CHANGE IN CONTROL
AGREEMENT
THIS AGREEMENT,
dated November 7, 2008 (the “Effective Date”), is
made by and between Temple-Inland Inc., a Delaware corporation
(“Temple-Inland”), and Jack C. Sweeny (the
“Executive”).
WHEREAS,
Temple-Inland considers it essential to the best interests of its
stockholders to foster the continued employment of key management
personnel; and
WHEREAS, the Board
recognizes that, as is the case with many publicly held
corporations, the possibility of a Change in Control exists and
that such possibility, and the uncertainty and questions which it
may raise among management, may result in the departure or
distraction of management personnel to the detriment of
Temple-Inland and its stockholders; and
WHEREAS, the Board
has determined that appropriate steps should be taken to reinforce
and encourage the continued attention and dedication of members of
the Company’s management, including the Executive, to their
assigned duties without distraction in the face of potentially
disturbing circumstances arising from the possibility of a Change
in Control; 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.
6.1
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, wit
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