CHANGE IN CONTROL AGREEMENT
Exhibit 10.21
THIS AGREEMENT, dated November 7, 2008 (the “Effective Date”), is made by and between
Temple-Inland Inc., a Delaware corporation (“Temple-Inland”), and Xxxxx X. Xxxxxx (the
“Executive”).
WHEREAS, Temple-Inland considers it essential to the best interests of its stockholders to
xxxxxx the continued employment of key management personnel; and
WHEREAS, the Board recognizes that, as is the case with many publicly held corporations, the
possibility of a Change in Control exists and that such possibility, and the uncertainty and
questions which it may raise among management, may result in the departure or distraction of
management personnel to the detriment of Temple-Inland and its stockholders; and
WHEREAS, the Board has determined that appropriate steps should be taken to reinforce and
encourage the continued attention and dedication of members of the Company’s management, including
the Executive, to their assigned duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a Change in Control; and
WHEREAS, the Executive currently is party to a Change in Control Agreement (the “Existing CIC
Agreement”) with Temple-Inland; and
WHEREAS, the Company and the Executive intend this Agreement to continue to provide the
protections afforded by the Existing CIC Agreement except to the extent the provisions of the
Existing CIC Agreement would give rise to a tax under Section 409A of the Code or to the extent the
provisions of the Existing CIC Agreement are otherwise modified herein; and
WHEREAS, the Company and the Executive intend for the Existing CIC Agreement to cease to be of
any force or effect as of the date hereof;
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained,
Temple-Inland and the Executive hereby agree as follows:
1. Defined Terms. The definitions of capitalized terms used in this Agreement are provided
in the last Section hereof.
2. Term of Agreement. The Term of this Agreement shall commence on the Effective Date and
shall continue in effect through the second anniversary of the Effective Date; provided,
however, that commencing on the first anniversary of the Effective Date, and on each
anniversary of the Effective Date thereafter, the Term shall automatically be extended for one
additional year unless, not later than 90 days prior to each such date, the Company or the
Executive shall have given notice not to extend the Term; and provided, further,
that if a Change in Control shall have occurred during the Term, the Term shall expire no earlier
than 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.
3. Company’s Covenants Summarized. In order to induce the Executive to remain in the
employ of the Company and in consideration of the Executive’s covenants set forth in Section 4
hereof, the Company agrees, under the conditions described herein, to pay the Executive the
Severance Payments and the other payments and benefits described herein. Except as provided in
Section 9.1 hereof, no Severance Payments shall be payable under this Agreement unless there shall
have been (or, under the terms of the second sentence of Section 6.1 hereof, there shall be deemed
to have been) a termination of the Executive’s employment with the Company following a Change in
Control and during the Term. This Agreement shall not be construed as creating an express or
implied contract of employment and, except as otherwise agreed in writing between the Executive and
the Company, the Executive shall not have any right to be retained in the employ of the Company.
4. The Executive’s Covenants. The Executive agrees that, subject to the terms and
conditions of this Agreement, in the event of a Potential Change in Control during the Term, the
Executive will remain in the employ of the Company until the earliest of (i) a date which is six
months from the date of such Potential Change of Control, (ii) the date of a Change in Control,
(iii) the date of termination by the Executive of the Executive’s employment for Good Reason or by
reason of death, Disability or Retirement, or (iv) the termination by the Company of the
Executive’s employment for any reason.
5. Compensation Other Than Severance Payments.
5.1 Following a Change in Control and during the Term, during any period that the Executive
fails to perform the Executive’s full time duties with the Company as a result of incapacity due to
physical or mental illness, the Company shall pay the Executive’s full salary to the Executive at
the rate in effect at the commencement of any such period, together with all compensation and
benefits payable to the Executive under the terms of any compensation or benefit plan, program or
arrangement maintained by the Company during such period (other than any disability plan), until
the Executive’s employment is terminated by the Company for Disability.
5.2 If the Executive’s employment shall be terminated for any reason following a Change in
Control and during the Term, the Company shall pay the Executive’s full salary to the Executive
through the Date of Termination at the highest rate in effect during the three-year period ending
immediately prior to the Date of Termination together with all compensation and benefits payable to
the Executive through the Date of Termination under the terms of the Company’s compensation and
benefit plans, programs or arrangements as in effect immediately prior to the Date of Termination
or, if more favorable to the Executive, as in effect immediately prior to the first occurrence of
an event or circumstance constituting Good Reason.
5.3 If the Executive’s employment shall be terminated for any reason following a Change in
Control and during the Term, the Company shall pay to the Executive the Executive’s normal post
termination compensation and benefits as such payments become due. Such post termination
compensation and benefits shall be determined under, and paid in accordance with, the Company’s
retirement, insurance and other compensation or benefit plans, programs and arrangements as in
effect immediately prior to the Date of Termination or, if more favorable to
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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, the Company
agrees (A) to provide the Executive with benefits substantially similar to the material benefits
enjoyed by the Executive under any of the Company’s executive compensation (including bonus, equity
or incentive compensation), pension, savings, life insurance, medical, health and accident, or
disability plans in which the Executive was participating immediately prior to the Change in
Control and to provide the Executive with the number of paid vacation days to which the Executive
is entitled on the basis of years of service with the Company in accordance with the Company’s
normal vacation policy in effect at the time of the Change in Control, (B) to timely pay to the
Executive the Executive’s current compensation and each installment of deferred compensation under
any deferred compensation program of the Company, and (C) not to take any other action which would
directly or indirectly materially reduce any of the benefits described in paragraph (A) above or
deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the
Change in Control.
6. Severance Payments.
6.1 If the Executive’s employment is terminated following a Change in Control and within two
(2) years after a Change in Control (provided that such termination of employment constitutes a
“separation from service” within the meaning of Section 409A of the Code), other than (A) by the
Company for Cause, (B) by reason of death or Disability, or (C) by the Executive without Good
Reason, then the Company shall pay the Executive the amounts, and provide the Executive the
benefits, described in this Section 6.1 (“Severance Payments”) and Section 6.2, in addition to any
payments and benefits to which the Executive is entitled under Section 5 hereof. For purposes of
this Agreement, the Executive’s employment shall be deemed to have been terminated following a
Change in Control by the Company without Cause or by the Executive with Good Reason, if (i) the
Executive’s employment is terminated by the Company without Cause prior to a Change in Control
(whether or not a Change in Control ever occurs) and such termination was at the request or
direction of a Person who has entered into an agreement with the Company the consummation of which
would constitute a Change in Control, or (ii) the Executive terminates his employment for Good
Reason prior to a Change in Control (whether or not a Change in Control ever occurs) and the
circumstance or event which constitutes Good Reason occurs at the request or direction of such
Person. For purposes of any determination regarding the applicability of the immediately preceding
sentence, any position taken by the Executive shall be presumed to be correct unless the Company
establishes to the Board by clear and convincing evidence that such position is not correct.
(A) In lieu of any further salary payments to the Executive for periods subsequent to the Date
of Termination, the Company shall pay to the Executive a lump sum severance payment, in cash, equal
to three (3) times the sum of (i) the Executive’s highest base salary as in effect during the
three-year period ending immediately prior to the Date of Termination and (ii) the Executive’s
target annual bonus pursuant to any annual bonus or incentive plan maintained by the Company in
respect of the fiscal year in which occurs the Date of Termination (or, if higher, in respect of
any of the three preceding fiscal years). The amount payable pursuant to this Section 6.1(A) shall
be reduced by the amount of any cash severance or
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salary continuation benefit paid or payable to the Executive under any other plan, policy or
program of the Company or any written employment agreement between the Executive and the Company.
(B) For the three-year period immediately following the Date of Termination, the Company shall
arrange to provide the Executive and his dependents life, short-term disability, long-term
disability, travel accident, accidental death and dismemberment, medical, dental and other health
and welfare benefits substantially similar to those provided to the Executive and his dependents
immediately prior to the Date of Termination or, if more favorable to the Executive, those provided
to the Executive and his dependents immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, at no greater cost to the Executive than the cost to the
Executive immediately prior to such date or occurrence; provided, however, that, unless the
Executive consents to a different method (after taking into account the effect of such method on
the calculation of “parachute payments” pursuant to Section 6.2 hereof), such health and welfare
benefits shall be provided, as applicable, 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 three-year period following the
Executive’s Date of Termination (which such benefits received by or made available to the Executive
shall be reported by the Executive to the insurance company or other appropriate party in
accordance with any applicable coordination of benefits provisions), the benefits otherwise
receivable by the Executive pursuant to this Section 6.1(B) shall be made secondary to such
benefits; provided, however, that the Company shall reimburse the Executive for the
excess, if any, of the cost of such benefits to the Executive over such cost immediately prior to
the Date of Termination or, if more favorable to the Executive, the first occurrence of an event or
circumstance constituting Good Reason.
(C) Each long-term incentive compensation award outstanding as of the Date of Termination
(including without limitation restricted stock, stock options, restricted stock units and
performance share units) shall vest in full and any such stock options shall remain outstanding and
exercisable for the full duration of their term.
(D) In addition to the benefits to which the Executive is entitled under any Pension Plan that
is a defined benefit pension plan (including the Temple-Inland Retirement Plan and the
Temple-Inland Supplemental Executive Retirement Plan (the “SERP”) and any successors thereto), the
Company shall pay to the Executive a lump sum amount, in cash, that is actuarially equivalent to
the sum of (i) the additional pension benefits that the Executive would have accrued under such
plans (x) assuming that the Executive remained employed for an additional three-year period
immediately following the Date of Termination and earned compensation during such period at a rate
equal to the Executive’s highest rate of compensation (as defined in the applicable Pension Plan)
during the three-year period ending immediately prior to the Date of Termination, and (y)
determined without regard to any amendment to any such Pension Plan made subsequent to the Change
in Control and on or prior to the Date of Termination, which amendment adversely affects in any
manner the computation of benefits thereunder and (ii) the excess of (A) the Executive’s accrued
benefit under the Pension Plan as of the Date of Termination over (B) the portion of such accrued
benefit that is nonforfeitable as of the Date of Termination under the terms of the Pension Plan.
For purposes of this Section 6.1(D), “actuarial equivalent” shall be determined (x) using the same
assumptions utilized under the
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applicable plan (or to the extent that the applicable plan does not provide the required
assumptions, the assumptions provided under the SERP) immediately prior to the Date of Termination
or, if more favorable to the Executive, immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, (y) on the basis of a straight life annuity (or other
mandatory or default form of benefit) commencing at the date as of which the actuarial equivalent
of such annuity or other form of benefit is greatest on or between the Date of Termination and the
third anniversary of the Date of Termination; and (z) taking into account any early retirement
subsidies associated with the applicable benefit (including in the case of the SERP, any early
retirement subsidies that apply by reason of certain accrued benefits thereunder being determined
by reference to the terms of the Temple-Inland Retirement Plan, or any successor thereto). If the
Executive’s Date of Termination is three or more years prior to the earliest early retirement date
permitted under the applicable Pension Plan, the actuarial equivalent calculation described above
in this subsection (D) shall reflect any early retirement subsidy as of such earliest early
retirement age reduced on an actuarially equivalent basis to the date as of which the benefit is
the greatest on or between the Date of Termination and the third anniversary of the Date of
Termination.
(E) In addition to the benefits to which the Executive is entitled under any Pension Plan that
is a defined contribution or individual account 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 three (3) years immediately
following the Date of Termination, 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 applicable Pension Plan) during the three-year period ending immediately prior to
the Date of Termination, and (z) without regard to any amendment to the Pension Plan made
subsequent to a Change in Control and on or prior to the Date of Termination, which amendment
adversely affects in any manner the computation of benefits thereunder, and (ii) the excess, if
any, of (x) the Executive’s account balance under the Pension Plan as of the Date of Termination
over (y) the portion of such account balance that is nonforfeitable under the terms of the Pension
Plan.
(F) Notwithstanding any provision of any annual plan to the contrary, the Company shall pay to
the Executive a lump sum amount, in cash, equal to the sum of (i) any unpaid incentive compensation
which has been allocated or awarded to the Executive for a completed annual bonus cycle preceding
the Date of Termination under any such plan and which, as of the Date of Termination, is contingent
only upon the continued employment of the Executive to a subsequent date, (ii) if the Date of
Termination occurs before the end of the first six months in the then-current annual bonus cycle
under the applicable plan, a pro rata portion to the Date of Termination of the aggregate value of
all contingent incentive compensation awards to the Executive for the uncompleted period under any
such plan, calculated as to each such award by multiplying the award that the Executive would have
earned on the last day of the performance award period, assuming the achievement, at the target
level (or if higher, at the then projected actual final level), of the individual and corporate
performance goals established with respect to such award, by the fraction obtained by dividing the
number of full months and any fractional portion of a month during such performance award period
through the Date of Termination by the total number of months contained in such performance award
period, and (iii)
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if the Date of Termination occurs after the end of the first six months in the then-current
annual bonus cycle but before the end of such annual bonus cycle under the applicable plan, the
full aggregate value of all contingent incentive compensation awards to the Executive for the
uncompleted period under any such plan assuming the achievement, at the target level (or if higher,
at the then projected actual final level), of the individual and corporate performance goals
established with respect to such award.
(G) If the Executive would have become entitled to benefits under the Company’s
post-retirement health care or life insurance plans, as in effect immediately prior to the Date of
Termination or, if more favorable to the Executive, as in effect immediately prior to the first
occurrence of an event or circumstance constituting Good Reason, had the Executive’s employment
terminated at any time within three (3) years after the Date of Termination, the Company shall
provide such post-retirement health care or life insurance benefits to the Executive and the
Executive’s dependents commencing on the later of (i) the date on which such coverage would have
first become available and (ii) the date on which benefits described in subsection (B) of this
Section 6.1 terminate.
(H) The Company shall reimburse the Executive for expenses incurred for outplacement services
suitable to the Executive’s position for a period of one (1) year following the Date of Termination
(or, if earlier, until the first acceptance by the Executive of an offer of employment) in an
amount not exceeding 15% of the sum of the Executive’s highest annual base rate of salary as in
effect during the three-year period ending immediately prior to the Date of Termination, and the
greatest target annual bonus pursuant to any annual bonus or incentive plan maintained by the
Company in respect of the fiscal year in which occurs the Date of Termination (or, if higher, in
respect of any of the three preceding fiscal years), 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(H) be made after the end of the calendar year following the calendar year in which the expenses
were incurred.
(I) For the three-year period immediately following the Date of Termination, the Company shall
provide the Executive with his customary perquisites (such as any use of a Company provided
automobile, club membership fee reimbursements, income tax preparation and financial advisory
services) in each case on the same terms and conditions that were applicable immediately prior to
the Date of Termination or, if more favorable, immediately prior to the first occurrence of an
event or circumstance constituting Good Reason, provided that in no event shall the amount of
perquisites to which the Executive is entitled under this Section 6.1(I) for any taxable year of
the Executive affect the amount of perquisites to which the Executive is entitled under this
Section 6.1(I) for any other taxable year.
(J) Any amounts payable to the Executive in accordance with Section 8.1 of the SERP shall,
notwithstanding anything to the contrary in such Section 8.1, be paid as soon as practicable after
the Executive’s Termination of Employment (as defined in the SERP) and in all events not later that
five days after Termination of Employment, but subject to Section 8.4 of the SERP (relating to
delays in payment required under Section 409A of the Code).
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6.2 (A) Whether or not the Executive becomes entitled to the Severance Payments, if any
payment or benefit received or to be received by the Executive in connection with a Change in
Control or the termination of the Executive’s employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions
result in a Change in Control or any Person affiliated with the Company or such Person) (all such
payments and benefits, including the Severance Payments, being hereinafter called “Total Payments”)
will be subject (in whole or part) to the Excise Tax, then, subject to the provisions of subsection
(B) of this Section 6.2, the Company shall pay to the Executive an additional amount (the “Gross Up
Payment”) such that the net amount retained by the Executive, after deduction of any Excise Tax on
the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon
the Gross-Up Payment, shall be equal to the Total Payments.
(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 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
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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, 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.
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6.3 The payments provided in subsections (A), (D), (E) and (F) of Section 6.1 hereof (and, to
the extent applicable, Section 6.1(C) hereof) shall be made as soon as practicable (but in any
event not later than the fifth day) following the Date of Termination, subject to Section 6.6
hereof. 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 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 (I) 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
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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.
6.5 To the extent that the payment of any amount due under subsections (A), (D), (E) or (F) of
Section 6.1 hereof (and, to the extent applicable, Section 6.1(C) hereof) or any nonqualified
Pension Plan 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), (D), (E) and (F) of Section 6.1 hereof or any nonqualified Pension
Plan that are delayed by reason of Section 409A(a)(2)(B)(i) of the Code, together with six months
interest thereon at the 409A Interest Rate (as defined in Section 6.6 hereof) or such other rate of
return as may be provided for under the applicable nonqualfied Pension Plan, to a grantor (“rabbi”)
trust (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),
(D), (E) and (F) of Section 6.1 hereof or any nonqualified Pension Plan that are delayed by reason
of Section 409A(a)(2)(B)(i) of the Code shall be payable from the trust, together with the
appropriate amount of interest at the 409A Interest Rate (as defined in Section 6.6 hereof), or
such other rate of return as may be provided for under the applicable nonqualfied Pension Plan on
or as soon as practicable and in any event within five days after the Section 409A Payment Date (as
defined in Section 6.6 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.
6.6 To the extent required to satisfy the provisions of Section 409A(a)(2)(B)(i) of the Code,
the payments and reimbursements provided for under Section 6.1 hereof shall be delayed until the
date that is six (6) months after the Date of Termination (the “409A Payment Date”), and shall be
paid on the 409A Payment Date, or as soon as practicable thereafter (but in all events within five
days after the 409A Payment Date), together 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”).
7. Termination Procedures and Compensation During Dispute.
7.1 Notice of Termination. After a Change in Control and during the Term, any
purported termination of the Executive’s employment (other than by reason of death) shall be
communicated by written Notice of Termination from one party hereto to the other party hereto in
accordance with Section 10 hereof. For purposes of this Agreement, a “Notice of Termination” shall
mean a notice which shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances
10
claimed to provide a basis for termination of the Executive’s employment under the provision
so indicated. For purposes of this Agreement, any purported termination of the Executive’s
employment shall be presumed to be other than for Cause unless the Notice of Termination includes a
copy of a resolution duly adopted by the affirmative vote of not less than three quarters (3/4) of
the entire membership of the Board at a meeting of the Board which was called and held for the
purpose of considering such termination (after reasonable notice to the Executive and an
opportunity for the Executive, together with the Executive’s counsel, to be heard before the Board)
finding that, in the good faith opinion of the Board, the Executive was guilty of conduct set forth
in clause (i) or (ii) of the definition of Cause herein, and specifying the particulars thereof in
detail.
7.2 Date of Termination. “Date of Termination,” with respect to any purported
termination of the Executive’s employment after a Change in Control and during the Term, shall mean
(i) if the Executive’s employment is terminated for Disability, 30 days after Notice of Termination
is given (provided that the Executive shall not have returned to the full time performance of the
Executive’s duties during such 30 day period), and (ii) if the Executive’s employment is terminated
for any other reason, the date specified in the Notice of Termination (which, in the case of a
termination by the Company, shall not be less than 30 days (except in the case of a termination for
Cause) and, in the case of a termination by the Executive, shall not be less than 15 days nor more
than 60 days, respectively, from the date such Notice of Termination is given).
7.3 Dispute Concerning Termination. If within 15 days after any Notice of Termination
is given, or, if later, prior to the Date of Termination (as determined without regard to this
Section 7.3), the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be extended until the
earlier of (i) 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; and provided, further,
that the provisions of this Section 7.3 shall apply only to the extent that, pursuant to Treas.
Reg. § 1.409A-3(g), they will not cause an additional tax under Section 409A of the Code.
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.
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.
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9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed by law upon any successor to Temple-Inland,
Temple-Inland will require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or assets of
Temple-Inland to expressly assume and agree to perform this Agreement in the same manner and to the
same extent that Temple-Inland 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:
Temple-Inland Inc.
0000 Xxxxx XxXxx, xxxxx xxxxx
Xxxxxx, Xxxxx 00000
Attention: General Counsel
0000 Xxxxx XxXxx, xxxxx xxxxx
Xxxxxx, Xxxxx 00000
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 (or, under the terms of the second sentence of Section
6.1 hereof, is deemed to have terminated) on or following a Change in Control, by the Company other
than for Cause or by the Executive for
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Good Reason. The validity, interpretation, construction and performance of this Agreement shall
be governed by the laws of the State of Texas without regard to its principles of conflicts of law.
All references to sections of the Exchange Act or the Code shall be deemed also to refer to any
successor provisions to such sections. Any payments provided for hereunder shall be paid net of
any applicable withholding required under federal, state or local law and any additional
withholding to which the Executive has agreed. The obligations of the Company and the Executive
under this Agreement which by their nature may require either partial or total performance after
the expiration of the Term (including, without limitation, those under Sections 6 and 7 hereof)
shall survive such expiration.
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 Temple-Inland Inc.
(F) “Cause” for termination by the Company of the Executive’s employment shall mean (i) the
willful and continued failure by the Executive to substantially perform the Executive’s duties with
the Company (other than any such failure resulting from the Executive’s incapacity due to physical
or mental illness or any such actual or anticipated failure after the issuance of a Notice of
Termination for Good Reason by the Executive pursuant to
13
Section 7.1 hereof) after a written demand for substantial performance is delivered to the
Executive by the Board, which demand specifically identifies the manner in which the Board believes
that the Executive has not substantially performed the Executive’s duties, or (ii) the willful
engaging by the Executive in conduct which is demonstrably and materially injurious to the Company,
monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, (x) no act, or
failure to act, on the Executive’s part shall be deemed “willful” unless done, or omitted to be
done, by the Executive not in good faith and without reasonable belief that the Executive’s act, or
failure to act, was in the best interest of the Company and (y) in the event of a dispute
concerning the application of this provision, no claim by the Company that Cause exists shall be
given effect unless the Company establishes to the Board by clear and convincing evidence that
Cause exists.
(G) “Change in Control” shall be deemed to have occurred if the event set forth in any one of
the following paragraphs shall have occurred:
(I) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of
the Company (not including in the securities beneficially owned by such Person any securities
acquired directly from the Company or its Affiliates) representing 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
14
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:
(A) substantially all of the Company’s assets, or
(B) substantially all of the Company’s ownership interest in or substantially all of the
assets of its Corrugated Packaging operations,
other than such a sale, disposition or lease to an entity, at least 50% of the combined voting
power of the voting securities of which are owned by shareholders of the Company in substantially
the same proportions as their ownership of the Company immediately prior to such sale or
disposition; or
(VI) any other event that the Board, in its sole discretion, determines to be a Change in
Control for purposes of this Agreement.
Notwithstanding the foregoing, a “Change in Control” under clauses (I) through (IV) 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, unless the context clearly requires otherwise, Temple-Inland Inc., a
Delaware corporation, and any of its Affiliates that actually employ the Executive;
provided, that (I) for purposes of Sections 15(G) and 15(U) hereof, Company shall mean
Temple-Inland Inc., except that in determining under Section 15(G) hereof whether or not any Change
in Control of the Company has occurred, Company shall include any successor to Temple-Inland Inc.’s
business and/or assets which assumes and agrees to perform this Agreement by operation of law or
otherwise, (II) unless the context clearly requires otherwise, references to the Company in a
capacity of employer shall mean Temple-Inland Inc. or any of its Affiliates, whichever actually
employs the Executive, and (III) where the Agreement requires the Company to make a payment to the
Executive or to take some other action, either Temple-Inland Inc. shall do so or it shall cause any
of its Affiliates that actually employ the Executive to do so.
15
(J) “Date of Termination” shall have the meaning set forth in Section 7.2 hereof.
(K) “Disability” shall be deemed the reason for the termination by the Company of the
Executive’s employment, if, as a result of the Executive’s incapacity due to physical or mental
illness, the Executive shall have been absent from the full time performance of the Executive’s
duties with the Company for a period of six consecutive months, the Company shall have given the
Executive a Notice of Termination for Disability, and, within 30 days after such Notice of
Termination is given, the Executive shall not have returned to the full time performance of the
Executive’s duties.
(L) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to
time.
(M) “Excise Tax” shall mean any excise tax imposed under Section 4999 of the Code.
(N) “Executive” shall mean the individual named in the first paragraph of this Agreement.
(O) “Final Determination” means a final determination by the Internal Revenue Service or, if
such determination is appealed, a final determination by any court of competent jurisdiction.
(P) “Good Reason” for termination by the Executive of the Executive’s employment shall mean
the occurrence (without the Executive’s express written consent) after any Change in Control, or
prior to a Change in Control under the circumstances described in clauses (i) and (ii) of the
second sentence of Section 6.1 hereof (treating all references in paragraphs (I) through (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);
(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
16
distant from the Executive’s principal place of employment immediately prior to the Change
in Control or the Company’s requiring the Executive to be based anywhere other than such
principal place of employment (or permitted relocation thereof) except for reasonably
required travel on the Company’s business (provided that if the Executive is a plant
manager, mill manager, regional manager, or district manager, reassignment to a different
plant, mill, region, or district, respectively, shall not constitute Good Reason); 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. For purposes of any determination regarding the
existence of Good Reason, any claim by the Executive that Good Reason exists shall be presumed to
be correct unless the Company establishes to the Board by clear and convincing evidence that Good
Reason does not exist.
(Q) “Gross Up Payment” shall have the meaning set forth in Section 6.2 hereof.
(R) “Notice of Termination” shall have the meaning set forth in Section 7.1 hereof.
(S) “Pension Plan” shall mean any tax-qualified or non-qualified defined benefit pension plan,
including supplemental or excess benefit pension plans 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 retirement benefits, and any tax-qualified or non-qualified defined contribution
pension plan, including any supplemental or excess defined contribution or individual account plan
maintained by the Company and any other defined contribution or individual account plan or
agreement entered into between the Executive and the Company.
(T) “Person” shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified
and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the
Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its Affiliates, (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities, or (iv) a corporation owned,
directly or indirectly, by the stockholders of the Company in substantially the same proportions as
their ownership of stock of the Company.
(U) “Potential Change in Control” shall be deemed to have occurred if the event set forth in
any one of the following paragraphs shall have occurred:
(I) the Company enters into an agreement, the consummation of which would result in the
occurrence of a Change in Control;
17
(II) the Company or any Person publicly announces an intention to take or to consider taking
actions which, if consummated, would constitute a Change in Control;
(III) any Person becomes the Beneficial Owner, directly or indirectly, of securities of the
Company representing 20% or more of either the then outstanding shares of common stock of the
Company or the combined voting power of the Company’s then outstanding securities (not including in
the securities beneficially owned by such Person any securities acquired directly from the Company
or its Affiliates); or
(IV) the Board adopts a resolution to the effect that, for purposes of this Agreement, a
Potential Change in Control has occurred.
(V) “Retirement” shall be deemed the reason for the termination by the Executive of the
Executive’s employment if such employment is terminated in accordance with the Company’s retirement
policy, including early retirement, generally applicable to its salaried employees.
(W) “Severance Payments” shall have the meaning set forth in Section 6.1 hereof.
(X) “Tax Counsel” shall have the meaning set forth in Section 6.2 hereof.
(Y) “Term” shall mean the period of time described in Section 2 hereof (including any
extension, continuation or termination described therein).
(Z) “Total Payments” shall mean those payments so described in Section 6.2 hereof.
IN WITNESS WHEREOF, the parties have duly executed this Agreement to be effective as of the
Effective Date.
| TEMPLE-INLAND INC. |
||||
| By: | /s/ Xxxxx X. Xxxxxx | |||
| Name: | Xxxxx X. Xxxxxx | |||
| Title: | Chairman and Chief Executive Officer | |||
| EXECUTIVE |
||||
| /s/ Xxxxx X. Xxxxxx | ||||
| Xxxxx X. Xxxxxx | ||||
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