
the fair value of their assets on a going concern basis is greater than the amount of their
liabilities (including disputed, contingent and unliquidated liabilities) as such value is
established and liabilities evaluated, (b) the present fair saleable value of their assets is not
less than the amount that will be required to pay the probable liability on their debts as they
become absolute and matured, (c) they will be able to pay their debts and other liabilities
(including disputed, contingent and unliquidated liabilities) as they mature in the normal course
of business (taking into account all available financing options), (d) they do not intend to, and
do not believe that they will, incur debts or liabilities beyond their ability to pay as such debts
and liabilities mature and (e) they are not engaged in business or a transaction, and are not about
to engage in business or a transaction, for which their property would constitute unreasonably
small capital.



          §6.28 No Bankruptcy Filing.




     No Loan Party is contemplating either the filing of a petition by it under any state or
federal bankruptcy or insolvency laws or the liquidation of its assets or property, and to
Borrower’s Knowledge, no Person is contemplating the filing of any such petition against any Loan
Party.



          §6.29 Other Debt.




     Neither any Loan Party nor any of their respective Subsidiaries nor any Joint Venture are in
default (after giving effect to applicable grace periods) in the payment of any Indebtedness or the
terms of any agreement, mortgage, deed of trust, security agreement, financing agreement, indenture
or other lease to which any of them is a party which default, either singly or in the aggregate,
could reasonably be expected to have a Material Adverse Effect. Neither any Loan



59









 




Party nor any of their respective Subsidiaries are a party to or bound by any agreement,
instrument or indenture that may require the subordination in right or time of payment of any of
the Obligations to any other Indebtedness or obligation of Borrower, any other Loan Party or any of
their respective Subsidiaries. Set forth on Schedule 6.29 is a description of the
Permitted Existing Indebtedness. Nothing in this §6.29 shall alter or affect the provisions of
§8.1.




          §6.30 Tax Shelter Representation.




     No Loan Party intends to treat the Loans, and/or related transactions as being a “reportable
transaction” (within the meaning of Treasury Regulation Section 1.6011-4). In the event any Loan
Party determines to take any action inconsistent with such intention, Borrower will promptly notify
Agent thereof. If Borrower so notifies Agent, Borrower acknowledges that one or more of Lenders
may treat its Loans as part of a transaction that is subject to Treasury Regulation Section
301.6112-1, and such Lender or Lenders, as applicable, will maintain the lists and other records
required by such Treasury Regulation.



§7. AFFIRMATIVE COVENANTS OF LOAN PARTIES




     Borrower and the other Loan Parties (as applicable) covenant and agree that, so long as any
Loan, Note, Letter of Credit or other Obligation (other than contingent indemnification obligations
for which no claim has been asserted) is Outstanding or any Lender has any obligation to make any
Loans or Agent has any obligation to issue any Letter of Credit:



          §7.1 Punctual Payment.




     Borrower will duly and punctually pay or cause to be paid the principal and interest on the
Loans and all interest and fees provided for in this Agreement, all in accordance with the terms of
this Agreement and the Notes as well as all other sums owing pursuant to the Loan Documents.



          §7.2 Maintenance of Office.




     Each Loan Party will maintain its chief executive office at 1300 South MoPac Expressway,
Austin, Texas 78746, or at such other place in the United States of America as Borrower or Forestar
Group shall designate upon at least thirty (30) days prior written notice to Agent and Lenders,
where notices, presentations and demands to or upon the Loan Parties in respect of the Loan
Documents may be given or made. The Loan Parties agree that, in the event of any such change, they
will execute and deliver such amendments and other documents as Agent may request to maintain
Agent’s perfected Lien on the Collateral.



          §7.3 Records and Accounts.




     Each Loan Party will, and will cause its Subsidiaries to, keep true and accurate records and
books of account in which full, true and correct entries will be made in accordance with GAAP, as
revised from time to time. No Loan Party shall, without the prior written consent of Agent, make,
or permit any of its Subsidiaries to make, any material change to the accounting procedures used by
them in preparing the financial statements and other information described in §6.4 except as
required by law or as required by GAAP. No Loan Party shall change, or permit any of its
Subsidiaries to change, its fiscal year without the prior written consent of Agent.



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          §7.4 Financial Statements, Certificates and Information.




     Forestar Group and Borrower will deliver to Agent:



          (a) not later than one hundred (100) days after the end of each fiscal year of Forestar Group,
the audited Consolidated balance sheet of Forestar Group and its Subsidiaries as of the end of
such year, and the related statements of income, changes in capital and cash flows for such year,
each setting forth in comparative form the figures for the previous fiscal year and all such
statements to be in reasonable detail, prepared in accordance with GAAP, and accompanied by an
auditor’s report prepared without qualification by a nationally recognized accounting firm
reasonably acceptable to Agent, and any other information Agent may require to complete a financial
analysis of Forestar Group and its Subsidiaries; provided that so long as Forestar Group is
required to file its audited financial statements with the Securities and Exchange Commission, the
delivery of such filed financial statements shall satisfy the foregoing requirements of this clause
(a);




          (b) not later than forty-five (45) days after the end of each fiscal quarter of Forestar Group
and its Subsidiaries (excluding the fourth fiscal quarter in each year), copies of the balance
sheet of Forestar Group and its Subsidiaries as of the end of such quarter, and the related
statements of income, changes in capital and cash flows for the portion of Forestar Group’s fiscal
year then elapsed, all in reasonable detail and prepared on a Consolidated basis in accordance with
GAAP (other than the inclusion of footnotes); provided that so long as Forestar Group is required
to file its quarterly financial statements with the Securities and Exchange Commission, the
delivery of such filed financial statements shall satisfy the foregoing requirements; together with
a certification by the Principal Financial Officer of Forestar Group that the information contained
in such financial statements fairly presents, in all material respects, the financial position of
Forestar Group and its Subsidiaries on the date thereof (subject to year-end adjustments);




          (c) simultaneously with the delivery of the financial statements referred to in subsections
(a) and (b) of this §7.4, a statement (a “Compliance Certificate”) certified by the
Principal Financial Officer of Forestar Group in the form of Exhibit B hereto (or in such
other form as Agent may approve from time to time) setting forth in reasonable detail computations
evidencing compliance with the covenants contained in §8.3(i), §8.7 and §9 and the other covenants
described therein, and (if applicable) reconciliations to reflect changes in GAAP since the Balance
Sheet Date;




          (d) concurrently with the delivery of the financial statements described in subsections (a)
and (b) of this §7.4, a certificate signed by the Principal Financial Officer of Forestar Group to
the effect that, having read this Agreement, and based upon an examination which such officer deems
sufficient to enable such officer to make an informed statement, such officer is not aware of any
Default or Event of Default, or if such Default or Event of Default has occurred, specifying the
facts with respect thereto;




          (e) within twenty (20) days after the end of each calendar month, a certificate in the form of
Exhibit E attached hereto (a “Borrowing Base Certificate”), certified by a
Principal Financial Officer of Forestar Group, pursuant to which Forestar Group shall calculate the
amount of the Borrowing Base as of the end of the immediately preceding calendar month. All
income,




61









 







expense and value associated with Mortgaged Property or Negative Pledge Property or other
assets disposed of during such calendar month will be eliminated from calculations, where
applicable;




          (f) simultaneously with the delivery of the Compliance Certificate referred to in subsection
(c) of this §7.4, a statement, certified as true and correct by the Principal Financial Officer of
Forestar Group, of all Indebtedness of Forestar Group and its Subsidiaries as the end of such
fiscal quarter, including, with respect to each such Indebtedness, the original principal amount
thereof and outstanding principal amount as of the end of such fiscal quarter, the amount remaining
undisbursed, if any, the maturity date and any extension options, the required monthly payments of
principal and interest, the identity of the lender, the interest rate, the collateral for such
Indebtedness, whether such Indebtedness is recourse or Non-recourse Indebtedness, and whether any
default or event of default exists with respect to such Indebtedness;




          (g) if requested by Agent, copies of all annual federal income tax returns and amendments
thereto of Forestar Group and its Subsidiaries;




          (h) not later than March 1 of each year during the term of the Loan, the Budget for Forestar
Group and its Subsidiaries for such calendar year. Such Budget shall be in form reasonably
satisfactory to Agent and shall be submitted to Agent together with a narrative description of the
assumptions upon which the Budget is based and such other information as Agent may request;




          (i) not later than March 1 of each year during the term of the Loan, projected statements of
profit and loss and cash flows for Forestar Group and its Subsidiaries, prepared on a quarterly
basis, for the current calendar year and next succeeding calendar year. Such projections shall be
in form reasonably satisfactory to Agent and shall be submitted to Agent together with a narrative
description of the assumptions upon which such projections are based and such other information as
Agent may request;




          (j) simultaneously with the delivery of the Compliance Certificate referred to in subsection
(c) of this §7.4, an updated Schedule 6.20(g) reflecting the addition or the expiration or
termination of any material agreements described in §6.20(g) or a certification from Borrower that
there have been no changes in that Schedule; and




          (k) from time to time such other financial data and information pertaining to Forestar Group,
its Subsidiaries, the Joint Ventures and the Mortgaged Properties and Negative Pledge Properties,
as Agent or any Lender may reasonably request from time to time.




          §7.5 Notices.




          (a) Defaults. Borrower or Forestar Group will promptly notify Agent in writing of the
occurrence of any Default or Event of Default. If any Person shall give any notice or take any
other action in respect of a claimed default (whether or not constituting an Event of Default)
under this Agreement or under any note, obligation or other evidence of Indebtedness in an
outstanding principal amount of at least $10,000,000, to which or with respect to which Borrower or
any other Loan Party is a party or obligor, whether as principal or surety, and such event of
default would permit the holder of such note or obligation or other evidence of




62









 







Indebtedness to accelerate the maturity thereof or the existence of which claimed default
might become an Event of Default under §12.1(f), Borrower shall forthwith give written notice
thereof to Agent, describing the notice or action and the nature of the claimed default. Borrower
or Forestar Group shall also promptly notify Agent in writing of any exercise of remedies by the
holder of such note, obligation or other evidence of Indebtedness (or any agent or representative
thereof) with respect to such event of default.




          (b) Environmental Events. Borrower or Forestar Group will promptly give notice to
Agent (i) upon Borrower or Forestar Group obtaining knowledge of any potential or known Release, or
threat of Release, of any Hazardous Substances at or from any Mortgaged Property, Negative Pledge
Property or other Real Estate that, either singly or in the aggregate, could reasonably be expected
to have a Material Adverse Effect; (ii) of any violation of any Environmental Law that any Loan
Party reports in writing or is reportable by any Loan Party in writing (or for which any written
report supplemental to any oral report is made) to any federal, state or local environmental agency
that, either singly or in the aggregate, could reasonably be expected to have a Material Adverse
Effect and (iii) upon becoming aware thereof, of any inquiry, proceeding, investigation, or other
action, including a notice from any agency of potential environmental liability, of any federal,
state or local environmental agency or board, that in either case could reasonably be expected to
have a Material Adverse Effect.




          (c) Notification of Claims Against Collateral. Borrower or Forestar Group will,
promptly upon obtaining Knowledge thereof, notify Agent in writing of any claims pertaining to the
Collateral or other property of the Loan Parties which, either singly or in the aggregate, could
reasonably be expected to exceed $1,000,000, as well as any setoff, withholdings or other defenses
to which any of the Collateral, or the rights of Agent or Lenders with respect to the Collateral,
are subject, in each case, other than related to Permitted Liens.




          (d) Notice of Litigation and Judgments. Borrower or Forestar Group will give notice
to Agent in writing within fifteen (15) days of becoming aware of any litigation or proceedings
threatened in writing or any pending litigation and proceedings affecting any of the Loan Parties
or their Subsidiaries or to which any of such Persons is or is to become a party involving an
uninsured claim against any of such Persons that could reasonably be expected to have a Material
Adverse Effect and stating the nature and status of such litigation or proceedings. Borrower or
Forestar Group will give notice to Agent, in writing, in form and detail satisfactory to Agent and
each of Lenders, within ten (10) days of any judgment not covered by insurance, whether final or
otherwise, against any of the Loan Parties in an amount, whether singly or in the aggregate, in
excess of $1,000,000.




          (e) ERISA. Borrower or Forestar Group will give notice to Agent within five (5)
Business Days after Borrower or any ERISA Affiliate (i) gives or is required to give notice to the
PBGC of any ERISA Reportable Event with respect to any Guaranteed Pension Plan, or knows that the
plan administrator of any such plan has given or is required to give notice of any such ERISA
Reportable Event; (ii) receives a copy of any notice of withdrawal liability under Title IV of
ERISA with respect to a Multiemployer Plan; or (iii) receives any notice from the PBGC under Title
IV of ERISA of an intent to terminate or appoint a trustee to administer any Guaranteed Pension
Plan.





63











 





          (f) Notice of Material Adverse Effect. Borrower or Forestar Group will give notice to
Agent in writing within fifteen (15) days of becoming aware of the occurrence of any event or
circumstance which could reasonably be expected to have a Material Adverse Effect.



          (g) Notice of Tax-Sharing Agreement Claims. Borrower or Forestar Group will give
notice to Agent within fifteen (15) days after Forestar Group’s receipt of written notice of any
material claim for indemnity under the Spin-off Tax Sharing Agreement, together with copies of all
material correspondence and other information relating to such claim.



          §7.6 Existence; Maintenance of Properties.



     Except as permitted under §8.4, the Loan Parties will do or cause to be done all things
necessary to preserve and keep in full force and effect their respective legal existences and good
standing in their respective jurisdictions of incorporation, organization or formation (as the case
may be) and those of their respective Subsidiaries. Except as permitted under §8.4, the Loan
Parties will do or cause to be done all things necessary to preserve or establish their respective
good standing as a foreign entity and due authorization to do business in the jurisdictions
described in §6.1(a)(ii) and that of their respective Subsidiaries. Except as permitted under
§8.4, each Loan Party will do or cause to be done all things necessary to preserve and keep in full
force all of its rights and franchises and those of its Subsidiaries, except where the failure to
preserve such rights and franchises would not reasonably be expected to have a Material Adverse
Effect.



          §7.7 Insurance.



          (a) Maintenance of Insurance. Each Loan Party will maintain with financially sound
and reputable insurers not Affiliates of Borrower that are licensed to do business in the State
where the policy is issued and, with respect to any property and casualty insurance, also in the
States where the Mortgaged Property or Negative Pledge Property is located, insurance with respect
to its properties and business against such casualties and contingencies, as shall be in accordance
with the general practices of businesses engaged in similar activities in similar geographic areas,
and in amounts, containing such terms, in such forms and for such periods as may be reasonable and
prudent in accordance with sound business practices and the determination of management of the Loan
Parties. Within five (5) Business Days after the Spin-off Effective Date, Borrower shall furnish
to Agent a certificate setting forth in reasonable detail the nature and extent of all insurance
maintained by Borrower and each other Loan Party, and shall cause each issuer of an insurance
policy to provide Agent with an endorsement (i) showing Agent as a loss payee with respect to each
policy of property or casualty insurance and naming Agent as an additional insured with respect to
each policy of liability insurance, (ii) providing that 30 days’ notice will be given to Agent
prior to any cancellation of, or material reduction or change in coverage provided by or other
material modification to such policy, and also a cross liability/severability endorsement. From
and after the Spin-off Effective Date, Forestar Group or the other Loan Parties shall be
responsible for all premiums on insurance policies. Upon Agent’s request, Borrower or Forestar
Group shall deliver duplicate originals or certified copies of all such policies to Agent, and
shall promptly furnish to Agent all renewal notices and evidence that all premiums or portions
thereof then due and payable have been paid. At least fifteen (15) days prior to the expiration
date of the policies, Forestar Group shall deliver to Agent evidence of continued coverage,
including a certificate of insurance, as may be satisfactory to Agent.



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          (b) Endorsements. From and after the Spin-off Effective Date, in addition to the
endorsements referred to in §7.7(a), all policies of insurance required by this Agreement shall
contain clauses or endorsements to the effect that (i) no act or omission of any Loan Party, anyone
acting for any Loan Party (including, without limitation, any representations made in the
procurement of such insurance), which might otherwise result in a forfeiture of such insurance or
any part thereof, no occupancy or use of the Mortgaged Property and the Negative Pledge Property
for purposes more hazardous than permitted by the terms of the policy, and no foreclosure or any
other change in title to the Mortgaged Property and the Negative Pledge Property or any part
thereof, shall affect the validity or enforceability of such insurance insofar as Agent is
concerned, (ii) the insurer waives any right of setoff, counterclaim, subrogation, or any deduction
in respect of any liability of any of the Loan Parties, and Agent, (iii) such insurance is primary
and without right of contribution from any other insurance which may be available, (iv) such
policies shall not be modified, canceled or terminated prior to the scheduled expiration date
thereof without the insurer thereunder giving at least thirty (30) days prior written notice to
Agent by certified or registered mail, and (v) that Agent or Lenders shall not be liable for any
premiums thereon or subject to any assessments thereunder, and shall in all events be in amounts
sufficient to avoid any coinsurance liability. Upon request by Borrower, Agent and Borrower may
approve variations in the foregoing requirements from time to time.



          (c) Blanket Policies. Prior to the Spin-off Effective Date, such insurance may be
provided under blanket policies of insurance obtained by Temple-Inland, and from and after the
Spin-off Effective Date, under blanket policies of insurance obtained by Forestar Group. Such
blanket policies may cover additional locations and property of Borrower and other Persons not
included in the Mortgaged Properties or the Negative Pledge Properties, provided that such blanket
policies comply with all of the terms and provisions of this §7.7 and contain endorsements or
clauses assuring that any claim recovery will not be less than that which a separate policy would
provide, including, without limitation, a priority claim provision with respect to property
insurance and an aggregate limits of insurance endorsement in the case of liability insurance.
Upon request by Borrower, Agent and Borrower may approve variations in the foregoing requirements
from time to time.



          (d) No Separate Insurance. Borrower shall not carry separate insurance, concurrent in
kind or form or contributing in the event of loss, with any insurance required under this Agreement
unless such insurance complies with the terms and provisions of this §7.7.



          §7.8 Taxes.



     Each Loan Party will duly pay and discharge, or cause to be paid and discharged, before the
same shall become delinquent, all taxes, assessments and other governmental charges imposed upon it
and the Mortgaged Properties and the Negative Pledge Properties owned by it, including, without
limitation, any payments in lieu of taxes, sales and activities, or any part thereof, or upon the
income or profits therefrom, as well as all claims for labor, materials or supplies that if unpaid
might by law become a lien or charge upon any of its property or the property of any other Loan
Party or their respective Subsidiaries; provided that any such tax, assessment, charge,
levy or claim need not be paid if (a) the validity or amount thereof shall currently be contested
in good faith by appropriate proceedings, (b) no Mortgaged Property or Negative Pledge Property nor
any portion thereof or interest therein would be in any danger of



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sale, forfeiture or loss by reason of such proceeding and (c) the Loan Party shall have set
aside on its books adequate reserves in accordance with GAAP with respect thereto; and
provided further that Borrower will pay, or cause to be paid, all such taxes,
assessments, charges, levies or claims forthwith upon the commencement of proceedings to foreclose
any lien that may have attached as security therefor.



          §7.9 Inspection of Mortgaged Properties, Negative Pledge Properties and Books.




     Borrower shall permit or cause the other Loan Parties and their respective Subsidiaries to
permit, Lenders, through Agent or any representative designated by Agent, at Borrower’s expense and
upon reasonable prior notice to visit and inspect any of the Mortgaged Properties and the Negative
Pledge Properties, to examine the books of account of Borrower and the other Loan Parties and their
respective Subsidiaries (and to make copies thereof and extracts therefrom) and to discuss the
affairs, finances and accounts of Borrower and the other Loan Parties and their respective
Subsidiaries with, and to be advised as to the same by, its officers, all at such reasonable times
and intervals as Agent or any Lender may reasonably request (provided, however, that so long as no
Event of Default shall have occurred and be continuing, Borrower shall not be required to pay for
such visits and inspections more often than once in any twelve (12) month period).



          §7.10 Compliance with Laws, Contracts, Licenses, and Permits.




     Borrower will comply and cause each of the other Loan Parties and their respective
Subsidiaries to comply, in all respects with (i) all applicable laws, ordinances, regulations and
requirements now or hereafter in effect wherever its business is conducted, including all
Environmental Laws, (ii) the provisions of its Organizational Documents, (iii) all mortgages,
indentures, contracts, agreements and instruments to which it is a party or by which it or any of
its properties may be bound, (iv) all applicable decrees, orders, and judgments, and (v) all
licenses and permits required by applicable laws and regulations for the conduct of its business or
the ownership, use or operation of its properties, except in each case where the failure to so
comply would not reasonably be expected to have a Material Adverse Effect. If at any time while
any Loan, Note or Letter of Credit is outstanding or Lenders have any obligation to make Loans
hereunder, or Agent has any obligation to issue Letters of Credit hereunder, any authorization,
consent, approval, permit or license from any officer, agency or instrumentality of any government
shall become necessary or required in order that Borrower or any other Loan Party may fulfill any
of their obligations hereunder or under the other Loan Documents, Borrower will promptly take or
cause to be taken all steps necessary to obtain such authorization, consent, approval, permit or
license and furnish Agent and Lenders with evidence thereof.



          §7.11 Sweep of Certain Funds in Operating Accounts of Loan Parties and
Subsidiaries.




     The Loan Parties each agree to take all necessary steps, including the execution and delivery
of all necessary notices and other documentation to the applicable Deposit Account Banks, to
establish and maintain in effect at all times instructions that all collected funds held in the
operating accounts of each Loan Party (other than Borrower) and its wholly-owned Subsidiaries
(other than SPE Subsidiaries) be swept on a daily basis into Borrower’s primary Operating Account
that is subject to a Deposit Account Control Agreement in favor of Agent,



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provided that such Loan Parties and their wholly-owned Subsidiaries (other than SPE
Subsidiaries) collectively may retain an amount not exceeding $15,000,000 in their operating
accounts at any time.



          §7.12 Further Assurances.




     Borrower will cooperate, and cause the other Loan Parties to cooperate, with Agent and Lenders
and execute such further instruments and documents as Lenders or Agent shall reasonably request to
carry out to their satisfaction the transactions contemplated by this Agreement and the other Loan
Documents.



          §7.13 Project Approvals.




     Borrower will give all such notices to, and take all such other actions with respect to, such
governmental authority as may be required under applicable Requirements to use, occupy and, where
applicable, develop, the Mortgaged Properties and the Negative Pledge Properties. Borrower will
duly perform and comply with, and cause each applicable other Loan Party to perform and comply
with, all of the terms and conditions of all Project Approvals obtained at any time.



          §7.14 Timber Affirmative Covenants.



          (a) Management. Borrower shall use its best efforts to operate the Timberland using
silvicultural and harvesting practices and non-binding guidance issued with respect to the
management and harvesting of timberlands by Governmental Authorities in the States where the Real
Property is located, it being understood, however, that Borrower does not intend to replant or
reseed for timber.



          (b) Damage. Borrower will promptly notify Agent of any damage to the Timberland
affecting more than 10,000 acres.



          (c) Fire Protection. Measures shall be taken which are reasonably necessary to
protect the Timberland from loss by fire.



          (d) Notice of Appraisal or Cruise. Borrower shall promptly provide to Lenders a copy
of any appraisal or cruise related to the Timberland.



          (e) Timber Purchase Agreement. Borrower shall not consent to, and shall not permit
any other Loan Party signatory thereto to consent to, any amendment, supplement, waiver or other
modification, termination or assignment of the Timber Purchase Agreement (or, prior to the
effective date thereof, to the form of the Timber Purchase Agreement attached to the Forestar Form
10) which could reasonably be expected to be adverse to the interests of Agent and Lenders without
the prior consent of Agent, and shall furnish Agent all information available to Borrower, as well
as any additional information reasonably requested by Agent, with respect thereto.



          (f) Timber Sale and Release. Borrower shall be permitted to cut, or allow others to
cut, Timber from the Timberland on the terms and conditions set forth in this Agreement, and so as
not to result in a violation of the covenants contained in §9. The Lien of



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the Security Deeds (and the related security interests under the Uniform Commercial Code)
against any cut or severed Timber (but not the proceeds thereof, it being the intent hereof that
Agent’s Lien, on behalf of Lenders, and security interest continue in the proceeds) shall be
automatically released, without any action by any of Borrower, any other Loan Party, Agent or
Lenders, upon the sale thereof by the applicable Loan Party. Borrower shall pay to Agent all
reasonable fees, costs and expenses incurred by Agent in connection with any such partial releases
including, without limitation, legal, appraisal and accounting fees incurred by Agent and all other
expense, and recording and title insurance and title expenses.



          (g) Post-Default Restrictions. Upon the occurrence and during the continuation of an
Event of Default, upon notice from Agent to Borrower to such effect, Borrower shall not enter into
any new Timber cutting or stumpage agreements pertaining to the Mortgaged Property or harvest
Timber (or permit Timber to be harvested) from the Mortgaged Property in excess of Borrower’s
harvesting plan then in effect, in each case without Agent’s prior written consent.



          §7.15 Plan Assets.



     Borrower will do, or cause to be done, all things necessary to ensure that none of the
Collateral will be deemed to be Plan Assets at any time.



          §7.16 Failure to Consummate Spin-off Transaction.




     In the event the Spin-off Effective Date shall not have occurred on or before December 31,
2007 (or such later date as Agent may approve in its sole discretion), the Loan Parties will
promptly negotiate in good faith with Agent and Lenders, and will execute and deliver appropriate
amendment documents, to modify and supplement the definitions, representations, warranties,
covenants, Events of Default and other provisions of this Agreement and the other Loan Documents as
Agent and Lenders may reasonably request to reflect that the Loan Parties remain wholly owned
direct or indirect Subsidiaries of Temple-Inland, that Forestar Group is not a stand-alone public
company as contemplated by this Agreement and to provide Agent and Lenders with substantially the
same benefits and protections as they would have had under this Agreement and the other Loan
Documents if the Spin-off Transaction had been consummated.



          §7.17 Business Operations.




     Each Loan Party shall, and shall cause its Subsidiaries to operate its respective business
generally in substantially the same manner as has been previously conducted and businesses
reasonably related thereto, and the Loan Parties shall not, nor shall they cause or permit their
Subsidiaries to, materially change the nature of such business or engage in any other unrelated
businesses or activities. Each Loan Party shall further, and shall cause its Subsidiaries to,
operate their respective businesses in compliance with the terms and conditions of the Loan
Documents relating to such business.



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          §7.18 Registered Servicemark.




     Without the prior written consent of Agent, such consent not to be unreasonably withheld or
delayed, no Mortgaged Property or Negative Pledge Property shall be owned or operated by Borrower
or any other Loan Party under any registered or protected trademark, tradename, servicemark or
logo. Without limiting the foregoing, Agent may condition its consent to the use of any of the
foregoing upon the granting to Agent for the benefit of Lenders of a perfected first priority
security interest therein.



          §7.19 Mineral Activities.



          (a) Except as permitted hereby, the Loan Parties shall not undertake or operate or cause to be
undertaken or operated for the benefit of, or as agent for, any Loan Party, or under any lease of
the Real Estate, whether directly or indirectly, any Mineral Activity. Any Mineral Activity on the
Timberland, with respect to minerals owned by any Loan Party, if any, shall be carried out by third
party lessees or operators (which may include Joint Ventures) under bona fide Mineral Rights
Leases.



          (b) The Loan Parties shall use their commercially reasonable efforts to require that Mineral
Activity conducted on the Timberland is conducted in accordance with all applicable laws and
regulations, including specifically Environmental Laws.



          (c) All Mineral Activity shall be in accordance with the requirements of §7.19(a).



          (d) Borrower shall keep and maintain at its offices adequate and accurate books and records of
all Mineral Activity and the payments received therefrom.



          (e) The Loan Parties shall comply, and shall require any third parties to comply, in all
material respects with the terms and conditions of the Mineral Rights Leases and with all Laws
concerning the exploration, extraction, removal and transportation of Minerals with respect to the
Timberland.



          §7.20 More Restrictive Agreements.



     Without limiting the terms of §8.1, should Borrower or any Subsidiary enter into or modify any
agreements or documents pertaining to any existing or future Indebtedness which agreements or
documents include financial covenants which are individually or in the aggregate more restrictive
against Borrower or such Subsidiary than those set forth in §9, Borrower shall promptly notify
Agent and, if requested by the Required Lenders, Borrower, Agent, and the Required Lenders shall
promptly amend this Agreement and the other Loan Documents to include some or all of such more
restrictive provisions as determined by the Required Lenders in their sole discretion.



          §7.21 Additional Subsidiaries; Additional Guarantors.



          Within thirty (30) days of any Person becoming a wholly owned, direct or indirect Subsidiary
of Borrower after the Closing Date (other than an Excluded Subsidiary), or after an



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Excluded Subsidiary ceases to qualify as such, Borrower will provide Agent with written notice
thereof setting forth information in reasonable detail describing the scope and approximate amount
of all assets of such Subsidiary and shall (a) cause such Subsidiary to execute and deliver to
Agent a Joinder Agreement (Guarantor), (b) cause the Equity Interests in such Subsidiary (other
than an SPE Subsidiary) to be pledged by joinder or amendment to the Pledge Agreement, and (c)
cause such Subsidiary and each required Loan Party to deliver such additional documents and
certificates under such clauses as Agent reasonably shall request, certified resolutions and other
Organizational Documents and authorizing documents of such Subsidiary and favorable opinions of
counsel to such Subsidiary, all in form and substance reasonably acceptable to Agent. Any document
(other than opinions) or certificate delivered in connection with this §7.21 shall constitute a
Loan Document. Forestar Group shall not create or acquire any Subsidiaries after the Closing Date
unless such Subsidiaries are direct or indirect Subsidiaries of Borrower.



          §7.22 Future Advances Tax Payment.



     Borrower will pay to Agent, on demand, any (or any additional) mortgage, recording,
intangible, documentary stamp or other similar taxes and charges which Agent reasonably determines
to be payable to any state or any county or municipality thereof in which any of the Mortgaged
Properties are located, and will deliver to Agent, promptly upon request, such affidavits or other
information which Agent reasonably determines to be necessary in connection with any Loans or other
extensions of credit pursuant to this Agreement, the extension of the Maturity Date or any other
reason, in order to insure that the Mortgages on Mortgaged Property located in such state secure
Borrower’s Obligations.



§8. CERTAIN NEGATIVE COVENANTS OF LOAN PARTIES




     Borrower and the other Loan Parties (as applicable) covenant and agree that, so long as any
Loan, Note, Letter of Credit or other Obligation (other than contingent indemnification obligations
for which no claim has been asserted) is outstanding or any Lender has any obligation to make any
Loans or Agent has any obligation to issue any Letter of Credit:



          §8.1 Restrictions on Indebtedness.



     Subject to the further restrictions of §9.1, the Loan Parties will not, and will not permit
any of their respective Subsidiaries to, create, incur, assume, guarantee or be or remain liable,
contingently or otherwise, with respect to any Indebtedness other than:



               (i) the Obligations;



               (ii) Indebtedness of Borrower to any Subsidiary that is a Guarantor or Indebtedness of any
Subsidiary to Borrower or another Subsidiary that is a Guarantor;



               (iii) to the extent constituting Indebtedness, liabilities in respect of taxes, assessments,
governmental charges or levies and claims for labor, materials and supplies to the extent that
payment therefor shall not at the time be required to be made in accordance with the provisions of
§7.8;



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               (iv) contingent obligations arising with respect to customary indemnification obligations in
favor of purchasers in connection with dispositions permitted under §8.8;



               (v) Indebtedness in respect of judgments or awards that would not constitute an Event of
Default;



               (vi) obligations under any Hedge Agreement incurred in the ordinary course of business for
bona fide hedging purposes;



               (vii) Indebtedness owing to insurance carriers or finance companies and incurred to finance
insurance premiums of any Loan Party in the ordinary course of business in a principal amount not
to exceed at any time the amount of such insurance premiums to be paid by such Loan Party;



               (viii) Indebtedness arising from the honoring by a bank or other financial institution of a
check, draft or similar instrument inadvertently drawn against insufficient funds in the ordinary
course of business, or pursuant to netting services or otherwise in connection with deposit
accounts;



               (ix) endorsements for collection, deposit or negotiation and warranties of products or
services, in each case incurred in the ordinary course of business;



               (x) Indebtedness in connection with surety (or similar) bonds, letters of credit and
performance bonds obtained in the ordinary course of business in connection with workers’
compensation obligations of the Loan Parties and in connection with other surety and performance
bonds in the ordinary course of business;



               (xi) Permitted Existing Indebtedness, including any Permitted Refinancing Indebtedness;



               (xii) Non-Recourse Indebtedness (including the Loan Parties’ share of Non-Recourse
Indebtedness incurred by any Joint Venture) in an aggregate principal amount not exceeding
$150,000,000 at any time, provided that (a) such Non-Recourse Indebtedness is secured solely by
either (1) property wholly owned by Borrower or another Loan Party that is not included in the
Borrowing Base, or (2) by property wholly owned by a Joint Venture, (b) Borrower shall have
provided Agent (if requested by Agent) with true, correct and complete copies of the substantially
final operative loan documents with respect to such Indebtedness at least five (5) Business Days
prior to the incurrence of such Indebtedness, (c) Borrower shall have provided to Agent a
certificate that (i) no Default or Event of Default exists or would be caused by the incurrence of
such Indebtedness, (ii) the leverage ratio of such Non-Recourse Indebtedness relative to the value
of the Real Estate securing the same shall, at the time such Indebtedness is incurred, be less than
seventy-five percent (75%), and (iii) with respect to any Non-Recourse Indebtedness of a Joint
Venture, a portion of which is allocable to the Loan Parties for purposes of this §8.1(xii), the
leverage ratio of such Non-Recourse Indebtedness of such Joint Venture relative to the value of the
Real Estate of such Joint Venture securing the same, shall at the time such Indebtedness is
incurred, be less than seventy-five percent (75%); and (d) only Permitted Recourse Undertakings
shall be permitted in connection with such Non-Recourse Indebtedness;



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               (xiii) Indebtedness (other than Non-Recourse Indebtedness) in an aggregate principal amount
not exceeding $50,000,000 at any time (including the portion of all Joint Venture Indebtedness that
is recourse to any Loan Party), provided that (a) such Indebtedness is secured solely by property
wholly owned by either by Borrower or its Subsidiaries that is not included in the Borrowing Base,
or by property wholly owned by a Joint Venture, and (b) Borrower shall have provided to Agent a
certificate that (i) no Default or Event of Default exists or would be caused by the incurrence of
such Indebtedness, (ii) the leverage ratio of such Indebtedness relative to the value of the
property securing the same shall, at the time such Indebtedness is incurred, be less than
seventy-five percent (75%), and (iii) with respect to any Indebtedness of a Joint Venture, a
portion of which is allocable to the Loan Parties for purposes of this §8.1(xiii), the ratio of
such Indebtedness of such Joint Venture relative to the value of the Joint Venture’s property
securing the same, shall, at the time such Indebtedness is incurred, be less than seventy-five
percent (75%); provided, however, that the portion of any secured surety bond
Indebtedness in excess of $15,000,000 permitted pursuant to §8.1(xiv) shall be counted against the
$50,000,000 limit provided in this paragraph; and



               (xiv) surety, statutory or appeal bonds or similar obligations incurred in the ordinary course
of business under which the Loan Parties’ collective potential exposure shall not at any time
exceed $50,000,000, of which up to $25,000,000 may be secured by Liens pursuant to §8.2(iii).



          §8.2 Restrictions on Liens, Etc.



     The Loan Parties will not, and will not permit any of their respective Subsidiaries to, (a)
create or incur or suffer to be created or incurred or to exist any lien, encumbrance, mortgage,
pledge, negative pledge, charge, restriction or other security interest of any kind upon any of its
property or assets of any character whether now owned or hereafter acquired, or upon the income or
profits therefrom; (b) transfer any of its property or assets or the income or profits therefrom
for the purpose of subjecting the same to the payment of Indebtedness or performance of any other
obligation in priority to payment of its general creditors; (c) acquire, or agree or have an option
to acquire, any property or assets upon conditional sale or other title retention or purchase money
security agreement, device or arrangement; or (d) sell, assign, pledge or otherwise encumber any
accounts, contract rights, general intangibles, chattel paper or instruments, with or without
recourse (collectively the “Liens”); provided that the Loan Parties may, and may
permit their respective Subsidiaries to, create or incur or suffer to be created or incurred or to
exist any of the following (the “Permitted Liens”):



               (i) Liens for taxes, assessments and other governmental charges or claims for labor, material
or supplies in respect of obligations not overdue or being contested in good faith;



               (ii) Liens in favor of Agent and Lenders under the Loan Documents;



               (iii) Liens on properties of any Loan Party or their respective Subsidiaries other than the
Mortgaged Property, any other Collateral or any interest therein (including the rents, issues and
profits therefrom) in respect of Indebtedness which is permitted by §8.1(xi) §8.1(xii), §8.1(xiii)
or §8.1(xiv);



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               (iv) Liens arising in the ordinary course of business (including (A) Liens of carriers,
warehousemen, mechanics, landlords and materialmen and other similar Liens imposed by law and (B)
Liens incurred in connection with worker’s compensation, unemployment compensation and other types
of social security (excluding Liens arising under ERISA) or in connection with surety bonds, bids,
performance bonds and similar obligations) for sums not overdue or being diligently contested in
good faith by appropriate proceedings and not involving any deposits or advances or borrowed money
or the deferred purchase price of property or services and, in each case, for which it maintains
adequate reserves in accordance with GAAP and the execution or other enforcement of which is
effectively stayed;



               (v) Liens described on Schedule 8.2 as of the Closing Date;



               (vi) options on property and rights of transferees pending the transfer thereof otherwise
permitted by this Agreement;



               (vii) attachments, appeal bonds, judgments and other similar Liens, with respect to judgments
that do not otherwise result in or cause an Event of Default;



               (viii) easements, rights of way, zoning ordinances, entitlements, minor defects or
irregularities in title or survey, building codes and other land use laws and environmental
restrictions, regulations and ordinances, and other similar Liens regulating the use or occupancy
of real property or the activities conducted thereon which are imposed by a governmental authority
having jurisdiction over such real property which are not violated in any material respect by the
current use or occupancy of such real property and do not interfere in any material respect with
the ordinary operation of the business of any Loan Party;



               (ix) leases or subleases granted to others not interfering in any material respect with the
business of any Loan Party and any interest or title of a lessor under any lease;



               (x) licenses or sublicenses of intellectual property granted in the ordinary course of
business;



               (xi) Liens arising under Article 2 or Article 4 of the Uniform Commercial Code and customary
banker’s liens and rights of set-off, revocation, refund or chargeback in favor of banks or other
financial institutions where the Loan Parties maintain deposits in the ordinary course of business;



               (xii) Liens arising from precautionary Uniform Commercial Code financing statements regarding
operating leases or consignments;



               (xiii) Liens deemed to exist in connection with repurchase agreements and other similar
investments to the extent such Investments are permitted under this Agreement;



               (xiv) the replacement, extension or renewal of any Lien permitted by clause (iii) above upon
or in the same property subject thereto arising out of the extension, renewal or replacement of the
Indebtedness secured thereby;



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               (xv) Liens existing on any asset of a Person at the time such Person becomes a Subsidiary of
Borrower and not created in contemplation of such event; and



               (xvi) other Liens, excluding Liens on Collateral, securing amounts (other than Indebtedness
for borrowed money) in an aggregate amount not to exceed $1,000,000.



          §8.3 Restrictions on Investments.



     The Loan Parties will not make or permit to exist or to remain outstanding any Investment
except Investments in:



          (a) marketable direct or guaranteed obligations of the United States of America that mature
within one (1) year from the date of purchase by any Loan Party;



          (b) marketable direct obligations of any of the following: Federal Home Loan Mortgage
Corporation, Student Loan Marketing Association, Federal Home Loan Banks, Federal National Mortgage
Association, Government National Mortgage Association, Bank for Cooperatives, Federal Intermediate
Credit Banks, Federal Financing Banks, Export-Import Bank of the United States, Federal Land Banks,
or any other agency or instrumentality of the United States of America;



          (c) demand deposits, certificates of deposit, bankers acceptances and time deposits of United
States banks having total assets in excess of $100,000,000; provided, however, that
the aggregate amount at any time so invested with any single bank having total assets of less than
$1,000,000,000 will not exceed $200,000;



          (d) securities commonly known as “commercial paper” issued by a corporation organized and
existing under the laws of the United States of America or any State which at the time of purchase
are rated by Moody’s or by S&P at not less than “P-1” if then rated by Moody’s, and not less than
“A-1”, if then rated by S&P;



          (e) mortgage-backed securities guaranteed by the Government National Mortgage Association, the
Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation and other
mortgage-backed bonds which at the time of purchase are rated by Moody’s or by S&P at not less than
“Aa” if then rated by Moody’s and not less than “AA” if then rated by S&P;



          (f) shares of so-called “money market funds” registered with the SEC under the Investment
Company Act of 1940 which maintain a level per-share value, invest principally in investments
described in the foregoing subsections (a) through (e) and have total assets in excess of
$50,000,000;



          (g) the Mortgaged Properties and the Negative Pledge Properties and related personal property;



          (h) Investments in other Loan Parties or in wholly owned Subsidiaries of any Loan Party that
is or becomes a Guarantor substantially contemporaneously therewith pursuant to §7.21;



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          (i) Investments in Joint Ventures that are not otherwise prohibited under this Agreement;



          (j) the acquisition of Real Estate and extensions of trade credit in the ordinary course of
business;



          (k) Investments of any Person existing at the time such Person becomes a Subsidiary or
consolidates or merges with Borrower or any of its Subsidiaries so long as such Investments were
not made in contemplation of such Person becoming a Subsidiary or of such consolidation or merger;



          (l) any Investments received in consideration for an asset sale permitted by this Agreement;



          (m) Investments (including Indebtedness and other obligations) received in connection with the
bankruptcy or reorganization of customers and in settlement of delinquent obligations of, and other
disputes with, customers and suppliers in the ordinary course of business;



          (n) Investments listed on Schedule 8.3 as of the Closing Date;



          (o) Investments in an SPE Subsidiary in connection with Non-Recourse Indebtedness; provided
that (i) any such Investment in an SPE Subsidiary is in the form of a contribution of additional
Non-Recourse Assets or as common equity, and (ii) purchases of Non-Recourse Assets pursuant to
Permitted Recourse Undertakings in connection with Non-Recourse Indebtedness;



          (p) indemnities made and surety and performance bonds and letters of credit issued in the
ordinary course of business;



          (q) Investments in connection with Hedge Agreements permitted under this Agreement;



          (r) the purchase or other acquisition of property and assets or businesses of any Person or of
assets constituting a business unit, a line of business or division of such Person, or Equity
Interests in a Person that, upon the consummation thereof, will be a Subsidiary of Borrower
(including as a result of a merger or consolidation); provided, that with respect to each
purchase or other acquisition made pursuant to this §8.3(r) (each, a “Permitted
Acquisition”):



                    (1) to the extent required by this Agreement, the Equity Interest of such Subsidiary shall
constitute Collateral and each applicable Loan Party and any such newly created or acquired
Subsidiary shall be a Guarantor; and



                    (2) (A) immediately before and after giving pro forma effect to any such purchase or other
acquisition, no Default or Event of Default shall exist and be continuing and (B) Borrower has
delivered to Agent a pro forma Compliance Certificate showing that after giving effect to such
Investment, Loan Parties remain in compliance with the financial covenants in §9.1;



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          (s) in addition to Investments otherwise expressly permitted by this Section, Investments by
Borrower or any of its Subsidiaries in an aggregate amount not to exceed, at any time, 2% of
Consolidated Tangible Net Worth; and



          (t) Investments in connection with Distributions permitted by §8.7.



          §8.4 Merger, Consolidation.



     The Loan Parties will not, and will not permit their respective Subsidiaries to, become a
party to any dissolution, liquidation, merger, reorganization, consolidation or other business
combination, or agree to or effect any asset acquisition or stock acquisition or other acquisition
which may have a similar effect as any of the foregoing without the prior written consent of the
Required Lenders, except that:



          (a) any Subsidiary of the Borrower may be merged or consolidated with or into the Borrower
(provided that the Borrower shall be the continuing or surviving corporation) or with or
into any Subsidiary that is a Guarantor (provided that (i) such Guarantor shall be the
continuing or surviving corporation or (ii) simultaneously with such transaction, the continuing or
surviving corporation shall become a Guarantor and the Borrower shall comply with §7.21 in
connection therewith);



          (b) any Subsidiary of the Borrower may dispose of any or all of its assets (upon voluntary
liquidation or otherwise) to Borrower or any Subsidiary that is a Guarantor;



          (c) an Excluded Subsidiary pursuant to clause (i) of the definition thereof (i) may be merged
or consolidated with or into Borrower or any other Subsidiary of Borrower and (ii) may dispose of
any or all of its assets (upon voluntary liquidation or otherwise) pro rata to its equity holders;
and



          (d) Borrower or any Subsidiary may consummate any Investment otherwise permitted by §8.3(r) by
merger or consolidation, provided that if (i) such merger or consolidation involves the Borrower,
the Borrower is the continuing or surviving corporation and (ii) if such merger or consolidation
involves a Guarantor, such Guarantor is the continuing or surviving corporation.



          §8.5 Sale and Leaseback.



     The Loan Parties will not, and will not permit their respective Subsidiaries to, enter into
any arrangement, directly or indirectly, whereby such Person shall sell or transfer any Mortgaged
Property or Negative Pledge Property in order that then or thereafter such Person shall lease back
such Mortgaged Property or such Negative Pledge Property.



          §8.6 Compliance with Environmental Laws.



     The Loan Parties will not, and will not permit their respective Subsidiaries and will use good
faith efforts to not permit any tenants of any of the Mortgaged Properties or the Negative Pledge
Properties or any other Real Estate owned by a Loan Party to do any of the following: (a) use any
Mortgaged Property or Negative Pledge Property as a facility for the handling,



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processing, storage or disposal of Hazardous Substances, except for quantities of Hazardous
Substances used in the ordinary course of business and in material compliance with all applicable
Environmental Laws, (b) cause or permit to be located on any Mortgaged Property or Negative Pledge
Property any underground tank or other underground storage receptacle for Hazardous Substances
except in material compliance with Environmental Laws, (c) generate any Hazardous Substances on any
Mortgaged Property, Negative Pledge Property or any other Real Estate owned by a Loan Party except
as generated in the ordinary course of business and in material compliance with Environmental Laws,
(d) cause a Release of Hazardous Substances on, upon or into the Mortgaged Property, the Negative
Pledge Property or any other Real Estate owned by a Loan Party which give rise to liability under
CERCLA or any other Environmental Law, or (e) transport or arrange for the transport of any
Hazardous Substances (except as required in the ordinary course of business and in material
compliance with all Environmental Laws).



     If any Loan Party causes any Release of Hazardous Substances in violation of Environmental
Laws to occur, such Loan Party shall cause the prompt containment and removal of such Hazardous
Substances and remediation of the Mortgaged Property or the Negative Pledge Property in material
compliance with all applicable Environmental Laws.



     At any time after an Event of Default shall have occurred and is continuing hereunder, at any
time that Agent or the Required Lenders shall have reasonable grounds to believe that a Release of
Hazardous Substances may have occurred relating to any Mortgaged Property or Negative Pledge
Property, Agent may at its election (and will at the request of the Required Lenders) obtain such
assessments, including, without limitation, environmental assessments of such Mortgaged Property or
such Negative Pledge Property prepared by an Environmental Engineer as may be reasonably necessary
for the purpose of evaluating or confirming whether any Hazardous Substances have been Released by
any Loan Party on such Mortgaged Property or such Negative Pledge Property, which Release will
result in a Material Adverse Effect. Such assessments may include detailed visual inspections of
such Mortgaged Property or such Negative Pledge Property including, without limitation, any and all
storage areas, storage tanks, drains, dry wells and leaching areas, and the taking of soil or other
samples, as well as such other investigations or analyses as are reasonably necessary for a
determination of whether such Release results in a Material Adverse Effect. All reasonable costs
related to such environmental assessments shall be at the sole cost and expense of Borrower.



     At any time after an Event of Default, Agent may, but shall never be obligated to, remove or
cause the removal of any Hazardous Substances which are in violation of any Environmental Law from
a Mortgaged Property or Negative Pledge Property (or if removal is prohibited by any Environmental
Law or any other applicable law, physical restriction or other reason, take or cause the taking of
such other action as is required to cause any Mortgaged Property or Negative Pledge Property to be
in material compliance with any Environmental Law) if any other Loan Party or any of its
Subsidiaries fails to materially comply with its obligations hereunder with respect thereto; and
Agent and its designees are hereby granted access to the Mortgaged Property and the Negative Pledge
Property at any reasonable time or times, upon reasonable notice, to remove or cause such removal
or to take or cause the taking of any such other action. All costs, including, without limitation,
the reasonable costs incurred by Agent in taking the foregoing action, damages, liabilities,
losses, claims, expenses (including attorneys’ fees and disbursements) which are incurred by Agent,
as the result of any Loan Party’s failure to comply with the provisions of



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this §8.6, shall be paid by Borrower or the other applicable Loan Party to Agent upon demand
by Agent and shall be additional obligations secured by the Security Documents, except for costs
resulting from or related to Agent’s gross negligence or willful misconduct.



          §8.7 Distributions.



     No Distributions shall be made by the Loan Parties, or any of them, except as permitted in
this §8.7. So long as no Default or Event of Default shall have occurred and be continuing, (a)
Borrower’s Subsidiaries may make Distributions to Borrower (whether directly or indirectly through
one or more intermediate Distributions to Borrower’s other Subsidiaries), (b) Borrower may make
Distributions to Forestar Group in respect of the Equity Interests in Borrower held by Forestar
Group, as and to the extent necessary to enable Forestar Group to repay outstanding Indebtedness
owed by Forestar Group to Temple-Inland as contemplated in the Forestar Form 10, (c) Forestar Group
may purchase Forestar Group’s common stock or common stock options from present or former officers,
directors or employees of the Loan Parties upon the death, disability or termination of employment
of such officer or employer, and Borrower may make Distributions to Forestar Group to enable
Forestar Group to make such purchases, (d) Forestar Group may make repurchases of its common stock
which are deemed to occur upon the cashless exercise of options or warrants and may repurchase
restricted common stock held by present or former officers, directors or employees to the extent
representing such Person’s tax liability for vested restricted stock, (e) Forestar Group may
declare and make Distributions to its stockholders in the form of equity securities pursuant to the
Rights Agreement, (f) any Loan Party may declare and make Distributions payable solely in its
common stock, (g) any Subsidiary may make Distributions to Borrower, and Borrower may make
Distributions to Forestar Group, to pay any taxes that are due and payable, and (h) Borrower may
make other Distributions to Forestar Group (and Forestar Group may make Distributions to its
stockholders), provided that, for purposes of this clause (h), (i) the Total Leverage Ratio as of
the most recent Test Period is less than thirty percent (30%), (ii) the Interest Coverage Ratio for
the most recent Test Period exceeds 3.0:1.0, and (iii) the Revenues/Capital Expenditures Ratio for
the most recent Test Period is greater than 1.5:1.0, all tested after giving pro forma effect to
the proposed Distribution, as if such Distribution had occurred on the first day of the relevant
Test Period.



          §8.8 Asset Sales.



     The Loan Parties shall not, in any single transaction or series of related transactions,
directly or indirectly, hypothecate, sell, assign, transfer, mortgage, pledge, encumber or
otherwise dispose of any Mortgaged Property, Negative Pledge Property, any Equity Interests in any
other Loan Party or in any of their respective Subsidiaries or Joint Ventures, or any other
Collateral, or permit the same to be sold, assigned, transferred, conveyed, contracted for or
encumbered, or otherwise disposed of, or otherwise incur, create, assume or permit to exist any
mortgage, pledge, security interest, encumbrance, Lien or charge of any kind upon such assets
(other than to Agent or in respect of Permitted Liens), nor shall the Loan Parties, or any of them,
whether in a single transaction or a series of related transactions, convey, lease with option to
purchase, enter into a contract for sale, or grant an option to purchase all or any portion of such
assets, except as follows:



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          (a) any Mortgaged Property, or any portion thereof or interest therein, may be sold,
transferred, conveyed or otherwise disposed of if such property is entitled to be released, and is
in fact released, from the Security Documents to which it is subject pursuant to the provisions of
§5.3;



          (b) the sale of Lots from inventory in the ordinary course of business or the donation,
dedication or other transfer of common areas, streets and similar areas in connection with the
Development of Real Estate;



          (c) the sale or transfer of any other Real Estate (i.e., other than Mortgaged Property and
other than Lots), in a single transaction or a series of related transactions; provided that if the
consideration exceeds $25,000,000 Borrower shall provide Agent with (i) notice prior to such sale
or transfer, (ii) a pro forma Compliance Certificate showing that no Default or Event of Default
exists either immediately prior to or after giving effect to such sale, transfer or disposition,
and that immediately after giving effect to such sale, transfer or disposition, Loan Parties remain
in compliance with the financial covenants in §9.1, and (iii) if the Real Estate in question is
included in the Borrowing Base, a pro forma Borrowing Base Certificate showing that after giving
effect to such sale or transfer, Loan Parties remain in compliance with all Borrowing Base
provisions in §9.2.



          (d) transfers, conveyances or other dispositions of any Real Estate resulting from any
condemnation;



          (e) transfers, conveyances or other dispositions of any property resulting from the granting
of Permitted Liens;



          (f) sales of timber and mineral rights in the ordinary course of business or pursuant to
timber leases, timber cutting contracts and/or Mineral Rights Leases;



          (g) sales and dispositions of assets that are obsolete, worn out or no longer used or useful
in the applicable Loan Party’s business;



          (h) dispositions of assets by a Subsidiary of Borrower to Borrower or another Subsidiary of
Borrower that is a Guarantor;



          (i) the cancellation of intercompany Indebtedness with other Loan Parties permitted under this
Agreement;



          (j) dispositions or liquidations of cash and other Investments in the ordinary course of
business;



          (k) the termination, surrender or sublease of leases (as lessee), licenses (as licensee),
subleases (as sublessee) and sublicenses (as sublicensee) in the ordinary course of business;



          (l) the lease, sublease or license or sublicense of real or personal property, including
patents, trademarks and other intellectual property rights that do not materially interfere with
the business of such Loan Party;



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          (m) the settlement or write-off of accounts receivable in the ordinary course of business;



          (n) the sale or other disposition of Equity Interests in Joint Ventures and Subsidiaries in a
single transaction or series of related transactions; provided that if the consideration exceeds
$10,000,000 Borrower shall provide Agent with (i) notice prior to such sale or disposition, and
(ii) a pro forma Compliance Certificate showing that no Default or Event of Default exists either
immediately prior to or after giving effect to such sale or disposition, and that immediately after
giving effect to such sale or disposition, the Loan Parties remain in compliance with the financial
covenants in §9.1; and



          (o) transactions permitted by §8.4.



          §8.9 [RESERVED]



          §8.10 Restriction on Prepayment of Indebtedness.



     Without limiting the terms of §8.1, Borrower shall not prepay, redeem or purchase the
principal amount of, in whole or in part, or cause the acceleration of, any Indebtedness other than
the Obligations after the occurrence and during the continuation of any Event of Default, other
than any mandatory prepayment required by the documents evidencing or securing such Indebtedness.



          §8.11 [RESERVED]



          §8.12 Negative Pledges, Restrictive Agreements, etc.



     The Loan Parties will not, and will permit any of their respective Subsidiaries to, enter into
any agreement (excluding this Agreement and any other Loan Document) prohibiting or restricting:



          (a) the creation or assumption of any Lien upon its properties, revenues or assets, whether
now owned or hereafter acquired, except for Liens expressly permitted pursuant to §8.2;



          (b) the ability of Borrower or any other Loan Party to amend or otherwise modify this
Agreement or any other Loan Document; or



          (c) the ability of any Subsidiary of Borrower (other than an SPE Subsidiary) to make any
payments, directly or indirectly, to Borrower by way of dividends, distributions, return on equity,
advances, repayments of loans or advances, reimbursements of management and other intercompany
charges, expenses and accruals or other returns on investments, or any other agreement or
arrangement which restricts the ability of any such Subsidiary to make any payment or transfer any
property or asset, directly or indirectly, to Borrower,
in each case other than (A) customary restrictions and conditions contained in agreements relating
to the sale of all or any part of the Equity Interests or assets of any Subsidiary pending such
sale, provided such restrictions and conditions apply only to the Subsidiary or assets to be sold
and



80









 







such sale is permitted hereunder, (B) restrictions or conditions imposed by any agreement relating
to Indebtedness permitted under this Agreement if such restrictions or conditions apply only to the
property or assets securing such Indebtedness, (C) customary provisions in leases, licenses and
other contracts restricting the assignment thereof, (D) provisions relating to the transfer,
assignment or sublet of any lease or other agreement entered into in the ordinary course of
business, (E) restrictions or conditions on a Subsidiary existing prior to such Subsidiary becoming
a Subsidiary of a Borrower, so long as such restriction or condition only applies to such
Subsidiary and (F) restrictions contained in the operative agreements of any Joint Ventures against
transferring, assigning or pledging the Equity Interests in such Joint Ventures.



          §8.13 Organizational Documents.



     Neither Borrower nor any other Loan Party shall modify, amend, cancel, release, surrender,
terminate or permit the modification, amendment, cancellation, release, surrender or termination
of, any of its Organizational Documents if such action could reasonably be expected to adversely
affect the Agent and Lenders.



          §8.14 Affiliate Transactions.



     Except for the Loan Documents and the other agreements listed on Schedule 6.15, the
Loan Parties will not, and will not permit any of their respective Subsidiaries to, enter into, or
cause, suffer or permit to exist any arrangement or contract with, any of their respective
Affiliates unless such arrangement or contract:



          (a) is not otherwise prohibited by this Agreement or the other Loan Documents;



          (b) (i) is in the ordinary course of business of the applicable Loan Party or Loan Parties, or
the applicable Subsidiary or Subsidiaries and (ii) which is on terms which are not materially less
favorable to any such Loan Party or Subsidiary than are obtainable from any Person which is not one
of its Affiliates.



          The foregoing provisions of this §8.14 shall not prohibit any Loan Party from engaging in any
of the following transactions: (i) the Spin-off Transaction, (ii) any transaction by and between or
among the Loan Parties, (iii) entering into any employment agreement or equity incentive
arrangements, with any employee, officer, director, member or consultant of any Loan Party, in each
case, in the ordinary course of business, (iv) any Distributions or other payments permitted under
this Agreement, (v) the payment of fees and compensation to, and customary indemnities and
reimbursements provided on behalf of, officers, directors, employees and agents of any Loan Party
or its Subsidiaries to the extent not prohibited by this Agreement, (f) Investments in Joint
Ventures permitted under this Agreement and (g) any disposition of Non-Recourse Assets in
connection with any Non-Recourse Indebtedness, as and to the extent otherwise permitted under this
Agreement.



          §8.15 Management Fees, Expenses, etc.



     The Loan Parties will not, or will not permit any of their respective Subsidiaries, to pay
management, advisory, consulting, director or other similar fees, other than:



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               (i) fees payable to Agent, Lenders or any of their Affiliates as in effect on the date hereof;



               (ii)fees payable to non-Affiliates engaged on an arm’s-length basis; or



               (iii)director fees and reimbursement of out-of-pocket expenses.



          §8.16 Deposit Account Control Agreements.




     Borrower will cause its primary operating account to be subject to a Deposit Account Control
Agreement with a Deposit Account Bank.



          §8.17 [RESERVED]




          §8.18 Modification of Certain Agreements. 




          (a) Subject to clause (b) of this Section and other applicable terms, no Loan Party will enter
into or consent to any amendment, supplement, waiver or other modification of any of the terms or
provisions contained in, or applicable to, the Temple-Inland Agreements (or prior to the effective
date of any particular Temple-Inland Agreement, revise the terms set forth in the form of such
agreement filed with the Forestar Form 10) which in any case:




               (i) is contrary to the terms of this Agreement or any other Loan Document; or



               (ii) could reasonably be expected to result in a Material Adverse Effect.



          (b) No Loan Party will enter into or consent to any amendment, supplement, waiver or other
modification of any of the terms or provisions contained in, or applicable to, the Timber Purchase
Agreement in a manner contrary to §7.14(e).



          (c) No Loan Party will enter into or consent, or permit any of its Subsidiaries to enter into
or consent, to any amendment, supplement, waiver or other modification of any of the terms or
provisions contained in, or applicable to, any document, instrument or agreement evidencing,
guaranteeing, securing or otherwise relating to Indebtedness permitted pursuant to §8.1(xii) or
§8.1(xiii), or increase the amount of such Indebtedness if the effect would be to cause such
Indebtedness to no longer be permitted under the relevant clause of §8.1 if such Indebtedness were
deemed to be incurred on the date such amendment, supplement, waiver, modification, increase or
release is to be effective.



§9. FINANCIAL COVENANTS OF BORROWER




     The Loan Parties covenant and agree that, so long as any Loan, Note, Letter of Credit or other
Obligation is outstanding or any Lender has any obligation to make any Loans or Agent has any
obligation to issue any Letter of Credit:



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          §9.1 Corporate Financial Covenants of Loan Parties.




          (a) Interest Coverage Ratio. The Loan Parties will not, as of the end of any fiscal
quarter of Forestar Group, permit the Interest Coverage Ratio for the fiscal quarter then ended and
the immediately preceding three (3) fiscal quarters (treated as a single accounting period) (the
“Test Period”), to be less than (i) 1.50:1.0 for each Test Period ending on or before March
31, 2009, or (ii) 2.0:1.0 for each Test Period ending thereafter.




          (b) Revenues/Capital Expenditures Ratio. The Loan Parties will not, for any Test
Period, permit the Revenues/Capital Expenditures Ratio for such Test Period to be less than (i)
0.70:1.0, for all Test Periods ending on or before September 30, 2008, (ii) 0.80:1.0, for all Test
Periods ending on or after December 31, 2008 and on or before September 30, 2009, and (iii)
1.0:1.0, for all Test Periods ending after September 30, 2009.




          (c) Total Leverage Ratio. The Loan Parties will not permit the Total Leverage Ratio
as of the last day of any fiscal quarter to exceed forty percent (40%).




          (d) Minimum Liquidity. Borrower shall at the end of each fiscal quarter have
Available Liquidity of at least $35,000,000.




          (e) Net Worth. The Loan Parties will not, as of the last day of any fiscal quarter,
permit the Consolidated Tangible Net Worth of Forestar Group and its Subsidiaries to be less than
the sum of (i) $350,000,000, plus (ii) eighty-five percent (85%) of the aggregate net
proceeds received by Forestar Group after the Closing Date in connection with any Equity Offering
to any other Person (including for the purposes hereof, any proceeds received from any offering to
current stockholders of Forestar Group), plus (iii) fifty percent (50%) of all positive Net
Income, on a cumulative basis, for each fiscal quarter ended after the Closing Date and on or
before the fiscal quarter being tested.




     The determination of the relevant Loan Parties’ compliance with the foregoing covenants and
the components thereof by Agent shall be conclusive and binding absent manifest error.



          §9.2 Borrowing Base Covenants.




          (a) All assets included in the Borrowing Base must be owned by Borrower or a Guarantor and
must be unencumbered except for Permitted Liens; provided, however, that for
purposes of this paragraph, the term “Permitted Liens” shall not include Liens permitted under
clauses (iii), (xiv) and (xv) of §8.2.




          (b) Borrower shall not at any time permit the sum of (i) the Outstanding principal balance of
the Loans and (ii) the Outstanding Letters of Credit to be greater than the Borrowing Base.




§10. CLOSING CONDITIONS




     The obligations of Agent and Lenders to make the Loans and Agent to issue any Letters of
Credit shall be subject to the satisfaction of the following conditions precedent on or prior to
the Closing Date:




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          §10.1 Loan Documents.




     Each of the Loan Documents shall have been duly executed and delivered by the respective
parties thereto, shall be in full force and effect and shall be in form and substance satisfactory
to the Required Lenders. Agent shall have received a fully executed copy of each such document,
except that each Lender shall have received a fully executed counterpart of its Note or Notes.



          §10.2 Certified Copies of Organizational Documents.




     Agent shall have received from Borrower a copy, certified as of a recent date by the
appropriate officer of each State in which Borrower, and any other Loan Party is organized or in
which the Mortgaged Properties are located and a duly authorized member, manager, partner or
officer of Borrower and each other Loan Party, as applicable, to be true and complete, of the
Organizational Documents of Borrower and each other Loan Party, as applicable, or its qualification
to do business, as applicable, as in effect on such date of certification.



          §10.3 Resolutions.




     All action on the part of Borrower and each other Loan Party necessary for the valid
execution, delivery and performance by Borrower and each other Loan Party of this Agreement and the
other Loan Documents (as applicable) to which such Person is or is to become a party shall have
been duly and effectively taken, and evidence thereof satisfactory to Agent shall have been
provided to Agent. Agent shall have received from Borrower and each other Loan Party true copies
of their respective resolutions adopted by their respective board of directors or other governing
body authorizing the transactions described herein, each certified by its secretary, assistant
secretary or other appropriate representative as of a recent date to be true and complete.



          §10.4 Incumbency Certificate; Authorized Signers.




     Agent shall have received from Borrower and each other Loan Party, an incumbency certificate,
dated as of the Closing Date, signed by a duly authorized officer of Borrower or such other Loan
Party (as applicable) and giving the name and bearing a specimen signature of each individual who
shall be authorized to sign, in the name and on behalf of Borrower or such other Loan Party, each
of the Loan Documents to which such Person is or is to become a party. Agent shall have also
received from Borrower a certificate, dated as of the Closing Date, signed by a duly authorized
member of Borrower and giving the name and specimen signature of each individual who shall be
authorized to make Loan Requests, Letter of Credit Requests and Conversion Requests, and give
notices and to take other action on behalf of Borrower under the Loan Documents.



          §10.5 Opinion of Counsel.




     Agent shall have received a favorable opinion addressed to Lenders and Agent and dated as of
the Closing Date, in form and substance reasonably satisfactory to Agent, from counsel of Borrower
and the other Loan Parties, and counsel in such other states as may be requested by Agent, as to
such matters as Agent shall reasonably request.



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          §10.6 Payment of Fees.




     Borrower shall have paid to Agent the fees payable pursuant to §4.2.



          §10.7 Insurance.




     Agent shall have received evidence satisfactory to it that the insurance coverages required by
this Agreement or the other Loan Documents are in effect.



          §10.8 Performance; No Default.




     Borrower and each of the other Loan Parties shall have performed and complied with all terms
and conditions herein required to be performed or complied with by them on or prior to the Closing
Date, and on the Closing Date there shall exist no Default or Event of Default.



          §10.9 Representations and Warranties.




     The representations and warranties made by Borrower and each of the other Loan Parties in the
Loan Documents or otherwise made by or on behalf of Borrower and each of the other Loan Parties in
connection therewith on the date thereof shall have been true and correct in all material respects
when made and shall also be true and correct in all material respects on the Closing Date, and
Agent shall have received written confirmation thereof from the Loan Parties.



          §10.10 Proceedings and Documents.




     All proceedings in connection with the transactions contemplated by this Agreement and the
other Loan Documents shall be reasonably satisfactory to Agent and Agent’s Special Counsel in form
and substance, and Agent shall have received all information and such counterpart originals or
certified copies of such documents and such other certificates, opinions or documents as Agent and
Agent’s Special Counsel may reasonably require. No proceeding challenging or seeking to enjoin any
of the transactions contemplated by the Loan Documents, or which could reasonably be expected to
have a Material Adverse Effect shall be pending or shall have been threatened.



          §10.11 Mortgaged Property Documents.




     The Mortgaged Property Documents for each Mortgaged Property shall have been delivered to
Agent at Borrower’s expense, granting Agent a first-priority Lien on the Mortgaged Property,
subject only to Permitted Liens. Borrower will have paid to Agent any mortgage, recording,
intangible, documentary stamp or other similar taxes and charges which Agent reasonably determines
to be payable as a result of the Loans made on the Closing Date or the recording of the Mortgaged
Property Documents to any state or any county or municipality thereof in which any of the Mortgaged
Properties are located, and deliver to Agent such affidavits or other information with Agent
reasonably determines to be necessary in connection with such payment in order to insure that the
Mortgages on the Mortgaged Property located in such state secure Borrower’s obligation with respect
to the Loans made on the Closing Date. The Mortgaged Property shall consist of a minimum of
250,000 acres of Timberland as of the Closing Date.



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          §10.12 Surveys and Title Policies.




     Agent shall have received the Surveys and Title Policies in the possession of Borrower or the
other Loan Parties as of the Closing Date.



          §10.13 Compliance Certificate.




     A Compliance Certificate dated as of the date of the Closing Date demonstrating compliance
with each of the covenants calculated therein as of the most recent fiscal quarter end for which
Borrower has provided financial statements under §6.4 adjusted in the best good faith estimate of
Borrower dated as of the date of the Closing Date shall have been delivered to Agent, and
calculated on a pro forma basis after giving effect to the Loans made or to be made on the Closing
Date and the application of the proceeds thereof, as if such Loans and application of proceeds were
made as of the first day of the relevant Test Period.



          §10.14 Miscellaneous Documents.




     Agent shall have received copies of the Form 10 and all exhibits thereto.



          §10.15 Other Documents.




     Agent shall have received executed copies of all other material agreements as Agent may have
reasonably requested.



          §10.16 No Condemnation/Taking.




     Agent shall have received satisfactory evidence that no condemnation proceedings are pending
or, to Borrower’s Knowledge, threatened against any Mortgaged Property or any Negative Pledge
Property or, if any such proceedings are pending or threatened, identifying the same and the
Mortgaged Property or the Negative Pledge Property affected thereby and Agent shall have determined
that none of such proceedings is or will be material to the Mortgaged Property or the Negative
Pledge Property affected thereby.



          §10.17 Post Spin-off Available Liquidity.




     Loan Parties will, on the Closing Date, deliver to Agent evidence that Borrower has
$35,000,000 or more of Available Liquidity (after giving effect to the Spin-off Transaction to be
consummated on the Spin-off Effective Date and all initial Loans to be funded and Letters of Credit
to be issued on the Closing Date), as demonstrated and set forth in a Borrowing Base Certificate as
of November 24, 2007, and otherwise satisfactory in form and substance to Agent.



          §10.18 No Litigation.




     Agent shall have received satisfactory evidence that there are no actions, suits,
investigations or proceedings pending or threatened, in any court or before any arbitrator or
governmental authority that purports to adversely affect any Loan Party or Loan Parties, or any
Subsidiary or Joint Venture thereof, or any transaction contemplated hereby, that could reasonably
be expected to have a Material Adverse Effect.



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          §10.19 Other.




     Agent shall have reviewed such other documents, instruments, certificates, opinions,
assurances, consents and approvals as Agent or Agent’s Special Counsel may reasonably have
requested.



§11. CONDITIONS TO ALL BORROWINGS AND LETTERS OF CREDIT




     The obligations of Lenders to make any Loan and the obligation of Agent to issue any Letter of
Credit, whether on or after the Closing Date, shall also be subject to the satisfaction of the
following conditions precedent:



          §11.1 Representations True; No Default.




     Each of the representations and warranties made by Borrower or the other Loan Parties
contained in this Agreement, the other Loan Documents or in any document or instrument delivered
pursuant to or in connection with this Agreement shall be true in all material respects both as of
the date as of which they were made and shall also be true in all material respects as of the time
of the making of such Loan or the issuance of such Letter of Credit (as the case may be), with the
same effect as if made at and as of that time, except to the extent of changes resulting from
transactions permitted by the Loan Documents (it being understood and agreed that any
representation or warranty which by its terms is made as of a specified date shall be required to
be true and correct in all material respects only as of such specified date), and no Default or
Event of Default shall have occurred and be continuing.



          §11.2 No Legal Impediment.




     No change shall have occurred in any law or regulations thereunder or interpretations thereof
that in the reasonable opinion of any Lender would make it illegal for such Lender to make such
Loan or for Agent to issue such Letter of Credit.



          §11.3 Borrowing Documents.




     Agent shall have received a fully completed Loan Request for such Loan and the other documents
and information as required by §2.6. In the case of any request for a Letter of Credit, Agent
shall have received a fully completed Letter of Credit Request.



§12. EVENTS OF DEFAULT; ACCELERATION; ETC.




          §12.1 Events of Default and Acceleration.




     If any of the following events (“Events of Default” or, if the giving of notice or the
lapse of time or both is required, then, prior to such notice or lapse of time, “Defaults”)
shall occur:



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          (a) Borrower shall fail to pay any principal of the Loans when the same shall become due and
payable, whether at the stated date of maturity or any accelerated date of maturity or at any other
date fixed for payment;




          (b) Borrower shall fail to pay any interest on the Loans or any other sums due hereunder or
under any of the other Loan Documents when the same shall become due and payable, whether at the
stated date of maturity or any accelerated date of maturity or at any other date fixed for payment,
and such failure shall continue for ten (10) days (provided that such grace period will not apply
to interest due upon the maturity of the Obligations);




          (c) Borrower or any other Loan Party shall fail to comply with any covenant contained in §7.4,
§7.9, §7.11, §7.21, §8 or §9;




          (d) Borrower or any other Loan Party shall fail to perform any other term, covenant or
agreement contained herein or in any of the other Loan Documents (other than those specified in the
other subclauses of this §12); and such failure shall continue for thirty (30) days after written
notice thereof shall have been given to Borrower by Agent;




          (e) Any representation or warranty made by any Loan Party in this Agreement or any other Loan
Document, or in any report, certificate, financial statement, request for a Loan or a Letter of
Credit, or in any other document or instrument delivered pursuant to or in connection with this
Agreement, any advance of a Loan, the issuance of any Letter of Credit or any of the other Loan
Documents shall prove to have been false or misleading in any material respect upon the date when
made or deemed to have been made or repeated;




          (f) Any Loan Party shall fail to pay at maturity or otherwise when due, or within any
applicable period of grace, any obligation for borrowed money or credit received or other
Indebtedness (other than Non-Recourse Indebtedness) having an aggregate principal amount
outstanding of at least $10,000,000, or fail to observe or perform any material term, covenant or
agreement contained in any agreement by which it is bound, evidencing or securing any such borrowed
money or credit received or other Indebtedness for such period of time as would permit (assuming
the giving of appropriate notice if required) the holder or holders thereof or of any obligations
issued thereunder to accelerate the maturity thereof;




          (g) Any Loan Party (1) shall make an assignment for the benefit of creditors, or admit in
writing its general inability to pay or generally fail to pay its debts as they mature or become
due, or shall petition or apply for the appointment of a trustee or other custodian, liquidator or
receiver of any Loan Party or of any substantial part of the assets of any thereof, including,
without limitation, any Mortgaged Property or any Negative Pledge Property, (2) shall commence any
case or other proceeding relating to any Loan Party under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law of any
jurisdiction, now or hereafter in effect, or (3) shall take any action to authorize or in
furtherance of any of the foregoing;




          (h) A petition or application shall be filed for the appointment of a trustee or other
custodian, liquidator or receiver of any Loan Party, or any substantial part of the assets of any
thereof, including, without limitation, any Mortgaged Property or any Negative Pledge Property, or
a case or other proceeding shall be commenced against any Loan Party under any



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bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or
liquidation or similar law of any jurisdiction, now or hereafter in effect, and any Loan Party
thereof shall indicate its approval thereof, consent thereto or acquiescence therein or such
petition, application, case or proceeding shall not have been dismissed within ninety (90) days
following the filing or commencement thereof;




          (i) A decree or order is entered appointing any such trustee, custodian, liquidator or
receiver or adjudicating any Loan Party thereof bankrupt or insolvent, or approving a petition in
any such case or other proceeding, or a decree or order for relief is entered in respect of any
Loan Party thereof in an involuntary case under federal bankruptcy laws as now or hereafter
constituted;




          (j) There shall remain in force, undischarged, unsatisfied and unstayed, for more than thirty
(30) days, whether or not consecutive, any final judgment against any Loan Party, or any Subsidiary
thereof, that, with other outstanding final judgments, undischarged, against the Loan Parties and
their Subsidiaries (or any of them) exceeds in the aggregate $5,000,000 (to the extent not paid or
covered by insurance);




          (k) If any of the Loan Documents shall be canceled, terminated, revoked or rescinded otherwise
than in accordance with the terms thereof or with the express prior written agreement, consent or
approval of Lenders, or any action at law, suit in equity or other legal proceeding to cancel,
revoke or rescind any of the Loan Documents shall be commenced by or on behalf of any Loan Party or
any of their respective stockholders, partners, members or beneficiaries, or any court or any other
governmental or regulatory authority or agency of competent jurisdiction shall make a determination
that, or issue a judgment, order, decree or ruling to the effect that, any one or more of the Loan
Documents is illegal, invalid or unenforceable in accordance with the terms thereof;




          (l) Any dissolution, termination, partial or complete liquidation, merger or consolidation of
any Loan Party, or any Subsidiary thereof, or any sale, transfer or other disposition of the assets
of any Loan Party, other than as permitted under the terms of this Agreement or the other Loan
Documents;




          (m) Any Loan Party shall be indicted for a federal crime, a punishment for which could include
the forfeiture of any assets of such Person included in the Collateral or the Property;




          (n) With respect to any Guaranteed Pension Plan, an ERISA Reportable Event shall have occurred
that reasonably could be expected to result in liability of any of any Loan Party to the PBGC or
such Guaranteed Pension Plan in an aggregate amount exceeding $1,000,000 and such event in the
circumstances occurring reasonably could constitute grounds for the termination of such Guaranteed
Pension Plan by the PBGC or for the appointment by the appropriate United States District Court of
a trustee to administer such Guaranteed Pension Plan; or a trustee shall have been appointed by the
United States District Court to administer such Guaranteed Pension Plan; or the PBGC shall have
instituted proceedings to terminate such Guaranteed Pension Plan;




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          (o) A Change of Control shall occur without the prior written approval of all of Lenders
(which consent may be withheld by Lenders in their sole and absolute discretion);




          (p) Any Event of Default, as defined in any of the other Loan Documents, shall occur;




          (q) Any amendment to or termination of a financing statement naming any Loan Party as debtor
and Agent as secured party relating to the Collateral, or any correction statement with respect
thereto, is filed in any jurisdiction by, or caused by, or at the instance of any Loan Party
without the prior written consent of Agent (except to the extent of a release of Collateral
permitted by this Agreement); or any amendment to or termination of a financing statement naming
any Loan Party as debtor and Agent as secured party, or any correction statement with respect
thereto, is filed in any jurisdiction by any party other than Agent or Agent’s counsel (or by a
Loan Party at Agent’s direction) without the prior written consent of Agent and Borrower or the
affected other Loan Party fails to use its best efforts to cause the effect of such filing to be
completely nullified to the reasonable satisfaction of Agent within ten (10) days after notice to
Borrower thereof; or




          (r) Temple-Inland shall make any written claim for indemnity against Forestar Group under the
Spin-off Tax Sharing Agreement related to the taxable nature of the Spin-off Transaction in excess
of $25,000,000;



then, and in any such event, Agent may, and upon the request of the Required Lenders shall, by
notice in writing to Borrower declare all amounts owing with respect to this Agreement, the Notes
and the other Loan Documents to be, and they shall thereupon forthwith become, immediately due and
payable without presentment, demand, protest or other notice of any kind, all of which are hereby
expressly waived by Borrower; provided that in the event of any Event of Default specified
in §12.1(g), §12.1(h) or §12.1(i), all such amounts shall become immediately due and payable
automatically and without any requirement of notice from any of Lenders or Agent.




          §12.2 Limitation of Cure Periods.




     Notwithstanding anything in this Agreement or any other Loan Document to the contrary, any
reference in this Agreement or any other Loan Document to “the continuance of a default” or “the
continuance of an Event of Default” or any similar phrase shall not create or be deemed to create
any right on the part of Borrower or any other party to cure any default following the expiration
of any applicable grace or notice and cure period.



          §12.3 Termination of Commitments.




     If any one or more Events of Default specified in §12.1(g), §12.1(h) or §12.1(i) shall occur,
then immediately and without any action on the part of Agent or any Lender any unused portion of
the credit hereunder shall terminate and Lenders shall be relieved of all obligations to make Loans
to Borrower, and Agent shall be relieved of any further obligation to issue Letters of Credit,
pursuant to this Agreement. If any other Event of Default shall have occurred and be continuing,
Agent may, and upon the election of the Required Lenders shall, by notice to Borrower terminate the
obligation to make Loans to Borrower and to issue Letters of Credit



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hereunder. No termination under this §12.3 shall relieve Borrower or any other Loan Party of
their respective obligations to Lenders arising under this Agreement or the other Loan Documents.
Nothing in this Section shall limit or impair the terms of this Agreement (including §2.1) which
provide that Revolving Lenders shall have no obligation to make Revolving Loans upon the occurrence
of a Default or Event of Default.




          §12.4 Remedies.




          (a) In case any one or more of the Events of Default shall have occurred and be continuing,
and whether or not Lenders shall have accelerated the maturity of the Loans and other Obligations
pursuant to §12.1, Agent on behalf of Lenders may, and upon direction of the Required Lenders
shall, proceed to protect and enforce their rights and remedies under this Agreement, the Notes or
any of the other Loan Documents by suit in equity, action at law or other appropriate proceeding,
whether for the specific performance of any covenant or agreement contained in this Agreement and
the other Loan Documents or any instrument pursuant to which the Obligations are evidenced,
including to the full extent permitted by applicable law the obtaining of the ex parte appointment
of a receiver, and, if such amount shall have become due, by declaration or otherwise, proceed to
enforce the payment thereof or any other legal or equitable right. No remedy herein conferred upon
Agent or the holder of any Note is intended to be exclusive of any other remedy and each and every
remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or
hereafter existing at law or in equity or by statute or any other provision of law. In the event
that all or any portion of the Obligations is collected by or through an attorney-at-law, Borrower
shall pay all costs of collection including, but not limited to, reasonable attorney’s fees.
Notwithstanding the provisions of this Agreement providing that the Loans may be evidenced by
multiple Notes in favor of Lenders, Lenders acknowledge and agree that only Agent may exercise any
remedies arising by reason of a Default or Event of Default. Notwithstanding anything herein to
the contrary, upon the occurrence of any Event of Default, an amount equal to the aggregate amount
of the Outstanding Letters of Credit shall, at the Required Lenders’ option, without demand or
further notice to Borrower, be deemed to have been paid or disbursed by Agent under the Letter of
Credit and a Revolving Loan to Borrower from the Revolving Lenders in such amount to have been made
and accepted, which Revolving Loan shall be immediately due and payable.




          §12.5 Distribution of Collateral Proceeds.




     In the event that, following the occurrence or during the continuance of any Event of Default,
any monies are received in connection with the enforcement of any of the Loan Documents, or
otherwise with respect to the realization upon any of the assets of Borrower or any other Person
liable with respect to the Obligations (including the Collateral), such monies shall be distributed
for application as follows:



          (a) First, to the payment of, or (as the case may be) the reimbursement of, Agent for
or in respect of all reasonable costs, expenses, disbursements and losses which shall have been
incurred or sustained by Agent to protect or preserve the Collateral or in connection with the
collection of such monies by Agent, for the exercise, protection or enforcement by Agent of all or
any of the rights, remedies, powers and privileges of Agent under this Agreement or any of the
other Loan Documents or in respect of the Collateral or in support of any provision of



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adequate indemnity to Agent against any taxes or liens which by law shall have, or may have,
priority over the rights of Agent to such monies;




          (b) Second, to all other Obligations in the following order: (i) first to the payment
of any fees or charges (other than Letter of Credit fees and Facility Fees) outstanding hereunder
or under the other Loan Documents (excluding any Hedge Agreements), (ii) next to any accrued and
outstanding Default Rate interest, (iii) next to any accrued and outstanding interest under the
Swing Line Loans, (iv) next to any accrued and outstanding Letter of Credit fees, Facility Fees,
and interest on the Loans (other than interest on the Swing Line Loans), (v) next to any
Outstanding principal on the Swing Line Loans, (vi) next to any Outstanding principal on the Loans
other than Swing Line Loans, and (vii) last to any remaining Obligations (including with respect to
any Hedge Agreement) in such order as the Required Lenders may determine; provided,
however, that (A) in the event that any Lender shall have wrongfully failed or refused to
make an advance under §2.6, §2.7 or §2.10 and such failure or refusal shall be continuing, advances
made by other Lenders during the pendency of such failure or refusal shall be entitled to be repaid
as to principal and accrued interest in priority to the other Obligations described in this
subsection (b), and (B) Obligations owing to Revolving Lenders and Term Lenders with respect to
each type of Obligation such as interest, principal, fees and expenses, shall be made among such
Lenders pro rata in accordance with their Commitment Percentages, without preference or priority of
Revolving Loans over Term Loans, or vice versa; and provided, further, that the
Required Lenders may in their discretion make proper allowance to take into account any Obligations
not then due and payable; and




          (c) Third, the excess, if any, shall be returned to Borrower or to such other Persons
as are entitled thereto.




§13. SETOFF




     Regardless of the adequacy of any Collateral, during the continuance of any Event of Default,
any deposits (general or specific, time or demand, provisional or final, regardless of currency,
maturity, or the branch of where such deposits are held) or other sums credited by or due from
Agent or any of Lenders to any of the Loan Parties and any securities or other property of the Loan
Parties in the possession of Agent or any Lender may be applied to or set off against the payment
of Obligations and any and all other liabilities, direct, or indirect, absolute or contingent, due
or to become due, now existing or hereafter arising, of the Loan Parties to such Lender. Upon the
occurrence and during the continuance of an Event Default, any Lender, including Agent with respect
to the Advance Account, may, but shall not be obligated to freeze withdrawals from any account of
the Loan Parties held by such Lender. Each Lender agrees with each other Lender that if such
Lender shall receive from any Loan Party or Loan Parties, whether by voluntary payment, exercise of
the right of setoff, or otherwise, and shall retain and apply to the payment of the Note or Notes
held by such Lender any amount in excess of its ratable portion of the payments received by all of
Lenders with respect to the Notes held by all of Lenders, such Lender will make such disposition
and arrangements with the other Lenders with respect to such excess, either by way of distribution,
pro tanto assignment of claims, subrogation or otherwise as shall result in each Lender receiving
in respect of the Notes held by it its proportionate payment as contemplated by this Agreement;
provided that if all or any part of such excess payment is



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thereafter recovered from such Lender, such disposition and arrangements shall be rescinded
and the amount restored to the extent of such recovery, but without interest.



§14. THE AGENT




          §14.1 Authorization.




     Each of the Lenders hereby irrevocably appoints KeyBank to act on its behalf as Agent
hereunder and under the other Loan Documents and authorizes Agent to take such actions on its
behalf and to exercise such powers as are delegated to Agent by the terms hereof or thereof,
together with such actions and powers as are reasonably incident thereto, provided that no
duties or responsibilities not expressly assumed herein or therein shall be implied to have been
assumed by Agent. The obligations of Agent hereunder are primarily administrative in nature, and
nothing contained in this Agreement or any of the other Loan Documents shall be construed to
constitute Agent as a trustee or fiduciary for any Lender or to create any agency or fiduciary
relationship. Agent shall act as the contractual representative of Lenders hereunder, and
notwithstanding the use of the term “Agent”, it is understood and agreed that Agent shall not have
any fiduciary duties or responsibilities to any Lender by reason of this Agreement or any other
Loan Document and is acting as an independent contractor, the duties and responsibilities of which
are limited to those expressly set forth in this Agreement and the other Loan Documents. Borrower
and any other Person shall be entitled to conclusively rely on a statement from Agent that it has
the authority to act for and bind Lenders pursuant to this Agreement and the other Loan Documents.



          §14.2 Employees and Agents.




     Agent may exercise its rights and powers and execute any and all of its duties hereunder or
under any other Loan Document by or through employees or agents and shall be entitled to take, and
to rely on, advice of counsel concerning all matters pertaining to its rights and duties under this
Agreement and the other Loan Documents. Agent and any such agent may perform any and all of its
duties and exercise its rights and powers by or through their respective Related Parties. The
exculpatory provisions of this Section shall apply to any such agent and to the Related Parties of
Agent and any such agent, and shall apply to their respective activities in connection with the
syndication of the credit facilities provided for herein as well as activities as Agent. Agent may
utilize the services of such Persons as Agent may reasonably determine, and all reasonable fees and
expenses of any such Persons shall be paid by Borrower.



          §14.3 No Liability.




     Neither Agent nor any of its shareholders, directors, officers or employees nor any other
Person assisting them in their duties nor any agent, or employee thereof, shall be liable to
Lenders for any waiver, consent or approval given or any action taken, or omitted to be taken, in
good faith by it or them hereunder or under any of the other Loan Documents, or in connection
herewith or therewith, or be responsible for the consequences of any oversight or error of judgment
whatsoever, except that Agent or such other Person, as the case may be, shall be liable for losses
due to its willful misconduct or gross negligence. Agent shall be entitled to rely upon, and shall
not incur any liability for relying upon, any notice, request, certificate, consent, statement,
instrument, document or other writing (including any electronic message, Internet or intranet
website posting or other distribution) reasonably believed by it to be genuine and to have



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been signed, sent or otherwise authenticated by the proper Person. Agent also may rely upon
any statement made to it orally or by telephone and reasonably believed by it to have been made by
the proper Person, and shall not incur any liability for relying thereon. In determining
compliance with any condition hereunder to the making of a Loan, that by its terms must be
fulfilled to the satisfaction of a Lender, Agent may presume that such condition is satisfactory to
such Lender unless Agent shall have received notice to the contrary from such Lender prior to the
making of such Loan. Agent may consult with legal counsel (who may be counsel for Borrower),
independent accountants and other experts selected by it, and shall not be liable for any action
taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.




          §14.4 No Representations.




     Agent shall not have any duties or obligations except those expressly set forth herein and in
the other Loan Documents. Without limiting the generality of the foregoing, Agent:



          (a) shall not be subject to any fiduciary or other implied duties, regardless of whether a
Default has occurred and is continuing;




          (b) shall not have any duty to take any discretionary action or exercise any discretionary
powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan
Documents that Agent is required to exercise as directed in writing by the Required Lenders (or
such other number or percentage of Lenders as shall be expressly provided for herein or in the
other Loan Documents), provided that Agent shall not be required to take any action that, in its
opinion or the opinion of its counsel, may expose Agent to liability or that is contrary to any
Loan Document or applicable law; and




          (c) shall not, except as expressly set forth herein and in the other Loan Documents, have any
duty to disclose, and shall not be liable for the failure to disclose, any information relating to
Borrower or any of its Affiliates that is communicated to or obtained by the Person serving as
Agent or any of its Affiliates in any capacity.




     Agent shall not be liable for any action taken or not taken by it (i) with the consent or at
the request of the Required Lenders (or such other number or percentage of Lenders as shall be
necessary, or as Agent shall believe in good faith shall be necessary, under the circumstances as
provided in §27 and §12.4) or (ii) in the absence of its own gross negligence or willful
misconduct. Agent shall be deemed not to have knowledge of any Default unless and until notice
describing such Default is given to Agent by any Loan Party or any Lender.



     Agent shall not be responsible for the execution or validity or enforceability of this
Agreement, the Notes, any of the other Loan Documents or any instrument at any time constituting,
or intended to constitute, collateral security for the Notes, or for the value of any such
collateral security or for the validity, enforceability or collectibility of any such amounts owing
with respect to the Notes, or for any recitals or statements, warranties or representations made
herein, or any agreement, instrument or certificate delivered in connection therewith or in any of
the other Loan Documents or in any certificate or instrument hereafter furnished to it by or on
behalf of any of the Loan Parties, or be bound to ascertain or inquire as to the performance or
observance of any of the terms, conditions, covenants or agreements herein or in any other of the
Loan Documents.



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     Agent shall not be bound to ascertain whether any notice, consent, waiver or request delivered
to it by any Loan Party or any holder of any of the Notes shall have been duly authorized or is
true, accurate and complete. Agent has not made nor does it now make any representations or
warranties, express or implied, nor does it assume any liability to Lenders, with respect to the
creditworthiness or financial condition of Borrower or any other Loan Party or the value of the
Collateral or any other assets of such Persons.



     Each Lender acknowledges that it has, independently and without reliance upon Agent or any
other Lender or any of their Related Parties, and based upon such information and documents as it
has deemed appropriate, made its own credit analysis and decision to enter into this Agreement.
Each Lender also acknowledges that it will, independently and without reliance upon Agent or any
other Lender or any of their Related Parties, based upon such information and documents as it deems
appropriate at the time, continue to make its own credit analysis and decisions in taking or not
taking action under or based upon this Agreement, any other Loan Document or any related agreement
or any document furnished hereunder or thereunder.



          §14.5 Payments.




          (a) A payment by Borrower to Agent hereunder or under any of the other Loan Documents for the
account of any Lender shall constitute a payment to such Lender. Agent agrees to distribute to
each Lender not later than one (1) Business Day after Agent’s receipt of good funds, determined in
accordance with Agent’s customary practices, such Lender’s pro rata share of payments received by
Agent for the account of Lenders except as otherwise expressly provided herein or in any of the
other Loan Documents. All payments of principal, interest, fees and other amounts in respect of
the Swing Line Loans shall be for the account of Swing Line Lender only (except to the extent any
Lender shall have acquired and funded a participating interest in any such Swing Line Loan pursuant
to §2.1(c), in which case such payments shall be pro rata in accordance with such participating
interests).




          (b) If in the opinion of Agent the distribution of any amount received by it in such capacity
hereunder, under the Notes or under any of the other Loan Documents might involve it in liability,
it may refrain from making distribution until its right to make distribution shall have been
adjudicated by a court of competent jurisdiction. If a court of competent jurisdiction shall
adjudge that any amount received and distributed by Agent is to be repaid, each Person to whom any
such distribution shall have been made shall either repay to Agent its proportionate share of the
amount so adjudged to be repaid or shall pay over the same in such manner and to such Persons as
shall be determined by such court.




          (c) Notwithstanding anything to the contrary contained in this Agreement or any of the other
Loan Documents, any Lender that fails (i) to make available to Agent its pro rata share of any Loan
or (ii) to comply with the provisions of §13 with respect to making dispositions and arrangements
with the other Lenders, where such Lender’s share of any payment received, whether by setoff or
otherwise, is in excess of its pro rata share of such payments due and payable to all of Lenders,
in each case as, when and to the full extent required by the provisions of this Agreement, shall be
deemed delinquent (a “Delinquent Lender”) and shall be deemed a Delinquent Lender until
such time as such delinquency is satisfied. A Delinquent Lender shall be deemed to have assigned
any and all payments due to it from Borrower, whether on account of



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Outstanding Loans, interest, fees or otherwise, to the remaining non-Delinquent Lenders for
application to, and reduction of, their respective pro rata shares of all outstanding Loans in
accordance with the terms of this Agreement. The Delinquent Lender hereby authorizes Agent to
distribute such payments to the non-Delinquent Lenders in proportion to their respective pro rata
shares of all outstanding Loans in accordance with the terms of this Agreement. A Delinquent
Lender shall be deemed to have satisfied in full a delinquency when and if, as a result of
application of the assigned payments to all outstanding Loans of the non-Delinquent Lenders or as a
result of other payments by the Delinquent Lenders to the non-Delinquent Lenders, Lenders’
respective pro rata shares of all outstanding Loans have returned to those in effect immediately
prior to such delinquency and without giving effect to the nonpayment causing such delinquency.




          §14.6 Holders of Notes.




     Subject to the terms of §18, Agent may deem and treat the payee of any Note as the absolute
owner or purchaser thereof for all purposes hereof until it shall have been furnished in writing
with a different name by such payee or by a subsequent holder, assignee or transferee.



          §14.7 Indemnity.




     Lenders ratably agree hereby to indemnify and hold harmless Agent from and against any and all
claims, actions and suits (whether groundless or otherwise), losses, damages, costs, expenses (to
the extent of any losses, damages, costs and expenses for which Agent has not been reimbursed by
Borrower as required by §15 or §16), and liabilities of every nature and character arising out of
or related to this Agreement, the Notes or any of the other Loan Documents or the transactions
contemplated or evidenced hereby or thereby, or Agent’s actions taken hereunder or thereunder,
except to the extent that any of the same shall be directly caused by Agent’s willful misconduct or
gross negligence.



          §14.8 Agent as Lender.




     In its individual capacity, KeyBank shall have the same obligations and the same rights,
powers and privileges in respect to its Revolving Commitment and Term Commitment and the Revolving
Loans and Term Loans made by it, and as the holder of any of the Notes as it would have were it not
also Agent and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated or unless
the context otherwise requires, include the Person serving as Agent hereunder in its individual
capacity. Such Person and its Affiliates may accept deposits from, lend money to, act as the
financial advisor or in any other advisory capacity for and generally engage in any kind of
business with Borrower, any of the other Loan Parties or any Subsidiary or other Affiliate thereof
as if such Person were not Agent hereunder and without any duty to account therefor to Lenders.



          §14.9 Resignation.




     Agent may resign at any time by giving thirty (30) calendar days’ prior written notice thereof
to Lenders and Borrower. Upon any such resignation, the Required Lenders, subject to the terms of
§18.1, shall have the right to appoint as a successor Agent any Lender or any other bank whose
senior debt obligations are rated not less than “A” or its equivalent by Moody’s or not less than
“A” or its equivalent by S&P and which has a net worth of not less than



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$500,000,000. Any such resignation shall be effective upon appointment and acceptance of a
successor agent selected by the Required Lenders. If no successor Agent shall have been so
appointed and shall have accepted such appointment within thirty (30) days after the retiring
Agent’s giving of notice of resignation, then the retiring Agent may, on behalf of Lenders, appoint
a successor Agent, which shall be a bank whose debt obligations are rated not less than “A” or its
equivalent by Moody’s or not less than “A” or its equivalent by S&P Corporation and which has a net
worth of not less than $500,000,000, provided that if Agent shall notify Borrower and Lenders that
no qualifying Person has accepted such appointment, then such resignation shall nonetheless become
effective in accordance with such notice and (1) the retiring Agent shall be discharged from its
duties and obligations hereunder and under the other Loan Documents (except that in the case of any
collateral security held by Agent on behalf of Lenders under any of the Loan Documents, the
retiring Agent shall continue to hold such collateral security until such time as a successor Agent
is appointed) and (2) all payments, communications and determinations provided to be made by, to or
through Agent shall instead be made by or to each Lender directly, until such time as the Required
Lenders appoint a successor Agent as provided for above in this paragraph. Unless a Default or
Event of Default shall have occurred and be continuing, such successor Agent shall be reasonably
acceptable to Borrower. Upon the acceptance of any appointment as Agent hereunder by a successor
Agent, such successor Agent shall thereupon succeed to and become vested with all the rights,
powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations hereunder as Agent. The fees payable by Borrowers to a successor
Agent shall be the same as those payable to its predecessor unless otherwise agreed between
Borrower and such successor. After any retiring Agent’s resignation, the provisions of this
Agreement and the other Loan Documents shall continue in effect for the benefit of such retiring
Agent, its agents and their respective Related Parties in respect of any actions taken or omitted
to be taken by it while it was acting as Agent.




          §14.10 Duties in the Case of Enforcement.




     In case one or more Events of Default have occurred and shall be continuing, and whether or
not acceleration of the Obligations shall have occurred, Agent may and shall, if (a) so requested
by the Required Lenders and (b) Lenders have provided to Agent such additional indemnities and
assurances against expenses and liabilities as Agent may reasonably request, proceed to enforce the
provisions of the Security Documents authorizing the sale or other disposition of all or any part
of the Collateral and exercise all or any other legal and equitable and other rights or remedies as
it may have. The Required Lenders may direct Agent in writing as to the method and the extent of
any such exercise, Lenders hereby agreeing to indemnify and hold Agent harmless from all
liabilities incurred in respect of all actions taken or omitted in accordance with such directions,
provided that Agent need not comply with any such direction to the extent that Agent
reasonably believes Agent’s compliance with such direction to be unlawful or commercially
unreasonable in any applicable jurisdiction.



          §14.11 Request for Agent Action.




     Agent and Lenders acknowledge that in the ordinary course of business of Borrower, (a) the
Loan Parties may enter into Leases covering the Mortgaged Property and the Negative Pledge Property
that may require the execution of a subordination, attornment and non-disturbance agreement, (b)
the Mortgaged Property and the Negative Pledge Property may be



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subject to a condemnation or other taking, (c) the Loan Parties may desire to enter into easements or other
agreements affecting the Mortgaged Property or the Negative Pledge Property, record a subdivision
plat, dedicate roads or utilities, or take other actions or enter into other agreements in the
ordinary course of business which similarly require the consent, approval or agreement of Agent.
In connection with the foregoing, Lenders hereby expressly authorize Agent to (a) execute and
deliver with the applicable Loan Party or Loan Parties and any tenant, subordination, attornment
and non-disturbance agreements with respect to any lease upon such terms as Agent in its good faith
reasonable judgment determines are appropriate (Agent in the exercise of its good faith reasonable
judgment may agree to allow some or all of the casualty, condemnation, restoration or other
provisions of the applicable lease to control over the applicable provisions of the Loan
Documents), (b) execute releases of Liens of Mortgaged Property and Equity Interests in connection
with dispositions permitted in this Agreement or in connection with any condemnation or other
taking, (c) execute consents or subordinations in form and substance reasonably satisfactory to
Agent in connection with any easements, agreements, plats, dedications or similar matters affecting
the Mortgaged Property or Negative Pledge Property, or (d) execute consents, approvals, or other
agreements in form and substance reasonably satisfactory to Agent in connection with such other
actions or agreements as may be desirable by Agent or any tenant necessary in the ordinary course
of the Loan Parties’ respective businesses.




          §14.12 Removal of Agent.




     The Required Lenders may remove Agent from its capacity as agent in the event of Agent’s
willful misconduct or gross negligence. Such removal shall be effective upon appointment and
acceptance of a successor agent selected by the Required Lenders. Any successor Agent must satisfy
the conditions set forth in §14.9. Upon the acceptance of any appointment as agent hereunder by a
successor agent, such successor agent shall thereupon succeed to and become vested with all rights,
powers, privileges and duties of the removed Agent, and the removed Agent shall be discharged from
all further duties and obligations as Agent under this Agreement and the Loan Documents (subject to
Agent’s right to be indemnified as provided in the Loan Documents); provided that Agent shall
remain liable to the extent provided herein or in the Loan Documents for its acts or omissions
occurring prior to such removal or resignation.



          §14.13
Bankruptcy. In the event a bankruptcy or other insolvency proceeding is commenced by
or against any of the Loan Parties, Agent shall have the sole and exclusive right and duty to file
and pursue a joint proof of claim on behalf of all Lenders. Each Lender irrevocably waives its
right to file or pursue a separate proof of claim in any such proceedings.




§15. EXPENSES




     Borrower agrees to pay (a) the reasonable and documented costs of producing and reproducing
this Agreement, the other Loan Documents and the other agreements and instruments mentioned herein,
(b) any taxes (including any interest and penalties in respect thereto) payable by Agent or any of
Lenders, including any recording, mortgage, documentary or intangibles taxes in connection with the
Security Deeds and other Loan Documents, or other taxes payable on or with respect to the
transactions contemplated by this Agreement (other than taxes based upon Agent’s or any Lender’s
gross or net income, except that Agent and Lenders shall be entitled to
indemnification for any and all amounts paid by them in respect of taxes based on income or



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other taxes assessed by any State in which Mortgaged Property or other Collateral is located, such
indemnification to be limited to taxes due solely on account of the granting of Collateral under
the Security Documents, including any such taxes payable by Agent or any of Lenders after the
Closing Date (Borrower hereby agreeing to indemnify Agent and each Lender with respect thereto),
(c) all appraisal fees, engineer’s fees, charges of Agent for commercial finance exams and
engineering and environmental reviews and the reasonable and documented fees, expenses and
disbursements of Agent, Agent’s Special Counsel and any other counsel to Agent, counsel for KeyBank
and any local counsel to Agent incurred in connection with the performance of due diligence and the
preparation, negotiation, administration, or interpretation of the Loan Documents and other
instruments mentioned herein, the addition and release of Collateral, each closing hereunder, and
amendments, modifications, approvals, consents, waivers or Collateral releases hereto or hereunder,
(d) the reasonable fees, expenses and disbursements of Agent incurred by Agent in connection with
the performance of due diligence, underwriting analysis, credit reviews and the preparation,
negotiation, administration, syndication or interpretation of the Loan Documents and other
instruments mentioned herein, credit and collateral evaluations, the release, addition or
substitution of additional Collateral, (e) all reasonable and documented out-of-pocket expenses
(including reasonable attorneys’ fees and costs, which attorneys may be employees of any Lender or
Agent and the fees and costs of appraisers, engineers, investment bankers or other experts retained
by any Lender or Agent) incurred by any Lender or Agent in connection with (i) the enforcement of
or preservation of rights under any of the Loan Documents against Borrower or other Loan Parties or
the administration thereof after the occurrence of a Default or Event of Default (including,
without limitation, the cost of all title examinations and title reports, Lien searches and related
costs and expenses in order specifically to identify the Mortgaged Properties and the state of the
Loan Parties’ title thereto), (ii) the sale of, collection from or other realization upon any of
the Collateral, (iii) the failure of Borrower or any other Loan Party to perform or observe any
provision of the Loan Documents, and (iv) any litigation, proceeding or dispute whether arising
hereunder or otherwise, in any way related to Agent’s or any of Lenders’ relationships with any of
the Loan Parties, and (f) all reasonable fees, expenses and disbursements of Agent incurred in
connection with Uniform Commercial Code searches, Uniform Commercial Code filings or Security Deed
recordings and, after the occurrence and during the continuance of an Event of Default, title
rundowns and title searches. The covenants of this §15 shall survive payment or satisfaction of
payment of amounts owing with respect to the Notes.




§16. INDEMNIFICATION




     Borrower agrees to indemnify and hold harmless Agent and Lenders and each director, officer,
employee, agent and Person who controls Agent or any Lender from and against any and all claims,
actions and suits, whether groundless or otherwise, and from and against any and all liabilities,
losses, damages and expenses of every nature and character arising out of or relating to this
Agreement or any of the other Loan Documents or the transactions contemplated hereby and thereby
including, without limitation, (a) any leasing fees and any brokerage, finders or similar fees
asserted against any Person indemnified under this §16 based upon any agreement, arrangement or
action made or taken, or alleged to have been made or taken, by any of the Loan Parties, (b) any
condition, use, operation or occupancy of a Mortgaged Property or other Collateral other than with
respect to matters relating to such Mortgaged Property and/or the
Collateral first occurring after Agent or its nominee acquires title to such Mortgaged
Property by



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the exercise of its foreclosure remedies or transfer in lieu of foreclosure, (c) any
actual or proposed use by Borrower of the proceeds of any of the Loans or any actual or proposed
use of a Letter of Credit by any beneficiary of a Letter of Credit, (d) any actual or alleged
infringement of any patent, copyright, trademark, service mark or similar right of any of the Loan
Parties comprised in the Collateral, (e) the Loan Parties’ entering into or performing this
Agreement or any of the other Loan Documents, (f) any actual or alleged violation of any law,
ordinance, code, order, rule, regulation, approval, consent, permit or license relating to a
Negative Pledge Property, a Mortgaged Property or the other Collateral, or (g) with respect to the
Loan Parties, their respective Subsidiaries and Joint Ventures, and their respective properties and
assets, including, without limitation, the Mortgaged Properties and the Negative Pledge Properties,
the violation of any Environmental Law, the Release or threatened Release of any Hazardous
Substances or any action, suit, proceeding or investigation brought or threatened with respect to
any Hazardous Substances (including, but not limited to claims with respect to wrongful death,
personal injury or damage to property), other than with respect to matters relating to such
Mortgaged Property and/or the Collateral first occurring after Agent or its nominee acquires title
to such Mortgaged Property by the exercise of its foreclosure remedies or transfer in lieu of
foreclosure, in each case including, without limitation, the reasonable fees and disbursements of
counsel and allocated costs of internal counsel incurred in connection with any such investigation,
litigation or other proceeding; provided, however, that Borrower shall not be
obligated under this §16 to indemnify any Person for liabilities arising from such Person’s own
gross negligence or willful misconduct. In litigation, or the preparation therefor, Lenders and
Agent shall be entitled to select a single law firm as their own counsel and, in addition to the
foregoing indemnity, Borrower agrees to pay promptly all Court costs and other expenses of
litigation incurred by Agent and Lenders, including the reasonable fees and expenses of such
counsel. If, and to the extent that the obligations of Borrower under this §16 are unenforceable
for any reason, Borrower hereby agrees to make the maximum contribution to the payment in
satisfaction of such obligations which is permissible under applicable law. There shall be
specifically excluded from the foregoing indemnification any claims, actions, suits, liabilities,
losses, damages and expenses arising from disputes among Lenders with respect to the Loans or the
Loan Documents. In the event that any such claims, actions, suits, liabilities, losses, damages
and expenses involve both a dispute among Lenders and other matters covered by this indemnification
provision, Agent shall make a reasonable good faith allocation of all losses, damages and expenses
incurred between Lenders’ dispute and the other matters covered by this indemnification provision,
which allocation by Agent shall, absent manifest error, be final and binding upon the parties
hereto. All amounts payable by Borrower pursuant to this Section shall constitute Obligations
until paid in full by Borrower. The provisions of this §16 shall survive the repayment of the
Loans and the termination of the obligations of Lenders hereunder.




§17. SURVIVAL OF COVENANTS, ETC




     All covenants, agreements, representations and warranties made herein, in the Notes, in any of
the other Loan Documents or in any documents or other papers delivered by or on behalf of Borrower
or any other Loan Party pursuant hereto or thereto shall be deemed to have been relied upon by
Lenders and Agent, notwithstanding any investigation heretofore or hereafter made by any of them,
and shall survive the making by Lenders of any of the Loans and the issuance by Agent of any Letter
of Credit, as herein contemplated, and shall continue in full force and effect so long as any amount due under this Agreement or the Notes or any of the other
Loan



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Documents remains outstanding or any Letter of Credit is Outstanding or any Lender has any
obligation to make any Loans or Agent has any obligation to issue a Letter of Credit. The
indemnification obligations of Borrower provided herein and the other Loan Documents shall survive
the full repayment of amounts due and the termination of the obligations of Lenders hereunder and
thereunder to the extent provided herein and therein. All statements contained in any certificate
or other paper delivered to any Lender or Agent at any time by or on behalf of any of the Loan
Parties pursuant hereto or in connection with the transactions contemplated hereby shall constitute
representations and warranties as to the matters contained in such certificate or other paper by
any of the Loan Parties hereunder.



§18. ASSIGNMENT AND PARTICIPATION




          §18.1 Conditions to Assignment by Lenders.




          (a) Each Lender shall have the right to assign, transfer, sell, negotiate, pledge or otherwise
hypothecate this Agreement and any of its rights and security hereunder and under the other Loan
Documents to any other Eligible Assignee with the prior written consent of Agent and with the prior
written consent of Borrower, which consents by Agent and Borrower shall not be unreasonably
withheld, conditioned or delayed (provided that no consent of Borrower shall be required if the
Eligible Assignee is also a Lender or an Affiliate thereof or if an Event of Default then exists)
and no consent of Agent shall be required if the Eligible Assignee is also a Lender;
provided, however, that (i) the parties to each such assignment shall execute and
deliver to Agent, for its approval and acceptance, an Assignment and Assumption Agreement in the
form of Exhibit C attached hereto and made a part hereof (an “Assignment and Assumption
Agreement”), (ii) each such assignment shall be of a constant, and not a varying, percentage of
the assigning Lender’s rights and obligations under this Agreement, (iii) if the potential assignee
is not already a Lender hereunder, at least ten (10) days prior to the date of the assignment, the
potential assignee shall deliver to Agent the fully completed Patriot Act and OFAC forms attached
as Exhibit F attached hereto and made a part hereof and such other information as Agent
shall require to successfully complete Agent’s Patriot Act Customer Identification Process and OFAC
Review Process, (iv) unless Agent and, so long as no Event of Default exists, Borrower otherwise
consent, the aggregate amount of the total Commitment of the assigning Lender being assigned
pursuant to each such assignment shall in no event be less than $2,000,000 and no less than
$1,000,000 under either the Revolving Commitment or the Term Commitment (or each of them, as
applicable), (iv) Agent shall receive from the assigning Lender a processing fee of $3,500, (vi) if
the assignment is less than the assigning Lender’s entire interest in the Loans, the assigning
Lender (if a Revolving Lender) must retain at least a $5,000,000 Revolving Commitment and (if a
Term Loan Lender), must retain at least a $1,000,000 interest in the Term Loans, unless the
assigning Lender assigns its entire interest under either the Revolving Commitment or the Term
Loans, in which case, the assigning Lender must retain at least a $5,000,000 Revolving Commitment
(if such Lender is assigning its entire interest in the Term Loans) or at least a $1,000,000
interest in the Term Loans (if such Lender is assigning its entire Revolving Commitment). Upon
such execution, delivery, approval and acceptance, and upon the effective date specified in the
applicable Assignment and Assumption Agreement, (a) the Eligible Assignee thereunder shall be a
party hereto and, to the extent that rights and obligations hereunder have been assigned to it
pursuant to such Assignment and Assumption Agreement, have the rights and
obligations of a Lender hereunder and under the other Loan Documents, and Borrower hereby




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agrees that all of the rights and remedies of Lenders in connection with the interest so assigned
shall be enforceable against Borrower by an Eligible Assignee with the same force and effect and to
the same extent as the same would have been enforceable but for such assignment provided that no
assignment shall increase the Borrower’s obligations under section 4.4 or section 4.9, (b) the
assigning Lender thereunder shall, to the extent that rights and obligations hereunder and under
the other Loan Documents have been assigned by it pursuant to such Assignment and Assumption
Agreement, relinquish its rights and be released from its obligations hereunder and thereunder, and
(c) Agent may unilaterally amend Schedule 1.1 to reflect such assignment. For purposes of
this paragraph, in connection with any assignment or simultaneous, multiple assignments by any
Lender which is a fund to one or more of its Related Funds: (1) compliance with the minimum amounts
for assigned Commitments and Loans, and for retained Commitments and Loans (both in the aggregate
and within any particular Class of Loans) as hereinabove provided shall be determined in the
aggregate for such assigning fund and any of its Related Funds that are or are to become Lenders as
part of any assignment transaction or simultaneous, multiple assignment transactions; (2) after
giving effect to such assignment or assignments, no such assignor or assignee fund in connection
with a partial assignment of the assigning fund’s Revolving Commitment shall hold a Revolving
Commitment of less than $5,000,000, (3) after giving effect to such assignment or assignments, no
such assignor or assignee fund in connection with a partial assignment of the assigning fund’s Term
Commitment shall hold a Term Commitment of less than $1,000,000, and (4) only one processing fee
shall be payable to Agent in connection with simultaneous, multiple assignment transactions.




          (b) By executing and delivering an Assignment and Assumption Agreement, the assigning Lender
thereunder and the Eligible Assignee thereunder confirm to and agree with each other and the other
parties hereto as follows: (i) except as provided in such Assignment and Assumption Agreement,
such assigning Lender makes no representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in or in connection with this
Agreement or any other Loan Document or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Agreement or any other Loan Document or any other
instrument or document furnished in connection therewith; (ii) such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to the financial condition of
Borrower or any other Loan Party or the performance or observance by Borrower or any other Loan
Party of any of its obligations under any Loan Document or any other instrument or document
furnished in connection therewith; (iii) such Eligible Assignee confirms that it has received a
copy of this Agreement together with such financial statements, Loan Documents and other documents
and information as it has deemed appropriate to make its own credit analysis and decision to enter
into the Assignment and Assumption Agreement and to become a Lender hereunder; (iv) such Eligible
Assignee will, independently and without reliance upon Agent, the assigning Lender or any other
Lender, and based on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under this Agreement; (v)
such Eligible Assignee appoints and authorizes Agent to take such action as Agent on its behalf and
to exercise such powers under this Agreement and the other Loan Documents as are delegated to Agent
by the terms hereof and thereof, together with such powers as are reasonably incidental thereto;
(vi) such Eligible Assignee agrees that it will perform in accordance with their terms all of the
obligations which by the terms of this Agreement are required to be performed by it as a Lender.




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          §18.2 Register.




     Agent shall maintain a copy of each assignment delivered to it and a register or similar list
(the “Register”) for the recordation of the names and addresses of Lenders and the
Commitment Percentages, Revolving Commitment Percentages and Term Commitment Percentages of, and
principal amount of the Loans owing to Lenders from time to time. The entries in the Register
shall be conclusive, in the absence of manifest error, and the Loan Parties, Agent and Lenders may
treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of
this Agreement. The Register shall be available for inspection by Borrower and Lenders at any
reasonable time and from time to time upon reasonable prior notice.



          §18.3 New Notes.




     Upon its receipt of an assignment executed by the parties to such assignment, together with
each Note (if any) subject to such assignment, Agent shall (a) record the information contained
therein in the Register, and (b) give prompt notice thereof to Borrower and Lenders (other than the
assigning Lender). Within five (5) Business Days after receipt of such notice, Borrower, upon
Lender’s request and at Lender’s expense, shall execute and deliver to Agent, in exchange for each
surrendered Note, a new Revolving Loan Note, Term Loan Note or both, as the case may be, to the
order of such assignee in an amount equal to the amount assumed by such assignee pursuant to such
assignment and, if the assigning Lender has retained some portion of its obligations hereunder, a
new Revolving Loan Note, Term Loan Note or both, as the case may be, to the order of the assigning
Lender in an amount equal to the amount retained by it hereunder. Such new Notes shall provide
that they are replacements for the surrendered Notes of the same category, shall be in an aggregate
principal amount equal to the aggregate principal amount of the surrendered Notes, shall be dated
the effective date of such assignment and shall otherwise be in substantially the form of the
assigned Notes. The surrendered Notes shall be canceled and returned to Borrower.



          §18.4 Participations.




     Each Lender may sell participations to one or more banks or other entities in all or a portion
of such Lender’s rights and obligations under this Agreement and the other Loan Documents;
provided that (a) any such sale or participation shall not affect the rights and duties of
the selling Lender hereunder to Borrower, (b) such participation shall not entitle such participant
to any rights or privileges under this Agreement or the Loan Documents, including, without
limitation, the right to approve waivers, amendments or modifications, (c) such participant shall
have no direct rights against any of the Loan Parties except the rights granted to Lenders pursuant
to §13, (d) such sale is effected in accordance with all applicable laws, and (e) such participant
shall not be a Person controlling, controlled by or under common control with, or which is not
otherwise free from influence or control by, any of the Loan Parties. Any Lender which sells a
participation shall promptly notify Agent and Borrower of such sale and the identity of the
purchaser of the interest.



          §18.5 Pledge by Lender.




     Any Lender may at any time pledge all or any portion of its interest and rights under this
Agreement (including all or any portion of its Note) to secure obligations of such Lender,



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including without limitation, (a) any pledge or assignment to secure obligations to any of the
twelve Federal Reserve Banks organized under §4 of the Federal Reserve Act, 12 U.S.C. §341, to any
Federal Home Loan Bank or to any institution within the Farm Credit System, and (b) for any Lender
that is a fund, any pledge or assignment to any holders of obligations owed, or securities issued,
by such Lender including any trustee for, or any other representative of, such holders. In
addition, any Lender may, with the consent of Agent (which may be granted or withheld in Agent’s
sole discretion) pledge all or any portion of its interests and rights under the Agreement
(including all or any portion of its Note or Notes) to a Person approved by Agent. Notwithstanding
anything to the contrary contained herein, no pledge permitted pursuant to this Section or the
enforcement thereof shall release the pledgor Lender from its obligations hereunder or under any of
the other Loan Documents.




          §18.6 No Assignment by Borrower.




     Borrower shall not assign or transfer any of its rights or obligations under any of the Loan
Documents without the prior written consent of each of Lenders.



          §18.7 Cooperation; Disclosure.




     Borrower and the other Loan Parties agree to promptly cooperate with any Lender in connection
with any proposed assignment or participation of all or any portion of its Commitment. Borrower
and the other Loan Parties agree that in addition to disclosures made in accordance with standard
lending practices any Lender may disclose information obtained by such Lender pursuant to this
Agreement to assignees or participants and potential assignees or participants hereunder, subject
to the provisions of §18.10. Notwithstanding anything herein to the contrary, Agent and each
Lender may disclose to any and all Persons, without limitation of any kind, any information with
respect to the “tax treatment” and “tax structure” (in each case, within the meaning of Treasury
Regulation Section 1.6011-4) of the transactions contemplated hereby and all materials of any kind
(including opinions or other tax analyses) that are provided to Agent or any Lender relating to
such tax treatment and tax structure; provided that with respect to any document or similar item
that in either case contains information concerning the tax treatment or tax structure of the
transaction as well as other information, this sentence shall only apply to such portions of the
document or similar item that relate to the tax treatment or tax structure of the Loans and
transactions contemplated hereby. In order to facilitate assignments to Eligible Assignees and
sales to Eligible Assignees, the Loan Parties shall execute such further documents, instruments or
agreements as Lenders may reasonably require. In addition, the Loan Parties agree to cooperate
fully with Lenders in the exercise of Lenders’ rights pursuant to this Section, including providing
such information and documentation regarding the Loan Parties, their Subsidiaries and Joint
Ventures as any Lender or any potential Eligible Assignee or participant may reasonably request and
to meet with potential Eligible Assignees.



          §18.8 Mandatory Assignment.




     In the event (i) Borrower requests that certain amendments, modifications or waivers be made
to this Agreement or any of the other Loan Documents which request is approved by Agent or Required
Lenders but is not approved by one or more of Lenders (any such non-consenting Lender shall
hereafter be referred to as the “Non-Consenting Lender”), (ii) Borrower becomes obligated
to pay additional amounts to any Lender pursuant to § 4.4 or 4.9, or any Lender
gives



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notice of the occurrence of any circumstances described in § 4.10, or (iii) any Lender
with a Revolving Loan Commitment defaults in the obligation to make Revolving Loans hereunder (any
such Lender, including a Non-Consenting Lender, shall hereafter be referred to as an “Affected
Lender”) then, within thirty (30) days after Borrower’s receipt of notice of such disapproval
by such Non-Consenting Lender, or, in the case of clause (ii) or (iii) above at any time after the
occurrence of such event, Borrower shall have the right as to such Affected Lender, to be exercised
by delivery of written notice delivered to Agent and the Affected Lender, to elect to cause the
Affected Lender to transfer its Loans and Commitments. Agent shall promptly notify the remaining
Lenders that each of such Lenders shall have the right, but not the obligation, to acquire a
portion of the Commitment, pro rata based upon their relevant Commitment Percentages, of the
Affected Lender (or if any of such Lenders does not elect to purchase its pro rata share, then to
such remaining Lenders in such proportion as approved by Agent). In the event that Lenders do not
elect to acquire all of the Affected Lender’s Loans and Commitment, then Agent shall use
commercially reasonable efforts to find a new Lender or Lenders to acquire such remaining Loans and
Commitment. Upon any such purchase of the Loans and Commitments of the Affected Lender, the
Affected Lender’s interests in the Obligations and its rights hereunder and under the Loan
Documents shall terminate at the date of purchase, and the Affected Lender shall promptly execute
and deliver any and all documents reasonably requested by Agent to surrender and transfer such
interest, including, without limitation, an assignment and assumption agreement in the form
attached hereto as Exhibit C and such Affected Lender’s original Note. The purchase price
for the Affected Lender’s Commitment shall equal any and all amounts outstanding and owed by
Borrower to the Affected Lender, including principal and all accrued and unpaid interest or fees,
plus any applicable prepayment fees which would be owed to such Affected Lender if the Loans were
to be repaid in full on the date of such purchase of the Affected Lender’s Commitment.




          §18.9 Co-Agents.




     Agent may designate any Lender to be a “Co-Agent”, an “Arranger” or similar title, but such
designation shall not confer on such Lender the rights or duties of Agent. Any such “Co-Agent” or
“Arranger” shall not have any additional rights or obligations under the Loan Documents, except for
those rights and obligations, if any, as a Lender.



          §18.10 Treatment of Certain Information; Confidentiality.




     Each of Agent and Lenders agrees to maintain the confidentiality of the Information (as
defined below), except that Information may be disclosed (a) to its Affiliates and to its and its
Affiliates’ respective partners, directors, officers, employees, agents, advisors and other
representatives (it being understood that the Persons to whom such disclosure is made will be
informed of the confidential nature of such Information and instructed to keep such Information
confidential), (b) to the extent requested by any regulatory authority purporting to have
jurisdiction over it (including any self-regulatory authority, such as the National Association of
Insurance Commissioners), (c) to the extent required by applicable laws or regulations or by any
subpoena or similar legal process, (d) to any other party hereto, (e) in connection with the
exercise of any remedies hereunder or under any other Loan Document or any action or proceeding
relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or
thereunder, (f) subject to an agreement containing provisions substantially the same



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as those of this Section, to (i) any assignee of or participant in, or, with Borrower’s
consent, any prospective assignee of or participant in, any of its rights or obligations under this
Agreement or (ii) any actual or prospective counterparty (or its advisors) to any swap or
derivative transaction relating to Borrower and its obligations, (g) with the consent of Borrower
or (h) to the extent such Information (x) becomes publicly available other than as a result of a
breach of this Section or (y) becomes available to Agent, any Lender, or any of their respective
Affiliates on a nonconfidential basis from a source other than Borrower.




     For purposes of this Section, “Information” means all information received from the Loan
Parties or any of their Subsidiaries relating to the Loan Parties or any of their Subsidiaries or
Joint Ventures or any of their respective businesses, other than any such information that is
available to Agent or any Lender on a nonconfidential basis prior to disclosure by the Loan Parties
or any of their Subsidiaries. Any Person required to maintain the confidentiality of Information
as provided in this Section shall be considered to have complied with its obligation to do so if
such Person has exercised the same degree of care to maintain the confidentiality of such
Information as such Person would accord to its own confidential information.



          §18.11 Withholding Tax.




          (a) If any Lender is a “foreign corporation, partnership or trust” within the meaning of the
Code and such Lender claims exemption from, or a reduction of, United States withholding tax under
Sections 1441 or 1442 of the Code, such Lender agrees with and in favor of Agent, to deliver to
Agent and Borrower:




               (i) if such Lender claims an exemption from, or a reduction of, withholding tax under a United
States tax treaty, properly completed IRS Form W8-BEN before the payment of any interest in the
first calendar year and before the payment of any interest in each third succeeding calendar year
during which interest may be paid under this Agreement;



               (ii) if such Lender claims that interest paid under this Agreement is exempt from United
States withholding tax because it is effectively connected with a United States trade or business
of such Lender, two (2) properly completed and executed copies of IRS Form W8-ECI before the
payment of any interest is due in the first taxable year of such Lender and in each succeeding
taxable year of such Lender during which interest may be paid under this Agreement;



               (iii) such other form or forms as may be required under the Code or other laws of the United
States as a condition to exemption from, or reduction of, United States withholding tax; and



               (iv) in the case of any Lender claiming exemption from United States withholding tax under
Sections 871(b) or 881(c) of the Code, with respect to payments of “Portfolio Interest,” a Form
W-8, or any subsequent versions thereof or successors thereto, and if the Lender delivers a Form
W-8, a certificate representing that such Lender is not a bank for purposes of Section 881(c) of
the Code, is not a ten percent (10%) shareholder (within the meaning of Section 871(h)(3)(b) of the
Code) of Borrower, and is not a controlled foreign corporation related to Borrower (within the
meaning of Section 864(d)(4) of the Code).




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Each such certificate and form shall be properly completed and duly executed by such Lender
claiming complete exemption from or a reduced rate of United States withholding tax on payments by
Borrower under the Loan Documents. Each Lender agrees to promptly notify Agent and Borrower of any
change in circumstances which would modify or render invalid any claimed exemption or reduction.




          (b) If any Lender claims exemption from, or reduction of, withholding tax under a United
States tax treaty by providing IRS Form W8-BEN, and such Lender sells, assigns, grants a
participation in, or otherwise transfers all or part of the Obligations of Borrower and the other
Loan Parties to such Lender, such Lender agrees to notify Agent and Borrower of the percentage
amount in which it is no longer the beneficial owner of Obligations of Borrower to such Lender. To
the extent of such percentage amount, Agent will treat such Lender’s IRS Form W8-BEN as no longer
valid.




          (c) If any Lender claiming exemption from United States withholding tax by filing IRS Form
W8-ECI with Agent sells, assigns, grants a participation in, or otherwise transfers all or part of
the Obligations of Borrower to such Lender, such Lender agrees to undertake sole responsibility for
complying with the withholding tax requirements imposed by Sections 1441 and 1442 of the Code.




          (d) If any Lender is entitled to a reduction in the applicable withholding tax, Agent may
withhold from any interest payment to such Lender an amount equivalent to the applicable
withholding tax after taking into account such reduction. If the forms or other documentation
required by §18.11(a) above are not delivered to Agent, then Agent may withhold from any interest
payment to such Lender not providing such forms or other documentation an amount equivalent to the
applicable withholding tax.




          (e) If the IRS or any other governmental authority of the United States or other jurisdiction
asserts a claim that Agent or Borrower did not properly withhold tax from amounts paid to or for
the account of any Lender (because the appropriate form was not delivered, was not properly
executed, or because such Lender failed to notify Agent or Borrower of a change in circumstances
which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other
reason) such Lender shall indemnify Agent and Borrower fully for all amounts paid, directly or
indirectly, by Agent or Borrower as tax or otherwise, including penalties and interest, and
including any taxes imposed by any jurisdiction on the amounts payable to Agent or Borrower under
this §18.11, together with all costs and expenses (including reasonable attorneys’ fees and legal
expenses). The obligation of Lenders under this subsection (e) shall survive the payment of all
Obligations and the resignation or replacement of Agent.




§19. NOTICES




     Each notice, demand, election or request provided for or permitted to be given pursuant to
this Agreement (hereinafter in this §19 referred to as “Notice”), but specifically
excluding to the maximum extent permitted by law any notices of the institution or commencement of
foreclosure proceedings, must be in writing and shall be deemed to have been properly given or
served by personal delivery or by sending same by overnight courier or by depositing same in the
United States Mail, postpaid and registered or certified, return receipt requested, or as expressly



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permitted herein, by telegraph, telecopy, telefax or telex, and, to the extent permitted by
§23, email addressed as follows:



     If to Agent or any Lender, at the address set forth on the signature page for Agent or such
Lender, and in the case of each notice to Agent pursuant to §7.5, with a copy to:



     Agent’s Special Counsel:


Powell Goldstein LLP

1201 West Peachtree Street, NW

14th Floor

Atlanta, Georgia 30309-3488

Facsimile: (404) 572-6999

Attention: Julian D. Nealy



and




     if to Borrower:


Forestar (USA) Real Estate Group Inc.

1300 South MoPac Expressway, Suite 3S

Austin, Texas 78746

Facsimile: (512) 433-5203

Attention: Chief Financial Officer




     with a copy to:


Forestar (USA) Real Estate Group Inc.

1300 South MoPac Expressway, Suite 3S

Austin, Texas 78746

Facsimile: (512) 433-5203

Attention: General Counsel



and




     if to any of the other Loan Parties, to it at:


c/o Forestar (USA) Real Estate Group Inc.

1300 South MoPac Expressway, Suite 3S

Austin, Texas 78746

Facsimile: (512) 433-5203

Attention: Chief Financial Officer




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     with a copy to:


c/o Forestar (USA) Real Estate Group Inc.

1300 South MoPac Expressway, Suite 3S

Austin, Texas 78746

Facsimile: (512) 433-5203

Attention: General Counsel



and to each other Lender which may hereafter become a party to this Agreement at such address as
may be designated by such Lender. Each Notice shall be effective upon being personally delivered
or upon being sent by overnight courier or upon being deposited in the United States Mail as
aforesaid. The time period in which a response to such Notice must be given or any action taken
with respect thereto (if any), however, shall commence to run from the date of receipt if
personally delivered or sent by overnight courier, or if so deposited in the United States Mail,
the earlier of three (3) Business Days following such deposit or the date of receipt as disclosed
on the return receipt. Rejection or other refusal to accept or the inability to deliver because of
changed address for which no notice was given shall be deemed to be receipt of the Notice sent. By
giving at least fifteen (15) days prior Notice thereof, Borrower, a Lender or Agent shall have the
right from time to time and at any time during the term of this Agreement to change their
respective addresses and each shall have the right to specify as its address any other address
within the United States of America.




§20. RELATIONSHIP




     Neither Agent nor any Lender has any fiduciary relationship with or fiduciary duty to any of
the Loan Parties arising out of or in connection with the Agreement or the other Loan Documents or
the transactions contemplated hereunder and thereunder, and the relationship between each Lender
and Borrower is solely that of a lender and borrower, and between each Lender and any Guarantor is
solely that of a lender and guarantor, and nothing contained herein or in any of the other Loan
Documents shall in any manner be construed as making the parties hereto partners, joint venturers
or any other relationship other than lender and borrower, or lender and guarantor (as the case may
be). In addition, each of the Loan Parties agrees that notwithstanding any other relationship that
KeyBank or any affiliate thereof may have with Borrower or any of the other Loan Parties or their
respective Subsidiaries and Affiliates, in any proceeding relating to the Loan Parties, or any of
them, under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution, liquidation or similar proceeding, such Loan Party will not challenge Lenders’ right
to receive payment of the Obligations as a creditor of Borrower and the other Loan Parties on the
grounds of the equitable subordination principles contained in §510 of the United States Bankruptcy
Code (11 U.S.C. §101 et seq.), as from time to time amended, or any similar provision under
any applicable law. The covenants contained in this §20 are a material consideration and
inducement to Lenders to enter into the Agreement.



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§21. GOVERNING LAW; CONSENT TO JURISDICTION AND SERVICE




     THIS AGREEMENT AND EACH OF THE OTHER LOAN DOCUMENTS, EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED
THEREIN, ARE CONTRACTS UNDER THE LAWS OF THE STATE OF NEW YORK AND SHALL FOR ALL PURPOSES BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SUCH STATE (EXCLUDING THE LAWS APPLICABLE
TO CONFLICTS OR CHOICE OF LAW). EACH OF THE LOAN PARTIES AGREES THAT ANY SUIT FOR THE ENFORCEMENT
OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF
NEW YORK OR ANY FEDERAL COURT SITTING THEREIN AND CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF SUCH
COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE BORROWER AND THE OTHER
APPLICABLE LOAN PARTIES (IF ANY) BY MAIL AT THE ADDRESS SPECIFIED IN §19. EACH OF THE LOAN PARTIES
HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY
SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT.



§22. HEADINGS




     The captions in this Agreement are for convenience of reference only and shall not define or
limit the provisions hereof.



§23. COUNTERPARTS; INTEGRATION; EFFECTIVENESS; ELECTRONIC EXECUTION




     (a) Counterparts; Integration; Effectiveness. This Agreement and any amendment hereof
may be executed in several counterparts (and by different parties hereto in different
counterparts), each of which shall constitute an original, but all of which when taken together
shall constitute one instrument. In proving this Agreement it shall not be necessary to produce or
account for more than one such counterpart signed by the party against whom enforcement is sought.
This Agreement and the other Loan Documents, any separate letter agreements with respect to fees
payable to Agent (including the Agreement Regarding Fees) and any provisions of any commitment
letter or similar letter relating to the transactions contemplated by this Agreement that expressly
survive the Closing Date, constitute the entire contract among the parties relating to the subject
matter hereof and supersede any and all previous agreements and understandings, oral or written,
relating to the subject matter hereof. Except as provided in §10, this Agreement shall become
effective when it shall have been executed by Agent and when Agent shall have received counterparts
hereof that, when taken together, bear the signatures of each of the other parties hereto.
Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be
effective as delivery of a manually executed counterpart of this Agreement.



     (b) Electronic Execution of Assignments. The words “execution,” “signed,”
“signature,” and words of like import in any Assignment and Assumption Agreement shall be deemed to
include electronic signatures or the keeping of records in electronic form, each of which shall be
of the same legal effect, validity or enforceability as a manually executed signature



110









 







or the use of a paper-based recordkeeping system, as the case may be, to the extent and as
provided for in any applicable law, including the Federal Electronic Signatures in Global and
National Commerce Act, the New York State Electronic Signatures and Records Act, or any other
similar state laws based on the Uniform Electronic Transactions Act.



     (c) Electronic Communication. Notices and other communications to Agent and Lenders
hereunder may be delivered or furnished by electronic communication (including e-mail and Internet
or intranet websites) pursuant to procedures approved by Agent, provided that the foregoing shall
not apply to notices to any Lender pursuant to Article 4 if such Lender has notified Agent that it
is incapable of receiving notices under such Article by electronic communication. Agent or
Borrower may, in its discretion, agree to accept notices and other communications to it hereunder
by electronic communications pursuant to procedures approved by it, provided that approval of such
procedures may be limited to particular notices or communications. Unless Agent otherwise
prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received
upon the sender’s receipt of an acknowledgment from the intended recipient (such as by the “return
receipt requested” function, as available, return e-mail or other written acknowledgment), provided
that if such notice or other communication is not sent during the normal business hours of the
recipient, such notice or communication shall be deemed to have been sent at the opening of
business on the next business day for the recipient, and (ii) notices or communications posted to
an Internet or intranet website shall be deemed received upon the deemed receipt by the intended
recipient at its e-mail address as described in the foregoing clause (i) of notification that such
notice or communication is available and identifying the website address therefor.



§24. ENTIRE AGREEMENT, ETC.




     The Loan Documents and any other documents executed in connection herewith or therewith
express the entire understanding of the parties with respect to the transactions contemplated
hereby. Neither this Agreement nor any term hereof may be changed, waived, discharged or
terminated, except as provided in §27.



§25. WAIVER OF JURY TRIAL AND CERTAIN DAMAGE CLAIMS




     TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE BORROWER, THE OTHER LOAN
PARTIES, AGENT AND THE LENDERS HEREBY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION
OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, ANY NOTE OR ANY OF THE OTHER
LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR THE PERFORMANCE OF SUCH RIGHTS
AND OBLIGATIONS. EXCEPT TO THE EXTENT EXPRESSLY PROHIBITED BY LAW, EACH OF BORROWER AND THE OTHER
LOAN PARTIES HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY
SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO,
ACTUAL DAMAGES. EACH OF BORROWER AND THE OTHER LOAN PARTIES (A) CERTIFIES THAT NO REPRESENTATIVE,
AGENT OR ATTORNEY OF ANY LENDER OR AGENT HAS REPRESENTED, EXPRESSLY OR



111









 







OTHERWISE, THAT SUCH LENDER OR AGENT WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE
THE FOREGOING WAIVERS AND (B) ACKNOWLEDGES THAT AGENT AND THE LENDERS HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH THEY ARE PARTIES BY, AMONG OTHER THINGS,
THE WAIVERS AND CERTIFICATIONS CONTAINED IN THIS §25. EACH OF BORROWER AND THE OTHER LOAN PARTIES
ACKNOWLEDGES THAT IT HAS HAD AN OPPORTUNITY TO REVIEW THIS §25 WITH ITS LEGAL COUNSEL AND THAT EACH
OF BORROWER AND THE OTHER LOAN PARTIES AGREES TO THE FOREGOING AS ITS FREE, KNOWING AND VOLUNTARY
ACT.



§26. DEALINGS WITH THE BORROWER




     The Lenders and their affiliates may accept deposits from, extend credit to and generally
engage in any kind of banking, trust or other business with Borrower, or any of its affiliates
regardless of the capacity of the Lender hereunder.



§27. CONSENTS, AMENDMENTS, WAIVERS, ETC.




     Except as otherwise expressly provided in this Agreement, any consent or approval required or
permitted by this Agreement may be given, and any term of this Agreement or of any other Loan
Document may be amended, and the performance or observance by Borrower or any other Loan Party of
any terms of this Agreement or such other instrument or the continuance of any Default or Event of
Default may be waived (either generally or in a particular instance and either retroactively or
prospectively) with, but only with, the written consent of the Required Lenders. Notwithstanding
the foregoing provisions of this Section:



          (a) none of the following may occur without the written consent of each affected Lender:




               (i) a decrease in the rate of interest on the Notes;



               (ii) an increase in the amount of the Commitments of Lenders, except as provided in §2.9;



               (iii) a forgiveness, reduction or waiver of the principal of any unpaid Loan or any interest
thereon or fee payable under the Loan Documents (other than in connection with the imposition or
rescission of the Default Rate);



               (iv) a decrease in the amount of any fee payable to a Lender hereunder;



               (v) an extension of the Maturity Date;



               (vi) the release of Borrower, any Guarantor or any of the Collateral except as otherwise
provided herein;



               (vii) a change to this §27;



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               (viii) any postponement of any date fixed for any payment of principal of or interest on, or
fees in respect of, the Loans;



               (ix) any change in the manner of distribution of any payments to Lenders or Agent;



               (x) an amendment of the definition of Required Lenders or of any requirement for consent by
all of Lenders; or



               (xi) an amendment of any provision of this Agreement or the Loan Documents which requires the
approval of all of Lenders or the Required Lenders to require a lesser number of Lenders to approve
such action.



          (b) Other Consents. No amendment, modification, termination or waiver of any
provision of the Loan Documents, or consent to any departure by any Loan Party therefrom, shall:





               (i) increase the Revolving Commitment of any Revolving Lender over the amount thereof
then in effect without the consent of such Lender; provided, no amendment,
modification or waiver of any condition precedent, covenant, Default or Event of Default
shall constitute an increase in any Revolving Commitment of any Lender;




               (ii) increase the aggregate Revolving Commitments or the aggregate Term Loan
Commitments over the amount thereof then in effect without the consent of the Requisite
Class Lenders (other than pursuant to and in accordance with §2.9);




               (iii) amend, modify, terminate or waive any provision hereof relating to the Swing Line
Commitment or the Swing Line Loans without the consent of Swing Line Lender;




               (iv) amend the definition of Requisite Class Lenders or Applicable Approval Percentage
without the consent of Requisite Class Lenders of each Class; provided, subject to
§27(b)(viii), additional extensions of credit pursuant hereto may be included in the
determination of such Requisite Class Lenders on substantially the same basis as the Term
Commitments, the Term Loans, the Revolving Commitments and the Revolving Loans are included
on the Closing Date;




               (v) alter the required application of any repayments or prepayments as between Classes
pursuant to §3.4 or §12.5 of this Agreement or pursuant to any other Loan Document without
the unanimous consent of all Lenders of each Class which is being allocated a lesser
repayment or prepayment as a result thereof; provided, Requisite Class Lenders may
waive, in whole or in part, any prepayment so long as the application, as between Classes,
of any portion of such prepayment which is still required to be made is not altered;



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               (vi) amend, modify, terminate or waive any obligation of Revolving Lenders relating to
the purchase of participations in Letters of Credit as provided in §2.10(d) without the
written consent of Agent;




               (vii) waive any condition precedent to the initial Loans on the Closing Date, for which
it is expressly provided in such Section that satisfaction of such condition is to be
acceptable to or approved by Agent, without the consent of Agent, and in any such event it
shall not be necessary to obtain the consent of any other Lender to such waiver; or




               (viii) amend, modify, terminate or waive the amount or timing of payment of any fee
payable to Agent for its own account, any provision of §14 as the same applies to Agent, or
any other provision hereof as the same applies to the rights or obligations of Agent, in
each case without the consent of Agent;




               (ix) any modification to require a Revolving Lender to fund a pro rata share of a
request for a Revolving Loan made by Borrower other than based on its applicable Required
Commitment Percentage, or to require a Term Lender to fund a pro rata share of a request for
a Term Loan made by Borrower other than based on its applicable Term Commitment Percentage,
without the unanimous consent of all Lenders of the Class affected by such modification
Lenders; or




               (x) any amendment which would disproportionately affect the obligation of Borrower or
any Loan Party to make payment of the Revolving Loans or the Term Loans shall not be
effective without the unanimous approval of all Lenders of the Class affected by such
modification.


Borrower and each of the other Loan Parties agrees to enter into such modifications or amendments
of this Agreement or the other Loan Documents as reasonably may be requested by KeyBank or Agent in
connection with the syndication of the Loan, provided that no such amendment or modification
materially affects or increases any of the obligations of Borrower hereunder. No waiver shall
extend to or affect any obligation not expressly waived or impair any right consequent thereon. No
course of dealing or delay or omission on the part of Agent or any Lender in exercising any right
shall operate as a waiver thereof or otherwise be prejudicial thereto. No notice to or demand upon
Borrower or the other Loan Parties shall entitle Borrower or any other Loan Party to other or
further notice or demand in similar or other circumstances. In the event any Lender fails to
expressly grant or deny any consent, amendment or waiver sought under this Agreement within ten
(10) days of a written request therefor submitted by Agent or Agent’s Special Counsel, such Lender
shall be deemed to have granted to Agent an irrevocable proxy with respect to such specific matter.




§28. SEVERABILITY




     The provisions of this Agreement are severable, and if any one clause or provision hereof
shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such
invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such
jurisdiction, and shall not in any manner affect such clause or provision in any other
jurisdiction, or any other clause or provision of this Agreement in any jurisdiction.



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§29. NO UNWRITTEN AGREEMENTS




     THE WRITTEN LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.



§30. ACKNOWLEDGMENT OF INDEMNITY OBLIGATIONS




     BORROWER HEREBY ACKNOWLEDGES THAT THIS AGREEMENT CONTAINS INDEMNITY OBLIGATIONS OF THE
BORROWER.



§31. REPLACEMENT OF NOTES




     Upon receipt of evidence reasonably satisfactory to Borrower of the loss, theft, destruction
or mutilation of any Note, and in the case of any such loss, theft or destruction, upon delivery of
an indemnity agreement reasonably satisfactory to such Borrower or, in the case of any such
mutilation, upon surrender and cancellation of the applicable Note, such Borrower will execute and
deliver, in lieu thereof, a replacement Note, identical in form and substance to the applicable
Note and dated as of the date of the applicable Note and upon such execution and delivery all
references in the Loan Documents to such Note shall be deemed to refer to such replacement Note.



§32. TIME IS OF THE ESSENCE




     Time is of the essence with respect to each and every covenant, agreement and obligation of
Borrower under this Agreement and the other Loan Documents.



§33. RIGHTS OF THIRD PARTIES




     This Agreement and the other Loan Documents are made and entered into for the sole protection
and legal benefit of Loan Parties, Lenders and Agent, and their permitted successors and assigns,
and no other Person shall be a direct or indirect legal beneficiary of, or have any direct or
indirect cause of action or claim in connection with, this Agreement or any of the other Loan
Documents. All conditions to the performance of the obligations of Agent and Lenders under this
Agreement, including the obligation to make Loans, are imposed solely and exclusively for the
benefit of Agent and Lenders and no other Person shall have standing to require satisfaction of
such conditions in accordance with their terms or be entitled to assume that Agent and Lenders will
refuse to make Loans in the absence of strict compliance with any or all thereof and no other
Person shall, under any circumstances, be deemed to be a beneficiary of such conditions, any and
all of which may be freely waived in whole or in part by Agent and Lenders at any time if in their
sole discretion they deem it desirable to do so. In particular, Agent and Lenders make no
representations and assume no obligations as to third parties concerning the quality of the
construction by Borrower of any development or the absence therefrom of defects.



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§34. GUARANTY




          §34.1 The Guaranty.  




          (a) Each of Guarantors hereby jointly and severally guarantees to Agent for the benefit of the
Lenders and each of the holders of the Obligations, as hereinafter provided, as primary obligor and
not as surety, the prompt payment of the Obligations (the “Guaranteed Obligations”) in full
when due (whether at stated maturity, as a mandatory prepayment, by acceleration, as a mandatory
cash collateralization or otherwise) strictly in accordance with the terms thereof. Guarantors
hereby further agree that if any of the Guaranteed Obligations are not paid in full when due
(whether at stated maturity, as a mandatory prepayment, by acceleration, as a mandatory cash
collateralization or otherwise), Guarantors will, jointly and severally, promptly pay the same,
without any demand or notice whatsoever, and that in the case of any extension of time of payment
or renewal of any of the Guaranteed Obligations, the same will be promptly paid in full when due
(whether at extended maturity, as a mandatory prepayment, by acceleration, as a mandatory cash
collateralization or otherwise) in accordance with the terms of such extension or renewal.




          (b) Notwithstanding any provision to the contrary contained herein, in any other of the Loan
Documents or other documents relating to the Obligations, the obligations of each Guarantor under
this Agreement and the other Loan Documents shall be limited to an aggregate amount equal to the
largest amount that would not render such obligations subject to avoidance under the United States
Bankruptcy Code and all other liquidation, conservatorship, bankruptcy, assignment for the benefit
of creditors, moratorium, rearrangement, receivership, insolvency, reorganization or similar debtor
relief laws of the United States from time to time in effect and affecting the rights of creditors
generally (collectively, “Debtor Relief Laws”) or any comparable provisions of any
applicable state law.




          §34.2 Obligations Unconditional.




     The obligations of Guarantors under §34.1 are joint and several, absolute and unconditional,
irrespective of the value, genuineness, validity, regularity or enforceability of any of the Loan
Documents or other documents relating to the Obligations, or any substitution, compromise, release,
impairment or exchange of any other guarantee of or security for any of the Guaranteed Obligations,
and, to the fullest extent permitted by applicable law, irrespective of any other circumstance
whatsoever that might otherwise constitute a legal or equitable discharge or defense of a surety or
guarantor, it being the intent of this §34.2 that the obligations of Guarantors hereunder shall be
absolute and unconditional under any and all circumstances. Each Guarantor agrees that such
Guarantor shall have no right of subrogation, indemnity, reimbursement or contribution against
Borrower or any other Guarantor for amounts paid under this §34 until such time as the Obligations
have been irrevocably paid in full and the commitments relating thereto have expired or been
terminated. Without limiting the generality of the foregoing, it is agreed that, to the fullest
extent permitted by law, the occurrence of any one or more of the following shall not alter or
impair the liability of any Guarantor hereunder, which shall remain absolute and unconditional as
described above:




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          (a) at any time or from time to time, without notice to any Guarantor, the time for any
performance of or compliance with any of the Guaranteed Obligations shall be extended, or such
performance or compliance shall be waived;




          (b) any of the acts mentioned in any of the provisions of any of the Loan Documents, or other
documents relating to the Guaranteed Obligations or any other agreement or instrument referred to
therein shall be done or omitted;




          (c) the maturity of any of the Guaranteed Obligations shall be accelerated, or any of the
Obligations shall be modified, supplemented or amended in any respect, or any right under any of
the Loan Documents or other documents relating to the Guaranteed Obligations, or any other
agreement or instrument referred to therein shall be waived or any other guarantee of any of the
Guaranteed Obligations or any security therefor shall be released, impaired or exchanged in whole
or in part or otherwise dealt with;




          (d) any Lien granted to, or in favor of, Agent or any of the holders of the Guaranteed
Obligations as security for any of the Guaranteed Obligations shall fail to attach or be perfected;
or




          (e) any of the Guaranteed Obligations shall be determined to be void or voidable (including,
without limitation, for the benefit of any creditor of any Guarantor) or shall be subordinated to
the claims of any Person (including, without limitation, any creditor of any Guarantor).




          With respect to its obligations hereunder, each Guarantor hereby expressly waives diligence,
presentment, demand of payment, protest notice of acceptance of the guaranty given hereby and of
Loans that may constitute obligations guaranteed hereby, notices of amendments, waivers and
supplements to the Loan Documents and other documents relating to the Guaranteed Obligations, or
the compromise, release or exchange of collateral or security, and all notices whatsoever, and any
requirement that Agent or any holder of the Guaranteed Obligations exhaust any right, power or
remedy or proceed against any Person under any of the Loan Documents or any other documents
relating to the Guaranteed Obligations or any other agreement or instrument referred to therein, or
against any other Person under any other guarantee of, or security for, any of the Obligations.




          §34.3 Reinstatement.




     Neither Guarantors’ obligations hereunder nor any remedy for the enforcement thereof shall be
impaired, modified, changed or released in any manner whatsoever by an impairment, modification,
change, release or limitation of the liability of Borrower or any other Guarantor, by reason of
Borrower’s or any other Guarantor’s bankruptcy or insolvency or by reason of the invalidity or
unenforceability of all or any portion of the Guaranteed Obligations. The obligations of
Guarantors under this §34 shall be automatically reinstated if and to the extent that for any
reason any payment by or on behalf of any Person in respect of the Guaranteed Obligations is
rescinded or must be otherwise restored by any holder of any of the Obligations, whether as a
result of any proceedings pursuant to any Debtor Relief Law or otherwise, and each Guarantor agrees
that it will indemnify Agent and each holder of Guaranteed Obligations on demand for all reasonable
out-of-pocket costs and expenses (including all reasonable fees, expenses and



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disbursements of any law firm or other outside counsel incurred by the Agent) incurred by
Agent or such holder of Guaranteed Obligations in connection with such rescission or restoration,
including any such costs and expenses incurred in defending against any claim alleging that such
payment constituted a preference, fraudulent transfer or similar payment under any Debtor Relief
Law.



          §34.4 Certain Waivers.




     Each Guarantor acknowledges and agrees that (a) the guaranty given hereby may be enforced
without the necessity of resorting to or otherwise exhausting remedies in respect of any other
security or collateral interests, and without the necessity at any time of having to take recourse
against Borrower or any other Guarantor hereunder or against any collateral securing the Guaranteed
Obligations or otherwise, (b) it will not assert any right to require the action first be taken
against Borrower or any other Person (including any co-guarantor) or pursuit of any other remedy or
enforcement any other right, and (c) nothing contained herein shall prevent or limit action being
taken against Borrower or any other Guarantor hereunder, under the other Loan Documents or the
other documents and agreements relating to the Guaranteed Obligations or from foreclosing on any
security or collateral interests relating hereto or thereto, or from exercising any other rights or
remedies available in respect thereof, if none of Borrower nor Guarantors shall timely perform
their obligations, and the exercise of any such rights and completion of any such foreclosure
proceedings shall not constitute a discharge of Guarantors’ obligations hereunder unless as a
result thereof, the Guaranteed Obligations shall have been paid in full and the commitments
relating thereto shall have expired or been terminated, it being the purpose and intent that
Guarantors’ obligations hereunder be absolute, irrevocable, independent and unconditional under all
circumstances.



          §34.5 Remedies.




     Guarantors agree that, to the fullest extent permitted by Law, as between Guarantors, on the
one hand, and Agent and the holders of the Guaranteed Obligations, on the other hand, the
Guaranteed Obligations may be declared to be forthwith due and payable as provided in §12.1 (and
shall be deemed to have become automatically due and payable in the circumstances provided in
§12.1) for purposes of §34.1, notwithstanding any stay, injunction or other prohibition preventing
such declaration (or preventing the Guaranteed Obligations from becoming automatically due and
payable) as against any other Person and that, in the event of such declaration (or the Guaranteed
Obligations being deemed to have become automatically due and payable), the Guaranteed Obligations
(whether or not due and payable by any other Person) shall forthwith become due and payable by
Guarantors for purposes of §34.1. Guarantors acknowledge and agree that if the Guaranteed
Obligations are secured pursuant to the terms of the Security Documents, the holders of the
Guaranteed Obligations may exercise their remedies thereunder in accordance with the terms thereof.



          §34.6 Rights of Contribution.




     Guarantors hereby agree as among themselves that, in connection with payments made hereunder,
each Guarantor shall have a right of contribution from each other Guarantor in accordance with
applicable law. Such contribution rights shall be subordinate and subject in right of payment to
the Guaranteed Obligations until such time as the Guaranteed Obligations have



118









 







been irrevocably paid in full and the commitments relating thereto shall have expired or been
terminated, and none of Guarantors shall exercise any such contribution rights until the Guaranteed
Obligations have been irrevocably paid in full and the commitments relating thereto shall have
expired or been terminated.



          §34.7 Guaranty of Payment; Continuing Guaranty.




     The guarantee in this §34 is a guaranty of payment and not of collection, and is a continuing
guarantee, and shall apply to all Guaranteed Obligations whenever arising.



          §34.8 Special Provisions Applicable to Guarantors.




     (a) Guarantors hereby agree, among themselves, that if any Guarantor shall become an Excess
Funding Guarantor (as defined below) by reason of the payment by such Guarantor of any Obligations,
each other Guarantor shall, on demand of such Excess Funding Guarantor (but subject to the next
sentence), pay to such Excess Funding Guarantor an amount equal to such Guarantor’s Pro Rata Share
(as defined below and determined, for this purpose, without reference to the properties, debts and
liabilities of such Excess Funding Guarantor) of the Excess Payment (as defined below) in respect
of such Obligations. The payment obligation of a Guarantor to any Excess Funding Guarantor under
this §34.8(a) shall be subordinate and subject in right of payment to the prior payment in full of
the obligations of such Guarantor under the other provisions of this Guaranty, and such Excess
Funding Guarantor shall not exercise any right or remedy with respect to such excess until payment
and satisfaction in full of all such obligations. For purposes of this §34.8(a), (i) “Excess
Funding Guarantor” shall mean, in respect of any Obligations, a Guarantor that has paid an
amount in excess of the amount of proceeds of Loans advanced to it by Borrower that have not been
repaid as of the date of determination, plus its Pro Rata Share of the remaining portion of such
Obligations, (ii) “Excess Payment” shall mean, in respect of any Obligations, the amount
paid by an Excess Funding Guarantor in excess of the amount of proceeds of Loans advanced to it by
Borrower that have not been repaid as of the date of determination, plus its Pro Rata Share of the
remaining portion of such Obligations and (iii) “Pro Rata Share” shall mean, for any
Guarantor, the ratio (expressed as a percentage) of (x) the amount by which the aggregate present
fair saleable value of all properties of such Guarantor (excluding any shares of stock of any other
Guarantor) exceeds the amount of all the debts and liabilities of such Guarantor (including
contingent, subordinated, unmatured and unliquidated liabilities, but excluding the obligations of
such Guarantor hereunder and any obligations of any other Guarantor that have been guaranteed by
such Guarantor) to (y) the amount by which the aggregate fair saleable value of all properties of
Borrower and all of Guarantors exceeds the amount of all the debts and liabilities (including
contingent, subordinated, unmatured and unliquidated liabilities, but excluding the obligations of
Borrower and Guarantors hereunder) of Borrower and all of Guarantors, all as of the Closing Date.



     (b) Pursuant to §7.21 of this Agreement, each new wholly owned, direct or indirect Subsidiary
of Borrower (other than an Excluded Subsidiary), and each Excluded Subsidiary that ceases to
qualify as an Excluded Subsidiary, is required to enter into this Agreement by executing and
delivering to Agent a Joinder Agreement (Guarantor). Upon the execution and delivery of a
Joinder Agreement (Guarantor) by such Subsidiary, such Subsidiary shall become a Guarantor
hereunder with the same force and effect as if originally named as a Guarantor herein. The



119









 







execution and delivery of any Joinder Agreement (Guarantor) adding an additional Guarantor as a
party to this Agreement shall not require the consent of any other party hereto. The rights and
obligations of each party hereunder shall remain in full force and effect notwithstanding the
addition of any new Guarantor hereunder.



[SIGNATURES BEGIN ON FOLLOWING PAGE]




120









 








     IN WITNESS WHEREOF, the undersigned have duly executed this Credit Agreement as of the date
first set forth above.



	 	 	 	 	 
	 	BORROWER:



FORESTAR (USA) REAL ESTATE GROUP INC., a Delaware corporation

 	 
	 	By:  	/s/ Craig A. Knight
 	 
	 	 	Craig A. Knight 	 
	 	 	Chief Investment Officer 	 
	 



[SIGNATURES CONTINUED ON FOLLOWING PAGES]




 









 








	 	 	 	 	 
	 	GUARANTORS:



FORESTAR REAL ESTATE GROUP INC.,
a Delaware corporation

 	 
	 	By:  	/s/ Craig A. Knight
 	 
	 	 	Craig A. Knight 	 
	 	 	Chief Investment Officer 	 
	 
	 	FORESTAR MINERALS LLC,
a Delaware limited liability company

 	 
	 	By:  	/s/ Craig A. Knight
 	 
	 	 	Craig A. Knight 	 
	 	 	Chief Investment Officer 	 
	 



[SIGNATURES CONTINUED ON FOLLOWING PAGES]





 











 





	 	 	 	 	 
	 	FIRSTLAND INVESTMENT CORPORATION, 
a Texas corporation

 	 
	 	By:  	/s/ Craig A. Knight
 	 
	 	 	Craig A. Knight 	 
	 	 	Chief Investment Officer 	 
	 
	 	LIC VENTURES, INC.,
 a Delaware corporation

 	 
	 	By:  	/s/ Craig A. Knight
 	 
	 	 	Craig A. Knight 	 
	 	 	Chief Investment Officer 	 
	 
	 	FORESTAR REALTY INC.,

a Delaware corporation

 	 
	 	By:  	/s/ Craig A. Knight
 	 
	 	 	Craig A. Knight 	 
	 	 	Chief Investment Officer 	 
	 
	 	FORESTAR HOTEL HOLDING COMPANY INC.,
a Nevada corporation

 	 
	 	By:  	/s/ Craig A. Knight
 	 
	 	 	Craig A. Knight 	 
	 	 	Chief Investment Officer 	 
	 
	 	CAPITOL OF TEXAS INSURANCE GROUP INC., a Delaware corporation

 	 
	 	By:  	/s/ Craig A. Knight
 	 
	 	 	Craig A. Knight 	 
	 	 	Chief Investment Officer 	 
	 



[SIGNATURES CONTINUED ON FOLLOWING PAGES]




 









 








[Execution of Revolving and Term Credit Agreement Continued]




	 	 	 	 	 
	 	KEYBANK NATIONAL ASSOCIATION, as a 
Lender, as Swing Line Lender and as Agent

 	 
	 	By:  	/s/ Daniel L. Silbert
 	 
	 	 	Name:  	Daniel L. Silbert 	 
	 	 	Title:  	Sr. Banker 	 
	 



KeyBank National Association

1200 Abernathy Road, NE

Suite 1550

Atlanta, Georgia 30328

Attn: Daniel Silbert

Facsimile: (770) 510-2195




[SIGNATURES CONTINUED ON FOLLOWING PAGE]





 









 








[Execution of Revolving and Term Credit Agreement Continued]




	 	 	 	 	 
	 	AGFIRST FARM CREDIT BANK, as a lender

 	 
	 	By:  	/s/ John W. Burnside, Jr.
 	 
	 	 	Name:  	John W. Burnside, Jr. 	 
	 	 	Title:  	Vice President 	 
	 



[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]



KeyBank/Forestar — Revolving and Term Credit Agreement [AgFirst Farm Credit Bank] Signature Page




 









 








[Execution of Revolving and Term Credit Agreement Continued]




	 	 	 	 	 
	 	GENERAL ELECTRIC CAPITAL 
CORPORATION, as a lender

 	 
	 	By:  	/s/ Rebecca A. Ford
 	 
	 	 	Name:  	Rebecca A. Ford 	 
	 	 	Title:  	Duly Authorized Signatory 	 
	 



[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]



KeyBank/Forestar — Revolving and Term Credit Agreement [General Electric Capital Corporation] Signature Page




 









 








[Execution of Revolving and Term Credit Agreement Continued]




	 	 	 	 	 
	 	BANK OF AMERICA, N.A., as a lender

 	 
	 	By:  	/s/ Steven P. Renwick
 	 
	 	 	Name:  	Steven P. Renwick 	 
	 	 	Title:  	Senior Vice President 	 
	 



[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]



KeyBank/Forestar — Revolving and Term Credit Agreement [Bank of America] Signature Page




 









 








[Execution of Revolving and Term Credit Agreement Continued]




	 	 	 	 	 
	 	COMPASS BANK, a state banking 
association, as a lender

 	 
	 	By:  	/s/ Brian Tuerff
 	 
	 	 	Name:  	Brian Tuerff 	 
	 	 	Title:  	Senior Vice President 	 
	 



[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]



KeyBank/Forestar — Revolving and Term Credit Agreement [Compass Bank] Signature Page




 









 








[Execution of Revolving and Term Credit Agreement Continued]




	 	 	 	 	 
	 	AGCOUNTRY FARM CREDIT SERVICES, 
PCA, d/b/a FCS
COMMERCIAL  
FINANCIAL GROUP, as a lender

 	 
	 	By:  	/s/ Lisa Caswell
 	 
	 	 	Name:  	Lisa Caswell 	 
	 	 	Title:  	Assistant Vice President 	 
	 



[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]



KeyBank/Forestar — Revolving and Term Credit Agreement [AgCountry Farm Credit Services] Signature Page




 









 








[Execution of Revolving and Term Credit Agreement Continued]




	 	 	 	 	 
	 	U.S. BANK NATIONAL ASSOCIATION, as a lender

 	 
	 	By:  	/s/ John D. Kuykendall
 	 
	 	 	Name:  	John D. Kuykendall 	 
	 	 	Title:  	Vice President 	 
	 



[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]



KeyBank/Forestar — Revolving and Term Credit Agreement [U.S. Bank] Signature Page




 









 








[Execution of Revolving and Term Credit Agreement Continued]




	 	 	 	 	 
	 	ALLIED IRISH BANKS, p.l.c., as a lender

 	 
	 	By:  	/s/ Jean-Pierre Knight
 	 
	 	 	Name:  	Jean-Pierre Knight 	 
	 	 	Title:  	Vice President 	 



	 	 	 	 	 
	 	By:  	                                             /s/ Eanna Mulkere
 	 
	 	 	Name:  	Eanna Mulkere 	 
	 	 	Title:  	Assistant Vice President 	 
	 



[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]



KeyBank/Forestar — Revolving and Term Credit Agreement [Allied Irish] Signature Page




 









 








[Execution of Revolving and Term Credit Agreement Continued]




	 	 	 	 	 
	 	AMEGY BANK NATIONAL  
ASSOCIATION, as a lender

 	 
	 	By:  	/s/ Robert T. Caughlin
 	 
	 	 	Name:  	Robert T. Caughlin 	 
	 	 	Title:  	Assistant Vice President 	 
	 



[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]



KeyBank/Forestar — Revolving and Term Credit Agreement [Amegy] Signature Page




 









 








[Execution of Revolving and Term Credit Agreement Continued]




	 	 	 	 	 
	 	MERCANTILE TRUST & SAVINGS  
BANK, as a lender

 	 
	 	By:  	/s/ Michael F. Waters
 	 
	 	 	Name:  	Michael F. Waters 	 
	 	 	Title:  	Senior Vice President- 

Senior Commercial Lender 	 
	 



[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]



KeyBank/Forestar — Revolving and Term Credit Agreement [Mercantile of Illinois] Signature Page




 









 








[Execution of Revolving and Term Credit Agreement Continued]




	 	 	 	 	 
	 	CAPITAL FARM CREDIT, as a lender

 	 
	 	By:  	/s/ Robert P. Abbott
 	 
	 	 	Name:  	Robert P. Abbott 	 
	 	 	Title:  	President Corporate Lending 	 
	 



[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]



KeyBank/Forestar — Revolving and Term Credit Agreement [Capital Farm Credit] Signature Page




 









 








[Execution of Revolving and Term Credit Agreement Continued]




	 	 	 	 	 
	 	NORTHWEST FARM CREDIT SERVICES, PCA, 
 as a lender

 	 
	 	By:  	/s/ Carol Sobson
 	 
	 	 	Name:  	Carol Sobson 	 
	 	 	Title:  	Vice President 	 
	 


KeyBank/Forestar — Revolving and Term Credit Agreement [Capital Farm Credit] Signature Page