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Exhibit 10.7




FORESTAR REAL ESTATE GROUP INC.




DIRECTORS’ FEE DEFERRAL PLAN




ARTICLE 1




Definitions




     When used herein the following terms shall have the following meanings:



     1.1. “Account” means the Account maintained for each Participant in accordance with
the terms of Article 3 hereof.



     1.2. “Affiliate” means each trade or business, whether or not incorporated, that
together with the Company, is treated as a “single employer” under Section 414(b) or 414(c) of the
Code.



     1.3. “Administrator” means the Board or such person(s) as may be designated by the
Board to administer this Plan.



     1.4. “Board” means the Board of Directors of the Company.



     1.5. “Board Fees” means annual retainer fees (including Non-Executive Chair Retainer
Fees) and meeting fees payable to an Eligible Director with respect to the Eligible Director’s
service on the Board and/or one or more Board committees.



     1.6. “Change in Control” means the occurrence of a “change in control event” (within
the meaning of Section 409A of the Code) with respect to the Company.



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



     1.8. “Common Stock” means the common stock, $1.00 par value, of the Company and, in
the event such common stock is converted to another security or property, such other security or
property.



     1.9. “Company” means Forestar Real Estate Group Inc., a Delaware corporation, and its
successors by merger, sale of assets or otherwise.



     1.10. “Crediting Date” means the date on which Board Fees would have been paid to an
Eligible Director absent the Deferral Election covering such Board Fees.



     1.11. “Deferral Election” means an irrevocable election by an Eligible Director, made
on a form prescribed by the Administrator and delivered to the Administrator, to defer under this
Plan the receipt of all or a specified portion of Board Fees otherwise payable to the Eligible
Director. A Deferral Election shall be effective when the form is countersigned on behalf of the
Company.



 









 





     1.12. “Eligible Director” means a member of the Board who is not also an employee of
the Company or any of its Affiliates.



     1.13. “Fair Market Value” means, unless otherwise determined by the Administrator, the
closing price of a share of Common Stock on the New York Stock Exchange (“NYSE”) as of the relevant
date (or if the NYSE is not open on such date or the Common Stock is not traded on that day, the
most recent prior date that the NYSE was open for trading and the Common Stock was traded).



     1.14. “Matching Restricted Stock Units” means Matching Restricted Stock Units as
defined in Section 3.3 hereof.



     1.15. “Non-Executive Chair Retainer Fees” means Board Fees that are payable to an
Eligible Director with respect to the Eligible Director’s service on the Board as a non-executive
chairperson.



     1.16. “Participant” means an Eligible Director who files a Deferral Election or is
credited with Retainer Shares pursuant to the terms of the Plan.



     1.17. “Restricted Stock Units” means hypothetical shares of Common Stock credited to a
Participant’s Account having a value equal to the Fair Market Value of an equal number of shares of
Common Stock.



     1.18. “Plan” means the Forestar Real Estate Group Inc. Directors’ Fee Deferral Plan,
as set forth herein and amended from time to time.



     1.19. “Retainer Shares” means Restricted Stock Units credited to a Participant’s
Account pursuant to Section 2.2 hereof.



     1.20. “Separation from Service” means a “separation from service” (with the meaning of
Section 409A of the Code) from the Company and its Affiliates.



     1.21. “Stock Plan” means the Forestar Real Estate Group Inc. 2007 Stock Incentive Plan
and any other plan adopted by the Company that provides for the grant of stock options, phantom
stock, or restricted stock to members of the Board.



     1.22. “Unforeseeable Emergency” means an “unforeseeable emergency” within the meaning
of Section 409A of the Code.



ARTICLE 2




Participation; Deferred Board Fees




     2.1. Participation. Each Eligible Director shall be a Participant in this Plan.



     2.2. Retainer Shares. On the date of the first regularly scheduled Board meeting each
year, each Eligible Director’s Account shall be credited with a number of Restricted Stock Units
equal to the quotient obtained by dividing (a) $75,000 (effective



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January 1, 2008) by (b) the Fair Market Value of a share of Common Stock as of such date.




     2.3. Board Fee Deferrals. An Eligible Director may elect to defer hereunder the
receipt of all or a portion of Board Fees payable to the Eligible Director by filing with the
Administrator a Deferral Election prior to the start of the calendar year during which the Board
Fees covered by the Deferral Election will be paid. An Eligible Director who is a non-executive
chairperson, may, in a Deferral Election, make separate elections with respect to (a) Non-Executive
Chair Retainer Fees and (b) Board Fees other than Non-Executive Chair Retainer Fees. An Eligible
Director who defers Board Fees hereunder shall be credited with the number of Restricted Stock
Units provided for by Sections 3.2 and 3.3 hereof.



     2.4. Matching Restricted Stock Units. The Account of an Eligible Director who makes a
valid Deferral Election shall be credited with Matching Restricted Stock Units in accordance with
Section 3.3 hereof.



     2.5. Payment Elections. At the time an Eligible Director makes a Deferral Election,
or receives an annual credit of Retainer Shares pursuant to Section 2.2 hereof, or at such other
time(s) as may be authorized by the Administrator and permitted under Section 409A of the Code, a
Participant shall elect, in accordance with rules specified by the Administrator, to receive
payment of amounts credited to the Participant’s Account in a method of payment permitted under
Article 4 hereof.



ARTICLE 3




Accounts




     3.1. Establishment of Accounts. The Company shall establish and maintain in
accordance with this Article 3 a bookkeeping account for each Participant, which account shall
record and reflect the Retainer Shares credited to the Participant pursuant to Section 2.2 hereof,
Board Fees (other than Non-Executive Chair Retainer Fees) deferred hereunder by the Participant,
Non-Executive Chair Retainer Fees deferred hereunder by the Participant, and the Matching
Restricted Stock Units credited to the Participant (each such account being referred to herein as
an “Account”).



     3.2. Crediting of Board Fee Deferrals. The Account of each Participant who defers
Board Fees hereunder shall be credited with a number of Restricted Stock Units equal to the
quotient obtained by dividing (a) the amount of Board Fees covered by the Deferral Election by (b)
the Fair Market Value of a share of Common Stock as of such date.



     3.3. Matching Restricted Stock Units. A Participant’s Account shall be credited, as
of the Crediting Date of the Board Fees covered by a Deferral Election made by the Participant with
a number of Restricted Stock Units (“Matching Restricted Stock Units”) equal to the quotient
obtained by dividing (a) 50% of the amount of Board Fees covered by the Deferral Election
(excluding Non-Executive Chair Retainer Fees), by



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(b) the Fair Market Value of a share of Common Stock as of the Crediting Date of the Board Fees
covered by the Deferral Election.




     3.4. Payments. A Participant’s Account shall be reduced by any payments made to the
Participant, his or her beneficiary, estate, or representative.



     3.5. Adjustments. If any of the following events occur, the Administrator shall make
appropriate adjustments with respect to Restricted Stock Units credited to a Participant’s Account:
(a) any extraordinary dividend or other extraordinary distribution in respect of Common Stock
(whether in the form of cash, Common Stock, other securities or other property); (b) any
recapitalization, stock split (including a stock split in the form of a stock dividend), reverse
stock split, reorganization, merger, combination, consolidation, split-up, spin-off, combination,
repurchase or exchange of Common Stock or other securities of the Company; or (c) any other like
corporate transaction or event in respect of the Common Stock.



     3.6. Vesting of Accounts. Each Participant’s Account shall be fully vested and
nonforfeitable at all times.



     3.7. Board Fees Covered by Elections. For purposes of this Article 3, the amount of
Board Fees “covered” by a Deferral Election shall be the amount by which an Eligible Director’s
Board Fees are to be reduced by reason of a Deferral Election. If a Deferral Election covers less
than all of the Board Fees payable to an Eligible Director during a calendar year, the percentage
of each payment of each type of Board Fee during the calendar year that shall be treated as being
covered by the Deferral Election shall be equal to the percentage of total Board Fees of the same
type for the calendar year that is covered by the Deferral Election.



     3.8. No Funding of Benefits. All adjustments to a Participant’s Account shall be
bookkeeping entries only and shall not represent a special reserve or otherwise constitute a
funding of the Company’s unsecured promise to pay any amounts hereunder. To the extent a
Participant or any other person acquires a right to receive payments from the Company under this
Plan, such right shall be no greater than the right of any unsecured general creditor of the
Company, and such person shall have only the unsecured promise of the Company that such payments
shall be made.



ARTICLE 4




Payment of Deferred Compensation.




     4.1. Payment in Accordance with Elections. Subject to the terms of this Article 4, a
Participant’s Account shall be paid (or commence to be paid) to the Participant in the form of a
lump sum on or as soon as practicable following the Participant’s Separation from Service (but in
no event more than 60 days after such Separation From Service).



     4.2. Form of Payment. Payment with respect to Restricted Stock Units credited to a
Participant’s Account shall be paid in the form of shares of Common Stock,



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provided that if any such Restricted Stock Units represent a fractional share of Common Stock,
then in lieu thereof, the Fair Market Value of such fractional share on the date the payment is
calculated shall be paid in cash.




     4.3. Unforeseeable Emergency. The Administrator may accelerate payment of all or a
portion of a Participant’s Account upon the occurrence of an Unforeseeable Emergency. The amount
of such payment shall be limited to the amount reasonably necessary to satisfy the emergency need
(which may include amounts necessary to pay any federal, state or local income taxes or penalties
reasonably anticipated to result from such payment). The determination of whether a Participant
has experienced an Unforeseeable Emergency and the amount reasonably necessary to satisfy the
emergency need shall be based on all the facts and circumstances taking into consideration the
financial resources available to the Participant and shall be made in accordance with Section 409A
of the Code. If payment of less than all of a Participant’s Account is accelerated pursuant to
this Section 4.3, the accelerated payment shall be deducted proportionately from all amounts
credited to the Participant’s Account.



     4.4. Section 409A Mandatory Delay in Benefit Payments for Specified Employees.
Notwithstanding the preceding provisions of this Article 4, to the extent required by Section 409A
of the Code, the Administrator shall delay payment of the Account of a Participant who is a
“specified employee” (within the meaning of Section 409A of the Code) until the earlier of (a) the
date that is six months after the date of the Participant’s Separation From Service, or (b) the
date of the specified employee’s death. The aggregate amount of payment(s) otherwise payable
during the delay period (plus interest thereon at a rate equal to the simple average of the rate
for the last four reported quarters preceding the Participant’s Separation from Service under the
Vanguard U.S. Treasury Fund under the Temple-Inland Salaried Savings Plan or any successor thereto)
shall be payable to the specified employee upon the expiration of the delay period.



     4.5. Payment of Dividends. Not later than 30 days after the payment date of any cash
dividend or cash distribution declared on the Common Stock on or after January 1, 2008, the Company
shall pay to each Participant the amount of the dividend that would have been paid to the
Participant with respect to the Restricted Stock Units credited to the Participant’s Account if
such Restricted Stock Units were actual issued and outstanding shares of Common Stock held by the
Participant. Except as provided in this Section 4.5, no credits, distributions, or payments shall
be made with respect to Restricted Stock Units credited to Participants’ Accounts to reflect cash
dividends or cash distributions on Common Stock.



     4.6. Payment Upon Death. Notwithstanding Section 4.1, in the event of a Participant’s
death, the entire balance of the Participant’s Account shall be paid to the Participant (or the
Participant’s beneficiary, as determined in accordance with Section 6.2 hereof) in the form of a
single payment as soon as practicable after death (and in no event more than 90 days after death).



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     4.7. Withholding. The Company shall have the right to deduct from any payment to be
made pursuant to this Plan any federal, state or local taxes required by law to be withheld.



ARTICLE 5




Administration




     5.1. Administration. This Plan shall be administered by the Administrator. The
Administrator shall have all powers necessary to carry out the provisions of this Plan, including,
without reservation, the power to delegate administrative matters to other persons and to interpret
this Plan in its discretion.



ARTICLE 6




Miscellaneous




     6.1. Amendment and Termination of Plan. The Company may at any time by action of the
Board modify or amend, in whole or in part, any or all of the provisions of this Plan, or suspend
or terminate the Plan entirely. Upon termination of this Plan, no further Deferral Elections shall
be permitted and no further credits shall be made pursuant to Sections 2.2 or 3.3 hereof; provided,
however, that each Participant’s Account will be maintained and paid pursuant to the provisions of
this Plan and the Participant’s elections hereunder.



     6.2. Beneficiary Designation. Each Participant shall designate a beneficiary to whom
the Participant’s Account shall be payable on the Participant’s death. A Participant may also
designate an alternate beneficiary to receive such payment in the event that the designated
beneficiary cannot receive payment for any reason. In the event no designated or alternate
beneficiary can receive such payment for any reason, payment will be made to the Participant’s
surviving spouse, if any, or if the Participant has no surviving spouse, then to the following
beneficiaries if then living in the following order of priority: (a) to the Participant’s children
(including adopted children and stepchildren) in equal shares, (b) to the Participant’s parents in
equal shares, (c) to the Participant’s brothers and sisters in equal shares and (d) to the
Participant’s estate. A Participant may at any time change his or her beneficiary designation. A
change of beneficiary designation must be made in writing and delivered to the Administrator or its
designee for such purposes. The interest of any beneficiary who predeceases the Participant will
terminate unless otherwise specified by the Participant.



     6.3. Alienation of Benefits. A Participant’s rights under this Plan shall not be
subject in any manner to anticipation, alienation, sale, transfer, assignment pledge, encumbrance,
attachment, or garnishment by creditors of a Participant or any beneficiary.



     6.4. Restricted Stock Units Issued Under Stock Plans. Restricted Stock Units credited
to Participants’ Accounts under Article 3 shall constitute the grant of “Restricted Stock Units”
under the Stock Plan then in effect and under which stock-based awards are



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then being made, unless otherwise specified by the Administrator. Common Stock issued in
payment of Restricted Stock Units credited to Participants’ Accounts hereunder shall be issued
under the Stock Plan pursuant to which the applicable Restricted Stock Units were issued.




     6.5. Expenses. All expenses and costs in connection with the operation of the Plan
shall be borne by the Company.



     6.6. Rules of Construction. The singular shall include the plural unless the context
clearly indicates the distinction.



     6.7. Applicable Law. This Plan shall be construed and enforced in accordance with the
laws of the State of Texas except to the extent superseded by federal law.



     6.8. Headings. The headings of sections of this Plan are for convenience of reference
only and shall have no substantive effect on the provisions of this Plan.



     6.9. Compliance with Section 409A of the Code. The Plan is intended to comply with
the requirements of Section 409A of the Code, and the Administrator shall administer and interpret
the Plan in accordance with such requirements. If any provision of the Plan conflicts with the
requirements of Section 409A of the Code, the requirements of Section 409A of the Code shall
supersede any such Plan provision.




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