Document:

exv10w6

 

Exhibit 10.6

FORESTAR REAL ESTATE GROUP INC.

2007 STOCK INCENTIVE PLAN

     1. Definitions. In the Plan, except where the context otherwise indicates, the
following definitions shall apply:

          1.1. “Affiliate” means a corporation, partnership, business trust, limited liability company
or other form of business organization at least a majority of the total combined voting power of
all classes of stock or other equity interests of which is owned by the Company, either directly or
indirectly, and any other entity, designated by the Committee, provided that in no event shall an
entity be an Affiliate unless the Company has a “controlling interest” (within the meaning of
Section 409A of the Code and the Treasury Regulations thereunder) in the entity.

          1.2. “Agreement” means a written agreement or other document evidencing an Award that shall be
in such form as the Committee may specify. The Committee in its discretion may, but need not,
require a Participant to sign an Agreement.

          1.3. “Award” means a grant of an Option, Restricted Stock, Restricted Stock Unit, a
Performance Award, or an Other Stock-Based Award.

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

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

          1.6. “Committee” means the Management Development and Executive Compensation Committee of the
Board or such other committee(s), subcommittee(s) or person(s) the Board appoints to administer the
Plan or to make and/or administer specific Awards hereunder. If no such appointment is in effect
at any time, “Committee” shall mean the Board. Notwithstanding the foregoing, “Committee” means
the Board for purposes of granting Awards to members of the Board who are not Employees, and
administering the Plan with respect to those Awards, unless the Board determines otherwise.

          1.7. “Common Stock” means the Company’s common stock, par value $1.00 per share.

          1.8. “Company” means Forestar Real Estate Group Inc., and any successor thereto.

          1.9. “Date of Exercise” means the date on which the Company receives notice of the exercise of
an Option in accordance with Section 7.1.

          1.10. “Date of Grant” means the date on which an Award is granted under the Plan.

 

 

          1.11. “Eligible Person” means any person who is (a) an Employee or (b) a member of the board
of directors of the Company or an Affiliate, or (c) a consultant, or independent contractor to the
Company or an Affiliate.

          1.12. “Employee” means any individual who the Committee determines to be an employee of the
Company or an Affiliate.

          1.13. “Exercise Price” means the price per Share at which an Option may be exercised.

          1.14. “Fair Market Value” means, unless otherwise determined by the Committee, the closing
price of a share of Common Stock on the New York Stock Exchange (“NYSE”) as of the relevant date;
provided, however, that in the case of an Option, in all events Fair Market Value shall be
determined pursuant to a method permitted by Section 409A of the Code for determining the fair
market value of stock subject to a nonqualified stock option that does not provide for a deferral
of compensation within the meaning of Section 409A of the Code.

          1.15. “Incentive Stock Option” means an Option that the Committee designates as an incentive
stock option under Section 422 of the Code.

          1.16. “Nonqualified Stock Option” means an Option that is not an Incentive Stock Option.

          1.17. “Option” means an option to purchase Shares granted pursuant to Section 6.

          1.18. “Option Period” means the period during which an Option may be exercised.

          1.19. “Other Stock-Based Award” means an Award granted pursuant to Section 11.

          1.20. “Participant” means an Eligible Person who has been granted an Award.

          1.21. “Performance Award” means a performance award granted pursuant to Section 10.

          1.22. “Performance Goals” means performance goals that the Committee establishes, which may be
based on satisfactory internal or external audits, achievement of balance sheet or income statement
objectives, cash flow, customer satisfaction metrics and achievement of customer satisfaction
goals, dividend payments, earnings (including before or after taxes, interest, depreciation, and
amortization), earnings growth, earnings per
share; economic value added, expenses, improvement of financial ratings, internal rate of
return, market share, net asset value, net income, net operating gross margin, net operating profit
after taxes (“NOPAT”), net sales growth, NOPAT growth, operating

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income, operating margin,
comparisons to the performance of other companies, pro forma income, real estate value creation,
regulatory compliance, return measures (including return on assets, designated assets, capital,
committed capital, net capital employed, equity, sales, or stockholder equity, and return versus
the Company’s cost of capital), revenues, sales, stock price (including growth measures and total
stockholder return), comparison to stock market indices, implementation or completion of one or
more projects or transactions, working capital, or any other objective goals that the Committee
establishes. Performance Goals may be absolute in their terms or measured against or in
relationship to other companies comparably, similarly or otherwise situated. Performance Goals may
be particular to an Eligible Person or the department, branch, Affiliate, or division in which the
Eligible Person works, or may be based on the performance of the Company, one or more Affiliates,
or the Company and one or more Affiliates, and may cover such period as the Committee may specify.

          1.23. “Plan” means this Forestar Real Estate Group Inc. 2007 Stock Incentive Plan, as amended
from time to time.

          1.24. “Restricted Stock” means Shares granted pursuant to Section 8.

          1.25. “Restricted Stock Units” means an Award providing for the contingent grant of Shares (or
the cash equivalent thereof) pursuant to Section 9.

          1.26. “Section 422 Employee” means an Employee who is employed by the Company or a “parent
corporation” or “subsidiary corporation” (each as defined in Sections 424(e) and (f) of the Code)
with respect to the Company, including a “parent corporation” or “subsidiary corporation” that
becomes such after adoption of the Plan.

          1.27. “Share” means a share of Common Stock.

          1.28. “Ten-Percent Stockholder” means a Section 422 Employee who (applying the rules of
Section 424(d) of the Code) owns stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or a “parent corporation” or “subsidiary
corporation” (each as defined in Sections 424(e) and (f) of the Code) with respect to the Company.

     2. Purpose. The Plan is intended to assist the Company and its Affiliates in
attracting and retaining Eligible Persons of outstanding ability and to promote the identification
of their interests with those of the stockholders of the Company and its Affiliates.

     3. Administration. The Committee shall administer the Plan and shall have plenary
authority, in its discretion, to grant Awards to Eligible Persons, subject to the provisions of the
Plan. The Committee shall have plenary authority and discretion, subject
to the provisions of the Plan, to determine the Eligible Persons to whom it grants Awards, the
terms (which terms need not be identical) of all Awards, including without limitation the Exercise
Price of Options, the time or times at which Awards are granted, the number of Shares covered by
Awards, whether an Option shall be an Incentive Stock

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Option or a Nonqualified Stock Option, any
exceptions to nontransferability, any Performance Goals applicable to Awards, any provisions
relating to vesting, and the periods during which Options may be exercised and Restricted Stock
shall be subject to restrictions. In making these determinations, the Committee may take into
account the nature of the services rendered or to be rendered by Award recipients, their present
and potential contributions to the success of the Company and its Affiliates, and such other
factors as the Committee in its discretion shall deem relevant. Subject to the provisions of the
Plan, the Committee shall have plenary authority to interpret the Plan and Agreements, prescribe,
amend and rescind rules and regulations relating to them, and make all other determinations deemed
necessary or advisable for the administration of the Plan and Awards granted hereunder. The
determinations of the Committee on the matters referred to in this Section 3 shall be binding and
final. The Committee may delegate its authority under this Section 3 and the terms of the Plan to
such extent it deems desirable and is consistent with the requirements of applicable law.

     4. Eligibility. Awards may be granted only to Eligible Persons, provided that (a)
Incentive Stock Options may be granted only to Eligible Persons who are Section 422 Employees; and
(b) Options may be granted only to persons with respect to whom Shares constitute stock of the
service recipient (within the meaning of Section 409A of the Code and the Treasury Regulations
thereunder).

     5. Stock Subject to Plan.

          5.1. Subject to adjustment as provided in Section 13, the maximum number of Shares that may be
issued under the Plan is 3,800,000 Shares, provided that no more than 1,900,000 Shares may be
issued pursuant to Awards that are not Options. Shares issued under the Plan may, in whole or in
part, be authorized but unissued Shares or Shares that shall have been, or may be, reacquired by
the Company in the open market, in private transactions, or otherwise.

          5.2. Subject to adjustment as provided in Section 13, the maximum number of Shares with
respect to which an Employee may be granted Awards under the Plan during any calendar year is
200,000 Shares. The maximum number of Shares with respect to which an Employee has been granted
Awards shall be determined in accordance with Section 162(m) of the Code.

          5.3. If an Option expires or terminates for any reason without having been fully exercised, if
shares of Restricted Stock are forfeited, or if Shares covered by an Award are not issued or are
forfeited, the unissued or forfeited Shares that had been subject to the Award shall be available
for the grant of additional Awards.

     6. Options.

          6.1. Options granted under the Plan to Eligible Persons shall be either Incentive Stock
Options or Nonqualified Stock Options, as designated by the Committee; provided, however, that
Incentive Stock Options may be granted only to Eligible Persons who are Section 422 Employees on
the Date of Grant. Each Option granted under the

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Plan shall be identified as either a Nonqualified
Stock Option or an Incentive Stock Option and shall be evidenced by an Agreement that specifies the
terms and conditions of the Option. Options shall be subject to the terms and conditions set forth
in this Section 6 and such other terms and conditions not inconsistent with the Plan as the
Committee may specify. The Committee, in its discretion, may condition the grant or vesting of an
Option upon the achievement of one or more specified Performance Goals.

          6.2. The Exercise Price of an Option granted under the Plan shall not be less than 100% of the
Fair Market Value of the Common Stock on the Date of Grant. Notwithstanding the foregoing, in the
case of an Incentive Stock Option granted to an Employee who, on the Date of Grant is a Ten-Percent
Shareholder the Exercise Price shall not be less than 110% of the Fair Market Value of a Share on
the Date of Grant.

          6.3. The Committee shall determine the Option Period for an Option, which shall be
specifically set forth in the Agreement; provided that an Option shall not be exercisable after ten
years (five years in the case of an Incentive Stock Option granted to an Employee who on the Date
of Grant is a Ten-Percent Stockholder) from its Date of Grant.

     7. Exercise of Options.

          7.1. Subject to the terms of the applicable Agreement, an Option may be exercised, in whole or
in part, by delivering to the Company a notice of the exercise, in such form as the Committee may
prescribe, accompanied, in the case of an Option, by (a) full payment for the Shares with respect
to which the Option is exercised or (b) to the extent provided in the applicable Agreement,
irrevocable instructions to a broker to deliver promptly to the Company cash equal to the exercise
price of the Option.

          7.2. To the extent provided in the applicable Agreement or otherwise authorized by the
Committee, payment may be made by delivery (including constructive delivery) of Shares (provided
that such Shares, if acquired pursuant to an Option or other Award granted hereunder or under any
other compensation plan maintained by the Company or any Affiliate, have been held by the
Participant for at least six months, or such other period, if any, as the Committee may specify),
valued at Fair Market Value on the Date of Exercise.

     8. Restricted Stock Awards. Each grant of Restricted Stock under the Plan shall be
subject to an Agreement specifying the terms and conditions of the Award. Restricted Stock granted
under the Plan shall consist of Shares that are restricted as to transfer, subject to forfeiture,
and subject to such other terms and conditions as the Committee may specify. Such terms and
conditions may provide, in the discretion of the
Committee, for the lapse of such transfer restrictions or forfeiture provisions to be
contingent upon the achievement of one or more specified Performance Goals.

     9. Restricted Stock Unit Awards. Each grant of Restricted Stock Units under the Plan
shall be evidenced by an Agreement that (a) provides for the issuance of Shares to a Participant at
such time(s) as the Committee may specify and (b) contains such other

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terms and conditions as the
Committee may specify, including, terms that condition the issuance of Restricted Stock Unit Awards
upon the achievement of one or more specified Performance Goals.

     10. Performance Awards. Each Performance Award granted under the Plan shall be
evidenced by an Agreement that (a) provides for the payment of cash and/or issuance of Shares to a
Participant contingent upon the attainment of one or more specified Performance Goals, and (b)
contains such other terms and conditions as the Committee may specify. For purposes of Section 5.2
hereof, a Performance Award shall be deemed to cover a number of Shares equal to the maximum number
of Shares that may be issued upon payment of the Award if the terms of the Award provide for
payment in the form of Shares. The maximum cash amount payable to any Employee pursuant to all
Performance Awards granted to an Employee during a calendar year shall not exceed $5 million.

     11. Other Stock-Based Awards. The Committee may in its discretion grant stock-based
awards (including awards based on dividends) of a type other than those otherwise provided for in
the Plan, including the issuance or offer for sale of unrestricted Shares (“Other Stock-Based
Awards”). Other Stock-Based Awards shall cover such number of Shares and have such terms and
conditions as the Committee shall determine, including terms that condition the payment or vesting
the Other Stock-Based Award upon the achievement of one or more Performance Goals.

     12. Dividends and Dividend Equivalents. The terms of an Award may provide a
Participant with the right, subject to such terms and conditions as the Committee may specify, to
receive dividend payments or dividend equivalent payments with respect to Shares covered by the
Award, which payments may be either made currently or credited to an account established for the
Participant, and may be settled in cash or Shares, as determined by the Committee.

     13. Capital Events and Adjustments. In the event of any change in the outstanding
Common Stock by reason of any stock dividend, stock split, reverse stock split, spin-off,
recapitalization, reclassification, combination or exchange of shares, merger, consolidation,
liquidation or the like, the Committee shall provide for a substitution for or adjustment in (a)
the number and class of securities subject to outstanding Awards or the type of consideration to be
received upon the exercise or vesting of outstanding Awards, (b) the Exercise Price of Options, (c)
the aggregate number and class of Shares for which Awards thereafter may be granted under the Plan
and (d) the maximum number of Shares with respect to which an Employee may be granted Awards during
any calendar year.

     14. Termination or Amendment. The Board may amend or terminate the Plan in any
respect at any time; provided, however, that, after the stockholders of the Company have approved
the Plan, the Board shall not amend or terminate the Plan without approval of (a) the Company’s
stockholders to the extent stockholder approval of the amendment is required by applicable law or
regulations or the requirements of the principal exchange or interdealer quotation system on which
the Common Stock is listed

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or quoted, if any, and (b) each affected Participant if such amendment
or termination would adversely affect such Participant’s rights or obligations under any Award
granted prior to the date of such amendment or termination.

     15. Modification, Substitution of Awards.

          15.1. Subject to the terms and conditions of the Plan, the Committee may modify the terms of
any outstanding Awards; provided, however, that (a) no modification of an Award shall, without the
consent of the Participant, alter or impair any of the Participant’s rights or obligations under
such Award and (b) subject to Section 13, in no event may an Option be (i) modified to reduce the
Exercise Price of the Option or (ii) cancelled or surrendered in consideration for the grant of a
new Option with a lower Exercise Price.

          15.2. Any provision of the Plan or any Agreement to the contrary notwithstanding, in the event
of a merger or consolidation to which the Company is a party, the Committee shall take such
actions, if any, as it deems necessary or appropriate to prevent the enlargement or diminishment of
Participants’ rights under the Plan and Awards granted hereunder, and may, in its discretion, cause
any Award granted hereunder to be canceled in consideration of a payment equal to the fair value of
the canceled Award, as determined by the Committee in its discretion. Unless the Committee
determines otherwise, the fair value of an Option shall be deemed to be equal to the product of (a)
the number of Shares the Option covers (and has not previously been exercised) and (b) the excess,
if any, of the Fair Market Value of a Share as of the date of cancellation over the Exercise Price
of the Option.

     16. Foreign Employees. Without amendment of the Plan, the Committee may grant Awards
to Eligible Persons who are subject to the laws of foreign countries or jurisdictions on such terms
and conditions different from those specified in the Plan as may in the judgement of the Committee
be necessary or desirable to foster and promote achievement of the purposes of the Plan. The
Committee may make such modifications, amendments, procedures, sub-plans and the like as may be
necessary or advisable to comply with provisions of laws of other countries or jurisdictions in
which the Company or any Affiliate operates or has employees.

     17. Stockholder Approval. The Plan, and any amendments hereto requiring stockholder
approval pursuant to Section 14, are subject to approval by vote of the stockholders of the Company
at the next annual or special meeting of stockholders following adoption by the Board.

     18. Withholding. The Company’s obligation to issue or deliver Shares or pay any
amount pursuant to the terms of any Award granted hereunder shall be subject to satisfaction of
applicable federal, state, local, and foreign tax withholding requirements. To the extent provided
in the applicable Agreement and in accordance with rules as the Committee may prescribe, a
Participant may satisfy any such withholding tax obligation by one or any combination of the
following means: (a) tendering a cash payment, (b)

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authorizing the Company to withhold Shares
otherwise issuable to the Participant, or (c) delivering to the Company already-owned and
unencumbered Shares.

     19. Term of Plan. Unless sooner terminated by the Board pursuant to Section 14, the
Plan shall terminate on the date that is ten years after the earlier of that date that the Plan is
adopted by the Board or approved by the Company’s stockholders, and no Awards may be granted or
awarded after such date. The termination of the Plan shall not affect the validity of any Award
outstanding on the date of termination.

     20. Indemnification of Committee. In addition to such other rights of indemnification
as they may have as members of the Board or Committee, the Company shall indemnify members of the
Committee against all reasonable expenses, including attorneys’ fees, actually and reasonably
incurred in connection with the defense of any action, suit or proceeding, or in connection with
any appeal therein, to which they or any of them may be a party by reason of any action taken or
failure to act under or in connection with the Plan or any Award granted hereunder, and against all
amounts reasonably paid by them in settlement thereof or paid by them in satisfaction of a judgment
in any such action, suit or proceeding, if such members acted in good faith and in a manner which
they believed to be in, and not opposed to, the best interests of the Company.

     21. General Provisions.

          21.1. The establishment of the Plan shall not confer upon any Eligible Person any legal or
equitable right against the Company, any Affiliate or the Committee, except as expressly provided
in the Plan. Participation in the Plan shall not give an Eligible Person any right to be retained
in the service of the Company or any Affiliate.

          21.2. Neither the adoption of the Plan nor its submission to the Company’s stockholders shall
be taken to impose any limitations on the powers of the Company or its Affiliates to issue, grant
or assume options, warrants, rights, restricted stock or other awards otherwise than under the
Plan, or to adopt other stock option, restricted stock, or other plans, or to impose any
requirement of stockholder approval upon the same.

          21.3. The interests of any Eligible Person under the Plan are not subject to the claims of
creditors and may not, in any way, be assigned, alienated or encumbered except to the extent
provided in an Agreement.

          21.4. The Plan shall be governed, construed and administered in accordance with the laws of
the State of Texas, without giving effect to the conflict of law principles.

          21.5. The Committee may require each person acquiring Shares pursuant to Awards granted
hereunder to represent to and agree with the Company in writing that such person is acquiring the
Shares without a view to distribution thereof. The certificates for such Shares may include any
legend which the Committee deems

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appropriate to reflect any restrictions on transfer. All
certificates for Shares issued pursuant to the Plan shall be subject to such stock transfer orders
and other restrictions as the Committee may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any stock exchange upon which the Common
Stock is then listed or interdealer quotation system upon which the Common Stock is then quoted,
and any applicable federal or state securities laws. The Committee may place a legend or legends
on any such certificates to make appropriate reference to such restrictions.

          21.6. The Company shall not be required to issue any certificate or certificates for Shares
with respect to Awards granted under the Plan, or record any person as a holder of record of such
Shares, without obtaining, to the complete satisfaction of the Committee, the approval of all
regulatory bodies the Committee deems necessary, and without complying, to the Board’s or
Committee’s complete satisfaction, with all rules and regulations under federal, state or local law
the Committee deems applicable.

          21.7. To the extent that the Plan provides for issuance of stock certificates to reflect the
issuance of Shares, the issuance may be effected on a noncertificated basis, to the extent not
prohibited by applicable law or the rules of any stock exchange or automated dealer quotation
system on which the Shares are traded. No fractional Shares shall be issued or delivered
pursuant to the Plan or any Award. The Committee shall determine whether cash, other Awards, or
other property shall be issued or paid in lieu of any fractional Shares or whether any fractional
Shares or any rights thereto shall be forfeited or otherwise eliminated.

          21.8. Notwithstanding any other provision of the Plan to the contrary, to the extent any Award
(or a modification of an Award) under the Plan results in the deferral of compensation (for
purposes of Section 409A of the Code), the terms and conditions of the Award shall comply with
Section 409A of the Code.

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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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