DEF 14A 1 d54793ddef14a.htm DEFINITIVE PROXY STATEMENT def14a
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.  )
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
o   Preliminary Proxy Statement
o   Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
þ   Definitive Proxy Statement
o   Definitive Additional Materials
o   Soliciting Material Pursuant to §240.14a-12
 
Temple-Inland Inc.
 
(Name of Registrant as Specified In Its Charter)
 
 
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
þ   No fee required.
o   Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
  (1)   Title of each class of securities to which transaction applies:
 
     
     
 
 
  (2)   Aggregate number of securities to which transaction applies:
 
     
     
 
 
  (3)   Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
 
     
     
 
 
  (4)   Proposed maximum aggregate value of transaction:
 
     
     
 
 
  (5)   Total fee paid:
 
     
     
 
o   Fee paid previously with preliminary materials.
 
o   Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  (1)   Amount Previously Paid:
 
     
     
 
 
  (2)   Form, Schedule or Registration Statement No.:
 
     
     
 
 
  (3)   Filing Party:
 
     
     
 
 
  (4)   Date Filed:
 
     
     
 


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(TempleInland)
 
 
Notice of Annual Meeting
of Stockholders
and
Proxy Statement
 


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(TempleInland)
1300 South MoPac Expressway, 3rd Floor
Austin, Texas 78746
 
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held Friday, May 2, 2008
 
  To Temple-Inland Stockholders:
 
When and Where the Annual Meeting of Stockholders Will be Held The 2008 annual meeting of our stockholders will be held at our offices located at 303 South Temple Drive, Diboll, Texas 75941, on Friday, May 2, 2008, at 9:00 a.m. local time.
 
Purposes of the Meeting The meeting will be held for the following purposes:
 
1. To elect five (5) directors to our board of directors. These five directors will serve as directors until their terms expire or, if later, until replacement directors are elected who meet all necessary qualifications.
 
2. To approve the adoption of the 2008 Incentive Plan.
 
3. To ratify the Audit Committee’s appointment of Ernst & Young LLP as our independent registered public accounting firm for the year 2008.
 
4. To transact any other business that is properly raised for discussion at the annual meeting or any later meeting if the annual meeting is adjourned or postponed.
 
Who Can Attend and Vote The board of directors has fixed the close of business on March 6, 2008 as the record date for determining who is a stockholder entitled to receive notices about the annual meeting and to vote at the annual meeting or any later meeting if the annual meeting is adjourned or postponed. Only stockholders who own stock on the record date are entitled to receive notices about the annual meeting and to vote at the annual meeting.
 
If you need help in voting your shares, please call D. F. King & Co., Inc., our proxy solicitation firm, at (800) 549-6697.
 
     
    -s- Leslie K. O<DATA,quoteright>Neal
     
March 25, 2008
  Leslie K. O’Neal
Austin, Texas
  Corporate Secretary
 
Your vote is important. You are invited to attend the meeting in person. Whether or not you plan to attend, and no matter how many shares you own, please mark your vote on the enclosed proxy card, sign it, date it, and return it by mail or vote by telephone or on the internet. By voting before the meeting, you will help us ensure that there are enough stockholders voting to hold a meeting and avoid added proxy solicitation costs. If you attend the meeting, you may vote in person, even if you have previously submitted a proxy. You may revoke your proxy at any time before the vote is taken by delivering to the Corporate Secretary a written revocation or a proxy with a later date or by voting your shares in person at the meeting, in which case your prior proxy will be disregarded. Please see the instructions under Questions and Answers About the Annual Meeting — How can I vote my shares before the annual meeting?
 
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be Held on May 2, 2008. The 2008 Proxy Statement and Annual Report to Stockholders are available at www.http://www.templeinland.com/proxy.htm.


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Outstanding Equity Awards Table
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(TempleInland)
1300 South MoPac Expressway, 3rd Floor
Austin, Texas 78746
 
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
 
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
 
 
Our board of directors seeks your proxy for use in voting at our 2008 annual meeting of stockholders to be held on Friday, May 2, 2008, and at any later meeting if the annual meeting is adjourned or postponed. This proxy statement and proxy card were mailed beginning on March 25, 2008 to all holders of our common stock entitled to vote at the annual meeting.
 
We have enclosed with this proxy statement our 2007 Annual Report to Stockholders, which includes audited financial statements. The Annual Report does not constitute any part of the material for the solicitation of proxies.
 
 
Holders of Temple-Inland common stock as of the close of business on the record date, March 6, 2008, may vote at the 2008 annual meeting, either in person or by proxy. As of the close of business on March 6, 2008, there were 106,223,108 shares of common stock issued and outstanding and entitled to vote at the annual meeting. The common stock is the only authorized voting security of the company, and each share of common stock is entitled to one vote on each matter properly brought before the annual meeting.
 
 
At the annual meeting, stockholders will be asked to vote on the following proposals:
 
Proposal No. 1:  To elect five (5) directors to our board of directors. These five directors will serve as directors until their terms expire or, if later, until replacement directors are elected who meet all necessary qualifications.
 
Proposal No. 2:  To approve the adoption of the Temple-Inland 2008 Incentive Plan.
 
Proposal No. 3:  To ratify the Audit Committee’s appointment of Ernst & Young LLP as our independent registered public accounting firm for the year 2008.
 
 
If your shares are registered directly in your name with our transfer agent, Computershare Trust Company, N.A., you are considered the “stockholder of record” with respect to those shares. This proxy statement and the enclosed proxy card and 2007 Annual Report to Stockholders have been sent directly to you.
 
If your shares are held in a stock brokerage account or by a bank or other nominee, those shares are held in “street name” and you are considered the “beneficial owner” of the shares. The proxy statement, 2007 Annual Report to Stockholders and other materials have been forwarded to you by your broker, bank or other nominee, who is the stockholder of record. You will receive separate instructions from your broker, bank or other holder of record describing how to vote your shares.


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If you hold shares in your own name as a stockholder of record, you can cast your vote before the annual meeting by authorizing the individuals named on the enclosed proxy card to serve as your proxy to vote your shares at the annual meeting in the manner you indicate. You may do so by completing, signing and dating the enclosed proxy card and returning it in the enclosed postage-paid envelope. The telephone and internet voting instructions serve the same purpose as the proxy card. When your proxy card or telephone or internet vote specifies a choice with respect to a voting matter, the named individuals on the proxy card will vote your shares as you have specified. Submitting a proxy or voting through the telephone or the internet will not affect your right to attend the annual meeting and vote in person.
 
If you are a beneficial owner of shares held in street name, your broker, bank or other nominee will provide you with materials and instructions for voting your shares. The availability of telephonic or internet voting will depend on the bank’s or broker’s voting process. Please check with your bank or broker and follow the voting procedures your bank or broker provides to vote your shares.
 
 
If your shares are held in your own name as a stockholder of record and you return your signed proxy card but do not specify a voting choice on your proxy card, your shares will be voted as follows:
 
  •  FOR the election of each of the director nominees under the caption “Election of Directors.”
 
  •  FOR the approval of the Temple-Inland 2008 Incentive Plan.
 
  •  FOR ratification of the appointment of Ernst & Young LLP as independent registered public accounting firm for the year 2008.
 
 
New York Stock Exchange rules applicable to broker-dealers grant your broker discretionary authority to vote your shares without receiving your instructions on certain matters, which include the election of directors and the ratification of the appointment of the independent registered public accounting firm. However, your broker does not have discretionary authority to vote your shares for certain other types of matters, including the approval of the adoption of the 2008 Incentive Plan. If your broker does not receive voting instructions from you regarding this proposal, your shares will not be voted on this proposal.
 
 
Yes. If you hold shares in your own name as a stockholder of record, you are invited to attend the annual meeting and cast your vote at the meeting by properly completing and submitting a ballot at the meeting. If you are the beneficial owner of shares held in the name of your broker, bank or other nominee, you are invited to attend the meeting in person, but in order to vote at the meeting you must first obtain a legal proxy from your broker, bank or other nominee giving you the right to vote those shares and submit that proxy along with a properly completed ballot at the meeting.
 
 
If you hold shares in your own name as a stockholder of record, you may change your vote or revoke your proxy at any time before voting begins by:
 
  •  giving written notice of revocation to our Corporate Secretary at our principal executive offices at any time before the voting is closed; or
 
  •  signing and delivering a proxy that is dated after the proxy you wish to revoke; or


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  •  attending the annual meeting and voting in person by properly completing and submitting a ballot. (Attendance at the meeting, in and of itself, will not cause your previously granted proxy to be revoked unless you vote at the meeting.)
 
We must receive your notice of revocation or later-dated proxy at or prior to voting at the annual meeting for it to be effective. It should be delivered to:
 
Temple-Inland Inc.
1300 South MoPac Expressway, 3rd Floor
Austin, Texas 78746
Attention: Leslie K. O’Neal, Corporate Secretary
 
Alternatively, you may hand deliver a written revocation notice, or a later-dated proxy, to the Corporate Secretary at the annual meeting before the voting begins.
 
If you are the beneficial owner of your shares held in street name, please check with your bank or broker and follow the procedures your bank or broker provides if you wish to change your vote.
 
 
The presence at the annual meeting, in person or by proxy, of the holders of 53,111,554 shares (a majority of the number of shares of common stock issued and outstanding and entitled to vote as of the record date) is required to constitute a quorum to transact business at the annual meeting. Proxies marked “abstain” and broker “non-votes” (each of which are explained below) will be counted in determining the presence of a quorum.
 
If the shares present in person or represented by proxy at the annual meeting are not sufficient to constitute a quorum, the stockholders by a vote of the holders of a majority of the votes entitled to be cast by the stockholders, present in person or by proxy (which may be voted by the proxyholders at the meeting), may, without further notice to any stockholder (unless a new record date is set or the adjournment is for more than 30 days), adjourn the meeting to a different time and place to permit further solicitations of proxies sufficient to constitute a quorum. At any such adjourned meeting at which a quorum may be present, any business may be transacted that might have been transacted at the meeting as originally called.
 
 
An abstention occurs when a stockholder sends in a proxy with explicit instructions to decline to vote regarding a particular proposal. An abstention with respect to a proposal will not be counted as a vote “cast” for or against the proposal. Consequently, an abstention with respect to any of the proposals scheduled for a vote at the annual meeting will not affect the outcome of the vote, except with respect to the approval of the adoption of the 2008 Incentive Plan, as explained below in “What are the voting requirements to elect directors and approve the proposals described in the proxy statement?
 
 
Broker “non-votes” are shares held by brokers or nominees for which voting instructions have not been received from the beneficial owners or the persons entitled to vote those shares and the broker or nominee does not have discretionary voting power under rules applicable to broker-dealers so the broker is unable to vote those uninstructed shares. We believe that brokers and nominees have discretionary voting power to vote shares with respect to all of the proposals to be voted on at the annual meeting, other than the proposal to approve the adoption of the 2008 Incentive Plan. A broker “non-vote” with respect to a proposal will not be counted as a vote “cast” for or against the proposal. Consequently, a broker “non-vote” with respect to the approval of the adoption of the 2008 Incentive Plan will not affect the outcome of the vote, except to the extent it has the effect of causing the percentage of the total number of shares voting on the proposal to be less than that required by the rules of the New York Stock Exchange for approval of the proposal, as explained immediately below.


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Election of Directors
 
The affirmative vote of a majority of the votes cast by the stockholders present in person or represented by proxy is required for the election of each director nominee named in Proposal No. 1. This means that the votes cast “for” that nominee must exceed the votes cast “against” that nominee. Any shares not voted (whether by abstention or otherwise) will not be counted as votes cast and will have no effect on the outcome of the vote. In accordance with our Corporate Governance Guidelines, each incumbent nominee will submit, prior to the annual meeting, an irrevocable resignation contingent on the nominee failing to receive the required vote for election and the board accepting the resignation. For more information on the operation of our majority voting standard, see “Election of Directors” on page 9. Stockholders may not cumulate votes in the election of directors.
 
2008 Incentive Plan
 
The affirmative vote of a majority of the votes cast by the stockholders present in person or represented by proxy (provided that the total votes cast on the proposal represents over 50% of the total number shares entitled to vote on the proposal) is required for approval of the adoption of the 2008 Incentive Plan in Proposal No. 2. Any shares not voted (whether by abstention, broker non-vote or otherwise) will not be counted as votes cast, but could have the same effect as votes cast against approval if they cause the total votes cast on the proposal to be 50% or less of the total number of shares entitled to vote on the proposal. Accordingly, beneficial owners of shares should instruct their brokers or nominees how to vote with respect to this proposal.
 
Ratification of Auditors
 
The affirmative vote of a majority of the votes cast by stockholders entitled to vote at the annual meeting is required for the ratification of the appointment of our independent registered public accounting firm in Proposal No. 3. Any shares not voted (whether by abstention or otherwise) will not be counted as votes cast and will have no effect on the outcome of the vote.
 
 
The company is soliciting your proxy for the annual meeting and will pay all the costs of the proxy solicitation process. We have retained D.F. King & Co., Inc., a professional proxy solicitation firm, to assist in the solicitation of proxies. D.F. King’s employees and our directors, officers and employees may solicit the return of proxies by personal contact, mail, electronic mail, facsimile, telephone or the internet. We may also issue press releases asking for your vote or post letters or notices to you on our website, www.templeinland.com. Our directors, officers and employees will not receive additional compensation, but will be reimbursed for out-of-pocket expenses. D.F. King will be reimbursed for its expenses in soliciting proxies and, in addition, will receive a proxy solicitation fee not to exceed $20,000. D.F. King expects that approximately 20 of its employees will assist in the solicitation. We will reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding solicitation materials to the beneficial owners of our common stock.
 
Who will count the votes?
 
Representatives of our transfer agent, Computershare, will tabulate the votes and act as inspectors of election to certify the results.


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VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS
 
Security Ownership of Certain Beneficial Owners
 
The name, address and stock ownership of each person or group of persons known by us to own beneficially more than five percent (5%) of the outstanding shares of our common stock as of March 6, 2008 follows.
 
                 
        Percent of
Name and Address of Beneficial Owner
  Amount and Nature of Beneficial Ownership   Class(1)
 
Carl C. Icahn and affiliated entities(2)
    10,366,491       9.8 %
767 Fifth Avenue, Suite #4700
               
New York, NY 10153
               
Franklin Mutual Advisers, LLC(3)
    9,239,328       8.70 %
100 John F. Kennedy
               
Short Hills, NJ 07078
               
Janus Capital Management LLC(4)
    5,636,011       5.30 %
151 Detroit Street
               
Denver, Colorado 80206
               
Vanguard Fiduciary Trust Company(5)
    5,608,746       5.3  
500 Admiral Nelson Blvd.
               
Malvern, PA 19355
               
 
 
(1) There were 106,223,108 shares of common stock outstanding on March 6, 2008.
 
(2) Based solely on information reported on Schedule 13D/A (the “Report”), filed with the SEC on February 20, 2008 by High River Limited Partnership (“High River”), Hopper Investments, LLC (“Hopper”), Barberry Corp., Icahn Partners Master Fund LP (“Icahn Master”), Icahn Partners Master Fund II LP (“Icahn Master II”), Icahn Partners Master Fund III, LP (“Icahn Master III”), Icahn Offshore LP, Icahn Partners LP (“Icahn Partners”), Icahn Onshore LP, Icahn Partners Holding LP, IPH GP LLC (“IPH”), American Real Estate Holdings Limited Partnership (“AREH”), American Property Investors, Inc. (“API”), Beckton Corp. and Carl C. Icahn. The Report indicates that 2,407,447 shares of common stock are held of record by High River; 3,285,356 shares of common stock (including 3,285,356 shares for which it holds a call option expiring October 17, 2008) are held of record by Icahn Master; 888,293 shares of common stock (including 888,293 shares for which it holds a call option expiring October 17, 2008) are held of record by Icahn Master II; 336,907 shares of common stock (including 336,907 shares for which it holds a call option expiring October 17, 2008) are held of record by Icahn Master III; and 3,448,488 shares of common stock are held of record by Icahn Partners (collectively, the “Record Holders”). The Report states that Barberry Corp. is the sole member of Hopper, which is the general partner of High River; Beckton Corp. is the sole stockholder of API, which is the general partner of AREH, which is the sole member of IPH, which is the general partner of Icahn Partners Holding LP, which is the general partner of each of Icahn Offshore LP and Icahn Onshore LP; Icahn Offshore LP is the general partner of each of Icahn Master, Icahn Master II and Icahn Master III; Icahn Onshore LP is the general partner of Icahn Partners. The Report further states that each of Barberry Corp. and Beckton Corp. is 100 percent owned by Carl Icahn and, as such, Mr. Icahn is in a position indirectly to determine the voting and investment decisions made by each of the Record Holders.
 
(3) Based solely on a Schedule 13G filed with the SEC on January 30, 2008, Franklin Mutual Advisers, LLC, in its capacity as investment advisor, may be deemed beneficial owner of these shares, which are owned by numerous investment advisory clients.
 
(4) Based solely on information reported on a Schedule 13G filed with the SEC on February 14, 2008, Janus Capital Management LLC, in its capacity as investment advisor and its indirect ownership in Enhanced Investment Technologies LLC and Perkins, Wolf, McDonnell and Company, LLC, may be deemed beneficial owner of these shares, which are owned by numerous investment advisory clients.


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(5) Based solely on information reported on a Schedule 13G/A filed with the SEC on February 7, 2008 Vanguard Fiduciary Trust Company, in its capacity as investment advisor, may be deemed beneficial owner of these shares, which are owned by numerous investment advisory clients.
 
Security Ownership of Management
 
The following table sets forth information regarding the beneficial ownership of our common stock as of March 6, 2008 by:
 
  •  each of our directors and nominees for director, including our Chief Executive Officer and President,
 
  •  our Chief Financial Officer and our three most highly compensated executive officers other than the CEO and CFO,
 
  •  our former Chief Executive Officer and two former officers, and
 
  •  all directors and executive officers as a group.
 
We determined beneficial ownership as reported in the table in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended (which we will refer to in this Proxy Statement as the Exchange Act). Unless otherwise indicated, beneficial ownership includes both sole voting and sole dispositive power. Even though SEC rules require reporting of all the shares listed in the table, the directors and executive officers do not claim beneficial ownership of all of these shares. For example, a director or executive officer might not claim ownership of shares owned by a relative. Unless otherwise indicated, the table does not include any shares that may be held by pension and profit-sharing plans of the corporations or endowment funds of educational and charitable institutions for which various directors and officers serve as directors or trustees.
 


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    Beneficial Ownership   Additional Ownership (7) (10)    
            Shares
                   
            Issuable on
                   
            Exercise of
          Phantom
      Total
    Amount and
  Beneficial
  Options
  Performance
  Restricted
  Shares
  Total
  Beneficial
    Nature of
  Ownership
  on or
  Stock
  Stock
  Deferred and
  Additional
  and Additional
    Beneficial
  Percent
  after May 5,
  Units
  Units
  Payable upon
  Ownership
  Ownership
Beneficial Owner
  Ownership (1)
  of Class
  2008
  (8)
  (8)
  Retirement
  (d+e+f+g)
  (b+h)
       (a)     
  (b)   (c)   (d)   (e)   (f)   (g)   (h)   (i)
 
Current Directors:
                                                               
Afsaneh M. Beschloss
    20,000 (1)     *                       38,747       38,747       58,747  
Donald M. Carlton
    22,000 (1)     *                       39,242       39,242       61,242  
Cassandra C. Carr
    22,000 (1)     *                       30,168       30,168       52,168  
E. Linn Draper, Jr. 
    20,000 (1)     *                       36,297       36,297       56,297  
Larry R. Faulkner
    16,200 (1)     *     4,000                   22,853       26,853       43,053  
James T. Hackett
    24,200 (1)     *                       62,283       62,283       86,483  
Jeffrey M. Heller
    20,000 (1)     *                       42,106       42,106       62,106  
J. Patrick Maley III
    132,268 (1)(2)     *     261,245       14,000       175,977             451,222       583,490  
W. Allen Reed
    13,000 (1)     *                       54,897       54,897       67,897  
Doyle R. Simons
    182,148 (1)(2)     *     314,306       14,000       194,671             522,977       705,125  
Richard M. Smith
    8,000 (1)     *     12,000                   17,931       29,931       37,931  
Arthur Temple III
    791,538 (1)(3)(4)(5)     *                       48,000       48,000       839,538  
Larry E. Temple
    19,500       *                       56,313       56,313       75,813  
Current Executives:
                                                               
J. Bradley Johnston
    109,261 (1)(2)     *     119,002       8,000       74,616             201,618       310,879  
Randall D. Levy
    289,694 (1)(2)     *     152,885       10,000       94,006             256,891       546,585  
Jack C. Sweeny
    238,188 (1)(2)     *     152,885       10,000       91,006             253,891       492,079  
Former Directors and Officers:
                                                               
Kenneth M. Jastrow, II
    1,290,057 (1)(2)(5)(9)     1.21 %           70,000       515,248       43,669       628,917       1,918,974  
James A. Johnson
    43,616 (1)(9)     *                       56,040       56,040       99,656  
Kenneth R. Dubuque
    113,277 (1)(2)(9)     *     36,750       10,000       87,500             134,250       247,527  
James M. DeCosmo
    60,025 (1)(2)(9)     *     27,063       6,000       63,400             96,463       156,488  
Group:
                                                               
All directors and executive officers (25 Persons) as a group
    3,967,553 (1)(2)(3)(4)(5)(6)     3.73 %     1,657,346       162,000       1,648,475       567,286       4,035,107       8,002,660  
 
 
Percentage is less than 1% of Tempe-Inland common stock outstanding.
 
(1) Includes the following number of shares of common stock issuable upon the exercise of options exercisable within a period of 60 days from March 6, 2008:
 
                     
Beschloss
    20,000     Johnson     36,000  
Carlton
    20,000     Johnston     81,337  
Carr
    20,000     Levy     206,450  
DeCosmo
    46,337     Maley     96,600  
Draper
    20,000     Reed     13,000  
Dubuque
    68,450     Simons     140,600  
Faulkner
    16,000     Smith     8,000  
Hackett
    24,000     Sweeny     144,450  
Heller
    20,000     A. Temple III     22,000  
Jastrow
    1,083,188              

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and all directors and officers (25 persons) as a group — 2,465,039.
 
 
(2) Includes shares held by trustees under Temple-Inland Inc. 401(k) plans for:
 
         
Simons
    6,408  
Maley
    583  
Levy
    3,604  
Sweeny
    15,872  
Johnston
    2,976  
Jastrow
    11,557  
Dubuque
    145  
DeCosmo
    1,668  
 
and all directors and officers (25 persons) as a group — 70,109. The SEC considers these shares to be beneficially owned.
 
 
(3) Includes 2,000 shares owned by certain relatives of Mr. Temple III. SEC rules consider these shares to be beneficially owned, but Mr. Temple III disclaims any beneficial interest in such shares.
 
(4) Includes 134,460 shares held in a trust over which Mr. Temple III is trustee. Mr. Temple III has a future income interest with respect to 67,230 of these shares and a remainder interest with respect to 67,230 of these shares. Also includes 20,166 shares held by various trusts and custodial accounts, with respect to which Mr. Temple III has sole voting and dispositive power. Mr. Temple III disclaims any beneficial ownership with respect to these 20,166 shares. Includes 157,380 shares held in a trust for Mr. Temple III with respect to which he has a present income interest and is also a co-trustee. Does not include 2,521,252 shares of common stock held by the T.L.L. Temple Foundation, a charitable trust, of which Mr. Temple III is Chairman of the Board of Trustees. Mr. Temple III shares voting and dispositive power of the shares held by the foundation. Mr. Temple III disclaims any beneficial ownership with respect to such shares.
 
(5) Includes the following number of shares pledged as security with independent financial institutions: Mr. Jastrow pledged 71,310 shares as security for a loan to secure a revolving line of credit, and such line of credit is not in default, nor does the pledgee have the power to vote or direct any vote regarding such securities. Mr. Temple III pledged 455,532 shares as security for a loan to secure a revolving line of credit, against which he may borrow from time to time, and such line of credit is not in default, nor does the pledgee have the power to vote or direct any vote regarding such securities.
 
(6) Includes 7,462 shares owned by relatives of all directors and executive officers (25 persons) as a group. SEC rules consider these shares to be beneficially owned, but the individuals disclaim any beneficial interest in such shares.
 
(7) “Additional Ownership” is not included in the SEC’s definition of “Beneficial Ownership.” Phantom shares deferred through 2005 are payable in shares of common stock at retirement. Phantom shares deferred in 2006 and later are payable in cash based on the stock price at retirement.
 
(8) Restricted stock units and performance stock units vest on the third anniversary from the date of grant if minimum Return on Investment (or ROI) criteria are met. RSUs and PSUs will be settled in cash.
 
(9) Mr. Jastrow stepped down effective December 28, 2007 in connection with the transformation plan and retired effective January 1, 2008; Mr. Johnson retired effective November 2, 2007. Messrs. Dubuque and DeCosmo resigned effective December 28, 2007 in connection with the spin-offs of Guaranty Financial Group Inc. and Forestar Real Estate Group Inc.
 
(10) Additional Ownership includes awards granted to officers by the board on February 1, 2008, and that are subject to stockholder approval of the 2008 Incentive Program. See the table on page 65.
 
Section 16(a) Beneficial Ownership Reporting Compliance
 
We have not identified any person who failed to file on a timely basis reports required by Section 16(a) of the Exchange Act during the most recent fiscal year or prior fiscal years. For this purpose, we only


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reviewed Forms 3, 4, and 5, amendments to these forms, and written representations supplied to us in lieu of Form 5 under the SEC’s Section 16 rules for the most recent fiscal year.
 
ELECTION OF DIRECTORS
 
Our By-laws specify that the board of directors will establish by vote how many directors will serve on the board. The By-laws also provide that the directors will be divided into three classes, which will as nearly as possible be equal in size. The board of directors has set the number of directors at ten following the retirement of Mr. L. Temple, Mr. Hackett, and Ms. Beschloss at the May 2008 annual meeting of stockholders, with two classes of three directors each, and one class of four directors.
 
In 2007, the board, upon the recommendation of the Nominating and Governance Committee, approved an amendment to our By-laws to change the voting standard in uncontested elections of directors (as is the case for this annual meeting) from a plurality to a majority of votes cast in the election. Under the majority of votes cast standard, a director nominee is elected if the number of votes cast “for” the nominee exceeds the number of votes cast “against” the nominee. In contested elections (that is, those in which the number of nominees exceeds the number of directors to be elected), the voting standard will continue to be a plurality of votes cast, which means that the individuals who receive the largest number of votes cast are elected as directors up to the maximum number of directors to be chosen at the meeting.
 
In conjunction with the adoption of the majority of votes cast standard, the board also adopted a director resignation policy, which is set forth in the Corporate Governance Guidelines available on our website at www.templeinland.com. This policy sets forth the procedures that will apply in the event that a director does not receive the requisite majority of votes cast “for” his or her election. In summary, prior to each annual meeting of stockholders, director nominees will submit an irrevocable resignation contingent on the nominee failing to receive the required vote for election and the board accepting the resignation. If a nominee fails to receive the required vote for election, the Nominating and Governance Committee will make a recommendation to the board on whether to accept or reject the resignation. The board will act on the committee’s recommendation and publicly disclose its decision and the rationale behind it within 90 days from the date of the certification of the election results. The director whose resignation is under consideration will not participate in the committee’s or board’s decision. If a resignation is not accepted by the board, the director will continue to serve. If the failure of a nominee to be elected at the annual meeting results in a vacancy on the board, that vacancy can be filled by action of the board. The policy also provides that the board shall nominate for election or re-election as directors only candidates who agree to tender irrevocable resignations consistent with the policy, and the board shall fill director vacancies and new directorships only with candidates who agree to tender the same form of resignation tendered by other directors.
 
Nominees
 
Unless you specify otherwise on your proxy, the persons named in such proxy intend to vote for the election of the nominees listed below to serve as directors.
 
Except as noted otherwise, directors will serve for a term of three years, or until their replacements are duly elected and meet all requirements. Mr. L. Temple, Mr. Hackett and Ms. Beschloss are retiring from the board of directors effective at the May 2, 2008 annual meeting of stockholders. All nominees are presently serving as directors. After review of their qualifications, the Nominating and Governance Committee recommended them as nominees to the full board, and the full board subsequently voted unanimously to recommend them to the stockholders as nominees. We did not pay a fee to any third party to identify or evaluate or to assist in identifying or evaluating potential nominees.
 
Each of the nominees has consented to being named in the proxy statement and to serve if elected. If any nominee becomes unavailable to serve, however, the persons named in the enclosed form of proxy intend to vote the shares represented by the proxy for the election of such other person or persons as may be nominated or designated by management, unless they are directed by the proxy to do otherwise.


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Nominees for Directors to Be Elected at the 2008 Annual Meeting of Stockholders to Serve Until 2011
 
     
Name and Year First Elected Director
  Principal Occupation and Other Information
 
Larry R. Faulkner
2005
  Dr. Faulkner, 63, has served as President of Houston Endowment, Inc. since February 2006. Houston Endowment is one of the largest private foundations in Texas. Dr. Faulkner served as the President of The University of Texas from April 1998 until January 2006. He was previously Provost and Vice Chancellor for Academic Affairs, Dean of the College of Liberal Arts and Sciences, and Head of the Department of Chemistry at the University of Illinois at Urbana-Champaign. Dr. Faulkner serves on the boards of ExxonMobil Corporation, Guaranty Financial Group Inc., and the Lyndon Baines Johnson Foundation.
Jeffrey M. Heller
2004
  Mr. Heller, 68, has served as Vice Chairman of Electronic Data Systems, Inc. (EDS) since October 2006. Mr. Heller rejoined EDS in March 2003 after a brief retirement, served as President and Chief Operating Officer until October 2005, and as President until October 2006. Mr. Heller previously served as Vice Chairman of EDS from November 2000 until retirement in February 2002. Mr. Heller is also a director of EDS and Mutual of Omaha.
W. Allen Reed
2000
  Mr. Reed, 61, private investor, retired as Chairman of General Motors Asset Management Corporation in April 2006. Mr. Reed served as President and Chief Executive Officer of GMAMC from July 1994 until December 31, 2005. He also served as Chairman and CEO of the GM Trust Bank and as a Corporate Vice President of General Motors Corporation until December 31, 2005. He is a director of Legg Mason, Inc. and Morgan Stanley Mutual Funds. Mr. Reed is also Senior Advisor to AEA Holdings, a private equity and alternative investments firm.
Doyle R. Simons
2007
  Mr. Simons, 44, became Chairman of the Board and Chief Executive Officer on December 28, 2007. He was previously named Executive Vice President in February 2005 following his service as Chief Administrative Officer since November 2003. Mr. Simons served as Vice President, Administration from November 2000 to November 2003 and Director of Investor Relations from 1994 through 2000. Mr. Simons joined Temple-Inland in 1992. He is also a director of Fiserv, Inc.
 
Nominees for Directors to Be Elected at the 2008 Annual Meeting of Stockholders to Serve Until 2010
 
In addition to the nominees listed above, our By-laws require that any director named to the board to fill a vacancy, whether by an increase in the size of the board or by the retirement or resignation of a director, shall be submitted for election by the stockholders at the next annual meeting. Mr. Maley was named to the board to fill a vacancy on December 28, 2007.
 
     
Name and Year First Elected Director
  Principal Occupation and Other Information
 
J. Patrick Maley III
2007
  Mr. Maley, 46, became President and Chief Operating Officer on December 28, 2007. He was previously named Executive Vice President — Paper in November 2004 following his appointment as Group Vice President in May 2003. Prior to joining the Company, Mr. Maley served in various capacities from 1992 to 2003 at International Paper.


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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF MESSRS.
FAULKNER, HELLER, REED, SIMONS AND MALEY AS DIRECTORS OF TEMPLE-INLAND.
 
Continuing Directors
 
The following information is provided with respect to directors who will continue to serve as directors until the expiration of their terms.
 
Directors to Serve Until the 2009 Annual Meeting of Stockholders
 
     
Name and Year First Elected Director
  Principal Occupation and Other Information
 
Cassandra C. Carr
2004
  Ms. Carr, 63, is Senior Advisor, Public Strategies, Inc. (since April 2002). Public Strategies, Inc. is a strategic consulting and communications firm which manages campaigns around issues affecting businesses. Ms. Carr was Senior Executive Vice President, External Affairs, SBC Communications, Inc., San Antonio, TX (telecommunications) (October 1998 — March 2002) and Senior Vice President, Human Resources (May 1994 — September 1998). Ms. Carr is also a director of YRC Worldwide Inc.
Richard M. Smith
2006
  Mr. Smith, 62, is Chairman of Newsweek. Until December 2007, Mr. Smith served as Editor-in-Chief of the Magazine since 1984 and CEO since 1991. He became Chairman in March 1998. Mr. Smith was Chairman of the Magazine Publishers of America (MPA) from 1996 to 1997 and the founding chairman of the MPA’s New Media Committee. He is also a former board member of the American Society of Magazine Editors. Mr. Smith is also a director of Forestar Real Estate Group Inc.
Arthur Temple III
1983
  Mr. Temple III, 66, is Chairman of the Board of First Bank & Trust, East Texas (FB&T), a position he has held since March 1992. FB&T is a community bank headquartered in Diboll, Texas, and is owned by Diboll Bancshares, Inc., a locally-owned bank holding company. Since November 2000, Mr. Temple III has also served as Chairman of the T.L.L. Temple Foundation, a charitable foundation. Mr. Temple III served as Chairman of the board of Exeter Investment Company from 1975 to early 1982 and from March 1986 until June 2002. From 1973 until 1980 Mr. Temple III served as a member of the Texas legislature and from January 1981 until March 1986 he served as a member and Chairman of the Railroad Commission of Texas, which regulates mineral resources in Texas.
 
Directors to Serve Until the 2010 Annual Meeting of Stockholders
 
     
Name and Year First Elected Director
  Principal Occupation and Other Information
 
Donald M. Carlton
2003
  Dr. Carlton, 70, is former President and Chief Executive Officer of Radian International LLC, an Austin, Texas based engineering and technology firm. Dr. Carlton held these positions from January 1996 until his retirement in December 1998. Dr. Carlton also serves as a director of National Instruments Corp. and American Electric Power Company, Inc.
E. Linn Draper, Jr.
2004
  Dr. Draper, 66, served as Chairman of the Board of American Electric Power Company Inc. from April 1993 until his retirement in February 2004 and also served as President and CEO from April 1993 until December 31, 2003. Dr. Draper also served as President of Ohio Valley Electric Corporation and Indiana-Kentucky Electric Corporation from 2002 until March 4, 2004. Dr. Draper is a director of Northwestern Corporation, Alpha Natural Resources, Alliance Data Systems, and TransCanada Corporation.


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Selection of Nominees
 
Our Nominating and Governance Committee selects nominees on the basis of recognized achievements and their ability to bring various skills and experience to the deliberations of the board, as described in more detail in the Corporate Governance Guidelines available on our website at www.templeinland.com. Non-employee director nominees must be independent as defined in the listing standards of the NYSE. Nominees must not have a prohibited conflict of interest with our business or ownership. Priority will be given to individuals with outstanding business experience and who currently serve or have served as the chief executive officer of a company.
 
Our Nominating and Governance Committee considers director candidates recommended by the directors. After reviewing a potential director’s qualifications, a suitable candidate will be invited to meet with the CEO and full board to determine further interest.
 
Our Nominating and Governance Committee will consider director candidates recommended by stockholders who are entitled to vote for the election of directors at the stockholders’ meeting and comply with the procedures described below. A director candidate recommendation must include the following information:
 
  •  the name and address of the stockholder making the recommendation and evidence of his or her beneficial ownership of Temple-Inland common stock, including the number of shares and period of ownership, and
 
  •  the name of the candidate, the candidate’s resume or a listing of his or her qualifications to be a director of the Company and the person’s consent to be named as a director if selected by the Nominating and Governance Committee and nominated by the board.
 
We may require a stockholder-recommended candidate to furnish such other information as may reasonably be required by us to determine the eligibility of the proposed nominee to serve as a director.
 
For a candidate to be considered by the Nominating and Governance Committee as a nominee for election at the next annual meeting of stockholders, the stockholder’s recommendation must be received by the Corporate Secretary not less than 120 days before the anniversary date of the Company’s most recent annual meeting of stockholders.
 
In addition, our By-laws permit stockholders to nominate directors. For information regarding the deadlines and procedures for director nominations by stockholders, please see “Date for Receipt of Stockholder Proposals and Nominations” on page 71.
 
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
Director Independence
 
The board of directors has determined that the following directors meet its independence standards: Afsaneh M. Beschloss, Donald M. Carlton, Cassandra C. Carr, E. Linn Draper, Jr., Larry R. Faulkner, James T. Hackett, Jeffrey M. Heller, W. Allen Reed, Richard M. Smith, Arthur Temple III, and Larry E. Temple. Messrs. Simons and Maley do not meet the independence standards because they are our employees. The board’s independence standards are described in our Corporate Governance Guidelines on our website at www.templeinland.com. The board defines independence as meeting the requirements to be considered independent directors as defined under the current rules of the New York Stock Exchange. The board has established the following additional guidelines to assist it in determining director independence:
 
1. If not otherwise prohibited by the rules of the NYSE, any commercial or charitable relationship that is not required to be reported in the proxy statement to stockholders will not be considered a material relationship that would impair a director’s independence.
 
2. To serve as a member of any committee of the board, the director must meet any additional requirements of independence set forth in the committee’s charter or applicable law.


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There were no material transactions or relationships between us and any director during 2007. In making its determination that our non-employee directors are independent, the board considered:
 
  •  All transactions with companies on which its directors are executive officers.
 
  •  Mr. Arthur Temple III is a director of Contractor’s Supplies, Inc., and members of Mr. Temple’s immediate family own approximately 11% of its outstanding capital stock. During 2007, in the ordinary course of business, we sold building materials, lumber, and fiberboard to Contractor’s. Mr. Temple III is also a director, officer, and 662/3% stockholder of Demco Manufacturing Company. During 2007, in the ordinary course of business, Demco performed machinery repair services for us. Mr. Temple III is an 8% partner in three partnerships, Diboll Leasing Company, DLCO, and DLCO I Ltd. that own and lease rail cars. During 2007, in the ordinary course of business, we participated in transactions with DLCO and DLCO I Ltd. for rail car repairs, rail car rental, and management fees.
 
  •  During 2007, we owned mineral interests that are leased by Anadarko Petroleum Corporation or an affiliate of Anadarko. Mr. Hackett is CEO of Anadarko.
 
The board felt that none of these transactions affected any director’s independence because they do not have a direct or indirect material interest in these transactions and the transactions do not exceed the greater of $1 million or 2% of either company’s consolidated gross revenues.
 
There is no family relationship between any of our nominees, continuing directors and executive officers. Arthur Temple III and Larry E. Temple are not related.
 
Related Transactions
 
We maintain a written policy and procedures for the review, approval, or ratification of any related party transactions that we are required to report under this section of the proxy statement. A related party, for purposes of our policy, means:
 
  •  any person who is, or at any time since the beginning of our last fiscal year was, a director or executive officer or a nominee for director,
 
  •  any person known to be the beneficial owner of more than 5% of our common stock, and
 
  •  any immediate family member of the foregoing persons.
 
Under the related party transaction policy, any transaction, arrangement or relationship between us and a related party must be reviewed by the Nominating and Governance Committee, except that the following transactions, arrangements or relationships are pre-approved under the policy:
 
  •  compensation arrangements required to be reported under the Director or Executive Compensation sections of the proxy statement,
 
  •  business expense reimbursements,
 
  •  transactions with an entity in which the related party owns less than 10% of the other entity, is a director only, or is not an executive officer, and
 
  •  indebtedness for transactions in the ordinary course of business.
 
Prior to the spin-off of Guaranty Financial Group Inc., personal bank accounts held at our Guaranty Bank subsidiary and mortgage loans made by Guaranty Bank or one of its affiliates in the ordinary course of business were also pre-approved under the policy.
 
There are no transactions required to be reported above since the beginning of our fiscal year where the related party policies and procedures did not require review, approval or ratification or where the policies and procedures were not followed.


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Policies on Business Conduct and Ethics
 
All of our directors, officers and employees are required to abide by our Standards of Business Conduct and Ethics. This code covers all areas of professional conduct, including conflicts of interest, unfair or unethical use of corporate opportunities, protection of confidential information, compliance with all applicable laws and regulations, and oversight and compliance. Our Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, Chief Governance Officer, Director of Investor Relations, Principal Accounting Officer and Corporate Controller are also required to abide by the Code of Ethics for Senior Financial Officers. These ethics codes form the foundation of a comprehensive program of compliance with our corporate policies and procedures to ensure that our business is conducted ethically and in strict adherence to all laws and regulations applicable to us. Our directors, officers and employees are not to tolerate violations of the standards set out in our ethics codes, and are responsible for reporting any violation, including situations or matters that may be considered to be unethical or a conflict of interest under the ethics codes.
 
The full texts of the Standards of Business Conduct and Ethics and Code of Ethics for Senior Financial Officers are available under the “Investor Relations — Corporate Governance” section of our website at www.templeinland.com or in print upon request to Temple-Inland Inc., 1300 South MoPac Expressway, 3rd Floor, Austin, Texas 78746, Attention: Corporate Secretary. Any future amendments to either of these codes, and any waiver of the Code of Ethics for Senior Financial Officers and of certain provisions of the Standards of Business Conduct and Ethics for directors or executive officers will be disclosed on our website promptly following the amendment or waiver.
 
COMMITTEES OF THE BOARD OF DIRECTORS
 
The board performs a number of its functions through committees. All members and the chairman of our Audit Committee, Management Development and Executive Compensation Committee, and Nominating and Governance Committee are independent directors under the current rules of the NYSE. Each committee’s charter expressly provides that the committee has the sole discretion to retain, compensate, and terminate its advisors. Current copies of the charters of our Audit Committee, Management Development and Executive Compensation Committee, and the Nominating and Governance Committee are available on our website at www.templeinland.com.  
 
Information about these committees follows:
 
Audit Committee
 
The Audit Committee assists the board in its oversight of:
 
  •  the integrity of our financial statements,
 
  •  compliance with legal and regulatory requirements,
 
  •  the adequacy of our internal control over financial reporting, and
 
  •  the independence and performance of our internal auditors and independent registered public accountants.
 
The Audit Committee has the sole authority to retain, compensate, and terminate the independent registered public accounting firm. The board has determined that there is at least one Audit Committee financial expert serving on the Audit Committee, Mr. Heller, who is an independent director. In addition, the board has determined that all members of the Audit Committee are financially literate and independent as defined in the NYSE corporate governance standards. The members of the Audit Committee following the retirement of Ms. Beschloss, Mr. Hackett, and Mr. L. Temple in May 2008 are Mr. Heller (Chairman), Dr. Carlton, Ms. Carr, Dr. Faulkner, Mr. Reed, and Mr. Smith. The Audit Committee met ten times in 2007.


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Management Development and Executive Compensation committee
 
The Compensation Committee is responsible for:
 
  •  overseeing management succession and development plans;
 
  •  ensuring that a proper system of short- and long-term compensation is in place to provide performance-oriented incentives to management;
 
  •  approving the salaries and bonuses of officers;
 
  •  making recommendations concerning retirement plans and other employee benefit programs; and
 
  •  overseeing stock incentive plans.
 
The Vice President & Corporate Secretary and Chief Executive Officer recommend executive compensation amounts and programs to the Compensation Committee. Hewitt Associates LLC, a compensation consultant, is engaged by the Compensation Committee to provide market data regarding executive compensation and advice about proposed compensation programs and amounts. The Compensation Committee obtains specific data from Hewitt on an annual basis and at other times upon request. The Compensation Committee also invites a Hewitt representative to attend meetings of the committee from time to time. The Compensation Committee meets with the Hewitt representative in executive session periodically. Once the full board approves any compensation recommendations of the Compensation Committee, administration of the compensation programs is delegated to the Vice President & Corporate Secretary.
 
The members of the Compensation Committee following Mr. Hackett’s retirement in May 2008 are Dr. Draper (Chairman), Ms. Carr, Mr. Heller and Mr. Smith. The board has determined all of these directors are independent as defined in the NYSE corporate governance standards. The Compensation Committee met eight times in 2007.
 
Compensation Committee Interlocks and Insider Participation
 
There are no Compensation Committee interlocks among the members of the board and no member of the Compensation Committee has a transaction reported under Certain Relationships and Related Transactions.
 
Nominating and Governance Committee
 
The Nominating and Governance Committee is responsible for:
 
  •  periodically reviewing the structure of the board to assure that the proper skills and experience are represented on the board,
 
  •  recommending the size of the board and nominees to serve on the board,
 
  •  reviewing potential conflicts of prospective board members,
 
  •  recommending the membership of the committees,
 
  •  reviewing corporate governance issues,
 
  •  reviewing stockholder proposals,
 
  •  reviewing outside directorships in other publicly held companies by our senior officers,
 
  •  acting in an advisory capacity to the board regarding activities that relate to matters of public policy and the environment, issues of social and public concern, and significant legislative, regulatory and social trends, and
 
  •  recommending director compensation to the full board.
 
The Vice President & Corporate Secretary and Chief Executive Officer recommend director compensation amounts and programs to the Nominating and Governance Committee. Hewitt is engaged by the Nominating and Governance Committee to provide market data regarding director compensation and advice about proposed


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director compensation programs and amounts. The Nominating and Governance Committee obtains specific data from Hewitt Associates on an annual basis and at other times upon request. The Nominating and Governance committee also invites a Hewitt representative to attend meetings of the committee from time to time. The Nominating and Governance Committee meets with the Hewitt representative in executive session periodically. Once the full board approves any director compensation recommendations of the Nominating and Governance Committee, administration of the compensation programs is delegated to the Vice President & Corporate Secretary.
 
The members of the Nominating and Governance Committee following the retirement in May 2008 of Ms. Beschloss and Mr. L. Temple are Dr. Carlton (Chairman), Dr. Faulkner, Mr. Reed, and Mr. Temple III. The board has determined all of these directors are independent as defined in the NYSE corporate governance standards. The Nominating and Governance Committee met ten times in 2007.
 
Executive Committee
 
The Executive Committee may exercise all the authority of the board in the management of our business except:
 
  •  matters related to the composition of the board,
 
  •  changes in the By-laws, and
 
  •  certain other significant corporate matters.
 
The members of the Executive Committee are the Chairman of the Board, who serves as Chairman of the Executive Committee (Mr. Simons), and the Chairman of each standing committee of the board: Mr. Heller, Dr. Draper and Dr. Carlton. The Executive Committee met once in 2007.
 
Board Meetings
 
The board typically meets four times a year. The board met 12 times in 2007 principally to authorize and oversee the transformation plan undertaken in 2007, which is discussed in more detail in a later section of this proxy statement. Each director attended at least 75% of the board and committee meetings held by all committees on which they served. Health permitting, all board members are expected to attend our annual meeting of stockholders. All board members attended the 2007 annual meeting of stockholders. The board holds regularly scheduled executive sessions of the board with only non-management directors present. Executive sessions were held at six of the 12 board meetings in 2007. Until 2008, the Chairmen of the Audit, Compensation, and Nominating and Governance committees served as presiding director to lead non-management executive sessions of the board on a two-year rotation cycle. Beginning in 2008, the board appointed a lead director, who is currently Dr. Draper.
 
Communication with Directors
 
Stockholders and other interested parties may communicate with non-management directors by forwarding their written comments to an independent third party that has agreed to forward the comments to Dr. Draper, our lead director, with a copy to our General Counsel. The independent third party is The Network and such comments may be sent to:
 
The Network
333 Research Court
Norcross, GA 30092
Attention: Call Center — Temple-Inland
 
Alternatively, interested parties may send an email to The Network at www.tnwinc.com/webreport.
 
Any changes in the lead director or the independent third party for purposes of communicating with the lead director after publication of this proxy statement will be posted on our website at www.templeinland.com.


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DIRECTOR COMPENSATION
 
Our director compensation program is designed to recognize the time commitment and preparations required for directors to fulfill their responsibilities. Our program also aligns director compensation with stockholder returns. Alignment with stockholders is emphasized through stock ownership requirements, an annual phantom stock grant, and the ability to receive phantom shares in lieu of fees.
 
Director Fee Schedule
 
     
Service on Temple-Inland board
 
2007 Fee
 
Annual Retainer Fee
  $50,000
Audit Chairman Annual Retainer Fee
  $20,000
Audit Committee Member Retainer Fee
  $ 5,000
Other committee Chairman Annual Retainer Fee
  $12,500
Meeting Fees
   
board
  $ 3,500
committee
  $ 1,500 ($2,500 if not in conjunction with a board meeting)
Stock Option Grant
  20,000 (Upon initial election)
Annual Phantom Stock Grant — Payment Deferred Until Retirement
  2,000 shares
Match for Deferring Fees in lieu of Cash Payment — Deferred Until Retirement
  133%
Charitable Contribution (by the Temple-Inland Foundation)
  $ 5,000
Matching Gift to Charity (by the Temple-Inland Foundation)
  Up to $ 6,000
     
     
Service on Guaranty Bank board (formerly our
   
subsidiary) by 3 of our Directors, payable in cash:
 
2007 Fee
 
Annual Retainer Fee
  $60,000
Audit Chairman Annual Retainer Fee
  $12,000
Loan Committee Annual Retainer Fee
  $12,000
Executive Committee Annual Retainer Fee
  $12,000
Compensation Committee Annual Retainer Fee
  $ 6,000
Special Meeting Fee
  $   500
Charitable Contribution
  $ 2,500
 
Beginning in 2008, we revised our director fee schedule to eliminate meeting fees for the first five meetings of the board or any committee held during a year. We increased the annual retainer fee from $50,000 to $70,000 to cover these meetings. We replaced the annual retainer for Audit Committee members with a retainer of $7,500 for dual service on any two committees. We fixed the annual stock grant at the number of shares resulting from dividing $50,000 by the fair market value on the date of the February board meeting. We also adopted an annual retainer fee of $20,000 for our lead director.


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Initial Stock Option Grant
 
Directors receive a grant of 20,000 options at the time of their initial election to the board. Options are granted at fair market value on the grant date, which is the date of the board meeting at which the director is elected. The option vests in three installments: 8,000 shares on the first anniversary, 8,000 shares on the second anniversary, and 4,000 shares on the third anniversary of the date of election. The option term is ten years. We do not have any program, plan or practice to time option grants to our directors in coordination with the release of material non-public information. We do not set the grant date of stock option grants to new directors in coordination with the release of material non-public information. We do not time our release of material non-public information for the purpose of affecting the value of director compensation.
 
Stock Ownership Guidelines
 
Directors are required to hold Temple-Inland stock valued at five times their annual retainer fee under the board’s stock ownership guidelines. This stock ownership policy is contained in our Corporate Governance Guidelines, which are available on our website at www.templeinland.com. Shares of stock owned by the directors and their immediate family members count toward this requirement. Phantom shares also count toward this requirement. All directors meet the stock ownership requirements, except for Mr. Smith, who has five years from his November 2006 election to comply with the ownership guidelines.
 
Fee Deferral Plan
 
Directors may participate in a fee deferral plan that encourages stock ownership by granting a match of 133% in the form of phantom stock units on amounts deferred until retirement. The number of phantom stock units is determined by dividing the deferred amount by the fair market value of Temple-Inland’s stock on the date deferred. Dividend equivalents are credited on the phantom stock equal to the amount of dividends Temple-Inland pays on its common stock. In 2007, the dividend equivalents were reinvested in more shares of phantom stock. Beginning in 2008, dividend equivalents will be paid to the directors in cash. At retirement, the director will receive stock for fees deferred through 2005 and cash for fees deferred beginning in 2006 in payment of the phantom stock units. Cash payments will be based on the fair market value of the stock on the payment date. Fair market value in all cases is equal to the closing price of Temple-Inland stock on the NYSE on the applicable date. Payment may be taken in a lump sum or in up to fifteen annual installments. If a director chooses cash payment on a current basis instead of deferring their fees, they do not receive a match. The director does not get any payment until retirement. Directors may retire at any time, but must retire by the annual meeting following their 72nd birthday.
 
Frozen Retirement Plan
 
There is no retirement plan for directors except for a plan that was frozen in 2000. Under that plan, the following directors will receive at retirement $35,000 per year for the following number of years as a retirement benefit: Mr. Reed — 1 year; Mr. Temple III — 17 years; and Mr. L. Temple — 10 years. Mr. Johnson received one payment of $35,000 upon his retirement in 2007. Retirement benefits will be paid to the surviving spouse if the director does not live to receive the full payment, and terminate if the spouse does not live to receive the remaining payment. This plan was discontinued in 2000 and no additional accruals will be made under this plan.
 
Change in Control Provision
 
Both the directors’ fee deferral plan and the frozen directors’ retirement plan contain provisions for accelerating payment in the event the director’s service terminates due to a change in control, along with a gross-up provision in the event the director is required to pay excise tax on the accelerated payment.
 
Charitable Contributions
 
In 2007, the Temple-Inland Foundation, a tax-exempt foundation funded by contributions from Temple-Inland, made a $5,000 donation to a charity or educational institution chosen by each director. Directors are


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also eligible for the Foundation’s matching gifts program, which matches donations made by employees and directors 3-for-1 for the first $1,000; 2-for-1 for the next $1,000; and 1-for-1 for the next $1,000, for total possible matching donations of up to $6,000 per person. Dr. Faulkner, Mr. Temple III and Mr. L. Temple served on the Guaranty Bank board in 2007. In 2007, Guaranty Bank made a $2,500 donation to a charity or educational institution chosen by each of its directors.
 
Insurance and Indemnification
 
Directors are covered under our business travel accident insurance policy for $100,000 while traveling on our business. Directors are also covered under our director and officer liability insurance policies for claims alleged in connection with their service as a director. We have entered into indemnification agreements with each of our directors agreeing to indemnify them to the fullest extent permitted by law for claims alleged in connection with their service as a director.
 
2007 Director Compensation
 
We have computed the value of fees earned by our directors in 2007 in the following chart using SEC rules. These rules require us to calculate the value of the phantom shares acquired through deferral of fees and match using the stock price in the year the fees are earned. However, directors do not receive any payment of the deferred fees or match until they retire. At retirement, a director receives actual shares of common stock and cash equal in value to the phantom stock shares held in his or her account. The value of the shares and cash received at the time the director retires may be different than the value of phantom shares received at the time the fee is earned.
 
All of our directors elected to defer their 2007 fees until retirement. Director fees for 2007 reflect the number of additional meetings held in connection with the transformation plan. Directors attended between 19 and 32 meetings in 2007. Messrs. Jastrow, Simons and Maley received no compensation for their services as director other than their employee pay.
 
2007 Director Compensation
 
                                                         
                            Change in Pension
             
                            Value and
             
                            Nonqualified
             
                      Non-Equity
    Deferred
             
    Fees Earned or
    Stock Awards
    Option Awards
    Incentive Plan
    Compensation
    All Other
       
Name
  Paid in Cash ($)(1)     ($)(2)(3)     ($)(4)     Compensation ($)     Earnings ($)     Compensation ($)(5)     Total ($)  
(a)   (b)     (c)     (d)     (e)     (f)     (g)     (h)  
 
Current Directors:
                                                       
Afsaneh M. Beschloss
  $ 0     $ 121,284     $ 0     $ 0     $ 0     $ 11,000     $ 132,284  
Donald M. Carlton
  $ 0     $ 127,370     $ 0     $ 0     $ 0     $ 11,000     $ 138,370  
Cassandra C. Carr
  $ 0     $ 123,254     $ 0     $ 0     $ 0     $ 5,000     $ 128,254  
E. Linn Draper, Jr. 
  $ 0     $ 108,540     $ 0     $ 0     $ 0     $ 11,000     $ 119,540  
Larry R. Faulkner
  $ 78,000     $ 129,622     $ 0     $ 0     $ 0     $ 7,500     $ 215,122  
James T. Hackett
  $ 0     $ 120,322     $ 0     $ 0     $ 0     $ 5,000     $ 125,322  
Jeffrey M. Heller
  $ 0     $ 115,528     $ 0     $ 0     $ 0     $ 5,000     $ 120,528  
W. Allen Reed
  $ 0     $ 115,767     $ 0     $ 0     $ 0     $ 11,000     $ 126,767  
Richard M. Smith
  $ 0     $ 216,677     $ 0     $ 0     $ 0     $ 5,000     $ 221,677  
Arthur Temple III
  $ 48,000     $ 104,588     $ 0     $ 0     $ 0     $ 13,500     $ 166,088  
Larry E. Temple
  $ 84,000     $ 124,086     $ 0     $ 0     $ 0     $ 13,500     $ 221,586  
                                                         
Former Directors:
                                                       
James A. Johnson
  $ 0     $ 96,620     $ 2,991     $ 0     $ 0     $ 249,977     $ 349,587  
 
 
(1) The cash fees shown in the table above were paid by Guaranty Bank to the directors who served on its board. Temple-Inland paid no cash fees in 2007.
 
(2) Includes the dollar amount recognized for financial reporting purposes with respect to the fiscal year in accordance with FAS 123(R) of all stock-based awards (including restricted stock, restricted stock units,


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phantom stock, phantom stock units, common stock equivalent units, and other similar instruments that do not have option-like features) for grants in 2007 and prior years. The dollar amount recognized is to be computed under FAS 123(R), applying the same valuation model and assumptions used for financial reporting purposes. As outlined in Note 9 to our 2007 Annual Report, disregarding the estimate of forfeitures related to service-based vesting conditions. The number shown is the result of adding the FAS expense for fees earned in 2007 and the change in market value of all deferred fees from year-end 2006 to year-end 2007:
 
                         
          Change in Market
       
          Value
       
    Expense for
    (Adjustment to 2007 
       
    2007 fees at
    Year-End Price of
       
    Year-End
    $30.37 on 2006
       
    Price of
    Shares previously
       
    $30.37     expensed at $46.03)     FAS Expense for 2007  
 
Current Directors:
                       
Afsaneh M. Beschloss
  $ 232,361     $ (111,076 )   $ 121,284  
Donald M. Carlton
  $ 243,081     $ (115,712 )   $ 127,370  
Cassandra C. Carr
  $ 235,975     $ (112,721 )   $ 123,254  
E. Linn Draper, Jr. 
  $ 201,748     $ (93,208 )   $ 108,540  
Larry R. Faulkner
  $ 237,676     $ (108,054 )   $ 129,622  
James T. Hackett
  $ 262,640     $ (142,318 )   $ 120,322  
Jeffrey M. Heller
  $ 229,142     $ (113,613 )   $ 115,528  
W. Allen Reed
  $ 232,027     $ (116,260 )   $ 115,767  
Richard M. Smith
  $ 242,626     $ (25,949 )   $ 216,677  
Arthur Temple III
  $ 204,906     $ (100,318 )   $ 104,588  
Larry E. Temple
  $ 245,936     $ (121,850 )   $ 124,086  
                         
Former Directors:
                       
James A. Johnson
  $ 211,345     $ (114,725 )   $ 96,620  
 
 
(3) The fees shown in column (c) consist of fees that were earned in 2007 but deferred until retirement. The deferred fees earn a match of 133% and are converted into phantom shares. The chart below shows the fees, match, and resulting phantom shares credited to each director’s account, along with the director’s age 72 retirement date (or an earlier date if the director has indicated one):
 


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    Fees Earned and Deferred Until Retirement  
                                  Total Deferred
             
                                  Fees/Stock
             
                                  Awards
             
                                  ($)
             
                                  (b + c + d + e + f)
             
                                  Value on
             
                                  Grant Date of
    Converted
       
                                  Fees
    into Phantom
    Normal or
 
          Committee
    Board and
          Annual
    Deferred
    Shares Payable
    Expected
 
    Board
    Retainer
    Committee
          Phantom Stock
    Until
    Upon
    Retirement
 
Name
  Retainer     Fees     Meeting Fees     Match     Grant     Retirement     Retirement     Date  
(a)   (b)     (c)     (d)     (e)     (f)     (g)     (h)     (i)  
 
Current Directors:
                                                               
Afsaneh M. Beschloss
  $ 50,000     $ 5,000     $ 73,000     $ 170,240     $ 101,800     $ 400,040       7,651       2008  
Donald M. Carlton
  $ 50,000     $ 5,000     $ 81,500     $ 181,545     $ 101,800     $ 419,845       8,004       2010  
Cassandra C. Carr
  $ 50,000     $ 5,000     $ 76,000     $ 174,230     $ 101,800     $ 407,030       7,770       2017  
                                                                 
E. Linn Draper, Jr. 
  $ 50,000     $ 0     $ 55,000     $ 139,650     $ 101,800     $ 346,450       6,643       2014  
Larry R. Faulkner
  $ 50,000     $ 5,000     $ 78,000     $ 176,890     $ 101,800     $ 411,690       7,826       2016  
                                                                 
James T. Hackett
  $ 70,000     $ 5,000     $ 76,000     $ 200,830     $ 101,800     $ 453,630       8,648       2008  
Jeffrey M. Heller
  $ 50,000     $ 5,000     $ 70,000     $ 166,250     $ 101,800     $ 393,050       7,545       2012  
                                                                 
W. Allen Reed
  $ 62,500     $ 0     $ 65,500     $ 170,240     $ 101,800     $ 400,040       7,640       2019  
Richard M. Smith
  $ 50,000     $ 5,000     $ 81,500     $ 181,545     $ 101,800     $ 419,845       7,989       2018  
                                                                 
Arthur Temple III
  $ 50,000     $ 0     $ 58,000     $ 143,640     $ 101,800     $ 353,440       6,747       2014  
Larry E. Temple
  $ 50,000     $ 5,000     $ 84,000     $ 184,870     $ 101,800     $ 425,670       8,098       2008  
                                                                 
Former Directors:
                                                               
James A. Johnson
  $ 62,500     $ 0     $ 50,500     $ 150,290     $ 101,800     $ 365,090       6,959       2007  
 
 
At year end 2007, the directors held the following aggregate number of phantom shares in the Fee Deferral Plan: Afsaneh M. Beschloss — 33,870, Donald M. Carlton — 33,992, Cassandra C. Carr — 25,291, E. Linn Draper, Jr. — 30,673, Larry R. Faulkner — 17,976, James T. Hackett — 57,406, Jeffrey M. Heller — 36,632, W. Allen Reed — 50,243, Richard M. Smith — 13,054, Arthur Temple III — 43,346, Larry E. Temple — 51,436, and James A. Johnson — 56,040. Mr. Johnson retired November 2, 2007, and received 2,016 shares and the cash value of $50,193 as payment for another 975 shares as the first of fifteen annual installment payments of his deferred fees. In January 2008, the following directors received a distribution

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of their deferred fees attributable to the spin-offs of Guaranty Financial Group Inc. (GFG) and Forestar Real Estate Group Inc. (FOR):
 
                                         
          Shares - Payable in Cash     Shares - Payable in Shares  
          Shares
    Value Realized
    Shares
    Value of
 
          Acquired on
    upon
    Acquired on
    Distributed
 
          Distribution
    Distribution
    Distribution
    Shares
 
          (#)     ($)(a)     (#)     ($)(a)  
 
Afsaneh M. Beschloss
    FOR       5,165     $ 98,393       6,124     $ 116,662  
      GFG       5,165     $ 62,755       6,124     $ 74,407  
Donald M. Carlton
    FOR       5,380     $ 102,489       5,950     $ 113,348  
      GFG       5,380     $ 65,367       5,950     $ 72,293  
Cassandra C. Carr
    FOR       5,173     $ 98,546       3,256     $ 62,027  
      GFG       5,173     $ 62,852       3,256     $ 39,560  
E. Linn Draper, Jr. 
    FOR       0     $ 0       0     $ 0  
      GFG       0     $ 0       0     $ 0  
Larry R. Faulkner
    FOR       0     $ 0       0     $ 0  
      GFG       0     $ 0       0     $ 0  
James T. Hackett
    FOR       6,341     $ 120,796       12,793     $ 243,707  
      GFG       6,341     $ 77,043       12,793     $ 155,435  
Jeffrey M. Heller
    FOR       0     $ 0       0     $ 0  
      GFG       0     $ 0       0     $ 0  
W. Allen Reed
    FOR       5,397     $ 102,813       11,350     $ 216,218  
      GFG       5,397     $ 65,574       11,350     $ 137,903  
Richard M. Smith
    FOR       4,351     $ 82,887       0     $ 0  
      GFG       4,351     $ 52,865       0     $ 0  
Arthur Temple III
    FOR       4,708     $ 89,687       9,739     $ 185,528  
      GFG       4,708     $ 57,202       9,739     $ 118,329  
Larry E. Temple
    FOR       5,676     $ 108,128       11,468     $ 218,465  
      GFG       5,676     $ 68,963       11,468     $ 139,336  
 
 
(a)
The amounts are values based on the closing price on the day of distribution, January 11, 2008, at $19.05 for Forestar and $12.15 for Guaranty.
 
(4) At year-end 2007, the directors held the following aggregate number of stock options: Afsaneh M. Beschloss — 20,000, Donald M. Carlton — 20,000, Cassandra C. Carr — 20,000, E. Linn Draper, Jr. — 20,000, Larry R. Faulkner — 20,000, James T. Hackett — 24,000, Jeffrey M. Heller — 20,000, James A. Johnson — 36,000, W. Allen Reed — 13,000, Richard M. Smith — 20,000, Arthur Temple III — 22,000, Larry E. Temple — 0. Expiration dates for these options range from 2009 through 2016. Until 2003, directors could take options with 15-year terms in lieu of their annual retainer fee, which is why some directors have more than 20,000 options outstanding. To see option exercise prices, vesting dates, and terms for each director’s options, you may look at his or her latest Form 4 under Investor Relations, SEC Filings, on our website at www.templeinland.com.
 
(5) Amounts include $5,000 charitable donations made on behalf of directors and matching charitable donations up to $6,000. The amount for Mr. Johnson also includes: $50,000 charitable donation in honor of his retirement, $35,000 lump sum retirement payment from the frozen director retirement plan, $50,193 as the first of fifteen installments of deferred fees payable in cash, and 2,016 shares of deferred fees payable in shares and valued at $103,784. The amounts for Messrs. Temple III and L. Temple also include $2,500 in charitable contributions made by Guaranty Bank in respect of their service on its board.


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EXECUTIVE COMPENSATION
 
COMPENSATION DISCUSSION AND ANALYSIS
 
Executive Summary
 
On February 25, 2007, our board unanimously authorized a transformation plan that included spin-offs of our real estate business and our financial services business. The spin-offs were completed on December 28, 2007 through distributions to our stockholders of all the shares of Forestar Real Estate Group Inc., which holds all of the assets and liabilities formerly associated with our real estate business, and Guaranty Financial Group Inc., which holds all of the assets and liabilities formerly associated with our financial services business. As part of the transformation plan, we also sold our strategic timberland on October 31, 2007 for approximately $2.38 billion.
 
During 2007, we took the following actions:
 
  •  Promoted Doyle R. Simons to Chairman and CEO and J. Patrick Maley III to President and COO effective December 28, 2007.
 
  •  Approved executive teams for Forestar (with James M. DeCosmo as CEO) and Guaranty (with Kenneth R. Dubuque as CEO).
 
  •  Approved salary increases and restricted stock grants relative to these promotions.
 
  •  Approved equitable adjustments to long-term incentive performance criteria due to changes in company structure.
 
  •  Approved payment of obligations to departing executives, including former CEO Kenneth M. Jastrow, II.
 
In the tables that follow, we show 2007 data related to our five named executive officers who continue on with our business, as well as certain former executives who now serve Forestar and Guaranty.
 
What is our compensation philosophy?
 
Our executive compensation philosophy is that a significant part of our executives’ compensation is tied to our performance as measured by:
 
1. Maximizing return on investment (ROI).
 
2. Profitably growing our business.


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We are focused on maximizing ROI because we fundamentally believe there is direct correlation between ROI and stockholder value. We will look for opportunities to profitably grow our business because we can create additional value for stockholders through disciplined growth focused on ROI. Accomplishing these objectives creates value for our stockholders as shown below:
 
Comparison of 5 Year Cumulative Total Return
Assumes Initial Investment of $100
 

(GRAPH)
 
Our peer group consists of companies that compete with us in the paper and forest products industry and includes.
Abitibi (except 2007)
AbitibiBowater Inc. (2007 only)
Bowater Inc. (except 2007)
Caraustar Industries Inc.
Domtar Corp.
International Paper Co.
Longview Fibre (except 2007)
MeadWestvaco Corporation
Packaging Corp. of America
Smurfit Stone Container Corporation
Weyerhaeuser
 
We periodically adjust the peer group to reflect mergers, consolidations, and similar restructurings.
 
What is our compensation program designed to reward?
 
Our compensation program is designed to attract and retain our executives, and reward them for maximizing ROI and profitably growing our business. It is also designed to be transparent, easy to explain and easy to understand.


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What are the elements of our compensation program?
 
The elements of our compensation program and their purposes are:
 
     
Compensation Elements:
 
Primary Purpose:
 
Salary
  Attract and retain
Health & Welfare Benefits
  Attract and retain
Change in Control Agreements
  Attract and retain
Annual Bonus
  Motivate and reward performance
Long-term Incentives
  Motivate and reward performance
Retirement & 401(k) Benefits
  Attract and retain; reward performance
 
Salaries are paid in cash to attract or retain executives. Health and welfare benefits are standard in our industry and also serve to attract or retain executives. In our industry, it is standard to provide change in control agreements and they are necessary to attract and retain talent in our ever-consolidating industry. Change in control agreements help ensure that our executives continue to work in the best interest of our stockholders and help alleviate concerns during any potential change in control situations that might otherwise lead our executives to work somewhere else.
 
Cash bonuses are considered on an annual basis and reward short-term performance based on consolidated ROI for corporate executives or segment ROI for segment executives. Long-term incentives reward long-term performance and align our executives’ interests with stockholders by encouraging stock ownership. Both cash bonuses and long-term stock awards are designed to align the executives’ interests with our business strategy and motivate performance to maximize ROI. Stock awards also help retain executives because they contain forfeiture provisions if the executive terminates employment other than for retirement, death, disability, or change in control. Retirement benefits help to retain executives and reward long-term service. Retirement benefits also reward performance because our formulas include both base salary and annual bonus in calculating average pay for pension purposes.
 
How is each element of compensation determined?
 
Generally speaking, each element of compensation is evaluated independently to determine whether it is competitive within our industry, or within the market as a whole.
 
Once a year, the Compensation Committee views a tally sheet that shows all elements of pay for each named executive officer. In 2007, the entire board was furnished with tally sheets for all executive officers, along with descriptions of the elements of compensation and their formulas.
 
Although the Compensation Committee has not established specific preset allocation formulas to determine the proportion of each type of pay in relation to other types of pay, it generally tries to maintain a balance between the different types of pay:
 
         
Type of Pay
 
Performance Measure
 
Measurement Period
 
Salary
  Continued service subject to annual evaluation   1 Year
Annual bonus
  ROI   1 Year
Long-term incentives
       
Restricted stock units
  Time vested with minimum ROI threshold   3 Years
Performance stock units
  ROI vs. Peers   3 Years
Options
  Stock price   10 Years
Retirement benefits
  Amount of retirement benefit is dependent on   Career
    salary and bonuses    
Health & welfare benefits
  None   None
Change in control agreement
  None   None


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Year to year, the exact allocation may vary, but the overall mix is strongly weighted to pay for performance in accordance with our philosophy. For Mr. Jastrow, who was the CEO for all but the last two days of 2007, the 2007 mixture was weighted as follows:
 
PIE CHART
 
 
How are salaries determined?
 
To ensure that our compensation remains competitive, the Compensation Committee from time to time reviews information from independent surveys of comparative companies. Because the market for executive talent extends beyond any particular industry, the survey data includes both companies in our industry as well as companies outside our industry. For example, in 2007 the group of comparative companies included Bemis Company, Inc., Boise Cascade Corporation, International Paper Company, Martin Marietta Materials, Inc., MeadWestvaco Corporation, Owens Corning, Packaging Corporation of America, Pactiv Corporation, Potlatch Corporation, PPG Industries, Inc., Rohm and Haas Company, Smurfit-Stone Container Corporation, Sonoco Products Company, Texas Industries, Inc., Trinity Industries, Inc., Vulcan Materials Company, and Weyerhaeuser Company. At the request of the Compensation Committee, Hewitt uses data from these companies to establish the relationship between revenues and compensation from which a market value of pay can be calculated for a specific revenue size, using a statistical technique known as regression analysis. Surveys indicate base salaries for most of our named executive officers were generally at or above the mid-ranges of the applicable comparative companies.
 
Salaries are reviewed annually and are paid in cash. In 2007, we increased our new CEO’s salary and our new President’s salary beginning on December 28 to reflect their promotions. Our new CEO’s salary was increased to approximately 80% of the market median to reflect the fact that he is new to this position. Our new President’s salary was increased to approximately 80% of the CEO’s salary. Mr. DeCosmo and Mr. Johnston were given a 3% increase in 2007. Our other named executive officers did not receive a salary increase in 2007 because their salaries were at or above the median. In making its salary decisions, the Compensation Committee emphasizes the executive’s experience, responsibilities, and performance, along with relative rank to other executives for internal pay equity. No specific formula is applied to determine the weight of each factor. The Compensation Committee has historically followed a policy of using annual bonus awards rather than base salary to reward outstanding performance.
 
How are annual bonuses determined?
 
Annual bonuses are paid in cash based on overall ROI for corporate executives and segment ROI for segment executives. Under a stockholder-approved plan designed to qualify for an exemption under Internal Revenue Code Section 162(m), the Compensation Committee established a potential maximum bonus award to the CEO equal to the maximum number of shares authorized under the plan less the number of shares used for his annual long-term incentive award. For 2007, the potential bonus amount equaled the cash value of 250,000 phantom shares. Each other named executive officer had a potential maximum bonus amount equal to the cash value of 150,000 phantom shares. Under bonus formulas established in early February, if performance met pre-established ROI criteria the executive officers were eligible to receive a bonus payment within the range shown in the Grants of Plan Based Awards Table. No bonus would be paid unless a threshold was met, then bonuses would be paid at a straight line progression until cost of capital was reached. Higher bonuses were possible after cost of capital was achieved. The Compensation Committee retained discretion to pay less than the amount indicated by the bonus formula. On February 25, 2007, our board unanimously authorized a transformation plan that included the spin-off of our real estate business and our financial services business. The spin-offs were completed on December 28, 2007 through distributions to our stockholders of all the shares of Forestar Real Estate Group Inc., which holds all of the assets and liabilities formerly associated with our


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real estate business, and Guaranty Financial Group Inc., which holds all of the assets and liabilities formerly associated with our financial services business. As part of the transformation plan, we also sold our strategic timberland on October 31, 2007 for approximately $2.38 billion and paid a special dividend of $10.25 to each stockholder with a portion of the proceeds. In its bonus determinations, the Compensation Committee made equitable adjustments to preserve the original intent of the plan considering the impact of the transformation plan and other one-time gains and expenses. Exercising its business judgment, the Committee determined the size of each executive’s bonus award as set forth in the Summary Compensation Table.
 
For 2008, the Compensation Committee revised our bonus plan with the help of its compensation consultant. The revised plan uses a simplified model that continues our emphasis on ROI, while also factoring in pre-established performance objectives such as achievement of growth objectives or cost reduction measures. For Section 162(m) purposes, a potential maximum bonus of 250% of target is payable under the plan for positive ROI. The Committee retains the discretion to reduce the size of any bonus. The Committee will use the following schedule in making its payment determinations:
 
                         
    Threshold     Target     Maximum  
 
ROI
    4.5 %     9.0 %     14.0 %
% of Target
    50 %     100 %     200 %
 
The Committee may also pay up to 100% of the target bonus amount for satisfactory achievement of objectives focused on lowering cost, contributing to profitable growth, or promoting a high performance culture focused on our values set forth on our Vision/Mission/Values statement including good ethics and “tone at the top,” and improvement of safety and environmental records. The total annual bonus for any executive will not exceed 250% of the executive’s target bonus. For the CEO and President, target is 125% of base salary. For all other executives, target is 100% of base salary. The level of ROI performance necessary for paying the threshold, target and maximum levels is set by the Committee annually and is not subject to adjustment by management.
 
How are the long-term incentive awards determined?
 
Our long-term incentive awards have included:
 
  •  Stock options
 
  •  Restricted stock units (RSUs)
 
  •  Performance stock units (PSUs)
 
The Compensation Committee considers previous grants, tenure, and relative responsibilities of the executive in determining size of awards. In the case of a new key executive, or an executive assuming new responsibilities, an initial grant may be made above usual annual targeted levels. A dollar value is established for the stock awards in consultation with Hewitt after reviewing competitive market data for similar executives at other companies inside and outside the paper and forest products industries. This dollar value may be at or above the mid-range of what other companies may offer in any given year. In May 2007, the new CEO and the new President were given an RSU award in connection with their new positions. The new CEO’s award was set at the approximate value of one annual grant, and the new President’s award was set at 80% of the CEO’s award.
 
As a result of the transformation plan, the Compensation Committee cancelled our 2006 and 2007 RSU and PSU grants. At the time of cancellation, the awards all met the criteria for payout in full. This decision reflected the fact that our internal structure was changing and our external peer group was consolidating to the point that relative ROI rankings were becoming increasingly more difficult to measure. The Compensation Committee issued replacement awards in 2007 that consist of RSUs with the same vesting periods as the original grants and 1% minimum ROI criteria. The Compensation Committee did this both as an equitable adjustment recognizing the difficulties of measuring performance criteria of the original awards, and also as a retention measure for our key executives.


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For the 2008 long-term incentive awards, the Compensation Committee discussed performance measures and peer group companies with Hewitt. As a result, the Compensation Committee decided to suspend the use of PSUs due to the transition and state of consolidation in our industry. The Compensation Committee provided the same dollar value of awards in 2008 as we granted in 2007, splitting the PSU value equally between options and RSUs. The RSUs contain the minimum 1% ROI criteria to meet IRS Section 162(m) requirements. Options offer a built-in performance feature through stock price appreciation. We still firmly believe in pay for performance, and will continue to evaluate our peer groups and potential performance measures going forward.
 
What are the material terms of the stock awards?
 
The stock awards have the following terms:
 
Options: Options are granted at fair market value on the date of the grant, become exercisable 25% each year over four years, provide for accelerated vesting upon retirement, disability, death, or if there is a change in control, and expire in ten (10) years. Income tax withholding may be paid with exercised shares. For 2006 and prior awards, the exercise price for stock options was based on the average of the high and low sales price for Temple-Inland common stock on the New York Stock Exchange on the grant date. For 2007 and future years, the exercise price is the closing price on the NYSE on the grant date.
 
RSUs: RSUs vest on the third anniversary from the date of grant if minimum 1% annualized ROI criteria are met and are settled in cash based on the closing price on the NYSE on the vesting or payment date. RSUs provide for accelerated vesting upon retirement, disability, death, or if there is a change in control of Temple-Inland.
 
Our long-term incentive plan provides for equitable adjustment in the event of stock splits or other equity restructurings. Awardees generally receive the same adjustment stockholders receive.
 
Do we pay dividends on RSUs? If so, why?
 
Yes. Our Compensation Committee has approved and the board has ratified the payment of dividends on RSUs equivalent to dividends paid on our common stock. These units are treated by us as owned by the executive on the grant date and are subject to forfeiture if the executive leaves other than through retirement before the vesting period is over or minimum ROI criteria is not met. Therefore, the executive receives the benefit of dividends until such time as he or she forfeits the stock units. In that way, the executive is treated as though he or she is a stockholder (though without voting rights), which aligns his or her interest to our stockholders. It is also a retention incentive, because executives will have to weigh the possibility of losing the dividends if they do not stay through the vesting period.
 
Do executives have to meet stock ownership guidelines?
 
Yes. To further align executives’ financial interests with those of our stockholders, the Compensation committee adopted minimum stock ownership guidelines:
 
Value of Ownership of Stock as a Multiple of Annual Salary
 
         
    Multiple of
 
Position
  Salary  
 
Chief Executive Officer
    5x  
Other Named Executive Officers
    3x  


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Shares owned by the executive and their immediate family members count toward the ownership guidelines. Shares held in the 401(k) plan and RSUs also count toward the total. Options do not count until they are exercised.
 
The named executive officers all meet the stock ownership guidelines.
 
Are there mandatory holding periods for stock acquired through exercise of options?
 
Yes. Our executive officers are required to hold 100 percent of the net shares acquired through the exercise of options until they meet our ownership guidelines. The Compensation Committee maintains discretion to reduce or eliminate future long-term incentive awards for an executive who is not making adequate progress toward meeting the stock ownership guidelines or does not retain the required level of net shares acquired through the exercise of options.
 
Are gains from prior stock awards considered in setting other benefits such as retirement?
 
No. Gains from exercising stock options, the vested value of RSUs, and dividends on RSUs are not considered in setting other benefits such as life insurance, disability benefits, or retirement benefits.
 
How many more shares can be issued under our long-term incentive plans?
 
The following table sets forth information as of the end of 2007 related to compensation plans under which our shares may be issued:
 
                         
                Number of
 
                Securities
 
                Remaining Available
 
    Number of
          for Future
 
    Securities to be
          Issuance Under
 
    Issued Upon
    Weighted-Average
    Equity Compensation
 
    Exercise of
    Exercise Price of
    Plans (Excluding
 
    Outstanding
    Outstanding
    Securities
 
    Options, Warrants
    Options, Warrants
    Reflected in
 
    and Rights
    and Rights
    Column(a))
 
Plan Category
  (a)(1)     (b)(1)     (c)(1)  
 
Equity compensation plans approved by security holders
    7,108,174     $ 15       0  
Equity compensation plans not approved by security holders
    None       None       None  
Total
    7,108,174     $ 15       0  
 
 
(1) Includes 5,947,883 options outstanding, of which 4,711,446 relate to our employees and have a weighted average term of 6 years and 1,236,437 relate to employees of spun-off entities Guaranty and Forestar and have a weighted average term of 7 years. Also includes 529,500 restricted shares outstanding, of which 435,600 relate to our employees and 93,900 relate to employees of Guaranty and Forestar. Includes 245,626 shares payable to directors for deferred fees. Includes 385,165 stock-settled restricted stock units that related to deferred bonuses and deferred vested restricted shares that could not be paid out until after retirement due to Code Section 162(m) policy. Average exercise price has been adjusted for December 2007 special dividend and spin-offs. If stockholders approve the 2008 Incentive Plan, the options issued in February 2008 would increase the number of awards outstanding for all of our employees and the Guaranty and Forestar employees to 9,463,254 with a weighted average exercise price of $17 for options and weighted average term of 7 years, which would include 2,355,080 options issued in 2008 with a term of 10 years and an exercise price of $19.50. In 2005, we issued 430,600 full value stock-settled restricted stock units; in 2006, we issued no full value stock-settled restricted shares or stock units; and in 2007, we issued no full value stock-settled restricted shares or stock units. All other restricted stock units and performance stock units issued in 2005, 2006, and 2007 are cash-settled.
 
Do we have a deferred compensation plan?
 
Yes. Executive officers may defer all or part of their bonus under our phantom stock arrangement. There is no above-market or preferential earnings on deferred compensation. Executives must decide to defer in the year prior to the year in which they earn the bonus. For example, by the end of 2007, executives could decide to defer the bonus they might earn working in 2008. The 2008 bonus is actually determined in February 2009.


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When a bonus is approved, the dollar amount of the bonus is divided by the fair market value of our common stock on the NYSE on the board meeting date when the bonus is approved. For example, suppose an executive defers $24,000 of his bonus under the plan. On the date of the board meeting, the fair market value of our stock is $20. We make a book entry of 1,200 cash-settled RSUs for the executive ($24,000 ¸ $20 = 1,200 shares).
 
We also pay a match on the deferred compensation equal to 2% of the amount deferred multiplied by the number of years of deferral. The maximum match is 20%. A match is vested if the executive has worked for Temple-Inland for 3 years. There is a minimum deferral period of 5 years. In the above example, if the executive deferred a bonus for 5 years, he or she would have a match of 2% X 5 years = 10% X 1,200 shares = 120 shares.
 
During the deferral period, the RSUs earn dividends equal to the dividends paid on our stock. In 2007 and prior years, the dividends were reinvested in more shares. In 2008 and future years, the dividends are paid in cash. RSUs do not confer any voting rights.
 
Do we provide qualified retirement benefits to executives?
 
Yes. Our named executive officers receive the same tax-qualified retirement benefits as other salaried employees. The Compensation Committee and the board have had multiple discussions over a several year period about whether to continue our defined benefit retirement plan or to change to a defined contribution plan. Following a review of paper industry trade association data and data provided by our actuary, and extensive analysis by our human resources, finance and accounting departments, the board approved a continuation of our defined benefit retirement plan with a simpler 2-part formula for new hires in place of our current 3-part formula. In addition, early retirement subsidies were reduced and other cost saving measures were adopted for newly hired employees. We believe a defined benefit plan offers a competitive advantage in recruiting new executives and is no more costly than a defined contribution plan. Executive officers and other existing employees continue to receive the better of the old or the new formula. Only salary and bonus are taken into account for retirement formula purposes.
 
Do we offer a Supplemental Executive Retirement Plan (SERP)?
 
Yes. The Internal Revenue Code limits the amount of compensation that can be used in calculations under a tax-qualified defined benefit retirement plan. In 2007, this limit was $225,000. As a result, any retirement benefits that cannot be paid under our tax-qualified defined benefit plan due to these limitations are paid under a SERP, which is not a tax-qualified plan.
 
The SERP also provides unreduced retirement at age 60 with 15 years of service for certain designated executives, including Mr. Simons, Mr. Maley, and Mr. Levy. Under this plan, the designated executive’s retirement benefits from all retirement plans will be at least equal to 50% of the executive’s final average compensation for the highest five years out of the last ten years of employment. Benefits are reduced for early retirement, which may be taken at age 55 with 20 years of service, by 5% for each year prior to age 60. Benefits may be taken by designated executives in a lump sum amount. The lump sum is calculated based on the 30-year Treasury rate set in the previous November.
 
The SERP is unfunded and contains a provision for acceleration of payment in the event of a change in control. The SERP is a valuable incentive to attract executives who are leaving career-based retirement plans at other companies. It is also a valuable retention tool for existing executives who must meet service criteria to qualify for the plan.
 
Mr. Levy and Mr. Johnston formerly participated in a defined contribution plan and SERP when they worked for the financial services segment. Their balance under the defined contribution plan and SERP will offset any amount they receive under the defined benefit plan and SERP. In 2008, they will receive a distribution from Guaranty of their defined contribution SERP in connection with the transformation plan.


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Can executives retire early?
 
Yes. An employee may retire at age 55 or later if the employee has five years of service, but benefits are reduced for each year before age 62 by factors ranging from 3% to 6% based on years of service. Under the SERP, designated executives (including Mr. Simons, Mr. Maley, and Mr. Levy and the former CEO, Mr. Jastrow) may retire at age 55 if they have 20 years of service but benefits are reduced for each year before 60. The table below lists the executives who are eligible for early retirement and the projected monthly payment in the form of a joint and 50% survivor annuity assuming each retired on January 1, 2008:
 
                 
    Monthly Payment
    Lump Sum Payment
 
Executive
  Under Qualified Plan     Under SERP  
 
Jastrow
  $ 7,998     $ 24,116,901  
Levy
  $ 2,070     $ 1,610,774  
Sweeny
  $ 8,152     $ 4,836,964  
 
Do we grant extra years of credited service under our retirement plan?
 
No. Extra years of credited service are granted only under our change in control agreements and our CEO employment agreement but not for any other reason.
 
Do executives participate in 401(k) plans?
 
Yes. We offer 401(k) plans to all of our salaried and non-union hourly employees. For each dollar that an employee contributes to his or her 401(k) savings account, we contribute a match of $1 up to 3% of the employee’s compensation. For each $1 that an employee contributes of his or her next 3% of pay, we contribute 50 cents. For 2007 and prior years, there was a maximum match of $4,000 each year. The match was vested 34% after 1 year of employment, 67% after 2 years, and fully vested after 3 years of employment. Beginning in 2008, our 401(k) plans have been simplified by adopting IRS safe harbor provisions for 100% vesting after 2 years, elimination of the Company stock fund after 3 years, and eliminating the cap on matching contributions which are capped by IRS limits on pay that can be considered in qualified retirement plans.
 
Do we offer health and welfare benefits?
 
Yes. We offer the same health and welfare benefits to all salaried employees. These benefits include medical benefits, dental benefits, vision benefits, life insurance, salary continuation for short-term disability, long-term disability insurance, accidental death and dismemberment insurance, dependent care spending account, health care spending account, health savings account, and other similar benefits. Because these benefits are offered to a broad class of employees, the cost is not required by SEC rules to be included in the Summary Compensation Table. The named executive officers generally pay more for their medical benefits than other employees who receive less compensation. Executives and other salaried employees may participate in a post-retirement health plan that provides access to health coverage. We pay a one-time contribution equal to $600 per year of service up to 2004 under a frozen plan for this coverage. Once the employee exhausts this contribution, he or she must pay the full cost for coverage.
 
Do we offer employment agreements?
 
No. Occasionally we sign a letter agreement with a new executive upon hiring, but generally they do not cover more than the first year’s pay and bonus. Except for Mr. Simons, none of our other named executive officers has an employment agreement. We entered into the agreement with Mr. Simons this year upon his election as CEO, after careful study and review of Hewitt data concerning terms applicable to CEOs in the general marketplace. The term of Mr. Simons’ agreement is three years, but it is automatically extended by one year on the first anniversary of the effective date and each anniversary thereafter unless notice of nonrenewal is given at least one year in advance of such anniversary date. During the term of the agreement, Mr. Simons will receive a base salary which may not be reduced below its level at the time the agreement was initially entered into ($780,000) or any increase subsequently granted. He will be eligible for a performance-based annual cash bonus, employee benefits, equity (long-term incentive plan) grants, and other perquisites. Other perquisites consist of use of the Temple-Inland aircraft (subject to imputation of income under IRS regulations) and umbrella insurance, all on terms substantially no less favorable than in effect prior to the


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effective date of the agreement. There are no parameters on the performance-based annual cash bonus, such as a maximum amount, and it is entirely within the discretion of the Compensation Committee except that it shall be substantially no less favorable than the bonus program in effect prior to the effective date of the agreement.
 
Do we offer any severance benefits for executives whose employment terminates?
 
No. We do not have a plan or policy to provide severance benefits to executives whose employment terminates. Generally speaking, severance is a matter that is individually negotiated with the executive and the amount depends on the circumstances of his or her departure. The CEO is the only executive who has an employment agreement with pre-established severance benefits, other than the change in control agreements discussed below. In return for the post-employment benefits, the CEO agreed not to compete with our company for two years after his departure.
 
Do we have a policy on “clawback” of compensation?
 
If an executive leaves under circumstances that call into question whether any compensation amounts paid to him or her were validly earned, we would pursue any legal rights we deemed appropriate under the circumstances.
 
Do we offer Change In Control Agreements?
 
Yes. All of the named executive officers and most senior executives hold change in control agreements. During a potential change in control, we do not want executives leaving to pursue other employment out of concern for the security of their jobs or being unable to concentrate on their work. To enable executives to focus on the best interest of our stockholders, we offer change in control agreements that provide severance benefits to executives whose employment terminates as a result of a change in control. These agreements contain a double “trigger,” meaning that additional severance is payable only if an executive’s employment is terminated within two years following a change in control event such as the transformation plan. Termination of employment is deemed to occur if the executive terminates employment for a “good reason” such as a substantial reduction in the executive’s base salary or failure to provide benefits substantially similar to the material benefits enjoyed by the executive immediately prior to the change in control. We evaluated these agreements and found them to be competitive in their terms compared to our paper industry peers. We included a double trigger provision in our agreement with the new CEO, to replace one he already had in his change in control agreement. Vesting of long-term incentive compensation is accelerated when there is a change in control event in some cases with and in some cases without termination of the executive depending on the nature of the event. In some cases, the event itself triggers the vesting to allow executives to exercise and vote their shares. In our opinion, these agreements are necessary to ensure attraction and retention of executives in our industry, which is experiencing a great deal of consolidation. The agreements do contain gross up provisions. If an executive loses his or her job following a change in control event that meets certain IRS criteria, the executive must pay an additional 20% excise tax simply for collecting the pay that is due. The gross up makes the executive whole by paying the 20% tax amount. It does not pay the executive’s normal income taxes.
 
What compensation actions did we take as a result of the transformation plan?
 
Throughout 2007, the Compensation Committee considered and approved numerous compensation actions related to the transformation plan. In approving these actions, the Committee met eight times, including four special meetings, to:
 
  •  consider numerous compensation studies, surveys, and advice from Hewitt, on both general market practices and specific peer group practices;
 
  •  consider advice and opinions from inside and outside counsel on various matters;
 
  •  review tally sheets and accumulated wealth charts;


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  •  negotiate employment agreements with new CEOs for Temple-Inland, Guaranty, and Forestar and their individual attorneys; and
 
  •  meet in executive session with its independent counsel, compensation consultant, and members.
 
The Compensation Committee reported its findings to the full board and held executive sessions with the independent directors and independent counsel retained to represent the independent directors. The actions reported to and approved by the full board were:
 
     
Leadership Succession & Retention
Objectives
 
• Provide key leadership for the ongoing businesses of all three companies.
   
• Retain and incent key leadership to complete the transformation plan in the best interests of stockholders.
Actions
 
• Approved senior leadership succession for all three companies.
   
• Negotiated employment agreements with new CEOs of all three companies.
   
• Approved salary adjustments for new CEOs and new President.
   
• Granted restricted stock awards for new CEO and President in recognition of their promotion and as a retention tool.
   
• Approved leadership teams and organizational structures for all three companies.
   
• Approved new change in control agreements for the departing Guaranty and Forestar executives to replace their Temple-Inland change in control agreements.
Honoring Commitments to Employees and Retirees
Objectives
 
• Honor obligations to departing executives and employees, and to our retirees.
   
• Ensure obligations to employees were properly allocated among the three employers.
Actions
 
• Entered into a Transformation Agreement outlining the Company’s obligations and payment schedule with respect to Kenneth M. Jastrow, II, upon his departure from the Company following the spin-off.
   
• Provided for vesting of employees whose employment was terminated as a result of the transformation plan.
   
• Approved payments of nonqualified pension obligations, deferred compensation obligations, and retiree medical accounts to employees departing from any of the three businesses.
   
• Approved lump sum payments of nonqualified pension obligations to existing retirees and terminated former employees.
   
• Approved an Employee Matters Agreement among the three businesses outlining the parties’ obligations to each other and their employees.
Equitable Adjustments
Objectives
 
• Equitably adjust long-term incentive awards so that employees of all three businesses shared in the success of the transformation plan.
Actions
 
• Equitably adjusted long-term incentives to reflect special dividend paid to stockholders with certain proceeds from the sale of the timberlands and the spin-offs of Guaranty and Forestar.
   
• Cancelled 2006 and 2007 restricted stock units and performance stock units for Tier I executives and replaced them with substitute grants reflecting new performance criteria, in light of the frustration of purpose caused by the spin-offs.
   
• Amended all outstanding stock agreements to revise the change in control definition and provide for equitable adjustment.
New Plans
Objectives
 
• Provide competitive compensation and benefits structures post-spin for the three independent businesses.
   
• Update and simplify employee benefits plans and comply with new legislation such as Internal Revenue Code Section 409A.
   
• Review each element of compensation from multiple perspectives, such as human resources, legal, accounting, and tax, and both individually and in the aggregate as a total reward program.
Actions
 
• Adopted new stock plans for Guaranty and Forestar.


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• Approved 401(k) plans and/or amendments with IRS safe harbor vesting provisions, new matching and retirement formulas, and closure of Company Stock Funds for all three companies.
   
• Approved a new, simplified retirement formula for the Temple-Inland defined benefit retirement plan and new or amended nonqualified pension plans for all three companies with revised formulas and lump sum payment provisions.
   
• Approved adoption of new health and welfare benefit plans for Forestar and Guaranty.
 
What are our governance practices regarding compensation?
 
Our governance practices divide responsibility for compensation oversight into three levels:
 
     
• Stockholders:
  Stockholders approve all stock incentive plans. We do not have any stock plans that are not stockholder-approved.
• Board and Compensation Committee:
  The Compensation Committee composed entirely of independent, outside directors establishes and administers compensation programs and philosophies. The Compensation Committee ensures that stockholder-approved plans are administered in accordance with good governance practices and stockholder intent. The Compensation Committee is responsible for approval of salaries, bonuses and long-term incentive compensation paid to executive officers, bonus pools for non-executive employees, retirement formulas for executive officers, deferred compensation plans, and employment and change in control agreements. The full board reviews tally sheets for the CEO, evaluates CEO performance, approves succession plans, and acts on recommendations of the Compensation Committee.
• Management:
  Management approves health and welfare programs for all employees, divides bonus pool amounts approved by the Compensation Committee into individual employee bonuses, approves any retirement plan changes and formulas other than those for executive officers, and administers all employee benefit and incentive plans on a day-to-day basis. Within management, the CEO and Vice President & Corporate Secretary serve as liaisons with the Compensation Committee.
 
What are the roles of executive officers in determining compensation?
 
Our Compensation Committee establishes and administers compensation programs and philosophies. Our Vice President & Corporate Secretary and CEO work closely with the Compensation Committee and recommend executive compensation amounts, except that the CEO does not participate in discussions regarding his own compensation. These executives consult with the other executive officers about compensation amounts for executives and other employees who report to them. The Compensation Committee has final approval of all compensation amounts or formulas applicable to benefit plans in which executive officers participate.
 
The Compensation Committee establishes, administers, and approves bonus programs for non-executive employees and approves the aggregate amount of bonus pools for each business segment. Each executive officer recommends individual bonus amounts for employees under their direction, and the executive officer in charge of the applicable business segment approves the individual amounts.


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The Compensation Committee approves all stock award recipients and the amount of each award. No executive is involved in setting the exercise price of the awards.
 
The Compensation Committee has delegated to the CEO the responsibility for approving health and welfare programs for all employees. Executive officers participate in the same health and welfare programs as other salaried employees. Our benefit programs require executives who earn more to pay more for their benefits.
 
The Compensation Committee has also delegated to certain of our executive officers the responsibility to maintain the tax qualification status of the retirement and 401(k) plans, to approve retirement and 401(k) plan provisions and formulas applicable to employees who are not executive officers, and to oversee the administration of all of the plans.
 
In addition, an investment committee, whose members are executive officers, oversees the investment of retirement plan assets and 401(k) plan fund choices. The investment committee reports annually to the board.
 
What are our stock option governance practices?
 
Our policy for setting the timing of stock option grants does not allow executives to have any role in choosing the price of their options or other stock awards. We do not “back date,” “spring load” or reprice options or other stock awards. Our general practice is to make annual grants each year at the February board meeting. The Compensation Committee approves awards, including the specific number of shares granted to specific individuals, which are ratified by the full board and valued at the closing price of our common stock on the NYSE on the grant date. On occasion, newly hired high-level employees may be granted awards by the Compensation Committee in connection with the start of their employment other than at the February board meeting. Any such grants are ratified by the full board and are priced at the closing price of our common stock on the NYSE on the date of the board meeting at which the award is approved. We do not have any program, plan or practice to time option grants or other stock awards in coordination with the release of material non-public information nor do we time the release of material non-public information for the purpose of affecting the value of executive compensation.
 
How is the CEO’s performance evaluated? Who determines CEO pay?
 
The independent members of the board complete an evaluation of the CEO each year, which is compiled confidentially by Hewitt and provided to the Compensation Committee. Factors evaluated include ROI and other financial and non-financial performance measures and objectives, including leadership, strategic planning, financial results, succession planning, human resources/EEO, communications, external relations, ethics, and board relations.
 
The Compensation Committee and full board determine CEO pay with assistance from Hewitt. The Compensation Committee discusses CEO pay in executive session and reports its recommendations to the independent members of the board. The independent members of the board approve all actions related to the CEO’s compensation.
 
Does the Compensation committee use a compensation consultant?
 
Yes. The Compensation Committee currently uses Hewitt as its compensation consultant. Hewitt provides annual market and other specific information on executive pay and also attends Compensation Committee meetings on request of the committee. The Compensation Committee periodically meets in executive session with Hewitt. Hewitt also serves as consultant to the Nominating and Governance Committee on director compensation.
 
With the Compensation Committee’s approval, management retains Hewitt to prepare the change in control calculations for disclosure in the proxy statement and to model the number of shares to be requested for new stock plans. From time to time with the Compensation Committee’s approval, Hewitt occasionally performs other limited assignments for human resources regarding non-executive employees on a


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non-exclusive basis along with other compensation consultants. In 2007, Hewitt was paid $4,000 for human resources assignments in connection with the transformation plan.
 
Do we use tally sheets?
 
Yes. Tally sheets for each of the named executive officers are reviewed by the Compensation Committee for compensation each year. These tally sheets list the executive’s salary, proposed bonus and stock awards, and the 401(k) matching contribution, retirement, health and welfare benefits. In addition, the Compensation Committee reviews a wealth accumulation chart for the CEO.
 
What is our policy on Internal Revenue Code Section 162(m)?
 
Our policy is to obtain the maximum possible tax deduction for compensation paid to executive officers, but we may forego all or some portion of a deduction to conform to our compensation goals and objectives. Except for amounts that are not material, all compensation paid in 2007 should qualify for a deduction under Section 162(m) of the Internal Revenue Code.
 
What is the accounting and tax treatment of each form of compensation?
 
For accounting purposes, salaries, bonuses, the fair value of stock-based compensation and other benefits are charged to expense as earned. For tax purposes, salaries, bonuses and other benefits are taken as a tax deduction when paid to the executive or contributed to a tax-qualified retirement plan subject to the Section 162(m) limitation described above. For tax purposes, stock-based compensation awards are generally taken as a tax deduction when the award is vested or exercised by the executive.
 
Summary Compensation
 
The following table summarizes all compensation earned in 2007 and 2006 by our CEO, our Chief Financial Officer, and the three other most highly compensated executive officers who were serving as executive officers at year-end 2007. It also shows amounts earned by our former CEO and two former executive officers who were not serving as executive officers at year-end 2007 as a result of completion of the transformation plan:
 
                                                                         
                                        Change in
             
                                        Pension Value
             
                                        and
             
                                        Nonqualified
             
                                  Non-Equity
    Deferred
             
                            Option
    Incentive Plan
    Compensation
    All Other
       
Name and Principal Position
  Year     Salary(1)     Bonus     Stock Awards(2)     Awards     Compensation     Earnings(3)     Compensation(4)     Total  
 
Current Officers:
                                                                       
Simons, Doyle R.
    2007     $ 425,000           $ 1,036,805     $ 312,980     $ 900,000     $ 575,229     $ 13,634     $ 3,263,648  
Chairman and CEO
    2006     $ 416,346           $ 987,755     $ 237,997     $ 1,200,000     $ 106,159     $ 9,900     $ 2,958,157  
Maley III, J. Patrick
    2007     $ 425,000           $ 1,009,835     $ 336,714     $ 1,250,000     $ 575,899     $ 41,429     $ 3,638,877  
President and Chief Operating Officer
    2006     $ 422,115           $ 1,166,024     $ 279,102     $ 1,000,000     $ 129,231     $ 5,350     $ 3,001,822  
Levy, Randall D.
    2007     $ 425,000           $ 537,022     $ 427,033     $ 600,000     $ 706,284     $ 10,125     $ 2,705,464  
Chief Financial Officer
    2006     $ 422,115           $ 873,020     $ 443,853     $ 850,000     $ 410,695     $ 9,300     $ 3,008,983  
Sweeny, Jack C.
    2007     $ 400,000           $ 543,478     $ 413,358     $ 400,000     $ 1,577,007     $ 49,916     $ 3,383,759  
Group Vice President
    2006     $ 397,115           $ 815,822     $ 416,863     $ 1,470,000     $ 682,741     $ 21,186     $ 3,803,727  
Johnston, J. Bradley
    2007     $ 369,554           $ 419,014     $ 195,168     $ 500,000     $ 203,889     $ 10,250     $ 1,697,875  
Chief Administrative Officer
    2006     $ 356,538           $ 573,948     $ 161,125     $ 720,000     $ 57,379     $ 7,250     $ 1,876,240  
Former Officers:
                                                                       
Jastrow, II, Kenneth M. 
    2007     $ 962,000           $ 1,837,798     $ 499,315     $ 1,626,345     $ 2,652,816     $ 537,673     $ 8,115,947  
Former Chairman and CEO
    2006     $ 959,143           $ 4,994,136     $ 1,827,600     $ 3,200,000     $ 1,382,491     $ 10,000     $ 12,373,370  
Dubuque, Kenneth R.
    2007     $ 450,000           $ 740,306     $ 427,275     $ 550,000     $ 1,804,295     $ 60,795     $ 4,032,671  
Former Group Vice President, Financial Services
    2006     $ 447,116           $ 882,827     $ 446,758     $ 777,000     $ 522,890     $ 46,350     $ 3,122,941  
DeCosmo, James M. 
    2007     $ 307,962     $ 500,000     $ 529,345     $ 165,025           $ 111,978     $ 25,044     $ 1,639,354  
Former Group Vice President, Real Estate
    2006     $ 294,231     $ 740,000     $ 310,267     $ 118,183           $ 37,959     $ 34,351     $ 1,534,991  


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(1) Until December 28, 2007, Mr. Simons and Mr. Maley served as Executive Vice President and Executive Vice President-Paper, respectively. Upon his promotion to Chairman and CEO on December 28, 2007, Mr. Simons received an increase in salary to $780,000. Upon his promotion to President and COO on December 28, 2007, Mr. Maley received an increase in salary to $625,000.
 
(2) The fair value of restricted stock and stock options was determined in accordance with Statement of Financial Accounting Standards No. 123(R). Fair value of the option awards was determined using the Black-Scholes-Merton option pricing model. The table above assumes maximum pay-out of restricted stock units. The following table lists the fair values by grant date.
 
                                         
    Estimated
          Expected
             
    Fair
    Expected
    Stock
    Risk-Free
    Expected
 
    Value of
    Dividend
    Price
    Interest
    Life of
 
Grant Date
  Options Granted     Yield     Volatility     Rate     Option  
 
2/7/2003
  $ 5.81       2.50%       29.30%       2.90%       8  
5/7/2003
  $ 6.60       2.50%       29.30%       3.90%       8  
2/6/2004
  $ 8.31       2.90%       28.80%       4.20%       8  
2/4/2005
  $ 11.13       2.30%       28.20%       4.10%       8  
2/3/2006
  $ 11.53       2.40%       25.10%       4.40%       6  
2/3/2007
  $ 12.47       2.30%       22.80%       4.90%       6  
 
(3) Represents the change in the actuarial present value of accumulated benefits from September 30, 2006 to September 30, 2007. There were no above-market or preferential earnings on deferred compensation.
 
(4) All Other Compensation for 2007 includes $750 for umbrella liability insurance for each officer. Each other perquisite for 2007 is shown below:
 
                                                                 
                                              Charitable
 
    Personal
                            Relocation
          Contributions
 
    Use of
    Attorneys
          Car
          Mortgage
          and/or
 
    Aircraft(a)     Fees     Club Dues(b)     Allowance     Other Perks     Subsidy     401(k)(c)     Donations(d)  
 
Simons
        $ 1,763     $ 1,671           $ 50           $ 4,000     $ 5,400  
Maley
  $ 24,591     $ 11,925                 $ 75           $ 4,000     $ 2,627  
Levy
                          $ 50           $ 4,000     $ 5,325  
Sweeny
  $ 35,189           $ 3,427                       $ 4,000     $ 6,550  
Johnston
              $ 1,950           $ 50           $ 4,000     $ 3,500  
Jastrow
  $ 21,423     $ 5,500                             $ 4,000     $ 506,000  
Dubuque
        $ 5,537     $ 2,611           $ 50           $ 46,947     $ 4,900  
DeCosmo
        $ 1,902     $ 4,904     $ 954     $ 113     $ 8,321     $ 4,000     $ 4,100  
 
     ­ ­
 
(a) Incremental cost of personal use of aircraft includes fuel costs, engine maintenance expenses, crew expenses, ground fees, and other miscellaneous expenses such as meals.
 
(b) Mr. Simons holds a membership to a dinner club for use in hosting board functions. All other amounts shown for other executives are for country club dues.
 
(c) Company match under 401(k) plan. For Mr. Dubuque, it also includes a 3.5% contribution of $7,875 contribution to a retirement plan and $35,072 to a SERP.
 
(d) Includes $500,000 scholarship fund set up in honor of Mr. Jastrow’s retirement.


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Table of Contents

 
Grants of Plan-Based Awards
 
The following table summarizes grants of stock-based compensation awards made during 2007 to the named executive officers:
 
2007 GRANTS OF PLAN-BASED AWARDS
 
                                                                                         
                                        All Other
    All Other
             
                                        Stock
    Option
          Grant
 
                                        Awards:
    Awards:
    Exercise
    Date Fair
 
                                        Number of
    Number of
    or Base
    Value of
 
          Estimated Future Pay-outs Under
    Estimated Future Pay-outs Under Equity
    Shares of
    Securities
    Price of
    Stock and
 
          Non-Equity Incentive Plan Awards     Incentive Plan Awards     Stock or
    Underlying
    Option
    Option
 
          Threshold
    Target
    Maximum
    Threshold
    Target
    Units
    Options(2)
    Awards(3)
    Awards
 
Name
  Grant Date     ($)     ($)     ($)(4)     (#)     (#)(1)     (#)     (#)     ($/Sh)     (4)  
(a)                  (b)     (c)     (d)     (e)     (f)     (g)     (h)     (i)     (j)     (k)     (l)  
 
Simons
    2/2/2007     $ 148,511             $ 1,508,978               35,000                     32,800     $ 24.34          
      5/4/2007                                 50,000                                   $ 3,645,776  
Maley
    2/2/2007     $ 270,000             $ 2,646,000               35,000                     32,800     $ 24.34          
      5/4/2007                                 40,000                                   $ 3,346,076  
Levy
    2/2/2007     $ 148,511             $ 1,353,965               24,500                     24,600     $ 24.34          
      5/4/2007                                                                   $ 1,505,562  
Sweeny
    2/2/2007     $ 107,000             $ 1,011,000               24,500                     24,600     $ 24.34          
      5/4/2007                                                                     $ 1,505,562  
Johnston
    2/2/2007     $ 148,511             $ 669,094               20,000                     18,450     $ 24.34          
      5/4/2007                                                                     $ 1,219,082  
Jastrow
    2/2/2007     $ 336,225             $ 3,429,495               150,000                         $ 24.34          
      5/4/2007                                                                   $ 8,991,000  
Dubuque
    2/2/2007     $ 233,000             $ 1,143,000               24,500                     24,600     $ 24.34          
      5/4/2007                                 30,000                                   $ 2,404,662  
DeCosmo
    2/2/2007                                 20,000                       18,450     $ 24.34          
      5/4/2007                                 25,000                                     $ 1,968,332  
 
 
(1) On August 9, 2007 all RSUs and PSUs issued in 2006 and 2007 were cancelled and reissued as new RSUs. The RSUs are contingent upon meeting ROI of at least one percent annualized during the 3-year period. ROI means operating income (as currently shown on the Company’s income statement, or the reported equivalent in the event of any change in reporting), excluding significant unusual items (currently reported as other operating income (expense) not allocated to segments, or the reported equivalent in the event of any change in reporting) divided by beginning of year investment defined as the Company’s total assets (or the reported equivalent in the event of any change in reporting), less certain assets (assets held for sale, municipal bonds related to capital leases included in other assets and acquisitions/divestitures) and certain liabilities (current liabilities, excluding current portion of long-term debt). The RSUs retain the original vesting dates.
 
(2) Options granted February 1, 2007 to purchase our common stock. Exercise prices have been adjusted pursuant to our recent transformation and anti-dilution provisions of the underlying stock plan agreements. Withholding taxes may be paid with exercised shares. No general or freestanding stock appreciation rights (SARs) were granted. All grants to the named executive officers under the Incentive Plan include a provision for acceleration of vesting in certain change of control situations. All options awarded to the executives become exercisable in 25% increments on 02/02/08, 02/02/09, 02/02/10 and 02/02/11 and have a ten-year term expiring 02/02/17.
 
(3) This represents the exercise price as adjusted to reflect the transformation plan. The original exercise price was $50.90.
 
(4) Maximum shown in table above is for achievement of 17% ROI for Jastrow, Simons, Levy, and Johnston; 27% ROI for Maley; 27% ROI for Sweeny; and 28% ROI for Dubuque. Under ROI schedules, maximum could be expanded if additional ROI above these limits was achieved, up to plan maximum of value equal to 250,000 shares established by Compensation Committee as maximum for CEO, or maximum of value equal to 150,000 shares for each other officer.


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Table of Contents

 
OUTSTANDING EQUITY AWARDS AT YEAR-END 2007
 
The following table summarizes stock-based compensation awards outstanding at year-end 2007 for the named executive officers.
 
                                                                                 
                            Stock Awards              
                                              Equity
             
                                        Equity
    Incentive
             
                                        Incentive
    Plans:
             
                                        Plan
    Market or
             
                                        Awards:
    Payout
             
                                        Number of
    Value of
             
                                        Unearned
    Unearned
             
                                        Shares,
    Shares,
             
    Option Awards     Number of
    Market Value
    Units or
    Units or
             
    Number of
    Number of
                Shares or
    of Shares or
    Other
    Other
             
    Securities
    Securities
                Units of
    Units of
    Rights
    Rights
             
    Underlying
    Underlying
    Option
          Stock that
    Stock that
    that
    that
             
    Unexercised
    Unexercised
    Exercise
    Option
    Have not
    Have not
    Have not
    Have not
             
    Options
    Options
    Price
    Expiration
    Vested
    Vested
    Vested
    Vested
    Grant
    Vesting
 
Name
  Exercisable (#)     Unexercisable (#)     ($)(1)(3)     Date     ($)(2)(3)     ($)(2)(3)     ($)(2)(3)     ($)(2)(3)     Date     Date  
(a)   (b)     (c)     (d)     (e)     (f)     (g)     (h)     (i)     (j)     (k)  
 
Simons
    6,000             $ 10.62       02/06/08                                       02/06/98       Vested  
      6,000             $ 11.73       02/05/09                                       02/05/99       Vested  
      10,000             $ 10.55       02/04/10                                       02/04/00       Vested  
      20,000             $ 9.37       02/02/11                                       02/02/01       Vested  
      20,000             $ 10.56       02/01/12                                       02/01/02       Vested  
      20,000             $ 6.92       02/07/13                                       02/07/03       Vested  
      12,000             $ 11.96       02/06/14                                       02/06/04       Vested  
              4,000     $ 11.96       02/06/14                                       02/06/04       02/04/08  
      16,000             $ 16.14       02/04/15                                       02/04/05       Vested  
              8,000     $ 16.14       02/04/15                                       02/04/05       02/04/08  
              8,000     $ 16.14       02/04/15                                       02/04/05       02/04/09  
      8,200             $ 21.55       02/03/16                                       02/03/06       Vested  
              8,200     $ 21.55       02/03/16                                       02/03/06       02/03/08  
              8,200     $ 21.55       02/03/16                                       02/03/06       02/03/09  
              8,200     $ 21.55       02/03/16                                       02/03/06       02/03/10  
              8,200     $ 24.34       02/02/17                                       02/02/07       02/02/08  
              8,200     $ 24.34       02/02/17                                       02/02/07       02/02/09  
              8,200     $ 24.34       02/02/17                                       02/02/07       02/02/10  
              8,200     $ 24.34       02/02/17                                       02/02/07       02/02/11  
                                      1,000     $ 29,970                       02/01/02       02/01/08  
                                      4,000     $ 119,880                       02/07/03       02/07/09  
                                      14,000     $ 419,580                       02/04/05       02/04/08  
                                                      14,000     $ 419,580       02/04/05       02/04/08  
                                                      32,200     $ 965,034       08/09/07       02/03/09  
                                                      35,000     $ 1,048,950       08/09/07       02/02/10  
                                                      50,000     $ 1,498,500       08/09/07       05/04/10  
                                                                                 
Total
    118,200       77,400                       19,000     $ 569,430       131,200     $ 3,932,064                  
                                                                                 


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Table of Contents

                                                                                 
                            Stock Awards              
                                              Equity
             
                                        Equity
    Incentive
             
                                        Incentive
    Plans:
             
                                        Plan
    Market or
             
                                        Awards:
    Payout
             
                                        Number of
    Value of
             
                                        Unearned
    Unearned
             
                                        Shares,
    Shares,
             
    Option Awards     Number of
    Market Value
    Units or
    Units or
             
    Number of
    Number of
                Shares or
    of Shares or
    Other
    Other
             
    Securities
    Securities
                Units of
    Units of
    Rights
    Rights
             
    Underlying
    Underlying
    Option
          Stock that
    Stock that
    that
    that
             
    Unexercised
    Unexercised
    Exercise
    Option
    Have not
    Have not
    Have not
    Have not
             
    Options
    Options
    Price
    Expiration
    Vested
    Vested
    Vested
    Vested
    Grant
    Vesting
 
Name
  Exercisable (#)     Unexercisable (#)     ($)(1)(3)     Date     ($)(2)(3)     ($)(2)(3)     ($)(2)(3)     ($)(2)(3)     Date     Date  
(a)   (b)     (c)     (d)     (e)     (f)     (g)     (h)     (i)     (j)     (k)  
 
Maley
    30,000             $ 7.56       05/07/13                                       05/07/03       Vested  
      13,500             $ 11.96       02/06/14                                       02/06/04       Vested  
              4,500     $ 11.96       02/06/14                                       02/06/04       02/06/08  
      16,000             $ 16.14       02/04/15                                       02/04/05       Vested  
              8,000     $ 16.14       02/04/15                                       02/04/05       02/04/08  
              8,000     $ 16.14       02/04/15                                       02/04/05       02/04/09  
      8,200             $ 21.55       02/03/16                                       02/03/06       Vested  
              8,200     $ 21.55       02/03/16                                       02/03/06       02/03/08  
              8,200     $ 21.55       02/03/16                                       02/03/06       02/03/09  
              8,200     $ 21.55       02/03/16                                       02/03/06       02/03/10  
              8,200     $ 24.34       02/02/17                                       02/02/07       02/02/08  
              8,200     $ 24.34       02/02/17                                       02/02/07       02/02/09  
              8,200     $ 24.34       02/02/17                                       02/02/07       02/02/10  
              8,200     $ 24.34       02/02/17                                       02/02/07       02/02/11  
                                      10,000     $ 299,700                       05/07/03       05/07/09  
                                      14,000     $ 419,580                       02/04/05       02/04/08  
                                                      14,000     $ 419,580       02/04/05       02/04/08  
                                                      32,200     $ 965,034       08/09/07       02/03/09  
                                                      35,000     $ 1,048,950       08/09/07       02/02/10  
                                                      40,000     $ 1,198,800       08/09/07       05/04/10  
                                                                                 
Total
    67,700       77,900                       24,000     $ 719,280       121,200     $ 3,632,364                  
                                                                                 

40


Table of Contents

                                                                                 
                            Stock Awards              
                                              Equity
             
                                        Equity
    Incentive
             
                                        Incentive
    Plans:
             
                                        Plan
    Market or
             
                                        Awards:
    Payout
             
                                        Number of
    Value of
             
                                        Unearned
    Unearned
             
                                        Shares,
    Shares,
             
    Option Awards     Number of
    Market Value
    Units or
    Units or
             
    Number of
    Number of
                Shares or
    of Shares or
    Other
    Other
             
    Securities
    Securities
                Units of
    Units of
    Rights
    Rights
             
    Underlying
    Underlying
    Option
          Stock that
    Stock that
    that
    that
             
    Unexercised
    Unexercised
    Exercise
    Option
    Have not
    Have not
    Have not
    Have not
             
    Options
    Options
    Price
    Expiration
    Vested
    Vested
    Vested
    Vested
    Grant
    Vesting
 
Name
  Exercisable (#)     Unexercisable (#)     ($)(1)(3)     Date     ($)(2)(3)     ($)(2)(3)     ($)(2)(3)     ($)(2)(3)     Date     Date  
(a)   (b)     (c)     (d)     (e)     (f)     (g)     (h)     (i)     (j)     (k)  
 
Levy
    10,000             $ 11.73       02/08/09                                       02/05/99       Vested  
      36,000             $ 10.55       02/04/10                                       02/04/00       Vested  
      30,000             $ 9.37       02/02/11                                       02/02/01       Vested  
      40,000             $ 10.56       02/01/12                                       02/01/02       Vested  
      30,000             $ 6.92       02/07/13                                       02/07/03       Vested  
      18,000             $ 11.96       02/06/14                                       02/06/04       Vested  
              6,000     $ 11.96       02/06/14                                       02/06/04       02/06/08  
      12,000             $ 16.14       02/04/15                                       02/04/05       Vested  
              6,000     $ 16.14       02/04/15                                       02/04/05       02/04/08  
              6,000     $ 16.14       02/04/15                                       02/04/05       02/04/09  
      6,150             $ 21.55       02/03/16                                       02/03/06       Vested  
              6,150     $ 21.55       02/03/16                                       02/03/06       02/03/08  
              6,150     $ 21.55       02/03/16                                       02/03/06       02/03/09  
              6,150     $ 21.55       02/03/16                                       02/03/06       02/03/10  
              6,150     $ 24.34       02/02/14                                       02/02/07       02/02/08  
              6,150     $ 24.34       02/02/14                                       02/02/07       02/02/09  
              6,150     $ 24.34       02/02/14                                       02/02/07       02/02/10  
              6,150     $ 24.34       02/02/14                                       02/02/07       02/02/11  
                                      3,000     $ 89,910                       02/01/02       02/01/08  
                                      10,000     $ 299,700                       02/07/03       02/07/09  
                                      10,000     $ 299,700                       02/04/05       02/04/08  
                                                      10,000     $ 299,700       02/04/05       02/04/08  
                                                      23,000     $ 689,310       08/09/07       02/03/09  
                                                      24,500     $ 734,265       08/09/07       02/02/10  
                                                                                 
Total
    182,150       61,050                       23,000     $ 689,310       57,500     $ 1,723,275                  
                                                                                 

41


Table of Contents

                                                                                 
                            Stock Awards              
                                              Equity
             
                                        Equity
    Incentive
             
                                        Incentive
    Plans:
             
                                        Plan
    Market or
             
                                        Awards:
    Payout
             
                                        Number of
    Value of
             
                                        Unearned
    Unearned
             
                                        Shares,
    Shares,
             
    Option Awards     Number of
    Market Value
    Units or
    Units or
             
    Number of
    Number of
                Shares or
    of Shares or
    Other
    Other
             
    Securities
    Securities
                Units of
    Units of
    Rights
    Rights
             
    Underlying
    Underlying
    Option
          Stock that
    Stock that
    that
    that
             
    Unexercised
    Unexercised
    Exercise
    Option
    Have not
    Have not
    Have not
    Have not
             
    Options
    Options
    Price
    Expiration
    Vested
    Vested
    Vested
    Vested
    Grant
    Vesting
 
Name
  Exercisable (#)     Unexercisable (#)     ($)(1)(3)     Date     ($)(2)(3)     ($)(2)(3)     ($)(2)(3)     ($)(2)(3)     Date     Date  
(a)   (b)     (c)     (d)     (e)     (f)     (g)     (h)     (i)     (j)     (k)  
 
Sweeny
    30,000             $ 9.37       02/02/11                                       02/02/01       Vested  
      40,000             $ 10.56       02/01/12                                       02/01/02       Vested  
      20,000             $ 6.92       02/07/13                                       02/07/03       Vested  
      13,500             $ 11.96       02/06/14                                       02/06/04       Vested  
              4,500     $ 11.96       02/06/14                                       02/06/04       02/06/08  
      12,000             $ 16.14       02/04/15                                       02/04/05       Vested  
              6,000     $ 16.14       02/04/15                                       02/04/05       02/04/08  
              6,000     $ 16.14       02/04/15                                       02/04/05       02/04/09  
      6,150             $ 21.55       02/03/16                                       02/03/06       Vested  
              6,150     $ 21.55       02/03/16                                       02/03/06       02/03/08  
              6,150     $ 21.55       02/03/16                                       02/03/06       02/03/09  
              6,150     $ 21.55       02/03/16                                       02/03/06       02/03/10  
              6,150     $ 24.34       02/02/17                                       02/02/07       02/02/08  
              6,150     $ 24.34       02/02/17                                       02/02/07       02/02/09  
              6,150     $ 24.34       02/02/17                                       02/02/07       02/02/10  
              6,150     $ 24.34       02/02/17                                       02/02/07       02/02/11  
                                      3,000     $ 89,910                       02/01/02       02/01/08  
                                      7,000     $ 209,790                       02/07/03       02/07/09  
                                      10,000     $ 299,700                       02/04/05       02/04/08  
                                                      10,000     $ 299,700       02/04/05       02/04/08  
                                                      23,000     $ 689,310       08/09/07       02/03/09  
                                                      24,500     $ 734,265       08/09/07       02/03/10  
                                                                                 
Total
    121,650       59,550                       20,000     $ 599,400       57,500     $ 1,723,275                  
                                                                                 

42


Table of Contents

                                                                                 
                            Stock Awards              
                                              Equity
             
                                        Equity
    Incentive
             
                                        Incentive
    Plans:
             
                                        Plan
    Market or
             
                                        Awards:
    Payout
             
                                        Number of
    Value of
             
                                        Unearned
    Unearned
             
                                        Shares,
    Shares,
             
    Option Awards     Number of
    Market Value
    Units or
    Units or
             
    Number of
    Number of
                Shares or
    of Shares or
    Other
    Other
             
    Securities
    Securities
                Units of
    Units of
    Rights
    Rights
             
    Underlying
    Underlying
    Option
          Stock that
    Stock that
    that
    that
             
    Unexercised
    Unexercised
    Exercise
    Option
    Have not
    Have not
    Have not
    Have not
             
    Options
    Options
    Price
    Expiration
    Vested
    Vested
    Vested
    Vested
    Grant
    Vesting
 
Name
  Exercisable (#)     Unexercisable (#)     ($)(1)(3)     Date     ($)(2)(3)     ($)(2)(3)     ($)(2)(3)     ($)(2)(3)     Date     Date  
(a)   (b)     (c)     (d)     (e)     (f)     (g)     (h)     (i)     (j)     (k)  
 
Johnston
    8,000             $ 9.37       02/02/11                                       02/02/01       Vested  
      10,000             $ 10.56       02/01/12                                       02/01/02       Vested  
      20,000             $ 6.92       02/07/13                                       02/07/03       Vested  
      12,000             $ 11.96       02/06/14                                       02/06/04       Vested  
              4,000     $ 11.96       02/06/14                                       02/06/04       02/06/08  
      9,000             $ 16.14       02/04/15                                       02/04/05       Vested  
              4,500     $ 16.14       02/04/15                                       02/04/05       02/04/08  
              4,500     $ 16.14       02/04/15                                       02/04/05       02/04/09  
      4,612             $ 21.55       02/03/16                                       02/03/06       Vested  
              4,613     $ 21.55       02/03/16                                       02/03/06       02/02/08  
              4,612     $ 21.55       02/03/16                                       02/03/06       02/02/09  
              4,613     $ 21.55       02/03/16                                       02/03/06       02/02/10  
              4,612     $ 24.34       02/02/17                                       02/02/07       02/02/08  
              4,613     $ 24.34       02/02/17                                       02/02/07       02/02/09  
              4,612     $ 24.34       02/02/17                                       02/02/07       02/02/10  
              4,613     $ 24.34       02/02/17                                       02/02/07       02/02/11  
                                      7,000     $ 209,790                       02/07/03       02/07/09  
                                      8,000     $ 239,760                       02/04/05       02/04/08  
                                                      8,000     $ 239,760       02/04/05       02/04/08  
                                                      18,400     $ 551,448       08/09/07       02/03/09  
                                                      20,000     $ 599,400       08/09/07       02/02/10  
                                                                                 
Total
    63,612       45,288                       15,000     $ 449,550       46,400     $ 1,390,608                  
                                                                                 

43


Table of Contents

                                                                                 
                            Stock Awards              
                                              Equity
             
                                        Equity
    Incentive
             
                                        Incentive
    Plans:
             
                                        Plan
    Market or
             
                                        Awards:
    Payout
             
                                        Number of
    Value of
             
                                        Unearned
    Unearned