Amended
and Restated


Change
of Control Agreement





This
Amended and Restated Change of Control Agreement (the “Agreement”) between
Stratus Properties Inc., a Delaware corporation (the “Company”), and William H.
Armstrong III (the “Executive”) is dated effective as of January 26, 2007 (the
“Agreement Date”), as amended and restated effective December 30, 2008 (the
“Amendment Date”).




ARTICLE
I


Definitions




1.1  Board.  “Board”
shall mean the Board of Directors of the Company, or if after a Change of
Control, the Post-Transaction Corporation.




1.2  Cause.  “Cause”
shall mean:




(a)  The
Executive’s willful and continued failure to perform substantially the
Executive’s duties with the Post-Transaction Corporation or its Affiliates
(other than any such failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is delivered to the
Executive by the Board, which specifically identifies the manner in which the
Board believes that the Executive has not substantially performed the
Executive’s duties;




(b)  The
willful engaging by the Executive in conduct that is demonstrably and materially
injurious to the Post-Transaction Corporation or any or its Affiliates,
monetarily or otherwise; or




(c)  The final
conviction of the Executive or an entering of a guilty plea or a plea of no
contest by the Executive to a felony.




For
purposes of this provision, no act or failure to act, on the part of the
Executive, will be considered “willful” unless it is done, or omitted to be
done, by the Executive in bad faith or without a reasonable belief that the act
or omission was in the best interest of the Post-Transaction Corporation or its
Affiliates.  Any act, or failure to act, based on authority given
pursuant to a resolution duly adopted by the Board or the advice of counsel to
the Post-Transaction Corporation or its Affiliates will be conclusively presumed
to be done, or omitted to be done, by the Executive in good faith and in the
best interests of the Post-Transaction Corporation or its
Affiliates.  The termination of employment of the Executive will not
be deemed to be for Cause unless and until there has been delivered to the
Executive a copy of a resolution duly adopted by the affirmative vote of not
less than three-quarters of the entire membership of the Board at a meeting of
the Board called and held for such purpose (after reasonable notice is provided
to the Executive and the Executive is given an opportunity, together with
counsel, to be heard before the Board), finding that, in the good faith opinion
of the Board, the Executive has engaged in the conduct described in subparagraph
(a), (b) or (c) above, and specifying the particulars of such
conduct.










1.3  Change of
Control.  (a)  “Change of Control” means (capitalized
terms not otherwise defined will have the meanings ascribed to them in paragraph
(b) below):




(i)  the
acquisition by any Person together with all Affiliates of such Person, of
Beneficial Ownership of the Threshold Percentage or more; provided, however,
that for purposes of this Section 1.3(a)(i), the following will not constitute a
Change of Control:




(A)  any
acquisition (other than a “Business Combination,” as defined below, that
constitutes a Change of Control under Section 1.3(a)(iii) hereof) of Common
Stock directly from the Company,




(B)  any
acquisition of Common Stock by the Company or its subsidiaries,




(C)  any
acquisition of Common Stock by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation or other entity
controlled by the Company, or




(D)  any
acquisition of Common Stock pursuant to a Business Combination that does not
constitute a Change of Control under Section 1.3(a)(iii) hereof; or




(ii)  individuals
who, as of the effective date of this Agreement, constitute the Board (the
“Incumbent Board”) cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the effective date of this Agreement whose election, or nomination for election
by the Company’s shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board will be considered a member of
the Incumbent Board, unless such individual’s initial assumption of office
occurs as a result of an actual or threatened election contest with respect to
the election or removal of directors or any other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Incumbent Board; or




(iii)  the
consummation of a reorganization, merger or consolidation (including a merger or
consolidation of the Company or any direct or indirect subsidiary of the
Company), or sale or other disposition of all or substantially all of the assets
of the Company (a “Business Combination”), in each case, unless, immediately
following such Business Combination:




(A)  the
individuals and entities who were the Beneficial Owners of the Company Voting
Stock immediately prior to such Business Combination have direct or indirect
Beneficial Ownership of more than 50% of the then outstanding shares of common
stock, and more than 50% of the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of directors, of
the Post-Transaction Corporation, and




(B)  no Person
together with all Affiliates of such Person (excluding the Post-Transaction
Corporation and any employee benefit plan or related trust of either the
Company, the Post-Transaction Corporation or any subsidiary of either
corporation) Beneficially Owns 30% or more of the then outstanding shares of
common stock of the Post-




2


Transaction
Corporation or 30% or more of the combined voting power of the then outstanding
voting securities of the Post-Transaction Corporation, and




(C)  at least
a majority of the members of the board of directors of the Post-Transaction
Corporation were members of the Incumbent Board at the time of the execution of
the initial agreement, and of the action of the Board, providing for such
Business Combination; or




(iv)  approval
by the shareholders of the Company of a complete liquidation or dissolution of
the Company.




(b)  As used
in this Section 1.3 and elsewhere in this Agreement, the following terms have
the meanings indicated:




(i)  Affiliate:  “Affiliate”
means a Person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, another
specified Person.




(ii)  Beneficial
Owner:  “Beneficial Owner” (and variants thereof), with respect to a
security, means a Person who, directly or indirectly (through any contract,
understanding, relationship or otherwise), has or shares (A) the power to vote,
or direct the voting of, the security, and/or (B) the power to dispose of, or to
direct the disposition of, the security.




(iii)  Company
Voting Stock:  “Company Voting Stock” means any capital stock of the
Company that is then entitled to vote for the election of
directors.




(iv)  Majority
Shares:  “Majority Shares” means the number of shares of Company
Voting Stock that could elect a majority of the directors of the Company if all
directors were to be elected at a single meeting.




(v)  Person:  “Person”
means a natural person or entity, and will also mean the group or syndicate
created when two or more Persons act as a syndicate or other group (including
without limitation a partnership, limited partnership, joint venture or other
joint undertaking) for the purpose of acquiring, holding, or disposing of a
security, except that “Person” will not include an underwriter temporarily
holding a security pursuant to an offering of the security.




(vi)  Post-Transaction
Corporation:  Unless a Change of Control includes a Business
Combination, “Post-Transaction Corporation” means the Company after the Change
of Control.  If a Change of Control includes a Business Combination,
“Post-Transaction Corporation” will mean the corporation or other entity
resulting from the Business Combination unless, as a result of such Business
Combination, an ultimate parent entity controls the Company or all or
substantially all of the Company’s assets either directly or indirectly, in
which case, “Post-Transaction Corporation” will mean such ultimate parent
entity.




(vii)  Threshold
Percentage:  “Threshold Percentage” means 30% of all then outstanding
Company Voting Stock.




3




1.4  Code.  “Code” shall
mean the Internal Revenue Code of 1986, as amended from time to
time.




1.5  Common
Stock:  “Common Stock” shall mean the common stock, $0.01 par
value per share, of the Company.




1.6  Company.  As used in
this Agreement, “Company” shall mean the Company as defined above and any
successor to or assignee of (whether direct or indirect, by purchase, merger,
consolidation or otherwise) all or substantially all of the assets of the
Company.




1.7  Disability.  “Disability”
shall mean:




(a)  A
disability entitling the Executive to receive benefits under a long-term
disability insurance policy maintained by the Post-Transaction Corporation or an
Affiliate in effect at the time either because he is totally disabled or
partially disabled, as such terms are defined in such policy in effect as of the
Agreement Date or as similar terms are defined in any successor
policy.




(b)  If there
is no long-term disability plan in effect covering the Executive, and if (i) a
physical or mental illness renders the Executive incapable of satisfactorily
discharging his duties and responsibilities to the Post-Transaction Corporation
or an Affiliate for a period of 90 consecutive days, and (ii) such incapacity is
certified in writing by a duly qualified physician chosen by the
Post-Transaction Corporation or an Affiliate and reasonably acceptable to the
Executive or his legal representatives, then the Board will have the power to
determine that the Executive has become disabled.  If the Board makes
such a determination, the Post-Transaction Corporation or its Affiliate will
have the continuing right and option, during the period that such disability
continues, and by notice given in the manner provided in this Agreement, to
terminate the status of Executive as an officer and employee.  Any
such termination will become effective 60 days after such notice of termination
is given, unless within such 60-day period, the Executive becomes capable of
rendering services of the character contemplated hereby (and a physician chosen
by the Post-Transaction Corporation or an Affiliate and reasonably acceptable to
the Executive or his legal representatives so certifies in writing) and the
Executive in fact resumes such services.




(c)  The
“Disability Effective Date” will mean the date on which termination of
Executive’s status as an officer and employee becomes effective due to
Disability.




1.8  Good Reason.  “Good
Reason” shall mean:




(a)  Any
failure of the Post-Transaction Corporation to provide the Executive with the
position, authority, duties and responsibilities at least commensurate in all
material respects with the most significant of those held, exercised and
assigned at any time during the 120-day period immediately preceding the Change
of Control.  Executive’s position, authority, duties and
responsibilities after a Change of Control shall not be considered commensurate
in all material respects with Executive’s position, authority, duties and
responsibilities prior to a Change of Control unless after the Change of Control
the Executive holds an equivalent position in the Post-Transaction
Corporation;




4




(b)  The
assignment to the Executive of any duties inconsistent in any material respect
with Executive’s position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as contemplated by Section
2.1(b) of this Agreement, or any other action that results in a diminution in
such position, authority, duties or responsibilities, excluding for this purpose
an isolated, insubstantial and inadvertent action not taken in bad faith that is
remedied within 10 days after receipt of written notice thereof from the
Executive to the Post-Transaction Corporation;




(c)  Any
failure by the Post-Transaction Corporation or its Affiliates to comply with any
of the provisions of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith that is remedied within 10 days
after receipt of written notice thereof from the Executive to the
Post-Transaction Corporation; or




(d)  The
Post-Transaction Corporation or its Affiliates requiring the Executive to be
based at any office or location other than as provided in Section 2.1(b)(ii)
hereof or requiring the Executive to travel on business to a substantially
greater extent than required immediately prior to the Change of
Control.




For
purposes of this Section 1.4, any determination of “Good Reason” made by the
Executive in good faith and based upon his reasonable belief and understanding
shall be conclusive.





1.9  Termination
Date.  “Termination Date” shall mean, if Executive’s status as
an officer and employee is terminated (i) by reason of Executive’s death, the
date of Executive’s death, (ii) by reason of Disability, the Disability
Effective Date, (iii) by the Company other than by reason of death or
Disability, the date of delivery of the notice of termination or any later date
specified in the notice of termination, which date will not be more than 30 days
after the giving of the notice, or (iv) by the Executive other than by reason of
death, the date of delivery of the notice of termination or any later date
specified in the notice of termination, which date will not be more than 30 days
after the giving of the notice.




ARTICLE
II


Change
of Control Benefit




2.1  Employment Term and Capacity after
Change of Control.  (a)  This Agreement shall
commence on the Agreement Date and continue in effect through January 26,
2010.  If the Executive continues to serve as an officer of the
Company and a Change of Control occurs on or before January 26, 2010, then the
Executive’s employment term (the “Employment Term”) shall continue through the
later of the third anniversary of the Change of Control, subject to any earlier
termination of Executive’s status as an officer and employee pursuant to this
Agreement.




(b)  After a
Change of Control and during the Employment Term, (i) the Executive’s position
(including status, offices, titles and reporting requirements), authority,
duties and responsibilities shall be at least commensurate in all material
respects with the most significant of those held, exercised and assigned at any
time during the 120-day period immediately preceding the Change of Control and
(ii) the Executive’s services shall be performed at the location where the
Executive was employed immediately preceding the Change




5




of
Control or any office or location less than 35 miles from such
location.  Executive’s position, authority, duties and
responsibilities after a Change of Control shall not be considered commensurate
in all material respects with Executive’s position, authority, duties and
responsibilities prior to a Change of Control unless after the Change of Control
the Executive holds an equivalent position in the Post-Transaction
Corporation.




2.2  Compensation and
Benefits.  During the Employment Term, the Executive shall be
entitled to the following compensation and benefits:




(a)  Salary.  An
annual salary (“Base Salary”) at the highest rate in effect for the Executive at
any time during the 120-day period immediately preceding the Change of Control,
payable to the Executive at such intervals no less frequent than the most
frequent intervals in effect at any time during the 120-day period immediately
preceding the Change of Control or, if more favorable to the Executive, the
intervals in effect at any time after the Change of Control for other most
senior executives of the Post-Transaction Corporation and its
Affiliates.




(b)  Bonus.  Executive
shall be entitled to participate in an annual incentive bonus program applicable
to other most senior executives of the Post-Transaction Corporation and its
Affiliates but in no event shall such program provide the Executive with
incentive opportunities less favorable than the most favorable of those provided
by the Company and its Affiliates for the Executive under the Company’s annual
cash plan as in effect for Executive at any time during the 120-day period
immediately preceding the Change of Control or, if more favorable to the
Executive, those provided generally at any time after the Change of Control to
other most senior executives of the Post-Transaction Corporation and its
Affiliates.  Any such bonus shall be paid in cash no later than two
and a half months following the close of the fiscal year for which it is
earned.




(c)  Fringe
Benefits.  The Executive shall be entitled to fringe benefits
(including, but not limited to, automobile allowance, air travel, and
reimbursement for club membership dues) in accordance with the most favorable
agreements, plans, practices, programs and policies of the Company and its
Affiliates in effect for the Executive at any time during the 120-day period
immediately preceding the Change of Control or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
most senior executives of the Post-Transaction Corporation and its
Affiliates.




(d)  Expenses.  The
Executive shall be entitled to receive prompt reimbursement for all reasonable
business expenses (including food and lodging) incurred by the Executive in
accordance with the most favorable agreements, policies, practices and
procedures of the Company and its Affiliates in effect for the Executive at any
time during the 120-day period immediately preceding the Change of Control or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other most senior executives of the Post-Transaction
Corporation and its Affiliates.




(e)  Incentive, Savings and
Retirement Plans.  The Executive shall be entitled to
participate in all incentive, savings and retirement plans, practices, policies
and programs applicable generally to other most senior executives of the
Post-Transaction Corporation and its




6




Affiliates,
but in no event shall such plans, practices, policies and programs provide the
Executive with incentive opportunities (measured with respect to both regular
and special incentive opportunities, to the extent, if any, that such
distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable than the most favorable of those
provided by the Company and its Affiliates for the Executive under any
agreements, plans, practices, policies and programs as in effect at any time
during the 120-day period immediately preceding the Change of
Control.




(f)  Welfare Benefit
Plans.  The Executive and the Executive’s family shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Post-Transaction
Corporation and its Affiliates (including, without limitation, medical,
prescription, dental, disability, employee life, group life, accidental death
and travel accident insurance plans and programs) to the extent applicable
generally to other most senior executives of the Post-Transaction Corporation
and its Affiliates, but in no event shall such plans, practices, policies and
programs provide the Executive with benefits, in each case, less favorable than
the most favorable of any agreements, plans, practices, policies and programs of
the Company and its Affiliates in effect for the Executive at any time during
the 120-day period immediately preceding the Change of Control.




(g)  Indemnification and
Insurance.  The Post-Transaction Corporation shall indemnify
the Executive, to the fullest extent permitted by applicable law, for any and
all claims brought against him arising out his services during or prior to the
Employment Term.  In addition, the Post-Transaction Corporation shall
maintain a directors’ and officers’ insurance policy covering the Executive
substantially in the form of the policy maintained by the Company and its
Affiliates at any time during the 120-day period immediately preceding the
Change of Control or, if more favorable to the Executive, as provided generally
at any time thereafter with respect to other most senior executives of the
Post-Transaction Corporation and its Affiliates.




(h)  Office and Support
Staff.  The Executive shall be entitled to an office or offices
of a size and with furnishings and other appointments, and to exclusive personal
secretarial and other assistance, at least equal to the most favorable of the
foregoing provided to the Executive by the Company and its Affiliates at any
time during the 120-day period immediately preceding the Change of Control or,
if more favorable to the Executive, as provided generally at any time thereafter
with respect to other most senior executives of the Post-Transaction Corporation
and its Affiliates.




(i)  Vacation.  The
Executive shall be entitled to paid vacation in accordance with the most
favorable agreements, plans, policies, programs and practices of the Company and
its Affiliates as in effect for the Executive at any time during the 120-day
period immediately preceding the Change of Control or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
most senior executives of the Post-Transaction Corporation and its
Affiliates.




2.3  Obligations upon Termination after a
Change of Control.




(a)  Termination as a Result of
Death, Disability or Retirement.  If, after a Change of Control
and during the Employment Term, (1) the Executive’s status as an officer and




7




employee
is terminated by reason of the Executive’s death, (2) the Post-Transaction
Corporation terminates the Executive’s status as an officer and employee by
reason of Executive’s Disability, or (3) the Executive retires and terminates
his status as an officer and employee, then, subject to Section 2.3(f) and, if
applicable, the six-month delay set forth in Section 2.7:




(i)  The
Post-Transaction Corporation or an Affiliate will pay to the Executive or his
legal representatives the Executive’s Base Salary earned through the Termination
Date to the extent not previously paid (the “Accrued Salary”);




(ii)  The
Post-Transaction Corporation or an Affiliate will pay to the Executive or his
legal representatives a pro rata bonus in an amount determined by calculating
the average of the annual bonus received by the Executive in the three most
recently completed fiscal years prior to the Termination Date, then multiplying
such bonus amount by the fraction obtained by dividing the number of days in the
year through the Termination Date by 365 (the “Pro Rata Bonus”);
and




(iii)  The
Post-Transaction Corporation or an Affiliate will pay or deliver, as
appropriate, all other benefits earned by the Executive or accrued for his
benefit pursuant to any employee benefit plans maintained by the
Post-Transaction Corporation or its Affiliates with respect to services rendered
by the Executive prior to the Termination Date.




(b)  Termination by Company for
Cause; by Executive for other than Good Reason.  If, after a
Change of Control and during the Employment Term, the Executive’s status as an
officer and employee is terminated by the Post-Transaction Corporation or an
Affiliate for Cause, or by the Executive for other than Good Reason, the
Post-Transaction Corporation or Affiliate will pay to the Executive the Accrued
Salary without further obligation to the Executive other than for obligations by
law and obligations for any benefits earned by the Executive or accrued for his
benefit pursuant to any employee benefit plans maintained by the
Post-Transaction Corporation or Affiliate with respect to services rendered by
the Executive prior to the Termination Date.




(c)  Termination by Company for
Reasons other than Death, Disability or Cause; by Executive for Good
Reason.  If, after a Change of Control and during the
Employment Term, (1) the Post-Transaction Corporation or an Affiliate terminates
the Executive’s status as an officer and employee other than for Cause, death or
Disability, or (2) the Executive terminates his status as an officer and
employee for Good Reason, then, subject to Section 2.3(f):




(i)  The
Post-Transaction Corporation or an Affiliate will pay to the Executive the
Accrued Salary;




(ii)  The
Post-Transaction Corporation or an Affiliate will pay to the Executive in a lump
sum in cash on the first business day that is more than six months after the
Termination Date (A) the Pro Rata Bonus, and (B) an amount equal to 2.99 times
the sum of (x) the Executive’s Base Salary in effect at the Termination Date and
(y) the highest annual bonus awarded to the Executive during the three fiscal
years immediately preceding the Termination Date (excluding any payments for
long-term incentives);




8




(iii)  For the
period commencing on the Termination Date and ending on the earlier of (A)
December 31st of the
first calendar year following the calendar year in which the Termination Date
occurs, or (B) the date that the Executive accepts new employment (the
“Continuation Period”), the Post-Transaction Corporation or an Affiliate will at
its expense maintain and administer for the continued benefit of Executive all
insurance and welfare benefit plans in which Executive was entitled to
participate as an employee as of the Termination Date; provided that Executive’s
continued participation is possible under the general terms and provisions of
such plans and all applicable laws.  If the Executive is a “specified
employee” governed by Section 2.7 hereof, to the extent that any benefits
provided to the Executive under this Section 2.3(c)(iii) are taxable to the
Executive, then, with the exception of nontaxable medical insurance benefits,
the value of the aggregate amount of such taxable benefits provided to the
Executive pursuant to this Section 2.3(c)(iii) during the six month period
following the Termination Date shall be limited to the amount specified by
Section 402(g)(1)(B) of Code for the year in which the termination
occurred.  The Executive shall pay the cost of any benefits that
exceed the amount specified in the previous sentence during the six month period
following the date of termination, and shall be reimbursed in full by the
Company during the seventh month after the Termination Date.  The
coverage and benefits (including deductibles and costs) provided under any such
benefit plan in accordance with this paragraph during the Continuation Period
will be no less favorable to Executive than the most favorable of such coverages
and benefits as of the Termination Date.  If Executive’s participation
in any such benefit plan is barred or any such benefit plan is terminated, the
Post-Transaction Corporation or its Affiliate will provide Executive with
benefits substantially similar or comparable in value to those Executive would
otherwise have been entitled to receive under such plans.  At the end
of the Continuation Period, the Executive will have the option to have assigned
to him, at no cost and with no apportionment of prepaid premiums, any assignable
insurance owned by the Post-Transaction Corporation or its Affiliate that
relates specifically to the Executive.  To the maximum extent
permitted by law, the Executive will be eligible for coverage under COBRA at the
end of the Continuation Period or earlier cessation of the Post-Transaction
Corporation’s obligation under the foregoing provisions of this
paragraph;




(iv)  All
benefits that the Executive is entitled to receive pursuant to benefit plans
maintained by the Post-Transaction Corporation or an Affiliate under which
benefits are calculated based upon years of service or age will be calculated by
treating the Executive as having attained two additional years of age and as
having provided two additional years of service as of the Termination Date;
and




(v)  The
Post-Transaction Corporation or an Affiliate will pay or deliver, as
appropriate, all other benefits earned by the Executive or accrued for his
benefit pursuant to any employee benefit plans maintained by the
Post-Transaction Corporation or Affiliate with respect to services rendered by
the Executive prior to the Termination Date.




(d)  Resignation from Board of
Directors.  If the Executive is a director of the
Post-Transaction Corporation or any of its Affiliates and his status as an
officer and employee is terminated for any reason other than death, the
Executive will, if requested by the Post-Transaction Corporation, immediately
resign as a director of the Post-Transaction Corporation and its
Affiliates.  If such resignation is not received within 20 business
days after the Executive actually receives written notice from the
Post-Transaction Corporation requesting the




9




resignation,
the Executive will forfeit any right to receive any payments pursuant to this
Agreement.




(e)  Nondisclosure and
Proprietary Rights.  The rights and obligations of the Company
and the Executive contained in Article III hereof will continue to apply
notwithstanding a termination following a Change of Control.




(f)  Most Favorable
Benefits.  It is the intention of the parties that the terms of
this Agreement provide payments and benefits to the Executive that are
equivalent or more beneficial to the Executive than are otherwise available to
the Executive under the terms of any applicable benefit plan or related
compensation agreement.  To that end, the terms of the Agreement shall
govern the payments and benefits to which the Executive shall be entitled upon
the termination of the Executive’s status as an officer and employee as provided
herein, except that if the terms of any applicable benefit plan or related
compensation agreement provide more favorable benefits to the Executive than are
provided hereunder, the terms of such plan or agreement shall
control.




2.4  Excise Tax
Provision.




(a)  Notwithstanding
any other provisions of this Agreement, if a Change of Control occurs during the
original or extended term of this Agreement, in the event that any payment or
benefit received or to be received by the Executive in connection with the
Change of Control of the Company or the termination of the Executive’s
employment under this Agreement or any other agreement between the Company and
the Executive (all such payments and benefits, including the payments and
benefits under Section 2.3(c) hereof, being hereinafter called “Total Payments”)
would be subject (in whole or in part), to an excise tax imposed by section 4999
of the Code (the “Excise Tax”), then the cash payments under Section 2.3(c)
hereof shall first be reduced, and the noncash payments and benefits under the
other sections hereof shall thereafter be reduced, to the extent necessary so
that no portion of the Total Payments is subject to the Excise Tax but only if
(A) the net amount of such Total Payments, as so reduced (and after subtracting
the net amount of federal, state and local income and employment taxes on such
reduced Total Payments) is greater than or equal to (B) the net amount of such
Total Payments without such reduction (but after subtracting the net amount of
federal, state and local income and employment taxes on such Total Payments and
the amount of Excise Tax to which the Employee would be subject in respect of
such unreduced Total Payments); provided, however, that the Executive may elect
to have the noncash payments and benefits hereof reduced (or eliminated) prior
to any reduction of the cash payments under Section 2.3(c) hereof.




(b)  For
purposes of determining whether and the extent to which the Total Payments will
be subject to the Excise Tax, (i) no portion of the Total Payments the receipt
or enjoyment of which the Executive shall have waived at such time and in such
manner as not to constitute a “payment” within the meaning of section 280G(b) of
the Code shall be taken into account, (ii) no portion of the Total Payments
shall be taken into account which, in the opinion of tax counsel (“Tax Counsel”)
reasonably acceptable to the Executive and selected by the accounting firm (the
“Auditor”) which was, immediately prior to a Change of Control or other event
giving rise to a potential Excise Tax, the Company’s independent auditor, does
not constitute a “parachute payment” within the meaning of section 280G(b)(2) of
the Code




10




(including
by reason of section 280G(b)(4)(A) of the Code) and, in calculating the Excise
Tax, no portion of such Total Payments shall be taken into account which, in the
opinion of Tax Counsel, constitutes reasonable compensation for services
actually rendered, within the meaning of section 280G(b)(4)(B) of the Code, in
excess of the “Base Amount” (within the meaning set forth in section 280G(b)(3)
of the Code) allocable to such reasonable compensation, and (iii) the value of
any non-cash benefit or any deferred payment or benefit included in the Total
Payments shall be determined by the Auditor in accordance with the principles of
sections 280G(d)(3) and (4) of the Code.




(c)  At the
time that payments are made under this Agreement, the Post-Transaction
Corporation shall provide the Executive with a written statement setting forth
the manner in which such payments were calculated and the basis for such
calculations including, without limitation, any opinions or other advice the
Post-Transaction Corporation has received from Tax Counsel, the Auditor or other
advisors or consultants (and any such opinions or advice which are in writing
shall be attached to the statement).




2.5  Stock Options; Restricted Stock
Units.  The foregoing benefits are intended to be in addition
to the value of any options to acquire Common Stock of the Company, the
exercisability of which is accelerated pursuant to the terms of any stock option
agreement, any restricted stock units the vesting of which is accelerated
pursuant to the terms of the restricted stock unit agreement, and any other
incentive or similar plan heretofore or hereafter adopted by the
Company.




2.6  Legal Fees.  The
Company agrees to pay as incurred all legal fees and expenses that the Executive
may reasonably incur as a result of any contest (regardless of the outcome
thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement
(including as a result of any contest by the Executive about the amount or
timing of any payment pursuant to this Agreement).




2.7  Section 409A of the Internal Revenue
Code.




(a)  It is the
intention of the parties that payments or benefits payable under this Agreement
not be subject to the additional tax imposed pursuant to Section 409A of the
Internal Revenue Code of 1986, as amended, and the regulations and guidance
issued thereunder (together, “Section 409A”), and the provisions of this
Agreement shall be construed and administered in accordance with such
intent.  To the extent any potential payments or benefits could become
subject to Section 409A, the parties shall cooperate to amend this Agreement
with the goal of giving the Executive the economic benefits described herein in
a manner that does not result in such tax being imposed.  If the
parties are unable to agree on a mutually acceptable amendment, the Company may,
without the Executive’s consent and in such manner as it deems appropriate,
amend or modify this Agreement or delay the payment of any amounts hereunder to
the minimum extent necessary to meet the requirements of Section
409A.




(b)  No
payments or benefits provided herein that are paid because of a termination of
employment under circumstances described herein shall be paid, unless such
termination of employment also constitutes a “separation from service” within
the meaning of “Section 409A”).




11




(c)  If
Executive is a “specified employee,” any payments payable as a result of
Executive’s termination of employment (other than as a result of death) shall
not be payable before the earlier of (i) the first business day that is more
than six months after Executive’s Termination Date, (ii) the date of Executive’s
death, or (iii) the date that otherwise complies with the requirements of
Section 409A.  “Specified employee” shall mean the Executive if the
Executive is a key employee under Treasury Regulations Section 1.409A-1(i)
because of final and binding action taken by the Board or its Corporate
Personnel Committee, or by operation of law or such regulation.




(d)  No
acceleration of payments and benefits provided for in this Agreement shall be
permitted, except that the Company may accelerate payment, if permitted by
Section 409A, as necessary to allow the Executive to pay FICA taxes on amounts
payable hereunder and additional taxes resulting from the payment of such FICA
amount, or as necessary to pay taxes and penalties arising as a result of the
payments provided for in this Agreement failing to meet the requirements of
Section 409A.  In no event shall the Executive, directly or
indirectly, designate the calendar year of payment.




(e)  To the
extent that the amounts payable under this Article II are reimbursements and
other separation payments described under Treasury Regulations Section
1.409A-1(b)(9)(v), such payments do not provide for the deferral of
compensation.  If they do constitute deferral of compensation governed
by Section 409A, they shall be deemed to be reimbursements or in-kind benefits
governed by Treasury Regulations Section 1.409A-3(i)(1)(iv).  If the
previous sentence applies, (i) the amount of expenses eligible for reimbursement
or in-kind benefits provided during the Executive’s taxable year shall not
affect the expenses eligible for reimbursement or in-kind benefits in any other
taxable year, (ii) the reimbursement of an eligible expense must be made on or
before the last day of the Executive’s taxable year following the taxable year
in which the expense was incurred and (iii) the right to reimbursement or
in-kind benefits shall not be subject to liquidation or exchange for another
benefit.




ARTICLE
III


Nondisclosure
and Proprietary Rights




3.1  Confidential
Information.  For purposes of this Agreement, the term
“Confidential Information” means any information, knowledge or data of any
nature and in any form (including information that is electronically transmitted
or stored on any form of magnetic or electronic storage media) relating to the
past, current or prospective business or operations of the Company and its
Affiliates, that at the time or times concerned is not generally known to
persons engaged in businesses similar to those conducted or contemplated by the
Company and its Affiliates (other than information known by such persons through
a violation of an obligation of confidentiality to the Company), whether
produced by the Company and its Affiliates or any of their consultants, agents
or independent contractors or by Executive, and whether or not marked
confidential, including without limitation information relating to the Company’s
or its Affiliates’ products and services, business plans, business acquisitions,
processes, product or service research and development ideas, methods or
techniques, training methods and materials, and other operational methods or
techniques, quality assurance procedures or standards, operating procedures,
files, plans, specifications, proposals, drawings, charts, graphs, support




12




data,
trade secrets, supplier lists, supplier information, purchasing methods or
practices, distribution and selling activities, consultants’ reports, marketing
and engineering or other technical studies, maintenance records, employment or
personnel data, marketing data, strategies or techniques, financial reports,
budgets, projections, cost analyses, price lists, formulae and analyses,
employee lists, customer records, customer lists, customer source lists,
proprietary computer software, and internal notes and memoranda relating to any
of the foregoing.




3.2  Nondisclosure of Confidential
Information.  Executive will hold in a fiduciary capacity for
the benefit of the Company all Confidential Information obtained by Executive
during Executive’s employment (whether prior to or after the Agreement Date) and
will use such Confidential Information solely within the scope of his employment
with and for the exclusive benefit of the Company.  For a period of
five years after the Termination Date, Executive agrees (a) not to communicate,
divulge or make available to any person or entity (other than the Company) any
such Confidential Information, except upon the prior written authorization of
the Company or as may be required by law or legal process, and (b) to deliver
promptly to the Company any Confidential Information in his possession,
including any duplicates thereof and any notes or other records Executive has
prepared with respect thereto.  In the event that the provisions of
any applicable law or the order of any court would require Executive to disclose
or otherwise make available any Confidential Information, Executive will give
the Company prompt prior written notice of such required disclosure and an
opportunity to contest the requirement of such disclosure or apply for a
protective order with respect to such Confidential Information by appropriate
proceedings.




3.3  Injunctive Relief; Other
Remedies.  Executive acknowledges that a breach by Executive of
Section 3.2 would cause immediate and irreparable harm to the Company for which
an adequate monetary remedy does not exist; hence, Executive agrees that, in the
event of a breach or threatened breach by Executive of the provisions of Section
3.2, the Company will be entitled to injunctive relief restraining Executive
from such violation without the necessity of proof of actual damage or the
posting of any bond, except as required by non waivable, applicable
law.  Nothing herein, however, will be construed as prohibiting the
Company from pursuing any other remedy at law or in equity to which the Company
may be entitled under applicable law in the event of a breach or threatened
breach of this Agreement by Executive, including without limitation the recovery
of damages and/or costs and expenses, such as reasonable attorneys’ fees,
incurred by the Company as a result of any such breach or threatened
breach.  In addition to the exercise of the foregoing remedies, the
Company will have the right upon the occurrence of any such breach to offset the
damages of such breach as determined by the Company, against any unpaid salary,
bonus, commissions or reimbursements otherwise owed to Executive.  In
particular, Executive acknowledges that the payments provided under Article II
are conditioned upon Executive fulfilling the nondisclosure agreements contained
in this Article III.  If Executive at any time materially breaches
nondisclosure agreements contained in this Article III, then the Company may
offset the damages of such breach, as determined solely by the Company, against
payments otherwise due to Executive under Article II or, at the Company’s
option, suspend payments otherwise due to Executive under Article II during the
period of such breach.  Executive acknowledges that any such offset or
suspension of payments would be an exercise of the Company’s right to offset or
suspend its performance hereunder upon Executive’s breach of this Agreement;
such offset or suspension of payments would not constitute, and shall not be
characterized as, the imposition of liquidated damages.




13




3.4  Governing Law of this Article III;
Consent to Jurisdiction.  Any dispute regarding the
reasonableness of the covenants and agreements set forth in this Article III or
duration thereof, or the remedies available to the Company upon any breach of
such covenants and agreements, will be governed by and interpreted in accordance
with the laws of the State of the United States or other jurisdiction in which
the alleged prohibited disclosure occurs, and, with respect to each such
dispute, the Company and Executive each hereby consent to the jurisdiction of
the state and federal courts sitting in the relevant State (or, in the case of
any jurisdiction outside the United States, the relevant courts of such
jurisdiction) for resolution of such dispute, and agree that service of process
may be made upon him or it in any legal proceeding relating to this Article III
by any means allowed under the laws of such jurisdiction.




3.5  Executive’s Understanding of this
Article.  Executive hereby represents to the Company that he
has read and understands, and agrees to be bound by, the terms of this Article
III.  Executive acknowledges that the duration of the covenants
contained in Article III are the result of arm’s length bargaining and are fair
and reasonable in light of (a) the importance of the functions performed by
Executive and the length of time it would take the Company to find and train a
suitable replacement, and (b) Executive’s level of control over and contact with
the business and operations of the Company and its Affiliates in various
jurisdictions where same are conducted.  It is the desire and intent
of the parties that the provisions of this Agreement be enforced to the fullest
extent permitted under applicable law, whether now or hereafter in effect and,
therefore, to the extent permitted by applicable law, the parties hereto waive
any provision of applicable law that would render any provision of this Article
III invalid or unenforceable.




ARTICLE
IV


Miscellaneous




4.1  Binding Effect;
Successors.




(a)  This
Agreement shall be binding upon and inure to the benefit of the Company and any
of its successors or assigns.




(b)  This
Agreement is personal to the Executive and shall not be assignable by the
Executive without the consent of the Company (there being no obligation to give
such consent) other than such rights or benefits as are transferred by will or
the laws of descent and distribution.




(c)  The
Company shall require any successor to or assignee of (whether direct or
indirect, by purchase, merger, consolidation or otherwise) all or substantially
all of the assets or businesses of the Company (i) to assume unconditionally and
expressly this Agreement and (ii) to agree to perform or to cause to be
performed all of the obligations under this Agreement in the same manner and to
the same extent as would have been required of the Company had no assignment or
succession occurred, such assumption to be set forth in a writing reasonably
satisfactory to the Executive.




(d)  The
Company shall also require all entities that control or that after the
transaction will control (directly or indirectly) the Company or any such
successor or assignee to




14




agree to
cause to be performed all of the obligations under this Agreement, such
agreement to be set forth in a writing reasonably satisfactory to the
Executive.




4.2  Notices.  All
notices hereunder must be in writing and, unless otherwise specifically provided
herein, will be deemed to have been given upon receipt of delivery by: (a) hand
(against a receipt therefor), (b) certified or registered mail, postage prepaid,
return receipt requested, (c) a nationally recognized overnight courier service
(against a receipt therefor) or (d) telecopy transmission with confirmation of
receipt.  All such notices must be addressed as follows:




If to the Company, to:





Stratus Properties Inc.


98 San Jacinto Boulevard


Suite 220


Austin,
Texas  78701


Attention:  Chairman of
Corporate Personnel Committee





If to the Executive, to:





William H. Armstrong III


2704 Maria Anna


Austin,
Texas  78703





or such
other address as to which any party hereto may have notified the other in
writing.





4.3  Governing
Law.  Except as provided in Article III hereof, this Agreement
shall be construed and enforced in accordance with and governed by the internal
laws of the State of Delaware without regard to principles of conflict of
laws.




4.4  Withholding.  The
Executive agrees that the Company has the right to withhold, from the amounts
payable pursuant to this Agreement, all amounts required to be withheld under
applicable income and/or employment tax laws, or as otherwise stated in
documents granting rights that are affected by this Agreement.




4.5  Amendment,
Waiver.  No provision of this Agreement may be modified,
amended or waived except by an instrument in writing signed by both
parties.




4.6  Severability.  If
any term or provision of this Agreement, or the application thereof to any
person or circumstance, shall at any time or to any extent be invalid, illegal
or unenforceable in any respect as written, Executive and the Company intend for
any court construing this Agreement to modify or limit such provision so as to
render it valid and enforceable to the fullest extent allowed by
law.  Any such provision that is not susceptible of such reformation
shall be ignored so as to not affect any other term or provision hereof, and the
remainder of this Agreement, or the application of such term or provision to
persons or circumstances other than those as to which it is held invalid,
illegal or unenforceable, shall not be




15




affected
thereby and each term and provision of this Agreement shall be valid and
enforced to the fullest extent permitted by law.




4.7  Waiver of
Breach.  The waiver by either party of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach thereof.




4.8  Remedies Not
Exclusive.  No remedy specified herein shall be deemed to be
such party’s exclusive remedy, and accordingly, in addition to all of the rights
and remedies provided for in this Agreement, the parties shall have all other
rights and remedies provided to them by applicable law, rule or
regulation.




4.9  Company’s Reservation of
Rights.  Executive acknowledges and understands that the
Executive serves at the pleasure of the Board and that the Company has the right
at any time to terminate Executive’s status as an employee of the Company or any
of its Affiliates, or to change or diminish his status during the Employment
Term, subject to the rights of the Executive to claim the benefits conferred by
this Agreement.




4.10  Prior Change of Control
Agreement.  Effective as of the Agreement Date, this Agreement
supersedes any prior change of control or nondisclosure agreement between the
Executive and the Company.




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




16


IN
WITNESS WHEREOF, the Company and the Executive have caused this Agreement to be
executed as of the Amendment Date.







Stratus Properties Inc.











By:
/s/ James C. Leslie


James C. Leslie


Director and Chairman of
the


Corporate Personnel Committee of
the


Board of Directors








Executive











/s/
William H. Armstrong III


William H. Armstrong
III




















































Signature
Page of Change of Control Agreement


between
Stratus Properties Inc. and William H. Armstrong III


17