Business Context and Reporting Period
This Form 8-K, dated October 5, 2017, reports the completion of a merger between Forestar Group Inc. ("Forestar") and Force Merger Sub, Inc., a wholly-owned subsidiary of D.R. Horton Inc. ("D.R. Horton"). Following the merger, D.R. Horton owns approximately 75% of the outstanding New Forestar Common Stock. Forestar continues as the surviving entity, with its stock continuing to trade on the New York Stock Exchange under the ticker symbol "FOR."
Key Financial Metrics and Agreements
- Merger Consideration: Forestar stockholders could elect cash or stock. The aggregate cash consideration paid was $558,256,368. Approximately 10.5 million shares of New Forestar Common Stock were issued to former stockholders, and 31.5 million shares were issued to D.R. Horton.
- Letter of Credit Facility: Forestar entered into a $30 million secured standby letter of credit facility with Keybank National Association. The facility is secured by a $30 million cash deposit. Fees include 1.25% on outstanding letters of credit and 0.15% per annum on unused commitments.
- Convertible Notes: The 3.75% Convertible Senior Notes due 2020 were modified. Conversion rights now yield $14.19785 in cash and 0.20012 of a share of New Forestar Common Stock per former share.
- Debt Termination: Forestar terminated its prior $50 million revolving credit facility. At the time of termination, $14,597,712 in letters of credit were outstanding under that facility.
Material Changes Versus Prior Period
- Control Change: D.R. Horton became the majority shareholder (approx. 75%), triggering a change in control.
- Board Composition: The Board size was reduced to five members. Five former directors resigned, and four new directors appointed by D.R. Horton were elected, including Donald J. Tomnitz as Executive Chairman.
- Executive Leadership: Donald J. Tomnitz was appointed Executive Chairman with a base salary of $300,000 and a potential performance bonus of up to $400,000. CEO Phillip J. Weber and CFO Charles D. Jehl retained their positions.
- Corporate Governance: Forestar amended and restated its Certificate of Incorporation and Bylaws. A Tax Benefit Preservation Plan expired immediately prior to the merger.
Guidance, Outlook, and Risks
- Shared Services: Forestar entered a Shared Services Agreement with D.R. Horton for administrative, compliance, operational, and procurement services.
- Fundamental Change Offer: The merger constitutes a "Fundamental Change" under the Convertible Notes indenture. Forestar is required to make an offer to repurchase the notes at 100% of principal plus accrued interest.
- Equity Awards: All outstanding equity awards denominated in former stock were cancelled and converted to cash consideration based on the $17.75 per share value, regardless of vesting status.
- Risks: The filing notes standard events of default for the new LC Facility, including payment defaults and bankruptcy. The filing does not provide specific forward-looking financial guidance or revenue projections.
Investor Verification Checklist
- Verify the exact percentage of D.R. Horton's ownership post-merger and any lock-up provisions in the Stockholder's Agreement.
- Confirm the terms of the Shared Services Agreement to understand ongoing operational dependencies on D.R. Horton.
- Review the Third Supplemental Indenture (Exhibit 4.1) for details on the Convertible Notes repurchase offer timeline and pricing.
- Assess the impact of the new $30 million LC Facility on liquidity, noting it is fully collateralized by cash deposits.
- Examine the compensation arrangements for the new Executive Chairman and board members to evaluate potential dilution or cash outflows.