Exhibit 10.2

 

 

EMPLOYMENT AGREEMENT

 

THIS AGREEMENT ("Agreement") is entered into as of August 9, 2007, by and
between TEMPLE-INLAND INC., a Delaware corporation (the "Company"), and DOYLE R.
SIMONS (the "Executive").

 

 

WHEREAS, the Executive currently is employed by the Company;

 

WHEREAS, the Company has determined that it is appropriate, desirable and in the
best interests of the Company and its stockholders to effect (i) a spinoff to
the Company stockholders of the stock of a subsidiary holding the Company's real
estate operations, (ii) a spinoff to the Company stockholders of a subsidiary
holding the Company’s financial services operations, and (iii) a sale of the
Company's timberland holdings to an unrelated third party;

 

WHEREAS, the Executive currently is employed by and a party to a Change in
Control Agreement (the "Existing CIC Agreement") with the Company;

 

WHEREAS, effective as of the last to occur of the effective time of the spinoff
of the real estate or financial services subsidiaries of the Company (the
"Separation"), the parties intend for the Existing CIC Agreement to cease to be
of any force or effect;

 

WHEREAS, the Company desires to employ the Executive effective as of the
Separation upon the terms and conditions set forth herein; and

 

WHEREAS, the Executive is willing and able to accept employment with the Company
on such terms and conditions.

 

NOW, THEREFORE, in consideration of the mutual agreements contained herein, the
Company and the Executive hereby agree as follows:

 

1.        Effective Date; Employment Period. Subject to the provisions of
Section 4 hereof, the term of this Agreement shall commence as of the date of
the Separation (such date, the "Effective Date") and shall end on the third
anniversary thereof, provided that, subject to Section 4 hereof, commencing on
the first anniversary of the Effective Date, and on each anniversary of the
Effective Date thereafter, the term of this Agreement shall automatically be
extended for an additional year unless, not later than one year prior to each
such date, the Company or the Executive shall have given notice not to extend
the term of this Agreement, and provided further that (a) in the event that the
Separation does not occur on or prior to December 28, 2007, the parties agree to
make such amendments to this Agreement as are appropriate to take into

 

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account such event, and (b) if that certain Transformation Agreement between
Kenneth M. Jastrow and the Company dated as of August 9, 2007, terminates prior
to Mr. Jastrow's resignation as Chief Executive Officer and Chairman of the
Board of Directors of the Company, then this Agreement shall automatically
terminate at such time and shall be of no force or effect. No obligations of the
Company or the Executive under this Agreement (other than those of the Company
under Section 16(a) hereof) shall become effective unless and until the
Separation occurs. 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 of this Agreement shall survive such
expiration. All periods during which the Executive is employed hereunder shall
hereinafter be referred to as the "Employment Period."

 

 

2.

Positions and Duties.

 

(a)       Position and Reporting. During the Employment Period, the Company will
employ the Executive, and the Executive agrees to serve and accept employment,
as the Chief Executive Officer of the Company (the "Chief Executive Officer"),
reporting directly to the Board of Directors of the Company (the "Board"). As
Chief Executive Officer, the Executive shall perform the customary duties of
such position, subject to the direction and control of the Board, and shall
perform such other duties, not inconsistent with such position, as the Board may
require.

 

(b)       Board Membership. The Company agrees to use its best efforts
(including, without limitation, the solicitation of proxies) to cause the
Executive to be elected and re-elected to the Board during the Employment Period
and to be appointed and re-appointed as Chairman of the Board. The Executive
agrees to assist in such efforts and to serve if elected or appointed, as the
case may be. Upon any termination of his employment with the Company, the
Executive shall immediately resign from the Board and the boards of directors of
any subsidiaries of the Company on which he may serve.

 

(c)       Other Activities. During the Employment Period, the Executive shall
devote all of his working time to his duties hereunder, shall devote his best
efforts to advance the interests of the Company and shall not engage in any
other business activities, as an employee, director, consultant or in any other
capacity, whether or not he receives any compensation therefor, without the
prior written consent of the Board; provided that the Executive may serve on up
to three corporate boards (other than the Board) with the approval of the Board,
which approval shall not be unreasonably withheld; and provided further that the
corporate boards on which such service is approved as of the Effective Date are
identified on Appendix A hereto. Notwithstanding the foregoing provisions of
this subsection (c), it shall not be a violation of this Agreement for the
Executive to serve on civic or charitable boards or committees to the extent
that such service does not interfere with his duties under this Agreement.

 

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(d)       Place of Employment. The Executive shall perform his services
hereunder principally at the Company's headquarters in Austin, Texas; provided
that the Executive shall temporarily perform services in other locations as may
be reasonably required for the performance of his duties hereunder.

 

3.        Compensation. In consideration of the performance by the Executive of
his duties hereunder, during the Employment Period the Company shall pay or
provide to the Executive the following compensation and benefits, which the
Executive agrees to accept in full satisfaction for his services, it being
understood that all standard Company deductions shall be withheld from such
compensation:

 

(a)       Base Salary. The Executive shall receive a base salary equal to Seven
Hundred Eighty Thousand Dollars ($780,000) per annum (the "Base Salary"), which
Base Salary shall be paid in accordance with the Company's normal payroll
practices. The Base Salary shall be reviewed for adjustment (on or about
February of each year) by the Management Development and Executive Compensation
Committee of the Board (the "MDECC"); provided that any adjustment shall be made
in the sole discretion of the MDECC; and provided further that the Base Salary
shall not be reduced to a lesser amount. The term "Base Salary" as used herein
shall be deemed to refer to any such amount as it may be increased from time to
time.

 

(b)       Bonuses. The Executive shall be eligible for an annual
performance-based cash bonus on terms established in the discretion of the
MDECC, but on a basis substantially no less favorable than that applicable to
other senior executives of the Company.

 

(c)       Employee Benefits. The Executive shall be entitled to participate in
the retirement, health and life insurance and other welfare and fringe benefit
plans and programs of the Company on a basis (to the extent permitted by
applicable law) substantially no less favorable than that applicable to other
senior executives of the Company.

 

(d)       Equity Grants. The Executive shall be eligible for annual grants of
equity incentive compensation as determined in the discretion of the MDECC,
provided that grants shall be made on a basis substantially no less favorable
than that applicable to other senior executives of the Company. The terms and
conditions of equity grants to the Executive shall be determined pursuant to the
terms and conditions of the plans and agreements under and subject to which they
are or were made (and further subject to the provisions of Section 5(c)(ix)
hereof).

 

(e)       Executive Compensation Plans. The Executive shall be eligible to
participate in any executive compensation plans that are not the subject of the

 

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preceding provisions of this Section 3 on a basis (to the extent permitted by
applicable law) substantially no less favorable than that applicable to other
senior executives of the Company.

 

(f)        Certain Other Benefits. During the Employment Period, the Company
shall provide the Executive with the following benefits on a basis (to the
extent permitted by applicable law) substantially no less favorable than that
applicable to other senior executives of the Company (and, in the case of social
club memberships, on a basis substantially no less favorable than that in effect
immediately before the Separation): (A) social club memberships; (B) use of
Company aircraft, if any (subject to the imputation of income to the Executive
in accordance with the "standard industry fare level" methodology specified in
U.S. Treasury Regulations); and (C) "umbrella" liability insurance eligibility.
During the Employment Period, the Company shall provide the Executive with
directors' and officers' liability insurance on a basis (to the extent permitted
by applicable law) substantially no less favorable than that applicable to other
senior executives and directors of the Company.

 

(g)       Expenses. The Company shall reimburse the Executive for reasonable and
customary expenses incurred in connection with the Company's business in
accordance with the applicable policies of the Company in effect from time to
time.

 

(h)       Vacation. The Executive shall be entitled to four weeks of paid
vacation per calendar year in accordance with the applicable policies of the
Company in effect from time to time.

 

4.        Termination. The Employment Period may end before the expiration date
otherwise specified in Section 1 hereof in accordance with the following
provisions:

 

(a)       Termination by the Company for Cause. The Company shall have the right
at any time by vote of three-quarters (¾) of the members of the Board (exclusive
of the Executive) to terminate the Executive's employment hereunder upon the
occurrence of any of the following events: (i) a material breach of this
Agreement by the Executive that is not cured within fifteen (15) days after
written demand by the Company; (ii) the Executive's conviction of a felony
following the exhaustion of all appeals or a plea of guilty or nolo contendere
to a felony; (iii) the Executive's abuse of alcohol or controlled substances
that has a detrimental effect upon the Executive's performance of his duties and
that is not cured within thirty (30) days after written demand by the Company;
or (iv) the willful engaging by the Executive in conduct that is demonstrably
and materially injurious to the Company, monetarily or otherwise, and that is
not cured within fifteen (15) days after written demand by the Company (all such
events in clauses (i) – (iv), collectively, "Cause"). For purposes of such
determination of Cause, no act, or failure to act, on the Executive's part shall
be deemed "willful" unless done, or

 

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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 in the event of a dispute, 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. The Executive shall have the
right to address the Board with counsel present before any dismissal for Cause
shall become effective.

 

(b)       Termination by the Company for Death or Disability. The Executive's
employment hereunder shall terminate automatically upon the death of the
Executive. The Company shall have the right to terminate the Executive's
employment hereunder upon the Executive's Disability. For purposes of this
Agreement, "Disability" shall occur if by reason of any medically determinable
physical or mental impairment the Executive is unable to engage in any
substantial gainful activity for a period of six (6) consecutive months, such
impairment can be expected to result in death or last for a continuous period of
not less than twelve (12) months, the Company shall have given the Executive a
written notice of intent to terminate for reasons of Disability, and, within
thirty (30) days after such notice is given, the Executive shall not have
returned to the full-time performance of his duties.

 

(c)       Termination by the Company without Cause. The Company shall have the
right to terminate the Executive's employment hereunder without Cause at any
time by vote of the members of the Board (exclusive of the Executive).

 

(d)       Voluntary Termination by the Executive. The Executive shall be
entitled voluntarily to terminate his employment hereunder (other than under
circumstances constituting "Good Reason" as defined in Section 4(e) hereof) upon
no less than fifteen (15) nor more than sixty (60) days' prior written notice to
the Company.

 

(e)       Good Reason Termination by the Executive. The Executive shall be
entitled to terminate his employment hereunder for "Good Reason." For purposes
of this Agreement, "Good Reason" for termination by the Executive of his
employment shall mean the occurrence of any of the following (unless such act or
failure to act is corrected prior to the Date of Termination specified in the
Notice of Termination (as such terms are defined in Section 4(f) hereof) given
in respect thereof): (i) a material reduction in the Executive's authority,
duties or responsibilities, which for purposes of this Agreement shall include
only the failure to be re-elected to the Board or reappointed as either a member
of the Board or Chief Executive Officer or 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 (including, as applicable and
without limitation, the Executive ceasing to be an executive officer of a public
company); (ii) a material diminution in Base Salary; (iii) a material change in
the geographic location at

 

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which the Executive must perform services, which for purposes of this Agreement
shall include only the relocation of the Executive's principal place of
employment to a location more than fifty (50) miles distant from the Company's
headquarters on the Effective Date (but excluding any relocation of the
Company's headquarters within the Austin, Texas metropolitan area during the
first two years of the Employment Period) or the Company's requiring the
Executive to be based anywhere other than such principal place of employment (or
permitted relocation thereof) except for reasonably required travel on the
Company's business; or (iv) a material breach by the Company of the requirements
of Section 3 hereof or Section 12(b) hereof. Notwithstanding the foregoing
provisions of this Section 4(e), the Executive may not assert Good Reason in
respect of any act or failure to act otherwise constituting Good Reason
hereunder unless asserted in a Notice of Termination given in respect thereof
within 90 days following the date of the first occurrence of such act or failure
to act.

 

(f)        Notice of Termination. Any termination of the Executive's employment
hereunder (other than upon the death of the Executive) shall be communicated by
a Notice of Termination to the other party hereto given in accordance with
Section 8 hereof. For purposes of this Agreement, a "Notice of Termination"
means a written notice which (i) indicates the specific termination provision in
this Agreement relied upon, (ii) if the termination is by the Company for Cause
or is by the Executive under circumstances constituting Good Reason, sets 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, and
(iii) sets forth the date on which such termination shall be effective (the
"Date of Termination"); provided that in the case of a termination by the
Executive, the Date of Termination shall not be less than fifteen (15) nor more
than 60 days, respectively, from the date such Notice of Termination is given,
and the Company may require a Date of Termination earlier than that specified in
the Notice of Termination upon payment to the Executive of the full amount of
Base Salary that would have been paid to the Executive had the Executive
continued employment between the actual Date of Termination and the Date of
Termination specified in the Notice of Termination. Except as provided in the
final Sentence of Section 4(e) hereof, the failure by any party to set forth in
the Notice of Termination any fact or circumstance which contributes to a
showing of Cause or Good Reason shall not waive any right of such party
hereunder or preclude such party from asserting such fact or circumstance in
enforcing its rights hereunder. Any purported termination of the Executive's
employment which is not effected pursuant to a Notice of Termination satisfying
the requirements of this Section 4(f) shall not be effective.

 

 

5.

Effect of Termination of Employment.

 

(a)       Cause or no Good Reason. If the Executive's employment hereunder is
terminated by the Company for Cause or by the Executive without

 

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Good Reason, the Executive's Base Salary and other benefits specified in
Section 3 hereof shall be paid or provided through but not after the Date of
Termination, and the Company shall have no further obligations under this
Agreement.

 

(b)       Death or Disability. Subject to Section 5(d) hereof, if the
Executive's employment hereunder is terminated by the death or Disability of the
Executive, then as soon as practicable (but in any event within five (5) days)
following such termination of employment the Company shall make a lump-sum cash
payment to the Executive (or his estate, as the case may be) equal to the sum of
(i) Base Salary and (ii) the target bonus established under Section 3(b) hereof
for the period in which such termination occurs multiplied by a fraction, the
numerator of which is the number of days during the applicable performance
period for which the Executive was employed hereunder and the denominator of
which is the number of days in such performance period.

 

(c)       Without Cause or Good Reason Termination. Subject to Section 5(d)
hereof, if the Executive's employment hereunder is terminated by the Company
without Cause or by the Executive with Good Reason, the Executive shall be
entitled to the following payments and benefits (provided that such termination
of employment constitutes a "separation from service" within the meaning of
Section 409A of the Internal Revenue Code of 1986, as amended (the "Code")):

 

(i)        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
cash severance payment equal to the Severance Multiple (as defined below) times
the sum of (A) Base Salary (without regard to any diminution giving rise to the
Executive's assertion of Good Reason) and (B) 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, the greatest actual annual bonus in respect of any of the two (three if
the Severance Multiple is three) preceding fiscal years (including as
applicable, with respect to years ending at or before the Separation, annual
bonuses paid by Temple-Inland))). For purposes of this Agreement: the "Severance
Multiple" shall be two (2), except that the "Severance Multiple" shall be three
(3) if the applicable Date of Termination occurs either during the first two
years beginning on the Effective Date or after such two-year period and within
the two-year period following a Change in Control as defined in Appendix B
hereto; and the "Severance Period" shall be the two (2) year period beginning on
the Date of Termination, except that the "Severance Period" shall be the three
(3) year period beginning on the Date of Termination if the Severance Multiple
is three (3). Such payment shall be made as soon as practicable (but in any
event within five (5) days) following the Date of Termination; provided that, to
the extent required to satisfy the provisions

 

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of Section 409A(a)(2)(B)(i) of the Code, such payments shall be made not earlier
than but as soon as practicable on or in any event within five (5) days after
(with interest at the 6-month certificate of deposit rate published in The Wall
Street Journal on the Date of Termination (or if not published on that date, on
the next following date when published) or, if less, the maximum rate that will
avoid, if applicable, the imposition of any additional excise taxes under
Section 4999 of the Code (the "409A Interest Rate")) the date that is six (6)
months after the Date of Termination (the "409A Payment Date")). The amount
payable pursuant to this clause (i) 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.

 

(ii)       For the Severance Period, the Company shall arrange to provide the
Executive and his dependents medical, dental, life and accidental death and
dismemberment 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 such health and welfare benefits shall be provided through an arrangement
that satisfies the requirements of Sections 105 and 106 of the Code. To the
extent that benefits of the same type are received by or made available to the
Executive during the Severance Period (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 clause (ii) shall be made secondary to such benefits;
provided that the Company shall reimburse the Executive for the excess, if any,
of the cost of such benefits to the Executive 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.

 

(iii)      For purposes of determining the amount of any benefit payable to the
Executive and the Executive's right to any benefit otherwise payable under any
nonqualified pension plan (within the meaning of Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("Pension Plan")), maintained
by the Company , and except to the extent it would result in a duplication of
benefits under Section 5(c)(iv) hereof, the Executive shall be treated as if he
had accumulated (after the Date of Termination) twenty-four additional months of
service credit (thirty-six (36) additional months of service credit if the
Severance Multiple is three) thereunder and had been credited during such period
with

 

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compensation at the highest rate taken into account in respect of the two-year
period (three-year period if the Severance Multiple is three) ending immediately
prior to the Date of Termination (or, if shorter, the period during which
compensation is taken into account under the Pension Plan).

 

(iv)      In addition to the benefits to which the Executive is entitled under
any defined contribution Pension Plan, the Company shall pay the Executive on or
as soon as practicable (but in any event within five (5) days) following the
Date of Termination (or to the extent required to satisfy the provisions of
Section 409A(a)(2)(B)(i) of the Code, not earlier than but as soon as
practicable on or in any event within five (5) days after (with interest at the
409A Interest Rate) the 409A Payment Date) a lump sum amount, in cash, equal to
the sum of (A) the amount that would have been contributed thereto or credited
thereunder by the Company on the Executive's behalf during the Severance Period
(but not including as amounts that would have been contributed or credited an
amount equal to the amount of any reduction in base salary, bonus or other
compensation that would have occurred in connection with such contribution or
credit), determined (x) as if the Executive made the maximum permissible
contributions thereto or credits thereunder during such period, and (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) taken
into account in respect of the two-year period (three-year period if the
Severance Multiple is three) ending immediately prior to the Date of Termination
(or, if shorter, the period during which compensation is taken into account
under the Pension Plan), and (B) 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.

 

(v)       Notwithstanding any provision of any annual or long-term incentive
plan (exclusive of equity-based plans) to the contrary, the Company shall pay to
the Executive on or as soon as practicable (but in any event within five (5)
days) following the Date of Termination (or to the extent required to satisfy
the provisions of Section 409A(a)(2)(B)(i) of the Code, not earlier than but as
soon as practicable on or in any event within five (5) days after (with interest
at the 409A Interest Rate) the 409A Payment Date) a lump sum amount, in cash,
equal to the sum of (A) any unpaid incentive compensation which has been
allocated or awarded to the Executive for a completed 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, and (B) 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

 

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the last day of the performance award period, assuming the achievement, at the
target level, of any individual and corporate performance goals established with
respect to such award, multiplied 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 (or if such fraction is
greater than ½, multiplied by one (1)).

 

(vi)      If the Executive would have become entitled to benefits under the
Company's post-retirement medical and life insurance plans, if any, 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 the Severance Period, the Company shall provide such
post-retirement medical and life insurance benefits to the Executive commencing
on the later of (i) the date on which such coverage would have first become
available and (ii) the date on which medical and life insurance benefits are no
longer provided in accordance with Section 5(c)(ii) hereof.

 

(vii)     The Company shall reimburse the Executive for expenses incurred (as
soon as practicable and within thirty (30) business days following the date of
request for reimbursement, but in no event later than the end of the year
following the year in which the expenses were 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 Base Salary (without regard to any diminution giving rise to the
Executive's assertion of Good Reason).

 

(viii)    For the Severance Period, the Company shall provide the Executive with
perquisites (such as any use of a Company provided club membership fee
reimbursements) 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, provided that all expenses shall be reimbursed as soon
as practicable and not later than the end of the year following the year in
which the expenses were incurred (subject to the flush language at the end of
this Section 5(c)) and in no event shall the amount of perquisites to which the
Executive is entitled under this subsection (viii) for any taxable year of the
Executive affect the amount of perquisites to which the Executive is entitled
under this subsection (viii) for any other taxable year.

 

(ix)      Vesting shall accelerate and restrictions shall lapse on all unvested
or restricted equity or equity-based awards in respect of the

 

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Company held by the Executive as of the Date of Termination and each stock
option to acquire common stock of the Company and each stock appreciation right
in respect of the Company held by the Executive as of the Date of Termination
shall remain exercisable following the Date of Termination for the full term of
such option or stock appreciation right. The Company also shall cause the
subsidiaries holding the Company's real estate and financial services operations
to provide that vesting shall accelerate and restrictions shall lapse on all
unvested or restricted equity or equity-based awards in respect of each such
company held by the Executive as of the Date of Termination and that each stock
option to acquire common stock of such company and each stock appreciation right
in respect of such company held by the Executive as of the Date of Termination
shall remain exercisable following the Date of Termination for the full term of
such option or stock appreciation right.

 

To the extent the benefits to be made available under subsections (ii) and
(viii) above are not medical expenses within the meaning of Treas. Reg. §
1.409A-1(b)(9)(v)(B) and are not short-term deferrals within the meaning of
Section 409A of the Code, then to the extent the fair market value of such
benefits during the first six months following the Date of Termination exceeds
two times the lesser of the Executive's annualized compensation based upon the
Executive's annual rate of pay for services during the taxable year of the
Executive preceding the year in which the Date of Termination occurs (adjusted
for any increase during that year that was expected to continue indefinitely had
no separation from service occurred) or the maximum amount that may be taken
into account under a qualified plan pursuant to Section 401(a)(17) of the Code
for the year in which the Date of Termination occurs, the Executive shall pay to
the Company, at the time such benefits are provided, the fair market value of
such benefits, and the Company shall reimburse the Executive for any such
payment not later than the fifth day following the expiration of such six-month
period.

 

(d)       Requirement of Release. Notwithstanding any other provision of this
Agreement, no amounts shall be payable or otherwise due pursuant to Section 5(b)
or 5(c) hereof unless (i) the Executive (or his authorized representative, if
disabled or deceased) executes a release of claims against the Company in the
form set forth as Appendix C hereto within thirty (30) days (or such longer
period as may be required by applicable law) following the Date of Termination
and (ii) the Executive (or his authorized representative, if disabled or
deceased) fails to revoke such release within any period permitted by applicable
law for its revocation.

 

(e)       Grantor Trust Requirement. To the extent that the payment of any
amount due under Section 5(c)(i), (iv) or (v) hereof is delayed by reason of
Section 409A(a)(2)(B)(i) of the Code, the Company shall, on or as soon as
practicable after the Date of Termination, contribute the amounts otherwise
payable pursuant to Section 5(c)(i), (iv) or (v) hereof, together with six
months

 

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interest thereon at the 409A Interest Rate, to a grantor ("rabbi") trust of
which the Executive is the sole beneficiary (subject to the claims of the
Company's creditors, as required pursuant to applicable Internal Revenue Service
guidance to prevent the imputation of income to the Executive prior to
distribution from the trust), pursuant to which the amounts payable pursuant to
Section 5(c)(i), (iv) and (v) hereof shall be payable from the trust, together
with the appropriate amount of interest at the 409A Interest Rate, on or as soon
as practicable and in any event within five (5) days after the Section 409A
Payment Date, provided that to the extent such amount is paid to the Executive
by the Company, the trust shall pay such amount to the Company.

 

 

(f)

Excise Tax Payment.

 

(i)       Whether or not the Executive becomes entitled to payments and benefits
pursuant to Section 5(c) (the "Severance Payments"), if it is determined that
any payment or benefit received or to be received by the Executive is a
"parachute payment" within the meaning of Section 280G of the Code (all such
payments and benefits, including the Severance Payments as applicable, being
hereinafter called "Total Payments") that will be subject (in whole or part) to
the tax imposed under Section 4999 of the Code (the "Excise Tax"), then, subject
to the provisions of Section 5(f)(ii) hereof, the Company shall pay to the
Executive on or as soon as practicable following the day on which the Excise Tax
is remitted (but not later than the end of the taxable year following the year
in which the Excise Tax is incurred) 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.

 

(ii)      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 Section 5(f)(i) hereof
shall not apply and the noncash Severance Payments shall first be reduced (if
necessary, to zero), and the cash Severance Payments 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, to the extent permitted by Section 409A of
the Code, the Executive may elect to have the cash Severance Payments reduced
(or eliminated) prior to any reduction of the noncash Severance Payments.

 

(iii)     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

 

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opinion of tax counsel ("Tax Counsel") reasonably acceptable to the Executive
and selected by the accounting firm which was, immediately prior to the event
triggering the application of Section 280G of the Code, the Company's
independent auditor (the "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 (within the meaning of Section 280G of the Code) 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. The Company shall provide the Executive with its
calculation of the amounts referred to in this Section 5(f)(iii) 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.

 

(iv)     (I)       In the event that (1) amounts are paid to the Executive
pursuant to Section 5(f)(i), (2) there is a final determination by the Internal
Revenue Service or, if such determination is appealed, a final determination by
any court of competent jurisdiction (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 5(f)(ii), 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 5(f)(i)), (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 5(f)(ii), 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

 

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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 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 paragraph (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 5(f)(ii) but after giving effect to such Final Determination, the
Severance Payments should not have been reduced pursuant to Section 5(f)(ii),
the amount by which the Severance Payments were reduced pursuant to Section
5(f)(ii), 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 5(f)(ii) 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

 

14

 

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account), plus interest on the amount of such repayment at 120% of the rate
provided in Section 1274(b)(2)(B) of the Code.

 

(v)      If the amounts of the payments described in the preceding provisions of
this subsection (f) cannot be finally determined on or before the date payment
is to be made, the Company shall pay to the Executive on such day an estimate,
as determined in accordance with this subsection (f), 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 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 payment is to be made. 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).

 

(vi)     The Company also shall pay to the Executive all legal fees and expenses
incurred by the Executive 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 (but in no event shall any such payment be made after the
end of the calendar year following the calendar year in which the expenses were
incurred), provided that no such payment shall be made in respect of fees or
expenses incurred by the Executive after the later of the tenth anniversary of
the Date of Termination or the Executive's death, and provided further, that,
upon the Executive’s separation from service with the Company, in no event shall
any additional such payments be made prior to the date that is six months after
the date of the Executive’s separation from service to the extent such payment
delay is required under Section 409A(a)(2)(B)(i) of the Code.

 

 

6.

Confidential Information; Restrictive Covenants.

 

(a)       The Executive acknowledges that the Confidential Information (as
defined below) obtained by him during the course of his employment with the
Company, concerning the business or affairs of the Company and its affiliates
(the "Business Entities") are the property of the Company. Therefore, the
Executive will hold in strictest confidence, and not at any time (whether during
or after his employment with the Company) disclose or use for his own benefit or
purposes or the benefit or purposes of any other person, entity or enterprise,

 

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other than a Business Entity, any trade secrets, non-public information,
knowledge or data, or other proprietary or confidential information, including
without limitation, any such information relating to customers, development
programs, costs, marketing, trading, investment, sales activities, promotion,
credit and financial data, inventions, manufacturing or other processes,
technology, designs, financing methods, plans or the business and affairs of any
Business Entity (collectively, “Confidential Information”); provided that
"Confidential Information" shall not include (i) any information which has
become publicly known or available or known in the industry, in any case other
than as a result of the Executive's breach of this covenant, or (ii) any
information that was within the Executive’s knowledge or possession before
becoming employed with the Company; and provided further, that the Executive
shall not be in violation of this covenant if he discloses any Confidential
Information as required by any subpoena or other legal process or notice or in
any disposition, judicial or administrative hearing, or trial or arbitration
(though the Executive shall, to the extent permitted, give the Company notice of
any such subpoena, process, or notice and will cooperate with all reasonable
requests of the Company to obtain a protective order regarding, or to narrow the
scope of, the Confidential Information required to be disclosed). The Executive
agrees that upon termination of his employment with the Company for any reason,
he will return to the Company immediately all property of the Company including
any documents, memoranda, books, papers, plans, information, letters and other
data, and all copies thereof or therefrom, in any way relating to the business
of the Business Entities.

 

(b)       During his employment with the Company and for a period of two years
thereafter (regardless of the reason for the termination of employment, the
"Non-Competition Period"), the Executive will not, directly or indirectly, alone
or as a partner, joint venturer, officer, director, employee, consultant, agent,
independent contractor or stockholder of any company or business, engage (for
anyone other than the Business Entities) in any Competitive Enterprise anywhere
in the United States, Canada, or Mexico. For the purpose hereof, a "Competitive
Enterprise" shall mean any business venture engaged in lines of business similar
to those of the Company or its affiliates. Neither the service by the Executive
on corporate boards in accordance with the provisions of Section 2(c) hereof nor
the ownership by the Executive of not more than two percent (2%) of the shares
of stock of any corporation having a class of equity securities actively traded
on a national securities exchange or market shall not be deemed, in and of
themselves, to violate the prohibitions of this Section 6(b).

 

(c)       During his employment with the Company and during the Non-Competition
Period, the Executive shall not take any action having the purpose or intended
or foreseeable effect of interfering with or otherwise damaging, in any material
respect, the Company's business relationship with any of its suppliers or
customers.

 

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(d)       During his employment with the Company and during the Non-Competition
Period, the Executive shall not, other than for the benefit of the Business
Entities, directly or indirectly, employ, or knowingly permit any company or
business organization directly or indirectly controlled by the Executive to
employ any person who is employed by the Company, or in any manner seek to
induce any such person to leave his or her employment with the Company.

 

(e)       If the Executive materially breaches any of the provisions of this
Section 6 (the "Restrictive Covenants"), the Company shall have the following
rights and remedies if such material breach continues and is not cured within
fifteen (15) days after written demand by the Company, each of which shall be
independent of the other and severally enforceable, and all of which shall be in
addition to, and not in lieu of, any other rights and remedies available to the
Company under law or equity:

 

(i)        the right and remedy to have the Restrictive Covenants specifically
enforced by any court having jurisdiction (whether by temporary restraining
order, preliminary injunction, permanent injunction, injunction in aid or
arbitration or otherwise) without having to post a bond, it being acknowledged
and agreed that any such breach or threatened breach will cause irreparable
injury to the Company and that money damages will not provide an adequate remedy
to the Company; and

 

(ii)       the right to discontinue the payment of any amounts or benefits owing
to the Executive under this Agreement.

 

(f)       The Executive acknowledges that: (i) the business in which the Company
is engaged is intensely competitive; (ii) the Executive's employment by the
Company will require that the Executive develop, have access to and knowledge of
Confidential Information; (iii) the direct or indirect disclosure or use of any
such Confidential Information to existing or potential competitors of the
Company would place the Company at a competitive disadvantage and would do
damage, monetary or otherwise, to the Company; (iv) the Executive has developed
goodwill with clients and suppliers of the Company at substantial expense to the
Company; (v) the Executive will continue to develop goodwill, through
substantial investment by the Company, while working for the Company; (vi) the
engaging by the Executive in any of the activities prohibited by this Section 6
may constitute improper appropriation and/or use of such Confidential
Information and/or goodwill; (vii) the services to be rendered by the Executive
to the Company are of a special and unique character; (viii) the Executive has
been fully advised by counsel in connection with his entering into this
Agreement, including as to statutory and common law regarding the enforceability
of the Restrictive Covenants; and (ix) enforcement of the Restrictive Covenants
will not unduly limit the Executive's ability to support himself or his family
or to earn a livelihood. The Executive expressly acknowledges that the
Confidential Information and goodwill of the Company constitute protectible
business interests

 

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of the Company and that the Restrictive Covenants are fair, reasonable, valid,
and enforceable.

 

(g)       The Executive acknowledges and agrees that each of the Restrictive
Covenants is given by the Executive as part of the consideration for this
Agreement and as an inducement to the Company to enter into this Agreement.

 

(h)       If any court determines that any of the Restrictive Covenants, or any
part thereof, is invalid or unenforceable, the remainder of the Restrictive
Covenants shall not thereby be affected and shall be given full effect, without
regard to the invalid portion. In addition, if any court construes any of the
Restrictive Covenants, or any part thereof, to be unenforceable because of the
duration of such provision or the area covered thereby, such court shall have
the power to reduce the duration or area of such provision and, in its reduced
form, such provision shall then be enforceable and shall be enforced. The
Executive agrees that the Restrictive Covenants, as so amended, shall be valid
and binding as though any invalid or unenforceable provision had not been
included herein.

 

(i)        For purposes of this Section 6 and Section 7 hereof, the "Company"
refers to the Company and any of its parents, subsidiaries, subdivisions or
affiliates.

 

 

7.

Developments.

 

(a)       If at any time or times during the Employment Period, the Executive
(either alone or with others) makes, conceives, discovers or reduces to practice
or causes to be made, conceived, discovered or reduced to practice, any
intellectual property or any interest or rights therein (whether or not
patentable or registrable under trademark, copyright or similar statutes or
subject to analogous protection), including without limitation any invention,
modification, discovery, design, development, improvement, process, software
program, original work of authorship, trademark, documentation, formula, data,
technique, know-how or trade secret (collectively referred to as "Developments")
that (i) relates to the business of the Company or any customer of, or supplier
to, the Company or any of the products or services being developed, manufactured
or sold by the Company or which may be used in relation therewith, (ii) results
from tasks assigned to the Executive by the Company or (iii) results from the
use of premises or personal property (whether tangible or intangible) owned,
leased or contracted for by the Company when used for Company purposes and not
for incidental personal purposes, such Developments and the benefits thereof
shall immediately become the sole and absolute property of the Company and its
successors, assigns, and nominees and the Executive (1) shall promptly make full
written disclosure to the Company (or any persons designated by it) of each such
Development, (2) will hold in trust each such Development for the sole right and
benefit of the Company, and (3) hereby assigns all right, title and interest the

 

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Executive may have or acquire in each such Development and benefits and/or
rights resulting therefrom to the Company and its assigns without further
compensation. The Executive further acknowledges that all original works of
authorship which are prepared by the Executive (either alone or with others)
within the scope of the Executive’s employment and which are protectible by
copyright are "works made for hire" as that term is defined in the United States
Copyright Act.

 

(b)     The Executive will, during the Employment Period and at any time
thereafter, at the request and cost of the Company, assist the Company and/or
its designee in every proper way to secure the Company's rights in the
Developments and any copyrights, patents, trademarks and/or other intellectual
property rights relating thereto in any and all countries, including without
limitation the disclosure to the Company of all pertinent information and data
with respect thereto, the execution of all applications, specifications, oaths,
assignments and all other instruments which the Company shall deem necessary or
desirable in order to apply for and obtain such rights and in order to assign
and convey to the Company, its successors, assigns, and nominees the sole and
exclusive rights, title and interest in and to such Developments and any
copyrights, patents, trademarks or other intellectual property rights relating
thereto. In the event the Company is unable, after reasonable effort, to secure
the Executive's signature on any document relating to any United States or
foreign patents, copyrights, trademarks or other analogous protection relating
to a Development, whether because of the Executive's physical or mental
incapacity or for any other reason whatsoever, the Executive hereby irrevocably
designates and appoints the Company and its duly authorized officers and agents
as the Executive’s agent and attorney-in-fact, to act for and in the Executive's
behalf and stead to execute and file any such application or applications and to
do all other lawfully permitted acts to further the prosecution and issuance of
patent, copyright, trademark or other analogous protection thereon with the same
legal force and effect as if executed by the Executive.

 

(c)       The Executive hereby acknowledges and agrees that the provisions of
this Section 7 are reasonable and valid.

 

8.        Notices. All notices or other communications hereunder shall be in
writing and shall be deemed to have been duly given (a) when delivered
personally or by local courier, (b) upon confirmation of receipt when such
notice or other communication is sent by facsimile, or (c) one day after timely
delivery to an overnight delivery courier. The addresses for such notices shall
be as follows:

 

For notices and communications to the Company:

 

 

1300 Mopac Expressway South

 

Austin, TX 78746

Attention: General Counsel

 

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For notices and communications to the Executive:

 

At the most recent address on file in the records of the Company

 

Any party hereto may, by notice to the other, change its address for receipt of
notices hereunder.

 

9.        Governing Law; Interpretation. This Agreement shall be construed under
and governed by the laws of the State of Texas, without reference to its
conflicts of law principles. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.

 

10.      Withholding; Payment. Notwithstanding any other provision of this
Agreement, the Company (or, as applicable, the trust established under Section
5(e) hereof) may withhold from amounts payable under this Agreement all federal,
state, local, and foreign taxes that are required to be withheld by applicable
laws or regulations. All cash amounts required to be paid hereunder shall be
paid in United States dollars.

 

11.      Amendment; Waiver. This Agreement may be amended, modified, superseded,
cancelled, renewed or extended, and the terms hereof may be waived, only by a
written instrument executed by the parties hereto or, in the case of a waiver,
by the party waiving compliance; provided that any such amendment, modification,
supersession, cancellation, renewal, extension or waiver by the Company must be
approved by the Board. The failure of any party at any time or times to require
performance of any provision hereof shall in no manner affect the right at a
later time to enforce the same. No waiver by any party of the breach of any term
or covenant contained in this Agreement, whether by conduct or otherwise, in any
one or more instances, shall be deemed to be, or construed as, a further or
continuing waiver of any such breach, or a waiver of the breach of any other
term or covenant contained in this Agreement.

 

 

12.

Successors and Assigns.

 

(a)       This Agreement shall be binding upon the Executive, without regard to
the duration of his employment by the Company or reasons for the cessation of
such employment, and inure to the benefit of his administrators, executors,
heirs and assigns, although the obligations of the Executive are personal and
may be performed only by him. This Agreement shall also be binding upon and
inure to the benefit of the Company and its subsidiaries, successors and
assigns, including any corporation with which or into which the Company or its
successors may be merged or which may succeed to their assets or business.

 

(b)       The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the

 

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business and/or assets of the Company to be obligated to perform this Agreement
(whether by reason of express assumption by the successor or by operation of
law) in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place.

 

13.      Non-Exclusivity of Rights. Except as may otherwise be specifically
provided in this Agreement, nothing in this Agreement shall prevent or limit the
Executive's continuing or future participation in any plan, program, policy or
practice provided by the Company or any of its affiliated companies for which
the Executive may qualify. Vested benefits and other amounts that the Executive
is otherwise entitled to receive under any other plan, policy, practice, or
program of, or any contract or agreement with, the Company or any of its
affiliated companies on or after the Date of Termination shall be payable in
accordance with the terms of each such plan, policy, practice, program,
contract, or agreement, as the case may be, except as explicitly modified by
this Agreement.

 

14.      No Mitigation. In no event shall the Executive be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement and,
except as specifically provided in Section 5(c)(ii) hereof, the amount of any
payment or benefit provided for in this Agreement shall not be reduced by any
compensation or benefits earned by the Executive as the result of employment by
another employer or any self-employment.

 

 

15.

Settlement of Disputes.

 

(a)       Optional Arbitration. In consideration of the substantial payments and
benefits provided to the Executive under this Agreement, the Executive agrees
that the Company may, but is not required to, submit to arbitration any dispute
or controversy arising between the Company and the Executive including, but not
limited to, any claim of discrimination under state or federal law. If the
Company elects to have any such dispute or controversy resolved by arbitration,
then any such arbitration proceedings shall be conducted in Austin, Texas in
accordance with the National Rules for Resolution of Employment Disputes of the
American Arbitration Association then in effect by a panel of three arbitrators,
one chosen by each of Executive and the Company, with the third arbitrator to be
chosen by the other two arbitrators or if the two arbitrators cannot agree upon
a third arbitrator, then by the President of the American Arbitration
Association; provided, however, that the Company may seek an injunction
including, but not limited to, an injunction in aid of arbitration from any
court of competent jurisdiction to enforce the Restrictive Covenants. Judgment
may be entered on the arbitrator's award in any court having jurisdiction and
attorney fees will be awarded to the prevailing party.

 

(b)       Jurisdiction and Venue if no Arbitration. If the Company does not make
the election described in subsection (a), above, any dispute or controversy

 

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arising out of Executive's employment or the termination thereof, including, but
not limited to, any claim of discrimination under state or federal law, shall be
brought exclusively in federal or state court with venue in Austin, Texas and
each party hereby irrevocably submits to the jurisdiction of such courts.

 

(c)       Fees and Expenses. Any reasonable fees or expenses incurred by the
Executive in connection with any proceeding described in this Section 15 shall
be reimbursed by the Company as soon as practicable following receipt of
supporting documentation reasonably satisfactory to the Company (but in any
event not later than the close of the Executive's taxable year following the
taxable year in which the fee or expense is incurred); provided that the
Executive shall be required to promptly return any such reimbursements to the
Company if the Executive does not prevail in such proceeding and the arbitrator
or court (as the case may be) determines that the Executive's actions in respect
of such proceeding were not in good faith; provided, further, that, upon the
Executive’s separation from service with the Company, in no event shall any
additional reimbursements be made prior to the date that is six months after the
date of the Executive’s separation from service to the extent such payment delay
is required under Section 409A(a)(2)(B)(i) of the Code. In no event shall any
reimbursement be made to the Executive for such fees or expenses incurred after
the later of (i) the Executive’s death and (ii) the date that is 10 years after
the date of the Executive’s separation from service with the Company.

 

 

16.

Agreement Preparation Fees; Indemnification.

 

(a)       The Company shall promptly reimburse the Executive for reasonable and
customary attorney’s fees incurred by the Executive in the negotiation and
documentation of this Agreement upon receipt of supporting documentation
reasonably satisfactory to the Company.

 

(b)       During and following the Employment Period, the Company shall
indemnify Executive and hold Executive harmless from and against any claim, loss
or cause of action arising from or out of Executive's performance or status as
an officer, director or employee of the Company or any of its subsidiaries or in
any other capacity, including any fiduciary capacity, in which Executive serves
at the request of Company to the maximum extent permitted by applicable law and
the Company's Certificate of Incorporation and By-Laws. Expenses incurred in
defending or investigating a threatened or pending action, suit or proceeding
shall be paid by the Company in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by or on behalf of the
Executive to repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by the Company. To the extent that the Company
reduces the indemnity rights provided for under its By-Laws after execution of
this Agreement, the Company’s indemnity obligations hereunder shall be
unaffected (to the extent permitted by applicable law).

 

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17.      Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed an original but which together shall constitute
one and the same instrument.

 

18.      Severability. 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.

 

19.      Entire Agreement. This Agreement constitutes the entire understanding
of the parties hereto with respect to the subject matter hereof and supersedes
all prior negotiations, discussions, writings and agreements between them with
respect to that subject matter. The Existing CIC Agreement shall be of no
further force or effect upon the occurrence of the Separation and the Executive
waives all rights that may have accrued thereunder.

 

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.

 

 

COMPANY

 

 

TEMPLE-INLAND INC., a Delaware

 

corporation

 

 

 

By: /s/ Kenneth M. Jastrow, II

 

Name:

Kenneth M. Jastrow, II

 

Title:

Chairman and CEO

 

 

 

 

EXECUTIVE

 

 

/s/ Doyle R. Simons

Doyle R. Simons

 

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APPENDIX A

 

Set forth below are the corporate boards on which service of the Executive is
approved as of the Effective Date pursuant to Section 2(c) of the Employment
Agreement to which this Appendix A forms a part:

 

1.

2.

3.

 

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APPENDIX B

 

For purposes of this Agreement, a "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 20% 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 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, and (c)
in the event of a recapitalization, 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

 

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directly from the Company or its Affiliates) representing 20% 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 substantially all of the Company's assets, other than
(a) 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 (b) the distribution directly
to the Company's shareholders (in one distribution or a series of related
distributions) of all of the stock of one or more subsidiaries of the Company
that represent substantially all of the Company's assets; 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" under clauses (I) through
(V) above 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 one or more entities which, singly or together,
immediately following such transaction or series of transactions, own all or
substantially all of the assets of the Company as constituted immediately prior
to such transaction or series of transactions.

 

For purposes of this definition of "Change in Control":

 

"Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under
Section 12 of the Exchange Act.

 

"Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the
Exchange Act.

 

"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from
time to time.

 

"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,

 

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709194.07-D.C. Server 2A - MSW

 

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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 substantially the same proportions as their
ownership of stock of the Company.

 

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APPENDIX C

 

GENERAL RELEASE OF CLAIMS AGREEMENT

 

This General Release of Claims Agreement (hereinafter referred to as “this
Agreement”) is made by and between TEMPLE-INLAND INC. (hereinafter referred to
as the "Company") and DOYLE R. SIMONS (hereinafter referred to as "Employee")
and is effective as of the date of Employee’s signature below.

 

In consideration of their mutual promises and obligations set out below, Company
and Employee agree to the following terms:

 

1.        Conditions of Separation. Employee’s employment with Company will
terminate effective with the close of business on [DATE] (the “Separation
Date”).

 

2.        Payments and Other Considerations. The parties agree that certain
portions of the consideration described in Section 5 of the Employment Agreement
between Employee and the Company dated August 9, 2007 (“Employment Agreement”)
would not be paid to Employee but for his execution of this General Release of
Claims Agreement.

 

EMPLOYEE UNDERSTANDS THAT THIS GENERAL RELEASE OF CLAIMS AGREEMENT INCLUDES A
RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.

 

3.       Waiver and Release of All Claims. In consideration of the agreements
made by Company in this Agreement, Employee on behalf of himself, his agents,
representatives, executors, attorneys, administrators, heirs or assigns, hereby
releases, acquits and forever discharges Company, its divisions, parent,
subsidiaries, affiliates, predecessors, assigns, successors, officers,
officials, directors, shareholders, employees, agents, and each of them, whether
past or present (hereinafter collectively referred to as the "Releasees"), from
any and all charges, actions, causes of actions, claims, damages, obligations,
suits, agreements, costs, expenses, attorneys' fees and with regard to the
payment of all wages, benefits, back pay, debts, obligations, compensatory
damages, punitive damages, actual damages, or any other liability of any kind
whatsoever, suspected or unsuspected, known or unknown, which have or could have
arisen out of Employee's employment with and/or separation of employment from
Company or any Releasee and/or any other occurrence or claim whatsoever, known
or unknown, arising on or before the effective date of this Agreement,
including, but not limited to:

 

a.        Claims which could have arisen under Title VII of the Civil Rights Act
of 1964, as amended; the Civil Rights Act of 1991; the Americans With
Disabilities Act; the Age Discrimination in Employment Act, as amended;

 

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the Family and Medical Leave Act; the Fair Labor Standards Act; the Equal Pay
Act; the National Labor Relations Act; the Worker Adjustment and Retraining
Notification Act; the Employee Retirement Income Security Act; the
Sarbanes-Oxley Act of 2002; the Texas Commission on Human Rights Act, and/or any
other federal, state or municipal employment discrimination statute (including
claims based on sex, sexual harassment, sexual orientation, age, race, national
origin, religion, ancestry, harassment, marital status, handicap, disability,
retaliation, any other legally protected group status, and/or attainment of
benefit plan rights); and/or

 

b.        Claims arising out of any other federal, state, or local statute, law,
constitution, ordinance or regulation;

 

c.         Any other claim whatsoever including, but not limited to, claims
relating to implied or express employment contracts; and/or

 

d.        Claims based on theories of tort, whether under common law or
otherwise,

 

but excluding claims which Employee cannot by law waive and any claims for
breach of this Agreement. Notwithstanding the general language of this release,
it is understood that Employee’s release of claims is not intended to waive any
rights Employee may have: (i) to indemnification as set forth under Section 16
of the Employment Agreement or (ii) as a terminating employee to: (a) benefits
under the Employment Agreement or any vested benefits under a benefit plan which
by its terms specifically provides for the vesting of benefits; (b) to apply for
unemployment compensation benefits under state law; or (c) to elect COBRA
continuation coverage.

 

4.        Entire Agreement. This Agreement together with the Employment
Agreement constitutes the entire agreement between Employee and Company. No
other promises or agreement shall be binding unless hereafter in writing and
signed by both parties.

 

5.        Time To Review, Attorney Consultation & Revocation. Employee
acknowledges and agrees that Company is hereby advising him that: (a) this
Agreement contains a release of claims under the Age Discrimination in
Employment Act, as amended; (b) he can and should consult with an attorney with
respect to the matters contained in this Agreement; (c) he has been given a
period of at least [forty-five (45)/twenty one (21)] days to decide whether to
accept its terms; (d) he may accept this offer at any point during that time by
returning this Agreement, signed by him, to [NAME, ADDRESS], within that time
period; and (e) he may revoke this Agreement any time during a period of up to
seven (7) days from the date he tenders this signed Agreement to Company. Any
revocation must be made in writing and be delivered by hand or otherwise

 

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within the required time to [NAME] at the address above. Employee understands
that he will receive severance payments and benefits pursuant to the Employment
Agreement only once this 7-day revocation period has expired and this Agreement
becomes final and irrevocable.

 

6.        Separability. If any portion of this Agreement is found to be
unenforceable, the remainder of this Agreement shall remain in full force and
effect.

 

7.        Construction. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Texas, without regard to its conflicts
of law principles.

 

8.        Non-Admission. All parties acknowledge that this Agreement does not
constitute an admission by Company of any liability whatsoever, but results from
the desire to expeditiously resolve possibly disputed issues of fact and law,
and further acknowledge that Company denies all allegations of violation of any
law, statute, ordinance, regulation, common law, tort or contract.

 

9.       Full Knowledge, Consent and Voluntary Signing of Agreement. Employee
acknowledges and agrees that: (a) he has carefully read this Agreement and fully
understands its meaning, intent and terms; (b) he has full knowledge of its
legal consequences; (c) he agrees to all the terms of this Agreement and is
voluntarily signing below; (d) other than as stated herein, he attests that no
promise or inducement has been offered for this Agreement; and (e) he is legally
competent to execute this Agreement and accepts full responsibility therefor.

 

10.     Standards of Business Conduct Certification. Employee acknowledges that
he has read and understood the Company's Standards of Business Conduct and
Ethics (“SOBCE”). In this connection Employee certifies to Company that: (a) he
has in the past reported through the SOBCE’s reporting procedures any violations
of the SOBCE of which he was aware; (b) he is aware of no other violations of
the SOBCE which he has not previously reported; and (c) he is not aware of any
conduct by any employee of Company (or any part of the Company) that he believes
may constitute a violation of any laws or regulations relating to fraud against
shareholders. The only exception(s) to these certifications by Employee, if any,
are the following matters:
_____________________________________________________________

_____________________________________________________________.

 

[These lines to be filled-in by Employee, if applicable, at the time he signs
this Agreement. If he leaves these lines blank, Employee agrees that he has
nothing to report. Note: reporting information in this section does not in any
way adversely affect any of Employee’s rights and responsibilities set out in
this Agreement.]

 

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WHEREFORE, EMPLOYEE AGREES THAT HE HAS READ AND VOLUNTARILY ENTERED INTO THIS
AGREEMENT WITH FULL KNOWLEDGE OF ITS SIGNIFICANCE.

 

EMPLOYEE:

COMPANY:

 

 

By    

DOYLE R. SIMONS          Title:  

 

Date:               Date:  

 

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