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EXHIBIT 10.10

CHANGE IN CONTROL/SEVERANCE AGREEMENT

     THIS AGREEMENT, dated [___], 2007, is made by and between Forestar Real Estate Group
LLC, a Delaware corporation (the “Company”), Temple-Inland Inc., a Delaware corporation
(“Temple-Inland”), and «First_Name» «Last_Name» (the “Executive”).

     WHEREAS, the Executive currently is employed by and a party to a Change in Control Agreement
(the “Existing CIC Agreement”) with Temple-Inland;

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

     WHEREAS, the Company considers it essential to the best interests of its stockholders to
foster the continued employment of key management personnel following the effective time of the
spinoff of the Company (the “Separation”);

     WHEREAS, effective as of the Separation, the parties intend for the Existing CIC Agreement to
cease to be of any force or effect;

     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 the Company and its stockholders; and

     WHEREAS, the Board has determined that appropriate steps should be taken (i) to ensure that
the Executive receive the protections afforded under the Existing CIC Agreement for the two-year
period beginning on the date of the Separation and (ii) thereafter 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 following such two-year period;

     NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained,
the Company, Temple-Inland (solely for purposes of Section 6.1(C) hereof and the last sentence of
Section 2 hereof) 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

 

 

date of the Separation (the “Effective Date”) and shall continue in effect through the second
anniversary of the Effective Date (such two-year period, the “Initial Term”); 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 24 months beyond the month in which
such Change in Control occurred. Effective as of the Effective Date, the Existing CIC Agreement
shall terminate and shall cease to be of any further force or effect and the Executive waives all
rights that may have accrued thereunder.

     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. No Severance Payments shall be payable under
this Agreement unless there shall have been a termination of the Executive’s employment during the
Initial Term by the Company without Cause or by the Executive with Good Reason or 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 and
within two years after 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 During the Initial Term or otherwise 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 during the

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Initial Term or otherwise 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 Executive’s
then current salary (determined without regard to any reduction constituting Good Reason) 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 during the Initial Term
and otherwise 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.

     5.4 For the two-year period commencing immediately following a Change in Control and during
the Initial Term, the Company agrees (A) to provide the Executive with benefits substantially
similar to the material benefits provided to 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 (or, during the Initial Term, immediately after the
Separation), and to provide the Executive with a number of vacation days that would be no less
favorable to the Executive than the number determined in accordance with the vacation policy in
effect immediately prior to the Change in Control (or, during the Initial Term, immediately after
the Separation) on the basis of the Executive’s years of service with the Company, (B) to timely
pay to the Executive any portion of the Executive’s current compensation, or timely pay to the
Executive any material portion of an installment of deferred compensation under any deferred
compensation program of the Company, and (C) not to take any other action that would directly or
indirectly deprive the Executive of any material fringe benefit enjoyed by the Executive
immediately prior to the Change in Control (or, during the Initial Term, immediately after the
Separation), exclusive of any across the board reductions affecting all similarly situated
employees.

     6. Severance Payments.

     6.1 If the Executive’s employment is terminated either during the Initial Term or otherwise
following a Change in Control and within two (2) years after a Change in Control (provided that
such termination of employment constitutes a “separation from service” within the meaning of
Section 409A of the Code), in either event 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

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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 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 two (2) 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 (including, if the Date of Termination occurs within three years after the
Effective Date, salary paid in respect of employment by Temple-Inland or its Affiliates
during such three-year period) 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, the greatest actual annual bonus in
respect of any of the three preceding fiscal years (including as applicable, with respect
to years ending at or before the Effective Date, annual bonuses paid by Temple-Inland)).

     (B) For the two-year period immediately following the Date of Termination, the Company
shall arrange to provide the Executive and his dependents life, accidental death and
dismemberment, medical and dental 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 health and welfare benefits of the same type are received by or made
available to the Executive during the two-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,

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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.

     (C) Vesting shall accelerate and restrictions shall lapse on all unvested or
restricted equity or equity-based awards in respect of either the Company or Temple-Inland
held by the Executive as of the Date of Termination and each stock option to acquire common
stock of the Company or Temple-Inland and each stock appreciation right in respect of
either the Company or Temple-Inland 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 subsidiary holding
Temple-Inland’s 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 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.

     (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, and except to
the extent it would result in a duplication of benefits under Section 6.1(E) hereof, the
Executive shall be treated as if he had accumulated (after the Date of Termination)
twenty-four (24) 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) 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 or credited
thereunder by the Company on the Executive’s behalf during the two (2) years immediately
following the Date of Termination (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, (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 the Effective Date 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

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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.

     (F) 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 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 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 (ii) 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, 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 1/2,
multiplied by one (1)).

     (G) 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 (including, if the Date of Termination occurs within three
years after the Effective Date, salary paid in respect of employment by Temple-Inland or
its Affiliates during such three-year period), 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, the highest actual
annual bonus in respect of any of the three preceding fiscal years (including as
applicable, with respect to years ending at or before the Effective Date, annual bonuses
paid by Temple-Inland)), which payment shall be made as soon as practicable but in any
event within thirty (30) business days following the date of request for reimbursement.
Subject to the foregoing, in no event shall any payment described in this Section 6.1(G) be
made after the end of the calendar year following the calendar year in which the expenses
were incurred.

     (H) For the two-year period immediately following the Date of Termination, the Company
shall provide the Executive with perquisites (such as any use of a Company provided
automobile, club membership fee reimbursements, income tax preparation and financial
advisory services) 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,

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provided that in no event shall the amount of perquisites to which the Executive is
entitled under this Section 6.1(H) for any taxable year of the Executive affect the amount
of perquisites to which the Executive is entitled under this Section 6.1(H) for any other
taxable year.

     6.2 Excise Tax Gross-Up.

     (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.

     (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 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.

     (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 “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

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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 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,

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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 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) and (F) of Section 6.1 hereof shall be made
as soon as practicable (but in any event not later than the fifth day) following the Date of
Termination; provided that, to the extent required to satisfy the provisions 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 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 payments provided in Section 6.2 hereof shall be made 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). If the amounts of the
payments described in the preceding provisions of this Section 6.3 cannot be finally determined on
or before the date payment is to be made, the Company shall pay to the Executive (or shall cause
the grantor trust described in Section 6.5 to 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

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which the Executive is clearly entitled and shall pay (or cause to be paid) 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 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). 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). To the extent the benefits to be
made available under subsections (B) and (H) of Section 6.1 hereof 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; provided,
however, that this requirement for payment by the Executive and reimbursement by the Company shall
apply solely to the extent required by Section 409A(a)(2)(B)(i) of the Code.

     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 (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.

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     6.5 To the extent that the payment of any amount due under subsections (A), (E) or (F) of
Section 6.1 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 subsections (A), (E) and (F) of Section 6.1 hereof, together with six months
interest thereon at the 409A Interest Rate (as defined in Section 6.3 hereof), 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 subsections (A), (E) and (F) of Section 6.1 hereof shall
be payable from the trust, together with the appropriate amount of interest at the 409A Interest
Rate (as defined in Section 6.3 hereof), on or as soon as practicable and in any event within five
days after the Section 409A Payment Date (as defined in Section 6.3 hereof), provided that to the
extent such amount is paid to the Executive by the Company, the trust shall pay such amount to the
Company.

     7. Termination Procedures and Compensation During Dispute.

     7.1. Notice of Termination. During the Initial Term and otherwise 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 during the Initial Term or 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,

11

 

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, provided that, in the case
of a termination by the Executive, 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).

     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) 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 during the Initial Term or
otherwise 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 The Company 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 the
Company to be obligated to perform this Agreement (whether by

12

 

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.

     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:

1300 Mopac Expressway South

Austin, TX 78746

Attention: General Counsel

     11. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless
such waiver, modification or discharge is agreed to in 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 (including without limitation the Existing CIC Agreement); 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 during the Initial Term or otherwise following a Change in Control, in any case 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

13

 

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.

     12. Validity. 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.

     (E) “Board” shall mean the Board of Directors of the Company.

     (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

14

 

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
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

15

 

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 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.

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

     (I) “Company” shall mean Forestar Real Estate Group LLC and, except in determining under
Section 15(G) hereof whether or not any Change in Control of the Company has occurred, shall
include any successor to its business and/or assets which assumes and agrees to perform this
Agreement by operation of law, or otherwise.

     (J) “Date of Termination” shall have the meaning set forth in Section 7.2 hereof.

16

 

     (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) “Effective Date” shall have the meaning set forth in Section 2 hereof.

     (M) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to
time.

     (N) “Excise Tax” shall mean any excise tax imposed under Section 4999 of the Code.

     (O) “Executive” shall mean the individual named in the first paragraph of this Agreement.

     (P) “Existing CIC Agreement” shall have the meaning set forth in the recitals hereof.

     (Q) “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.

     (R) “Good Reason” for termination by the Executive of the Executive’s employment shall mean
the occurrence (without the Executive’s express written consent) during the Initial Term (treating
all references in paragraphs (I) through (IV) below to the period “immediately prior to the Change
in Control” as references to “immediately after the Separation”), 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 (IV) 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 such act or failure to act
is corrected prior to the Date of Termination specified in the Notice of Termination 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 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);

17

 

     (II) a material diminution in base salary as in effect immediately prior to the Change
in Control;

     (III) a material change in the geographic location at 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 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 reasonably required travel on the Company’s
business; or

     (IV) any other action or inaction that constitutes a material breach of Section 5.4 or
9.1 of this Agreement.

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, provided that 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. Notwithstanding the foregoing provisions of
this definition of “Good Reason,” the events described on Exhibit A hereto do not constitute “Good
Reason” for the termination of the Executive’s employment. 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.

     (S) “Gross-Up Payment” shall have the meaning set forth in Section 6.2 hereof.

     (T) “Initial Term” shall have the meaning set forth in Section 2 hereof.

     (U) “Notice of Termination” shall have the meaning set forth in Section 7.1 hereof.

     (V) “Pension Plan” shall mean any nonqualified, 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 nonqualified, 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.

     (W) “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

18

 

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.

     (X) “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.

     (Y) “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.

     (Z) “Separation” shall have the meaning set forth in the recitals hereof.

     (AA) “Severance Payments” shall have the meaning set forth in Section 6.1 hereof.

     (BB) “Tax Counsel” shall have the meaning set forth in Section 6.2 hereof.

     (CC) “Temple-Inland” has the meaning set forth in the introduction of this Agreement.

     (DD) “Term” shall mean the period of time described in Section 2 hereof (including any
extension, continuation or termination described therein).

     (EE) “Total Payments” shall mean those payments so described in Section 6.2 hereof.

19

 

     IN WITNESS WHEREOF, the parties have duly executed this Agreement to be effective as of the
Effective Date.

	 	 	 	 	 	 	 
	 	 	FORESTAR REAL ESTATE GROUP LLC
	 
	 	 	 	 	 	 
	 	 	 	 	 
	 

	 	By:
	 	James M. DeCosmo	 	 
	 

	 	Title:
	 	President	 	 
	 
	 	 	 	 	 	 
	 	 	TEMPLE-INLAND INC.	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	 

	 	By:
	 	Leslie K. O’Neal	 	 
	 	 	Title:	 	Vice President and Secretary
	 
	 	 	 	 	 	 
	 	 	EXECUTIVE	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	«First_Name» «Last_Name»

20

 

EXHIBIT A

PERMITTED EVENTS

For the avoidance of doubt, Good Reason shall not include any direct or indirect consequence of the
establishment of any of the following compensation and benefit arrangements of the Company as of
the Separation (including by virtue of the fact that such compensation and benefit arrangements may
differ from those in effect at Temple-Inland before the Separation):

1. Base salary

2. Annual bonus and other short-term incentive benefits

3. Savings plan (including 401(k) and supplemental plan benefits)

4. Retirement benefits (including supplemental plan benefits)

5. Health and other welfare benefits

6. Long-term incentive plan benefits

For the avoidance of doubt, the Executive also may not assert Good Reason by reason of the nature
of the Executive’s position and duties at the time of the Separation (including any changes from
the Executive’s position and duties before the Separation). The Executive also may not assert Good
Reason by reason of any relocation of the Company’s headquarters within the Austin, Texas
metropolitan area during the Initial Term.

21exv10w11

 

EXHIBIT 10.11

EMPLOYMENT AGREEMENT

     THIS AGREEMENT (“Agreement”) is entered into as of August 9, 2007, by and between FORESTAR
REAL ESTATE GROUP LLC , a Delaware limited liability company (the “Company”), and JAMES M. DeCOSMO
(the “Executive”).

     WHEREAS, the Executive currently is employed by Temple-Inland Inc. (“Temple-Inland”);

     WHEREAS, Temple-Inland has determined that it is appropriate, desirable and in the best
interests of Temple-Inland and its stockholders to effect (i) a spinoff to the Temple-Inland
stockholders of the equity interests of the Company (or any successor thereto), (ii) a spinoff to
the Temple-Inland stockholders of a subsidiary holding Temple-Inland’s financial services
operations, and (iii) a sale of Temple-Inland’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 Temple-Inland;

     WHEREAS, effective as of the effective time of the spinoff 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

 

 

account such event, and (b) if that certain Transformation Agreement between Kenneth M.
Jastrow and Temple-Inland 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 Temple-Inland, 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 Chief Executive Officer.
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.

2

 

     (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 Five Hundred
Thousand Dollars ($500,000) 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

3

 

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 (3/4) 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

4

 

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

5

 

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

6

 

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

7

 

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

8

 

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

9

 

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 1/2, 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

10

 

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 Temple-Inland and the subsidiary holding
Temple-Inland’s 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 Temple-Inland and such company held by the Executive as of the Date of
Termination and that each stock option to acquire common stock of Temple-Inland and such
company and each stock appreciation right in respect of Temple-Inland and 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 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

11

 

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

12

 

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

13

 

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

 

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,

15

 

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.

16

 

     (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

17

 

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

18

 

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

19

 

     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

20

 

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

21

 

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).

22

 

     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. The provisions of the
preceding sentence are also for the benefit of, and shall be enforceable by, Temple-Inland.

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

	 	 	 	 	 	 	 
	 	 	FORESTAR REAL ESTATE GROUP LLC	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ Kenneth M. Jastrow, II	 	 
	 

	 	 	 	 

Name: Kenneth M. Jastrow, II
	 	 
	 

	 	 	 	Title:   Chairman of the Board	 	 
	 
	 	 	 	 	 	 
	 	 	EXECUTIVE	 	 
	 
	 	/s/ James M. DeCosmo	 	 	 	 
	 	 	 	 	 
	 	 	James M. DeCosmo	 	 

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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

25

 

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,

26

 

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 FORESTAR REAL ESTATE GROUP LLC (hereinafter referred to as the “Company”) and JAMES
M. DeCOSMO (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

28

 

Disabilities Act; the Age Discrimination in Employment Act, as amended; 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.

29

 

Any revocation must be made in writing and be delivered by hand or otherwise 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.]

30

 

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

	 	 	 	 	 	 	 	 	 	 	 
	EMPLOYEE:	 	 	 	COMPANY:	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By	 	 	 	 
	 	 	 	 	 	 	 	 	 
	JAMES M. DeCOSMO	 	 	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 	 	 

	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Date:

	 	 	 	 	 	Date:	 	 	 	 
	 

	 	 

	 	 	 	 	 	 

	 	 

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