Change In Control Agreement - Temple-Inland Inc. and J. Patrick Maley III
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT, dated May 7, 2004 (the "Effective
Date"), is made by and between Temple-Inland Inc., a
Delaware corporation ("Temple-Inland"), and J. Patrick
Maley, III (the "Executive").
WHEREAS, Temple-Inland considers it essential to
the best interests of its stockholders to foster the
continued employment of key management personnel; and
WHEREAS, the Board recognizes that, as is the
case with many publicly held corporations, the
possibility of a Change in Control exists and that such
possibility, and the uncertainty and questions which it
may raise among management, may result in the departure
or distraction of management personnel to the detriment
of Temple-Inland and its stockholders; and
WHEREAS, the Board has determined that
appropriate steps should be taken to reinforce and
encourage the continued attention and dedication of
members of the Company's management, including the
Executive, to their assigned duties without distraction
in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises
and the mutual covenants herein contained, Temple-Inland
and the Executive hereby agree as follows:
1. Defined Terms. The definitions of
capitalized terms used in this Agreement are provided in
the last Section hereof.
2. Term of Agreement. The Term of this
Agreement shall commence on the Effective Date and shall
continue in effect through the second anniversary of the
Effective Date; provided, however, that commencing on the
first anniversary of the Effective Date, and on each
anniversary of the Effective Date thereafter, the Term
shall automatically be extended for one additional year
unless, not later than 90 days prior to each such date,
the Company or the Executive shall have given notice not
to extend the Term; and provided, further, that if a
Change in Control shall have occurred during the Term,
the Term shall expire no earlier than 36 months beyond
the month in which such Change in Control occurred.
<page>2
3. Company's Covenants Summarized. In order to
induce the Executive to remain in the employ of the
Company and in consideration of the Executive's covenants
set forth in Section 4 hereof, the Company agrees, under
the conditions described herein, to pay the Executive the
Severance Payments and the other payments and benefits
described herein. Except as provided in Section 9.1
hereof, no Severance Payments shall be payable under this
Agreement unless there shall have been (or, under the
terms of the second sentence of Section 6.1 hereof, there
shall be deemed to have been) a termination of the
Executive's employment with the Company following a
Change in Control and during the Term. This Agreement
shall not be construed as creating an express or implied
contract of employment and, except as otherwise agreed in
writing between the Executive and the Company, the
Executive shall not have any right to be retained in the
employ of the Company.
4. The Executive's Covenants. The Executive
agrees that, subject to the terms and conditions of this
Agreement, in the event of a Potential Change in Control
during the Term, the Executive will remain in the employ
of the Company until the earliest of (i) a date which is
six months from the date of such Potential Change of
Control, (ii) the date of a Change in Control, (iii) the
date of termination by the Executive of the Executive's
employment for Good Reason or by reason of death,
Disability or Retirement, or (iv) the termination by the
Company of the Executive's employment for any reason.
5. Compensation Other Than Severance Payments.
5.1 Following a Change in Control and during the
Term, during any period that the Executive fails to
perform the Executive's full-time duties with the Company
as a result of incapacity due to physical or mental
illness, the Company shall pay the Executive's full
salary to the Executive at the rate in effect at the
commencement of any such period, together with all
compensation and benefits payable to the Executive under
the terms of any compensation or benefit plan, program or
arrangement maintained by the Company during such period
(other than any disability plan), until the Executive's
employment is terminated by the Company for Disability.
5.2 If the Executive's employment shall be
terminated for any reason following a Change in Control
and during the Term, the Company shall pay the
Executive's full salary to the Executive through the Date
of Termination at the highest rate in effect during the
three-year period ending immediately prior to the Date of
<page>3
Termination together with all compensation and benefits
payable to the Executive through the Date of Termination
under the terms of the Company's compensation and benefit
plans, programs or arrangements as in effect immediately
prior to the Date of Termination or, if more favorable to
the Executive, as in effect immediately prior to the
first occurrence of an event or circumstance constituting
Good Reason.
5.3 If the Executive's employment shall be
terminated for any reason following a Change in Control
and during the Term, the Company shall pay to the
Executive the Executive's normal post-termination
compensation and benefits as such payments become due.
Such post-termination compensation and benefits shall be
determined under, and paid in accordance with, the
Company's retirement, insurance and other compensation or
benefit plans, programs and arrangements as in effect
immediately prior to the Date of Termination or, if more
favorable to the Executive, as in effect immediately
prior to the occurrence of the first event or
circumstance constituting Good Reason.
6. Severance Payments.
6.1 If the Executive's employment is terminated
following a Change in Control and within two (2) years
after a Change in Control, other than (A) by the Company
for Cause, (B) by reason of death or Disability, or (C)
by the Executive without Good Reason, then the Company
shall pay the Executive the amounts, and provide the
Executive the benefits, described in this Section 6.1
("Severance Payments") and Section 6.2, in addition to
any payments and benefits to which the Executive is
entitled under Section 5 hereof. For purposes of this
Agreement, the Executive's employment shall be deemed to
have been terminated following a Change in Control by the
Company without Cause or by the Executive with Good
Reason, if (i) the Executive's employment is terminated
by the Company without Cause prior to a Change in Control
(whether or not a Change in Control ever occurs) and such
termination was at the request or direction of a Person
who has entered into an agreement with the Company the
consummation of which would constitute a Change in
Control, or (ii) the Executive terminates his employment
for Good Reason prior to a Change in Control (whether or
not a Change in Control ever occurs) and the circumstance
or event which constitutes Good Reason occurs at the
request or direction of such Person. For purposes of any
determination regarding the applicability of the
immediately preceding sentence, any position taken by the
<page>4
Executive shall be presumed to be correct unless the
Company establishes to the Board by clear and convincing
evidence that such position is not correct.
(A) In lieu of any further salary
payments to the Executive for periods subsequent to the
Date of Termination, the Company shall pay to the
Executive a lump sum severance payment, in cash, equal to
three (3) times the sum of (i) the Executive's highest
base salary as in effect during the three-year period
ending immediately prior to the Date of Termination and
(ii) the Executive's target annual bonus pursuant to any
annual bonus or incentive plan maintained by the Company
in respect of the fiscal year in which occurs the Date of
Termination (or, if higher, in respect of any of the
three preceding fiscal years). The amount payable
pursuant to this Section 6.1(A) shall be reduced by the
amount of any cash severance or salary continuation
benefit paid or payable to the Executive under any other
plan, policy or program of the Company or any written
employment agreement between the Executive and the Company.
(B) For the three-year period immediately
following the Date of Termination, the Company shall
arrange to provide the Executive and his dependents life,
short-term disability, long-term disability, travel
accident, accidental death and dismemberment, medical,
dental and other health and welfare benefits
substantially similar to those provided to the Executive
and his dependents immediately prior to the Date of
Termination or, if more favorable to the Executive, those
provided to the Executive and his dependents immediately
prior to the first occurrence of an event or circumstance
constituting Good Reason, at no greater cost to the
Executive than the cost to the Executive immediately
prior to such date or occurrence; provided, however,
that, unless the Executive consents to a different method
(after taking into account the effect of such method on
the calculation of "parachute payments" pursuant to
Section 6.2 hereof), such health and welfare benefits
shall be provided through a third-party insurer. To the
extent that health and welfare benefits of the same type
are received by or made available to the Executive during
the three-year period following the Executive's Date of
Termination (which such benefits received by or made
available to the Executive shall be reported by the
Executive to the insurance company or other appropriate
party in accordance with any applicable coordination of
benefits provisions), the benefits otherwise receivable
by the Executive pursuant to this Section 6.1(B) shall be
made secondary to such benefits; provided, however, that
the Company shall reimburse the Executive for the excess,
if any, of the cost of such benefits to the Executive
<page>5
over such cost immediately prior to the Date of
Termination or, if more favorable to the Executive, the
first occurrence of an event or circumstance constituting
Good Reason.
(C) Each option held by the Executive to
purchase shares of common stock of Temple-Inland
outstanding as of the Date of Termination shall be
treated in accordance with the applicable terms of any
plan (including any underlying agreement) pursuant to
which it was granted.
(D) For purposes of determining the
amount of any benefit payable to the Executive and the
Executive's right to any benefit otherwise payable under
a Pension Plan, the Executive shall be treated as if he
had accumulated (after the Date of Termination)
thirty-six (36) additional months of service credit
thereunder and had been credited during such period with
compensation at the highest rate in effect during the
three-year period ending immediately prior to the Date of
Termination.
(E) Notwithstanding any provision of any
Pension Plan or deferred compensation plan to the
contrary, and except to the extent otherwise provided in
Section 6.1(F), in lieu of any other benefit under a
supplemental, excess benefit or deferred compensation
plan, the Company shall pay to the Executive a lump sum
amount, in cash, equal to the sum of (i) the actuarial
equivalent of the aggregate benefit which the Executive
had accrued under the terms of all supplemental and
excess benefit plans and (ii) the actuarial equivalent of
the deferred compensation otherwise payable to the
Executive, in either case without regard to any amendment
to any such plan made subsequent to a Change in Control
and on or prior to the Date of Termination, which
amendment adversely affects in any manner the computation
of benefits thereunder. For purposes of this Section
6.1(E), "actuarial equivalent" shall be determined (x)
using the same assumptions utilized under the applicable
plan (or if there is no provision for such assumptions,
under the Company's tax-qualified Pension Plan in which
the Executive participates) immediately prior to the Date
of Termination or, if more favorable to the Executive,
immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, (y) taking into
account any early retirement subsidies associated with
the applicable benefit, and (z) on the basis of a
straight life annuity (or other default form of benefit)
commencing at the date (but in no event earlier than the
third anniversary of the Date of Termination) as of which
the actuarial equivalent of such annuity or other form of
benefit is greatest.
<page>6
(F) In addition to the benefits to which
the Executive is entitled under any defined contribution
Pension Plan, the Company shall pay the Executive a lump
sum amount, in cash, equal to the sum of (i) the amount
that would have been contributed thereto by the Company
on the Executive's behalf during the three (3) years
immediately following the Date of Termination, determined
(x) as if the Executive made the maximum permissible
contributions thereto during such period, (y) as if the
Executive earned compensation during such period at a
rate equal to the Executive's highest rate of
compensation (as defined in the Pension Plan) during the
three-year period ending immediately prior to the Date of
Termination, and (z) without regard to any amendment to
the Pension Plan made subsequent to a Change in Control
and on or prior to the Date of Termination, which
amendment adversely affects in any manner the computation
of benefits thereunder, and (ii) the excess, if any, of
(x) the Executive's account balance under the Pension
Plan as of the Date of Termination over (y) the portion
of such account balance that is nonforfeitable under the
terms of the Pension Plan.
(G) Notwithstanding any provision of any
annual or long-term incentive plan to the contrary, the
Company shall pay to the Executive a lump sum amount, in
cash, equal to the sum of (i) any unpaid incentive
compensation which has been allocated or awarded to the
Executive for a completed annual bonus cycle preceding
the Date of Termination under any such plan and which, as
of the Date of Termination, is contingent only upon the
continued employment of the Executive to a subsequent
date, (ii) if the Date of Termination occurs before the
end of the first six months in the then-current annual
bonus cycle under the applicable plan, a pro rata portion
to the Date of Termination of the aggregate value of all
contingent incentive compensation awards to the Executive
for the uncompleted period under any such plan,
calculated as to each such award by multiplying the award
that the Executive would have earned on the last day of
the performance award period, assuming the achievement,
at the target level (or if higher, at the then projected
actual final level), of the individual and corporate
performance goals established with respect to such award,
by the fraction obtained by dividing the number of full
months and any fractional portion of a month during such
performance award period through the Date of Termination
by the total number of months contained in such
performance award period, and (iii) if the Date of
Termination occurs after the end of the first six months
in the then-current annual bonus cycle but before the end
of such annual bonus cycle under the applicable plan, the
<page>7
full aggregate value of all contingent incentive
compensation awards to the Executive for the uncompleted
period under any such plan assuming the achievement, at
the target level (or if higher, at the then projected
actual final level), of the individual and corporate
performance goals established with respect to such award.
(H) If the Executive would have become
entitled to benefits under the Company's post-retirement
health care or life insurance plans, as in effect
immediately prior to the Date of Termination or, if more
favorable to the Executive, as in effect immediately
prior to the first occurrence of an event or circumstance
constituting Good Reason, had the Executive's employment
terminated at any time within three (3) years after the
Date of Termination, the Company shall provide such
post-retirement health care or life insurance benefits to
the Executive and the Executive's dependents commencing
on the later of (i) the date on which such coverage would
have first become available and (ii) the date on which
benefits described in subsection (B) of this Section 6.1
terminate.
(I) The Company shall reimburse the
Executive for expenses incurred for outplacement services
suitable to the Executive's position for a period of one
(1) year following the Date of Termination (or, if
earlier, until the first acceptance by the Executive of
an offer of employment) in an amount not exceeding 15% of
the sum of the Executive's highest annual base rate of
salary as in effect during the three-year period ending
immediately prior to the Date of Termination, and the
greatest target annual bonus pursuant to any annual bonus
or incentive plan maintained by the Company in respect of
the fiscal year in which occurs the Date of Termination
(or, if higher, in respect of any of the three preceding
fiscal years).
(J) For the three-year period immediately
following the Date of Termination, the Company shall
provide the Executive with his customary perquisites
(such as any use of a Company provided automobile, club
membership fee reimbursements, income tax preparation and
financial advisory services) in each case on the same
terms and conditions that were applicable immediately
prior to the Date of Termination or, if more favorable,
immediately prior to the first occurrence of an event or
circumstance constituting Good Reason.
<page>8
6.2 (A) Whether or not the Executive
becomes entitled to the Severance Payments, if any
payment or benefit received or to be received by the
Executive in connection with a Change in Control or the
termination of the Executive's employment (whether
pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with the Company, any
Person whose actions result in a Change in Control or any
Person affiliated with the Company or such Person) (all
such payments and benefits, including the Severance
Payments, being hereinafter called "Total Payments") will
be subject (in whole or part) to the Excise Tax, then,
subject to the provisions of subsection (B) of this
Section 6.2, the Company shall pay to the Executive an
additional amount (the "Gross-Up Payment") such that the
net amount retained by the Executive, after deduction of
any Excise Tax on the Total Payments and any federal,
state and local income and employment taxes and Excise
Tax upon the Gross-Up Payment, shall be equal to the
Total Payments. For purposes of determining the amount
of the Gross-Up Payment, the Executive shall be deemed to
pay federal income taxes at the highest marginal rate of
federal income taxation in the calendar year in which the
Gross-Up Payment is to be made and state and local income
taxes at the highest marginal rate of taxation in the
state and locality of the Executive's residence on the
Date of Termination (or if there is no Date of
Termination, then the date on which the Gross-up Payment
is calculated for purposes of this Section 6.2), net of
the maximum reduction in federal income tax which could
be obtained from deduction of such state and local taxes.
(B) In the event that the amount of the Total
Payments does not exceed 110% of the largest amount that
would result in no portion of the Total Payments being
subject to the Excise Tax (the "Safe Harbor"), then
subsection (A) of this Section 6.2 shall not apply and
the noncash Severance Payments shall first be reduced (if
necessary, to zero), and the cash Severance Benefits
shall thereafter be reduced (if necessary, to zero) so
that the amount of the Total Payments is equal to the
Safe Harbor; provided, however, that the Executive may
elect to have the cash Severance Payments reduced (or
eliminated) prior to any reduction of the noncash
Severance Payments.
(C) For purposes of determining whether any of
the Total Payments will be subject to the Excise Tax and
the amount of such Excise Tax, (i) all of the Total
Payments shall be treated as "parachute payments" within
the meaning of section 280G(b)(2) of the Code, unless in
the opinion of tax counsel ("Tax Counsel") reasonably
acceptable to the Executive and selected by the
accounting firm which was, immediately prior to the
Change in Control, the Company's independent auditor (the
<page>9
"Auditor"), such other payments or benefits (in whole or
in part) do not constitute parachute payments, including
by reason of section 280G(b)(4)(A) of the Code, (ii) all
"excess parachute payments" within the meaning of section
280G(b)(l) of the Code shall be treated as subject to the
Excise Tax unless, in the opinion of Tax Counsel, such
excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered,
within the meaning of section 280G(b)(4)(B) of the Code,
in excess of the Base Amount allocable to such reasonable
compensation, or are otherwise not subject to the Excise
Tax, and (iii) the value of any noncash benefits or any
deferred payment or benefit shall be determined by the
Auditor in accordance with the principles of sections
280G(d)(3) and (4) of the Code. Prior to the payment
date set forth in Section 6.3 hereof, the Company shall
provide the Executive with its calculation of the amounts
referred to in this Section 6.2(C) and such supporting
materials as are reasonably necessary for the Executive
to evaluate the Company's calculations. If the Executive
disputes the Company's calculations (in whole or in
part), the reasonable opinion of Tax Counsel with respect
to the matter in dispute shall prevail.
(D) (I) In the event that (1) amounts are
paid to the Executive pursuant to Section 6.2(A), (2)
there is a Final Determination that the Excise Tax is
less than the amount taken into account hereunder in
calculating the Gross-Up Payment, and (3) after giving
effect to such Final Determination, the Severance
Payments are to be reduced pursuant to Section 6.2(B),
the Executive shall repay to the Company, within five (5)
business days following the date of the Final
Determination, the Gross-Up Payment, the amount of the
reduction in the Severance Payments, plus interest on the
amount of such repayments at 120% of the rate provided in
section 1274(b)(2)(B) of the Code.
(II) In the event that (1) amounts are
paid to the Executive pursuant to Section 6.2(A), (2)
there is a Final Determination that the Excise Tax is
less than the amount taken into account hereunder in
calculating the Gross-Up Payment, and (3) after giving
effect to such Final Determination, the Severance
Payments are not to be reduced pursuant to Section
6.2(B), the Executive shall repay to the Company, within
five (5) business days following the date of the Final
Determination, the portion of the Gross-Up Payment
attributable to such reduction (plus that portion of the
Gross-Up Payment attributable to the Excise Tax and
federal, state and local income and employment taxes
imposed on the Gross-Up Payment being repaid by the
Executive), to the extent that such repayment results in
a reduction in the Excise Tax and a dollar-for-dollar
<page>10
reduction in the Executive's taxable income and wages for
purposes of federal, state and local income and
employment taxes, plus interest on the amount of such
repayment at 120% of the rate provided in section
1274(b)(2)(B) of the Code.
(III) Except as otherwise provided in
clause (IV) below, in the event there is a Final
Determination that the Excise Tax exceeds the amount
taken into account hereunder in determining the Gross-Up
Payment (including by reason of any payment the existence
or amount of which cannot be determined at the time of
the Gross-Up Payment), the Company shall pay to the
Executive, within five (5) business days following the
date of the Final Determination, the sum of (1) a
Gross-Up Payment in respect of such excess and in respect
of any portion of the Excise Tax with respect to which
the Company had not previously made a Gross-Up Payment,
including a Gross-Up Payment in respect of any Excise Tax
attributable to amounts payable under clauses (2) and (3)
of this paragraph (III) (plus any interest, penalties or
additions payable by the Executive with respect to such
excess and such portion), (2) if Severance Payments were
reduced pursuant to Section 6.2(B) but after giving
effect to such Final Determination, the Severance
Payments should not have been reduced pursuant to Section
6.2(B), the amount by which the Severance Payments were
reduced pursuant to Section 6.2(B), and (3) interest on
such amounts at 120% of the rate provided in section
1274(b)(2)(B) of the Code.
(IV) In the event that (1) Severance
Payments were reduced pursuant to Section 6.2(B) and (2)
the aggregate value of Total Payments which are
considered "parachute payments" within the meaning of
section 280G(b)(2) of the Code is subsequently
redetermined in a Final Determination, but such
redetermined value still does not exceed 110% of the Safe
Harbor, then, within five (5) business days following
such Final Determination, (x) the Company shall pay to
the Executive the amount (if any) by which the reduced
Severance Payments (after taking the Final Determination
into account) exceeds the amount of the reduced Severance
Payments actually paid to the Executive, plus interest on
the amount of such repayment at 120% of the rate provided
in section 1274(b)(2)(B) of the Code, or (y) the
Executive shall pay to the Company the amount (if any) by
which the reduced Severance Payments actually paid to the
Executive exceeds the amount of the reduced Severance
Payments (after taking the Final Determination into
<page>11
account), plus interest on the amount of such repayment
at 120% of the rate provided in section 1274(b)(2)(B) of
the Code.
6.3 The payments provided in subsections (A),
(E), (F) and (G) of Section 6.1 hereof and in Section 6.2
hereof shall be made not later than the fifth day
following the Date of Termination; provided, however,
that if the amounts of such payments cannot be finally
determined on or before such day, the Company shall pay
to the Executive on such day an estimate, as determined
in good faith by the Executive or, in the case of
payments under Section 6.2 hereof, in accordance with
Section 6.2 hereof, of the minimum amount of such
payments to which the Executive is clearly entitled and
shall pay the remainder of such payments (together with
interest on the unpaid remainder (or on all such payments
to the extent the Company fails to make such payments
when due) at 120% of the rate provided in section
1274(b)(2)(B) of the Code) as soon as the amount thereof
can be determined but in no event later than the 30th day
after the Date of Termination. In the event that the
amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess
shall constitute a loan by the Company to the Executive,
payable on the fifth business day after demand by the
Company (together with interest at 120% of the rate
provided in section 1274(b)(2)(B) of the Code). At the
time that payments are made under this Agreement, the
Company 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 Company 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).
6.4 The Company also shall pay to the Executive
all legal fees and expenses incurred by the Executive in
disputing in good faith any issue hereunder relating to
the termination of the Executive's employment, in seeking
in good faith to obtain or enforce any benefit or right
provided by this Agreement or in connection with any tax
audit or proceeding to the extent attributable to the
application of section 4999 of the Code to any payment or
benefit provided hereunder. Such payments shall be made
within five business days after delivery of the
Executive's written requests for payment accompanied with
such evidence of fees and expenses incurred as the
Company reasonably may require.
<page>12
7. Termination Procedures and Compensation
During Dispute.
7.1. Notice of Termination. After a Change in
Control and during the Term, any purported termination of
the Executive's employment (other than by reason of
death) shall be communicated by written Notice of
Termination from one party hereto to the other party
hereto in accordance with Section 10 hereof. For
purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination
of the Executive's employment under the provision so
indicated. For purposes of this Agreement, any purported
termination of the Executive's employment shall be
presumed to be other than for Cause unless the Notice of
Termination includes a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters
(3/4) of the entire membership of the Board at a meeting
of the Board which was called and held for the purpose of
considering such termination (after reasonable notice to
the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before
the Board) finding that, in the good faith opinion of the
Board, the Executive was guilty of conduct set forth in
clause (i) or (ii) of the definition of Cause herein, and
specifying the particulars thereof in detail.
7.2 Date of Termination. "Date of Termination,"
with respect to any purported termination of the
Executive's employment after a Change in Control and
during the Term, shall mean (i) if the Executive's
employment is terminated for Disability, 30 days after
Notice of Termination is given (provided that the
Executive shall not have returned to the full-time
performance of the Executive's duties during such 30 day
period), and (ii) if the Executive's employment is
terminated for any other reason, the date specified in
the Notice of Termination (which, in the case of a
termination by the Company, shall not be less than 30
days (except in the case of a termination for Cause) and,
in the case of a termination by the Executive, shall not
be less than 15 days nor more than 60 days, respectively,
from the date such Notice of Termination is given).
7.3 Dispute Concerning Termination. If within
15 days after any Notice of Termination is given, or, if
later, prior to the Date of Termination (as determined
without regard to this Section 7.3), the party receiving
such Notice of Termination notifies the other party that
a dispute exists concerning the termination, the Date of
Termination shall be extended until the earlier of (i)
<page>13
the date on which the Term ends or (ii) the date on which
the dispute is finally resolved, either by mutual written
agreement of the parties or by a final judgment, order or
decree of an arbitrator or a court of competent
jurisdiction (which is not appealable or with respect to
which the time for appeal therefrom has expired and no
appeal has been perfected); provided, however, that the
Date of Termination shall be extended by a notice of
dispute given by the Executive only if such notice is
given in good faith and the Executive pursues the
resolution of such dispute with reasonable diligence.
7.4 Compensation During Dispute. If a purported
termination occurs following a Change in Control and
during the Term and the Date of Termination is extended
in accordance with Section 7.3 hereof, the Company shall
continue to pay the Executive the full compensation in
effect when the notice giving rise to the dispute was
given (including, but not limited to, salary) and
continue the Executive as a participant in all
compensation, benefit and insurance plans in which the
Executive was participating when the notice giving rise
to the dispute was given, until the Date of Termination,
as determined in accordance with Section 7.3 hereof.
Amounts paid under this Section 7.4 are in addition to
all other amounts due under this Agreement (other than
those due under Section 5.2 hereof) and shall not be
offset against or reduce any other amounts due under this
Agreement.
8. No Mitigation. The Company agrees that, if
the Executive's employment with the Company terminates
during the Term, the Executive is not required to seek
other employment or to attempt in any way to reduce any
amounts payable to the Executive by the Company pursuant
to Section 6 hereof or Section 7.4 hereof. Further, the
amount of any payment or benefit provided for in this
Agreement (other than Section 6.1(B) hereof) shall not be
reduced by any compensation earned by the Executive as
the result of employment by another employer, by
retirement benefits, by offset against any amount claimed
to be owed by the Executive to the Company, or otherwise.
9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed by
law upon any successor to Temple-Inland, Temple-Inland
will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all
or substantially all of the business and/or assets of
Temple-Inland to expressly assume and agree to perform
this Agreement in the same manner and to the same extent
<page>14
that Temple-Inland would be required to perform it if no
such succession had taken place. Failure of
Temple-Inland to obtain such assumption and agreement
prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall entitle the
Executive to compensation from the Company in the same
amount and on the same terms as the Executive would be
entitled to hereunder if the Executive were to terminate
the Executive's employment for Good Reason after a Change
in Control, except that, for purposes of implementing the
foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of
and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If the
Executive shall die while any amount would still be
payable to the Executive hereunder (other than amounts
which, by their terms, terminate upon the death of the
Executive) if the Executive had continued to live, all
such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to
the executors, personal representatives or administrators
of the Executive's estate.
10. Notices. For the purpose of this Agreement,
notices and all other communications provided for in the
Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage
prepaid, addressed, if to the Executive, to the address
of the Executive as maintained from time to time on the
payroll system of the Company and, if to the Company, to
the address set forth below, or to such other address as
either party may have furnished to the other in writing
in accordance herewith, except that notice of change of
address shall be effective only upon actual receipt:
To the Company:
Temple-Inland Inc.
1300 S. MoPac Expressway
Austin, Texas 78746
Attention: J. Bradley Johnston
11. Miscellaneous. No provision of this
Agreement may be modified, waived or discharged unless
such waiver, modification or discharge is agreed to in
<page>15
writing and signed by the Executive and such officer as
may be specifically designated by the Board. No waiver
by either party hereto at any time of any breach by the
other party hereto of, or of any lack of compliance with,
any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. This Agreement
supersedes any other agreements or representations, oral
or otherwise, express or implied, with respect to the
subject matter hereof which have been made by the
Executive or the Company; provided, however, that this
Agreement shall supersede any agreement setting forth the
terms and conditions of the Executive's employment with
the Company only in the event that the Executive's
employment with the Company is terminated on or following
a Change in Control, by the Company other than for Cause
or by the Executive for Good Reason. The validity,
interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of
Texas without regard to its principles of conflicts of
law. All references to sections of the Exchange Act or
the Code shall be deemed also to refer to any successor
provisions to such sections. Any payments provided for
hereunder shall be paid net of any applicable withholding
required under federal, state or local law and any
additional withholding to which the Executive has agreed.
The obligations of the Company and the Executive under
this Agreement which by their nature may require either
partial or total performance after the expiration of the
Term (including, without limitation, those under Sections
6 and 7 hereof) shall survive such expiration.
<page>16
12. Validity.
12.1 Any payments made to the Executive pursuant
to this Agreement, or otherwise, are subject to and
conditioned upon their compliance with 12 U.S.C. Section
1828(k) and FDIC Regulation 12 C.F.R. Part 359, Golden
Parachute and Indemnification Payments.
12.2 The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity
or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
13. Counterparts. This Agreement may be
executed in several counterparts, each of which shall be
deemed to be an original but all of which together will
constitute one and the same instrument.
14. Settlement of Disputes. All claims by the
Executive for benefits under this Agreement shall be
directed to and determined by the Board and shall be in
writing. Any denial by the Board of a claim for benefits
under this Agreement shall be delivered to the Executive
in writing and shall set forth the specific reasons for
the denial and the specific provisions of this Agreement
relied upon. The Board shall afford a reasonable
opportunity to the Executive for a review of the decision
denying a claim and shall further allow the Executive to
appeal to the Board a decision of the Board within 60
days after notification by the Board that the Executive's
claim has been denied.
15. Definitions. For purposes of this
Agreement, the following terms shall have the meanings
indicated below:
(A) "Affiliate" shall have the meaning
set forth in Rule 12b-2 promulgated under Section 12 of
the Exchange Act.
(B) "Auditor" shall have the meaning set
forth in Section 6.2 hereof.
(C) "Base Amount" shall have the meaning
set forth in section 280G(b)(3) of the Code.
(D) "Beneficial Owner" shall have the
meaning set forth in Rule 13d-3 under the Exchange Act.
<page>17
(E) "Board" shall mean the Board of
Directors of Temple-Inland Inc.
(F) "Cause" for termination by the
Company of the Executive's employment shall mean (i) the
willful and continued failure by the Executive to
substantially perform the Executive's duties with the
Company (other than any such failure resulting from the
Executive's incapacity due to physical or mental illness
or any such actual or anticipated failure after the
issuance of a Notice of Termination for Good Reason by
the Executive pursuant to Section 7.1 hereof) after a
written demand for substantial performance is delivered
to the Executive by the Board, which demand specifically
identifies the manner in which the Board believes that
the Executive has not substantially performed the
Executive's duties, or (ii) the willful engaging by the
Executive in conduct which is demonstrably and materially
injurious to the Company, monetarily or otherwise. For
purposes of clauses (i) and (ii) of this definition, (x)
no act, or failure to act, on the Executive's part shall
be deemed "willful" unless done, or omitted to be done,
by the Executive not in good faith and without reasonable
belief that the Executive's act, or failure to act, was
in the best interest of the Company and (y) in the event
of a dispute concerning the application of this
provision, no claim by the Company that Cause exists
shall be given effect unless the Company establishes to
the Board by clear and convincing evidence that Cause
exists.
(G) "Change in Control" shall be deemed
to have occurred if the event set forth in any one of the
following paragraphs shall have occurred:
(I) any Person is or becomes the
Beneficial Owner, directly or indirectly, of securities
of the Company (not including in the securities
beneficially owned by such Person any securities acquired
directly from the Company or its Affiliates) representing
25% or more of the combined voting power of the Company's
then outstanding securities, excluding any Person who
becomes such a Beneficial Owner in connection with a
transaction described in clauses (a), (b) or (c) of
paragraph (III) below;
(II) within any twenty-four (24)
month period, the following individuals cease for any
reason to constitute a majority of the number of
directors then serving on the Board: individuals who, on
the Effective Date, constitute the Board and any new
director (other than a director whose initial assumption
<page>18
of office is in connection with an actual or threatened
election contest, including but not limited to a consent
solicitation, relating to the election of directors of
the Company) whose appointment or election by the Board
or nomination for election by the Company's shareholders
was approved or recommended by a vote of at least
two-thirds (2/3) of the directors then still in office
who either were directors on the date hereof or whose
appointment, election or nomination for election was
previously so approved or recommended;
(III) there is consummated a
merger, consolidation of the Company or any direct or
indirect subsidiary of the Company with any other
corporation or any recapitalization of the Company (for
purposes of this paragraph (III), a "Business Event")
unless, immediately following such Business Event (a) the
directors of the Company immediately prior to such
Business Event continue to constitute at least a majority
of the board of directors of the Company, the surviving
entity or any parent thereof, (b) the voting securities
of the Company outstanding immediately prior to such
Business Event continue to represent (either by remaining
outstanding or by being converted into voting securities
of the surviving entity or any parent thereof), in
combination with the ownership of any trustee or other
fiduciary holding securities under an employee benefit
plan of the Company or any subsidiary of the Company, at
least 60% of the combined voting power of the securities
of the Company or such surviving entity or any parent
thereof outstanding immediately after such Business
Event, or (c) no Person is or becomes the Beneficial
Owner, directly or indirectly, of securities of the
Company or such surviving entity or any parent thereof
(not including in the securities Beneficially Owned by
such Person any securities acquired directly from the
Company or its Affiliates) representing 25% or more of
the combined voting power of the then outstanding
securities of the Company or such surviving entity or any
parent thereof (except to the extent such ownership
existed prior to the Business Event);
(IV) the shareholders of the
Company approve a plan of complete liquidation or
dissolution of the Company;
(V) there is consummated an
agreement for the sale, disposition or long-term lease by
the Company of:
<page>19
(A) substantially all of the
Company's assets, or
(B) (i) substantially all of the
Company's ownership interest in Inland Paperboard and
Packaging, Inc. (or any successor thereto) or (ii)
substantially all of the assets of Inland Paperboard and
Packaging, Inc. and its direct or indirect subsidiaries
(or any successor or successors thereto),
other than such a sale, disposition or lease to an
entity, at least 50% of the combined voting power of the
voting securities of which are owned by shareholders of
the Company in substantially the same proportions as
their ownership of the Company immediately prior to such
sale or disposition; or
(VI) any other event that the
Board, in its sole discretion, determines to be a Change
in Control for purposes of this Agreement.
Notwithstanding the foregoing, a "Change in
Control" shall not be deemed to have occurred by virtue
of the consummation of any transaction or series of
integrated transactions immediately following which the
record holders of the common stock of the Company
immediately prior to such transaction or series of
transactions continue to have substantially the same
proportionate ownership in an entity which owns all or
substantially all of the assets of the Company
immediately following such transaction or series of
transactions.
(H) "Code" shall mean the Internal
Revenue Code of 1986, as amended from time to time.
(I) "Company" shall mean, unless the
context clearly requires otherwise, Temple-Inland Inc., a
Delaware corporation, and any of its Affiliates that
actually employ the Executive; provided, that (I) for
purposes of Sections 15(G) and 15(U) hereof, Company
shall mean Temple-Inland Inc., except that in determining
under Section 15(G) hereof whether or not any Change in
Control of the Company has occurred, Company shall
include any successor to Temple-Inland Inc.'s business
and/or assets which assumes and agrees to perform this
Agreement by operation of law or otherwise, (II) unless
the context clearly requires otherwise, references to the
Company in a capacity of employer shall mean
Temple-Inland Inc. or any of its Affiliates, whichever
<page>20
actually employs the Executive, and (III) where the
Agreement requires the Company to make a payment to the
Executive or to take some other action, either
Temple-Inland, Inc. shall do so or it shall cause any of
its Affiliates that actually employ the Executive to do so.
(J) "Date of Termination" shall have the
meaning set forth in Section 7.2 hereof.
(K) "Disability" shall be deemed the
reason for the termination by the Company of the
Executive's employment, if, as a result of the
Executive's incapacity due to physical or mental illness,
the Executive shall have been absent from the full-time
performance of the Executive's duties with the Company
for a period of six consecutive months, the Company shall
have given the Executive a Notice of Termination for
Disability, and, within 30 days after such Notice of
Termination is given, the Executive shall not have
returned to the full-time performance of the Executive's
duties.
(L) "Exchange Act" shall mean the
Securities Exchange Act of 1934, as amended from time to
time.
(M) "Excise Tax" shall mean any excise
tax imposed under section 4999 of the Code.
(N) "Executive" shall mean the individual
named in the first paragraph of this Agreement.
(O) "Final Determination" means a final
determination by the Internal Revenue Service or, if such
determination is appealed, a final determination by any
court of competent jurisdiction.
(P) "Good Reason" for termination by the
Executive of the Executive's employment shall mean the
occurrence (without the Executive's express written
consent) after any Change in Control, or prior to a
Change in Control under the circumstances described in
clauses (i) and (ii) of the second sentence of Section
6.1 hereof (treating all references in paragraphs (I)
through (VI) below to a "Change in Control" as references
to a "Potential Change in Control"), of any one of the
following acts by the Company, or failures by the Company
to act, unless, in the case of any act or failure to act
described in paragraph (I), (IV), or (V) below, such act
or failure to act is corrected prior to the Date of
<page>21
Termination specified in the Notice of Termination given
in respect thereof:
(I) the assignment to the
Executive of any duties substantially inconsistent with
the Executive's status as a senior executive officer of
the Company or a material adverse alteration in the
nature or status of the Executive's responsibilities from
those in effect immediately prior to the Change in
Control (including, as applicable and without limitation,
the Executive ceasing to be an executive officer of a
public company);
(II) a substantial reduction by
the Company in the Executive's annual base salary as in
effect on the date hereof or as the same may be increased
from time to time;
(III) the relocation of the
Executive's principal place of employment to a location
more than 50 miles from the Executive's principal place
of employment immediately prior to the Change in Control
or the Company's requiring the Executive to be based
anywhere other than such principal place of employment
(or permitted relocation thereof) except for required
travel on the Company's business to an extent
substantially consistent with the Executive's present
business travel obligations;
(IV) the failure by the Company to
pay to the Executive any portion of the Executive's
current compensation, or to pay to the Executive any
portion of an installment of deferred compensation under
any deferred compensation program of the Company, within
seven days of the date such compensation is due;
(V) the failure by the Company to
continue to provide the Executive with benefits
substantially similar to the material benefits enjoyed by
the Executive under any of the Company's executive
compensation (including bonus, equity or incentive
compensation), pension, savings, life insurance, medical,
health and accident, or disability plans in which the
Executive was participating immediately prior to the
Change in Control, the taking of any other action by the
Company which would directly or indirectly materially
reduce any of such benefits or deprive the Executive of
any material fringe benefit enjoyed by the Executive at
the time of the Change in Control, or the failure by the
Company to provide the Executive with the number of paid
vacation days to which the Executive is entitled on the
basis of years of service with the Company in accordance
<page>22
with the Company's normal vacation policy in effect at
the time of the Change in Control; or
(VI) any purported termination of
the Executive's employment which is not effected pursuant
to a Notice of Termination satisfying the requirements of
Section 7.1 hereof; for purposes of this Agreement, no
such purported termination shall be effective.
The Executive's right to terminate the Executive's
employment for Good Reason shall not be affected by the
Executive's incapacity due to physical or mental illness.
The Executive's continued employment shall not
constitute consent to, or a waiver of rights with respect
to, any act or failure to act constituting Good Reason
hereunder. For purposes of any determination regarding
the existence of Good Reason, any claim by the Executive
that Good Reason exists shall be presumed to be correct
unless the Company establishes to the Board by clear and
convincing evidence that Good Reason does not exist.
(Q) "Gross-Up Payment" shall have the
meaning set forth in Section 6.2 hereof.
(R) "Notice of Termination" shall have
the meaning set forth in Section 7.1 hereof.
(S) "Pension Plan" shall mean any
tax-qualified, supplemental or excess benefit pension
plan maintained by the Company and any other plan or
agreement entered into between the Executive and the
Company which is designed to provide the Executive with
supplemental retirement benefits, and any tax-qualified,
supplemental or excess defined contribution plan
maintained by the Company and any other defined
contribution plan or agreement entered into between the
Executive and the Company.
(T) "Person" shall have the meaning given
in Section 3(a)(9) of the Exchange Act, as modified and
used in Sections 13(d) and 14(d) thereof, except that
such term shall not include (i) the Company or any of its
subsidiaries, (ii) a trustee or other fiduciary holding
securities under an employee benefit plan of the Company
or any of its Affiliates, (iii) an underwriter
temporarily holding securities pursuant to an offering of
such securities, or (iv) a corporation owned, directly or
indirectly, by the stockholders of the Company in
<page>23
substantially the same proportions as their ownership of
stock of the Company.
(U) "Potential Change in Control" shall
be deemed to have occurred if the event set forth in any
one of the following paragraphs shall have occurred:
(I) the Company enters into an
agreement, the consummation of which would result in the
occurrence of a Change in Control;
(II) the Company or any Person
publicly announces an intention to take or to consider
taking actions which, if consummated, would constitute a
Change in Control;
(III) any Person becomes the
Beneficial Owner, directly or indirectly, of securities
of the Company representing 20% or more of either the
then outstanding shares of common stock of the Company or
the combined voting power of the Company's then
outstanding securities (not including in the securities
beneficially owned by such Person any securities acquired
directly from the Company or its affiliates); or
(IV) the Board adopts a resolution
to the effect that, for purposes of this Agreement, a
Potential Change in Control has occurred.
(V) "Retirement" shall be deemed the
reason for the termination by the Executive of the
Executive's employment if such employment is terminated
in accordance with the Company's retirement policy,
including early retirement, generally applicable to its
salaried employees.
(W) "Severance Payments" shall have the
meaning set forth in Section 6.1 hereof.
(X) "Tax Counsel" shall have the meaning
set forth in Section 6.2 hereof.
(Y) "Term" shall mean the period of time
described in Section 2 hereof (including any extension,
continuation or termination described therein).
<page>24
(Z) "Total Payments" shall mean those
payments so described in Section 6.2 hereof.
IN WITNESS WHEREOF, the parties have duly
executed this Agreement to be effective as of the
Effective Date.
TEMPLE-INLAND INC.
By: /s/ Kenneth M. Jastrow, II
----------------------------
Name: Kenneth M. Jastrow, II
Title: Chairman and Chief
Executive Officer
EXECUTIVE
/s/ J. Patrick Maley, III
----------------------------
J. Patrick Maley, III