10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the Quarterly Period Ended June 30, 2007

OR

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the Transition Period From                      to                     

Commission File Number: 001-08634

Temple-Inland Inc.

(Exact name of registrant as specified in its charter)

Delaware	75-1903917
(State or other jurisdiction of	(I.R.S. Employer Identification Number)
incorporation or organization)

1300 MoPac Expressway South, Austin, Texas 78746
(Address of Principal Executive Offices, including Zip code)

(512) 434-5800
(Registrant’s telephone number, including area code)

Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ      Accelerated filer o     Non-accelerated filer o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

	Number of common shares outstanding
Class	as of June 30, 2007
Common Stock (par value $1.00 per share)	105,974,913

Page 1 of 178 The Exhibit Index is page 50.

	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements	3
Temple-Inland Inc. and Subsidiaries	3
Consolidated Balance Sheets	3
Consolidated Statements of Income	5
Consolidated Statements of Cash Flows	6
Parent Company (Temple-Inland Inc. and its manufacturing and real estate subsidiaries)	7
Summarized Balance Sheets	7
Summarized Statements of Income	8
Summarized Statements of Cash Flows	9
Financial Services	10
Summarized Balance Sheets	10
Summarized Statements of Income	11
Summarized Statements of Cash Flows	12
Notes to the Consolidated Financial Statements	13
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3. Quantitative and Qualitative Disclosures About Market Risk	44
Item 4. Controls and Procedures	45
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	45
Item 1A. Risk Factors	46
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 3. Defaults Upon Senior Securities	47
Item 4. Submission of Matters to a Vote of Security Holders	47
Item 5. Other Information	48
Item 6. Exhibits	48
SIGNATURES	49
Purchase Agremeent
Amended and Restated Certificate of Incorporation
Amended and Restated Bylaws
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEET

TEMPLE-INLAND INC. AND SUBSIDIARIES
Second Quarter-End 2007
Unaudited

	Parent		Financial
	Company		Services		Consolidated
	(In millions)
ASSETS
Cash and cash equivalents	$	26	$	288	$	314
Trade receivables, net of allowance for doubtful accounts of $15		471		––		471
Inventories		420		––		420
Assets held-for-sale		313		––		313
Timber and timberland		59		––		59
Real estate		587		––		587
Loans held for sale		––		20		20
Loans, net of allowance for losses of $72		––		9,470		9,470
Securities available-for-sale		––		888		888
Securities held-to-maturity		––		4,192		4,192
Investment in Federal Home Loan Bank stock		––		211		211
Property and equipment, net		1,624		222		1,846
Goodwill		365		141		506
Other intangible assets		––		23		23
Prepaid expenses and other assets		382		240		575
Investment in financial services		1,034		––		––
TOTAL ASSETS	$	5,281	$	15,695	$	19,895
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable, accrued expenses, and other liabilities	$	821	$	132	$	943
Long-term debt and other borrowings		1,642		101		1,743
Deposits		––		9,532		9,526
Federal Home Loan Bank borrowings		––		4,582		4,582
Deferred income taxes		194		––		163
Liability for pension benefits		209		––		209
Liability for postretirement benefits		140		––		140
Subordinated notes payable to trust		––		314		314
TOTAL LIABILITIES		3,006		14,661		17,620
SHAREHOLDERS’ EQUITY
Preferred stock — par value $1 per share: authorized 25,000,000 shares; none issued						––
Common stock — par value $1 per share: authorized 200,000,000 shares; issued 123,605,344 shares, including shares held in the treasury						124
Additional paid-in capital						462
Accumulated other comprehensive loss, net						(185	)
Retained earnings						2,546
						2,947
Cost of shares held in the treasury: 17,630,431 shares						(672	)
TOTAL SHAREHOLDERS’ EQUITY						2,275
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY					$	19,895

Please read the notes to consolidated financial statements.

3

CONSOLIDATED BALANCE SHEET
TEMPLE-INLAND INC. AND SUBSIDIARIES
Year-End 2006

	Parent		Financial
	Company		Services		Consolidated
	(In millions)
ASSETS
Cash and cash equivalents	$	38	$	372	$	405
Trade receivables, net of allowance for doubtful accounts of $14		452		—		452
Inventories		435		—		435
Timber and timberland		358		—		358
Real estate		512		—		512
Loans held for sale		—		23		23
Loans, net of allowance for losses of $65		—		9,617		9,617
Securities available-for-sale		—		529		529
Securities held-to-maturity		—		4,853		4,853
Investment in Federal Home Loan Bank stock		—		262		262
Property and equipment, net		1,639		214		1,853
Goodwill		365		141		506
Other intangible assets		—		26		26
Prepaid expenses and other assets		403		214		582
Investment in financial services		1,015		—		—
TOTAL ASSETS	$	5,217	$	16,251	$	20,413
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable, accrued expenses, and other liabilities	$	836	$	126	$	953
Long-term debt and other borrowings		1,628		101		1,729
Deposits		—		9,486		9,479
Federal Home Loan Bank borrowings		—		5,076		5,076
Deferred income taxes		198		—		174
Liability for pension benefits		231		—		231
Liability for postretirement benefits		135		—		135
Subordinated notes payable to trust		—		142		142
Preferred stock issued by subsidiaries		—		305		305
TOTAL LIABILITIES		3,028		15,236		18,224
SHAREHOLDERS’ EQUITY
Preferred stock — par value $1 per share: authorized 25,000,000 shares; none issued						––
Common stock — par value $1 per share: authorized 200,000,000 shares; issued 123,605,344 shares, including shares held in the treasury						124
Additional paid-in capital						468
Accumulated other comprehensive loss, net						(191	)
Retained earnings						2,501
						2,902
Cost of shares held in the treasury: 18,754,907 shares						(713	)
TOTAL SHAREHOLDERS’ EQUITY						2,189
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY					$	20,413

Please read the notes to consolidated financial statements.

4

CONSOLIDATED STATEMENTS OF INCOME

TEMPLE-INLAND INC. AND SUBSIDIARIES
Unaudited

	Second Quarter						First Six Months
	2007			2006			2007			2006
	(In millions, except per share amounts)
REVENUES
Manufacturing and real estate	$	1,071		$	1,134		$	2,108		$	2,235
Financial services		287			299			571			582
		1,358			1,433			2,679			2,817
COSTS AND EXPENSES
Manufacturing and real estate		(978	)		(993	)		(1,969	)		(1,981	)
Financial services		(245	)		(244	)		(483	)		(481	)
		(1,223	)		(1,237	)		(2,452	)		(2,462	)
OPERATING INCOME		135			196			227			355
Parent company interest		(31	)		(34	)		(62	)		(67	)
Other non-operating income (expense)		1			91			1			91
INCOME BEFORE INCOME TAXES		105			253			166			379
Income tax expense		(39	)		(62	)		(62	)		(109	)
INCOME FROM CONTINUING OPERATIONS		66			191			104			270
Discontinued operations		––			––			––			––
NET INCOME	$	66		$	191		$	104		$	270
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic		106.0			109.8			105.8			110.5
Diluted		108.1			111.8			107.8			112.6
EARNINGS PER SHARE
Basic:
Income from continuing operations	$	0.63		$	1.74		$	0.99		$	2.45
Discontinued operations		––			––			––			––
Net income	$	0.63		$	1.74		$	0.99		$	2.45
Diluted:
Income from continuing operations	$	0.62		$	1.70		$	0.97		$	2.40
Discontinued operations		––			––			––			––
Net income	$	0.62		$	1.70		$	0.97		$	2.40
DIVIDENDS PAID PER SHARE OF COMMON STOCK	$	0.28		$	0.25		$	0.56		$	0.50

Please read the notes to consolidated financial statements.

5

CONSOLIDATED STATEMENTS OF CASH FLOWS

TEMPLE-INLAND INC. AND SUBSIDIARIES
Unaudited

	First Six Months
	2007			2006
	(In millions)
CASH PROVIDED BY (USED FOR) OPERATIONS
Net income	$	104		$	270
Adjustments:
Depreciation and amortization		127			127
Amortization and accretion of financial instrument discounts and premiums and deferred loan fees and origination costs, net		10			10
Provision (credit) for credit losses		(2	)		––
Deferred income taxes		(2	)		7
Non-cash real estate cost of sales		26			27
Real estate development expenditures		(89	)		(60	)
Other		2			6
Changes in:
Receivables		(19	)		(81	)
Inventories		16			11
Accounts payable and accrued expenses		(29	)		(11	)
Prepaid expenses and other		7			22
Loans held for sale:
Originations		(46	)		(131	)
Sales		49			374
		154			571
CASH PROVIDED BY (USED FOR) INVESTING
Capital expenditures		(111	)		(93	)
Reforestation and acquisition of timber and timberland		(6	)		(7	)
Sale of non-strategic assets and operations		14			4
Securities available-for-sale, net		(361	)		65
Securities held-to-maturity, net		648			297
Redemption of Federal Home Loan Bank stock		58			––
Loans originated or acquired, net of principal collected		147			(20	)
Acquisitions, net of cash acquired, and investment in joint ventures		(1	)		(135	)
Other		(6	)		10
		382			121
CASH PROVIDED BY (USED FOR) FINANCING
Additions to debt		27			2
Payments of debt		(447	)		(229	)
Borrowings under accounts receivable securitization facility, net		16			39
Borrowings under revolving credit facility, net		(13	)		47
Changes in book overdrafts		(5	)		––
Deposits, net		46			72
Repurchase agreements and short-term borrowings, net		(60	)		(617	)
Issuance of subordinated notes payable to trust		172			––
Redemption of preferred stock issued by subsidiaries		(305	)		––
Cash dividends paid to shareholders		(59	)		(55	)
Repurchase of common stock		(24	)		(153	)
Exercise of stock options		17			34
Tax benefit on stock options exercised		8			7
Other		––			8
		(627	)		(845	)
Effect of exchange rate changes on cash and cash equivalents		––			(1	)
Discontinued operations, principally operating activities		––			(1	)
Net increase (decrease) in cash and cash equivalents		(91	)		(155	)
Cash and cash equivalents at beginning of period		405			441
Cash and cash equivalents at end of period	$	314		$	286

Please read the notes to consolidated financial statements.

6

SUMMARIZED BALANCE SHEETS

PARENT COMPANY (TEMPLE-INLAND INC. AND ITS MANUFACTURING
AND REAL ESTATE SUBSIDIARIES)

	(Unaudited)
	Second
	Quarter-End			Year-End
	2007			2006
	(In millions)
ASSETS
Current Assets
Cash and cash equivalents	$	26		$	38
Trade receivables, net of allowance for doubtful accounts of $15 in 2007 and $14 in 2006		471			452
Inventories:
Work in process and finished goods		106			109
Raw materials		195			211
Supplies and other		119			115
Total inventories		420			435
Prepaid expenses and other		94			72
Assets held-for-sale		313			––
Total current assets		1,324			997
Investment in Financial Services		1,034			1,015
Timber and Timberland		59			358
Real Estate		587			512
Property and Equipment
Land and buildings		639			648
Machinery and equipment		3,407			3,402
Construction in progress		96			82
Less allowances for depreciation		(2,518	)		(2,493	)
Total property and equipment, net		1,624			1,639
Goodwill		365			365
Assets held-for-sale		––			20
Other Assets		288			311
TOTAL ASSETS	$	5,281		$	5,217
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	199		$	230
Accrued employee compensation and benefits		89			128
Accrued interest		32			32
Accrued property taxes		25			23
Other accrued expenses		145			134
Liabilities of discontinued operations		5			7
Current portion of long-term debt		23			19
Current portion of pension and postretirement benefits		19			15
Total current liabilities		537			588
Long-Term Debt		1,642			1,628
Deferred Income Taxes		194			198
Liability for Pension Benefits		207			229
Liability for Postretirement Benefits		123			122
Other Long-Term Liabilities		303			263
TOTAL LIABILITIES		3,006			3,028
Shareholders’ Equity		2,275			2,189
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	5,281		$	5,217

Please read the notes to consolidated financial statements.

7

SUMMARIZED STATEMENTS OF INCOME

PARENT COMPANY (TEMPLE-INLAND INC. AND ITS MANUFACTURING
AND REAL ESTATE SUBSIDIARIES)
Unaudited

	Second Quarter						First Six Months
	2007			2006			2007			2006
	(In millions)
NET REVENUES	$	1,071		$	1,134		$	2,108		$	2,235
COSTS AND EXPENSES
Cost of sales		(888	)		(907	)		(1,763	)		(1,817	)
Selling		(40	)		(34	)		(80	)		(68	)
General and administrative		(56	)		(58	)		(120	)		(114	)
Other operating income (expense)		6			6			(6	)		18
		(978	)		(993	)		(1,969	)		(1,981	)
		93			141			139			254
FINANCIAL SERVICES PRE-TAX EARNINGS		42			55			88			101
OPERATING INCOME		135			196			227			355
Interest expense		(31	)		(34	)		(62	)		(67	)
Other non-operating income (expense)		1			91			1			91
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		105			253			166			379
Income tax expense		(39	)		(62	)		(62	)		(109	)
INCOME FROM CONTINUING OPERATIONS		66			191			104			270
Discontinued operations		––			––			––			––
NET INCOME	$	66		$	191		$	104		$	270

Please read the notes to consolidated financial statements.

8

SUMMARIZED STATEMENTS OF CASH FLOWS

PARENT COMPANY (TEMPLE-INLAND INC. AND ITS MANUFACTURING
AND REAL ESTATE SUBSIDIARIES)
Unaudited

	First Six Months
	2007			2006
	(In millions)
CASH PROVIDED BY (USED FOR) OPERATIONS
Net income	$	104		$	270
Adjustments:
Depreciation and amortization		112			113
Non-cash share-based compensation		34			24
Non-cash pension and postretirement expense		22			28
Cash contribution to pension and postretirement plans		(39	)		(37	)
Deferred income taxes		4			––
Net earnings of financial services		(55	)		(63	)
Dividends from financial services		35			60
Earnings of joint ventures		(5	)		(19	)
Dividends from joint ventures		3			7
Non-cash real estate cost of sales		26			27
Real estate development expenditures		(89	)		(60	)
Changes in:
Receivables		(19	)		(81	)
Inventories		16			11
Accounts payable and accrued expenses		(29	)		(11	)
Prepaid expenses and other		3			22
		123			291
CASH PROVIDED BY (USED FOR) INVESTING
Capital expenditures		(88	)		(72	)
Reforestation and acquisition of timber and timberland		(6	)		(7	)
Sales of non-strategic assets and operations and proceeds from the sale of property and equipment		14			13
Acquisitions, net of cash acquired, and investment in joint ventures		(1	)		(134	)
Other		(3	)		––
		(84	)		(200	)
CASH PROVIDED BY (USED FOR) FINANCING
Payments of debt		(13	)		(3	)
Borrowings under accounts receivable securitization facility, net		16			39
Borrowings under revolving credit facility, net		(13	)		47
Change in book overdrafts		(10	)		––
Other additions to debt		27			2
Cash dividends paid to shareholders		(59	)		(55	)
Repurchase of common stock		(24	)		(153	)
Exercise of stock options		17			34
Tax benefit on stock options exercised		8			7
Other		––			5
		(51	)		(77	)
Effect of exchange rate changes on cash and cash equivalents		––			(1	)
Discontinued operations, principally operating activities		––			(1	)
Net increase (decrease) in cash and cash equivalents		(12	)		12
Cash and cash equivalents at beginning of period		38			13
Cash and cash equivalents at end of period	$	26		$	25

Please read the notes to consolidated financial statements.

9

SUMMARIZED BALANCE SHEETS

FINANCIAL SERVICES

	(Unaudited)
	Second
	Quarter-End		Year-End
	2007		2006
	(In millions)
ASSETS
Cash and cash equivalents	$	288	$	372
Loans held for sale		20		23
Loans, net of allowance for losses of $72 in 2007 and $65 in 2006		9,470		9,617
Securities available-for-sale		888		529
Securities held-to-maturity		4,192		4,853
Investment in Federal Home Loan Bank stock		211		262
Property and equipment, net		222		214
Accounts, notes, and accrued interest receivable		103		104
Goodwill		141		141
Other intangible assets		23		26
Other assets		137		110
TOTAL ASSETS	$	15,695	$	16,251
LIABILITIES AND SHAREHOLDER’S EQUITY
Deposits	$	9,532	$	9,486
Federal Home Loan Bank borrowings		4,582		5,076
Other liabilities		132		126
Other borrowings		101		101
Subordinated notes payable to trust		314		142
Preferred stock issued by subsidiaries		––		305
Total Liabilities		14,661		15,236
Shareholder’s Equity		1,034		1,015
TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY	$	15,695	$	16,251

Please read the notes to consolidated financial statements.

10

SUMMARIZED STATEMENTS OF INCOME

FINANCIAL SERVICES
Unaudited

	Second Quarter						First Six Months
	2007			2006			2007			2006
	(In millions)
INTEREST INCOME
Loans and loans held for sale	$	175		$	176		$	346		$	342
Securities available-for-sale		10			8			18			16
Securities held-to-maturity		57			64			117			126
Other earning assets		5			5			9			10
Total interest income		247			253			490			494
INTEREST EXPENSE
Deposits		(86	)		(66	)		(169	)		(128	)
Borrowed funds		(66	)		(80	)		(131	)		(155	)
Total interest expense		(152	)		(146	)		(300	)		(283	)
NET INTEREST INCOME		95			107			190			211
Credit for credit losses		––			2			2			––
NET INTEREST INCOME AFTER CREDIT FOR CREDIT LOSSES		95			109			192			211
NONINTEREST INCOME
Insurance commissions and fees		16			19			32			36
Service charges on deposits		13			13			25			24
Operating lease income		2			2			4			4
Loan origination and sale of loans		––			––			––			2
Other		9			12			20			22
Total noninterest income		40			46			81			88
NONINTEREST EXPENSE
Compensation and benefits		(43	)		(46	)		(91	)		(94	)
Insurance operations, other than compensation		(4	)		(5	)		(8	)		(10	)
Occupancy		(6	)		(6	)		(12	)		(12	)
Information systems and technology		(4	)		(4	)		(7	)		(7	)
Charges related to asset impairments and severance		––			(7	)		––			(10	)
Other		(36	)		(32	)		(67	)		(65	)
Total noninterest expense		(93	)		(100	)		(185	)		(198	)
INCOME BEFORE TAXES		42			55			88			101
Income tax expense		(16	)		(21	)		(33	)		(38	)
NET INCOME	$	26		$	34		$	55		$	63

Please read the notes to consolidated financial statements.

11

SUMMARIZED STATEMENTS OF CASH FLOWS

FINANCIAL SERVICES
Unaudited

	First Six Months
	2007			2006
	(In millions)
CASH PROVIDED BY (USED FOR) OPERATIONS
Net income	$	55		$	63
Adjustments:
Depreciation and amortization		9			8
Depreciation of assets leased to others		3			3
Amortization of core deposit and other intangible assets		3			3
Amortization and accretion of financial instrument discounts and premiums and deferred loan fees and origination costs, net		10			10
Provision (credit) for credit losses		(2	)		––
Deferred income taxes		(6	)		7
Changes in:
Loans held for sale:
Originations		(46	)		(131	)
Sales		49			374
Other		(9	)		(4	)
		66			333
CASH PROVIDED BY (USED FOR) INVESTING
Securities available-for-sale:
Purchases		(425	)		(2	)
Principal payments and maturities		64			67
Securities held-to-maturity:
Purchases		(142	)		(351	)
Principal payments and maturities		790			648
Redemption of Federal Home Loan Bank stock		58			––
Loans originated or acquired, net of collections		147			(20	)
Capital expenditures		(23	)		(21	)
Other		(3	)		––
		466			321
CASH PROVIDED BY (USED FOR) FINANCING
Deposits, net		46			76
Repurchase agreements and short-term borrowings, net		(60	)		(617	)
Payments of long-term Federal Home Loan Bank and other borrowings		(434	)		(226	)
Issuance of subordinated notes payable to trust		172			––
Dividends paid to parent company		(35	)		(60	)
Redemption of preferred stock issued by subsidiaries		(305	)		––
Other		––			3
		(616	)		(824	)
Net increase (decrease) in cash and cash equivalents		(84	)		(170	)
Cash and cash equivalents at beginning of period		372			431
Cash and cash equivalents at end of period	$	288		$	261

Please read the notes to consolidated financial statements.

12

TEMPLE-INLAND INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1 – Basis of Presentation

     Our consolidated financial statements are our primary financial statements and include the accounts of Temple-Inland, our manufacturing, real estate, and financial services subsidiaries, and variable interest entities of which we are the primary beneficiary. We also present, as an integral part of the consolidated financial statements, summarized financial statements of Temple-Inland and our manufacturing and real estate subsidiaries, which we refer to as the parent company summarized financial statements, and summarized financial statements of our financial services subsidiaries, as well as the significant accounting policies unique to each. We do so to provide a clearer presentation of our different businesses and because almost all of the net assets invested in financial services are subject to regulatory rules and restrictions including restrictions on the payment of dividends to the parent company. As a result, all consolidated assets are not available to satisfy all consolidated liabilities.

     You should read our parent company summarized financial statements and financial services summarized financial statements along with these consolidated financial statements.

     We prepare these unaudited interim financial statements in accordance with generally accepted accounting principles and Securities and Exchange Commission requirements for interim financial statements. As a result, they do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. However, in our opinion, all adjustments considered necessary for a fair presentation have been included. These adjustments are normal recurring accruals, except as noted. These interim operating results are not necessarily indicative of the results that may be expected for the entire year. For further information, please read the financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 30, 2006.

Note 2 – Transformation

     On February 25, 2007, our Board of Directors preliminarily approved a transformation plan that involves separating Temple-Inland into three focused, stand-alone, public companies and selling our strategic timberland. The plan includes:

• retaining our manufacturing operations — corrugated packaging and building products,

• spinning off our financial services segment to our shareholders,

• spinning off our real estate segment to our shareholders, and

• selling our strategic timberland.

     We are in the process of developing the infrastructure within the financial services and real estate segments to facilitate their transformation into stand-alone public companies.

     As a result of the transformation, certain debt agreements, leases, guarantees, and other contracts and agreements will require amendment or renegotiation. We are in the process of reviewing our contracts and agreements to determine which will be affected.

     On August 6, 2007, we announced that we entered into a definitive agreement with an investment entity affiliated with The Campbell Group, Inc. to sell 1.55 million acres of timberland for $2.38 billion. The acreage included in the sale consists of 1.38 million acres of land owned in fee and leases covering 175,000 acres. The transaction is expected to close in fourth quarter 2007, subject to customary closing conditions. The total consideration is expected to consist almost entirely of installment notes. Roughly 30 days after the sale is closed, we expect to pledge the installment notes as collateral for a non-recourse loan. The net cash proceeds from these transactions, after current taxes and transaction costs, are anticipated to be approximately $1.8 billion. Following the pledge of installment notes, we expect to use the majority of these proceeds to pay a special dividend, which is currently estimated to be approximately $1.1 billion, or $10.25 per share, to our common stockholders. The remaining approximately $700 million of the cash proceeds will be used to reduce debt. This transaction includes a 20-year fiber supply agreement for pulpwood and a 12-year fiber supply agreement for sawtimber, the terms of which are both subject to extension. Fiber will be purchased at market prices.

13

TEMPLE-INLAND INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

     We expect to complete the transformation plan by year-end 2007.

Note 3 – New Accounting Pronouncements

     Beginning January 2007, we adopted three new accounting pronouncements:

     Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48) – This pronouncement clarifies the accounting for and disclosure of uncertainties associated with certain aspects of measurement and recognition of income taxes. Upon adoption, we increased assets by $2 million, reduced liabilities by $3 million and increased beginning retained earnings by $5 million. We also reclassified $11 million from deferred income taxes to other long-term liabilities. At the beginning of 2007 after adoption of FIN 48, we had $20 million of unrecognized tax benefits, of which $9 million would affect our effective tax rate if recognized.

     Statement of Financial Accounting Standard (SFAS) No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — We transitioned to a year-end measurement date for valuing plan assets and obligations for our defined benefit and postretirement benefit plans. Previously we used a measurement date of September 30, as allowed by SFAS No. 87, Employers’ Accounting for Pensions. Upon transition, we reduced 2007 beginning shareholders’ equity by $5 million, representing the net periodic benefit cost of the three month period from the last measurement date to year-end 2006, net of tax, and increased liability for pension benefits.

     FASB Staff Position No. AUG AIR-1, Accounting for Planned Major Maintenance Activities - Upon adoption at the beginning of 2007 we elected the expense as incurred accounting method for planned major maintenance. We had previously used the acceptable practice of allocating the costs over the interim periods within the year in which they were incurred in accordance with Accounting Principles Board Opinion No.28, Interim Financial Reporting. As a result, the retrospective application of this new pronouncement has no effect on our 2006 annual earnings or financial position. A summary of the quarterly effect of the 2006 retrospective application follows:

												Full
	First		Second			Third			Fourth			Year
	Quarter		Quarter			Quarter			Quarter			2006
	(in millions, except per share data)
Income from Continuing Operations:
As originally reported	$	76	$	192		$	96		$	105		$	469
Effects of AUG AIR-1		3		(1	)		(1	)		(1	)		––
As recast	$	79	$	191		$	95		$	104		$	469
Net Income:
As originally reported	$	76	$	192		$	96		$	104		$	468
Effects of AUG AIR-1		3		(1	)		(1	)		(1	)		––
As recast	$	79	$	191		$	95		$	103		$	468
Earnings Per Share (Diluted):
Income from continuing operations:
As originally reported	$	0.67	$	1.71		$	0.87		$	0.98		$	4.23
Effects of AUG AIR-1		0.03		(0.01	)		(0.01	)		(0.01	)		––
As recast	$	0.70	$	1.70		$	0.86		$	0.97		$	4.23
Net Income:
As originally reported	$	0.67	$	1.71		$	0.87		$	0.97		$	4.22
Effects of AUG AIR-1		0.03		(0.01	)		(0.01	)		(0.01	)		––
As recast	$	0.70	$	1.70		$	0.86		$	0.96		$	4.22

14

TEMPLE-INLAND INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

     The effect on 2007 beginning shareholders’ equity of adopting these new accounting pronouncements was:

2006 ending shareholders’ equity	$	2,189
Adoption of accounting for uncertainty in income taxes		5
Net periodic benefit cost related to transition of defined benefit and postretirement benefit plan measurement date from September 30 to our fiscal year-end, net of tax		(5	)
Adoption of expense as incurred method of accounting for planned major maintenance activities		––
2007 beginning shareholders’ equity	$	2,189

Pending Accounting Pronouncements

     In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. SFAS No. 159 permits the election of fair value as the initial and subsequent measurement method for many financial assets and liabilities. Subsequent changes in the fair value would be recognized in earnings as they occur. Electing the fair value option requires the disclosure of the fair value of affected assets and liabilities on the balance sheet or in the notes to the financial statements. SFAS No. 159 is effective for our first quarter 2008. We are currently evaluating the impact to our earnings and financial position, if we were to elect the fair value option.

Note 4 – Employee Benefit Plans

     Defined benefit and postretirement benefit expense consists of:

	Defined Benefits																Postretirement
	Qualified						Supplemental				Total						Benefits
	2007			2006			2007		2006		2007			2006			2007		2006
	(In millions)																(In millions)
For Second Quarter :
Service costs – benefits earned during the period	$	7		$	7		$	––	$	––	$	7		$	7		$	––	$	1
Interest cost on projected benefit obligation		19			18			1		––		20			18			2		2
Expected return on plan assets		(21	)		(20	)		––		––		(21	)		(20	)		––		––
Amortization of prior service costs		––			1			––		––		––			1			––		(1	)
Amortization of actuarial net loss		3			5			1		1		4			6			––		––
	$	8		$	11		$	2	$	1	$	10		$	12		$	2	$	2
For First Six Months:
Service costs – benefits earned during the period	$	14		$	14		$	––	$	––	$	14		$	14		$	––	$	2
Interest cost on projected benefit obligation		38			36			1		––		39			36			4		4
Expected return on plan assets		(42	)		(40	)		––		––		(42	)		(40	)		––		––
Amortization of prior service costs		––			2			––		––		––			2			––		(2	)
Amortization of actuarial net loss		6			10			2		2		8			12			––		––
	$	16		$	22		$	3	$	2	$	19		$	24		$	4	$	4

     In first six months 2007, we made $30 million in voluntary, discretionary contributions to our qualified defined benefit plans, including $15 million in second quarter 2007.

Note 5 – Share-Based Compensation

     We have shareholder approved share-based compensation plans that permit awards to key employees and non-employee directors in the form of restricted or performance units, restricted stock, or options to purchase shares of our common stock. We generally grant awards annually in February, and we use treasury stock to fulfill awards settled in common stock and stock option exercises.

15

TEMPLE-INLAND INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

     Share-based compensation expense consists of:

	Second Quarter				First Six Months
	2007		2006		2007		2006
	(In millions)
Restricted or performance units	$	12	$	5	$	29	$	13
Restricted stock		––		1		––		2
Stock options		3		2		9		9
Total pre-tax share-based compensation expense	$	15	$	8	$	38	$	24

     The fair value of awards granted to retirement-eligible employees and expensed at the date of grant was $5 million in first six months 2007 and $7 million in first six months 2006. Fair value of restricted and performance units vary based on changes in share price during the period. Fair value of stock options are determined as of the date of grant using the Black-Scholes-Merton option-pricing model and do not change for subsequent changes in share price.

     Pre-tax share-based compensation expense is included in:

	Second Quarter				First Six Months
	2007		2006		2007		2006
	(In millions)
Parent Company
Cost of sales	$	2	$	2	$	5	$	4
Selling expense		1		––		2		1
General and administrative		11		6		27		19
Total Parent Company		14		8		34		24
Financial Services		1		––		4		––
Total pre-tax share-based compensation expense	$	15	$	8	$	38	$	24

Note 6 – Earnings Per Share

     We computed earnings per share by dividing income by weighted average shares outstanding using the following:

	Second Quarter				First Six Months
	2007		2006		2007		2006
	(In millions)
Weighted average common shares outstanding – basic		106.0		109.8		105.8		110.5
Dilutive effect of stock options		2.1		2.0		2.0		2.1
Weighted average shares outstanding – diluted		108.1		111.8		107.8		112.6

16

TEMPLE-INLAND INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

Note 7 – Comprehensive Income

     Comprehensive income consists of:

	Second Quarter						First Six Months
	2007			2006			2007			2006
	(In millions)
Net income	$	66		$	191		$	104		$	270
Other comprehensive income (loss), net of taxes:
Unrealized gains (losses) on:
Available-for-sale securities		(1	)		––			(1	)		––
Derivative instruments		––			––			––			––
Foreign currency translation adjustments		2			(5	)		1			(7	)
Defined benefit plans		2			(1	)		6			(1	)
Other comprehensive income (loss)		3			(6	)		6			(8	)
Comprehensive income	$	69		$	185		$	110		$	262

     At second quarter-end 2007, the fair value of our interest-rate derivative instruments was a $1 million liability, which is about equally distributed between an interest-rate swap designated as a hedge of interest cash flows anticipated from specific borrowings and an interest-rate swap we did not designate as a hedge. Changes in the fair value of the hedge transaction were not significant in the first six months 2007. Hedge ineffectiveness was not significant in first six months 2007. Changes in the fair value of the instrument not designated as a hedge are included in other non-operating income (expense) and were not significant in first six months 2007. These instruments expire in December 2008.

Note 8 – Contingencies

     We are defending three class action claims in California state court alleging violations of that state’s on-duty meal break laws. In second quarter 2007, we reached agreements to settle two of these cases, both of which have been approved by the courts in which these cases are pending. A fourth case alleging violations of these same laws has recently been filed and class certification is pending. While we continue to defend these lawsuits and have established reserves that we believe are adequate, we do not anticipate that the outcome in any or all of these cases should have a material adverse effect on our financial position or long-term results of operations or cash flows.

     On July 5, 2007, a class was certified in an action pending in Orange County, California Superior Court alleging a subsidiary violated that state’s laws related to the time in which a mortgage company is required to file a release of lien following payment of a mortgage on residential real estate. The penalty for a violation is $300 for violations prior to January 1, 2001 or $500 for violations after that date. We are currently reviewing the loan files for loans we serviced to determine the extent to which such violations occurred. We exited the mortgage loan servicing business in late 2004. We have established reserves that we believe are adequate for this matter, and we do not anticipate that the outcome in this case should have a material adverse effect on our financial position or long-term results of operations or cash flows.

     We are involved in various other legal proceedings that arise from time to time in the ordinary course of doing business. In addition, liabilities in connection with environmental remediation arise from time to time in the ordinary course of doing business. We believe we have established adequate reserves for any probable losses related to these legal proceedings and environmental remediation issues. We do not expect that the eventual outcome of any or all of our pending legal matters would have a significant adverse effect on our financial position, long-term results of operations, or cash flows. It is possible, however, that charges related to these matters could be significant to our results of operations or cash flows in any one accounting period.

Note 9 – Segment Information

     We have four business segments: corrugated packaging, forest products, real estate, and financial services. Corrugated packaging manufactures containerboard and corrugated packaging. Forest products manages our timber resources and manufactures a variety of building products. Real estate entitles and develops real estate projects that

17

TEMPLE-INLAND INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

we own directly, including our higher and better use timberland, or indirectly through ventures. Financial services operates a savings bank and an insurance agency.

     We evaluate performance based on operating income before unallocated expenses and income taxes. Unallocated expenses represent expenses managed on a company-wide basis and include corporate general and administrative expense; share-based compensation; other operating and non-operating income (expense); and parent company interest expense. Other operating income (expense) includes gain or loss on sale of assets, asset impairments, and unusual expenses. The accounting policies of the segments are the same as those described in the accounting policy notes to the financial statements. Intersegment sales are recorded at market prices. Intersegment sales and shared service expense allocations are netted in costs and expenses.

									Expenses Not
									Allocated to
	Corrugated		Forest		Real		Financial		Segments and
	Packaging		Products		Estate		Services		Eliminations			Total
	(In millions)
For Second Quarter 2007
Revenues from external customers	$	779	$	249	$	43	$	287	$	––		$	1,358
Depreciation and amortization		35		16		1		8		4			64
Segment operating income or income (loss) before taxes		78		33		19		48		(73	)(a)		105
Financial services, net interest income		––		––		––		95		––			95
Capital expenditures and reforestation		34		14		1		10		3			62
For First Six Months 2007 or at Second Quarter-End 2007
Revenues from external customers	$	1,540	$	495	$	73	$	571	$	––		$	2,679
Depreciation and amortization		72		32		1		15		7			127
Segment operating income or income (loss) before taxes		142		71		22		97		(166	)(a)		166
Financial services, net interest income		––		––		––		190		––			190
Total assets		2,274		1,003		603		15,695		320			19,895
Investment in equity method investees and joint ventures		13		22		91		––		––			126
Capital expenditures and reforestation		59		26		1		23		8			117
Goodwill		236		129		––		141		––			506
For Second Quarter 2006
Revenues from external customers	$	758	$	341	$	35	$	299	$	––		$	1,433
Depreciation and amortization		39		14		––		7		4			64
Segment operating income or income (loss) before taxes		66		101		9		62		15	(a)		253
Financial services, net interest income		––		––		––		107		––			107
Capital expenditures and reforestation		28		16		––		7		3			54
For First Six Months 2006 or at Second Quarter-End 2006
Revenues from external customers	$	1,479	$	674	$	82	$	582	$	––		$	2,817
Depreciation and amortization		77		28		1		14		7			127
Segment operating income or income (loss) before taxes		110		183		35		111		(60	) (a)		379
Financial services, net interest income		––		––		––		211		––			211
Total assets		2,336		1,066		485		16,910		336			21,133
Investment in equity method investees and joint ventures		11		21		76		––		––			108
Capital expenditures and reforestation		47		26		––		21		6			100
Goodwill		236		129		––		152		––			517

18

TEMPLE-INLAND INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

^(a) Expenses not allocated to segments consist of:

	Second Quarter						First Six Months
	2007			2006			2007			2006
	(In millions)
General and administrative	$	(27	)	$	(26	)	$	(52	)	$	(49	)
Share-based compensation		(15	)		(8	)		(38	)		(24	)
Other operating income (expense)		(1	)		(8	)		(15	)		(11	)
Other non-operating income(expense)		1			91			1			91
Parent company interest		(31	)		(34	)		(62	)		(67	)
	$	(73	)	$	15		$	(166	)	$	(60	)
Other operating income (expense) applies to:
Corrugated packaging	$	––		$	(2	)	$	(10	)	$	(4	)
Forest products		8			1			8			1
Real estate		––			––			––			––
Financial services		(5	)		(7	)		(5	)		(10	)
Unallocated		(4	)		––			(8	)		2
	$	(1	)	$	(8	)	$	(15	)	$	(11	)

Note 10 – Real Estate

     Our real estate consists of:

	Second
	Quarter-End		Year-
	2007		End 2006
	(In millions)
Entitled, developed, and under development land	$	323	$	255
Land held for investment or future development		149		142
Investment in real estate ventures		91		90
Income producing properties, net of accumulated depreciation		24		25
	$	587	$	512

     In first six months 2007, we invested $36 million in four new projects which represent over 2,300 acres. In first six months 2007, we sold 38 acres of commercial real estate and recognized a gain of $10 million. In first six months 2006, we sold five acres of undeveloped commercial real estate and recognized a gain of $8 million.

     At second quarter-end 2007, we had ownership interests ranging from 25 to 50 percent in 15 real estate ventures that we account for using the equity method. Our investment in these real estate ventures is included in real estate and our equity in their earnings is included in segment operating income. We provide development services for some of these ventures for which we receive a fee. We have not recognized significant fees for these services. Combined summarized financial information for these real estate ventures follows:

19

TEMPLE-INLAND INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

	Second
	Quarter-End			Year-End
	2007			2006
	(In millions)
Real estate	$	224		$	186
Total assets		287			281
Borrowings, principally non-recourse		67			66
Total liabilities		87			84
Equity		200			197
Our investment in real estate ventures:
Our share of their equity	$	98		$	97
Unrecognized deferred gain(a)		(7	)		(7	)
Investment in real estate ventures	$	91		$	90

^(a) We recognize the deferred gain from our sale of real estate to the venture as the venture sells the real estate to third parties.

	Second Quarter				First Six Months
	2007		2006		2007		2006
			(In millions)
Revenues	$	12	$	20	$	19	$	73
Earnings		3		5		5		25
Our equity in their earnings		2		3		3		13

     In first six months 2007, we invested $2 million in the real estate ventures and received $3 million in return of capital distributions, which are classified as investing activities for cash flow purposes. Our equity in earnings reflects our ownership interests ranging from 25 to 50 percent, excluding venture losses that exceed our investment.

     In the first six months 2006, we eliminated our historic one-month lag in accounting for our investment in our two largest real estate ventures as financial information became available more timely. The result was to increase our equity in their earnings in first six months 2006 by about $1 million.

Note 11 – Assets Held For Sale

     Assets held for sale include our strategic timberland, assets of discontinued operations, and other non-strategic assets held for sale.

     At second quarter-end 2007, the carrying value of our timber and timberland and related assets held for sale was $300 million. Timber and timberland totaled $296 million representing approximately 1.6 million acres located in Texas, Louisiana, Georgia, and Alabama, and related property and equipment totaled $4 million. They are classified as current assets based on our intent to sell these assets by year-end 2007.

     At second quarter-end 2007, discontinued operations primarily consist of the chemical business obtained in the acquisition of Gaylord Container Corporation. The disposition of the chemical business has been delayed primarily due to its class action litigation that was settled in 2004. At second quarter-end 2007, the assets and liabilities of discontinued operations include $7 million of working capital and $1 million of property and equipment. Revenues from discontinued operations were $5 million in second quarter 2007, $6 million in second quarter 2006, $11 million in first six months 2007, and $13 million in first six months 2006.

20

TEMPLE-INLAND INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

Note 12 – Other Operating Income (Expense)

	Second Quarter						First Six Months
	2007			2006			2007			2006
	(In millions)
Equity in earnings of manufacturing joint ventures	$	1		$	4		$	2		$	6
Equity in earnings of real estate ventures		2			3			3			13
Litigation		––			––			(10	)		––
Transformation plan legal and other advisory fees		(4	)		––			(8	)		––
Gain on sale of non-strategic timber leases		8			––			8			––
Other		(1	)		(1	)		(1	)		(1	)
	$	6		$	6		$	(6	)	$	18

     Activity for first six months 2007 within our accruals for exit costs follows:

	Beginning				Cash			End of
	of Period		Additions		Payments			Period
	(In millions)
Involuntary employee terminations	$	1	$	––	$	(1	)	$	––
Demolition and environmental remediation		8		1		(4	)		5
	$	9	$	1	$	(5	)	$	5

Note 13 – Preferred Stock Issued by Subsidiaries and Subordinated Notes payable to Trust

     In first six months 2007 we redeemed our $305 million of preferred stock issued by financial services subsidiaries. Funds for these redemptions were provided through the issuances by financial services of $314 million of subordinated notes payable to trust.

Note 14 – Subsequent Event

     On July 31, 2007, our real estate segment entered into agreements to facilitate third-party construction and ownership of a resort hotel, spa and golf facilities at our Cibolo Canyons mixed-use development near San Antonio, Texas. Under these agreements, we transferred to the third-party owners about 700 acres of undeveloped land and we agreed to transfer about $38 million ($16 million by year-end 2007; $12 million in 2008-9; and $10 million in 2010-11). In exchange, the third-party owners assigned to us certain rights under an Economic Development Agreement, including the right to receive revenues from hotel occupancy and sales taxes generated within the resort through 2034. In addition, the construction of the resort hotel and golf facilities will satisfy a condition to our right to obtain reimbursement of certain infrastructure costs under an Ad Valorem Tax and Non Resort Sales and Use Tax Public Improvement Financing Agreement between us and a special purpose improvement district.

21

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

     Management’s Discussion and Analysis of Financial Condition and Results of Operations contains “forward-looking statements” within the meaning of the federal securities laws. These forward-looking statements are identified by their use of terms and phrases such as “believe,” “anticipate,” “could,” “estimate,” “likely,” “intend,” “may,” “plan,” “expect,” and similar expressions, including references to assumptions. These statements reflect management’s current views with respect to future events and are subject to risks and uncertainties. A variety of factors and uncertainties could cause our actual results to differ significantly from the results discussed in the forward-looking statements. Factors and uncertainties that might cause such differences include, but are not limited to:

• general economic, market or business conditions;

• the opportunities (or lack thereof) that may be presented to us and that we may pursue;

• fluctuations in costs and expenses including the costs of raw materials, purchased energy, and freight;

• demand for new housing;

• accuracy of accounting assumptions related to pension and postretirement costs, impaired assets, and allowance for credit losses;

• competitive actions by other companies;

• changes in laws or regulations and actions or restrictions of regulatory agencies;

• our ability to execute certain strategic and business improvement initiatives, including our transformation plan; and

• other factors, many of which are beyond our control.

     Our actual results, performance, or achievement probably will differ from those expressed in, or implied by, these forward-looking statements, and accordingly, we can give no assurances that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what impact they will have on our results of operations or financial condition. In view of these uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. We expressly disclaim any obligation to publicly revise any forward-looking statements contained in this report to reflect the occurrence of events after the date of this report.

Non-GAAP Financial Measure

     Return on investment (ROI) is an important internal measure for us because it is a key component of our evaluation of overall performance and the performance of our business segments. Studies have shown that there is a direct correlation between shareholder value and ROI and that shareholder value is created when ROI exceeds the cost of capital. ROI allows us to evaluate our performance on a consistent basis as the amount we earn relative to the amount invested in our business segments. A significant portion of senior management’s compensation is based on achieving ROI targets.

     In evaluating overall performance, we define ROI as operating income, adjusted for significant unusual items, divided by parent company total assets, less certain assets and certain current liabilities. In evaluating segment performance, we define ROI as segment operating income divided by segment assets less segment current liabilities for our manufacturing and real estate segments, and divided by segment investment for our financial services segment. We do not believe there is a comparable GAAP financial measure to our definition of ROI. The reconciliation of our ROI calculation to amounts reported under GAAP is included in a later section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     Despite its importance to us, ROI is a non-GAAP financial measure that has no standardized definition and as a result may not be comparable with other companies’ measures using the same or similar terms. Also there may be limits in the usefulness of ROI to investors. As a result, we encourage you to read our consolidated financial statements in their entirety and not to rely on any single financial measure.

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Accounting Policies

Critical Accounting Estimates

     In first six months 2007, there were no changes in our critical accounting estimates from those we disclosed in our Annual Report on Form 10-K for 2006.

New and Pending Accounting Pronouncements

     Beginning January 2007, we adopted the expense as incurred accounting method for planned major plant maintenance as contained in Financial Accounting Standards Board (FASB) Staff Position No. AUG AIR-1, Accounting for Planned Major Maintenance Activities; FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48); and a fiscal year-end measurement date for valuing plan assets and obligations for our defined benefit and postretirement benefit plans as required by Statement of Financial Accounting Standard (SFAS) No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans. Please read Note 3 to the Consolidated Financial Statements for further information about these new pronouncements and other pending accounting pronouncements.

Transformation Plan

     On February 25, 2007, our Board of Directors preliminarily approved a transformation plan that involves separating Temple-Inland into three focused, stand-alone, public companies and selling our strategic timberland. The plan includes:

• retaining our manufacturing operations – corrugated packaging and building products,

• spinning off our financial services segment to our shareholders,

• spinning off our real estate segment to our shareholders, and

• selling our strategic timberland.

     We are in the process of developing the infrastructure within the financial services and real estate segments to facilitate their transformation into stand-alone public companies.

     As a result of the transformation, certain debt agreements, leases, guarantees, and other contracts and agreements will require amendment or renegotiation. We are in the process of reviewing our contracts and agreements to determine which will be affected.

     On August 6, 2007, we announced that we entered into a definitive agreement with an investment entity affiliated with The Campbell Group, Inc. to sell 1.55 million acres of timberland for $2.38 billion. The acreage included in the sale consists of 1.38 million acres of land owned in fee and leases covering 175,000 acres.

     The transaction is expected to close in fourth quarter 2007, subject to customary closing conditions. The total consideration is expected to consist almost entirely of installment notes. Roughly 30 days after the sale is closed, we expect to pledge the installment notes as collateral for a non-recourse loan. The net cash proceeds from these transactions, after current taxes and transaction costs, are anticipated to be approximately $1.8 billion. Following the pledge of installment notes, we expect to use the majority of these proceeds to pay a special dividend, which is currently estimated to be approximately $1.1 billion, or $10.25 per share, to our common stockholders. The remaining approximately $700 million of the cash proceeds will be used to reduce debt.

     This transaction includes a 20-year fiber supply agreement for pulpwood and a 12-year fiber supply agreement for sawtimber, the terms of which are both subject to extension. Fiber will be purchased at market prices.

     We expect to complete the transformation plan by year-end 2007.

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Results of Operations for Second Quarter 2007 and 2006

Summary

     We manage our operations through four business segments: corrugated packaging, forest products, real estate, and financial services. A summary of the results of operations by business segment follows:

	Second Quarter						First Six Months
	2007			2006			2007			2006
	(In millions, except per share)
Revenues
Corrugated packaging	$	779		$	758		$	1,540		$	1,479
Forest products		249			341			495			674
Real estate		43			35			73			82
Financial services		287			299			571			582
Total revenues	$	1,358		$	1,433		$	2,679		$	2,817
Segment Operating Income
Corrugated packaging	$	78		$	66		$	142		$	110
Forest products		33			101			71			183
Real estate		19			9			22			35
Financial services		48			62			97			111
Total segment operating income		178			238			332			439
Expenses not allocated to segments
General and administrative		(27	)		(26	)		(52	)		(49	)
Share-based compensation		(15	)		(8	)		(38	)		(24	)
Other operating income (expense)		(1	)		(8	)		(15	)		(11	)
Other non-operating income (expense)		1			91			1			91
Parent company interest		(31	)		(34	)		(62	)		(67	)
Income before income taxes		105			253			166			379
Income taxes		(39	)		(62	)		(62	)		(109	)
Income from continuing operations		66			191			104			270
Discontinued operations		––			––			––			––
Net income	$	66		$	191		$	104		$	270
Average diluted shares outstanding		108.1			111.8			107.8			112.6
Income from continuing operations, per diluted share	$	0.62		$	1.70		$	0.97		$	2.40
ROI, annualized								10.2	%		15.8	%

     In 2007, significant items affecting income from continuing operations included:

• We experienced higher prices for our corrugated packaging products.

• While we continue to see the benefit in our manufacturing operations from our initiatives to lower costs, improve asset utilization, and increase operating efficiencies, the cost of recycled fiber used at our containerboard mills offset some of the benefits.

• We recognized $4 million in business interruption insurance proceeds from a prior year claim related to one of our paper mills.

• We experienced lower pricing and volumes for our forest products, principally lumber and gypsum.

• We recognized an $8 million gain on sale of non-strategic timber leases.

• Our real estate operations incurred a decline in lot sales resulting from the overall slowdown in the housing industry.

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• Real estate operations benefited from a $10 million gain on the sale of land held for commercial use.

• Our financial services operations experienced a $21 million decrease in net interest income due primarily to a decrease in earning assets, offset in part by a reduction in noninterest expense.

• We increased litigation reserves by $15 million as a result of a recent California Supreme Court decision and charges related to the mortgage business we exited.

• We expensed $10 million of share-based compensation due to the higher share price in 2007 and incurred $8 million of costs associated with our transformation plan, primarily legal and other advisory fees.

• We recognized a one-time tax benefit of $3 million related to Texas tax legislation enacted in May 2007.

     In 2006, significant items affecting income from continuing operations included:

• We experienced improved markets for our corrugated packaging and forest products, principally gypsum and particleboard, and we benefited from the acquisition of our partner’s 50 percent interest in Standard Gypsum LP.

• While we continued to see the benefit in our manufacturing operations from our initiatives to lower costs, improve asset utilization and increase operating efficiencies, costs, principally energy and freight, offset much of the benefit.

• Real estate operations benefited from an $8 million gain on sale of land held for commercial use.

• Financial services operations benefited from improved net interest income attributable to an increase in earning assets, principally mortgage-backed securities, and improved credit conditions.

• Actions taken to lower costs in our financial services operation associated with the elimination of our wholesale mortgage and asset-based lending operations resulted in charges of $3 million and goodwill impairment of $7 million.

• We recognized an $89 million net pre-tax gain resulting from a tax litigation settlement, most of which was non-taxable.

     Our operations are affected to varying degrees by supply and demand factors and economic conditions including changes in energy costs, interest rates, new housing starts, home repair and remodeling activities, loan collateral values (particularly real estate) and the strength of the U.S. dollar. Given the commodity nature of our manufactured products, we have little control over market pricing or market demand.

Corrugated Packaging

     We manufacture linerboard and corrugating medium that we convert into corrugated packaging and sell in the open market. Our corrugated packaging segment revenues are principally derived from the sale of corrugated packaging products and, to a lesser degree, from the sale of linerboard in the domestic and export markets. We also own a 50 percent interest in Premier Boxboard Limited LLC, a joint venture that produces light-weight gypsum facing paper and corrugating medium at a mill in Newport, Indiana.

     A summary of our corrugated packaging results follows:

	Second Quarter						First Six Months
	2007			2006			2007			2006
	(Dollars in millions)
Revenues	$	779		$	758		$	1,540		$	1,479
Costs and expenses		(701	)		(692	)		(1,398	)		(1,369	)
Segment operating income	$	78		$	66		$	142		$	110
Segment ROI								14.1	%		10.7	%

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     Fluctuations in corrugated packaging pricing, which includes freight and is net of discounts, and shipments are set forth below:

	Second Quarter			First Six Months
	2007 versus Second			2007 versus First Six
	Quarter 2006			Months 2006
	Increase (Decrease)
Corrugated packaging
Average prices		3	%		5	%
Shipments, average week		(2	)%		(3	)%
Industry shipments, average week (a)		(2	)%		(2	)%
Linerboard
Average prices		3	%		12	%
Shipments, in thousands of tons		29			69

^(a) Source: Fibre Box Association

     Corrugated packaging shipments declined in first six months 2007 primarily due to the sale of Performance Sheets (sheet feeder plant in City of Industry, California) in August 2006.

     Compared with first quarter 2007, average corrugated packaging prices were down one percent and actual shipments were up four percent, principally due to normal seasonal fluctuations, while average linerboard prices were up two percent and shipments were down 24,000 tons.

     Costs and expenses were up one percent in second quarter 2007 compared with second quarter 2006 and up two percent in first six months 2007 compared with first six months 2006. Higher prices for wood and recycled fiber were partially offset by lower costs attributable to the sale of one converting facility and increased mill reliability and efficiency, which resulted in improved raw material yield and energy usage. In second quarter 2007 we recognized $4 million in business interruption insurance proceeds related to an equipment outage at one of our mills that occurred in 2006.

     Fluctuations in our significant cost and expense components included:

	Second Quarter			First Six Months
	2007 versus Second			2007 versus First
	Quarter 2006			Six Months 2006
	Increase (Decrease)
	(In millions)
Wood fiber	$	3		$	6
Recycled fiber		16			37
Freight		(2	)		(3	)
Energy, principally natural gas		2			(4	)
Depreciation		(4	)		(5	)
Pension and postretirement		(3	)		(6	)

     The costs of our outside purchases of wood and recycled fiber, energy, and freight fluctuate based on the market prices we pay for these commodities. It is likely that these costs will continue to fluctuate for the remainder of 2007.

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     Information about our converting facilities and mills follows:

	Second Quarter						First Six Months
	2007			2006			2007			2006
Number of converting facilities (at quarter-end)		64			65			64			65
Mill capacity, in thousand tons		901			892			1,800			1,784
Mill production, in thousand tons		906			883			1,803			1,773
Percent mill production used internally		92	%		95	%		90	%		94	%
Percent of total fiber requirements sourced from recycled fiber		36	%		34	%		37	%		34	%
Corrugating medium purchases from our Premier Boxboard Limited LLC joint venture, in thousand tons		15			23			35			37

Forest Products

     We grow timber, cut the timber and convert it into products or sell it in the open market. We manufacture lumber, gypsum wallboard, particleboard, fiberboard and medium density fiberboard (MDF). Our forest products segment revenues are principally derived from the sales of these products and, to a lesser degree, from sales of fiber and hunting, mineral, and recreational leases of our timberland. We also own a 50 percent interest in an MDF joint venture.

     As part of our transformation plan we have entered into an agreement to sell our strategic timberland. As a result, the operations of our forest products segment will be significantly affected. Our costs will increase as we purchase fiber for our operations from third parties and our revenues will be negatively affected by the loss of fiber sales and hunting and recreational lease revenues.

     A summary of our forest products results follows:

	Second Quarter						First Six Months
	2007			2006			2007			2006
	(Dollars in millions)
Revenues	$	249		$	341		$	495		$	674
Costs and expenses		(216	)		(240	)		(424	)		(491	)
Segment operating income	$	33		$	101		$	71		$	183
Segment ROI								15.4	%		37.1	%

     Fluctuations in product pricing, which includes freight and is net of discounts, and shipments are set forth below:

	Second Quarter			First Six Months
	2007 versus Second			2007 versus First
	Quarter 2006			Six Months 2006
	Increase (Decrease)
Lumber:
Average prices		(16	)%		(20	)%
Shipments		3	%		(2	)%
Gypsum:
Average prices		(25	)%		(17	)%
Shipments		(23	)%		(28	)%
Particleboard:
Average prices		5	%		12	%
Shipments		(18	)%		(16	)%
MDF:
Average prices		4	%		7	%
Shipments		(10	)%		(8	)%

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     Pricing for lumber and gypsum wallboard declined compared with first six months 2006 and demand for all products moderated due to declines in the housing industry. We expect this trend to continue into 2008.

     Compared with first quarter 2007, average prices were up four percent for lumber, down 13 percent for gypsum, and flat for particleboard and MDF. Shipments were up nine percent for lumber, eight percent for gypsum, down six percent for particleboard, and flat for MDF.

     Hunting, recreational, and mineral lease income totaled $19 million in first six months 2007 and $28 million in first six months 2006. Mineral lease income is generally derived from lease and royalty interests and fluctuates based on changes in the market price for energy. The decrease is primarily due to lower lease bonus payments in 2007. It is likely income from these leases will continue to fluctuate for the remainder of 2007.

     Fluctuations in our significant cost and expense components included:

	Second Quarter			First Six Months
	2007 versus Second			2007 versus First
	Quarter 2006			Six Months 2006
	Increase (Decrease)
	(In millions)
Wood fiber	$	(9	)	$	(19	)
Energy, principally natural gas		(7	)		(17	)
Freight		(3	)		(7	)
Chemical		(1	)		(2	)
Depreciation		2			4

     Costs and expenses were down ten percent in second quarter 2007 compared with second quarter 2006 and down 14 percent in first six months 2007 compared with first six months 2006. The decrease in cost is primarily attributable to lower volumes.

     The costs of our outside purchases of fiber, energy, freight, and chemicals fluctuate based on the market prices we pay for these commodities. It is likely that these costs will continue to fluctuate for the remainder of 2007.

     Information about our timber harvest and converting and manufacturing facilities follows:

	Second Quarter						First Six Months
	2007			2006			2007			2006
Timber harvest, in million tons:
Sawtimber		0.6			0.6			1.2			1.2
Pulpwood		0.8			0.7			1.6			1.5
		1.4			1.3			2.8			2.7
Number of converting and manufacturing facilities (at quarter-end)		17			17			17			17
Average operating rates for all product lines excluding sold or closed facilities:
High		110	%		116	%		100	%		113	%
Low		62	%		88	%		65	%		93	%
Average		85	%		100	%		82	%		100	%
Gypsum facing paper purchases from our Premier Boxboard Limited LLC joint venture, in thousand tons		12			21			24			37
Percent of gypsum facing paper supplied by our Premier Boxboard Limited LLC joint venture								71	%		76	%

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Real Estate

     We entitle and develop real estate that we own directly or participate in through ventures. Currently, we have projects in seven states and 11 markets encompassing about 237,000 acres, including 193,000 acres of higher and better use timberland located in Georgia, principally near Atlanta, and in Texas. We are creating the infrastructure and securing entitlements on these lands for single-family residential, commercial, mixed-use, and multi-family housing site development. Our real estate segment revenues are principally derived from the sale of developed and undeveloped real estate and to a lesser degree, from the sale of timber and operations of commercial income producing properties.

     A summary of our real estate results follows:

	Second Quarter						First Six Months
	2007			2006			2007			2006
	(Dollars in millions)
Revenues	$	43		$	35		$	73		$	82
Costs and expenses		(26	)		(29	)		(54	)		(60	)
Our share of real estate ventures’ income		2			3			3			13
Segment operating income	$	19		$	9		$	22		$	35
Segment ROI								8.3	%		17.0	%

     Revenue for first six months 2007 includes $12 million related to the sale of 38 acres of commercial real estate on which we recognized a gain of $10 million. Revenue for first six months 2006 includes $14 million related to the sale of five acres of undeveloped commercial real estate on which we recognized a gain of $8 million. Excluding these commercial real estate gains, the decline in segment operating income is primarily due to a decrease in sales of land held for investment or future development, and a decrease in sales of residential real estate resulting from the overall decline in the housing industry. We expect these trends to continue through 2008.

     Beginning first quarter 2006, we eliminated our historic one-month lag in accounting for our investment in our two largest real estate ventures as financial information became available more timely. The one-time effect of eliminating this one-month lag was to increase our equity in their earnings in 2006 by about $1 million.

     Revenue consists of:

	Second Quarter				First Six Months
	2007		2006		2007		2006
	(Dollars in millions)
Residential real estate	$	16	$	19	$	34	$	36
Lots sold		316		463		566		805
Commercial real estate	$	14	$	2	$	18	$	18
Acres sold		45		36		56		43
Land held for investment or future development	$	6	$	6	$	8	$	13
Acres sold		886		845		1,154		1,768
Income producing properties, timber and other	$	7	$	8	$	13	$	15
	$	43	$	35	$	73	$	82

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     Information about our real estate projects and our real estate ventures follows:

	Second Quarter-End
	2007		2006
Owned and consolidated ventures:
Entitled, developed, and under development land
Number of projects		44		31
Residential lots remaining		19,957		11,951
Commercial acres remaining		922		722
Land held for investment or future development
Number of projects		24		20
Acres in entitlement process		26,960		21,950
Acres undeveloped		186,715		196,379
Ventures accounted for using the equity method
Ventures’ lot sales (for first six months)
Lots sold		416		1,122	(a)
Revenue per lot sold	$	54,505	$	52,098
Ventures’ entitled, developed, and under development land
Number of projects		22		23
Residential lots remaining		9,734		11,789
Commercial acres remaining		721		669
Ventures’ land held for investment or future development
Acres sold (for first six months)		––		75
Acres remaining		6,258		6,519

^(a) The elimination of the previously discussed one month reporting lag resulted in a one-time increase in the number of lots sold of 122 lots.

Financial Services

     We own a savings bank, Guaranty Bank, which includes an insurance agency subsidiary. Guaranty makes up the predominant amount of our financial services segment operating income, revenues, assets, and liabilities. In general, we gather funds from depositors, borrow money, and invest the resulting cash in loans and securities.

     A summary of our financial services results follows:

	Second Quarter				First Six Months
	2007		2006		2007			2006
	(Dollars in millions)
Net interest income	$	95	$	107	$	190		$	211
Segment operating income (a)		48		62		97			111
Segment ROI						19.1	%		21.8	%

^(a) Segment operating income excludes share-based compensation, charges related to asset impairments and severance, and litigation charges related to the mortgage business we exited, all of which are reported in financial services’ summarized financial statements.

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Net Interest Income and Earning Assets and Deposits

     Information about our net interest margin follows:

	Second Quarter										First Six Months
	2007					2006					2007					2006
	Average		Yield/			Average		Yield/			Average		Yield/			Average		Yield/
	Balance		Rate			Balance		Rate			Balance		Rate			Balance		Rate
	(Dollars in millions)
Earning assets	$	14,904		6.61	%	$	16,363		6.19	%	$	14,900		6.57	%	$	16,474		6.00	%
Interest-bearing liabilities		13,850		(4.37	)%		15,147		(3.84	)%		13,797		(4.34	)%		15,278		(3.70	)%
Impact of noninterest bearing funds				0.31	%				0.29	%				0.32	%				0.27	%
Net interest margin				2.55	%				2.64	%				2.55	%				2.57	%

     Net interest income declined principally due to a decrease in earning assets resulting from a decrease in single-family mortgage loans and mortgage-backed securities.

     As our portfolio is currently positioned, if interest rates remain relatively stable, it is likely that our net interest margin will remain near its current level. However, if interest rates change significantly, it is likely that our net interest margin will decline. Please read Part I, Item 3, Quantitative and Qualitative Disclosures About Market Risk, for further information.

     The following table summarizes the composition of our earning assets and deposits:

	Second Quarter-End
	2007			2006
	(Dollars in millions)
Residential housing assets:
Loans held for sale	$	20		$	37
Loans		5,585			6,853
Securities		5,291			6,145
		10,896			13,035
Other earning assets		4,097			3,198	(a)
Total earning assets	$	14,993		$	16,233
Residential housing assets as a percentage of earning assets		73	%		80	%
Noninterest-bearing deposit accounts	$	724		$	777
Interest-bearing deposit accounts		3,901			3,500
Certificates of deposit		4,907			5,000
Total deposits	$	9,532		$	9,277

^(a) Includes $295 million of commercial loans held for sale.

     Residential housing assets were lower at second quarter-end 2007 compared with second quarter-end 2006, because payments on single-family mortgage loans and securities exceeded new single-family mortgage loan production and securities purchases. New loan production was limited in 2006 and first six months 2007 because we eliminated our wholesale mortgage production network in first quarter 2006. We have developed the systems to begin acquiring mortgage loans from some of our correspondent mortgage warehouse borrowers. In second quarter 2007, we began acquiring limited volumes of loans through this channel. However, the correspondent mortgage business is very competitive, and the current interest rate environment is not generally conducive to significant production of adjustable-rate mortgages, which we generally hold. As a result, we expect our single-family mortgage loans will continue to decrease throughout 2007. Additionally, current market pricing for securities remains challenging. In first half 2007, we purchased approximately $560 million in mortgage-backed securities at returns we consider acceptable. However, unless we are able to continue to find similar opportunities, our mortgage-backed securities will continue to decrease. Our commercial loans outstanding increased first six months 2007, and we anticipate they will continue to increase throughout 2007, partially offsetting decreases in single-family mortgage loans and mortgage-backed securities.

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     A portion of our residential housing loans consists of adjustable-rate mortgages that have various monthly payment amount options (Option ARMs). These loans generally include the ability to select from fully amortizing payments, interest-only payments and payments less than the interest accrual rate, which can result in negative amortization increasing the principal amount of the loan. At second quarter-end 2007, loans included $540 million of Option ARMs down from $853 million at second quarter-end 2006. We recognized $1 million in second quarter 2007 and $3 million first six months 2007 in interest income on loans from borrowers that elected negative amortization payment options. We also hold $3.4 billion of securities that have Option ARMs as the underlying assets, down from $3.5 billion at second quarter-end 2006. At second quarter-end 2007 these securities included $648 million that were issued by U.S. Government Sponsored Enterprises (FNMA, FHLMC) and $2.7 billion that are senior tranches issued by non-agency institutions. The private issuer mortgage-backed securities are considered investment grade quality by nationally recognized rating agencies.

     The current environment in the housing industry and mortgage finance markets has resulted in the devaluation of certain securities backed by mortgage assets. At July 31, 2007, our securities portfolio had an amortized cost of $4.943 billion and a fair value of $4.933 billion. We have no plans to sell any of our held-to-maturity securities.

Asset Quality and Allowance for Credit Losses

     Various asset quality measures we monitor are:

	Second Quarter-End						Year-End
	2007			2006			2006
	(Dollars in millions)
Non-performing loans	$	29		$	35		$	26
Foreclosed real estate		7			2			5
Non-performing assets	$	36		$	37		$	31
Non-performing loans as a percentage of total loans		0.30	%		0.37	%		0.27	%
Non-performing assets ratio		0.38	%		0.39	%		0.32	%
Allowance for loan losses as a percentage of non-performing loans		248	%		199	%		253	%
Allowance for loan losses as a percentage of total loans		0.75	%		0.73	%		0.68	%
Net charge-offs as a percentage of average loans outstanding		(0.03	)%		(0.12	)%		0.10	%

     The following table summarizes changes in the allowance for credit losses:

	Second Quarter					First Six Months
	2007		2006			2007			2006
	(Dollars in millions)
Balance at beginning of period	$	78	$	76		$	72		$	81
Provision (credit) for credit losses		––		(2	)		(2	)		––
Net (charge-offs) recoveries		1		4			9			(3	)
Balance at end of period	$	79	$	78		$	79		$	78
Allowance for credit losses:
Loan	$	72	$	71		$	72		$	71
Commitment-related		7		7			7			7
Combined allowance for credit losses	$	79	$	78		$	79		$	78

     In first quarter 2007, we recovered a total of $8 million related to two asset-based financing transactions that we had previously charged-off. We sold our asset-based lending operation in 2006, and we do not expect to receive significant future recoveries from asset-based borrowers.

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     We do not originate or purchase sub-prime loans. At July 31, 2007, we had $10 million in mortgage warehouse loans ($115 million committed) with sub-prime loans pledged as collateral. Our obligations to fund additional advances under these commitments are subject to several conditions including a requirement that the borrower has pre-sold the loans and our approval of the underlying collateral. As a result of these limiting requirements and the current sub-prime market conditions, we do not expect to fund a substantial amount of additional advances under these commitments. In addition, we have a $53 million loan ($65 million committed) to an entity that issues, services and invests in credit-sensitive residential mortgage assets. Recently, this entity announced that it is experiencing liquidity challenges.

     Our non-performing loans at second quarter-end 2007 do not include the $53 million loan mentioned above and a previously disclosed $37 million loan ($55 million committed) to a homebuilder that has characteristics indicating potential credit problems. It is possible that these loans could be classified as non-performing in the future.

     Over the last several years, our earnings have benefited from favorable credit conditions. There is uncertainty as to how long these favorable conditions will last due in part to concerns about the housing industry and the availability of mortgage financing. Although changes in credit quality are difficult to predict, it is likely that we will recognize higher provisions for credit losses in future periods.

Noninterest Income and Noninterest Expense

     Income from loan origination and sale of loans decreased $2 million for the first six months 2007 compared with 2006 primarily due to repositioning our mortgage origination activities. As a result of the repositioning, we do not anticipate significant single-family mortgage loan originations or sales in 2007.

Expenses Not Allocated to Segments

     Unallocated expense represents expenses managed on a company-wide basis and includes corporate general and administrative expense, share-based compensation, other operating and non-operating income (expense), and parent company interest expense.

     The change in share-based compensation was principally due to the effect of a higher share price on our cash-based awards. Based on our current expectations, it is likely that share-based compensation expense for 2007 will be in the range of $50 to $70 million. A significant portion of our share-based awards are cash based, therefore our share price has a direct impact on our share-based compensation expense.

     Other operating (income) expense not allocated to business segments consists of:

	Second Quarter					First Six Months
	2007			2006		2007			2006
	(In millions)
Transformation cost	$	4		$	––	$	8		$	––
Gain on sale of non-strategic timber leases		(8	)		––		(8	)		––
Litigation		5			––		15			––
Elimination of wholesale mortgage origination network		––			––		––			3
Goodwill impairment		––			7		––			7
Other		––			1		––			1
Total	$	1		$	8	$	15		$	11

     We are continuing our efforts to enhance return on investment by lowering costs, improving operating efficiencies and increasing asset utilization. As a result, we will continue to review operations that are unable to meet return objectives and determine appropriate courses of action, including possibly consolidating and closing converting facilities and selling under-performing assets.

     The change in parent company interest expense in second quarter and first six months 2007 was due to lower average levels of debt outstanding compared with the same periods in 2006.

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Income Taxes

     Our effective tax rate was 37 percent in second quarter and first six months 2007. The 2007 rate reflects one-time tax benefit of three percent for second quarter 2007 and two percent for first six months 2007 resulting from Texas tax legislation enacted in May 2007. Our effective tax rate was 25 percent in second quarter 2006 and 29 percent first six months 2006. These 2006 rates reflect one-time tax benefits of 11 percent in second quarter 2006 and seven percent in first six months 2006 resulting from the settlement of tax litigation with the U.S. Government, and of one percent in second quarter 2006 and one percent in first six months 2006 resulting from new Texas tax legislation. Differences between the effective tax rate and the statutory rate are due to state income taxes, nondeductible items, and deferred taxes on unremitted foreign income.

     For the full year 2007, we anticipate our annual effective income tax rate, exclusive of any impact associated with the execution of our transformation plan, to be about 39 percent.

Average Shares Outstanding

     The change in average shares outstanding was principally due to the issuance of shares related to share-based compensation plans. The change in average diluted shares outstanding was principally due to these issuances and the dilutive effect of employee stock options resulting from the change in the market price of our common stock.

Capital Resources and Liquidity for First Six Months 2007

     We separately discuss our capital resources and liquidity for Temple-Inland and our manufacturing and real estate subsidiaries, which we refer to as the parent company, and our financial services subsidiaries to provide a clearer presentation of our different businesses and because almost all of the net assets invested in financial services are subject to regulatory rules and regulations including restrictions on the payment of dividends to the parent company.

Sources and Uses of Cash

     Consolidated cash from operations was $154 million in first six months 2007 and $571 million in first six months 2006. Consolidated cash from operations represents the sum of parent company and financial services cash from operations, less the dividends from financial services and other intercompany amounts, which are eliminated upon consolidation. In first six months 2007 we received $35 million in dividends from financial services, and in first six months 2006 we received $60 million in dividends from financial services.

34

Parent Company Sources and Uses of Cash

	First Six Months
	2007			2006
	(In millions)
We received cash from:
Operations	$	180		$	234
Dividends from financial services (a)		35			60
Proceeds from tax litigation settlement, net		––			89
Real estate development expenditures, net of non-cash cost of sales		(63	)		(33	)
Working capital changes		(29	)		(59	)
From operations		123			291
Sale of assets and other		14			13
Exercise of options and related tax benefits		25			41
Borrowing, net		17			85
Total sources		179			430
We used cash to:
Return to shareholders through:
Dividends		(59	)		(55	)
Repurchase of common stock		(24	)		(153	)
Reinvest in the business through:
Capital expenditures		(94	)		(79	)
Acquisition, joint ventures, and other		(14	)		(131	)
Total uses		(191	)		(418	)
Change in cash and cash equivalents	$	(12	)	$	12

^(a) Dividends received from financial services are eliminated in the consolidated statements of cash flows.

     We operate in cyclical industries, and our operating cash flows vary accordingly. Our principal operating cash requirements are for compensation, wood and recycled fiber, energy, interest, and taxes. The dividends we receive from financial services are dependent on its level of earnings and capital needs and are subject to regulatory approval and restrictions.

     Working capital is subject to cyclical operating needs, the timing of collection of receivables and the payment of payables and expenses and to a lesser extent to seasonal fluctuations in our operations. In addition, operating cash flows are affected by the timing of the payment of real estate development expenditures and the collection of proceeds from the eventual sale of the real estate.

     We issued 841,700 shares of common stock in first six months 2007 and 1,282,291 shares in first six months 2006 to employees exercising options. We paid cash dividends to shareholders of $0.56 per share in first six months 2007 and $0.50 per share in first six months 2006.

     We initiated no purchases under our share repurchase authorizations in first six months 2007. We, however, settled in first quarter 2007 $24 million of share purchases that were initiated in fourth quarter 2006. The maximum number of shares available to be purchased under our repurchase plans was 6.6 million shares at second quarter-end 2007.

     Capital expenditures and timberland reforestation and acquisition are expected to approximate $220 million to $240 million in 2007 or about 100 percent of expected 2007 depreciation and amortization. Most of the expected 2007 expenditures relate to initiatives to increase reliability and efficiency in our corrugated packaging operations.

35

Financial Services Sources and Uses of Cash

	First Six Months
	2007			2006
	(In millions)
We received cash from:
Operations	$	72		$	94
Changes in loans held for sale and other		(6	)		239
From operations		66			333
Net repayments on loans and securities		434			342
Redemption of Federal Home Loan Bank stock		58			––
Total sources		558			675
We used cash to:
Pay dividends to the parent company (a)		(35	)		(60	)
Fund decreases in deposits and borrowings		(276	)		(767	)
Redeem preferred stock issued by subsidiaries		(305	)		––
Reinvest in the business through capital expenditures, acquisitions, and other		(26	)		(18	)
Total uses		(642	)		(845	)
Change in cash and cash equivalents	$	(84	)	$	(170	)

^(a) Dividends we pay to the parent company are eliminated in the consolidated statements of cash flows.

     Our principal operating cash requirements are for compensation, interest, and taxes. Changes in loans held for sale are subject to the timing of the origination and subsequent sale of the loans and the level of refinancing activity.

     The changes in deposits and borrowings and the amounts invested in loans and securities generally move in tandem because we use deposits and borrowings to fund our investments. In first six months 2007, we used cash flow from net repayments on loans and securities to reduce our borrowings. In first six months 2006, we used cash flow from the sale of loans held for sale and from principal payments on mortgage-backed securities to reduce our borrowings.

     We anticipate continued commercial loan growth throughout 2007. However, we expect this growth will only partially offset repayments of single-family mortgage loans and mortgage-backed securities.

     The anticipated commercial loan growth in the remainder of 2007 will require us to retain most, if not all, of financial services’ earnings. Therefore, we do not anticipate additional significant dividends to the parent company for the remainder of 2007.

Liquidity

     Almost all of the net assets invested in financial services are subject to regulatory rules and restrictions including restrictions on the payment of dividends to the parent company. As a result, all consolidated assets are not available to satisfy all consolidated liabilities. To provide a clearer understanding of our different businesses, we discuss our contractual obligations for the parent company and financial services separately.

36

Parent Company Liquidity

     Our sources of short-term funding are our operating cash flows, dividends received from financial services, and borrowings under our existing accounts receivable securitization facility and committed credit agreements. At second quarter-end 2007, we had $916 million in unused borrowing capacity under our credit agreements and accounts receivable securitization facility.

				Accounts
	Committed			Receivable
	Credit			Securitization
	Agreements			Facility			Total
	(In millions)
Committed	$	850		$	250		$	1,100
Less: borrowings and commitments		(4	)		(180	)		(184	)
Unused borrowing capacity at second quarter-end 2007	$	846		$	70		$	916

     Our committed credit agreements include a $750 million revolving credit facility that expires in 2011. The remainder of our credit agreements expire in 2008 and 2010. Our accounts receivable securitization facility expires in 2009.

     At second quarter-end 2007, the fair value of our interest rate derivative instruments was a $1 million liability. The interest rate instruments expire in December 2008. These instruments are non-exchange traded and are valued using either third-party resources or models.

     We lease our particleboard and MDF facilities in Mt. Jewett, Pennsylvania, under an operating lease that expires in 2019. If our long-term debt were to be rated below investment grade, the terms of this lease require us to provide letter of credit support for a portion of our obligations under the lease.

Financial Services Liquidity

     Our sources of short-term funding are our operating cash flows, new deposits, borrowings under our existing agreements and, if necessary, sales of assets. Assets that can be readily converted to cash, or against which we can readily borrow, include short-term investments, loans, mortgage loans held for sale, and securities. At second quarter-end 2007, we had available liquidity of $4.5 billion.

     In second quarter 2007, we redeemed all of the preferred stock issued by subsidiaries with the proceeds from subordinated notes payable to trust.

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Contractual Obligations and Off-Balance Sheet Arrangements

Parent Company

     At second quarter-end 2007, there were no significant changes in parent company contractual obligations and off-balance sheet arrangements from that disclosed in our Annual Report on Form 10-K for the year 2006 except for the following:

     On July 31, 2007, our real estate segment entered into agreements to facilitate third-party construction and ownership of a resort hotel, spa and golf facilities at our Cibolo Canyons mixed-use development near San Antonio, Texas. Under these agreements, we transferred to the third-party owners about 700 acres of undeveloped land and we agreed to transfer about $38 million ($16 million by year-end 2007; $12 million in 2008-9; and $10 million in 2010-11). To support our commitment, we have guaranteed or issued letters of credit totaling $30 million. Prior to the spin-off of our real estate segment, any unfunded guarantees or letters of credit will be replaced with letters of credit issued under a credit facility of the new real estate company.

     In exchange, the third-party owners assigned to us certain rights under an Economic Development Agreement, including the right to receive revenues from hotel occupancy and sales taxes generated within the resort through 2034. In addition, the construction of the resort hotel and golf facilities will satisfy a condition to our right to obtain reimbursement of certain infrastructure costs under an Ad Valorem Tax and Non Resort Sales and Use Tax Public Improvement Financing Agreement between us and a special purpose improvement district.

Financial Services

     A comparison of our second quarter-end 2007 unfunded loan commitments with those disclosed in our Annual Report on Form 10-K for 2006 follows:

	Second
	Quarter-End		Year-End
	2007		2006
	(In millions)
Single-family mortgage loans	$	92	$	91
Unused lines of credit		2,073		2,109
Unfunded portion of credit commitments		4,482		4,421
Commitments to originate commercial loans		439		655
Letters of credit		363		386
	$	7,449	$	7,662

Capital Adequacy and Other Regulatory Matters

     At second quarter-end 2007, Guaranty met or exceeded all applicable regulatory capital requirements. We expect to maintain Guaranty’s capital at a level that exceeds the minimum required for designation as “well capitalized” under the capital adequacy regulations of the Office of Thrift Supervision (OTS). From time to time, the parent company may make capital contributions to or receive dividends from Guaranty.

     Selected regulatory capital data for Guaranty and its consolidated subsidiaries follows:

				Regulatory			For Categorization as
	Actual			Minimum			“Well Capitalized”
Regulatory capital ratios:
Tangible capital		8.07	%		>2.00	%		N/A
Leverage capital		8.07	%		>4.00	%		>  5.00	%
Risk-based capital		10.61	%		>8.00	%		>10.00	%

38

     In first six months 2007, Guaranty redeemed $305 million of outstanding preferred stock issued by subsidiaries, which qualified as regulatory capital up to a maximum of 25% of regulatory capital. Funds for these redemptions were provided through the issuance by financial services of $314 million of subordinated notes payable to trust. We obtained OTS approval to include similar amounts of our subordinated notes payable to trust in regulatory capital subject to the same limitations as our preferred stock issued by subsidiaries.

Pension and Postretirement Matters

     We made voluntary, discretionary contributions of $30 million to our defined benefit pension plans in first six months 2007, and it is likely that we will make additional voluntary, discretionary contributions in the remainder of 2007 of $15 million per quarter.

Energy

     Energy costs were $151 million in first six months 2007 compared with $172 million in first six months 2006. Our energy costs fluctuate based on the market prices we pay for these commodities and on the amount and mix of the types of fuel we may use. We continue to reduce our dependency on natural gas. We hedge very little of our energy needs. It is likely that these costs will continue to fluctuate for the remainder of 2007.

Litigation and Related Matters

     We are involved in various legal proceedings that arise from time to time in the ordinary course of doing business, and we believe that adequate reserves have been established for any probable losses. We do not believe that the outcome of any of these proceedings should have a material adverse effect on our financial position or long-term results of operations or cash flows. It is possible, however, that charges related to these matters could be significant to results of operations or cash flows in any single accounting period.

     Since we filed our Annual Report on Form 10-K for 2006, there have been no material developments in pending legal proceedings other than as disclosed in Part II, Item 1 of this report.

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Calculation of Non-GAAP Financial Measure

	Parent			Corrugated			Forest			Real			Financial
	Company			Packaging			Products			Estate			Services
	(Dollars in millions)
First Six Months 2007
Return:
Operating income or segment operating income determined in accordance with GAAP	$	227	(a)	$	142		$	71		$	22		$	97
Adjustments for significant unusual items		––			N/A			N/A			N/A			N/A
	$	227		$	142		$	71		$	22		$	97
Investment:
Beginning of year total assets, segment assets or investment in financial services determined in accordance with GAAP	$	5,217		$	2,284		$	1,011		$	544		$	1,015
Adjustments:
Current liabilities (excluding current portion of long-term debt)		(554	)		(271	)		(87	)		(11	)		N/A
Assets held for sale		(20	)		N/A			N/A			N/A			N/A
Municipal bonds related to capital leases included in other assets		(188	)		N/A			N/A			N/A			N/A
	$	4,455		$	2,013		$	924		$	533		$	1,015
ROI, annualized		10.2	%		14.1	%		15.4	%		8.3	%		19.1	%
First Six Months 2006
Return:
Operating income or segment operating income determined in accordance with GAAP	$	355	(a)	$	110		$	183		$	35		$	111
Adjustments for significant unusual items		––			N/A			N/A			N/A			N/A
	$	355		$	110		$	183		$	35		$	111
Investment:
Beginning of year total assets, segment assets or investment in financial services determined in accordance with GAAP	$	5,001		$	2,318		$	866		$	422		$	1,017
Adjustments:
Current liabilities (excluding current portion of long-term debt)		(492	)		(269	)		(76	)		(11	)		N/A
Assets held for sale		(34	)		N/A			N/A			N/A			N/A
Municipal bonds related to capital leases included in other assets		(188	)		N/A			N/A			N/A			N/A
Acquisition of Standard Gypsum, LP in January 2006		196			N/A			196			N/A			N/A
	$	4,483		$	2,049		$	986		$	411		$	1,017
ROI, annualized		15.8	%		10.7	%		37.1	%		17.0	%		21.8	%

^(a) Net of expenses not allocated to segments of $105 million in 2007 and $84 million in 2006.

     ROI, annualized is not necessarily indicative of the ROI that may be expected for the entire year.

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STATISTICAL AND OTHER DATA

Parent Company

Manufacturing

     Revenues and unit sales of our manufacturing activities, excluding joint venture operations follows:

	Second Quarter				First Six Months
	2007		2006		2007		2006
	(Dollars in millions)
Revenues
Corrugated Packaging
Corrugated packaging	$	744	$	737	$	1,461	$	1,435
Linerboard		35		21		79		44
Total	$	779		758	$	1,540	$	1,479
Forest Products
Pine lumber	$	67	$	76	$	126	$	160
Gypsum wallboard		67		116		137		228
Particleboard		49		58		101		107
Medium density fiberboard		17		19		34		35
Fiberboard		14		22		28		43
Hunting, mineral and recreational leases		10		14		19		28
Fiber and other		25		36		50		73
Total	$	249	$	341	$	495		674
Unit sales
Corrugated Packaging
Corrugated packaging, thousands of tons		866		884		1,696		1,753
Linerboard, thousands of tons		76		47		176		107
Total, thousands of tons		942		931		1,872		1,860
Forest Products
Pine lumber, million board feet		222		216		425		434
Gypsum wallboard, million square feet		414		537		796		1,100
Particleboard, million square feet		134		164		277		329
Medium density fiberboard, million square feet		37		41		74		80
Fiberboard, million square feet		79		106		153		208

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Real Estate

     A summary of real estate projects in the entitlement process ^(a) at second quarter-end 2007 follows:

Project	County	Project Acres(b)
California
Hidden Creek Estates	Los Angeles		700
Terrace at Hidden Hills	Los Angeles		30
Georgia
Ball Ground	Cherokee		500
Burt Creek	Dawson/Lumpkin		990
Cedar Creek Preserve	Coweta		200
Corinth Landing	Coweta		800
Crossing	Coweta		230
Euharlee II West	Bartow		360
Fincher Road	Cherokee		950
Friendship Road	Cherokee		110
Garland Mountain	Cherokee/Bartow		350
Genesee	Coweta		750
Grove Park	Coweta		160
Jackson Park	Jackson		690
Lithia Springs	Haralson		260
Mill Creek	Coweta		780
Overlook	Cherokee		510
Pickens School	Pickens		420
Serenity	Carroll		400
Wolf Creek	Carroll		12,180
Yellow Creek	Cherokee		1,100
Texas
Lake Houston	Harris/Liberty		3,630
Entrada(c)	Travis		240
Woodlake Village(c)	Montgomery		620
Total			26,960

(a)	A project is deemed to be in the entitlement process when customary steps necessary for the preparation and submittal of an application, like conducting pre-application meetings or similar discussions with governmental officials, have commenced, or an application has been filed. Projects listed may have significant steps remaining, and there is no assurance that entitlements ultimately will be received.
(b)	Acreage is for the total project and is approximate. The actual number of acres entitled may vary.
(c)	We own a 50 percent interest in these projects.

42

     A summary of activity within our entitled,^(a) developed, and under development projects at second quarter-end 2007 follows:

					Residential Lots(c)				Commercial Acres(d)
					Lots Sold				Acres Sold
		Interest			Since		Lots		Since		Acres
Project	County	Owned(b)			Inception		Remaining		Inception		Remaining
Projects we own
Colorado
Buffalo Highlands	Weld		100	%		––		645		––		––
Johnstown Farms	Weld		100	%		115		699		––		––
Pinery West	Douglas		100	%		––		––		––		115
Stonebraker	Weld		100	%		––		600		––		––
Texas
Arrowhead Ranch	Hays		100	%		––		232		––		5
Caruth Lakes	Rockwall		100	%		245		629		––		––
Cibolo Canyons	Bexar		100	%		462		1,287		64		81
Harbor Lakes	Hood		100	%		190		388		––		13
Harbor Mist	Calhoun		100	%		––		1,393		––		36
Hunter’s Crossing	Bastrop		100	%		266		311		19		95
Katy Freeway	Harris		100	%		––		––		38		––
La Conterra	Williamson		100	%		––		509		––		60
Maxwell Creek	Collin		100	%		567		456		––		––
Oakcreek Estates	Comal		100	%		––		648		––		––
The Colony	Bastrop		100	%		347		1,078		22		50
The Gables at North Hill	Collin		100	%		193		89		––		––
The Preserve at Pecan Creek	Denton		100	%		111		708		––		9
The Ridge at Ribelin Ranch	Travis		100	%		––		––		126		77
Other projects (6)	Various		100	%		2,171		127		62		39
Georgia
Towne West	Bartow		100	%		––		2,550		––		121
Other projects (7)	Various		100	%		––		1,264		––		40
Missouri and Utah
Other projects (3)	Various		100	%		760		257		––		––
						5,427		13,870		331		741
Projects in entities we consolidate
Texas
City Park	Harris		75	%		689		612		36		129
Lantana	Denton		55	% (e)		285		2,065		––		––
Light Ranch	Collin		65	%		––		2,461		––		––
Timber Creek	Collin		88	%		––		654		––		––
Other projects (5)	Various	Various				286		295		13		52
						1,260		6,087		49		181
Total owned and consolidated						6,687		19,957		380		922
Projects in ventures that we account for using the equity method
Georgia
Seven Hills	Paulding		50	%		601		479		26		––
The Georgian	Paulding		38	%		284		1,101		––		––
Other projects (5)	Various	Various				1,843		249		3		––
Texas
Bar C Ranch	Tarrant		50	%		170		1,011		––		––
Fannin Farms West	Tarrant		50	%		224		219		––		––
Lantana	Denton	Various (e)				1,726		122		1		79
Long Meadow Farms	Fort Bend		19	%		583		1,601		24		186
Southern Trails	Brazoria		40	%		201		858		––		––
Stonewall Estates	Bexar		25	%		85		166		––		––
Summer Creek Ranch	Tarrant		50	%		793		1,695		––		374
Summer Lakes	Fort Bend		50	%		294		850		48		3
Village Park	Collin		50	%		313		256		––		5
Waterford Park	Fort Bend		50	%		––		493		––		37
Other projects (3)	Various	Various				268		262		––		37
Florida
Other projects (3)	Various	Various				473		372		––		––
Total in ventures						7,858		9,734		102		721
Combined Total						14,545		29,691		482		1,643

(a)	A project is deemed entitled when all major discretionary land-use approvals have been received. Some projects may require additional permits for development.
(b)	Interest owned reflects our net equity interest in the project, whether owned directly or indirectly. There are some projects that have multiple ownership structures within them. Accordingly, portions of these projects may appear as owned, consolidated, and/or accounted for on the equity method.
(c)	Lots are for the total project.
(d)	Commercial acres are for the total project and are net developable acres, which may be fewer than the gross acres available in the project.
(e)	The Lantana project consists of a series of 19 partnerships in which our interests range from 25 percent to 55 percent. We account for eight of these partnerships using the equity method and we consolidate the remaining partnerships.

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     Financial Services

     Information about financial services loan portfolio follows:

	Second Quarter-End						Year-End
	2007			2006			2006
	(In millions)
Single-family mortgage	$	1,915		$	2,748		$	2,323
Single-family mortgage warehouse		583			699			795
Single-family construction		1,817			2,039			1,782
Multifamily and senior housing		1,270			1,367			1,270
Total residential housing		5,585			6,853			6,170
Commercial real estate		1,519			901			1,227
Commercial and business		1,086			881			1,012
Energy lending		1,218			758			1,117
Asset-based lending and leasing		––			93			––
Consumer and other		134			155			156
Total loans		9,542			9,641			9,682
Less allowance for loan losses		(72	)		(71	)		(65	)
Loans, net	$	9,470		$	9,570		$	9,617

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

     Our current level of interest rate risk is primarily due to the lending and funding activities of our financial services segment and to a lesser degree to parent company variable-rate, long-term debt. The following table illustrates the estimated effect on our pre-tax income of immediate, parallel, and sustained shifts in interest rates for the next 12 months at second quarter-end 2007, with comparative year-end 2006 information. This estimate assumes that debt reductions from contractual payments will be replaced with short-term, variable-rate debt; however, that may not be the financing alternative we choose. This estimate also considers the effect of changing prepayment speeds, repricing characteristics, and average balances over the next 12 months.

	Increase (Decrease) in Income Before Taxes
	Second Quarter-End 2007						Year-End 2006
	Parent			Financial			Parent			Financial
	Company			Services			Company			Services
	(In millions)
Change in Interest Rates
+2%	$	(3	)	$	(34	)	$	(2	)	$	(45	)
+1%		(2	)		(13	)		(1	)		(17	)
-1%		2			(21	)		1			(18	)
-2%		3			(53	)		2			(38	)

     Parent company interest rate risk is related to our variable-rate, long-term debt and our interest rate swaps. Interest rate changes impact earnings due to the resulting increase or decrease in the cost of our variable-rate, long-term debt. The parent company interest rate sensitivity change from year-end 2006 is due to an increase in variable- rate debt. Additionally, changes in interest rates will affect the value of our interest rate swap agreements (currently $50 million notional amount) which expire in December 2008. We believe that any changes in the value of these agreements would not be significant.

44

     Our financial services segment is subject to interest rate risk to the extent interest-earning assets and interest-bearing liabilities repay or reprice at different times or in differing amounts or both. The change in our interest rate sensitivity from year-end 2006 is principally due to a reduction in our adjustable rate mortgage assets and a related decline in short-term borrowings.

Foreign Currency Risk

     In second quarter 2007, there were no significant changes in foreign currency risk from that disclosed in our Annual Report on Form 10-K for 2006.

Commodity Price Risk

     In second quarter 2007, there were no significant changes in commodity price risk from that disclosed in our Annual Report on Form 10-K for 2006, except as noted below.

     Our transformation plan includes the sale of our strategic timberlands. As a result, we will be sourcing all of our fiber requirements from the open market. Our fiber costs will be more correlated with open market fiber prices after the sale.

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures

     Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective in recording, processing, summarizing, and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act and are effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in internal control over financial reporting

     There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

     Since we filed our Annual Report on Form 10-K for 2006, there have been no material developments in pending legal proceedings, except as noted below.

     We are defending three class action claims in California state court alleging violations of that state’s on-duty meal break laws. We reached agreements to settle two of these cases that were approved by the courts in which these cases are pending in second quarter 2007. A fourth case alleging violations of these same laws has recently been filed and class certification is pending. While we continue to defend these lawsuits and have established reserves that we believe are adequate, we do not anticipate that the outcome in any or all of these cases should have a material adverse effect on our financial position or long-term results of operations or cash flows.

     On July 5, 2007, a class was certified in an action pending in Orange County, California Superior Court alleging a subsidiary violated that state’s laws related to the time in which a mortgage company is required to file a release of lien following payment of a mortgage on residential real estate. The penalty for a violation is $300 for

45

violations prior to January 1, 2001 or $500 for violations after that date. We are currently reviewing the loan files for loans we serviced to determine the extent to which such violations occurred. We exited the mortgage loan servicing business in late 2004. We have established reserves that we believe are adequate for this matter, and we do not anticipate that the outcome in this case should have a material adverse effect on our financial position or long-term results of operations or cash flows.

     We do not expect that the eventual outcome of any or all of our pending legal matters would have a significant adverse effect on our financial position, long-term results of operations, or cash flows. It is possible, however, that charges related to these matters could be significant to the results of operations or cash flows in any one accounting period.

Item 1A. Risk Factors

     There are no material changes from the risk factors as previously disclosed in our Annual Report on Form 10-K for 2006, except as set forth below:

Risks Relating to the Transformation Plan

The cost to complete the transactions contemplated by the transformation plan could be significant.

     Management estimates that costs to complete the transformation plan will be significant and could have a material adverse effect on our results of operations and cash flows.

We may be unable to complete the transactions.

     There is no guarantee that we will complete the transactions contemplated by the transformation plan. Completion of the transformation plan is subject to a number of factors and conditions, including:

• changes in business, political, and economic conditions;

• changes in governmental regulations and policies and actions of regulatory bodies;

• changes in our operating performance;

• required changes to existing financings, factors that could influence establishing the appropriate capital structure for each company, and changes in credit ratings, including those that may result from the transformation plan;

• the ability to attract a buyer for our strategic timberlands; and

• our ability to satisfy certain conditions precedent, including final approval by our Board of Directors, receipt of certain tax rulings, necessary opinions of counsel, and the filing and effectiveness of registration statements with the SEC.

Increased demands on our management team as a result of the transformation plan could distract management’s attention from operating our business.

     Management is preparing marketing materials related to the timberland sale and expects to file registration statements in connection with the spin-offs contemplated by the transformation plan during third quarter 2007. The complexity of the transactions will require a substantial amount of management and operational resources, as well as the use of several cross-functional project teams. Our business or results of operations may be adversely affected during the transition period.

Each of the independent companies resulting from the completion of the transformation plan may be unable to achieve some or all of the benefits that we expect will be achieved from the separation transactions.

     Each of the independent companies may not be able to achieve the full strategic and financial benefits we expect will result from the separation of real estate and financial services segments into independent public companies or such benefits may be delayed or may not occur at all. For example, there can be no assurance that analysts and investors will regard the corporate structures of each of the independent companies as more clear and

46

simple than our current corporate structure or place values on the independent companies that total to a value greater than our company has today.

If certain internal restructuring transactions and the distribution relating to the transformation plan are determined to be taxable for U.S. federal income tax purposes, we and our stockholders that are subject to U.S. federal income tax could incur significant U.S. federal income tax liabilities.

     We anticipate that certain internal restructuring transactions will be undertaken in preparation for the transformation plan. These transactions are complex and could cause us to incur significant tax liabilities. We anticipate requesting private letter rulings from the IRS regarding the tax-free nature of these transactions and the distributions. We have also requested or may request opinions of tax counsel confirming the favorable tax treatment of these transactions. The rulings and opinions will rely on certain facts, assumptions, representations, and undertakings, from us regarding the past and future conduct of our businesses and other matters. If any of these are incorrect or not otherwise satisfied, then we and our stockholders may not be able to rely on the rulings or opinions and could be subject to significant tax liabilities. Notwithstanding the rulings and opinions, the IRS could determine on audit that the distributions or the internal restructuring transactions should be treated as taxable transactions if it determines that any of these facts, assumptions, representations, or undertakings are not correct or have been violated, or if the distributions should become taxable for other reasons, including as a result of significant changes in stock ownership after the distribution.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

          Issuer Purchases of Equity Securities ^(a)

							Maximum
					Total Number		Number of
					of Shares		Shares That
					Purchased as		May Yet be
			Average		Part of Publicly		Purchased
	Total Number		Price		Announced		Under the
	of Shares		Paid per		Plans or		Plans
Period	Purchased		Share		Programs		or Programs
Month 1 (4/1/2007 – 4/30/2007)		—	$	—		—		6,650,000
Month 2 (5/1/2007 – 5/31/2007)		—	$	—		—		6,650,000
Month 3 (6/1/2007 – 6/30/2007)		—	$	—		—		6,650,000
Total		—	$	—		—		6,650,000

^(a) On August 4, 2006, we announced that our Board of Directors authorized the repurchase of up to 6,000,000 shares of our common stock, of which 1,650,000 remain to be purchased. On February 2, 2007, we announced that our Board of Directors authorized the purchase of up to an additional 5,000,000 shares of our common stock, increasing the maximum number of shares yet to be purchased under our repurchase plans to 6,650,000 shares. The August 4, 2006 and February 2, 2007 plans have no expiration dates. We have no plans or programs that expired during the period covered by the table above and no plans or programs that we intend to terminate prior to expiration or under which we no longer intend to make further purchases.

Item 3. Defaults Upon Senior Securities

     None.

Item 4. Submission of Matters to a Vote of Security Holders

     We held our annual meeting of stockholders on May 4, 2007, at which a quorum was present. The table below sets forth the number of votes cast for, against or withheld, as well as the number of abstentions and broker non-votes for each matter voted upon at that meeting, as certified by the independent inspector of elections.

47

					Abstentions
			Against or		and Broker
Matter	For		Withheld		Non-votes
1. Election of four directors
(a) Donald M. Carlton		90,705,399		988,161		––
(b) E. Lynn Draper, Jr.		90,442,347		1,251,213		––
(c) Kenneth M. Jastrow, II		89,835,153		1,858,407		––
(d) James A. Johnson		88,489,468		3,204,092		––
2. Amend Article III, Section 2 of our Bylaws to provide that directors will be elected by the majority vote of our stockholders.		85,702,232		5,317,609		673,719
3. Amend Article V of our Certificate of Incorporation to eliminate certain super-majority vote requirements.		89,880,810		1,007,640		805,110
4. Amend Article VI, Section 3 of our Certificate of Incorporation to provide that directors appointed to fill vacancies or newly created directorships will be subject to election at the next annual meeting.		90,762,360		225,558		705,642
5. Ratification of appointment of Ernst & Young LLP		90,332,862		682,128		678,570

Item 5. Other Information

     None.

Item 6. Exhibits

Exhibits.
2.1	–	Purchase Agreement, dated as of August 3, 2007, among TIN Inc., Campbell/Southern Parent, LLC, and the other entities named as buyers in the agreement
3.1	–	Amended and Restated Certificate of Incorporation of the Company.
3.2	–	Amended and Restated Bylaws of the Company.
31.1	–	Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	–	Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	–	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	–	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

48

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	TEMPLE-INLAND INC. (Registrant)
Dated: August 7, 2007	By /s/ Randall D. Levy
	Randall D. Levy
	Chief Financial Officer
	By /s/ Troy L. Hester
	Troy L. Hester
	Corporate Controller and      Principal Accounting Officer

49

INDEX TO EXHIBITS

Exhibit No.	Description	Page No.
2.1	Purchase Agreement, dated as of August 3, 2007, among TIN Inc., Campbell/Southern Parent, LLC, and the other entities named as buyers in the agreement		51
3.1	Amended and Restated Certificate of Incorporation of the Company		133
3.2	Amended and Restated Bylaws of the Company		151
31.1	Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002		173
31.2	Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002		175
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		177
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		178

50

EX-2.1

EXHIBIT 2.1

PURCHASE AGREEMENT

DATED AS OF AUGUST 3, 2007

AMONG

TIN INC.,

CAMPBELL/SOUTHERN PARENT, LLC,

AND

THE OTHER BUYING PARTIES LISTED ON SCHEDULE A

Table of Contents

		Page
ARTICLE I SALE AND PURCHASE TRANSACTIONS			1
Section 1.1	Sale and Purchase of Cash Assets		1
Section 1.2	Transfer of Timber LLC Assets		2
Section 1.3	Transfer of Cash Assets to Buyer Affiliate		3
Section 1.4	Timber LLC Interests		3
Section 1.5	Excluded Assets		3
Section 1.6	Permitted Exceptions		4
Section 1.7	Assumed Liabilities; Excluded Liabilities.		6
ARTICLE II PURCHASE PRICE; PAYMENT			8
Section 2.1	Purchase Price		8
Section 2.2	Allocation of Purchase Price		8
Section 2.3	Purchase Price Adjustments		9
Section 2.4	Apportionments		16
Section 2.5	Payment of Closing Purchase Price		16
ARTICLE III CLOSING			17
Section 3.1	Closing		17
Section 3.2	Closing Deliveries		17
Section 3.3	Possession		20
Section 3.4	Costs and Expenses		20
ARTICLE IV ACKNOWLEDGEMENTS BY THE BUYING PARTIES			21
Section 4.1	Disclaimer of Certain Representations		21
Section 4.2	General Disclaimers		21
Section 4.3	Waiver and Release		22
Section 4.4	No Reliance		22
ARTICLE V REPRESENTATIONS AND WARRANTIES OF SELLER AS TO STATUS			22
Section 5.1	Organization		23
Section 5.2	Qualification		23
Section 5.3	Authority		23
Section 5.4	No Violation		23
Section 5.5	Governmental Consents and Approvals		24
Section 5.6	Litigation		24
Section 5.7	Taxes		24
Section 5.8	Contracts		25
Section 5.9	Continuing Agreements		25

(i)

Table of Contents

		Page
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF SELLER RELATED TO THE TIMBERLANDS			25
Section 6.1	Timber LLCs		25
Section 6.2	Compliance with Laws		26
Section 6.3	Condemnations		26
Section 6.4	Timberland Leases, Licenses and Real Property Leases		26
Section 6.5	Matters Relating to the Environmental Condition of the Timberlands		26
ARTICLE VII REPRESENTATIONS AND WARRANTIES OF SELLER RELATED TO THE OTHER PURCHASED ASSETS			27
Section 7.1	Collective Bargaining Agreements		27
Section 7.2	Labor Matters		27
Section 7.3	Ownership of Purchased Personal Assets		27
Section 7.4	Employee Benefit Plans		27
ARTICLE VIII REPRESENTATIONS AND WARRANTIES OF PARENT			28
Section 8.1	Organization		28
Section 8.2	Qualification		28
Section 8.3	Authority		28
Section 8.4	No Violation		28
Section 8.5	Governmental Consents and Approvals		29
Section 8.6	Litigation		29
Section 8.7	Investment Purpose		30
Section 8.8	Tax Matters		30
Section 8.9	Financing		30
ARTICLE IX ADDITIONAL AGREEMENTS RELATING TO THE PURCHASED ASSETS GENERALLY			31
Section 9.1	Commercially Reasonable Efforts		31
Section 9.2	Maintenance of Business		32
Section 9.3	Public Announcements		32
Section 9.4	Books and Records		33
Section 9.5	Dispute Resolution		34
Section 9.6	Required Consents		35
Section 9.7	Continuing Agreements		36
Section 9.8	Formation of Timber LLCs		36
ARTICLE X ADDITIONAL AGREEMENTS RELATING TO THE TIMBERLANDS			36
Section 10.1	Right of Entry		36
Section 10.2	Permits and Licenses		37

(ii)

Table of Contents

		Page
Section 10.3	Environmental Matters		37
Section 10.4	Conservation Matters		37
Section 10.5	Certain Employee Hunting Leases		38
Section 10.6	Reserved Rights and Interests		38
Section 10.7	Certain Easements		39
Section 10.8	Title Insurance Matters		40
Section 10.9	Transfer of Timber LLC Assets		40
Section 10.10	No Transfers		41
Section 10.11	Tax Matters		41
Section 10.12	Note Document Assistance		42
Section 10.13	Financing		42
ARTICLE XI HUMAN RESOURCES MATTERS			44
Section 11.1	Anti-Solicitation		44
Section 11.2	Transferred Employees		44
Section 11.3	Severance Matters		44
Section 11.4	Benefit Plans		45
Section 11.5	Savings Plan Rollover		45
Section 11.6	Accrued Vacation		46
Section 11.7	Certain Benefits and Claims		46
ARTICLE XII CONDITIONS PRECEDENT			46
Section 12.1	Conditions to Obligations of Each Party to Close		46
Section 12.2	Conditions to Obligations of the Buying Parties to Close		47
Section 12.3	Conditions to Obligations of Seller		47
ARTICLE XIII SURVIVAL; INDEMNIFICATION			48
Section 13.1	Survival		48
Section 13.2	Seller’s Obligation to Indemnify for Excluded Liabilities		48
Section 13.3	Parent’s Obligation to Indemnify for Assumed Liabilities		49
Section 13.4	Indemnification for Breaches of Representations and Warranties		49
Section 13.5	Procedures for Claims and Satisfaction		50
Section 13.6	Certain Rules		52
Section 13.7	Exclusive Remedy		53
ARTICLE XIV TERMINATION AND ABANDONMENT			53
Section 14.1	Termination		53
Section 14.2	Effect of Termination		54
ARTICLE XV GENERAL PROVISIONS			55
Section 15.1	Notice		55
Section 15.2	Legal Holidays		56

(iii)

Table of Contents

		Page
Section 15.3	Further Assurances		56
Section 15.4	Assignment; Binding Effect		56
Section 15.5	Entire Agreement		56
Section 15.6	Amendment; Waiver		56
Section 15.7	Confidentiality		57
Section 15.8	No Third Party Beneficiaries		57
Section 15.9	Severability of Provisions		57
Section 15.10	Governing Law		57
Section 15.11	Counterparts		58
Section 15.12	Captions		58
Section 15.13	Construction		58
Section 15.14	Reimbursement of Legal Fees		58
Section 15.15	Specific Performance		59
ARTICLE XVI DEFINITIONS			59

(iv)

SCHEDULES AND EXHIBITS

Schedule A	Other Buying Parties
Schedule B	Timber LLCs and Timber LLC Interests
Schedule C-1	Determination of Estimated Timber Adjustment Value
Schedule C-2	Determination of Net Timber Adjustment Value
Schedule D	Seller’s Knowledge
Exhibit A-1	Form of Parent Instrument of Assumption
Exhibit A-2	Form of Timber LLC Instrument of Assumption
Exhibit B	Adjustment Values
Exhibit C	Form of Timber Note
Exhibit D-1	Form of General Assignment and Assumption of Leases
Exhibit D-2	Form of General Timber LLC Assignment and Assumption
Exhibit D-3	Form of General Buyer Affiliate Assignment and Assumption
Exhibit D-4	Form of Assignment and Assumption of Timberland Lease
Exhibit D-5	Form of Assignment and Assumption of Real Property Leases
Exhibit E-1	Form of Statutory Warranty Deed (Alabama)
Exhibit E-2	Form of Limited Warranty Deed (Georgia)
Exhibit E-3	Form of Special Warranty Act of Sale (Louisiana)
Exhibit E-4	Form of Special Warranty Deed (Texas)
Exhibit F	Form of Bill of Sale
Exhibit G-1	Form of Pulpwood Supply Agreement
Exhibit G-2	Form of Sawtimber Supply Agreement
Exhibit G-3	Form of Eastern Forest FSA
Exhibit G-4	Form of Pulpwood Support Agreement
Exhibit G-5	Form of Sawtimber Support Agreement

(v)

SCHEDULES AND EXHIBITS

Exhibit H	Form of Title Affidavits
Exhibit I	Form of Assignment of Timber LLC Interests
Exhibit J	[Intentionally Omitted]
Exhibit K	[Intentionally Omitted]
Exhibit L	Form of Buyer Amended and Restated Limited Liability Company Agreement
Exhibit M	2007 Harvest Plan
Exhibit N	[Intentionally Omitted]
Exhibit O	Timber Note Indicative Terms

(vi)

PURCHASE AGREEMENT

     This PURCHASE AGREEMENT, dated as of August 3, 2007 (this “Agreement”), is among TIN INC., a Delaware corporation (“Seller”), Campbell/Southern Parent, LLC, a Delaware limited liability company (“Parent”), and the entities listed on Schedule A under the headings “Buyers” (individually, a “Buyer” and collectively, the “Buyers”), and “Buyer Affiliate” (“Buyer Affiliate” and collectively with the Buyers, the “Other Buying Parties”). Unless otherwise defined herein, capitalized terms shall have the meanings set forth in Article XVI.

RECITALS

     WHEREAS, Seller is the owner or lessee of certain real property that it wishes to sell, assign, transfer or convey, together with certain other assets, inventory and rights under certain continuing leases, contracts and other agreements, to Buyers and Buyer Affiliate in accordance with the terms and subject to the conditions set forth in this Agreement;

     WHEREAS, each of the Buyers and Buyer Affiliate wishes to acquire and accept the Purchased Assets being transferred to it in accordance with the terms and subject to the conditions set forth in this Agreement; and

     WHEREAS, as a material inducement to Seller to sell the Purchased Assets, each of the Buyers and Buyer Affiliate has agreed to pay its share of the Purchase Price to Seller and Parent has agreed to assume the Assumed Liabilities relating to the Purchased Assets being transferred to it or Buyer Affiliate and Seller has agreed to cause each of the Timber LLCs to assume the Timber LLC Assumed Liabilities in respect of the Timber LLC Assets being transferred to it.

     NOW, THEREFORE, in consideration of the foregoing and their respective representations, warranties, covenants and agreements set forth in this Agreement, and intending to be legally bound hereby, the Parties agree as follows:

ARTICLE I
SALE AND PURCHASE TRANSACTIONS

     Section 1.1 Sale and Purchase of Cash Assets. Upon the terms and subject to the conditions set forth in this Agreement, Seller hereby agrees to sell, assign, transfer and convey to Parent, and Parent hereby agrees to purchase, acquire and accept from Seller, all the right, title and interest of Seller in and to the following assets (collectively, the “Cash Assets”), except to the extent transferred pursuant to Section 1.3: (i) the machinery, equipment, motor vehicles, appliances, tools, supplies, furnishings, computer and information technology hardware, software and data, personal property nursery assets and other property, owned by Seller at the Effective Time and listed or described in Section 1.1(1) of Seller’s Disclosure Letter (collectively, the assets described above, the “Purchased Personal Assets”); (ii) the rights of Seller with respect to seeds and seedlings located on the Timberlands and (iii) the rights of Seller with respect to any lease in effect at the Effective Time under which Seller is the lessee that relates to any machinery, equipment, motor vehicles, appliances, tools, supplies, furnishings, and other tangible personal property that are used exclusively by Seller in connection with the forest

operations conducted on the Timberlands, including those leases described in Section 1.1(2) of Seller’s Disclosure Letter (collectively, the leases described above, the “Personal Property Leases”).

     Section 1.2 Transfer of Timber LLC Assets. Upon the terms and subject to the conditions set forth in this Agreement, immediately prior to the Closing Seller hereby agrees to assign, transfer and convey to the applicable Timber LLC all the rights, title and interest of Seller in and to the following assets (collectively, the “Timber LLC Assets”):

          (a) Owned Timberlands. The real property held by Seller in fee simple described in Section 1.2(a)(1) of Seller’s Disclosure Letter, together with (i) all buildings thereon, (ii) all timber growing, standing or lying (including timber loaded on vehicles but not yet weighed) thereon, (iii) all roads, bridges and other improvements and fixtures thereon, (iv) all vegetation of any kind located thereon, and (v) all other privileges, appurtenances, easements (including the Buyer Easements in respect thereof), carbon sequestration rights (subject to the Fiber Supply Agreements), and other rights (including rights to groundwater) appertaining thereto, including Water Rights (the “Owned Timberlands”), subject to the Permitted Exceptions; provided, however, that Seller reserves for itself and its successors and assigns (w) the easements with respect to the Owned Timberlands described in Section 1.2(a)(2) of Seller’s Disclosure Letter, (x) all of the Reserved Mineral Interests and Rights, (y) the Reserved Water Rights and (z) the Reserved Groundwater Nonparticipating Royalty Interest.

          (b) Leasehold Interests. The rights of Seller as lessee, sublessee and licensee with respect to the leases, subleases and licenses described in Section 1.2(b) of Seller’s Disclosure Letter that are in effect at the Effective Time (collectively, the “Timberland Leases”), which relate to the use, operations, possession and/or occupancy of certain real property, including all purchase options, prepaid rents and security deposits relating thereto, together with , Seller’s rights, title and interest, if any, in (i) all buildings thereon, (ii) all timber growing, standing or lying (including timber loaded on vehicles but not yet weighed) thereon, (iii) all roads, bridges and other improvements and fixtures thereon, (iv) all seeds and seedlings located thereon, subject to the Permitted Exceptions (collectively, the rights, interests and improvements described above, the “Leasehold Interests”).

          (c) Licenses. To the extent transferable under applicable Law, the rights of Seller under the licenses, permits, authorizations, orders, registrations, certificates, variances, approvals, franchises and consents of Governmental Authorities or other Persons that are in effect at the Effective Time and (i) are held or were obtained by Seller primarily in connection with the Timber LLC Assets or (ii) are described in Section 1.2(c) of Seller’s Disclosure Letter (collectively, the rights described above, the “Licenses”).

          (d) Purchased Contracts. The rights of Seller under the Contracts in effect at the Effective Time that (i) exclusively relate to all or any portion of the Timberlands or the forest operations conducted on such Timberlands, or (ii) are described in Section 1.2(d) of Seller’s Disclosure Letter, but excluding the rights of Seller under any Ancillary Agreement, Timberland Lease, Real Property Lease or Personal Property Lease, (collectively, the rights described above, the “Purchased Contracts”).

-2-

          (e) Real Property Leases. The rights of Seller with respect to the leases in effect at the Effective Time (i) that relate to all or any portion of the Timberlands to which Seller is a lessor and are described in Section 1.2(e)(1) of Seller’s Disclosure Letter, including any lease under which Seller has granted to a third party hunting or other recreational rights with respect to the Timberlands (or, with respect to any hunting lease in respect of the Timberlands listed on Section 1.2(e)(2) of Seller’s Disclosure Letter that expires prior to the Closing Date, any new hunting lease entered into with the same Person prior to the Closing Date on substantially the same terms as the applicable prior lease) or (ii) under which Seller is a lessee of facilities related to the forest operations on the Timberlands (collectively, the leases described above, the “Real Property Leases”).

          (f) Purchased Condemnations. The interests of Seller in any Condemnation that exists on the date hereof or that arises between the date of this Agreement and the Closing Date, including the Condemnations listed in Section 1.2(f) of Seller’s Disclosure Letter (or if resolved prior to the Closing, the proceeds actually received therefrom, net of all costs incurred by Seller to recover such proceeds), but only to the extent attributable to the Timberlands (collectively, the Condemnations described above, the “Purchased Condemnations”).

     Section 1.3 Transfer of Cash Assets to Buyer Affiliate. Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, Seller hereby agrees to assign, transfer and convey to Buyer Affiliate, and Buyer Affiliate hereby agrees to purchase, acquire and accept from Seller, all the rights, title and interests of Seller in and to the Cash Assets (if any) which otherwise would be conveyed to Parent pursuant to Section 1.1 hereof and which Parent, after consultation with Seller, identifies in writing to Seller no later than 15 days prior to the Closing (collectively, the “Buyer Affiliate Assets”).

     Section 1.4 Timber LLC Interests. Upon the terms and subject to the conditions set forth in this Agreement, Seller hereby agrees to assign and transfer and convey to the applicable Buyer or Buyers, as identified in Schedule B, and each such Buyer hereby agrees to purchase, acquire and accept from Seller, all of the membership interests outstanding as of the Closing Date in the Timber LLC or Timber LLCs identified in Schedule B as being sold to such Buyer (collectively, the “Timber LLC Interests”).

     Section 1.5 Excluded Assets. Notwithstanding anything in this Agreement to the contrary, the following assets of Seller shall be excluded from and shall not constitute any part of the Purchased Assets (collectively, the “Excluded Assets”):

          (a) the Contracts described in Section 1.5(a) of Seller’s Disclosure Letter;

          (b) the Reserved Mineral Interests and Rights;

          (c) the Continuing Agreements;

          (d) all accounts receivable in respect of sales of timber removed from the Timberlands prior to the Closing;

          (e) the assets described on Section 1.5(e) of Seller’s Disclosure Letter;

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          (f) the Reserved Water Rights; and

          (g) the Reserved Groundwater Nonparticipating Royalty Interest.

     Section 1.6 Permitted Exceptions. The Purchased Assets shall be sold, transferred, assigned and conveyed to the applicable Buying Party subject to the following matters (collectively, the “Permitted Exceptions”):

          (a) Restrictions on the ability of such Buying Party to build upon, or use for any purpose other than growing or harvesting timber, the Purchased Assets imposed by any current or future development standards of any Governmental Authority, building or zoning ordinances or any other Law;

          (b) To the extent a tract included in the Timberlands is bounded or traversed by a river, stream, branch or lake:

               (i) the rights of upper and lower riparian owners and the rights of others to navigate such river or stream;

               (ii) the right, if any, of neighboring riparian owners and the public or others to use any public waters, and the right, if any, of the public to use the beaches or shores for recreational purposes;

               (iii) any claim of lack of title to the Timberlands formerly or presently comprising the shores or bottomland of navigable waters or as a result of the change in the boundary due to accretion or avulsion; and

               (iv) any portion of the Timberlands which is sovereignty lands or any other land that may lie within the bounds of navigable rivers as established by Law;

          (c) To the extent any portion of the Timberlands is bounded or traversed by a public road or maintained right of way, the rights of others (whether owned in fee or by easement), in and to any portion of the Timberlands that lies within such road or maintained right of way;

          (d) Railroad tracks and related facilities, if any (whether owned in fee or by easement), and related railroad easements or rights of way, if any, traversing the Timberlands and the rights of railroad companies to any tracks, siding, ties and rails associated therewith;

          (e) Any restriction on the use of the Purchased Assets due to Environmental Laws, conservation easements of record or identified in Section 1.6(e) of Seller’s Disclosure Letter or the Habitat Conservation Plans;

          (f) Subject to the apportionment provisions of Section 2.4, all ad valorem property or other Taxes (other than Income Taxes) not yet due and payable in respect of the Purchased Assets for the Tax period during which the Closing occurs and all subsequent Tax periods, and all other assessments and other charges of any kind or nature imposed upon or levied against or on account of the Purchased Assets by any Governmental Authority, including

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any additional or supplemental Taxes that may result from a reassessment of the Timberlands, and any potential roll-back or greenbelt type Taxes related to any agricultural, forest or open space exemption that is subject to recapture pursuant to applicable Law;

          (g) Liens for Taxes not yet due and payable;

          (h) Easements, discrepancies or conflicts in boundary lines, shortages in area, vacancies, excesses, encroachments or any other facts that a current and accurate survey of the Timberlands would disclose;

          (i) All oil, gas and other minerals or other substances of any kind or character as may have been previously reserved by or conveyed to others and any leases concerning any of such oil, gas, other minerals or other substances in, on or under the Timberlands;

          (j) Rights, if any, relating to the construction and maintenance in connection with any public utility of wires, poles, pipes, conduits and appurtenances thereto, on, under, above or across the Timberlands;

          (k) Any matter affecting title to the Purchased Assets disclosed in any Completed Title Commitment or Partially Completed Title Commitment that is not objected to by Parent pursuant to Section 2.3(b) and any Parent Title Objection that Seller has elected or is deemed to have elected not to cure pursuant to Section 2.3(b);

          (l) The Reserved Easements granted to or reserved by Seller pursuant to any provision of this Agreement;

          (m) Rights of others under any of the Purchased Contracts, the Timberland Leases, the Real Property Leases or the Personal Property Leases;

          (n) All matters disclosed in Seller’s Disclosure Letter;

          (o) Rights of parties in possession of the Timberlands pursuant to the Real Property Leases or as identified in Section 1.6(o) of Seller’s Disclosure Letter;

          (p) The terms and provisions of the Master Stumpage Agreement and the Fiber Supply Agreements;

          (q) Any claim of lack of access rights to any portion of the Timberlands where (i) permission to access has been granted in writing or (ii) Seller has otherwise historically enjoyed access;

          (r) Any Condemnation in respect of the Timberlands, subject to Section 12.1(d);

          (s) With respect to any Leasehold Interest, the covenants, obligations, restrictions and other terms set forth in the applicable Timberland Lease;

          (t) Restrictions and obligations pursuant to the Continuing Agreements;

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          (u) The matters disclosed in Section 1.6(u) of the Seller’s Disclosure Letter; and

          (v) Any easement, covenant, use restriction, zoning restriction, boundary line dispute or encroachment not described in items (a) through (t) above and which, individually or in the aggregate, would not have a material adverse effect on the value, use, operations, possession or enjoyment by the Buying Parties of the Purchased Assets for growing and harvesting timber.

     Section 1.7 Assumed Liabilities; Excluded Liabilities.

          (a) Assumed Liabilities. At the Closing, each of Parent and Buyer Affiliate shall deliver to Seller an instrument of assumption substantially in the form of Exhibit A-1 (the “Parent Instrument of Assumption”) pursuant to which Parent and Buyer Affiliate will undertake, assume and agree to perform, pay, become liable for and discharge when due, and hold Seller and its directors, officers, employees, Affiliates, controlling persons, agents and representatives, and their respective successors and assigns harmless from, any and all liabilities and obligations, whether accrued or unaccrued, absolute or contingent, known or unknown, asserted or unasserted, (i) relating to periods after the Effective Time under the Purchased Contracts included in the Cash Assets or Buyer Affiliate Assets and the Personal Property Leases, (ii) with respect to accounts payable incurred prior to the Effective Time in the ordinary course of business and resulting from or related to the Cash Assets or Buyer Affiliate Assets, but not to the extent that such accounts payable, together with the accounts payable described in Section 1.7(b)(ii), exceed $500,000, and (iii) otherwise arising from and after the Effective Time and resulting from or related to the Cash Assets or Buyer Affiliate Assets or any Contract to the extent related to the Cash Assets or Buyer Affiliate Assets (excluding any and all liabilities and obligations of Buyers), other than the Excluded Liabilities (collectively, the “Assumed Liabilities”).

          (b) Timber LLC Assumed Liabilities. Immediately prior to the Closing, Seller shall cause each Timber LLC to deliver to Seller an instrument of assumption, substantially in the form of Exhibit A-2 (the “Timber LLC Instrument of Assumption”), pursuant to which such Timber LLC will undertake, assume and agree to perform, pay, become liable for and discharge when due, and hold Seller and its directors, officers, employees, Affiliates, controlling persons, agents and representatives, and their respective successors and assigns harmless from, any and all liabilities and obligations, whether accrued or unaccrued, absolute or contingent, known or unknown, asserted or unasserted, (i) relating to periods after the Effective Time under the Timberland Leases, the Real Property Leases, the Purchased Contracts and the Purchased Condemnations, (ii) with respect to accounts payable incurred prior to the Effective Time in the ordinary course of business and resulting from or related to the Timber LLC Assets, but not to the extent that such accounts payable, together with the accounts payable described in Section 1.7(a)(ii), exceed $500,000, (iii) otherwise arising from and after the Effective Time and resulting from or related to the Timber LLC Assets conveyed to it or any Contract to the extent related to such Timber LLC Assets, other than the Excluded Liabilities (collectively, the “Timber LLC Assumed Liabilities”).

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          (c) Excluded Liabilities. Notwithstanding anything in this Agreement to the contrary, no Buying Party shall assume, and Seller shall be liable with respect to, and shall pay, perform or discharge when due, the following liabilities and obligations: (i) Tax liabilities related to the Purchased Assets (including the Timber LLC Assets) in respect of a Pre-Closing Tax Period (other than (A) any property Taxes and other non-Income Taxes and assessments in respect of the Purchased Assets for the Tax period in which the Closing occurs, which are governed under Section 2.4, and (B) Transfer Taxes, which are governed under Section 3.4), (ii) the litigation matters described on Section 1.7(c) of the Seller’s Disclosure Letter or any other cause of action accrued as of the Effective Time, except (A) those litigation matters described in Section 5.6 of the Seller’s Disclosure Letter and not identified in such Section as Excluded Liabilities and (B) any other litigation matter the subject matter of which is the Timberlands (including boundary disputes and actions in respect of title, trespass and easement matters), (iii) liabilities and obligations directly related to the Excluded Assets, (iv) Seller’s continuing liabilities and obligations under this Agreement and the Ancillary Agreements, (v) any accounting, transactional or other expenses relating to the negotiation and consummation of the transactions contemplated in this Agreement by or on behalf of Seller, (vi) any third-party claim (or series of related claims based on the same or similar facts) with respect to events occurring prior to the Effective Time for which the amount in controversy exceeds $1,500,000, (vii) any Purchased Contract or Personal Property Lease required to be disclosed in Section 5.8 of the Seller’s Disclosure Letter but not disclosed therein, except to the extent that any Buying Party after the Effective Time accepts performance under any such Purchased Contract or uses the personal property subject to any such Personal Property Lease, and (viii) except as expressly assumed by any Buying Party pursuant to Article XI, any claim (A) made by any employee or former employee (including any Transferred Employee) relating to or arising out of his employment by Seller or (B) arising under any Plan (collectively, the “Excluded Liabilities”).

          (d) Certain Environmental Matters. Notwithstanding anything to the contrary contained in this Agreement, the only liability or obligation that Seller shall have to the Buying Parties, their respective directors, officers, managers, employees, Affiliates or controlling Persons, and their respective successors and assigns, with respect to any Adverse Environmental Condition, Environmental Matter relating to the Purchased Assets or violation of Environmental Law arising or existing at or prior to the Effective Time, including any third party claims or governmental actions against the Buying Parties, their respective directors, officers, managers, employees, Affiliates or controlling Persons, and their respective successors and assigns, shall be pursuant to Section 13.4 for the breach of any representation or warranty made by Seller in Section 6.5, subject to the provisions of Sections 13.1, 13.5, 13.6 and 13.7. For the avoidance of doubt, Seller shall not have any liability or obligation to the Buying Parties, their respective directors, officers, managers, employees, Affiliates or controlling Persons, and their respective successors and assigns, for any such Adverse Environmental Condition, Environmental Matter or violation of Environmental Law pursuant to Section 13.2 as an Excluded Liability. Notwithstanding anything to the contrary contained in this Agreement, in no event shall any of the Buying Parties, their Affiliates, successors or assigns, have any liability or obligation to Seller, its directors, officers, employees, Affiliates or controlling Persons, and their respective successors and assigns, with respect to any Adverse Environmental Condition, Environmental Matter relating to the Purchased Assets or violation of Environmental Law arising or existing at or prior to the Effective Time, including any third party claims or governmental actions against Seller, its directors, officers, employees, Affiliates or controlling Persons, and their respective

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successors and assigns. For purposes of this Agreement, any such Adverse Environmental Condition, Environmental Matter or violation of Environmental Law shall not be an Assumed Liability, a Timber LLC Assumed Liability or an Excluded Liability.

ARTICLE II
PURCHASE PRICE; PAYMENT

     Section 2.1 Purchase Price. The aggregate purchase price payable by the Buying Parties to Seller in consideration for the Purchased Assets shall be US$2,380,000,000 (the “Pre-Adjustment Purchase Price”), subject to adjustment as provided in Sections 2.3 and 2.4 (as so adjusted, the “Purchase Price”). The Purchase Price shall be payable as provided in Section 2.5.

     Section 2.2 Allocation of Purchase Price.

          (a) Pre-Adjustment Purchase Price Allocation. The Pre-Adjustment Purchase Price shall be tentatively allocated as follows: (i) approximately 99% of the Pre-Adjustment Purchase Price shall be tentatively allocated to the Installment Note Purchase Price, subject to adjustment as provided in this Section 2.2(a); and (ii) the balance of the Pre-Adjustment Purchase Price shall be allocated to the Cash Purchase Price. Not later than 10 days prior to the Closing Date, Seller shall determine and deliver to Parent, subject to Parent’s consent (which consent shall not be unreasonably withheld, conditioned or delayed), the actual amount of the Installment Note Purchase Price to be paid by each Buyer and the Cash Purchase Price to be paid by each of the Buying Parties to Seller at the Closing. The initial allocation described in this Section 2.2(a) shall be further adjusted in accordance with the Purchase Price adjustment provisions set forth in Sections 2.3 and 2.4.

          (b) Adjusted Purchase Price Allocation. No later than ten (10) days prior to the Closing, Seller shall determine, prepare and submit to Parent proposed schedules of the following, subject to Parent’s consent (which consent shall not be unreasonably withheld, conditioned or delayed): (i) the allocation of the Installment Note Purchase Price (together with any Timber LLC Assumed Liabilities that are considered liabilities for Income Tax purposes and that directly relate to the Timberlands) among the Timberlands (the “Installment Note Purchase Price Allocation”) and (ii) the allocation of the Cash Purchase Price (together with any Assumed Liabilities that are considered liabilities for Income Tax purposes and that are directly related to the Cash Assets) among the Cash Assets (the “Cash Purchase Price Allocation” and, together with the Installment Note Purchase Price Allocation, the “Purchase Price Allocation”). The Installment Note Purchase Price (together with any Timber LLC Assumed Liabilities that are considered liabilities for Income Tax purposes and that are directly related to the Timberlands) shall be allocated in its entirety to the Timberlands. The portion of the Installment Note Purchase Price that equals the sum of (i) the fair market value of all timber growing or standing on the Owned Timberlands and (ii) the fair market value of the Leasehold Interests directly related to the timber growing or standing on the real property subject to the Timberland Leases (collectively, the “Timber Price”) shall be allocated in its entirety to the timber growing or standing on the Owned Timberlands and such Leasehold Interests, and the balance of the Installment Note Purchase Price (the “Land Price”) shall be allocated in its entirety to the other assets comprising the Timberlands. Any Cash Assets used or held for use by Seller in connection with the ownership and operation of the Timberlands (including any Timber LLC

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Assets that do not constitute Timberlands and any Buyer Affiliate Assets) or any Assumed Liabilities (other than any Timber LLC Assumed Liabilities that are directly related to the Timberlands) shall be allocated as a part of the Cash Purchase Price Allocation. The Purchase Price Allocation shall be made in accordance with Section 1060 of the Code and applicable Treasury Regulations. It is the intention of the Parties that (x) the Installment Note Purchase Price will be paid solely as consideration for the sale of the Timberlands, (y) the Timber Price will be paid solely as consideration for the timber growing or standing on the Owned Timberlands and the Leasehold Interests insofar as they relate to timber growing or standing on the real property subject to the Timberland Leases, and (z) the Land Price will be paid solely as consideration for assets comprising the Timberlands not described in clause (y); provided, however, that certain post-Closing adjustments to the Purchase Price made in the form of cash may be allocated in part to the Timberlands. Seller shall adjust the Purchase Price Allocation from time to time to reflect any adjustment made pursuant to Sections 2.3 and 2.4 and Article XIII, subject to Parent’s consent (which shall not be unreasonably withheld, conditioned or delayed).

          (c) Binding Effect. Except to the extent such action or inaction would cause any Person to be in violation of the final determination of any Tax Authority, each of the Parties shall: (i) be bound by the Purchase Price Allocation for purposes of determining any Taxes; (ii) prepare and file, and cause their Affiliates to prepare and file, their Tax Returns on a basis consistent with the Purchase Price Allocation; and (iii) take no position, and cause their Affiliates to take no position, inconsistent with the Purchase Price Allocation on any applicable Tax Return or in any proceeding before any Tax Authority or otherwise. In the event that the Purchase Price Allocation is disputed by any Tax Authority, the Party receiving notice of the dispute shall promptly notify the other Parties concerning the dispute and shall consult with the other Parties concerning the resolution of the dispute and each Party shall cooperate in good faith in responding to such challenge in order to preserve the effectiveness of the allocations determined pursuant to this Section 2.2. Each Party shall cooperate in the preparation and timely filing of Form 8594 and any comparable state or local forms or reports and, to the extent permissible by or required by Law, any correction, amendment or supplement (or additional forms or reports) thereto (including any supplement, amendment, form or report arising as a result of any adjustment to the Purchase Price pursuant to Sections 2.3 and 2.4 and Article XIII).

     Section 2.3 Purchase Price Adjustments. The Pre-Adjustment Purchase Price or the Closing Purchase Price, as applicable, shall be subject to the following adjustments:

          (a) Timber Harvest Adjustment.

          (i) Pre-Closing Timber Harvest Adjustment. Not later than 15, but in no case more than 30, days prior to the Closing Date, Seller shall provide to Parent a harvest report (the “Estimated Harvest Report”) certifying the volume, by Merchantable Timber Category, of merchantable timber that has been or is reasonably expected to be removed from the Timberlands (the “Estimated Harvest Amount”) during the period from January 1, 2007 through the Effective Time (the “Timber Adjustment Period”), together with such supporting data as Parent may reasonably request. The Installment Note Purchase Price and the Timber Price shall be adjusted upward or downward (in the form of an increase or a reduction of the aggregate principal amount of the Timber Notes), as

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the case may be, by an amount equal to the Estimated Timber Adjustment Value, as determined in accordance with the provisions of Schedule C-1, as follows: (A) if the Estimated Timber Adjustment Value is less than zero, the Closing Purchase Price shall be determined by deducting the absolute value of such amount from the Pre-Adjustment Purchase Price; or (B) if the Estimated Timber Adjustment Value is greater than zero, the Closing Purchase Price shall be determined by adding such amount to the Pre-Adjustment Purchase Price.

          (ii) Post-Closing Timber Harvest Adjustment.

          (A) Within 60 days after the Closing Date, Seller shall provide to Parent a harvest report (the “Actual Harvest Report”) certifying the volume, by Merchantable Timber Category, of merchantable timber that was actually removed from the Timberlands during the Timber Adjustment Period (the “Actual Harvest Amount”), together with such supporting data as Parent may reasonably request. Parent shall have 60 days from the receipt of the Actual Harvest Report to deliver to Seller written notice (an “Objection Notice”) of any objection to the calculation of any portion of such Actual Harvest Amount, which Objection Notice shall request commencement of the procedure set forth in Section 2.3(a)(ii)(B). If Seller does not receive an Objection Notice prior to the expiration of such 60-day period, Parent shall have been deemed to have waived its right to object to Seller’s calculation of any portion of the Actual Harvest Amount.

          (B) Within 15 days of receipt of an Objection Notice, Seller shall appoint a Forestry Consultant to act as a consultant with respect to the calculation of the Actual Harvest Amount. During the period following receipt of such Objection Notice, Seller and Parent shall negotiate in good faith to reach agreement on the Actual Harvest Amount. If Seller and Parent agree on the calculation of such amount, then such amount shall become final and binding on the Parties. If Seller and Parent are unable to agree on any of the disputed calculations within 30 days after receipt of the Objection Notice, the parties shall refer outstanding matters relating to the calculation of the Actual Harvest Amount to the Forestry Consultant and each Party will, at a mutually agreed time within three days after referral of the matter to the Forestry Consultant simultaneously submit to the Forestry Consultant their respective calculations of the disputed portions of the Actual Harvest Amount and any necessary supporting documentation. Within 30 days of such submissions, the Forestry Consultant will select one of the two submissions (and shall not select any other amount) as being most representative of the disputed portion of the Actual Harvest Amount, and the submission so selected shall be final and binding on the Parties. The costs and expenses of the Forestry Consultant in connection with the dispute resolution procedure set forth herein shall be paid by the non-prevailing Party.

          (C) Upon a final determination of the Actual Harvest Amount, the Closing Purchase Price shall be adjusted pursuant to this Section 2.3(a)(ii)(C). If the Net Timber Adjustment Value, as determined in accordance with the provisions of Schedule C-2, is less than zero, the Purchase Price shall be

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determined by deducting the absolute value of such amount from the Closing Purchase Price, and Seller shall pay the absolute value of such adjustment in cash by wire transfer of immediately available funds to the bank account designated by Parent. If the Net Timber Adjustment Value, as determined in accordance with the provisions of Schedule C-2, is greater than zero, the Purchase Price shall be determined by adding such amount to the Closing Purchase Price, and Parent shall pay the amount of such adjustment in cash by wire transfer of immediately available funds to the bank account or accounts designated by Seller.

          (b) Parent Title Objections.

          (i) Parent shall have until (x) in the case of any Completed Title Commitment made available to Parent on or prior to the date of this Agreement, the thirtieth day after the date of this Agreement, (y) the thirtieth day after the date a Completed Title Commitment is made available to Parent in the case of any Title Commitment made available to Parent after the date of this Agreement, or (z) in the case of any Partially Completed Title Commitment, the later of the thirtieth day after the date such Partially Completed Title Commitment is made available to Parent or the fifth business day after the legal description omitted from such Partially Completed Title Commitment is made available to Parent (in each case, the “Title Objection Period”) to deliver to Seller written notice of any objection to matters reflected in such Completed Title Commitment or Partially Completed Title Commitment, which, in Parent’s reasonable judgment, would materially adversely affect the value, use, operations, possession or enjoyment by Parent of any parcel or portion of the Owned Timberlands or Leasehold Interests for growing and harvesting timber; provided, however, that in the case of a Partially Completed Title Commitment described in clause (z) Parent may not object to any matter after the thirtieth day after the date such Partially Completed Title Commitment is made available to Parent other than a matter directly relating to the legal description (each, a “Parent Title Objection” and collectively, the “Parent Title Objections”). Notwithstanding the foregoing, Parent shall have no right to object to the following items pursuant to this Section 2.3(b) and, for the purposes of this Agreement, such items will not be considered Parent Title Objections: (A) any Permitted Exception; and (B) any title matter that otherwise would have constituted a Parent Title Objection unless and until such title matters in the aggregate affect 1% or more of the total acreage of the Owned Timberlands and the Leasehold Interests (the “Title Basket Amount”) and, in such case, such title matters to the extent they affect more than 1% of the total acreage shall be Parent Title Objections; provided, however, that (1) the Title Basket Amount shall not apply to any Parent Title Objection relating to a Title Failure and Parent shall be permitted to object to all Title Failures affecting the Owned Timberlands and the Leasehold Interests, and (2) Parent Title Objections with respect to Title Failures shall not be considered in the determination of whether the Parent Title Objections exceed the Title Basket Amount. A Completed Title Commitment or Partially Completed Title Commitment shall be deemed to have been made available to Parent when it is posted to the online data repository established and maintained by the Title Company for such purpose and the Title Objection Period shall commence with respect to such Completed Title Commitment or Partially Completed Title Commitment on the day following the day notice of such posting has been given by Seller or Title Company to Parent by email

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at the email address set forth in Section 15.1. Upon receipt of the Parent Title Objections to a Completed Title Commitment or Partially Completed Title Commitment, Seller may elect (but shall not be obligated) to cure or cause to be cured any such Parent Title Objection, and Seller shall notify Parent in writing within 20 days after receipt of the Parent Title Objections with respect to such Completed Title Commitment or Partially Completed Title Commitment whether Seller elects to cure the same. Failure of Seller to respond in writing within such time period shall be deemed an election by Seller not to cure such Parent Title Objections. Any Parent Title Objection shall be deemed to be cured if Seller causes the Title Company to issue a Title Policy for the affected Owned Timberlands or Leasehold Interest affirmatively insuring over, or not raising as an exception to the Title Policy, such Parent Title Objection. Notwithstanding the foregoing, Seller shall be obligated to cure, on or before the Closing Date, all Liens against the Owned Timberlands evidencing monetary encumbrances (other than Liens for non-delinquent real estate Taxes or assessments) (“Monetary Liens”). Seller may use any portion of the Installment Note Purchase Price to satisfy any Monetary Liens that exist as of the Closing Date; provided, however, that Seller shall cause the Title Company to remove the Monetary Liens. If Seller does not receive written notice of the Parent Title Objections for any objection to matters reflected in a particular Completed Title Commitment or Partially Completed Title Commitment on or before the expiration of the relevant Title Objection Period, Parent shall be deemed to have waived its right to object to any and all matters reflected in such Completed Title Commitment or Partially Completed Title Commitment and shall be deemed to accept title to the Owned Timberlands and the Leasehold Interests encompassed within such Completed Title Commitment or Partially Completed Title Commitment subject to such matters. Any such Parent Title Objection waived (or deemed waived) by Parent shall be deemed to constitute a Permitted Exception, and the Closing shall occur as herein provided without any reduction of or credit against the Purchase Price.

          (ii) Remedy for Title Failure. In the event of any Title Failure, Parent’s sole remedy with respect to any such Title Failure shall be to receive a Purchase Price adjustment as described in Section 2.3(b)(iv) and the Buying Parties shall proceed to the Closing with those portions of the Owned Timberlands or Leasehold Interests that are subject to such Title Failure excluded from the Timberlands to be conveyed to the applicable Timber LLC immediately prior to the Closing (a “Title Failure Carveout”). Notwithstanding the foregoing, each Title Failure Carveout in which Seller has an interest shall contain at least 40 acres and provide Seller with reasonable access to such Title Failure Carveout and each Title Failure Carveout affecting a Leasehold Interest shall contain such Leasehold Interest in its entirety, except with respect to the Leasehold Interests listed in Section 2.3(b)(ii) of the Seller’s Disclosure Letter. In the case of a Title Failure Carveout affecting a Leasehold Interest listed in Section 2.3(b)(ii) of the Seller’s Disclosure Letter, each of Seller and Parent shall use all commercially reasonable efforts to obtain an amendment to the applicable Timberland Lease or other remedy to remove from such Leasehold Interest the acreage as to which the Title Failure Carveout relates (with a corresponding Purchase Price adjustment as described in Section 2.3(b)(iv)), and, if such amendment or other remedy cannot be obtained, the entire Leasehold Interest shall be included in the Purchased Assets without amendment and the Purchase Price

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adjustment for such Title Failure Carveout shall be calculated only with respect to the acreage as to which the Title Failure Carveout relates.

          (iii) Remedy for Parent Title Objection. In the event Seller elects or is deemed to have elected not to cure any Parent Title Objection (other than Monetary Liens or Title Failures), then Seller, at its sole election, may either require: (A) (1) the Buying Parties to proceed to the Closing with the applicable Timber LLC accepting title, immediately prior to the Closing, to those portions of the Owned Timberlands being conveyed to it that are subject to such uncured Parent Title Objections (“Accepted Parent Title Objections”) and indemnify, defend and hold harmless such Timber LLC for any damages actually suffered by such Timber LLC as a result of the circumstances giving rise to such Accepted Parent Title Objections pursuant to Section 13.2 or (2) in the case of any Parent Title Objection relating to any Leasehold Interest, (x) require the Buying Parties to proceed to the Closing with the applicable Timber LLC assuming, effective immediately prior to the Closing, the Timberland Lease that is subject to such uncured Parent Title Objection and (y) indemnify, defend and hold harmless such Timber LLC for any damages actually suffered by it as a result of the circumstances giving rise to such Accepted Parent Title Objection pursuant to Section 13.2; or (B) require the Buying Parties proceed to the Closing with those portions of the Owned Timberlands or the Leasehold Interests that are subject to such uncured Parent Title Objections excluded from the Timberlands to be conveyed to the applicable Timber LLC immediately prior to the Closing (a “Title Objection Carveout”); provided, however, that (x) each Title Objection Carveout with respect to a Parent Title Objection affecting a portion or portions of the Owned Timberlands shall contain at least 40 acres and provide Seller with reasonable access to such Title Objection Carveout and (y) each Title Objection Carveout with respect to a Parent Title Objection affecting a Leasehold Interest shall contain such Leasehold Interest in its entirety.

          (iv) FMV Calculation. The fair market value of any portion of the Owned Timberlands and Leasehold Interests subject to any Title Failure Carveout or Title Objection Carveout shall be calculated, in the case of Owned Timberlands, in accordance with Exhibit B, and, in the case of Leasehold Interests, based on the discounted cash flows attributable to such Leasehold Interests or portion thereof affected by such Title Failure Carveout (in the case of Leasehold Interests described in Section 2.3(b)(ii) of the Seller’s Disclosure Letter), as determined by mutual agreement, or, if Seller and Parent are unable to agree on such fair market value, the Parties shall refer the matter to a Forestry Consultant and each Party will, at a mutually agreed time within three days after referral of the matter to such Forestry Consultant, simultaneously submit to the Forestry Consultant their respective calculations of such fair market value and any necessary supporting documentation. Within 30 days of such submissions, the Forestry Consultant will select one of the two submissions (and shall not select any other amount) as being most representative of the disputed fair market value, and the submission so selected shall be final and binding on the Parties. The costs and expenses of the Forestry Consultant in connection with the dispute resolution procedure set forth herein shall be paid by the non-prevailing Party. At the Closing, the Installment Note Purchase Price (and, as appropriate, the Timber Price and the Land Price) shall be reduced (in the form of a reduction to the aggregate principal amount of the Timber Notes) by an amount

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equal to the aggregate fair market value of the Timberlands subject to such Title Failure Carveouts or Title Objection Carveouts, if any, as calculated in accordance with Exhibit B, or, in the case of Leasehold Interests, this Section 2.3(b)(iv).

          (v) Post-Closing Cure. For a period of one year from and after the Closing Date, Seller, at its option, may require the applicable Timber LLC to accept title to any Title Failure Carveout or Title Objection Carveout (subject to the Permitted Exceptions affecting such Title Failure Carveout or Title Objection Carveout) for which Seller has cured or caused to be cured (A) all title defects affecting such Title Failure Carveout or (B) Parent Title Objections affecting such Title Objection Carveout. If Seller elects to transfer to the applicable Timber LLC title to any Title Failure Carveout or Title Objection Carveout pursuant to this Section 2.3(b)(v), then (1) Seller shall convey such Title Failure Carveout or Title Objection Carveout to the applicable Timber LLC pursuant to an instrument of conveyance described in Section 3.2(a)(iii) or (v), as applicable, subject to the Permitted Exceptions and (2) either Parent or the Timber LLC to which such Title Failure Carveout or Title Objection Carveout is being conveyed shall pay Seller an amount in cash equal to the amount of the fair market value of such Title Failure Carveout or Title Objection Carveout; provided, however, that in no event will Parent or such Timber LLC be obligated to pay under this Section 2.3(b)(v) an amount in excess of the aggregate downward adjustment to the Purchase Price in respect of the Title Failure Carveouts or Title Objection Carveouts pursuant to Section 2.3(b)(iv). Any payment by Parent or any Timber LLC to Seller for the conveyance of any Title Failure Carveout or Title Objection Carveout shall be made, upon the transfer of such Title Failure Carveout or Title Objection Carveout from Seller to the applicable Timber LLC, by wire transfer of immediately available funds to a bank account designated by Seller. Parent, the applicable Timber LLC and their respective Affiliates shall cooperate in any effort that may be necessary for Seller to transfer title to any Title Failure Carveout or Title Objection Carveout or to establish, vest or confirm title to any Title Failure Carveout or Title Objection Carveout in the applicable Timber LLC, including executing all documents pertaining to the Title Failure Carveout or Title Objection Carveout as are reasonably requested by Seller. Any sales, use, excise, documentary, stamp duty, registration, transfer, conveyance, economic interest, transfer or other similar Taxes related to the conveyance to the applicable Timber LLC of any Title Failure Carveout or Title Objection Carveout pursuant to this Section 2.3(b)(v) shall be payable as Transfer Taxes in accordance with Section 3.4.

          (c) Casualty Loss.

          (i) Notification of Casualty Loss. From the date of this Agreement until the Closing Date, Seller shall promptly give notice to Parent upon obtaining Seller’s Knowledge of any Casualty Loss occurring during the Timber Adjustment Period and affecting more than 250 acres as determined in good faith by Seller, together with a written estimate of the fair market value of the damaged or lost timber, as determined in good faith by Seller, resulting from such Casualty Loss. Parent shall have until the 60^th day after the Closing Date to deliver to Seller written notice of any Casualty Loss that occurred during the Timber Adjustment Period but was not identified by Seller in accordance with the previous sentence of this Section 2.3(c)(i) and that affected more

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than 250 acres as determined in good faith by Parent, together with a written estimate of the fair market value of the damaged or lost timber, as determined in good faith by Parent, resulting from such Casualty Loss. If Seller does not receive notice of such Casualty Loss from Parent prior to the expiration of such 60-day period, the Buying Parties shall be deemed to have waived their rights to receive an adjustment to the Closing Purchase Price in respect of any such Casualty Loss pursuant to this Section 2.3(c), apart from any adjustment to the Closing Purchase Price for any portion of such Casualty Loss that was identified by Seller prior to the Closing pursuant to the first sentence of this Section 2.3(c)(i), and the applicable Timber LLC shall be deemed to accept the Timberlands subject to such Casualty Loss.

          (ii) Purchase Price Adjustment for Casualty Loss. If the aggregate fair market value of damaged or lost timber resulting from Casualty Losses affecting more than 250 acres and identified in accordance with Section 2.3(c)(1) exceeds 1% of the Closing Purchase Price (the “Casualty Loss Basket”), the Closing Purchase Price shall be reduced by the aggregate fair market value of the damaged or lost timber. If Parent objects to any of Seller’s estimates of the fair market value of the damaged or lost timber resulting from a Casualty Loss made by Seller prior to the Closing pursuant to Section 2.3(c)(i) or if Seller objects to any estimate of the fair market value of the damaged or lost timber resulting from a Casualty Loss made by Parent post-Closing pursuant to Section 2.3(c)(i), Seller and Parent shall negotiate in good faith to determine by mutual agreement the fair market value of the damaged or lost timber in accordance with Section 2.3(c)(iv). If Seller and Parent agree on the amount of such value, then such value will become final and binding on the Parties. If Seller and Parent are unable to agree on the amount of such value within 30 days of Parent’s delivery of a notice of objection to Seller’s pre-Closing estimate or Seller’s delivery of a notice of objection to Parent’s post-Closing estimate, Seller and Parent will refer the matter to a Forestry Consultant, and each will, at a mutually agreed time within three days after such referral, submit to the Forestry Consultant their respective calculations of the fair market value of such damaged or lost timber. Within 30 days of such submissions, the Forestry Consultant shall determine the fair market value of the damaged or lost timber in accordance with this Section 2.3(c) and shall select one of the two submissions of the Parties (and shall not select any other amount) as being most representative of the fair market value of such damaged or lost timber, and the submission so selected shall be final and binding on the Parties. Seller shall pay any adjustment to the Closing Purchase Price in cash by wire transfer of immediately available funds to the bank account designated by Parent. The costs and expenses of the Forestry Consultant in connection with the dispute resolution procedure set forth herein shall be paid by the non-prevailing Party.

          (iii) Casualty Loss with FMV of less than the Casualty Loss Basket. If Seller and Parent estimate in good faith, or it is determined in accordance with this Section 2.3(c), that the damaged or lost timber in connection with Casualty Losses identified in accordance with Section 2.3(c)(i) on the Timberlands has an aggregate fair market value of less than the Casualty Loss Basket, the applicable Timber LLC shall be deemed to accept such Timberlands (and the timber thereon) in its condition as of the Closing Date, with no reduction in the Purchase Price.

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          (iv) Determination of FMV of Timber Related to a Casualty Loss. For the purpose of determining the fair market value of the damaged or lost timber resulting from a Casualty Loss, the fair market value for damaged or lost timber shall be deemed to equal the value of the timber, determined in accordance with Exhibit B, net of the salvage value of such timber to the applicable Timber LLC after deducting the cost of harvesting and delivering such timber.

          (d) Adjustment of Fiber Supply Agreements. In the event of a material reduction in the total acreage of the Timberlands to be acquired by the Buying Parties to this Agreement resulting from Title Failure Carveouts and Title Objection Carveouts, the Parties shall negotiate in good faith to agree upon appropriate adjustments to the Annual Harvest Volumes, Annual Minimum Volumes and Obligated Volumes (as defined in the applicable Fiber Supply Agreement) under each Fiber Supply Agreement to reflect any such reduction.

     Section 2.4 Apportionments. Except as provided in Section 3.4, the following shall be apportioned between the Buying Parties, on one hand, and Seller, on the other hand, as of the Effective Time (on a per diem basis): (i) rents due from Seller under the Timberland Leases, Real Property Leases or Personal Property Leases; (ii) property and other non-Income Taxes and assessments in respect of the Purchased Assets and any Timberland Leases or Real Property Leases for which Seller has the obligation to pay property or other non-Income Taxes and assessments (including property or other non-Income Taxes and assessments, if any, payable in respect of the Timber LLC Assets), in each case, with respect to the Tax period in which the Effective Time occurs; (iii) revenue from the Real Property Leases, including, without limitation, hunting and other recreational lease revenue; and (iv) payments, applying to the period beginning at the Effective Time, made by Seller in respect of any Timberland Lease, Real Property Lease, Personal Property Lease or Purchased Contract (collectively, “Apportionments”). Not later than 60 days after the later of the Closing Date or the date that all the applicable Tax rates have been fixed or the value assessments have been made with respect to all of the Timberlands for the applicable Tax periods in which the Effective Time occurs, Seller and Parent shall determine the Apportionments, and the Closing Purchase Price shall be increased or decreased, as applicable, by the aggregate amount of such Apportionments. Any payment to be made pursuant to this Section 2.4 shall be made no later than three business days following the determination of the aggregate amount of the Apportionments by wire transfer of immediately available funds to a bank account designated by the payee. Seller and Parent agree to furnish each other with such documents and other records as may be reasonably requested in order to confirm all Apportionment calculations made pursuant to this Section 2.4. Except for the estimated adjustment set forth above, there shall not be any proration of property Taxes or other non-Income Taxes and assessments and, as between the Buying Parties and Seller, the Buying Parties agree that they shall be solely responsible for all such property Taxes and other non-Income Taxes and assessments due and payable in respect of the Purchased Assets after the Closing. If Seller and Parent cannot agree as to Apportionments, the dispute will be resolved pursuant to Section 9.5.

     Section 2.5 Payment of Closing Purchase Price. At the Closing, Parent shall draw upon the equity and debt commitments evidenced by the Commitment Letters and shall pay, or cause the Other Buying Parties to pay, the Closing Purchase Price as follows:

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          (a) Installment Note Purchase Price. Buyers shall pay to Seller, or to those parties designated in writing by Seller on behalf of Seller, the Installment Note Purchase Price by delivery of installment notes issued by Buyers, substantially in the form of Exhibit C (each, a “Timber Note” and collectively, the “Timber Notes”), in an aggregate principal amount equal to the Installment Note Purchase Price, as determined in accordance with Section 2.2 and as adjusted pursuant to Sections 2.3(a)(i) and 2.3(b). Separate Timber Notes shall be issued in payment of the Timber Price and the Land Price, and each Timber Note shall indicate on its face whether it is issued in payment of the Timber Price or the Land Price. Each Timber Note shall be issued in the denomination requested by Seller not later than five days prior to the Closing Date. Each Timber Note shall be fully supported by an irrevocable standby letter of credit, in form and substance satisfactory to Seller (each, a “Letter of Credit” and collectively, the “Letters of Credit”) on terms and conditions that are consistent with the Timber Note Indicative Terms. Parent and Buyers will be solely responsible for all fees and expenses associated with the Letters of Credit.

          (b) Cash Purchase Price. Buyers, Parent and Buyer Affiliate shall pay to Seller, or to those parties designated in writing by Seller on behalf of Seller, the Cash Purchase Price, as determined in accordance with Section 2.2, by wire transfer of immediately available funds to the bank account or accounts designated by Seller as follows: (i) Buyers shall pay that portion of the Cash Purchase Price allocable to the Timber LLC Assets, (ii) Parent shall pay that portion of the Cash Purchase Price allocable to the Cash Assets (other than the Buyer Affiliate Assets) and (iii) Buyer Affiliate shall pay that portion of the Cash Purchase Price allocable to the Buyer Affiliate Assets.

ARTICLE III
CLOSING

     Section 3.1 Closing. The closing of the transactions contemplated by this Agreement (the “Closing”) shall take place, subject to the satisfaction, or waiver by the Party or Parties entitled to the benefit thereof, of the conditions set forth in Article XII, at a place designated by Seller, at 9:00 a.m., Atlanta time, on or as of the fifth day following the date on which all of the conditions set forth in Article XII have been satisfied, or waived by the Party or Parties entitled to the benefit thereof (other than those conditions that by their nature are to be satisfied at the Closing), in accordance with this Agreement or at such other time and date as the Parties shall agree in writing (the date on which the Closing occurs, the “Closing Date”). Upon completion of the Closing, the transactions contemplated by this Agreement shall be deemed effective as of 12:01 a.m. Central Time on the Closing Date (the “Effective Time”). The Parties shall use their commercially reasonable efforts to cause the Closing Date to occur on or before October 31, 2007. Except as specifically provided herein, time is of the essence for this Agreement for all purposes.

     Section 3.2 Closing Deliveries.

          (a) Closing Deliveries by Seller. Seller shall deliver the following items to Parent at the Closing:

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          (i) a certificate from an officer of Seller attesting to the matters set forth in Sections 12.2(b) and 12.2(c);

          (ii) duly executed (A) counterparts of the assignment and assumption agreements under which Seller assigns and Parent assumes all of Seller’s right, title and interest in and to the Personal Property Leases being assigned to it, substantially in the form of Exhibit D-1 (the “General Assignment and Assumption”), (B) counterparts of the assignment and assumption agreements under which, immediately prior to the Closing, Seller assigned and each Timber LLC assumed all of Seller’s right, title and interest in and to the Purchased Contracts, Licenses and the Purchased Condemnations being assigned to it, substantially in the form of Exhibit D-2 (the “General Timber LLC Assignment and Assumption”), and (C) counterparts of an assignment and assumption agreement under which, immediately prior to the Closing, Seller assigned and Buyer Affiliate assumed all of Seller’s right, title and interest in and to the Personal Property Leases being assigned to it, substantially in the form of Exhibit D-3 (the “General Buyer Affiliate Assignment and Assumption”);

          (iii) duly executed counterparts of assignment and assumption agreements, in recordable form, for each Timberland Lease, under which, immediately prior to the Closing, Seller assigned and the applicable Timber LLC assumed all of Seller’s right, title and interest in and to any such Timberland Lease being assigned to it, in each case substantially in the form of Exhibit D-4 (each, an “Assignment and Assumption of Timberland Lease”);

          (iv) duly executed counterparts of assignment and assumption agreements under which, immediately prior to the Closing, Seller assigned and the applicable Timber LLC assumed all of Seller’s right, title and interest in and to the Real Property Leases being assigned to it, in each case substantially in the form of Exhibit D-5 (each, an “Assignment and Assumption of Real Property Leases”);

          (v) duly executed limited or special warranty deeds (or their local equivalent), warranting only against Persons claiming by, through or under Seller and subject only to the Permitted Exceptions, in each case substantially in the Form of Exhibit E-1 (Alabama), Exhibit E-2 (Georgia), Exhibit E-3 (Louisiana) or Exhibit E-4 (Texas), as applicable, and such other Conveyance Instruments as were reasonably necessary immediately prior to Closing to vest in the applicable Timber LLC title to the Owned Timberlands and the Buyer Easements in respect thereof being conveyed to it, excluding the Reserved Mineral Interests and Rights in respect thereof (collectively, the “Deeds”);

          (vi) a bill of sale with respect to the Purchased Personal Assets, substantially in the form of Exhibit F;

          (vii) duly executed counterparts of the Master Stumpage Agreement, the pulpwood supply agreement, substantially in the form of Exhibit G-1 (the “Pulpwood Supply Agreement”), the sawtimber supply agreement, substantially in the form of Exhibit G-2 (the “Sawtimber Supply Agreement”), the fiber supply agreement in the

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form of Exhibit G-3 (the “Eastern Forest FSA” and, collectively with the Pulpwood Supply Agreement and the Sawtimber Supply Agreement, the “Fiber Supply Agreements”), the pulpwood support agreement, substantially in the form of Exhibit G-4 (the “Pulpwood Support Agreement”) and the sawtimber support agreement, substantially in the form of Exhibit G-5 (the “Sawtimber Support Agreement” and collectively with the Pulpwood Support Agreement, the “Support Agreements”) and memoranda of the Master Stumpage Agreement, the Support Agreements and the Fiber Supply Agreements in form suitable for recording in the real property records of the applicable jurisdictions;

          (viii) an affidavit stating the taxpayer identification number of Seller and that Seller is not a “foreign person” for purposes of Section 1445 of the Code and the Treasury Regulations thereunder;

          (ix) such title affidavits as are reasonably requested by the Title Company, substantially in the form of Exhibit H;

          (x) a duly executed counterpart of an assignment agreement transferring to each Buyer the Timber LLC Interests being acquired by it, substantially in the form of Exhibit I (the “Assignment of Timber LLC Interests”);

          (xi) such assignments, bills of sale, certificates of title and other instruments of assignment and conveyance, all in form reasonably satisfactory to Parent, as are necessary to convey fully and effectively to the applicable Buying Party the Purchased Assets to be acquired by such Buying Party (other than the Timberlands and the Timber LLC Interests) in accordance with the terms hereof;

          (xii) duly executed counterparts of the Timber LLC Instrument of Assumption in respect of the Timber LLC Assumed Liabilities assumed by each Timber LLC; and

          (xiii) duly executed counterparts of the General Timber LLC Assignment and Assumption in respect of Purchased Contracts, Licenses and the Purchased Condemnations assumed by each Timber LLC.

          (b) Closing Deliveries by Buying Parties. At the Closing, Parent shall deliver or cause the applicable Buying Party to deliver the following items to Seller:

          (i) the Closing Purchase Price, including the Timber Notes issued by Buyers in respect of the Installment Note Purchase Price;

          (ii) the Letters of Credit supporting the Timber Notes issued by Buyers in respect of the Installment Note Purchase Price;

          (iii) certificates of a duly authorized officer of each Buying Party attesting to the matters set forth in Sections 12.3(b) and 12.3(c);

          (iv) duly executed counterparts of the General Assignment and Assumption;

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          (v) duly executed Parent Instrument of Assumption in respect of the Assumed Liabilities;

          (vi) any Conveyance Instruments in respect of the Purchased Assets to which any Buying Party is a Party;

          (vii) one or more easements to the extent necessary to evidence the right of Seller, or such other Persons as shall be designated by Seller, to use the Reserved Easements;

          (viii) duly executed counterparts of the Master Stumpage Agreement, the Fiber Supply Agreements and the Support Agreements, and memoranda of the Master Stumpage Agreement, the Fiber Supply Agreements and the Support Agreements in form suitable for recording in the real property records of the applicable jurisdictions;

          (ix) duly executed counterparts of the Assignments of Timber LLC Interests;

          (x) a legal opinion, in form and substance, and by counsel reasonably acceptable to Seller, that if Parent, Buyer Affiliate, any Timber LLC or any Affiliate of such Person were to become a debtor in a case under Title 11 of the United States Code, the bankruptcy court would not order the substantive consolidation of the assets and liabilities of any Buyer with those of such Person;

          (xi) a legal opinion, in form and substance, and by counsel reasonably acceptable to Seller, addressing such customary limited liability company law opinions as may be requested by Seller with respect to each Buyer, including existence, good standing, power, authority, execution of this Agreement, the Timber Notes and the other Ancillary Agreements, enforceability of this Agreement, the Timber Notes and the other Ancillary Agreements, and no conflict with such Buyer’s organizational documents, Contracts or Law; and

          (xii) all such other instruments of assumption, in a form reasonably satisfactory to Parent, necessary, in the reasonable opinion of Seller, for Parent and Buyer Affiliate to assume the Assumed Liabilities.

          (c) Other Closing Deliveries. The Parties shall each execute and deliver (and, prior to the Closing, Seller shall cause each Timber LLC to execute and deliver, and, from and after Closing, Parent shall cause each Timber LLC to execute and deliver) such other and further certificates, assurances and documents as may reasonably be required by the other Parties in connection with the consummation of the transactions contemplated by this Agreement.

     Section 3.3 Possession. Possession of the Timberlands shall be delivered to the applicable Timber LLC immediately prior to the Closing, subject to the Permitted Exceptions.

     Section 3.4 Costs and Expenses. Each Party shall be responsible for its own attorneys’ fees and expenses. Seller shall prepare the Deeds at Seller’s expense. Parent shall pay all other costs associated with filing any documents, including the Deeds and each Assignment

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and Assumption of Timberland Lease, to be recorded. Parent shall be responsible for any recapture, reassessment, roll-back Taxes or changes in Tax assessments in respect of the Purchased Assets that may become due and payable after the Effective Time caused by any action or inaction of any Buying Party with respect to the removal of the Purchased Assets after the Effective Time from their present classifications, or changes in use after the Effective Time. Parent shall bear all sales, use, excise, documentary, stamp duty, registration, transfer, conveyance, economic interest transfer and other similar Taxes related to the conveyance of the Purchased Assets (including the Timber LLC Assets) from Seller to the Buying Parties arising in connection with the transactions contemplated by this Agreement (collectively, “Transfer Taxes”), and the Party having primary responsibility under applicable Law shall timely prepare and file Tax Returns in respect of such Transfer Taxes with the applicable Taxing Authority. Parent shall pay all filing fees incurred with respect to all filings made under the HSR Act in connection with this Agreement. All other costs shall be paid by the Party incurring such costs.

ARTICLE IV
ACKNOWLEDGEMENTS BY THE BUYING PARTIES

     Section 4.1 Disclaimer of Certain Representations. Each of the Buying Parties acknowledges that, except as is herein specifically set forth, Seller has not made, does not make and has not authorized anyone else to make, any representation, warranty or promise of any kind, including as to: (i) the existence or non-existence of access to or from the Timberlands or any portion thereof; (ii) the location of the Timberlands or any portion thereof within any flood plain, flood prone area, watershed or the designation of any portion thereof as “wetlands”; (iii) the availability of water, sewer, electrical, gas or other utility services at or on the Timberlands; (iv) the number of acres or square footage in the Timberlands; (v) the present or future physical condition or suitability of the Purchased Assets for any purpose; (vi) the actual amount and type of timber on the Timberlands, if any; or (vii) any other matter or thing affecting or relating to the Purchased Assets or this Agreement.

     Section 4.2 General Disclaimers. EACH OF THE BUYING PARTIES ACKNOWLEDGES THAT, EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES SET FORTH IN ARTICLES V, VI AND VII, IN THE CERTIFICATES DELIVERED BY SELLER AT THE CLOSING PURSUANT TO SECTIONS 3.2(A)(I) AND 3.2(A)(VIII) AND IN THE DEEDS DELIVERED BY SELLER PURSUANT TO SECTION 3.2(A)(V): (I) NO REPRESENTATIONS, WARRANTIES OR PROMISES, EXPRESS OR IMPLIED, HAVE BEEN OR ARE BEING MADE BY OR ON BEHALF OF SELLER OR ANY OTHER PERSON WITH RESPECT TO THE PURCHASED ASSETS, INCLUDING WITH RESPECT TO PHYSICAL OR ENVIRONMENTAL CONDITION, HABITABILITY, QUANTITY OR QUALITY OF TIMBER, NURSERY STOCK OR SEEDLINGS, FUTURE FIBER GROWTH OR HARVEST, FUTURE FINANCIAL RESULTS FROM THE SALE OF FIBER GROWN ON THE TIMBERLANDS, MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE, AND SELLER HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES, EITHER EXPRESS OR IMPLIED RELATING TO ANY OF THE FOREGOING MATTERS, AND (II) IN ENTERING INTO THIS AGREEMENT, NONE OF THE BUYING PARTIES HAS RELIED AND DOES NOT RELY ON ANY SUCH REPRESENTATION, WARRANTY OR PROMISE, EXPRESS OR IMPLIED, BY OR ON

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BEHALF OF SELLER OR ANY OTHER PERSON. EACH BUYING PARTY SHALL TAKE THE PURCHASED ASSETS TO BE ACQUIRED BY IT IN “AS IS, WHERE IS, AND WITH ALL FAULTS” CONDITION ON THE CLOSING DATE, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT.

     Section 4.3 Waiver and Release. UPON THE CLOSING, SUBJECT TO ARTICLE XIII, EACH BUYING PARTY SHALL ASSUME THE RISK THAT ADVERSE MATTERS, INCLUDING, ADVERSE ENVIRONMENTAL CONDITIONS, MAY NOT HAVE BEEN REVEALED BY SELLER’S OR ANY BUYING PARTY’S INVESTIGATION, AND UPON THE CLOSING, EACH OF THE BUYING PARTIES SHALL BE DEEMED TO HAVE WAIVED, RELINQUISHED AND RELEASED SELLER FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS, CAUSES OF ACTION (INCLUDING CAUSES OF ACTION IN TORT), LOSSES, DAMAGES, LIABILITIES, COSTS AND EXPENSES (INCLUDING ATTORNEYS’ FEES AND COURT COSTS) OF ANY AND EVERY KIND OR CHARACTER, KNOWN OR UNKNOWN, WHICH SUCH BUYING PARTY MIGHT HAVE ASSERTED OR ALLEGED AGAINST SELLER AT ANY TIME BY REASON OF OR ARISING OUT OF PHYSICAL CONDITIONS, VIOLATIONS OF ANY APPLICABLE LAWS (INCLUDING ANY ENVIRONMENTAL LAWS) AND ANY AND ALL OTHER ACTS, OMISSIONS, EVENTS, CIRCUMSTANCES OR MATTERS REGARDING THE PURCHASED ASSETS. EACH BUYING PARTY AGREES THAT, SUBJECT TO ARTICLE XIII BELOW, SHOULD ANY INVESTIGATION, CLEANUP, REMEDIATION, CORRECTING ACTION OR REMOVAL OF HAZARDOUS SUBSTANCES OR OTHER ADVERSE ENVIRONMENTAL CONDITIONS ON THE TIMBERLANDS BE REQUIRED AFTER THE CLOSING, SUCH INVESTIGATION, CLEAN-UP, REMOVAL, CORRECTING ACTION OR REMEDIATION SHALL BE THE RESPONSIBILITY OF AND SHALL BE PERFORMED AT THE SOLE COST AND EXPENSE OF THE BUYING PARTIES.

     Section 4.4 No Reliance. Each of the Buying Parties acknowledges that any materials provided to it, including any cost or other estimates, projections, acreage, and timber information, the Confidential Information Memorandum dated April 2007, the management presentations and the materials and information provided on data disks or in the on-line data rooms, are not and shall not be deemed representations or warranties by or on behalf of Seller or any other Person and are not to be relied upon by such Buying Party, provided that the Seller’s Disclosure Letter may be relied upon to the extent expressly provided in this Agreement.

ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SELLER AS TO STATUS

     Except as otherwise disclosed to Parent in the disclosure letter (the “Seller’s Disclosure Letter”) delivered to Parent by Seller on the date of this Agreement (except for those sections of Seller’s Disclosure Letter that contemplate delivery on a date other than the date of this Agreement) or as set forth in Seller SEC Documents, Seller represents and warrants to Parent, as of the date hereof and as of the Closing Date, as follows:

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     Section 5.1 Organization.

          (a) Seller. Seller is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to: (i) own, lease and operate its properties and assets and to carry on its business as now being conducted; (ii) execute this Agreement and all other agreements, instruments and documents to be executed by it in connection with the consummation of the transactions contemplated by this Agreement and such other agreements (the “Ancillary Agreements”); and (iii) perform its obligations and consummate the transactions contemplated hereby and by the Ancillary Agreements.

          (b) Timber LLCs. As of the Closing Date, each of the Timber LLCs will be a limited liability company, duly organized, validly existing and in good standing under the laws of the State of Delaware and will have all requisite limited liability company power and authority to: (i) own, lease and operate its properties and assets and to carry on its business as then being conducted; (ii) execute all Ancillary Agreements to which it is a party; and (iii) perform its obligations and consummate the transactions contemplated by the Ancillary Agreements to which it is a party.

     Section 5.2 Qualification.

          (a) Seller. Seller is qualified or registered as a foreign corporation for the transaction of business and is in good standing under the Laws of each jurisdiction in which the location of its properties makes such qualification necessary, other than those jurisdictions as to which the failure to be so qualified or registered would not, individually or in the aggregate, have a Material Adverse Effect or a material adverse effect on Seller’s ability to perform its obligations under this Agreement and the Ancillary Agreements.

          (b) Timber LLCs. As of the Closing Date, each of the Timber LLCs will be qualified or registered as a foreign limited liability company for the transaction of business and will be in good standing under the Laws of each jurisdiction in which the location of its properties makes such qualification necessary.

     Section 5.3 Authority. The execution, delivery and performance of this Agreement and the consummation of transactions contemplated hereby by Seller have been duly and validly authorized by all necessary corporate action, and no other corporate proceedings on the part of Seller are necessary for it to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Seller and, assuming due authorization, execution and delivery by the Buying Parties, is a legal, valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar Laws of general applicability relating to or affecting creditors’ rights and to general equity principles.

     Section 5.4 No Violation. The execution, delivery or performance of this Agreement by Seller will not result in a breach or violation of, or default under, (i) the terms, conditions or provisions of Seller’s certificate of incorporation, bylaws or any standing resolution of its board

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of directors; (ii) any Contract required to be disclosed in Section 5.8 of Seller’s Disclosure Letter; (iii) any Law applicable to Seller or any of the Timberlands; or (iv) any permit, license, order, judgment or decree of any Governmental Authority by which Seller or the Timberlands is or may be bound, excluding from the foregoing clauses (ii), (iii) and (iv) such breaches, violations or defaults that would not be reasonably likely, individually or in the aggregate, to have a Material Adverse Effect or a material adverse effect on Seller’s ability to perform its obligations under this Agreement and the Ancillary Agreements.

     Section 5.5 Governmental Consents and Approvals. There are no approvals, consents or registration requirements with respect to any Governmental Authority that are or will be necessary for the valid execution and delivery by Seller of this Agreement and the Ancillary Agreements, or the consummation of the transactions contemplated hereby and thereby, other than (i) those described in Section 5.5 of Seller’s Disclosure Letter and (ii) those which (A) have been obtained, (B) are of a routine nature and not customarily obtained or made prior to execution of purchase and sale agreements in transactions similar in nature and size to those contemplated hereby and where the failure to obtain the same would not, individually or in the aggregate, have a Material Adverse Effect or a material adverse effect on Seller’s ability to perform its obligations under this Agreement and the Ancillary Agreements, or (C) are required under the HSR Act. For the avoidance of doubt, this Section 5.5 does not limit the obligations of the Parties under Section 9.6.

     Section 5.6 Litigation.

          (a) Pending Matters. Except as set forth in Section 5.6(a) of Seller’s Disclosure Letter, as of the date hereof, there are no pending Claims or, to Seller’s Knowledge, threatened Claims that (i) either (A) seek to restrain or enjoin the execution and delivery of this Agreement or any Ancillary Agreement or the consummation of any of the transactions contemplated hereby or thereby or (B) affect or relate to any of the Purchased Assets and (ii) would be reasonably likely, individually or in the aggregate, to have a Material Adverse Effect or a material adverse effect on Seller’s ability to perform its obligations under this Agreement and the Ancillary Agreements.

          (b) Adverse Judgments. As of the date hereof, there are no judgments or outstanding orders, injunctions, decrees, stipulations or awards (whether rendered by a Governmental Authority or by an arbitrator) against Seller (or affecting any of the Timberlands) that prohibit or restrict or could reasonably be expected to result in any material delay of the consummation of the transactions contemplated by this Agreement or the Ancillary Agreements.

     Section 5.7 Taxes. Except for such Liens as are reflected in the Title Commitments or are not reasonably likely, individually or in the aggregate, to have a material adverse effect on the value, use, operations, possession or enjoyment by the Buying Parties of the Timberlands or any material portion thereof for growing and harvesting timber, there are no Liens or other encumbrances, other than the Permitted Exceptions, on any of the Purchased Assets that arose in connection with any failure or alleged failure by Seller to pay any Tax. All material Taxes related to the Purchased Assets required to be withheld and paid have been withheld and paid, except for (i) such Taxes the failure to pay which would not be reasonably likely, individually or

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in the aggregate, to have a Material Adverse Effect and (ii) any Taxes being contested in good faith.

     Section 5.8 Contracts. Section 5.8 of Seller’s Disclosure Letter contains a list, and Seller has made available to Parent true and complete copies, of: (i) each Purchased Contract and Personal Property Lease that is in effect on the date of this Agreement and that (A) requires expenditures or receipts, performance of services or delivery of goods or materials by or to Seller in an amount or of value in excess of $250,000 per year or $1,000,000 over the term of such Purchased Contract or Personal Property Lease and (B) is not terminable by Seller upon notice of 180 days or less; (ii) each Purchased Contract for capital expenditures or the acquisition or construction of fixed assets relating to the operations conducted on the Timberlands that (A) requires aggregate future payments in excess of $250,000 and (B) is not terminable by Seller upon notice of 180 days or less; (iii) the Timberland Leases and the Licenses and (iv) each material amendment, supplement, and modification in respect of any of the foregoing.

     Section 5.9 Continuing Agreements. The Continuing Agreements in effect as of the date of this Agreement, except for those Continuing Agreements that would not be reasonably likely, individually or in the aggregate, to have a material adverse effect on the value, use, operations, possession or enjoyment by any Buying Party of the Timberlands or any material portion thereof for growing and harvesting timber, are listed in Section 5.9 of Seller’s Disclosure Letter. Parent has been provided with true and complete copies of or access to the Continuing Agreements set forth in Section 5.9 of Seller’s Disclosure Letter.

ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF SELLER RELATED
TO THE TIMBERLANDS

     Except as otherwise disclosed to Parent in Seller’s Disclosure Letter delivered to Parent by Seller on the date of this Agreement (except for those sections of Seller’s Disclosure Letter that contemplate delivery on a date other than the date of this Agreement) or as set forth in Seller SEC Documents, Seller represents and warrants to Parent, as of the date hereof and as of the Closing Date, as follows:

     Section 6.1 Timber LLCs. Immediately prior to the Closing, each Timber LLC will be a newly-formed limited liability company, validly existing and in good standing under the Laws of the state of its formation, and Seller shall be the sole member of each Timber LLC. Immediately prior to the Closing, each of the Timber LLCs will not have conducted any operations other than acquiring the Timber LLC Assets and assuming the Timber LLC Assumed Liabilities to be conveyed and transferred to or to be assumed by it, as applicable. Immediately prior to the Closing, Seller will own beneficially and of record all of the Timber LLC Interests. The Timber LLC Interests constitute 100% of the authorized, issued and outstanding membership interests and voting interests in the Timber LLCs, free and clear of any Lien of any nature whatsoever. Immediately prior to the Closing, Seller will own one hundred percent (100%) of the Timber LLCs Interests, beneficially and of record, free and clear of any and all Liens.

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     Section 6.2 Compliance with Laws. Seller holds all licenses, certificates, permits, franchises, approvals, exemptions, registrations and rights of any Governmental Authority that are necessary to conduct operations on the Timberlands as presently conducted, except for those licenses, certificates, permits, franchises, approvals, exemptions, registrations and rights the failure to hold which would not be reasonably likely, individually or in the aggregate, to have a Material Adverse Effect. Seller is presently operating the Timberlands in substantial compliance with applicable Laws, other than Environmental Laws which are exclusively covered by Section 6.5, and except for those violations, if any, that would not be reasonably likely, individually or in the aggregate, to have a Material Adverse Effect.

     Section 6.3 Condemnations. Except as described in Section 1.2(f) of Seller’s Disclosure Letter, there are no Condemnations and no Condemnations have been concluded between January 1, 2007 and the date hereof.

     Section 6.4 Timberland Leases, Licenses and Real Property Leases. Except as described in Section 6.4 of Seller’s Disclosure Letter, with respect to each Timberland Lease, License and Real Property Lease, or except as would not be reasonably likely, individually or in the aggregate, to have a material adverse effect on the value, use, operations, possession or enjoyment by the Buying Parties of the Timberlands or any material portion thereof in accordance with the terms of such Timberland Lease, License or Real Property Lease: (i) such Timberland Lease, License or Real Property Lease is legal, valid, binding, enforceable and in full force and effect; (ii) the transactions contemplated by this Agreement or the Ancillary Agreements will not result in a breach or default under such Timberland Lease, License or Real Property Lease, require the consent of the other party to such Timberland Lease, License or Real Property Lease or otherwise cause such Timberland Lease or Real Property Lease to cease to be legal, valid, binding, enforceable and in full force and effect on identical terms following the Closing; (iii) neither Seller, nor to Seller’s Knowledge, any other party to such Timberland Lease, License or Real Property Lease is in breach or default under such Timberland Lease, License or Real Property Lease; and (iv) to Seller’s Knowledge, no event has occurred or failed to occur or circumstances exist which, with the delivery of notice, the passage of time or both, would constitute a breach or default under such Timberland Lease, License or Real Property Lease or permit the termination, modification or acceleration of rent under such Timberland Lease, License or Real Property Lease.

     Section 6.5 Matters Relating to the Environmental Condition of the Timberlands. Except as set forth in Section 6.5 of the Seller’s Disclosure Letter, as set forth in the Phase I Reports, for matters relating to oil, gas and other liquid or gaseous hydrocarbons or as would not be reasonably likely, individually or in the aggregate, to have a Material Adverse Effect, (i) to the Seller’s Knowledge, there is no condition existing on the Timberlands that constitutes a violation of any applicable Environmental Law, (ii) to the Seller’s Knowledge, there is no existing Adverse Environmental Condition on the Timberlands, (iii) to the Seller’s Knowledge, the Seller is operating the Timberlands in compliance with all applicable Environmental Laws and the requirements of all applicable environmental permits, (iv) to the Seller’s Knowledge, Seller has not received any written notice of any violation of, or liability under, any Environmental Law in connection with the Seller’s operations on the Purchased Assets during the past five years, and (v) to the Seller’s Knowledge, there are no material writs, injunctions,

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decrees, orders or judgments outstanding or any actions, suits, proceedings or investigations pending or threatened relating to the Seller’s compliance with or liability under any Environmental Law affecting the Purchased Assets.

ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF SELLER RELATED
TO THE OTHER PURCHASED ASSETS

     Except as otherwise disclosed to Parent in Seller’s Disclosure Letter delivered to Parent by Seller on the date of this Agreement (except for those sections of Seller’s Disclosure Letter that contemplate delivery on a date other than the date of this Agreement) or as set forth in Seller SEC Documents, Seller represents and warrants to Parent, as of the date hereof and as of the Closing Date, as follows:

     Section 7.1 Collective Bargaining Agreements. Seller is not a party to any collective bargaining agreement with respect to any of the Eligible Employees.

     Section 7.2 Labor Matters.

          (a) Controversies. Except as set forth in Section 7.2(a) of Seller’s Disclosure Letter, (i) there is no labor strike, dispute, slowdown, stoppage or lockout ongoing or, to Seller’s Knowledge, threatened against or affecting the Purchased Assets; (ii) there is no unfair labor practice charge or complaint against Seller (relating to the Purchased Assets) pending (for which written notice has been provided) or, to Seller’s Knowledge, threatened before the National Labor Relations Board; and (iii) to Seller’s Knowledge, Seller has not received written notice of the intent of any Governmental Authority responsible for the enforcement of labor or employment laws to conduct an investigation with respect to or relating to the Purchased Assets and no such investigation is in progress, other than, with respect to clauses (i), (ii) and (iii), such strikes, disputes, slowdowns, stoppages, lockouts, charges, complaints or investigations as would not be reasonably likely, individually or in the aggregate, to have a Material Adverse Effect.

          (b) Eligible Employees. Section 7.2(b) of Seller’s Disclosure Letter contains a schedule listing, as of the date set forth therein, all names, employee positions, annualized pay rates and target bonus opportunities, where applicable, for all Seller employees whose duties are performed primarily for the benefit of any of the Purchased Assets (the “Eligible Employees”).

     Section 7.3 Ownership of Purchased Personal Assets. Seller has title to all of the Purchased Personal Assets, free and clear of any Liens, except for encumbrances that in the aggregate are not substantial in amount, do not materially detract from the value of the assets subject thereto, and do not materially interfere with the present use thereof.

     Section 7.4 Employee Benefit Plans. Section 7.4 of the Seller’s Disclosure Letter lists all material benefit and compensation plans and contracts, including “employee benefit plans” within the meaning of Section 3(3) of ERISA, and all deferred compensation, stock option, stock purchase, stock appreciation rights, stock-based incentive and bonus plans maintained or contributed to by Seller for the benefit of any Eligible Employee (collectively, the “Plans”).

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ARTICLE VIII
REPRESENTATIONS AND WARRANTIES OF PARENT

     Parent represents and warrants to Seller, as of the date hereof and as of the Closing Date, as follows:

     Section 8.1 Organization. Each of the Buying Parties is a corporation or limited liability company, duly incorporated or organized, validly existing and in good standing under the laws of the state in which it is incorporated or organized and has all requisite corporate or limited liability company power and authority, as the case may be, to: (i) own, lease and operate its properties and assets and to carry on its business as now being conducted; (ii) execute this Agreement and the Ancillary Agreements to which it is a party; and (iii) perform its obligations and consummate the transactions contemplated hereby and thereby. Immediately prior to the Closing, each Buyer will be a newly formed limited liability company and will not have conducted any operations or engaged in any activities other than those related to the acquisition of the Timber LLC Interests to be acquired by it, the issuance of the Timber Notes and obtaining the Letters of Credit, as contemplated by the Transaction Documents.

     Section 8.2 Qualification. Each of the Buying Parties is qualified or registered as a foreign corporation or limited liability company for the transaction of business and is in good standing under the laws of each jurisdiction in which the location of its properties makes such qualification necessary, other than those jurisdictions as to which the failure to be so qualified or registered would not, individually or in the aggregate, have a material adverse effect on its financial condition or results of operation or on its ability to perform its obligations under this Agreement and the Ancillary Agreements to which it is a party.

     Section 8.3 Authority. The execution, delivery and performance of this Agreement and the consummation of transactions contemplated hereby by Parent have been duly and validly authorized by all necessary corporate action, and no other corporate proceedings on the part of Parent are necessary for it to authorize this Agreement or to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement and the consummation of transactions contemplated hereby by the Other Buying Parties have been duly and validly authorized by all necessary corporate or limited liability company action, as the case may be, and no other corporate or limited liability company proceedings, as the case may be, on the part of any of the Other Buying Parties are necessary for any of the Other Buying Parties to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by each of the Buying Parties and, assuming due authorization, execution and delivery by Seller, is a legal, valid and binding obligation of each of the Buying Parties, enforceable against each in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar Laws of general applicability relating to or affecting creditors’ rights and to general equity principles.

     Section 8.4 No Violation. The execution, delivery, and performance by each of the Buying Parties of this Agreement or any of the Ancillary Agreements to which it is a party will not result in a breach or violation of, or default under, (i) the terms, conditions or provisions of the its articles/certificate of incorporation, bylaws or any standing resolution of its board of

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directors or any other organizational document; (ii) any Contract to which it is a party or by which it or any of its assets may be bound; (iii) any Law applicable to it or any of its assets; or (iv) any permit, license, order, judgment or decree of any Governmental Authority by which any Buying Party or any of its assets is or may be bound, excluding from the foregoing clauses (ii), (iii) or (iv), such breaches, violations or defaults that would not be reasonably likely, individually or in the aggregate, to have a material adverse effect on its financial condition or results of operation or on its ability to perform its obligations under this Agreement and the Ancillary Agreements to which it is a party.

     Section 8.5 Governmental Consents and Approvals. There are no approvals, consents or registration requirements with respect to any Governmental Authority that are or will be necessary for the valid execution and delivery by any Buying Party of this Agreement and the Ancillary Agreements, or the consummation of the transactions contemplated hereby and thereby, other than those which (i) have been obtained, (ii) are of a routine nature and not customarily obtained or made prior to execution of purchase and sale agreements in transactions similar in nature and size to those contemplated hereby and where the failure to obtain the same would not, individually or in the aggregate, have a material adverse effect on the financial condition or results of operations of any Buying Party or on the ability of any Buying Party to perform its obligations under this Agreement and the Ancillary Agreements to which it is a party, (iii) may be required to be obtained by any Buying Party for it to conduct operations on the Timberlands, or (iv) may be required under the HSR Act.

     Section 8.6 Litigation. As of the date hereof, there are no claims against any Buying Party or, to the actual knowledge of Parent, any threatened claims against any Buying Party, which either alone or in the aggregate seek to restrain or enjoin the execution and delivery of this Agreement or any of the Ancillary Agreements or the consummation of any of the transactions contemplated hereby or thereby. As of the date hereof, there are no judgments or outstanding orders, injunctions, decrees, stipulations or awards (whether rendered by a Governmental Authority or by an arbitrator) against any Buying Party (or affecting any of its assets) that prohibit or restrict or could reasonably be expected to result in any delay of the consummation of the transactions contemplated by this Agreement or the Ancillary Agreements.

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     Section 8.7 Investment Purpose.

          (a) Investment Representations. Each of the Buyers is acquiring the Timber LLC Interests identified in Schedule B to this Agreement as being acquired by such Buyer for its own account and not for the account of any other Person, with the intention of holding such Timber LLC Interests for investment for an indefinite period of time, with no present intention of either (i) dividing, or allowing others to participate in, the investment in such Timber LLC Interests or (ii) reselling or otherwise participating directly or indirectly in a distribution of such Timber LLC Interests or any part thereof. Parent and each of the Buyers is an “accredited investor” as defined in Rule 501 of Regulation D promulgated under the federal Securities Act of 1933, as amended. Parent and Buyers acknowledge and understand that the Timber LLC Interests have not been registered under the federal Securities Act of 1933, as amended, or under any state securities law in reliance on the representations and warranties contained in this Section 8.7(a).

          (b) No Transfers. Parent is acquiring, indirectly through its ownership of the Buyers and, following the Closing, the Timber LLCs, the Timber LLC Interests and the Timberlands for its own account and not as a nominee, agent or intermediary for any other Person. None of the Buying Parties has entered into any plan, agreement or other arrangement to transfer or otherwise dispose of any interest in the Timberlands (except as contemplated by the Master Stumpage Agreement), or any plan, agreement or other arrangement to transfer or otherwise dispose of any interest in any Timber LLC, to any other Person (including another Buying Party), and Parent has not entered into any plan, agreement or other arrangement to transfer or otherwise dispose of any interest in any Buyer to any other Person (including another Buying Party).

     Section 8.8 Tax Matters. Each of the Buyers is treated as a “disregarded entity” of Parent for U.S. federal and all applicable state and local Income Tax purposes.

     Section 8.9 Financing.

          (a) Equity Commitment Letters. Concurrently with the execution and delivery of this Agreement, Parent has delivered a true, correct and complete copy of an executed commitment letter dated as of the date of this Agreement from its equity provider (the “Equity Commitment Letter”), to provide equity funding to the Parent in the amount noted therein (the “Equity Funding”) and an executed letter dated as of the date of this Agreement from American AgCredit, PCA with respect to the delivery of the letter of credit described in Section 14.2 (the “Side Letter”).

          (b) Debt Commitment Letter. Concurrently with the execution and delivery of this Agreement, Parent has delivered a true, correct and complete copy of an executed commitment letter dated as of the date of this Agreement from American AgCredit, PCA and Barclays Bank PLC (the “Lenders”) (the “Debt Commitment Letter”), to provide Parent with debt financing in the amount noted therein (the “Debt Financing”).

          (c) Validity. Each Commitment Letter and the Side Letter in the form delivered to Parent (i) is the legal, valid and binding obligation of Parent’s equity provider or

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Lenders, as the case may be, and is in full force and effect and (ii) no event has occurred which, with or without notice, lapse of time or both, would constitute a default or breach on the part of Parent, or any Parent’s equity provider or Lenders, as the case may be, under any term or condition of such Commitment Letter or the Side Letter. The Buying Parties currently have available and will at the Closing (or at such other time as any such amounts shall become due and payable) have available sufficient funds to pay any and all amounts payable by the Buying Parties pursuant to this Agreement and to effect the transactions contemplated hereby.

          (d) Compliance. Parent has no reason to believe that any of the conditions to the Debt Financing contained in the Debt Commitment Letter will not be satisfied on a timely basis and has fully paid any and all commitment or other fees required by the Debt Commitment Letter to be paid as of the date of this Agreement.

          (e) Solvency. Immediately after giving effect to the purchase of the Purchased Assets, the incurrence of any indebtedness to finance the purchase of the Purchased Assets and the consummation of the other transactions contemplated by this Agreement, (i) each of Parent, the Buyers and the Timber LLCs will be solvent, will be able to pay its debts as they become due, will have capital sufficient to carry on its business and will own assets having a value both at fair valuation and at present fair saleable value greater than the amount required to pay its liabilities and obligations as they become due and (ii) neither Parent nor any Buyer will have incurred any liability or obligation, or made any transfer, with actual intent to hinder, delay or defraud present or future creditors.

ARTICLE IX
ADDITIONAL AGREEMENTS RELATING TO THE
PURCHASED ASSETS GENERALLY

     Section 9.1 Commercially Reasonable Efforts.

          (a) General. Subject to the terms and conditions herein provided, each of the Parties agrees to use all commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement and to cooperate with each other in connection with the foregoing, including using all commercially reasonable efforts:

          (i) to obtain all necessary waivers, consents, releases and approvals, including all consents, approvals and authorizations that are required to be obtained under any applicable Law;

          (ii) to lift or rescind any injunction or restraining order or other order adversely affecting the ability of the Parties to consummate the transactions contemplated hereby or by the Ancillary Agreements;

          (iii) to effect all necessary registrations and filings and submissions of information requested by Governmental Authorities; and

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          (iv) to fulfill all conditions to this Agreement.

Without limiting the foregoing, the Parties acknowledge that it is in their mutual interest to work cooperatively prior to the Closing Date to facilitate the effective implementation of the Fiber Supply Agreements as of the Closing Date to ensure the continuous supply of fiber products to Seller’s manufacturing facilities after the Effective Time.

          (b) Certain Filings. In furtherance and not in limitation of the foregoing, each of the Parties agrees to make, or cause to be made, all necessary filings required pursuant to the HSR Act and any other Regulatory Law with respect to the transactions contemplated hereby as promptly as practicable after the date of this Agreement, but in no event later than 15 days after the date hereof, and to supply as promptly as practicable any additional information and documentary material that may be requested pursuant to the HSR Act and any other Regulatory Law and to request early termination of the waiting period under the HSR Act and to use all commercially reasonable efforts to cause the expiration or early termination of the applicable waiting periods under the HSR Act in the most expeditious manner practicable.

          (c) Cooperation. If necessary to obtain any consent, approval, permit or authorization or to remove any impediment to the transactions contemplated hereby or by any Ancillary Agreement relating to any Regulatory Law or to avoid the entry of, or to effect the dissolution of, any injunction, temporary restraining order or other order in any suit or proceeding relating to Regulatory Law, each of the Parties shall reasonably cooperate with each other and take such lawful steps as shall be necessary or appropriate to secure such end, including an agreement by any Buying Party to hold separate or divest any of the Purchased Assets.

     Section 9.2 Maintenance of Business.

          (a) Subject to the terms and conditions of this Agreement, and except as otherwise contemplated hereby, Seller, from the date hereof through the Closing Date, shall use commercially reasonable efforts to maintain the Purchased Assets in the ordinary course in all material respects; provided, however, that it is understood and agreed that if Seller harvests timber in accordance with the 2005-2009 Sustainable Forestry Initiative Standard, as amended or updated from time to time, such harvest activity will be deemed not to violate this Section 9.2(a).

          (b) Subject to the terms and conditions of this Agreement, and except as Seller may otherwise agree in writing, each Buying Party shall not interfere with Seller’s conduct of business with respect to the Purchased Assets pending the Closing and shall not take any action that might reasonably be expected to impair Seller’s relationships with customers, suppliers or employees of the businesses and operations of Seller, whether or not associated with the Purchased Assets.

     Section 9.3 Public Announcements.

          (a) No Recording. This Agreement (or a memorandum thereof) may not be recorded by any Buying Party in any real property records. In the event that this Agreement (or

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a memorandum thereof) is so recorded by any Buying Party, Seller may, at its option, terminate this Agreement.

          (b) Certain Disclosures. Notwithstanding anything to the contrary set forth in Section 15.7 or the Confidentiality Agreement, except as required by applicable Law (including rules and regulations promulgated by the SEC) or stock exchange rules, Seller and the Buying Parties shall consult with each other before issuing, and will provide each other the opportunity to review, comment upon and concur with, and use commercially reasonable efforts to agree on, any press release and other public announcement with respect to the transactions contemplated by this Agreement, including the time, form and content of such press release or public announcement, and shall not issue any such press release or make any such public announcement prior to such consultation; provided, however, that any disclosure required to be made under applicable Law, stock exchange rules or rules and regulations promulgated by the SEC may be made without such mutual agreement if a Party required to make such disclosure has determined in good faith that it is necessary to do so and has used commercially reasonable efforts, prior to the issuance of the disclosure, to provide the other Parties with a copy of the proposed disclosure and to discuss the proposed disclosure with the other Parties. Notwithstanding the foregoing, Seller may make any filing required by any rule or regulation promulgated by the SEC without consultation with any Buying Party.

     Section 9.4 Books and Records.

          (a) Delivery. At the Closing, Seller shall use commercially reasonable efforts to provide to Parent (except for those items that are stored at locations included in the Purchased Assets) with copies of all maps (including backup data), surveys, drawings, deeds, timber harvest records and other property records, in each case, exclusively related to the Purchased Assets or the Assumed Liabilities, that are in Seller’s possession or control and are not subject to the attorney-client or other privilege (as reasonably and in good faith determined by Seller) (the “Books and Records”); provided, however, that Seller shall have no obligation to provide (i) any information to Parent regarding the pricing of timber, internal appraisals of the Purchased Assets, other valuations or similar pricing or financial records, or any other information that is confidential and proprietary to Seller, (ii) any Reserved Mineral Records, or (iii) any document or item that Seller is contractually or otherwise bound to keep confidential. Notwithstanding the foregoing, Seller may retain a copy of the Books and Records for legal compliance or regulatory purposes or in accordance with its internal document retention policies.

          (b) Access. For a period of seven years after the Closing, (i) Seller will provide Parent with reasonable access, at Parent’s cost, to any books and records then in Seller’s possession to the extent such books and records relate to the Purchased Assets or the Assumed Liabilities (subject to the proviso set forth in Section 9.4(a)), and (ii) Parent will provide Seller with reasonable access, at Seller’s cost, to any books and records in any Buying Party’s possession to the extent such books and records relate to the Excluded Assets or the Excluded Liabilities. Notwithstanding the foregoing, this Section 9.4(b) shall not obligate any Party to retain email for periods longer than those specified in its published document retention policy, as the same may be amended or modified from time to time.

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     Section 9.5 Dispute Resolution.

          (a) Initial Discussions. In the event that a Party gives notice of any dispute, claim, question, disagreement or controversy arising from or relating to this Agreement or the breach thereof, or the Purchased Assets, other than those disputes, claims, questions, disagreements or controversies for which dispute resolution procedures are set forth in Section 2.3 (a “Dispute”), representatives of the Parties shall use their reasonable commercial efforts to settle the Dispute. To this effect, such representatives shall consult and negotiate with each other in good faith and, recognizing their mutual interests, attempt to reach a just and equitable solution satisfactory to the Parties. If the representatives are unable to resolve any Dispute within thirty (30) days after the date of the notice of such Dispute, any Party may, by giving notice to the other Party, refer the Dispute to a senior executive officer of each Party or an Affiliate (each, a “Party Executive”) for resolution. The Party Executives will meet, either physically at a mutually convenient location or by telephone or videoconference, with each other to endeavor to resolve the Dispute in view of the Parties’ mutual interest in reaching a reasonable business resolution. If the Party Executives are unable to resolve the Dispute within thirty (30) days after submission to them, the Party Executives shall in good faith discuss the desirability of submitting the Dispute to mediation or binding arbitration before a single mediator or arbitrator who has at least ten (10) years relevant industry experience in the matter that is the subject of the Dispute. If the Party Executives cannot unanimously agree to submit the Dispute to mediation or binding arbitration within sixty (60) days after the Dispute was first submitted to them, or upon the failure of any agreed-upon mediation to resolve the Dispute, the Parties may pursue such rights and remedies as are available under this Agreement or otherwise.

          (b) Evidentiary Status. All settlement offers, promises, conduct and statements, whether oral or written, made in the course of the settlement or any mediation process by either Seller or Parent, their agents, employees, experts and attorneys, and by the mediator, are confidential, privileged and inadmissible for any purpose, including impeachment, in any litigation, arbitration or other proceeding involving the Parties; provided, however, that evidence that is otherwise admissible or discoverable shall not be rendered inadmissible or non-discoverable as a result of its disclosure during settlement or mediation efforts.

          (c) Forebearance. During the pendency of the settlement or any mediation process, the Parties agree to forebear from filing or otherwise proceeding with litigation; provided, however, that either Seller, on the one hand, or Parent, on the other hand, shall be entitled to seek a temporary restraining order or preliminary injunction to prevent the breach of Seller’s or the Buying Parties’ obligations, as the case may be, under this Agreement. If any agreement of the Parties to use mediation breaks down and a later litigation is commenced or application for an injunction is made, the Parties will not assert a defense of laches or statute of limitations based upon the time spent in mediation.

          (d) Litigation. Either Seller or Parent may initiate litigation with respect to any Dispute submitted to the Party Executives at any time following 60 days after the initial meeting between the Party Executives session or 90 days after the date of sending the written request for resolution by the Party Executives, whichever occurs first.

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          (e) Enforcement. The provisions of this Section 9.5 may be enforced by any court of competent jurisdiction, and the Party seeking enforcement shall be entitled to an award of all costs, fees and expenses, including attorneys’ fees, to be paid by the Party against whom enforcement is ordered.

     Section 9.6 Required Consents.

          (a) Each of the Parties shall cooperate, and use all commercially reasonable efforts, to make all filings and obtain all licenses, permits, consents, approvals, authorizations, qualifications and orders of Governmental Authorities and other third parties necessary to consummate the transactions contemplated by this Agreement. In addition to the foregoing, Parent agrees to provide such assurances as to financial capability, resources and creditworthiness as may be reasonably requested by any Person whose consent or approval is sought hereunder or in connection herewith. Notwithstanding the foregoing, nothing herein shall obligate or be construed to obligate any Party to make any payment to any Person in order to obtain the consent or approval of such Person or to transfer any Purchased Contract, Timberland Lease, Real Property Lease, Personal Property Lease or License in violation of its terms. With respect to any agreement for which any required consent or approval is not obtained prior to the Closing, each of Seller and Parent shall use all commercially reasonable efforts to obtain any such consent or approval after the Closing until either such consent or approval has been obtained or the Parties determine in good faith that such consent cannot reasonably be obtained. In addition, to the extent that any Purchased Contract, Timberland Lease, Real Property Lease, Personal Property Lease or License may not be assigned without the consent or approval of any Person, and such consent is not obtained prior to the Closing, Seller shall use all commercially reasonable efforts to provide the applicable Buying Party with the same benefits (and such Buying Party shall be responsible for all corresponding obligations) arising under such Purchased Contract, Timberland Lease, Real Property Lease, Personal Property Lease or License, including performance by Seller (or such Buying Party, if applicable) as agent, if legally permissible and commercially feasible; provided, however, that such Buying Party (or Seller, if applicable) shall provide Seller (or such Buying Party, if applicable) with such access to the premises, books and records and personnel as is reasonably necessary to enable Seller (or such Buying Party, if applicable) to perform its obligations under such Purchased Contracts, Timberland Leases, Real Property Leases, Personal Property Leases or Licenses and the applicable Buying Party shall pay or satisfy the corresponding liabilities for the enjoyment of such benefits to the extent the applicable Buying Party would have been responsible therefor if such consent or approval had been obtained.

          (b) In addition, Seller shall request from the lessors of each Timberland Lease listed in Section 9.6 of the Seller’s Disclosure Letter a statement indicating (i) whether the applicable Timberland Lease is in full force and effect, (ii) the current rental amount, (iii) that rent has been paid for the current month or applicable period, (iv) the lease termination date, (v) any options to extend, and (vi) whether or not such lessor has given any written notice of default under their respective Timberland Lease which remains uncured; provided, however, that actually obtaining any or all of such statements from any or all of the lessors of such Timberland Leases shall not be a condition precedent to Closing, nor shall the failure to obtain any such statement constitute a breach by Seller of this Agreement.

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     Section 9.7 Continuing Agreements. Each Buying Party acknowledges that the Purchased Assets are and will continue to be subject to certain Contracts that are Excluded Assets (the “Continuing Agreements”), including certain oil, gas and mineral leases affecting the Timberlands and relating to the Reserved Mineral Interests and Rights. Each Buying Party further acknowledges that from the date of this Agreement to the Closing Date, Seller may enter into additional Continuing Agreements in respect of the Purchased Assets, and that the entry into such Continuing Agreements shall be deemed not to breach this Agreement; provided, however, that such Continuing Agreements shall not be reasonably likely, individually or in the aggregate, to have a material adverse effect on the value, use, operations, possession or enjoyment by any Buying Party of the Timberlands or any material portion thereof for growing and harvesting timber. For so long as any of the Continuing Agreements remains in effect from and after the Closing Date, the applicable Buying Party shall comply (and shall assist Seller in its compliance) with the obligations thereunder that apply to Seller as surface owner as if such Buying Party were a party thereto and such Buying Party shall be entitled to the surface payments related to such Continuing Agreements.

     Section 9.8 Formation of Timber LLCs. Seller shall form, or cause to be formed, prior to Closing each of the Timber LLCs as a Delaware limited liability company to acquire the Timber LLC Assets as described in Section 1.2.

ARTICLE X
ADDITIONAL AGREEMENTS RELATING TO THE TIMBERLANDS

     Section 10.1 Right of Entry.

          (a) General; Certain Limitations. Upon reasonable prior written notice to Seller, but in no event less than five days prior notice, and receipt of written authorization from Seller (which shall not be unreasonably withheld and shall be given or withheld within five days after receiving written notice from Parent), prior to the Closing Date or termination of this Agreement in accordance with Article XIV, Parent, through its authorized agents or representatives, may enter upon the Timberlands at all reasonable times for the purposes of making inspections and other studies; provided, however, that neither Parent nor its agents or representatives shall (i) enter upon the Timberlands for the purpose of preparing Phase II Reports or making any soil borings or other invasive or other subsurface environmental investigations relating to all or any portion of the Timberlands, (ii) prepare or instruct its agents or representatives to prepare Phase II Reports or make any soil borings or other invasive or other subsurface environmental investigations relating to all or any portion of the Timberlands, or (iii) contact any official or representative of any Governmental Authority regarding Hazardous Substances on or the environmental condition of the Timberlands, in each case without Seller’s prior written consent thereto. Upon the completion of such inspections and studies, Parent, at its expense, shall repair any damage caused to the Purchased Assets and remove all debris resulting from and all other material placed on the Timberlands in connection with Parent’s inspections and studies, provided that such repair obligations shall not extend to the remediation of preexisting conditions merely discovered as a result of such inspections or studies at the Timberlands or with respect to the Purchased Assets.

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          (b) Disclosure of Results. At Seller’s request, Parent shall disclose the results of such inspections and studies, and shall deliver copies of all reports and test results, to Seller. The results of such inspections and studies (as well as any information and documents that Seller delivered or caused to be delivered to Parent concerning the Timberlands) shall be treated as strictly confidential by the Parties and the same shall not be disclosed to any third party or Governmental Authority (provided that such results, information and documents may be disclosed to consultants, attorneys, investors and lenders of Parent for use solely in connection with the transactions contemplated by this Agreement, who shall be required by Parent to similarly treat such results, information and documents as strictly confidential) except to the extent required by any Law or court order or in connection with any legal proceeding filed to enforce a Party’s rights under this Agreement. In the event that disclosure of the results of any such inspection or study or any such information or document that Seller delivered or caused to be delivered to Parent concerning the Timberlands is required by applicable Law or court order, Parent shall notify Seller promptly in writing so that Seller may seek a protective order (at its own cost and expense) or other appropriate remedy or, in its sole discretion, waive compliance with the terms of this Section 10.1(b). Parent shall cooperate with Seller to obtain a protective order or other appropriate remedy. In the event that no such protective order or other appropriate remedy is obtained, or Seller waives compliance with the terms of this Section 10.1(b), Parent shall give Seller written notice of the information to be disclosed as far in advance of its disclosure as practicable.

          (c) Insurance. Parent agrees that any Buying Party, and the contractors, representatives and agents of any Buying Party who enter upon the Timberlands shall maintain general liability insurance, naming Seller as an additional insured, in an amount not less than $1,000,000 and, prior to any such entry upon the Timberlands, shall provide Seller with written evidence of such insurance.

     Section 10.2 Permits and Licenses. Parent shall be solely responsible for obtaining all permits and licenses, if any, required by any Buying Party to carry on its intended operations on the Timberlands.

     Section 10.3 Environmental Matters . Seller has provided a copy of each of the environmental site assessments identified in Section 10.3 of Seller’s Disclosure Letter to Parent (individually, a “Phase I Report” and collectively, the “Phase I Reports”) upon the following terms and conditions: (i) the Phase I Reports are provided for informational purposes only, without any representation or warranty by or on behalf of Seller as to the accuracy or completeness of the information contained therein; (ii) the Phase I Reports are subject to the terms and conditions of the Confidentiality Agreement; and (iii) no information contained in the Phase I Reports shall be deemed to obligate Seller to take any action, including, but not limited to, action to remediate any condition described in the Phase I Reports. Parent acknowledges receipt of the Phase I Reports and accepts delivery of the Phase I Reports upon the terms and conditions set forth herein.

     Section 10.4 Conservation Matters. Each of the Buying Parties acknowledges that: (i) the Timberlands include certain areas referred to as “Distinctive Sites,” which areas are described in Section 10.4(1) of Seller’s Disclosure Letter; (ii) Seller manages the Distinctive Sites pursuant to separate management plans (each a “Distinctive Site Management Plan”) and a

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copy of the Distinctive Site Management Plan for each Distinctive Site is identified in Section 10.4(2) of Seller’s Disclosure Letter and attached thereto; (iii) the Timberlands are subject to habitat conservation plans or similar agreements as set forth in Section 10.4(3) of Seller’s Disclosure Letter (the “Habitat Conservation Plans”); and (iv) the Timberlands include the Conservation Block. Immediately prior to the Closing each Timber LLC shall assume the obligations set forth in the Distinctive Site Management Plans and the Habitat Conservation Plans with respect to the Timberlands that such Timber LLC is acquiring pursuant to this Agreement. So long as any such Timber LLC is a direct or indirect Subsidiary of Parent, Parent shall cause any such Timber LLC: (x) to manage and operate the Timberlands subject to any such Distinctive Site Management Plan or Habitat Conservation Plan in accordance therewith; and (y) to manage and operate the Conservation Block in a manner that maintains the nature and protection of the Conservation Block and is consistent with the Seller’s historical stewardship.

     Section 10.5 Certain Employee Hunting Leases. With respect to the hunting leases listed in Section 10.5 of the Seller’s Disclosure Letter (the “Employee Hunting Leases”), Parent shall, so long as any Timber LLC owning the real property covered by any Employee Hunting Lease is a direct or indirect Subsidiary of Parent, cause any such Timber LLC to continue to lease the property covered under such Employee Hunting Lease to the lessees under such Employee Hunting Lease at the market rate but otherwise on substantially the same terms until at least the third anniversary of the Closing Date.

     Section 10.6 Reserved Rights and Interests. To the extent affirmative action is necessary for Seller to reserve the ownership of the Reserved Mineral Interests and Rights, the Reserved Water Rights and the Reserved Groundwater Nonparticipating Royalty Interest, or to establish or confirm title to the Reserved Mineral Interests and Rights, the Reserved Water Rights and the Reserved Groundwater Nonparticipating Royalty Interest in Seller, each Buying Party and its Affiliates shall cooperate with Seller in such efforts, including executing all documents pertaining to the Reserved Mineral Interests and Rights, the Reserved Water Rights and the Reserved Groundwater Nonparticipating Royalty Interest as are reasonably requested by Seller. Notwithstanding the foregoing, after the Effective Time Seller shall not conduct Surface Mining Operations on the Timberlands without first obtaining the written consent of Parent, which may or may not be granted in Parent’s sole discretion.

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     Section 10.7 Certain Easements.

          (a) Easement Title. To the extent affirmative action is necessary for Seller to acquire or reserve the easement ownership of the Reserved Easements or to establish or confirm easement title to the Reserved Easements in Seller, each Buying Party and its Affiliates shall cooperate with Seller in such efforts, including by executing all documents pertaining to the Reserved Easements as are reasonably requested by Seller. To the extent affirmative action is necessary for any Timber LLC to acquire the easement ownership of the Buyer Easements or to establish or confirm easement title to the Buyer Easements in such Timber LLC, Seller shall cooperate with such Timber LLC in such efforts and shall use commercially reasonable efforts to assist such Timber LLC in acquiring such ownership, including executing all documents pertaining to the Buyer Easements as are reasonably requested by such Timber LLC.

          (b) Post-Closing Reserved Easements. For a period of one year following the Closing Date, in the event that Seller identifies any portion of the Timberlands that should have been identified as a Reserved Easement, but was not disclosed to Parent prior to the Closing (a “Post-Closing Reserved Easement”), so long as such Post-Closing Reserved Easement relates to a use or access right that existed as of the Effective Time (taking into account the change of ownership of Seller’s various properties and assets) and does not have a material adverse effect on the value, use, operations, possession or enjoyment of the Timberlands for growing and harvesting timber, each Buying Party and its Affiliates shall reasonably cooperate with Seller, at Seller’s sole cost and expense, in any commercially reasonable effort that may be necessary for Seller or any Person who may acquire facilities not included in the Purchased Assets from Seller to acquire easement ownership in any Post-Closing Reserved Easement or to establish or confirm easement title to the Post-Closing Reserved Easements in Seller or such Person, including executing all documents pertaining to the Post-Closing Reserved Easements as are reasonably requested by Seller or any such Person, provided that each Buying Party’s or Affiliate’s reasonable cooperation shall mean such Buying Party or Affiliate’s approval (which shall not be unreasonably withheld, conditioned or delayed) as to the form of the easement agreement being entered into and the actual easement area to be granted.

          (c) Post-Closing Buyer Easement. For a period of one year following the Closing Date, in the event that Parent identifies property owned by Seller in the vicinity of any of the Timberlands that should have been identified as a Buyer Easement, but was not disclosed to Seller prior to the Closing (a “Post-Closing Buyer Easement”), so long as such Post-Closing Buyer Easement relates to a use or access right that existed as of the Effective Time and does not have a material adverse effect on the value, use, operations, possession or enjoyment by Seller of such property, Seller and its Affiliates shall reasonably cooperate with Parent, at Parent’s sole cost and expense, in any commercially reasonable effort that may be necessary for any Timber LLC or any of its Affiliates to acquire ownership in any Post-Closing Buyer Easement or to establish or confirm title to any Post-Closing Buyer Easement in such Timber LLC or any of its Affiliates, including executing such documents pertaining to the Post-Closing Buyer Easements as are reasonably requested by such Timber LLC or any of its Affiliates, provided that Seller’s or its Affiliate’s reasonable cooperation shall mean Seller’s or such Affiliate’s approval (which shall not be unreasonably withheld, conditioned or delayed) as to the form of the easement agreement being entered into and the actual easement area to be granted.

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          (d) No Interference. None of the Buying Parties or any of its Affiliates shall interfere with or oppose the Reserved Easements or any Post-Closing Reserved Easements. None of Seller or any of its Affiliates shall interfere with or oppose the Buyer Easements or any Post-Closing Buyer Easements.

     Section 10.8 Title Insurance Matters.

          (a) Title Commitments and Policies. Seller shall provide to Parent title commitments from the Title Company dated no earlier than April 15, 2007 for the issuance of one or more Title Policies on the Owned Timberlands being conveyed to the Timber LLCs and the Leasehold Interests being conveyed to the Timber LLCs (individually, a “Title Commitment” and collectively, the “Title Commitments”). At the Closing, Buyers shall purchase from the Title Company an aggregate amount of title insurance on the Owned Timberlands and such Leasehold Interests being conveyed to Timber LLCs in amounts not less than the amount of the Installment Note Purchase Price (allocated by county and/or state, as applicable) and allocated to the Purchased Assets being conveyed to it using (i) Form 70 (modified 1984) ALTA owner’s or leasehold title insurance policy with respect to the Timberlands located in Georgia and Alabama, (ii) Form TLTA T-1 owner’s or leasehold title insurance policy with respect to the Timberlands located in Texas and (iii) if available, the standard 2006 ALTA owner’s or leasehold title insurance policy with respect to the Timberlands located in Louisiana, in each case without any exceptions for mechanics’ liens and with all endorsements reasonably requested by Buyers, subject only to Permitted Exceptions and pre-printed exceptions that cannot be removed by delivery of the Title Affidavit (the “Title Policies”).

          (b) No Surveys. Other than in accordance with Section 9.4(a), Seller shall not provide any survey of the Timberlands to Parent. Each of the Buying Parties agrees that the obtaining of any survey of the Timberlands or any portion thereof shall not be a condition precedent to such Buying Party’s obligation to consummate the transactions contemplated by this Agreement or the Ancillary Agreements and that any survey obtained by any Buying Party shall be at its sole cost and expense.

          (c) Title Expenses. Seller shall be responsible for the costs associated with the title examinations and the issuance of the Title Commitments that are separately stated from the premiums for the Title Policies. The Buying Parties shall be responsible for the premiums (including title examination and issuance costs included therein) payable in connection with the issuance of the Title Policies.

     Section 10.9 Transfer of Timber LLC Assets. Immediately prior to the Closing, Seller shall assign, convey and transfer to each Timber LLC all of its right, title and interest in the Timber LLC Assets to be assigned, conveyed and transferred to such Timber LLC as identified on Schedule B, free and clear of any Lien, subject to the Permitted Exceptions; provided, however, that Seller shall reserve for itself and its successors and assigns the Reserved Easements and the Reserved Mineral Interests and Rights with respect to the Timber LLC Assets.

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     Section 10.10 No Transfers.

          (a) Timber LLC Interests. No Buyer shall distribute, transfer or otherwise dispose of the Timber LLC Interests acquired by it and neither Parent nor any Buyer shall cause or permit any Timber LLC to distribute, transfer or otherwise dispose of any of the Timber LLC Assets held by such Timber LLC (except as contemplated by the Master Stumpage Agreement, and except that any Timber LLC may distribute cash to its Buyer parent), in each case to Parent (or any other Person related to Parent or any Buyer), or commit to do any of the foregoing, in each case until a period of one year has elapsed from the Closing Date.

          (b) Buyer Interests. Parent shall not transfer or otherwise dispose of its interest in any of Buyers or commit to do so, (i) to a Credit Enhancement Bank or any Affiliate thereof, at any time or (ii) to any other Person, until a period of one year has elapsed from the Closing Date. Any transfer or other disposition by Parent (or any subsequent transferee) of its interest in any Buyer following such one-year period shall be made only in compliance with the applicable Master Stumpage Agreement and shall require the prior written consent of Seller (such consent not to be unreasonably withheld, conditioned or delayed) and the written agreement of any transferee in favor of Seller to (i) comply with the obligations of Parent under the limited liability company agreement of such Buyer and under Sections 10.10, 10.11 and 15.7 of this Agreement as if such transferee were Parent and (ii) cause any such Buyer to comply with all of its obligations, covenants and representations under the limited liability company agreement of such Buyer and the Transaction Documents.

          (c) Compliance with Transaction Documents. For so long as Parent owns all of the outstanding interests in any Buyer, Parent shall comply, and shall cause any such Buyer to comply, and at all times such Buyer shall comply, in each case, with all of their respective obligations, covenants and representations under the limited liability company agreement of such Buyer or under the Transaction Documents. The Parties agree that in no event shall Parent have any obligation as a guarantor, surety or otherwise, to pay or perform any of the obligations of any Buyer under the Timber Notes or any reimbursement agreement in respect of the Letters of Credit. Prior to payment in full of the Timber Notes at maturity, no amendment, modification or waiver of any provision of the limited liability company agreement of any Buyer may be made without the prior written consent of Seller.

          (d) Mortgage Liens. Notwithstanding anything herein to the contrary, any Timber LLC may grant mortgage liens on the Timberlands owned by it to banks, insurance companies, pension or benefit plans, investment funds that are in the business of making mortgage loans, or similar institutional lenders subject to the requirements and restrictions set forth in the Master Stumpage Agreement and the Fiber Supply Agreements, including the requirement that any such mortgage lien be subject to and subordinate to the Master Stumpage Agreement and the Fiber Supply Agreements.

     Section 10.11 Tax Matters. Neither Parent nor any Buyer shall (i) make any election under Treasury Regulations Section 301.7701-3 (or any corresponding provision of state and local Tax law) to treat any such Buyer as an association taxable as a corporation or (ii) take any action that would cause any such Buyer to have more than one owner for U.S. federal (or any applicable state and local) Income Tax purposes. For so long as Parent owns all of the

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outstanding interests in any Buyer, Parent shall treat each Timber Note issued by such Buyer as indebtedness of Parent for all applicable Income Tax purposes.

     Section 10.12 Note Document Assistance.

          (a) Further Assurances. Each Buyer shall do, execute, acknowledge, deliver, record, re-record, file, re-file, register and re-register any and all such further acts, deeds, certificates, assurances and other instruments as may be reasonably necessary or reasonably desirable from time to time in order to (i) carry out more effectively the purposes of the Timber Notes issued by it, the Letters of Credit and all documents related thereto (collectively, the “Note Documents”) and (ii) assure, convey, grant, assign, transfer, preserve, protect and confer more effectively unto Seller (or any assignee of the Timber Notes) the rights granted or now or hereafter intended to be granted to Seller (or such assignee) under any Note Document or under any other instrument executed in connection with any Note Document to which such Buyer is or is to be a party.

          (b) Cooperation. Each Buyer shall cooperate in connection with any transaction relating to the Timber Notes as may be reasonably requested by Seller, its Affiliates and any holder of the Timber Notes (collectively, the “Note Parties”), at the expense of the Note Parties, including (i) furnishing the Note Parties with such financial and other pertinent information regarding such Buyer (but not Parent) as may reasonably be requested by Seller and (ii) obtaining a legal opinion that if Parent, Buyer Affiliate, any Timber LLC or any Affiliate of such Person were to become a debtor in a case under Title 11 of the United States Code, the bankruptcy court would not order the substantive consolidation of the assets and liabilities of such Buyer with those of such Person, and such customary limited liability company law opinions concerning such Buyer as may reasonably be requested by Seller. Notwithstanding anything herein to the contrary, no Buyer shall take any step designed to create or encourage the making of a market in the Timber Notes or the listing or trading of the Timber Notes on an “established securities market” or otherwise take any action designed to render the Timber Notes “readily tradable in an established securities market” within the meaning of Treasury Regulation § 15A.453-1(e)(4).

     Section 10.13 Financing.

          (a) Debt Financing. Parent shall obtain the Debt Financing on the terms described in the Debt Commitment Letter, including (i) negotiating definitive agreements with respect thereto on the terms and conditions contained therein, (ii) satisfying on a timely basis all conditions applicable to Parent in such definitive agreements that are within its control, and (iii) consummating the Debt Financing contemplated by the Debt Commitment Letter at Closing. Parent shall provide notice to Seller promptly upon receiving the Debt Financing. If any portion of the Debt Financing becomes unavailable on the terms and conditions contemplated in the Debt Commitment Letter, Parent shall arrange to obtain alternative financing, including from alternative sources, as promptly as practicable following the occurrence of such event. Parent shall give Seller prompt notice upon becoming aware of any material breach by any party to the Debt Commitment Letter or any termination of the Debt Commitment Letter. Parent shall keep Seller informed on a reasonably current basis in reasonable detail of the status of its efforts to obtain the Debt Financing and shall not permit any material amendment or modification to be

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made to, or any waiver of any material provision or remedy under, the Debt Commitment Letter without the prior written consent of Seller (such consent not to be unreasonably withheld, conditioned or delayed). Parent shall timely pay any and all commitment and other fees required by the Debt Commitment Letter to be paid prior to or at the Closing.

          (b) Equity Funding. Parent shall obtain the Equity Funding contemplated by the Equity Commitment Letters. Parent shall not permit any amendment or modification to be made to, or any waiver of any material provision or remedy under, any Equity Commitment Letter without the prior written consent of Seller (such consent not to be unreasonably withheld, conditioned or delayed).

          (c) Letters of Credit. Parent shall arrange for one or more Credit Enhancement Banks to issue Letters of Credit on terms and conditions that are consistent with the Timber Note Indicative Terms in an aggregate amount of not less than the Installment Note Purchase Price plus an interest component equal to the accrued interest on the Timber Notes for one full interest period plus 30 business days (the “L/C Amount”), including (i) obtaining as soon as practicable a firm commitment (each, an “L/C Commitment Letter”), in form and substance satisfactory to Seller, to provide such Letters of Credit, (ii) negotiating definitive agreements with respect to such Letters of Credit on the terms and conditions contained in the L/C Commitment Letter, (iii) satisfying on a timely basis all conditions applicable to Parent or the applicable Buyer in such definitive agreements that are within its control, and (iv) consummating the issuance of the Letters of Credit at Closing. Parent shall give Seller prompt notice upon becoming aware of any material breach by any party to any L/C Commitment Letter or any termination of any L/C Commitment Letter. Parent shall keep Seller informed on a reasonably current basis in reasonable detail of the status of its efforts to arrange the Letters of Credit and shall not permit any material amendment or modification to be made to, or any waiver of any material provision or remedy under, the L/C Commitment Letters without the prior written consent of Seller (such consent not to be unreasonably withheld, conditioned or delayed). Parent and Seller shall consult in good faith and cooperate in determining the maximum aggregate amounts of Letters of Credit per Credit Enhancement Bank and otherwise with respect to the terms of the Letter of Credit documentation. In the event any portion of the Letters of Credit becomes unavailable to any Buyer on the terms and conditions contemplated in the applicable L/C Commitment Letter, Parent shall arrange to obtain substitute letters of credit, including from alternative sources, on terms and conditions that are not materially less beneficial to Parent, such Buyer or Seller and that are consistent with the Timber Note Indicative Terms, promptly following the occurrence of such event. Upon request of Seller, Parent shall arrange for each Credit Enhancement Bank to deliver to Seller at the Closing such Credit Enhancement Bank’s agreement to deliver after the Closing, upon request of Seller or any beneficiary of a Letter of Credit issued by such Credit Enhancement Bank, a legal opinion, in form and substance, and by counsel reasonably acceptable to the requesting Person, addressing such customary corporate law opinions as may be requested by such Person with respect to such Credit Enhancement Bank and such Letter of Credit, including existence, good standing, power, authority, execution of documents, enforceability of documents, and no conflict with organizational documents, Contracts or Law.

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ARTICLE XI
HUMAN RESOURCES MATTERS

     Section 11.1 Anti-Solicitation. Except as otherwise expressly set forth herein, the provisions of the Confidentiality Agreement governing solicitation for employment, inducing or attempting to induce to leave the employ of Seller or any Affiliate of a Seller, and employing or hiring certain employees of Seller shall remain in effect after the date hereof until the termination of such provisions in accordance with their terms under the Confidentiality Agreement.

     Section 11.2 Transferred Employees. Parent (or its Affiliate) shall have the right, but not the obligation, to hire (effective as of the Closing) some or all of the Eligible Employees. Seller shall make the Eligible Employees available during regular business hours and upon reasonable prior notice for employment interviewing and screening by Parent (or its Affiliate). Parent shall provide Seller with the names of those Eligible Employees to whom Parent (or an Affiliate) will offer employment no less than 30 days prior to the Closing Date. Seller shall be responsible for terminating or continuing to employ any Eligible Employee who (i) does not receive an offer of employment from Parent (or an Affiliate), (ii) receives an offer of employment from Parent (or an Affiliate) but does not accept such offer prior to or as of the Closing, or (iii) does not satisfactorily complete Parent’s (or an Affiliate’s) customary employment screening and whose offer of employment from Parent (or an Affiliate) has been withdrawn prior to the Closing. Seller will provide Parent with commercially reasonable assistance in the conduct of the interviewing and hiring of the Eligible Employees (any Eligible Employee that accepts employment with Parent (or an Affiliate) effective as of the Closing, a “Transferred Employee” and collectively, the “Transferred Employees”). With respect to the Transferred Employees, at the Closing, employment with Seller or any Affiliate shall terminate and employment with Parent (or an Affiliate) shall commence. No less than 30 days prior to the Closing, and thereafter at least one time on each business day through the Closing Date, Parent shall provide notice to Seller of the Eligible Employees who (x) have accepted offers of employment, (y) have declined offers of employment or have failed to accept an offer of employment prior to the Closing, and (z) have failed to satisfactorily complete Parent’s (or an Affiliate’s) customary employment screening and whose offer of employment has been withdrawn. Nothing in this Agreement, either express or implied, shall confer upon any Eligible Employee any right to employment or continued employment for any specified period or of any nature or kind whatsoever under or by reason of this Agreement.

     Section 11.3 Severance Matters. In the event that any Transferred Employee is discharged by Parent (or an Affiliate) within 12 months after the Closing Date (other than for “cause” or because of such Transferred Employee’s voluntary termination or retirement), then Parent shall treat such Transferred Employee, and shall be responsible for severance, in accordance with Seller’s severance plan, as described in Section 11.3 of Seller’s Disclosure Letter. Parent shall be responsible and assume all liability for all notices or payments due to any Transferred Employee, and all notices, payments or assessments due to any Governmental Authority, pursuant to any applicable Law with respect to the employment, discharge or layoff of Transferred Employees by the Parent (or an Affiliate) after the Closing, including, but not limited to, the federal Worker Adjustment and Retraining Notification Act and any rules or regulations as have been issued in connection with the foregoing.

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     Section 11.4 Benefit Plans. Except as expressly provided in this Article XI, Parent shall not be obligated to continue or maintain any employee benefit plan (including all “employee benefit plans” within the meaning of Section 3(3) of ERISA), policy (including vacation policy) or employee fringe benefit program maintained by Seller for the benefit of its employees. Parent shall permit each Transferred Employee (and his or her spouse, domestic partner and dependents) to participate in its employee benefits plans (including all “employee benefit plans” within the meaning of Section 3(3) of ERISA), policies (including vacation policies) and employee fringe benefit programs that it makes available to its similarly situated employees (such plans, policies and programs, the “Parent Plans”) with coverage effective immediately upon the Closing and (i) with service with Seller deemed service with Parent for purposes of any length of service requirement, vesting period and differential benefits based on length of service and (ii) with credit under any welfare benefit plan for any deductible or co-payment paid for the current plan year under any such plan maintained by Seller; provided, however, that such crediting of service (x) does not result in duplication of benefits and (y) need not be given for benefit accrual purposes under any Parent Plan that is a “defined benefit plan” as defined in Section 3(35) of ERISA. Parent shall cause each Parent Plan to waive any pre-existing condition exclusion or restriction, any waiting period limitation, or any evidence of insurability requirements for the Transferred Employees to the extent such exclusions, restrictions, limitations or requirements had been waived or satisfied under the terms of any corresponding employee benefit plan of Seller immediately prior to the Closing.

     Section 11.5 Savings Plan Rollover. As soon as practicable following the Closing Date, Parent shall provide Seller with such documents and other information or make representations, in the case of clause (i) below, as Seller shall reasonably request to assure itself that: (i) The Campbell Group, A Participating Subsidiary of Old Mutual Asset Management Profit Sharing & 401(k) Plan (the “Savings Plan”) provides for the receipt of eligible rollover distributions (as such term is defined under Section 402 of the Code) from the Transferred Employees; and (ii) the Savings Plan and the trust established in connection therewith are qualified and tax-exempt under Sections 401(a) and 501(a) of the Code, evidenced by either a favorable determination letter issued by the Internal Revenue Service or an opinion, satisfactory to Seller’s counsel, of Parent’s counsel to the effect that the terms of the Savings Plan and its related trust qualify under Sections 401(a) and 501(a) of the Code. The account of any Transferred Employee under the Temple-Inland Salaried Savings Plan (the “Seller Savings Plan”), if distributed to such Transferred Employee, will be treated by Parent as an eligible rollover distribution; provided that Seller provides Parent with a favorable determination letter with respect to the Seller Savings Plan and indicates that any such distribution is a lump sum distribution of such Eligible Employee’s entire account balance in the Seller Savings Plan. Seller shall 100% vest or cause to be 100% vested, as of the Closing Date, the accounts under the Seller Savings Plan for each Transferred Employee. Each Transferred Employee who is a participant in the Seller Savings Plan shall be given the opportunity to “roll over” such account balance by way of an eligible rollover distribution to the Savings Plan, subject to and in accordance with the provisions of such Plan and applicable Law. Notwithstanding anything in this Agreement to the contrary, each Transferred Employee who is eligible to participate in the Seller Savings Plan will become eligible to participate in the Savings Plan as soon as reasonably practicable after the Closing Date.

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     Section 11.6 Accrued Vacation. Parent shall permit each Transferred Employee to use after the Effective Time any earned vacation time accumulated prior to the Closing Date but unused as of such date. No later than 10 days following the Closing Date, Seller shall deliver to Parent a report listing the earned but unused vacation time accumulated by each Transferred Employee prior to the Effective Time.

     Section 11.7 Certain Benefits and Claims. Seller shall remain responsible for (i) all benefits payable to Eligible Employees who, as of immediately preceding the Effective Time, were determined to be totally and permanently disabled in accordance with the applicable provisions of Seller’s health, accident, sickness, salary continuation, or short-term or long-term disability benefits plans or programs, and (ii) all workers’ compensation claims based on injuries occurring prior to the Effective Time; provided, however, that a workers compensation claim relating to any such injury is timely filed pursuant to applicable law.

ARTICLE XII
CONDITIONS PRECEDENT

     Section 12.1 Conditions to Obligations of Each Party to Close. The obligations of the Parties to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction or waiver, on or before the Closing Date, of the following conditions:

          (a) Waiting Periods. All waiting periods (and any extension thereof) applicable to the transactions contemplated by this Agreement, under Regulatory Law, including under the HSR Act, shall have expired or been earlier terminated and neither the Department of Justice nor the Federal Trade Commission shall have taken any action to enjoin or delay (for a period of longer than 120 days) the consummation of the transactions contemplated by this Agreement.

          (b) No Injunction. There shall be no injunction, restraining order or decree of any nature of any court or Governmental Authority that is in effect that restrains or prohibits the consummation of the transactions contemplated by this Agreement or imposes conditions on such consummation not otherwise provided for herein.

          (c) No Investigation. No Party shall have been advised by any United States federal government agency (which advisory has not been officially withdrawn on or prior to the Closing Date) that such government agency is investigating the transactions contemplated by this Agreement to determine whether to file or commence any litigation that seeks or would seek to enjoin, restrain or prohibit the consummation of the transactions contemplated by this Agreement and the Ancillary Agreements.

          (d) No Extraordinary Casualty Loss. During the period following the date of this Agreement and prior to Closing there shall not have occurred one or more Casualty Losses or Condemnation affecting the Timberlands in which the aggregate fair market value of the damaged and lost timber resulting from such Casualty Losses and/or Condemnation, as determined in accordance with Section 2.3(c), exceeds an amount equal to 20% of the Pre-Adjustment Purchase Price.

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     Section 12.2 Conditions to Obligations of the Buying Parties to Close. The obligation of the Buying Parties to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction or waiver, on or before the Closing Date of the following conditions:

          (a) [Intentionally Omitted]

          (b) Representations and Warranties. Each of the representations and warranties of Seller contained in this Agreement shall be true and correct, without regard to “materiality” or “Material Adverse Effect” or similar qualifications in each such representation and warranty, in each case as of the date of this Agreement and as of the Closing with the same effect as though made as of the Closing (except to the extent expressly made as of an earlier date, in which case as of such date), except where the failure of such representations and warranties to be true and correct as so made does not have and would not be reasonably likely to have, in each case individually or in the aggregate, a Material Adverse Effect.

          (c) Agreements and Covenants. Seller shall have performed or complied with, in all material respects, all agreements and covenants required by this Agreement to be performed or complied with by Seller on or prior to the Closing.

          (d) Seller Deliveries. Seller shall have tendered for delivery or caused to be tendered for delivery to Parent the items set forth in Section 3.2(a).

          (e) Title Commitments. The Title Company shall have provided to Parent and the Buyers the Title Commitments, “marked” to constitute Title Policies.

     Section 12.3 Conditions to Obligations of Seller. The obligation of Seller to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction or waiver, on or before the Closing Date, of the following conditions:

          (a) [Intentionally Omitted]

          (b) Representations and Warranties. Each of the representations and warranties of Parent contained in this Agreement shall be true and correct, without regard to “materiality” or similar qualifications in each such representation and warranty, in each case as of the date of this Agreement and as of the Closing with the same effect as though made as of the Closing (except to the extent expressly made as of an earlier date, in which case as of such date), except where the failure of such representations and warranties to be true and correct as so made does not have and would not be reasonably likely to have, in each case individually or in the aggregate, a material adverse effect on the ability of the Parent to perform its obligations under or consummate the transactions contemplated by this Agreement.

          (c) Agreements and Covenants. Each Buying Party shall have performed or complied with, in all material respects, with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Closing.

          (d) Deliveries. Parent shall have tendered for delivery or caused to be tendered for delivery to Seller the items set forth in Section 3.2(b).

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          (e) Limited Liability Company Agreements. Parent and each Buyer shall have entered into an amended and restated limited liability company agreement in respect of such Buyer in substantially the form of Exhibit L.

          (f) Title Policies. Each Timber LLC shall have purchased the Title Policies from the Title Company in respect of the Owned Timberlands and the Leasehold Interests being transferred to it immediately prior to the Closing and shall have provided Seller with written evidence that each Timber LLC has obtained the Title Policies.

          (g) Letters of Credit. The Letters of Credit supporting the Timber Notes issued by each Buyer in respect of the Installment Note Purchase Price shall have been delivered to Seller by the Credit Enhancement Banks in such maximum aggregate amounts per Credit Enhancement Bank as are satisfactory to Seller and on terms and conditions that are consistent with the Timber Note Indicative Terms.

ARTICLE XIII
SURVIVAL; INDEMNIFICATION

     Section 13.1 Survival. Except as otherwise set forth in this Article XIII, (i) all representations and warranties made in this Agreement and (ii) all agreements or covenants made in this Agreement and to be performed prior to or at Closing shall survive for a period of one year after the Closing Date; provided, however, that Sections 3.4, 5.7, 8.8, 10.10 and 10.11 shall survive for the applicable statute of limitations plus 60 days (the “Indemnity Period”). Notwithstanding the foregoing, except as set forth in Section 14.2, no representation, warranty, covenant or agreement shall survive any termination of this Agreement. After the Indemnity Period or, except as provided in Section 14.2, the Parties agree that no claims or causes of action may be brought against any Party or any of its directors, officers, employees, Affiliates, controlling persons, agents or representatives based upon, directly or indirectly, any of the representations and warranties contained in this Agreement. This Section 13.1 shall not limit any covenant or agreement of the Parties that contemplates performance after the Closing.

     Section 13.2 Seller’s Obligation to Indemnify for Excluded Liabilities. If the Closing occurs, Seller shall indemnify, defend and hold harmless each Buying Party and its directors, officers, employees, Affiliates, controlling Persons, agents and representatives and their successors and assigns (collectively, the “Buyer Indemnitees”) from and against any Loss asserted against or incurred by any Buyer Indemnitee as a result of or arising out of: (i) the Excluded Liabilities, provided that any Third Party Claim relating to any Excluded Liability shall be subject to the terms of Section 13.5(b); (ii) any Excluded Asset; (iii) a breach of any agreement or covenant of Seller in this Agreement that requires performance or compliance on or prior to the Closing, except for a breach of Section 10.8(a); (iv) a breach of any other agreement or covenant contained in this Agreement by Seller; (v) the failure of any Buyer to acquire at the Closing all right, title and interest in and to all of the outstanding membership interests in each Timber LLC to be acquired by such Buyer as identified on Schedule B, free and clear of any Lien in favor of any Person claiming by, through or under Seller; (vi) any claim by any Person for a broker’s, finder’s, financial advisor’s or other similar fee, payment or commission based upon any agreement, arrangement or understanding alleged to have been made by any such Person with Seller (or any Person acting on Seller’s behalf) in connection with the transactions

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contemplated by this Agreement; or (vii) any Accepted Parent Title Objection pursuant to Section 2.3(b)(iii); provided, however, that Seller’s obligation to indemnify Buyer Indemnitees in respect of any Accepted Parent Title Objection shall not exceed the fair market value of the portion of the Owned Timberlands subject to such Accepted Parent Title Objection (which fair market value shall be calculated in accordance with the first two sentences of Section 2.3(b)(iv)).

     Section 13.3 Parent’s Obligation to Indemnify for Assumed Liabilities. If the Closing occurs, Parent shall indemnify, defend and hold harmless Seller and its directors, officers, employees, Affiliates, controlling Persons, agents and representatives and their successors and assigns (collectively, the “Seller Indemnitees”) from and against any Loss asserted against or incurred by any Seller Indemnitee as a result of or arising out of: (i) the Assumed Liabilities and the Timber LLC Assumed Liabilities, provided that any Third Party Claim relating to any Assumed Liability or Timber LLC Assumed Liability shall be subject to the terms of Section 13.5(b); (ii) a breach of any agreement or covenant of any Buying Party (other than a Timber LLC), contained herein that contemplates performance or compliance on or prior to the Closing Date; (iii) a breach of any other agreement or covenant of any Buying Party (in the case of any agreement or covenant of any Timber LLC, to the extent such agreement or covenant is required by this Agreement to be performed or complied with after the Closing); (iv) the entry upon the Timberlands prior to the Closing by any Buying Party or any employee, contractor, representative or agent of any Buying Party; (v) any hiring activities of any Buying Party in respect of the Eligible Employees as described in Article XI of this Agreement; or (vi) any claim by any Person for a broker’s, finder’s, financial advisor’s or other similar fee, payment or commission based upon any agreement, arrangement or understanding alleged to have been made by any such Person with any Buying Party (or any Person acting on any Buying Party’s behalf) in connection with the transactions contemplated by this Agreement.

     Section 13.4 Indemnification for Breaches of Representations and Warranties.

          (a) Obligation to Indemnify. If the Closing occurs, then in addition to the indemnification obligations in Sections 13.2 and 13.3, each of Seller and Parent shall indemnify, defend and hold the Buyer Indemnitees, in the case of Seller, and the Seller Indemnitees, in the case of Parent, harmless for any Loss incurred or suffered by any of them as a result of or in connection with or involving a breach of a representation or warranty by the Indemnifying Party in this Agreement either (i) as made as of the date of this Agreement or (ii) if the Closing occurs, as hereby expressly re-made as of the Closing; provided, however, that as to the representations and warranties as deemed re-made as of the Closing, the determination of whether such a breach has occurred will disregard failure of Seller’s Disclosure Letter to list Contracts or other similar obligations incurred by Seller in the ordinary course of business after the date of this Agreement and not in violation of Section 9.2(a).

          (b) Certain Limitations. Notwithstanding the foregoing and solely with respect to the indemnification obligations in Section 13.4(a) above:

          (i) Time Limitations. Seller shall be obligated to indemnify the Buyer Indemnitees and Parent shall be obligated to indemnify the Seller Indemnitees only for those claims giving rise to any Loss as to which the Person claiming the right to be indemnified (the “Indemnified Party”) has given the Party from whom it is claiming

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indemnification (the “Indemnifying Party”) written notice prior to the end of the applicable Indemnity Period.

          (ii) Basket. No indemnification shall be made by either Seller or Parent with respect to any claim made pursuant to Section 13.4(a) unless (A) the amount of such claim exceeds $100,000 (the “Minimum Claim Amount”), and (B) the aggregate amount of Losses incurred or suffered by all Buyer Indemnitees or all Seller Indemnitees, as the case may be, under all claims in excess of the Minimum Claim Amount made pursuant to Section 13.4(a) exceeds an amount equal to 2% of the Purchase Price (the “Basket Amount”) and, in such event, indemnification shall be made by the Indemnifying Party only to the extent the Losses exceed, in the aggregate, the Basket Amount.

          (iii) Knowledge. If on or prior to the Closing, any Buying Party or Seller knows of any information that would cause one or more of the representations and warranties made by Seller or Parent, respectively, to be inaccurate as of the date made or as of the Closing Date, the Buyer Indemnitees or the Seller Indemnitees, as the case may be, shall not have any right or remedy after the Closing with respect to such inaccuracy and shall be deemed to have waived its rights to indemnification in respect thereof.

     Section 13.5 Procedures for Claims and Satisfaction. All claims for indemnification under this Article XIII shall be resolved in accordance with the following procedures:

          (a) Notice of Claim. Notice must be given of facts that are the basis of an indemnification claim under this Article XIII by the Indemnified Party to the Indemnifying Party. In the case of claims pursuant to Section 13.4(a), that notice must be given before the expiration of the applicable Indemnity Period as specified in Section 13.4(b)(i). Any written notice delivered by an Indemnified Party to the Indemnifying Party with respect to a Loss shall set forth, with as much specificity as is reasonably practicable, the basis of the claim for such Loss and, to the extent reasonably practicable, a reasonable estimate of the amount thereof.

          (b) Defense of Third Party Claims.

          (i) Generally. If a claim or demand for indemnification is based upon an asserted liability or obligation to a Person not a Party, a successor or assign of a Party nor a Buyer Indemnitee or a Seller Indemnitee (a “Third Party Claim”), then (and without limiting the obligations under Section 13.5(a)), the Indemnified Party will undertake in good faith to give prompt notice of any such Third Party Claim to the Indemnifying Party; provided, however, that a failure to provide such notice of a Third Party Claim will not prejudice any right to indemnification under this Agreement except to the extent that the Indemnifying Party is prejudiced by such failure. The Indemnifying Party will defend such Third Party Claims at its expense with lawyers chosen (with the Indemnified Party’s consent, which will not be unreasonably withheld, conditioned or delayed) and paid by it and will give written notice (the “Notice of Defense”) to the Indemnified Party within 30 days after the date such notice of a Third Party Claim is deemed received that acknowledges that it is defending the claim and that identifies the lawyer retained for the defense. The Indemnifying Party may not settle any such Third Party Claim without the

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consent of the Indemnified Party (which consent will not be unreasonably withheld, conditioned or delayed).

          (ii) Control of Defense. Notwithstanding anything to the contrary in this Section 13.5: (A) the Indemnified Party will be entitled to participate in the defense of such claim or action and to employ lawyers of its choice for such purpose at its own expense, and (B) the Indemnified Party will be entitled to assume control of the defense of such claim, and the Indemnifying Party will pay the reasonable fees and expenses of lawyers retained by the Indemnified Party (excluding the fees and expenses of the Indemnified Party’s lawyers before the date of such assumption of the defense), if: (1) the Indemnified Party reasonably believes that there exists or could arise a conflict of interest that, under applicable principles of legal ethics, could prohibit a single lawyer or law firm from representing both the Indemnified Party and the Indemnifying Party in such claim or action, and such conflict has not been timely waived; (2) the Indemnifying Party either failed to give a Notice of Defense or has failed or is failing to prosecute or defend vigorously such claim or action; or (3) criminal penalties could be imposed on the Indemnified Party in connection with such claim or action.

          (c) General Limitations. Each of the indemnification obligations of Seller and Parent under this Article XIII, including the indemnification obligation pursuant to Section 13.4(a), is subject to the following limitations:

          (i) Insurance Recoveries. The amount of any Loss shall be reduced by any amount received by the Indemnified Party (or an Affiliate) with respect thereto under any third party insurance coverage or from any other Person (excluding an Affiliate of the Indemnified Party) alleged to be responsible therefore, net of any expense incurred by the Indemnified Party in collecting such amount. Any Indemnified Party that makes a claim for indemnification under this Article XIII shall use commercially reasonable efforts to collect any amount available under any such insurance coverage and from any such other Person alleged to have responsibility. If an Indemnified Party (or an Affiliate) receives an amount under insurance coverage or from such other Person with respect to a Loss at any time subsequent to any indemnification provided the Indemnifying Party pursuant to this Article XIII, then such Indemnified Party shall promptly reimburse the Indemnifying Party for any payment made or expense incurred by the Indemnifying Party in connection with providing such indemnification up to such amount received by the Indemnified Party (or Affiliate), net of any expense incurred by the Indemnified Party in collecting such amount.

          (ii) Tax Benefit. Any indemnity amount payable by an Indemnifying Party to or on behalf of an Indemnified Party under this Article XIII shall be reduced by any Tax benefit arising from the Loss for which the indemnity is being paid, including any increase in deductions, credits or losses of the Indemnified Party (or any Affiliate). In the case of Tax benefits consisting of depreciation, amortization, depletion or other similar deductions, the Tax benefit amount will be based on the net present value of such deductions using a discount rate equal to the mid-term applicable federal rate in effect on the day on which the indemnification payments are due. Any calculation of the Tax benefit under this Section 13.5(c)(ii) shall be determined assuming the Indemnified Party

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(or its Affiliate, as the case may be) pays Taxes at the highest combined marginal Tax rate for applicable U.S. federal, foreign, state and local Income Taxes.

          (iii) Cap. In no event shall either Seller’s or Parent’s aggregate obligation to indemnify the Buyer Indemnitees, in the case of Seller, or the Seller Indemnitees, in the case of Parent, pursuant to this Article XIII exceed an amount equal to 20% of the Purchase Price.

          (d) Notice of Fixed Loss. When a Loss as to which a notice has been timely given in accordance with Section 13.5(a) is paid or is otherwise fixed or determined, then the Indemnified Party will give the Indemnifying Party notice of such Loss, in reasonable detail and specifying the amount of such Loss and the provision of this Agreement upon which the claim for indemnification for such Loss is based (which notice will be in addition to the notice required under Section 13.5(a), but the notices under this Section 13.5(d) and under Section 13.5(a) may be given simultaneously and in a single instrument when appropriate and in compliance with both provisions). If the Indemnifying Party is permitted to dispute such claim, it will, within 30 days after receipt of notice of the claim of Loss against it pursuant to this Section 13.5(d), give counternotice, setting forth the basis for disputing such claim, to the Indemnified Party. If no such counternotice is given within such thirty-day period or if the Indemnifying Party acknowledges liability for indemnification, then such Loss will be satisfied within three business days as provided in Section 13.5(e). If the Indemnifying Party timely gives counternotice of a dispute, the Indemnified Party and the Indemnifying Party shall endeavor to resolve such dispute in accordance with Section 9.5.

          (e) Satisfaction of Indemnification Obligation. Subject to the procedures set forth above and in accordance with the deadlines specified in the preceding provisions of this Section 13.5, any indemnified Loss will be satisfied by the Indemnifying Party paying the amount of such Loss to the Indemnified Party plus interest on the amount of such Loss incurred by the Indemnified Party from the date the Indemnified Party actually paid such Loss (but without duplication of any interest payable with respect to any judgment underlying a Loss resulting from a Third Party Claim) at the Prime Rate. Payments pursuant to the foregoing will be by wire transfer or by check, as the recipient may direct; provided, however, that in the absence of directions within a reasonable period of time, payment may be made by check. Neither Parent nor the Other Buying Parties shall have any right to setoff any claim for indemnified Losses against amounts owing under the Timber Notes, it being understood that all obligations of each Buyer under the Timber Notes shall be absolute and unconditional and not subject to counterclaim, setoff, deduction, defense, abatement, suspension, limitation, deferment, diminution, recoupment or other right that Parent or any Other Buying Party may have under this Agreement or otherwise.

     Section 13.6 Certain Rules.

          (a) Adjustment to Purchase Price. Any payment made pursuant to the indemnification provisions of this Article XIII shall be deemed to be an adjustment to the Purchase Price and the Parties shall treat it as such for all purposes. There shall be no indemnification under any provision of this Article XIII for a breach of any representation,

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warranty, agreement or covenant to the extent an adjustment to the Purchase Price has been made pursuant to Section 2.3 with respect to such breach.

          (b) Definition of Loss. “Loss” means any loss, cost, damage, expense, payment, liability or obligation incurred or suffered with respect to the act, omission, fact or circumstance with respect to which such term is used, including: (i) subject to Section 13.5(b), related attorneys’, accountants’ and other professional advisors’ fees and expenses, including those as to investigation, prosecution or defense of any claim or threatened claim including any attorneys’ fees and expenses in connection with one or more appellate or bankruptcy proceedings arising out of any such claim; and (ii) amounts paid in settlement of a dispute with a Person not a Party that if resolved in favor of such Person would constitute a matter to which a Party is indemnified pursuant to this Agreement, even though such settlement does not acknowledge that the underlying facts or circumstances constitute a breach of a representation and warranty or other indemnified matter. Notwithstanding the foregoing, “Loss” does not include any punitive, incidental, indirect, special or consequential damages; provided, however, that in the case of a Third Party Claim, “Loss” includes the total amount of any judgment and any other award payable to a Person other than a Party, a successor or assign of a Party, or a Buyer Indemnitee or a Seller Indemnitee pursuant to the Third Party Claim.

          (c) No Limitation. No limitation on indemnification contained in this Article XIII shall apply to any Loss resulting from or involving any intentional and knowing breach of a representation and warranty set forth in this Agreement on the part of the Indemnifying Party (or any Affiliate).

     Section 13.7 Exclusive Remedy. Each of the Parties agrees that, except as contemplated by Section 15.15, if the Closing occurs, the indemnification provided in this Article XIII is the exclusive remedy for a breach by any Party of any representation, warranty, agreement or covenant contained in this Agreement and is in lieu of any and all other rights and remedies that any other Party may have under this Agreement or otherwise for monetary relief or equitable relief with respect to the matters described in this Article XIII.

ARTICLE XIV
TERMINATION AND ABANDONMENT

     Section 14.1 Termination. This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time prior to the Closing:

          (a) by mutual written consent of Seller and Parent;

          (b) by either Seller or Parent, if the Closing has not occurred on or prior to October 31, 2007; provided, however, that such termination date may be extended at the option of Seller for one additional period up to and including December 31, 2007 (such date, including any such permitted extension thereof, the “Termination Date”), provided that notice of such extension is given to the Buyer Party at least five (5) business days prior to the then scheduled Termination Date; provided, further, that the right to terminate the Agreement pursuant to this Section 14.1(b) shall not be available to Seller or Parent if it (in the case of Seller) or any Buying

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Party (in the case of Parent) fails to perform any of its obligations under this Agreement, which failure primarily contributes to the failure of the Closing to have occurred by such time;

          (c) by Seller pursuant to Section 9.3(a);

          (d) by Seller upon a breach or violation of any representation, warranty, covenant or agreement on the part of any Buying Party set forth in this Agreement, which breach or violation would result in the failure to satisfy the conditions set forth in Section 12.3 and, in any such case, such breach or violation shall be incapable of being cured by the Termination Date, or Parent shall not be using on a continuous basis all commercially reasonable efforts to cure in all material respects such breach or violation after the giving of written notice thereof by Seller to Parent of such violation or breach; and

          (e) by Parent upon a breach or violation of any representation, warranty, covenant or agreement on the part of Seller set forth in this Agreement, which breach or violation would result in the failure to satisfy the conditions set forth in Section 12.2 and, in any such case, such breach or violation shall be incapable of being cured by the Termination Date, or Seller shall not be using on a continuous basis all commercially reasonable efforts to cure in all material respects such breach or violation after the giving of written notice thereof by Parent to Seller of such violation or breach.

     Section 14.2 Effect of Termination. Subject to the following provisions of this Section 14.2, upon any termination of this Agreement as provided in Section 14.1, the obligations of the Parties hereunder shall terminate and there shall be no liability on the part of any Party hereto with respect thereto, except for the provisions of Section 3.4, Section 10.1, this Section 14.2 and Article XV. Parent acknowledges that Seller has informed Parent that the transactions contemplated by this Agreement constitute the first part of a transformation plan being undertaken by Seller’s parent corporation, Temple-Inland Inc., and that the damages to Seller of Buyer’s failure to consummate the transactions contemplated by this Agreement are incapable of accurate estimation. Accordingly, if Seller elects to terminate this Agreement pursuant to Section 14.1(c) or Section 14.1(d), then Parent shall promptly, but in no event later than one business day after the effective date of any such termination, pay Seller a termination fee equal to 5% of the Pre-Adjustment Purchase Price (the “Termination Fee”), which amount shall be payable in immediately available funds, not as a penalty but as full and complete liquidated damages; provided, however, that the Termination Fee will not be payable pursuant to this Section 14.2 if Parent is then entitled to terminate this Agreement pursuant to Section 14.1(e). Parent agrees that the amount of the Termination Fee is a reasonable forecast of just compensation for the harm to Seller that would result from a termination of this Agreement pursuant to Section 14.1(c) or Section 14.1(d). On or before 5:00 p.m. Austin, Texas time on August 7, 2007, Parent shall deliver or cause to be delivered to Seller an irrevocable standby letter of credit in an amount equal to the Termination Fee, which letter of credit shall be in form and substance and issued by a bank or other financial institution reasonably satisfactory to Seller, to support Parent’s obligations under this Section 14.2. Nothing in this Section 14.2 shall be construed or interpreted to preclude Seller, in the event any Buying Party breaches or violates any representation, warranty, covenant or agreement set forth in this Agreement, from electing to pursue specific performance of this Agreement in accordance with Section 15.15.

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ARTICLE XV
GENERAL PROVISIONS

     Section 15.1 Notice. All notices, requests, demands, and other communications hereunder shall be in writing, and shall be deemed to have been duly given if delivered in person, sent by facsimile transmission or sent by overnight courier service (with all fees prepaid) as follows:

     If to Seller, to:

TIN Inc.
1300 MoPac Expressway South
Austin, Texas 78746
Attention: General Counsel
Facsimile: 512.434.8051

with a copy to:

Sutherland Asbill & Brennan LLP
999 Peachtree Street
Atlanta, Georgia 30309
Attention: Daniel R. McKeithen, Esq.
Thomas C. Herman, Esq.
Facsimile: 404.853.8806

If to Parent or any of the Other Buying Parties to:

Campbell/Timber, LLC
One SW Columbia, Suite 1700
Portland, OR 97258
Attention: John Gilleland and Angie Davis

with a copy to:

Morrison & Foerster LLP
425 Market Street
San Francisco, CA 94105-2482
Attention: Robert Cudd and Kenneth Muller

Email address for purposes of notice under Section 2.3(b): adavis@campbellgroup.com

Any such notice, request, demand or other communication shall be deemed to be given and effective if delivered in person, on the date delivered, if sent by overnight courier service, on the date sent as evidenced by the date of the bill of lading, or if sent by facsimile transmission, on the date transmitted; and shall be deemed received if delivered in person, on the date of personal delivery, if sent by overnight courier service, on the first business day after the date sent, or if by

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facsimile transmission, on the date of confirmation of receipt (including electronic confirmation). Any Party sending a notice, request, demand or other communication by facsimile transmission shall also send a hard copy of such notice, request, demand or other communication by one of the other means of providing notice set forth in this Section 15.1. Any notice, request, demand or other communication shall be given to such other representative or at such other address as a Party may furnish to the other Parties in writing pursuant to this Section 15.1.

     Section 15.2 Legal Holidays. If any date set forth in this Agreement for the performance of any obligation by any Party, or for the delivery of any instrument or notice as herein provided, should be a Saturday, Sunday or legal holiday, the compliance with such obligation or delivery shall be deemed acceptable on the next day which is not a Saturday, Sunday or legal holiday. As used herein, the term “legal holiday” means any state or federal holiday for which financial institutions or post offices are generally closed in the State of Texas for observance thereof.

     Section 15.3 Further Assurances. Each of the Parties shall execute such further Conveyance Instruments and such other documents, instruments of transfer or assignment (including a real estate excise Tax affidavit) and do such other acts or things as may be reasonably required or desirable to carry out the intent of the Parties hereunder and the provisions of this Agreement and the transactions contemplated hereby.

     Section 15.4 Assignment; Binding Effect. This Agreement shall not be assignable or otherwise transferable (i) by any of the Buying Parties without the prior written consent of Seller, and (ii) by Seller without the prior written consent of Parent; provided, however, that Seller may, by written notice to Parent, assign all or any portion of its rights and obligations under this Agreement to any Affiliate thereof. Any attempt to assign this Agreement without the prior written consent required by this Section 15.4 shall be void. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns.

     Section 15.5 Entire Agreement. This Agreement (including the Exhibits and Schedules hereto), Seller’s Disclosure Letter, the Parent’s Disclosure Letter, the Confidentiality Agreement (which is incorporated herein by reference) and the other Transaction Documents constitute the entire agreement and understanding of the Parties and supersede any prior agreements or understandings, whether written or oral, among the Parties with respect to the subject matter hereof.

     Section 15.6 Amendment; Waiver. This Agreement may not be amended or modified in any manner other than by an agreement in writing signed by all of the Parties or their respective successors or permitted assigns. No waiver under this Agreement shall be valid or binding unless set forth in a writing duly executed and delivered by each Party against whom enforcement of such waiver is sought. Neither the waiver by any of the Parties of a breach of or a default under any provision of this Agreement, nor the failure by any of the Parties, on one or more occasions, to enforce any provision of this Agreement or to exercise any right or privilege hereunder, shall be construed as a waiver of any other breach or default of a similar nature, or as a waiver of any of such provisions, rights or privileges hereunder.

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     Section 15.7 Confidentiality. Each Party will hold, and will cause its officers, employees, accountants, counsel, financial advisors and other representatives and Affiliates to hold, any nonpublic information confidential in accordance with the terms of the Confidentiality Agreement. Subject to the terms of the Confidentiality Agreement (including the exceptions to nondisclosure contained therein), no Buying Party shall disclose to any third party any non-public information regarding the Timber Notes, any Buyer, or the structure for the issuance of the Timber Notes and the Letters of Credit except with Seller’s prior written approval.

     Section 15.8 No Third Party Beneficiaries. Nothing in this Agreement or any of the Ancillary Agreements, whether express or implied, is intended or shall be construed to confer upon or give to any Person, other than the Parties hereto, the Buyer Indemnitees and the Seller Indemnitees (with respect to Article XIII), any right, remedy or other benefit under or by reason of this Agreement.

     Section 15.9 Severability of Provisions. If any provision of this Agreement (including any phrase, sentence, clause, Section or subsection) is inoperative, invalid, illegal or unenforceable for any reason, all other provisions of this Agreement shall remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party. Upon any such determination, the Parties shall negotiate in good faith to modify this Agreement so as to give effect to the original intent of the Parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the extent possible.

     Section 15.10 Governing Law.

          (a) THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING VALIDITY, CONSTRUCTION, INTERPRETATION AND EFFECT, BY THE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO ITS PRINCIPLES OR RULES OF CONFLICT OF LAWS TO THE EXTENT SUCH PRINCIPLES OR RULES WOULD REQUIRE OR PERMIT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION. EACH OF THE PARTIES HEREBY (I) IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF TEXAS AND THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA IN AND FOR ANGELINA COUNTY, TEXAS FOR THE PURPOSE OF ANY ACTION OR PROCEEDING ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, (II) AGREES THAT IT WILL NOT ATTEMPT TO DENY OR DEFEAT SUCH PERSONAL JURISDICTION BY MOTION OR OTHER REQUEST FOR LEAVE FROM ANY SUCH COURT, AND (III) AGREES THAT IT WILL NOT BRING ANY ACTION RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT IN ANY COURT OTHER THAN A TEXAS STATE COURT OR FEDERAL COURT IN AND FOR ANGELINA COUNTY, TEXAS. EACH OF THE PARTIES HEREBY CONSENTS TO AND GRANTS ANY SUCH COURT JURISDICTION OVER THE PERSON OF SUCH PARTY AND OVER THE SUBJECT MATTER OF ANY SUCH DISPUTE AND AGREES THAT MAILING OF PROCESS OR OTHER PAPERS IN CONNECTION WITH ANY SUCH ACTION OR PROCEEDING IN THE MANNER PROVIDED IN SECTION 15.1, OR IN SUCH OTHER MANNER AS MAY

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BE PERMITTED BY LAW, SHALL BE VALID AND SUFFICIENT SERVICE THEREOF ON SUCH PARTY.

          (b) EACH PARTY HEREBY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE ANCILLARY AGREEMENTS, OR THE BREACH, TERMINATION OR VALIDITY OF THIS AGREEMENT OR ANY OF THE ANCILLARY AGREEMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY HEREBY CERTIFIES AND ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (II) SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (III) SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (IV) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND EACH OF THE ANCILLARY AGREEMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS SET FORTH IN THIS SECTION.

     Section 15.11 Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be deemed an original and, when taken together, shall constitute one agreement.

     Section 15.12 Captions. The captions and other headings contained in this Agreement as to the contents of particular articles, sections, paragraphs or other subdivisions contained herein are inserted for convenience of reference only and are in no way to be construed as part of this Agreement or as limitations on the scope of the particular articles, sections, paragraphs or other subdivisions to which they refer and shall not affect the interpretation or meaning of this Agreement. “Article,” “Section,” “Subsection,” “Exhibit” or “Schedule” refers to such item of or attached to this Agreement.

     Section 15.13 Construction. The Parties agree that “including” and other words or phrases of inclusion, if any, shall not be construed as terms of limitation, so that references to “included” matters shall be regarded as nonexclusive, non-characterizing illustrations and equivalent to the terms “including, but not limited to,” and “including, without limitation.” Each Party acknowledges that it has had the opportunity to be advised and represented by counsel in the negotiation, execution and delivery of this Agreement and accordingly agrees that if any ambiguity exists with respect to any provision of this Agreement, such provision shall not be construed against any Party solely because such Party or its representatives were the drafters of any such provision.

     Section 15.14 Reimbursement of Legal Fees. In the event any legal proceeding should be brought to enforce the terms of this Agreement or for breach of any provision of this Agreement, the non-prevailing Party shall reimburse the prevailing Party for all reasonable costs

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and expenses of the prevailing Party (including its attorneys’ fees and disbursements). For purposes of the foregoing, (i) “prevailing Party” means (A) in the case of the Party initiating the enforcement of rights or remedies, that it recovered substantially all of its claims, and (B) in the case of the Party defending against such enforcement, that it successfully defended substantially all of the claims made against it, and (ii) if no Party is a “prevailing Party” within the meaning of the foregoing, then no Party will be entitled to recover its costs and expenses (including attorney’s fees and disbursements) from any other Party.

     Section 15.15 Specific Performance. The Parties acknowledge that money damages would not be a sufficient remedy for any breach of this Agreement and that irreparable harm would result if this Agreement were not specifically enforced. Therefore, the rights and obligations of the Parties under this Agreement shall be enforceable by a decree of specific performance issued by any court of competent jurisdiction, and appropriate injunctive relief may be applied for and granted in connection therewith. If either Seller or any of the Buying Parties fails to consummate the transactions contemplated in this Agreement, Parent or Seller, as the case may be, may undertake an action, suit or proceeding for the specific enforcement of this Agreement unless any Buying Party’s or Seller’s failure to perform any of its obligations under this Agreement primarily contributes to the failure of Seller or the Buying Parties, respectively, to consummate the transactions contemplated by this Agreement.

ARTICLE XVI
DEFINITIONS

     The terms set forth below when used in this Agreement shall have the following meanings:

     “2007 Harvest Plan” means the harvest plan for the Timberlands set forth in Exhibit M.

     “Accepted Parent Title Objection” has the meaning specified in Section 2.3(b)(iii)(A).

     “Actual Aggregate Excess Harvest Value” has the meaning specified in Schedule C-2.

     “Actual Aggregate Reduced Harvest Value” has the meaning specified in Schedule C-2.

     “Actual Excess Harvest” has the meaning specified in Schedule C-2.

     “Actual Excess Harvest Value” has the meaning specified in Schedule C-2.

     “Actual Harvest Amount” has the meaning specified in Section 2.3(a)(ii)(A).

     “Actual Harvest Report” has the meaning specified in Section 2.3(a).

     “Actual Reduced Harvest” has the meaning specified in Schedule C-2.

     “Actual Reduced Harvest Value” has the meaning specified in Schedule C-2.

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     “Actual Timber Adjustment Value” has the meaning specified in Schedule C-2.

     “Adverse Environmental Condition” means, with respect to any of the Timberlands, the existence of an Environmental Matter.

     “Affiliate” of any Person means another Person which, directly or indirectly, controls, is controlled by, or is under common control with, the first Person.

     “Agreement” has the meaning specified in the Preamble.

     “Ancillary Agreements” has the meaning specified in Section 5.1(a).

     “Apportionments” has the meaning specified in Section 2.4.

     “Assignment and Assumption of Real Property Leases” has the meaning specified in Section 3.2(a)(iv).

     “Assignment and Assumption of Timberland Lease” has the meaning specified in Section 3.2(a)(iii).

     “Assignment of Timber LLC Interests” has the meaning specified in Section 3.2(a)(x).

     “Assumed Liabilities” has the meaning specified in Section 1.7(a).

     “Basket Amount” has the meaning specified in Section 13.4(b)(ii).

     “Books and Records” has the meaning specified in Section 9.4(a).

     “Buyer” has the meaning specified in the preamble to this Agreement.

     “Buyer Affiliate” has the meaning specified in the preamble to this Agreement.

     “Buyer Affiliate Assets” has the meaning specified in Section 1.3.

     “Buyer Easements” means such access easements across property owned by Seller as may be reasonably necessary to allow Parent or any Timber LLC and their respective Affiliates, successors and assigns to use any portion of the Timberlands for growing and harvesting timber.

     “Buyer Indemnitees” has the meaning specified in Section 13.2.

     “Buying Parties” means, prior to the Closing, Parent, Buyers and Buyer Affiliate, collectively, and, at and after the Closing, Parent, Buyers, Buyer Affiliate and Timber LLCs, collectively. “Buying Party” means, prior to the Closing, any of Parent, Buyers and Buyer Affiliate, individually, and, at and after the Closing, any of Parent, Buyers, Buyer Affiliate and Timber LLCs, individually.

     “Cash Assets” has the meaning specified in Section 1.1.

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     “Cash Purchase Price” means the portion of the Purchase Price payable by Parent, Buyers and Buyer Affiliate to Seller as consideration for the Cash Assets.

     “Cash Purchase Price Allocation” has the meaning specified in Section 2.2(b).

     “Casualty Loss” means any material physical damage to or loss of the timber on any portion of the Timberlands by fire, earthquake, flood, or other casualty occurring prior to the Effective Time. A Casualty Loss shall refer only to a single incident of casualty (e.g. a single fire, windstorm or hurricane) and separate incidents of casualty shall not be aggregated for the purpose of determining the number of acres affected by such casualty.

     “Casualty Loss Basket” has the meaning specified in Section 2.3(c)(ii).

     “Claims” means, with respect to the Purchased Assets, all claims, demands, investigations, causes of action, suits, defaults, assessments, litigation or other proceedings, including administrative proceedings, third party actions, arbitral proceedings and proceedings by or before any Governmental Authority.

     “Closing” has the meaning specified in Section 3.1.

     “Closing Date” has the meaning specified in Section 3.1.

     “Closing Purchase Price” means the Pre-Adjustment Purchase Price as adjusted pursuant to Sections 2.3(a)(i) and 2.3(b).

     “Code” means the Internal Revenue Code of 1986, as amended, or any successor statute thereto.

     “Commitment Letters” means the Debt Commitment Letter and the Equity Commitment Letter, collectively.

     “Completed Title Commitment” means a Title Commitment together with a copy of each recorded documentary exception referenced therein when posted to the Title Company’s online repository.

     “Condemnation” means any condemnation proceeding filed or threatened in writing by any Governmental Authority or any exercise, by a Governmental Authority, of eminent domain powers (or notice of the exercise thereof) with respect to the Timberlands.

     “Confidentiality Agreement” means the confidentiality agreement dated on or about May 16, 2007 between Seller and Parent.

     “Conservation Block” means the Timberlands described in the notebook titled “Conservation Areas – Texas and Louisiana” dated 2007 and made available by Seller to Parent.

     “Continuing Agreements” has the meaning specified in Section 9.7.

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     “Contract” means any agreement, lease, license, evidence of debt, mortgage, deed of trust, note, bond, indenture, security agreement, commitment, instrument, understanding or other contract, obligation or arrangement of any kind.

     “Conveyance Instruments” means such deeds, assignments of leases, and/or other instruments necessary or appropriate under applicable Laws to convey: (i) to a Timber LLC fee simple title to the Owned Timberlands to be acquired by it, with covenants of limited or special warranty as to title; and (ii) to a Timber LLC leasehold title to the Leasehold Interests to be acquired by it; in each case under (i) and (ii) above subject to the Permitted Exceptions.

     “Credit Enhancement Banks” means one or more banks or other financial institutions selected by Parent having credit ratings of not less than AA-/Aa3 (and reasonably acceptable to Seller) to provide the Letters of Credit.

     “Debt Commitment Letter” has the meaning specified in Section 8.9(b).

     “Debt Financing” has the meaning specified in Section 8.9(b).

     “Deeds” has the meaning specified in Section 3.2(a)(v).

     “Dispute” has the meaning specified in Section 9.5(a).

     “Distinctive Site Management Plan” has the meaning specified in Section 10.4.

     “Distinctive Sites” has the meaning specified in Section 10.4.

     “Drilling and Other Operations” means:

     (i) all surface and subsurface operations for the purposes of exploring (including seismic surveys or other geophysical operations), drilling, mining, developing, producing, storing, removing, treating, transporting and owning oil, gas and other liquid or gaseous hydrocarbons;

     (ii) all surface and subsurface operations for the purposes of exploring (including seismic surveys or other geophysical operations), drilling for, mining by Surface Mining Operations, underground shafts, tunnels, in situ or solution, gasification or other similar methods, developing, producing, storing, removing, treating, transporting and owning any other Minerals not described in clause (i) of this definition;

     (iii) all surface and subsurface operations for the purposes of storing valuable substances or disposing of water (including salt water) or waste in underground structures or formations (including salt domes and depleted reservoirs);

     (iv) the use of the surface for disposal and treatment areas reasonably needed for operations described in the other subsections of this definition;

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     (v) all surface and subsurface operations for the purposes of using injected water, chemicals and other fluids or substances for the recovery of oil, gas or other Minerals; and

     (vi) all references to drilling or mining or other operations in this definition include those methods and means now used and those hereafter developed and used in operations for the purposes of exploring, drilling for, mining, developing, producing, storing, removing, treating, transporting and owning Minerals.

     “Eastern Forest FSA” has the meaning specified in Section 3.2(a)(vii).

     “Effective Time” has the meaning specified in Section 3.1.

     “Eligible Employees” has the meaning specified in Section 7.2(b).

     “Environmental Laws” means any United States federal, state or local Laws and the regulations promulgated thereunder, in existence on the date hereof, relating to pollution or protection of the environment, including Laws relating to wetlands protection, Laws relating to reclamation of land and waterways and Laws relating to emissions, discharges, disseminations, releases or threatened releases of Hazardous Substances into the environment (including, without limitation, ambient air, surface water, ground water, soil, land surface or subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Substances but excluding Laws related to threatened or endangered species or habitats, including the federal Endangered Species Act.

     “Environmental Matters” means any violation of any applicable Environmental Law by Seller at or on the Timberlands existing as of the date hereof, relating to (i) emissions, discharges, disseminations, releases or threatened releases, of Hazardous Substances into air, surface water, ground water, soil, land surface or subsurface strata, buildings or facilities or (ii) otherwise arising out of, relating to, or resulting from the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Substances by Seller at the Timberlands prior to the date hereof.

     “Equity Commitment Letter” has the meaning specified in Section 8.9(a).

     “Equity Funding” has the meaning specified in Section 8.9(a).

     “ERISA” means Employee Retirement Income Security Act of 1974, as amended, or any successor statute thereto.

     “Estimated Aggregate Excess Harvest Value” has the meaning specified in Schedule C-1.

     “Estimated Aggregate Reduced Harvest Value” has the meaning specified in Schedule C-1.

     “Estimated Excess Harvest” has the meaning specified in Schedule C-1.

     “Estimated Excess Harvest Value” has the meaning specified in Schedule C-1.

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     “Estimated Harvest Amount” has the meaning specified in Section 2.3(a).

     “Estimated Reduced Harvest” has the meaning specified in Schedule C-1.

     “Estimated Reduced Harvest Value” has the meaning specified in Schedule C-1.

     “Estimated Timber Adjustment Value” has the meaning specified in Schedule C-1.

     “Excluded Assets” has the meaning specified in Section 1.5.

     “Excluded Liabilities” has the meaning specified in Section 1.7(c).

     “Fiber Supply Agreements” has the meaning specified in Section 3.2(a)(vii).

     “Forestry Consultant” means any forestry consultant independent of the Parties appointed by Seller and reasonably satisfactory to Parent to act as a consultant and/or arbitrator under the provisions of Section 2.3.

     “General Assignment and Assumption” has the meaning specified in Section 3.2(a)(ii) (A).

     “General Buyer Affiliate Assignment and Assumption” has the meaning specified in Section 3.2(a)(ii)(C).

     “General Timber LLC Assignment and Assumption” has the meaning specified in Section 3.2(a)(ii)(B).

     “Governmental Authority” means any federal, state, local or foreign government or any court or any administrative, regulatory or other governmental agency, commission or authority or any non-governmental self-regulatory agency, commission or authority.

     “Habitat Conservation Plans” has the meaning specified in Section 10.4.

     “Harvest Range” means the volume of timber that is within a range of +/- 7% of the volume set forth in the 2007 Harvest Plan that Seller anticipates it will remove from the Timberlands during the Timber Adjustment Period by Merchantable Timber Category.

     “Hazardous Substances” means any chemical, compound, constituent, material, waste, contaminant (including petroleum, crude oil or any fraction thereof) or other substance, defined as hazardous or toxic, or otherwise regulated by any of the following Laws and regulations promulgated thereunder as amended from time to time prior to the Effective Time: (i) the Comprehensive Environmental Response, Compensation and Liability Act (as amended by the Superfund Amendments and Reauthorization Act), 42 U.S.C. § 9601 et seq.; (ii) the Resource Conservation and Recovery Act of 1976, 42 U.S.C. § 6901 et seq.; (iii) the Hazardous Materials Transportation Act, 49 U.S.C. § 1801 et seq.; (iv) the Toxic Substances Control Act, 15 U.S.C. § 2601 et seq.; (v) the Clean Water Act, 33 U.S.C. § 1251 et seq.; (vi) the Clean Air Act, 42 U.S.C. § 1857 et seq.; and (vii) all Laws of the states in which the Timberlands are located that

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are based on, or substantially similar to, the federal statutes listed in parts (i) through (vi) of this subparagraph.

     “HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

     “Income Tax” or “Income Taxes” means all Taxes based upon, measured by, or calculated with respect to (i) gross or net income or gross or net receipts or profits (including any capital gains, minimum taxes and any Taxes on items of preference, but not including sales, use, goods and services, real or personal property transfer or other similar Taxes), (ii) net worth, capital or capital stock (including any franchise, business activity, doing business or occupation Taxes), (iii) multiple bases (including, but not limited to, franchise, doing business or occupation Taxes) if one or more of the bases upon which such Tax may be based upon, measured by, or calculated with respect to, is described in (i) above, or (iv) withholding taxes measured by, or calculated with respect to, any payments or distributions (other than wages).

     “Indemnified Party” has the meaning specified in Section 13.4(b)(i).

     “Indemnifying Party” has the meaning specified in Section 13.4(b)(i).

     “Indemnity Period” has the meaning specified in Section 13.1.

     “Installment Note Purchase Price” means the portion of the Purchase Price payable by Buyers to Seller as consideration for the Timberlands.

     “Installment Note Purchase Price Allocation” has the meaning specified in Section 2.2(b).

     “L/C Amount” has the meaning specified in Section 10.13(c).

     “L/C Commitment Letter” has the meaning specified in Section 10.13(c).

     “Land Price” has the meaning specified in Section 2.2(b).

     “Landowner” means, a Timber LLC and Parent, collectively.

     “Law” means any rule, regulation, statute, order, ordinance, guideline, code or other legally enforceable requirement, including common law, state and federal laws and laws of foreign jurisdictions.

     “Leasehold Interests” has the meaning specified in Section 1.2(b).

     “Lenders” has the meaning specified in Section 8.9(b).

     “Letter of Credit” has the meaning specified in Section 2.5(a).

     “Licenses” has the meaning specified in Section 1.2(c).

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     “Lien” means any mortgage, lien, charge, pledge, hypothecation, assignment, deposit, arrangement, encumbrance, security interest, assessment, adverse claim, levy, preference or priority or other security agreement of any kind or nature whatsoever (whether voluntary or involuntary, affirmative or negative (but excluding all negative pledges), and whether imposed or created by operation of law or otherwise) in, on or with respect to, or pledge of, any Purchased Assets, or any other interest in the Purchased Assets, designed to secure the repayment of debt or any other obligation, whether arising by Contract, operation of law or otherwise.

     “Master Stumpage Agreement” means the agreement to sell timber on the stump among a Timber LLC, as seller, Supply Designee, as purchaser, and Seller, which will provide for the sale of stumpage sufficient to permit Supply Designee to meet the volume requirements set forth in the Fiber Supply Agreements. The form of the Master Stumpage Agreement will be in a form reasonably acceptable to each of Parent and Seller.

     “Material Adverse Effect” means any event, occurrence, condition, fact or change that has a material and adverse effect on the Purchased Assets taken as a whole; provided, however, that none of the following shall be taken into account in determining whether there has been a Material Adverse Effect: (i) the effects of changes that are generally applicable to the timber industry, the forest products industry and the pulp and paper industry and their respective markets, (ii) the effects of changes that are generally applicable to the United States economy or securities markets or the world economy or international securities markets, (iii) the effects resulting from acts of God, war or terrorism, (iv) the effects of changes in Law or interpretations thereof applicable to Seller, and (v) the effects resulting from actions taken pursuant to this Agreement or any Ancillary Agreement or which are primarily attributable to the announcement of this Agreement and the transactions contemplated hereby.

     “Merchantable Timber Category” means pine pulpwood, pine sawtimber, hardwood pulpwood or hardwood sawtimber by Timberland Segment as described in the 2007 Harvest Plan.

     “Minerals” means any of the following in, on or under the Owned Timberlands:

     (i) oil, gas and all other liquid or gaseous hydrocarbons, and their constitute parts, including condensate, casinghead gas, distillate and natural gas liquids;

     (ii) carbon dioxide and methane gas;

     (iii) uranium, thorium and other fissionable materials;

     (iv) coal and lignite, including coal bed methane and coal seam gas;

     (v) geothermal energy resources (including hydropressured reservoirs, geopressured reservoirs, steam and other gases, hot water, hot brine, heat, natural gas dissolved in ground water and associated energy found in ground water);

     (vi) oil sands and shales; and

     (vii) byproducts from Mineral production or processing.

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     “Mineral Rights” means any:

     (i) royalty, overriding royalty, advance royalty, minimum royalty, shut-in royalty, production payments of any other kind and character related to Mineral production, rights to take Mineral production in kind, net profits interests of any kind or character in Minerals and any other contractual rights of a grantor or lessor under any lease of Minerals or other grant of a contractual or property interest in Minerals;

     (ii) bonus and delay rentals paid for any lease or other grant of an interest in Minerals;

     (iii) reversionary rights or interests in Minerals and all rights of reentry to estates in Minerals;

     (iv) executive rights to execute, approve or grant leases, pooling agreements, unit declarations and related agreements, division orders, stipulations of interests, communitization agreements, farmouts, farmins, options, orders, spacing agreements, operating agreements and all other agreements related to Mineral exploration, development or production;

     (v) preferential rights to acquire (A) Minerals, (B) any of the rights enumerated in clauses (i) through (iv) of this definition of Mineral Rights or (C) leases on Minerals, in federal or state lands, to the extent such reservation is permitted by applicable law;

     (vi) all royalties and other payments related to the leasing or production of Minerals owned by the United States of America or any State that have been granted to the owner of the surface estate in the Owned Timberlands as of the date of conveyance of the Owned Timberlands to the applicable Timber LLC under any federal or state law;

     (vii) any other economic or contractual rights, options or interests in and to (A) any of the rights enumerated in clauses (i) through (vi) of this definition of Mineral Rights, (B) Minerals, (C) any partnership or venture interest in Minerals or (D) the exploration, development or production of Minerals; and

     (viii) any other right or interest pertaining to the Minerals or any of the rights enumerated in clauses (i) through (vii) of this definition of Mineral Rights existing at the date of the conveyance of the Owned Timberlands to the applicable Timber LLC and owned or held by Grantor.

     “Minimum Claim Amount” has the meaning specified in Section 13.4(b)(ii).

     “Monetary Liens” has the meaning specified in Section 2.3(b)(i).

     “Note Documents” has the meaning specified in Section 10.12(a).

     “Note Parties” has the meaning specified in Section 10.12(b).

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     “Notice of Defense” has the meaning specified in Section 13.5(b).

     “Objection Notice” has the meaning specified in Section 2.3(a)(ii)(A).

     “Other Buying Parties” has the meaning specified in the preamble to this Agreement.

     “Owned Timberlands” has the meaning specified in Section 1.2(a).

     “Parent” has the meaning specified in the preamble.

     “Parent Instrument of Assumption” has the meaning specified in Section 1.7(a).

     “Parent Title Objection” has the meaning specified in Section 2.3(b)(i).

     “Parent’s Disclosure Letter” has the meaning specified in the preamble to Article VIII.

     “Partially Completed Title Commitment” means a Title Commitment together with a copy of each recorded documentary exception referenced therein, but not including the metes and bounds legal descriptions of the Timberlands covered thereby, when posted to the Title Company’s online repository.

     “Parties” means Seller and the Buying Parties, collectively. “Party” means Seller or any Buying Party, individually.

     “Party Executive” has the meaning specified in Section 9.5(a).

     “Permitted Exceptions” has the meaning specified in Section 1.6.

     “Person” means an individual, partnership, limited partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof.

     “Personal Property Leases” has the meaning specified in Section 1.1.

     “Phase I Report” has the meaning specified in Section 10.3.

     “Phase II Report” means an investigation and written report conducted by an environmental professional that further evaluates a REC identified in a Phase I Report or other transaction screen process for the purpose of providing additional information regarding the nature and extent of environmental contamination associated with a REC.

     “Plans” has the meaning specified in Section 7.4(a).

     “Post-Closing Buyer Easement” has the meaning specified in Section 10.7(c).

     “Post-Closing Reserved Easement” has the meaning specified in Section 10.7(b).

     “Pre-Adjustment Purchase Price” has the meaning specified in Section 2.1.

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     “Pre-Closing Tax Period” means a Tax period (or any portion thereof) ending on or prior to the Closing Date.

     “Prime Rate” means the prime rate of interest as published from time to time in the “Money Rates” table of The Wall Street Journal.

     “Pulpwood Supply Agreement” has the meaning specified in Section 3.2(a)(vii).

     “Pulpwood Support Agreement” has the meaning specified in Section 3.2(a)(vii).

     “Purchase Price” has the meaning specified in Section 2.1.

     “Purchase Price Allocation” has the meaning specified in Section 2.2(b).

     “Purchased Assets” means the Cash Assets, the Timber LLC Assets and the Buyer Affiliate Assets, collectively.

     “Purchased Condemnations” has the meaning specified in Section 1.2(f).

     “Purchased Contracts” has the meaning specified in Section 1.2(d).

     “Purchased Personal Assets” has the meaning specified in Section 1.1.

     “Real Property Leases” has the meaning specified in Section 1.2(e).

     “REC” means the presence or likely presence of any Hazardous Substance on a property under conditions that indicates an existing release, a past release, or a material threat of a release of any Hazardous Substance into structures on the property or in the ground, groundwater or surface water of the property.

     “Regulatory Law” means the Sherman Antitrust Act of 1890, as amended, the Clayton Antitrust Act of 1914, as amended, the HSR Act, the Federal Trade Commission Act of 1914, as amended, and all federal, state and foreign, if any, statutes, rules, regulations, orders, decrees, administrative and judicial doctrines and other Laws that are designed or intended to prohibit, restrict or regulate (i) foreign investment, (ii) foreign exchange or currency control or (iii) actions having the purpose or effect of monopolization or restraint of trade or lessening of competition.

     “Reserved Easements” means the easements in respect of the Owned Timberlands described in Section 1.2(a)(2) of Seller’s Disclosure Letter, collectively.

     “Reserved Groundwater Nonparticipating Royalty Interest” means the nonparticipating, cost-free, perpetual royalty interest in groundwater produced or withdrawn from the Owned Timberlands, excluding the Owned Timberlands described in Section 1.5(f) of the Seller’s Disclosure Letter, equal to 45% of the “Fair Value” thereof as such term is defined in the Deed attached hereto as Exhibit E-4.

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     “Reserved Mineral Interests and Rights” means all Minerals, Mineral Rights, Rights Incident to Minerals and Mineral Rights and Reserved Mineral Records, collectively.

     “Reserved Mineral Records” means any and all books, records, files, data (including seismic data and related information), analyses or other information, whether documentary or otherwise, maintained by Seller or any Affiliate of Seller relating to Minerals, Mineral Rights, or Rights Incident to Minerals and Mineral Rights.

     “Reserved Water Rights” means all rights of water appurtenant to the Owned Timberlands described in Section 1.5(f) of the Seller’s Disclosure Letter, including: (i) all rights to withdraw groundwater in and under and that may be produced from the Owned Timberlands described in Section 1.5(f) of the Seller’s Disclosure Letter and its appurtenant aquifers for the production, use, commercial development and sale of such groundwater; provided that such rights are limited (A) so as to exclude any groundwater or portion of the groundwater in an aquifer that cannot be reserved by Seller under applicable Law and (B) to permit the reasonable use of groundwater by the applicable Timber LLC, its successors and assigns for ordinary domestic purposes, watering livestock and forestry operations; (ii) subject to clause (i)(B) above, all historic use rights of water appurtenant to the Owned Timberlands described in Section 1.5(f) of the Seller’s Disclosure Letter, including any riparian rights and any rights under any permit, allocation or similar right under applicable Law; and (iii) the rights of ingress and egress to the Owned Timberlands described in Section 1.5(f) of the Seller’s Disclosure Letter and the right to conduct surface and subsurface operations and to use the surface and subsurface (including existing roads) and to construct and maintain on, in or under the Owned Timberlands described in Section 1.5(f) of the Seller’s Disclosure Letter such roads, pipelines, utilities and other improvements and facilities as are reasonably required for exploration, drilling or otherwise developing and completing wells or other means of production of water, reworking wells or other means of production of water and producing, removing, treating, storing, processing or transporting water and storing and disposal of waste related to such operations.

     “Rights Incident to Minerals and Mineral Rights” means:

     (i) all easements, servitudes, rights of entry, rights of way, licenses, permits and other surface rights, powers, benefits and privileges, expressed or implied in law or in fact, for exploration, drilling or otherwise developing and completing wells or other means of production of any Minerals, reworking wells or other means of production of any Minerals, producing, removing, marketing or transporting Minerals, including the right to construct drill sites and roads to the drill sites and to extend utility, gathering lines, flow lines and pipelines to the drill sites and to locate on the drill sites the equipment and improvements reasonably necessary to drill wells (using any technique including directional or horizontal drilling), to complete wells, to produce wells, to treat, repair, reenter and rework wells and to separate, treat, compress, process, store, remove, own, claim, sell, and transport production from wells;

     (ii) the right to conduct Drilling and Other Operations in, on and under the Owned Timberlands;

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     (iii) the right to conduct operations for reservoir stimulation and improved recovery techniques for the recovery and production of Minerals, including but not limited to water flooding, immiscible gas injection, miscible gas injection, chemical flooding and thermal recovery, the disposal of water (including saltwater) produced or recovered in such operations and the use of so much of water from the Owned Timberlands as may be needed for such operations, subject to not materially inferring with the use of potable groundwater for ordinary domestic uses or the ordinary use of water for livestock;

     (iv) the right to sequester carbon dioxide or other greenhouse gases in the subsurface of the Owned Timberlands, including sequestering in hydrocarbon reservoirs, coal seams, salt domes and other formations, together with all rights to access and use the surface and subsurface as reasonably necessary to field test and deploy carbon sequestration technology in the subsurface and to separate, transport and store carbon dioxide and other greenhouse gases on the surface prior to sequestration;

     (v) the right to reenter and use all abandoned drill holes and wells on the Owned Timberlands and all of Seller’s right, title and interest in fixtures, wells, equipment and personal property of any kind located now or in the future on the Owned Timberlands and used solely in connection with Drilling and Other Operations;

     (vi) the right to use all subsurface structures and depleted reservoirs for storage of substances or for disposal of water (including saltwater) or of waste;

     (vii) the right to use or salvage all surface and subsurface equipment, facilities or improvement abandoned on, in or under the Owned Timberlands by owners or producers of Minerals (including utility lines, gathering lines, flow lines, pipelines and roads);

     (viii) the right to retain and possess, on a non-exclusive basis with Buyer, all Reserved Minerals Records (Buyer shall have the right to retain copies, or be granted access by Seller, for all such Reserved Minerals Records);

     (ix) any claims, causes of action, choses in action, counterclaims, cross-claims or affirmative defenses to the extent attributable to the ownership and use of the Minerals, Mineral Rights or Rights Incident to Minerals and Mineral Rights described in other subsections of this definition;

     (x) all other rights, powers, benefits or privileges incident or appurtenant to the ownership of Minerals and Mineral Rights under applicable law; and

     (xi) the free use and exercise of the rights and interests described in clauses (i) through (x) above.

     “Savings Plan” has the meaning specified in Section 11.5(a).

     “Sawtimber Supply Agreement” has the meaning specified in Section 3.2(a)(vii).

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     “Sawtimber Support Agreement” has the meaning specified in Section 3.2(a)(vii).

     “SEC” means the Securities and Exchange Commission.

     “Seller” has the meaning specified in the preamble to this Agreement.

     “Seller Indemnitees” has the meaning specified in Section 13.3(a).

     “Seller Savings Plan” has the meaning specified in Section 11.5(c).

     “Seller SEC Documents” means all reports, schedules, forms, statements or other documents filed by Seller with, or furnished by Seller to, the SEC prior to the date of this Agreement.

     “Seller’s Disclosure Letter” has the meaning specified in the preamble to Article V.

     “Seller’s Knowledge” means actual knowledge possessed by the individuals set forth on Schedule D, without any duty on the part of such individuals to investigate or inquire into any particular matter.

     “Subsidiary” means, with respect to any Person, any other Person of which (i) a majority of the outstanding share capital, voting securities or other equity interests are owned, directly or indirectly, by such Person or (ii) such Person is entitled, directly or indirectly, to appoint a majority of the board of directors or managers or comparable supervisory body of the other Person.

     “Substitute Designee” means Seller party in the Fiber Supply Agreements.

     “Supply Designee” means the purchaser party in a Master Stumpage Agreement.

     “Support Agreements” has the meaning specified in Section 3.2(a)(vii).

     “Surface Mining Operations” means activities conducted on the surface of the land to develop, produce, treat, process, transport, market and deliver coal, lignite, iron, uranium, thorium and other fissionable materials in solid form such as contour, strip, auger, mountaintop removal, box cut and open pit mining, quarrying, placer mining, dredging and heap leach, including reclamation, if any, in support of or incident to such operations and the construction, maintenance and replacement of surface and groundwater control or detention structures or facilities and other environmental controls or monitoring facilities, storage and disposal areas, and other monitoring and reclamation activities as may be required by Law, permit or Contract to conduct such operations.

     “Tax” or “Taxes” means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits, withholding, social security (or similar, including FICA), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other Tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not.

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     “Tax Authority” means the Internal Revenue Service and any other domestic or foreign Governmental Authority responsible for the administration or collection of any Tax.

     “Tax Return” means any return, report or similar statement (including the attached schedules) required to be filed with respect to Taxes, including any information return, claim for refund, amended return, or declaration of estimated Taxes.

     “Termination Date” has the meaning specified in Section 14.1(b).

     “Termination Fee” has the meaning specified in Section 14.2.

     “Third Party Claim” has the meaning specified in Section 13.5(b).

     “Timber LLC” means any one of the Delaware limited liability companies listed on Schedule B attached hereto under the caption “Timber LLCs” (collectively, the “Timber LLCs”).

     “Timber LLC Assets” has the meaning specified in Section 1.2.

     “Timber LLC Assumed Liabilities” has the meaning specified in Section 1.7(b).

     “Timber LLC Instrument of Assumption” has the meaning specified in Section 1.7(b).

     “Timber LLC Interests” has the meaning specified in Section 1.4.

     “Timber Note” has the meaning specified in Section 2.5(a).

     “Timber Price” has the meaning specified in Section 2.2(b).

     “Timber Note Indicative Terms” means the terms of the Timber Note set forth in Exhibit O.

     “Timberland Leases” has the meaning specified in Section 1.2(b).

     “Timberland Segments” means the following two distinct forest areas comprising the Timberlands, the Eastern Forest, which encompasses the Timberlands located in Alabama and Georgia, and the Western Forest, which encompasses the Timberlands located in Texas and Louisiana, collectively. “Timberland Segment” means the Eastern Forest or the Western Forest, individually.

     “Timberlands” means the Owned Timberlands and the Leasehold Interests, collectively.

     “Title Basket Amount” has the meaning specified in Section 2.3(b)(i).

     “Title Commitment” has the meaning specified in Section 10.8(a).

     “Title Company” means Stewart Title Guaranty Company.

     “Title Failure” means (i) any portion of the Owned Timberlands that is not, or immediately prior to the Closing will not be, (A) owned by a Seller or Timber LLC or (B)

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insurable by the Title Company, and (ii) any portion of the Leasehold Interests that is not, or immediately prior to the Closing will not be, (A) the subject of a valid and enforceable Timberland Lease under which the Seller or Timber LLC is the lessee or (B) insurable by the Title Company.

     “Title Failure Carveout” has the meaning specified in Section 2.3(b)(ii).

     “Title Objection Carveout” has the meaning specified in Section 2.3(b)(iii).

     “Title Objection Period” has the meaning specified in Section 2.3(b)(i).

     “Title Policies” has the meaning specified in Section 10.8(a).

     “Transaction Documents” means this Agreement, the Timber Notes, the Letters of Credit and any exhibits or schedules thereto or other documents referred to therein, the Fiber Supply Agreements and the Ancillary Agreements.

     “Transfer Taxes” has the meaning specified in Section 3.4.

     “Transferred Employees” has the meaning specified in Section 11.2.

     “Treasury Regulations” means the treasury regulations (including temporary regulations) promulgated by the United States Department of Treasury with respect to the Code.

     “Water Rights” means all rights of water appurtenant to the Owned Timberlands, excluding the Owned Timberlands described in Section 1.5(f) of the Seller’s Disclosure Letter, including: (i) all rights to withdraw groundwater in and under and that may be produced from the Owned Timberlands, excluding the Owned Timberlands described in Section 1.5(f) of the Seller’s Disclosure Letter, and their appurtenant aquifers for the production, use, commercial development and sale of such groundwater; and (ii) all historic use rights of water appurtenant to the Owned Timberlands, excluding the Owned Timberlands described in Section 1.5(f) of the Seller’s Disclosure Letter, including any riparian rights and any rights under any permit, allocation or similar right under applicable Law.

[Signatures begin on the following page]

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     IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be signed by an officer thereunto duly authorized, all as of the date first written above.

TIN INC.

By:

Name:

Title:

CAMPBELL/SOUTHERN PARENT, LLC

By:

Name:

Title:

CAMPBELL/SOUTHERN BUYER, LLC

By:

Name:

Title:

CAMPBELL/SOUTHERN BUYER AFFILIATE, LLC

By:

Name:

Title:

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EX-3.1

EXHIBIT 3.1

Amended and Restated Certificate of Incorporation
of
Temple-Inland Inc.

     Temple-Inland Inc. (the “Corporation”) a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows:

     First. The name of the corporation is Temple-Inland Inc. The date of filing of its original Certificate of Incorporation with the Secretary of State of Delaware was August 29, 1983.

     Second. This Amended and Restated Certificate of Incorporation was duly adopted by the Board of Directors of the Corporation and its stockholders in accordance with Section 242 and 245 of the General Corporation Law of the State of Delaware.

     Third. This Amended and Restated Certificate of Incorporation restates and integrates and further amends the Certificate of Incorporation of the Corporation, as heretofore amended or supplemented.

     Fourth. The text of the Certificate of Incorporation, as amended or supplemented heretofore, is amended and restated in its entirety as follows:

ARTICLE I

     The name of the corporation (hereinafter called the “Corporation”) is Temple-Inland Inc.

ARTICLE II

     The address of the Corporation’s registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801. The name of the Corporation’s registered agent at such address is The Corporation Trust Company.

ARTICLE III

     The purposes of the Corporation are to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.

ARTICLE IV

     Section 1. The total number of shares of all classes of stock which the Corporation shall have authority to issue is 225,000,000, consisting of (1) 25,000,000 shares of Preferred Stock, par value $1.00 per share (“Preferred Stock”), and (2) 200,000,000 shares of Common Stock, par value $1.00 per share (“Common Stock”). The consideration for the issuance of the shares shall be paid to or received by the Corporation in full before the issuance and shall not be less than the

par value per share. The consideration shall be as permitted by the laws of the State of Delaware. In the absence of actual fraud in the transaction, the judgment of the Board of Directors as to the value of such consideration shall be conclusive. Upon payment of such consideration, such shares shall be deemed to be fully paid and nonassessable. In the case of a stock dividend, that part of the surplus of the Corporation which is transferred to stated capital upon the issuance of shares as a stock dividend shall be deemed to be consideration for such issuance.

     Section 2. The Board of Directors is hereby expressly authorized, by resolution or resolutions from time to time adopted, to provide, out of the unissued shares of Preferred Stock, for the issuance of serial Preferred Stock. Before any shares of any such series are issued, the Board of Directors shall fix and state, and hereby is expressly empowered to fix, by resolution or resolutions, the designations, preferences, and relative, participating, optional or other special rights of the shares of each such series, and the qualifications, limitations or restrictions thereon, including but not limited to, determination of any of the following:

     (a) the designation of such series, the number of shares to constitute such series and the stated value thereof if different from the par value thereof;

     (b) whether the shares of such series shall have voting rights, in addition to any voting rights provided by law, and, if so, the terms of such voting rights, which may be full or limited;

     (c) the dividends, if any, payable on such series, whether any such dividends shall be cumulative, and, if so, from what dates, the conditions and dates upon which such dividends shall be payable, the preference or relation which such dividends shall bear to the dividends payable on any shares of stock of any other class or any other series of this class;

     (d) whether the shares of such series shall be subject to redemption by the Corporation, other than as set forth in Section 4 of this Article IV, and, if so, the times, prices and other terms and conditions of such redemption;

     (e) the amount or amounts payable upon shares of such series upon, and the rights of the holders of such series in, the voluntary or involuntary liquidation, dissolution or winding up, or upon any distribution of the assets, of the Corporation;

     (f) whether the shares of such series shall be subject to the operation of a retirement or sinking fund and, if so, the extent to and manner in which any such retirement or sinking fund shall be applied to the purchase or redemption of the shares of such series for retirement or other corporate purposes and the terms and provisions relative to the operation thereof;

     (g) whether the shares of such series shall be convertible into, or exchangeable for, shares of stock of any other class or any other series of this class or any other class or classes of securities and, if so, the price or prices or the rate or rates of conversion or

2

exchange and the method, if any, of adjusting the same, and any other terms and conditions of conversion or exchange;

     (h) the limitations and restrictions, if any, to be effective while any shares of such series are outstanding upon the payment of dividends or the making of other distributions on, and upon the purchase, redemption or other acquisition by the Corporation of, the Common Stock or shares of stock of any other class or any other series of this class;

     (i) the conditions or restrictions, if any, upon the creation of indebtedness of the Corporation or upon the issue of any additional stock, including additional shares of such series or of any other series of this class or of any other class; and

     (j) any other powers, preferences and relative, participating, optional and other special rights, and any qualifications, limitations and restrictions thereof.

     The powers, preferences and relative, participating, optional and other special rights of each series of Preferred Stock, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding. All shares of any one series of Preferred Stock shall be identical in all respects with all other shares of such series, except that shares of any one series issued at different times may differ as to the dates from which dividends thereon shall be cumulative. The Board of Directors may increase the number of shares of the Preferred Stock designated for any existing series by a resolution adding to such series authorized and unissued shares of the Preferred Stock not designated for any other series. The Board of Directors may decrease the number of shares of Preferred Stock designated for any existing series by a resolution subtracting from such series unissued shares of the Preferred Stock designated for such series, and the shares so subtracted shall become authorized, unissued, and undesignated shares of the Preferred Stock.

     Section 3. Each holder of Common Stock shall be entitled to one vote for each share of Common Stock held of record on all matters on which stockholders generally are entitled to vote. Subject to the provisions of law and the rights of the Preferred Stock and any other class or series of stock having a preference as to dividends over the Common Stock then outstanding, dividends may be paid on the Common Stock out of assets legally available for dividends, but only at such times and in such amounts as the Board of Directors shall determine and declare. Upon the dissolution, liquidation or winding up of the Corporation, after any preferential amounts to be distributed to the holders of the Preferred Stock and any other class or series of stock having a preference over the Common Stock then outstanding have been paid or declared and set apart for payment, the holders of the Common Stock shall be entitled to receive all the remaining assets of the Corporation available for distribution to its stockholders ratably in proportion to the number of shares held by them, respectively.

     Section 4. Notwithstanding any other provision of this Certificate of Incorporation to the contrary, but subject to the provisions of any resolution or resolutions of the Board of Directors adopted pursuant to this Article IV creating any series of Preferred Stock or any other class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, outstanding shares of Common Stock, Preferred Stock or any other class or series of

3

stock of the Corporation, shall always be subject to redemption by the Corporation, by action of the Board of Directors, if in the judgment of the Board of Directors such action should be taken, pursuant to Section 151(b) of the General Corporation Law of the State of Delaware (or by any other applicable provision of law), to the extent necessary to prevent the loss or secure the reinstatement of any license or franchise from any governmental agency held by the Corporation or any Subsidiary to conduct any portion of the business of the Corporation or such Subsidiary, which license or franchise is conditioned upon some or all of the holders of the Corporation’s stock of any class or series possessing prescribed qualifications. The terms and conditions of such redemption shall be as follows:

     (a) the redemption price of the shares to be redeemed pursuant to this Section 4 shall be equal to the Fair Market Value of such shares;

     (b) the redemption price of such shares may be paid in cash, Redemption Securities or any combination thereof;

     (c) if less than all the shares held by Disqualified Holders are to be redeemed, the shares to be redeemed shall be selected in such manner as shall be determined by the Board of Directors, which may include selection first of the most recently purchased shares thereof, selection by lot or selection in any other manner determined by the Board of Directors;

     (d) at least 30 days’ written notice of the Redemption Date shall be given to the record holders of the shares selected to be redeemed (unless waived in writing by any such holder), provided that the Redemption Date may be the date on which written notice shall be given to record holders if the cash or Redemption Securities necessary to effect the redemption shall have been deposited in trust for the benefit of such record holders and subject to immediate withdrawal by them upon surrender of the stock certificates for their shares to be redeemed;

     (e) from and after the Redemption Date, any and all rights of whatever nature, which may be held by the owners of shares selected for redemption (including without limitation any rights to vote or participate in dividends declared on stock of the same class or series as such shares), shall cease and terminate and they shall thenceforth be entitled only to receive the cash or Redemption Securities payable upon redemption; and

     (f) such other terms and conditions as the Board of Directors shall determine.

     For purposes of this Section 4:

     (i) “Disqualified Holder” shall mean any holder of shares of stock of the Corporation of any class or series whose holding of such stock may result in the loss of any license or franchise from any governmental agency held by the Corporation or any Subsidiary to conduct any portion of the business of the Corporation or any Subsidiary.

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     (ii) “Fair Market Value” of a share of the Corporation’s stock of any class or series shall mean the average (unweighted) Closing Price for such a share for each of the 45 most recent days on which shares of stock of such class or series shall have been traded preceding the day on which notice of redemption shall be given pursuant to paragraph (d) of this Section 4; provided, however, that if shares of stock of such class or series are not traded on any registered securities exchange or in the over-the-counter market, “Fair Market Value” shall be determined by the Board of Directors in good faith; and provided further, however, that “Fair Market Value” as to any stockholder who purchased his stock within 120 days of a Redemption Date need not (unless otherwise determined by the Board of Directors) exceed the purchase price paid by him. “Closing Price” on any day means the reported last sales price regular way or, in case no such sale takes place, the average of the reported closing bid and asked prices regular way on the New York Stock Exchange Composite Tape, or, if stock of the class or series in question is not quoted on such Composite Tape, on the New York Stock Exchange, or, if such stock is not listed on such Exchange, on the principal United States registered securities exchange on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing sales price or bid quotation for such stock on the National Association of Securities Dealers, Inc. Automated Quotations System or any system then in use, or if no such prices or quotations are available, the fair market value on the day in question as determined by the Board of Directors in good faith.

     (iii) “Redemption Date” shall mean the date fixed by the Board of Directors for the redemption of any shares of stock of the Corporation pursuant to this Section 4.

     (iv) “Redemption Securities” shall mean any debt or equity securities of the Corporation, any Subsidiary or any other corporation, or any combination thereof, having such terms and conditions as shall be approved by the Board of Directors and which, together with any cash to be paid as part of the redemption price, in the opinion of any nationally recognized investment banking firm selected by the Board of Directors (which may be a firm which provides other investment banking, brokerage or other services to the Corporation), has a value, at the time notice of redemption is given pursuant to paragraph (d) of this Section 4, at least equal to the Fair Market Value of the shares to be redeemed pursuant to this Section 4 (assuming, in the case of Redemption Securities to be publicly traded, such Redemption Securities were fully distributed and subject only to normal trading activity).

     (v) “Subsidiary” shall mean any corporation more than 50% of whose outstanding stock having ordinary voting power in the election of directors is owned by the Corporation, by a Subsidiary or by the Corporation and one or more Subsidiaries.

ARTICLE V

     [Repealed]

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ARTICLE VI

     Section 1. Except as otherwise fixed by or pursuant to the provisions of Article IV hereof relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, the number of the directors of the Corporation shall be fixed from time to time by or pursuant to the By-laws of the Corporation. The directors, other than those who may be elected by the holders of the Preferred Stock or any other class or series of stock having a preference over the Common Stock as to dividends or upon liquidation pursuant to the terms of this Certificate of Incorporation or any resolution or resolutions providing for the issue of such class or series of stock adopted by the Board of Directors, shall be classified, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as possible, as shall be provided in the By-laws of the Corporation, one class to be originally elected for a term expiring at the annual meeting of stockholders to be held in 1984, another class to be originally elected for a term expiring at the annual meeting of stockholders to be held in 1985, and another class to be originally elected for a term expiring at the annual meeting of stockholders to be held in 1986, with each class to hold office until its successors are elected and qualified. At each annual meeting of the stockholders of the Corporation, the date of which shall be fixed by or pursuant to the By-laws of the Corporation, the successors of the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. The election of directors need not be by written ballot. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

     Section 2. Advance notice of nominations for the election of directors shall be given in the manner and to the extent provided in the By-laws of the Corporation.

     Section 3. Except as otherwise provided for or fixed by or pursuant to the provisions of Article IV hereof relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, newly created directorships resulting from any increase in the number of directors may be filled by the Board of Directors, or as otherwise provided in the By-laws, and any vacancies on the Board of Directors resulting from death, resignation, removal or other cause shall only be filled by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors, or by a sole remaining director, or as otherwise provided in the By-laws. Any director elected in accordance with the preceding sentence of this Section 3 shall be appointed to the class of directors in which the new directorship was created or the vacancy occurred and shall hold office until the next annual meeting of stockholders or until such director’s successor shall have been elected and qualified, or as otherwise provided in the By-laws.

     Section 4. Subject to the rights of the holders of the Preferred Stock or any other class or series of stock having a preference over the Common Stock as in dividends or upon liquidation, any director may be removed from office only for cause and only by the affirmative vote of the holders of a majority of the combined voting power of the then outstanding shares of Voting Stock, voting together as a single class. For purposes of this Section 4, “cause” shall mean the willful and continuous failure of a director to substantially perform such director’s duties to the

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Corporation (other than any such failure resulting from incapacity due to physical or mental illness) or the willful engaging by a director in gross misconduct materially and demonstrably injurious to the Corporation.

ARTICLE VII

     Subject to the rights of the holders of the Preferred Stock or any other class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders. Except as otherwise required by law and subject to the rights of the holders of the Preferred Stock or any other class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, special meetings of stockholders of the Corporation may be called only by the Board of Directors pursuant to a resolution approved by a majority of the entire Board of Directors or as otherwise provided in the By-laws of the Corporation.

ARTICLE VIII

     In furtherance and not in limitation of the powers conferred upon it by law, the Board of Directors is expressly authorized to adopt, repeal, alter or amend the By-laws of the Corporation by the vote of a majority of the entire Board of Directors. In addition to any requirements of law and any other provision of this Certificate of Incorporation or any resolution or resolutions of the Board of Directors adopted pursuant to Article IV of this Certificate of Incorporation (and notwithstanding the fact that a lesser percentage may be specified by law, this Certificate of Incorporation or any such resolution or resolutions), By-laws of the Corporation may be adopted, repealed, altered or amended by the stockholders of the Corporation only by the affirmative vote of the holders of 80% or more of the combined voting power of the then outstanding shares of Voting Stock, voting together as a single class and cast at a meeting of the stockholders called for that purpose (provided that notice of such proposed adoption, repeal, alteration or amendment is included in the notice of such meeting).

ARTICLE IX

     In addition to any requirements of law and any other provisions of this Certificate of Incorporation or any resolution or resolutions of the Board of Directors adopted pursuant to Article IV of this Certificate of Incorporation (and notwithstanding the fact that a lesser percentage may be specified by law, this Certificate of Incorporation or any such resolution or resolutions), the affirmative vote of the holders of 80% or more of the combined voting power of the then outstanding shares of Voting Stock, voting together as a single class, shall be required to amend, alter or repeal, or adopt any provision inconsistent with, this Article IX or Articles V, VI, VII or VIII, or Section 4 of Article IV, of this Certificate of Incorporation; provided, however, that the affirmative vote of a majority of the combined voting power of the then outstanding shares of Voting Stock held by the Disinterested Stockholders (as defined in Section 4 of Article V

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of this Certificate of Incorporation), voting together as a single class, shall also be required to amend, alter or repeal, or adopt any provision inconsistent with, Article V of this Certificate of Incorporation or the requirements of this proviso. Subject to the foregoing provisions of this Article IX, the Corporation reserves the right to amend, alter or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are subject to this reservation.

ARTICLE X

     No director shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty by such director as a director. Notwithstanding the foregoing sentence, a director shall be liable to the extent provided by applicable law (i) for breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived an improper personal benefit. No amendment to or repeal of this Article XI shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment.

     In Witness Whereof, said Temple-Inland Inc. has caused this Certificate to be signed by Doyle R. Simons. its Executive Vice President this 15^th day of May 2007.

Temple-Inland Inc.
By	/s/ Doyle R. Simons
Doyle R. Simons, Executive Vice President

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EX-3.2

EXHIBIT 3.2

AMENDED AND RESTATED BY-LAWS
OF
TEMPLE-INLAND INC.

(Incorporated under the Laws of the State of Delaware)
(As Amended and Restated May 2007)

ARTICLE I

OFFICES

     Section 1. Registered Office. The registered office of Temple-Inland Inc. (hereinafter called the Company) in the State of Delaware shall be at 100 West Tenth Street, in the City of Wilmington, County of New Castle, and the registered agent in charge thereof shall be The Corporation Trust Company.

     Section 2. Other Offices. The Company may also have an office or offices, and keep the books and records of the Company, except as may otherwise be required by law, at such other place or places, either within or without the State of Delaware, as the Board of Directors may from time to time determine or the business of the Company require.

ARTICLE II

MEETINGS OF STOCKHOLDERS

     Section 1. Place of Meeting. All meetings of the stockholders of the Company shall be held at the office of the Company or at such other places, within or without the State of Delaware, as may from time to time be fixed by the Board of Directors or the Chairman of the Board.

     Section 2. Annual Meeting. The annual meeting of the stockholders of the Company for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held on the first Friday in May in each year, if not a legal holiday under the laws of the place where the meeting is to be held, and, if a legal holiday, then on the next succeeding day not a legal holiday under the laws of such place, or on such other date and at such hour as may from time to time be fixed by the Board of Directors or the Chairman of the Board.

     Section 3. Special Meetings. Except as otherwise required by law and subject to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, special meetings of the stockholders for any purpose or purposes may be called only by (i) the Chairman of the Board or (ii)

the Secretary of the Company at the request in writing of a majority of the entire Board of Directors. Special meetings of the stockholders may be called at such place and on such date and at such time as fixed by the appropriate person calling such special meeting of the stockholders. Only such business as is specified in the notice of any special meeting of the stockholders shall come before such meeting.

     Section 4. Notice of Meetings. Except as otherwise provided by law, written notice of each meeting of the stockholders, whether annual or special, shall be given, either by personal delivery or by mail, not less than 10 nor more than 60 days before the date of the meeting to each stockholder of record entitled to notice of the meeting. If mailed, such notice shall be deemed given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the Company. Each such notice shall state the place, date and hour of the meeting, and the purpose or purposes for which the meeting is called. Notice of any meeting of stockholders shall not be required to be given to any stockholder who shall attend such meeting in person or by proxy without protesting, at the commencement of the meeting, the lack of proper notice to such stockholder, or who shall waive notice thereof as provided in Article X of these By-laws.

     Section 5. Quorum. Except as otherwise provided by law or by the Certificate of Incorporation of the Company, the holders of a majority of the votes entitled to be cast by the stockholders entitled to vote, which if any vote is to be taken by classes shall mean the holders of a majority of the votes entitled to be cast by the stockholders of each such class, present in person or by proxy, shall constitute a quorum for the transaction of business at any meeting of the stockholders.

     Section 6. Adjournments. In the absence of a quorum, the holders of a majority of the votes entitled to be cast by the stockholders, present in person or by proxy, may adjourn the meeting from time to time, without notice to the stockholders, until a quorum is present, if the time and place to which it is adjourned are announced at such meeting, unless the adjournment is for more than 30 days or, after adjournment, a new record date is fixed for the adjourned meeting. At any such adjourned meeting at which a quorum may be present, any business may be transacted which might have been transacted at the meeting as originally called.

     Section 7. Order of Business. At each meeting of the stockholders, one of the following persons, in the order in which they are listed (and in the absence of the first, the next, and so on), shall serve as chairman of the meeting: Chairman of the Board, Vice-Chairmen of the Board (in the order of their seniority if more than one), Vice-Presidents (in the order of their seniority if more than one) and Secretary. The order of business at each such meeting shall be as determined by the chairman of the meeting. The chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of the meeting, including, without limitation, the establishment of procedures for the maintenance of order and safety, limitations on the time allotted to questions or comments on the affairs of the Company, restrictions on

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entry to such meeting after the time prescribed for the commencement thereof, and the opening and closing of the voting polls.

     Section 8. List of Stockholders. It shall be the duty of the Secretary or other officer of the Company who has charge of the stock ledger to prepare and make, at least 10 days before each meeting of the stockholders, a complete list of the stockholders entitled to vote thereat, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in such stockholder’s name. Such list shall be produced and kept available at the times and places required by law.

     Section 9. Voting. Except as otherwise provided by law or by the Certificate of Incorporation of the Company, each stockholder of record of any class or series of stock having a preference over the Common Stock of the Company as to dividends or upon liquidation shall be entitled on each matter submitted to a vote at each meeting of stockholders to such number of votes for each share of such stock as may be fixed in the Certificate of Incorporation or in the resolution or resolutions adopted by the Board of Directors providing for the issuance of such stock, and each stockholder of record of Common Stock shall be entitled at each meeting of stockholders to one vote for each share of such stock, in each case, registered in such stockholder’s name on the books of the Company:

(1)	on the date fixed pursuant to Section 6 of Article VII of these By-laws as the record date for the determination of stockholders entitled to notice of and to vote at such meeting; or
(2)	if no such record date shall have been so fixed, then at the close of business on the day next preceding the day on which notice of such meeting is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held.

Each stockholder entitled to vote at any meeting of stockholders may authorize not in excess of three persons to act for such stockholder by a proxy signed by such stockholder or such stockholder’s attorney-in-fact. Any such proxy shall be delivered to the secretary of such meeting at or prior to the time designated for holding such meeting, but in any event not later than the time designated in the order of business for so delivering such proxies. No such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period.

At each meeting of the stockholders, all corporate actions to be taken by vote of the stockholders (except as otherwise required by law and except as otherwise provided in the Certificate of Incorporation) shall be authorized by a majority of the votes cast by the stockholders entitled to vote thereon, present in person or represented by proxy, and where a separate vote by class is required, a majority of the votes cast by the stockholders of such class, present in person or represented by proxy, shall be the act of such class.

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Unless required by law or determined by the chairman of the meeting to be advisable, the vote on any matter, including the election of directors, need not be by written ballot. In the case of a vote by written ballot, each ballot shall be signed by the stockholder voting, or by such stockholder’s proxy, and shall state the number of shares voted.

     Section 10. Inspectors. Either the Board of Directors or, in the absence of a designation of inspectors by the Board, the chairman of any meeting of stockholders may, in its or such person’s discretion, appoint two or more inspectors to act at any meeting of stockholders. Such inspectors shall perform such duties as shall be specified by the Board or the chairman of the meeting. Inspectors need not be stockholders. No director or nominee for the office of director shall be appointed such inspector.

     Section 11. Advance Notification. At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, if such business relates to the election of directors of the Company, the procedures in Article III, Section 3 must be complied with. If such business relates to any other matter, the stockholder must have given timely notice thereof in writing to the Secretary. To be timely, a stockholder’s notice must be delivered or mailed and received at the principal executive offices of the Company, not less than 75 days nor more than 100 days prior to the anniversary date of the immediately preceding annual meeting of stockholders of the Company; provided, however, that in the event that the annual meeting is called for a date (including any change in a date designated by the Board of Directors pursuant to Section 2 of this Article II) more than 50 days prior to such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or public disclosure of the date of the meeting was made, whichever first occurs. A stockholder’s notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the Company’s books, of the stockholder proposing such business, (c) the class and number of shares of the Company which are beneficially owned by the stockholder, and (d) any material interest of the stockholder in such business. Notwithstanding anything in the By-laws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this Section 11 and except that any stockholder proposal which complies with Rule 14a-8 of the proxy rules (or any successor provision) promulgated under the Securities and Exchange Act of 1934, as amended, and is to be included in the Company’s proxy statement for an annual meeting of the stockholders shall be deemed to comply with the requirements of this Section 11.

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The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 11, and if he should so determine, the chairman shall so declare to the meeting that any such business not properly brought before the meeting shall not be transacted.

ARTICLE III

BOARD OF DIRECTORS

     Section 1. General Powers. The business and affairs of the Company shall be managed by or under the direction of the Board of Directors, which may exercise all such powers of the Company and do all such lawful acts and things as are not by law or by the Certificate of Incorporation of the Company or by these By-laws directed or required to be exercised or done by the stockholders.

     Section 2. Number, Qualification and Election.

     (a) Number. Except as otherwise fixed by or pursuant to the provisions of Article IV of the Certificate of Incorporation of the Company relating to the rights of the holders of any class or series of stock having preference over the Common Stock as to dividends or upon liquidation, the number of the directors of the Company shall be as specified from time to time by vote of a majority of the entire Board of Directors, but not less than three.

     (b) Division into Classes. The directors, other than those who may be elected by the holders of shares of any class or series of stock having a preference over the Common Stock of the Company as to dividends or upon liquidation pursuant to the terms of Article IV of the Certificate of Incorporation or any resolution or resolutions providing for the issue of such shares adopted by the Board of Directors, shall be classified, with respect to the time for which they severally hold office, into three classes. The number of directors at any time constituting the entire Board of Directors shall as nearly as possible be divided equally among the three classes in such manner as shall be determined by the Board of Directors in its sole discretion, with each class to hold office until its successors are elected. At each annual meeting of the stockholders of the Company the successors of the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election.

     Subject to the rights of the holders of any class or series of stock having a preference over the Common Stock of the Company as to dividends or upon liquidation, at each annual meeting of the stockholders, there shall be elected the directors of the class the term of office of which shall then expire.

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     (c) Election. Except as provided in Section 14 of this Article, a nominee for director shall be elected if the votes cast for such nominee’s election exceed the votes cast against such nominee’s election; provided, however, that the directors shall be elected by a plurality of the votes cast at any meeting of stockholders for which (i) the Secretary of the Company receives a notice that a stockholder has nominated a person for election to the Board of Directors in compliance with the advance notice requirements for stockholder nominees for director set forth in Section 11 of Article II of these By-laws and (ii) such nomination has not been withdrawn by such stockholder on or prior to the seventh day preceding the date the Company first mails its notice of meeting for such meeting to the stockholders.

     Section 3. Notification of Nominations. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors. Nominations for election to the Board of Directors of the Company at a meeting of stockholders may be made by the Board of Directors or by any stockholder of the Company entitled to vote for the election of directors at such meeting who complies with the notice procedures set forth in this Section 3. Nominations with respect to an election of directors to be held at an annual meeting, other than those nominations made by or on behalf of the Board of Directors, shall be made by notice in writing delivered or mailed by first class United States mail, postage prepaid, to the Secretary, and received not less than 75 days nor more than 100 days prior to the anniversary date of the immediately preceding annual meeting of stockholders of the Company; provided, however, that in the event that the annual meeting is called for a date (including any change in a date designated by the Board pursuant to Section 2 of Article II) more than 50 days prior to such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made, whichever first occurs. Nominations with respect to an election of directors to be held at a special meeting of stockholders, other than nominations made by or on behalf of the Board of Directors, shall be made by notice in writing delivered or mailed by first class mail, postage prepaid, to the Secretary and received no later than the close of business on the 10th day following the day on which such notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever first occurs. Each notice under this Section 3 shall set forth (a) as to each proposed nominee (i) the name, age, business address and, if known, residence address of each such nominee, (ii) the principal occupation or employment of each such nominee, (iii) the number of shares of stock of the Company which are beneficially owned by each such nominee, and (iv) any other information concerning the nominee that must be disclosed as to nominees in proxy solicitations pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person’s written consent to be named as a nominee and to serve as a director if elected); and (b) as to the stockholder giving the notice (i) the name and address, as they appear on the Company’s books, of such stockholder, and (ii) the class and number of shares of the Company which are beneficially owned by such stockholder. The Company may require any proposed nominee to furnish such other information as may reasonably be required

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by the Company to determine the eligibility of such proposed nominee to serve as a director of the Company.

     The chairman of the meeting may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded.

     Section 4. Quorum and Manner of Acting. Except as otherwise provided by law, the Certificate of Incorporation of the Company or these By-laws, a majority of the entire Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board, and, except as so provided, the vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board. In the absence of a quorum, a majority of the directors present may adjourn the meeting to another time and place. Notice of any adjourned meeting shall be given as set forth in Section 8 of this Article III. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called and noticed.

     Section 5. Place of Meeting. The Board of Directors may hold its meetings at such place or places within or without the State of Delaware as the Board may from time to time determine or as shall be specified or fixed in the respective notices or waivers of notice thereof.

     Section 6. Regular Meetings. Regular meetings of the Board of Directors shall be held at such times and places as the Board shall from time to time by resolution determine. If any day fixed for a regular meeting shall be a legal holiday under the laws of the place where the meeting is to be held, the meeting which would otherwise be held on that day shall be held at the same hour on the next succeeding day not a legal holiday.

     Section 7. Special Meetings. Special meetings of the Board of Directors shall be held whenever called by the Chairman of the Board or by the Secretary upon the request of a majority of the directors.

     Section 8. Notice of Meetings. Notice of regular meetings of the Board of Directors or of any adjourned meeting thereof need not be given. Notice of each special meeting of the Board shall be mailed to each director, addressed to such director at such director’s residence or usual place of business, at least two days before the day on which the meeting is to be held or shall be sent to such director at such place by telegraph or be given personally or by telephone, not later than the day before the meeting is to be held, but notice need not be given to any director who shall, either before or after the meeting, submit a signed waiver of such notice or who shall attend such meeting without protesting, prior to or at its commencement, the lack of notice to such director. Every such notice shall state the time and place but need not state the purpose of the meeting.

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     Section 9. Rules and Regulations. The Board of Directors may adopt such rules and regulations not inconsistent with the provisions of law, the Certificate of Incorporation of the Company or these By-laws for the conduct of its meetings and management of the affairs of the Company as the Board may deem proper.

     Section 10. Participation in Meeting by Means of Communications Equipment. Any one or more members of the Board of Directors or any committee thereof may participate in any meeting of the Board or of any such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such meeting.

     Section 11. Action Without Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if all of the members of the Board or of any such committee consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the Board or of such committee.

     Section 12. Resignations. Any director may resign at any time upon notice given in writing or by electronic transmission to the Chairman of the Board or to the Secretary. A resignation is effective when the resignation is delivered unless the resignation specifies (a) a later effective date or (b) an effective date determined upon the happening of an event or events (including but not limited to a failure to receive a majority of the votes cast in an election and the acceptance of the resignation by the Board of Directors).

     Section 13. Removal of Directors. Directors may be removed only as provided in Section 4 of Article VI of the Certificate of Incorporation of the Company.

     Section 14. Vacancies. Subject to the rights of the holders of any class or series of stock having a preference over the Common Stock of the Company as to dividends or upon liquidation, any vacancies on the Board of Directors resulting from death, resignation, removal or other cause, shall only be filled by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors, or by a sole remaining director, and newly created directorships resulting from any increase in the number of directors shall be filled by the Board of Directors, or if not so filled, by the stockholders at the next annual meeting thereof or at a special meeting called for that purpose in accordance with Section 3 of Article II of these By-laws. Any director elected in accordance with the preceding sentence of this Section 14 shall be appointed to the class of directors in which the new directorship was created or the vacancy occurred and shall hold office until the next annual meeting of stockholders or until such director’s successor shall have been elected and qualified.

     Section 15. Compensation. Each director who shall not at the time also be a salaried officer or employee of the Company or any of its subsidiaries (hereinafter

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referred to as an “outside director”), in consideration of such person serving as a director, shall be entitled to receive from the Company such amount per annum and such fees for attendance at meetings of the Board of Directors or of committees of the Board, or both, as the Board shall from time to time determine. In addition, each director, whether or not an outside director, shall be entitled to receive from the Company reimbursement for the reasonable expenses incurred by such person in connection with the performance of such person’s duties as a director. Nothing contained in this Section shall preclude any director from serving the Company or any of its subsidiaries in any other capacity and receiving proper compensation therefor.

ARTICLE IV

EXECUTIVE AND OTHER COMMITTEES

     Section 1. Executive Committee. The Board of Directors may, by resolution adopted by a majority of the entire Board, designate annually three or more of its members to constitute members or alternate members of an Executive Committee, which Committee shall have and may exercise, between meetings of the Board, all the powers and authority of the Board in the management of the business and affairs of the Company, including, if such Committee is so empowered and authorized by resolution adopted by a majority of the entire Board, the power and authority to declare a dividend and to authorize the issuance of stock, and may authorize the seal of the Company to be affixed to all papers which may require it, except that the Executive Committee shall not have such power or authority in reference to:

(a)	amending the Certificate of Incorporation of the Company;
(b)	adopting an agreement of merger or consolidation involving the Company;
(c)	recommending to the stockholders the sale, lease or exchange of all or substantially all of the property and assets of the Company;
(d)	recommending to the stockholders a dissolution of the Company or a revocation of a dissolution;
(e)	adopting, amending or repealing any By-law;
(f)	taking any action, including the approval or determination of any matter, in connection with any Business Combination pursuant to Article V of the Certificate of Incorporation;
(g)	filling vacancies on the Board or on any committee of the Board, including the Executive Committee;
(h)	fixing the compensation of directors for serving on the Board or on any committee of the Board, including the Executive Committee; or

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(i) amending or repealing any resolution of the Board which by its terms may be amended or repealed only by the Board.

The Board shall have power at any time to change the membership of the Executive Committee, to increase or decrease (but not below the number three (3)) the membership of the Executive Committee, to designate alternate members who may replace absent or disqualified members of it, to fill all vacancies in it and to discharge it or any member thereof, either with or without cause.

     SECTION 2. Other Committees. The Board of Directors may, by resolution adopted by a majority of the entire Board, designate from among its members one or more other committees, each of which shall, except as otherwise prescribed by law, have such authority of the Board as may be specified in the resolution of the Board designating such committee. A majority of all the members of such committee may determine its action and fix the time and place of its meetings, unless the Board shall otherwise provide. The Board shall have power at any time to change the membership of, to increase or decrease the membership of, to fill all vacancies in and to discharge any such committee, or any member thereof, either with or without cause.

     Section 3. Procedure; Meetings; Quorum. Regular meetings of the Executive Committee or any other committee of the Board of Directors, of which no notice shall be necessary, may be held at such times and places as shall be fixed by resolution adopted by a majority of the members thereof. Special meetings of the Executive Committee or any other committee of the Board shall be called at the request of any member thereof. Notice of each special meeting of the Executive Committee or any other committee of the Board shall be sent by mail, telegraph or telephone, or be delivered personally to each member thereof not later than the day before the day on which the meeting is to be held, but notice need not be given to any member who shall, either before or after the meeting, submit a signed waiver of such notice or who shall attend such meeting without protesting, prior to or at its commencement, the lack of such notice to such member. Any special meeting of the Executive Committee or any other committee of the Board shall be a legal meeting without any notice thereof having been given, if all the members thereof shall be present thereat. Notice of any adjourned meeting of any committee of the Board need not be given. The Executive Committee or any other committee of the Board may adopt such rules and regulations not inconsistent with the provisions of law, the Certificate of Incorporation of the Company or these By-laws for the conduct of its meetings as the Executive Committee or any other committee of the Board may deem proper. A majority of the Executive Committee or any other committee of the Board shall constitute a quorum for the transaction of business at any meeting, and the vote of a majority of the members thereof present at any meeting at which a quorum is present shall be the act of such committee. In the absence or disqualification of a member, the remaining members, whether or not a quorum, may fill a vacancy. The Executive Committee or any other committee of the Board of Directors shall keep written minutes of its proceedings, a copy of which is to be filed with the Secretary of the Company, and shall report on such proceedings to the Board.

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ARTICLE V

OFFICERS

     Section 1. Number; Term of Office; Compensation. The officers of the Company shall be a Chairman of the Board, a Chief Executive Officer, a Chief Financial Officer and/or a Treasurer, a Secretary, one or more Vice-Presidents, which may be designated as Executive Vice-President, Vice-President/Finance, and one or more of whom may be designated as Group Vice-Presidents, or such other designation as deemed appropriate, from time to time, by the Board of Directors, and such other officers (including one or more Vice Chairmen of the Board) or agents with such titles and such duties as the Board of Directors may from time to time determine, each to have such authority, functions or duties as in these By-laws provided or as the Board of Directors may from time to time determine, and each to hold office for such term as may be prescribed by the Board of Directors and as to those offices as determined to be mandatory under the provisions hereof until such person’s successor shall have been chosen and shall qualify, all until any of such person’s death or resignation or until such person’s removal in the manner hereinafter provided. The Chairman of the Board and any Vice-Chairman of the Board shall be elected from among the directors. One person may hold the offices and perform the duties of any two or more of said officers; provided, however, that no officer shall execute, acknowledge or verify any instrument in more than one capacity if such instrument is required by law, the Certificate of Incorporation of the Company or these By-laws to be executed, acknowledged or verified by two or more officers. The Board may from time to time authorize any officer to appoint and remove any such other officers and agents and to prescribe their powers and duties. The Board may require any officer or agent to give security for the faithful performance of such person’s duties. The Board shall establish the salaries of the officers of the Company.

     Section 2. Removal. Any officer may be removed, either with or without cause, by the Board of Directors at any meeting thereof called for the purpose, or, except in the case of any officer elected by the Board, by any committee or superior officer upon whom such power may be conferred by the Board.

     Section 3. Resignation. Subject at all times to the right of removal as provided in Section 2 of this Article V, any officer may resign at any time by giving notice to the Board of Directors, the Chairman of the Board or the Secretary of the Company. Any such resignation shall take effect at the date of receipt of such notice or at any later date specified therein; provided that the Chairman of the Board or, in the event of the resignation of the Chairman of the Board, the Board of Directors may designate an effective date for such resignation which is earlier than the date specified in such notice but which is not earlier than the date of receipt of such notice; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

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     Section 4. Vacancies. A vacancy in any office because of death, resignation, removal or any other cause may be filled for the unexpired portion of the term in the manner prescribed in these By-laws for election to such office.

     Section 5. The Chairman of the Board. The Chairman of the Board shall be the Chief Executive Officer of the Company and shall have general supervision and direction of the business and affairs of the Company (subject to the control of the Board of Directors) and shall see that all orders and resolutions of the Board of Directors are carried into effect. The Chairman of the Board shall, if present, preside at meetings of the Board of Directors and, if present, preside at meetings of the stockholders. The Chairman of the Board shall perform such other duties as the Board or the Executive Committee may from time to time determine. The Chairman of the Board may sign and execute in the name of the Company deeds, mortgages, bonds, contracts or other instruments authorized by the Board or any committee thereof empowered to authorize the same. The Chairman of the Board, or his or the Board’s designee, shall vote all securities held by the Company.

     Section 6. Vice-Chairman of the Board. In the absence of the Chairman of the Board, the Vice-Chairman of the Board (if any), or if there shall be more than one, a Vice-Chairman of the Board as designated by the Chairman of the Board, or, in the absence of such designation, such Vice-Chairman (or other director if no Vice-Chairman is elected or present) as designated by the Board of Directors, shall, if present, preside at meetings of the Board of Directors. When so acting, any Vice-Chairman of the Board shall have the powers, and be subject to all the restrictions on, the Chairman of the Board. Each Vice-Chairman of the Board shall when requested counsel with and advise the Chairman of the Board, and other officers of the Company and shall perform such other duties as may be agreed upon with them or as the Board may from time to time determine.

     Section 7. Chief Financial Officer. The Chief Financial Officer of the Company shall have general supervision over the financial operations of the Company, subject to the direction of the Chairman of the Board or the Board of Directors. The Chief Financial Officer may sign and execute in the name of the Company deeds, mortgages, bonds, contracts or other instruments authorized by the Board or any committee thereof empowered to authorize the same.

     Section 8. Vice-Presidents. Each Vice-President shall have such powers and duties as shall be prescribed by the Chairman of the Board or the Board of Directors. Any Vice-President may sign and execute in the name of the Company deeds, mortgages, bonds, contracts or other instruments authorized by the Board or any committee thereof empowered to authorize the same.

     Section 9. Treasurer. The Treasurer shall perform all duties incident to the office of Treasurer, and shall have such other duties as from time to time may be assigned to the Treasurer by the Chief Financial Officer, the Chairman of the Board or the Board of Directors.

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     The Treasurer shall serve as Chief Financial Officer if no other person is elected to the office of Chief Financial Officer.

     Section 10. Secretary. It shall be the duty of the Secretary to act as secretary at all meetings of the Board of Directors, and of the stockholders and to attend and record the proceedings of such meetings in a book or books to be kept for that purpose; the Secretary shall see that all notices required to be given by the Company are duly given and served; the Secretary shall be custodian of the seal of the Company and shall affix the seal or cause to be affixed to all certificates of stock of the Company (unless the seal of the Company on such certificates shall be a facsimile, as hereinafter provided) and to all documents, the execution of which on behalf of the Company under its seal is duly authorized in accordance with the provision of these By-laws. The Secretary shall have charge of the stock ledger and also of the other books, records and papers of the Company and shall see that the reports, statements and other documents required by law are properly kept and filed; and shall in general perform all the duties incident to the office of Secretary and such other duties as from time to time may be assigned to such person by the Chairman of the Board or the Board of Directors.

     Section 11. Assistant Treasurers and Assistant Secretaries. The Assistant Treasurers and the Assistant Secretaries shall perform such duties as shall be assigned to them by the Treasurer or Secretary, respectively, or by the Chairman of the Board or the Board of Directors.

ARTICLE VI

INDEMNIFICATION

     Section 1. Power to Indemnify in Actions, Suits or Proceedings Other Than Those by or in the Right of the Company. Subject to Section 3 of this Article VI, the Company shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that he is or was a director, officer or employee of the Company, or is or was a director, officer or employee of the Company or any direct or indirect wholly owned subsidiary of the Company (except Guaranty Federal Savings Bank or its subsidiaries) serving at the request of the Company as a director, officer, employee or agent of any such subsidiary or another corporation, savings and loan association, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction,

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or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.

     Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Company. Subject to Section 3 of this Article VI, the Company shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Company to procure a judgment in its favor by reason of the fact that he is or was a director, officer or employee of the Company, or is or was a director, officer or employee of the Company or any direct or indirect wholly owned subsidiary of the Company (except Guaranty Federal Savings Bank or its subsidiaries) serving at the request of the Company as a director, officer, employee or agent of any such subsidiary or another corporation, savings and loan association, partnership, joint venture, trust, employee benefit plan or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Company unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.

     Section 3. Authorization of Indemnification. Any indemnification under this Article VI (unless ordered by a court) shall be made by the Company only as authorized in the specific case upon a determination that indemnification of the director, officer or employee is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 1 or Section 2 of this Article VI, as the case may be. Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. To the extent, however, that a director, officer or employee has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection therewith, without the necessity of authorization in the specific case.

     Section 4. Good Faith Defined. For purposes of any determination under Section 3 of this Article VI, a person shall be deemed to have acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the

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Company, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe his conduct was unlawful, if his action is based on the records or books of account of the Company or another enterprise, or on information supplied to him by the officers of the Company or another enterprise in the course of their duties, or on the advice of legal counsel for the Company or another enterprise or on information or records given or reports made to the Company or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Company or another enterprise. The terms “another enterprise” or “other enterprise” as used in this Article VI shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enter price of which such person is or was serving at the request of the Company as a director, officer, employee or agent. The provisions of this Section 4 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Sections 1 or 2 of this Article VI, as the case may be.

     Section 5. Indemnification by a Court. Notwithstanding any contrary determination in the specific case under Section 3 of this Article VI, and notwithstanding the absence of any determination thereunder, any director, officer or employee may apply to any court of competent jurisdiction in the State of Delaware for indemnification to the extent otherwise permissible under Sections 1 and 2 of this Article VI. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director, officer or employee is proper in the circumstances because he has met the applicable standards of conduct set forth in Sections 1 or 2 of this Article VI, as the case may be. Neither a contrary determination in the specific case under Section 3 of this Article VI nor the absence of any determination thereunder shall be a defense to such application or create a presumption that the director, officer or employee seeking indemnification has not met any applicable standard of conduct. Notice of any application for indemnification pursuant to this Section 5 shall be given to the Company promptly upon the filing of such application.

     Section 6. Expenses Payable in Advance. Expenses incurred in defending or investigating a threatened or pending action, suit or proceeding shall be paid by the Company in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer or employee to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Company as authorized in this Article VI.

     Section 7. Non-exclusivity of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by or granted pursuant to this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any By-law, agreement, contract, vote of stockholders or disinterested directors or pursuant to the direction (howsoever embodied) of any court of competent jurisdiction or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, it being the policy of the Company that indemnification of the

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persons specified in Sections 1 and 2 of this Article VI shall be made to the fullest extent permitted by law. The provisions of this Article VI shall not be deemed to preclude the indemnification of any person who is not specified in Sections 1 or 2 of this Article VI but whom the Company has the power or obligation to indemnify under the provisions of the General Corporation Law of the State of Delaware, or otherwise.

     Section 8. Insurance. The Company may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, savings and loan association, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Company would have the power or the obligation to indemnify him against such liability under the provisions of this Article VI.

     Section 9. Certain Definitions. For purposes of this Article VI, references to “the Company” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees, so that any person who is or was a director, officer or employee of such constituent corporation, or is or was a director, officer or employee of such constituent corporation or any direct or indirect wholly owned subsidiary of such constituent corporation (except Guaranty Federal Savings Bank or its subsidiaries) serving at the request of such constituent corporation as a director, officer, employee or agent of any such subsidiary or another corporation, savings and loan association, partnership, joint venture, trust, employee benefit plan or other enterprise, shall stand in the same position under the provisions of this Article VI with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Article VI, references to “finest” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “serving at the request of the Company” shall include any service as a director, officer or employee of the Company which imposes duties on, or involves services by, such director, officer or employee with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Company” as referred to in this Article VI.

     Section 10. Survival of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by, or granted pursuant to, this section shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer or employee and shall inure to the benefit of the heirs, executors and administrators of such a person.

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ARTICLE VII

CAPITAL STOCK

     Section 1. Certificates for Shares. Certificates representing shares of stock of each class of the Company, whenever authorized by the Board of Directors, shall be in such form as shall be approved by the Board. The certificates representing shares of stock of each class shall be issued in consecutive order and shall be numbered in the order of their issue, shall be signed by, or in the name of, the Company by the Chairman of the Board or a Vice-President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer of the Company, and sealed with the seal of the Company, which may be by a facsimile thereof. Any or all such signatures may be facsimiles if countersigned by a transfer agent or registrar. Although any officer, transfer agent or registrar whose manual or facsimile signature is affixed to such a certificate ceases to be such officer, transfer agent or registrar before such certificate has been issued, it may nevertheless be issued by the Company with the same effect as if such officer, transfer agent or registrar were still such at the date of its issue.

     The stock ledger and blank share certificates shall be kept by the Secretary or by a transfer agent or by a registrar or by any other officer or agent designated by the Board.

     Section 2. Transfer of Shares. Transfers of shares of stock of each class of the Company shall be made only on the books of the Company by the holder thereof, or by such holder’s attorney there unto authorized by a power of attorney duly executed and filed with the Secretary of the Company or a transfer agent for such stock, if any, and on surrender of the certificate or certificates for such shares properly endorsed or accompanied by a duly executed stock transfer power or other evidence of succession, assignment or authority to transfer and the payment of all taxes thereon. The person in whose name shares stand on the books of the Company shall be deemed the owner thereof for all purposes as regards the Company; provided, however, that whenever any transfer of shares shall be made for collateral security and not absolutely, and written notice thereof shall be given to the Secretary or to such transfer agent, such fact shall be stated in the entry of the transfer. No transfer of shares shall be valid as against the Company, its stockholders and creditors for any purpose, except to render the transferee liable for the debts of the Company to the extent provided by law, until it shall have been entered in the stock records of the Company by an entry showing from and to whom transferred.

     Section 3. Addresses of Stockholders. Each stockholder shall designate to the Secretary or transfer agent of the Company an address at which notices of meetings and all other corporate notices may be served or mailed to such person, and, if any stockholder shall fail to designate such address, corporate notices may be served upon such person by mail directed to such person at such person’s post office address, if any,

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as the same appears on the share record books of the Company or at such person’s last known post office address.

     Section 4. Lost, Destroyed and Mutilated Certificates. The holder of any share of stock of the Company shall immediately notify the Company of any loss, theft, destruction or mutilation of the certificate therefor; the Company may issue to such holder a new certificate or certificates for shares, upon the surrender of the mutilated certificate or, in the case of loss, theft or destruction of the certificate, upon satisfactory proof of such loss, theft or destruction; the Board of Directors, or a committee designated thereby, or the transfer agents and registrars for the stock, may, in their discretion, require the owner of the lost, stolen or destroyed certificate, or such person’s legal representative, to give the Company a bond in such sum and with such surety or sureties as they may direct to indemnify the Company and said transfer agents and registrars against any claim that may be made on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.

     Section 5. Regulations. The Board of Directors may make such additional rules and regulations as it may deem expedient concerning the issue and transfer of certificates representing shares of stock of each class of the Company and may make such rules and take such action as it may deem expedient concerning the issue of certificates in lieu of certificates claimed to have been lost, destroyed, stolen or mutilated.

     Section 6. Fixing Date for Determination of Stockholders of Record. In order that the Company may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournments thereof, or entitled to receive payment of any dividend or other distribution or allotment or any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. A determination of stockholders entitled to notice of or to vote at a meeting of the stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

ARTICLE VIII

SEAL

The Board of Directors shall provide a corporate seal, which shall be in the form of a circle and shall bear the full name of the Company and the words and figures “Corporate Seal Delaware 1983”, or such other words or figures as the Board of Directors may approve and adopt. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. Unless otherwise provided in these By-laws or by law, it shall not be mandatory that the corporate seal or

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its facsimile be impressed or affixed on any document executed on behalf of the Company.

ARTICLE IX

FISCAL YEAR

     The fiscal year of the Company shall end at the close of business on the last Saturday in December or the first Saturday in January, whichever date is closest to December 31 in each year.

ARTICLE X

WAIVER OF NOTICE

     Whenever any notice whatsoever is required to be given by these By-laws, by the Certificate of Incorporation of the Company or by law, the person entitled thereto may, either before or after the meeting or other matter in respect of which such notice is to be given, waive such notice in writing, which writing shall be filed with or entered upon the records of the meeting or the records kept with respect to such other matter, as the case may be, and in such event such notice need not be given to such person and such waiver shall be deemed equivalent to such notice.

ARTICLE XI

AMENDMENTS

     Any By-law (other than this By-law) may be adopted, repealed, altered or amended by a majority of the entire Board of Directors at any meeting thereof, provided that such proposed action in respect thereof shall be stated in the notice of such meeting and any such action by the Board of Directors shall be effective without the necessity for any approval or ratification by the stockholders of the Company; provided, however, that any amendment or repeal of, or the adoption of any By-law inconsistent with, Section 2(c) of Article III of these By-laws shall also require the approval of the stockholders of the Company. The stockholders of the Company shall have the power to amend, alter or repeal any provision of these By-laws only to the extent and in the manner provided in the Certificate of Incorporation of the Company.

ARTICLE XII

AFFILIATED TRANSACTIONS

     Section 1. Validity. Except as otherwise provided for in the Certificate of Incorporation and except as otherwise provided in this By-law, if Section 2 is satisfied,

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no contract or transaction between the Company and any of its directors, officers or security holders, or any corporation, partnership, association or other organization in which any of such directors, officers or security holders are directly or indirectly financially interested, shall be void or voidable solely because of this relationship, or solely because of the presence of the director, officer or security holder at the meeting authorizing the contract or transaction, or solely because of his or their participation in the authorization of such contract or transaction or vote at the meeting therefor, whether or not such participation or vote was necessary for the authorization of such contract or transaction.

     Section 2. Disclosure, Approval; Fairness. Section 1 shall apply only if:

A. the material facts as to the relationship or interest and as to the contract or transaction are disclosed or are known:

(i)	to the board of directors (or committee thereof) and it nevertheless in good faith authorizes or ratifies the contract or transaction by a majority of the directors present, each such interested director to be counted in determining whether a quorum is present but not in calculating the majority necessary to carry the vote; or
(ii)	to the stockholders and they nevertheless authorize or ratify the contract or transaction by a majority of the shares present at a meeting considering such contract or transaction, each such interested person (stockholder) to be counted in determining whether a quorum is present and for voting purposes; or

B. the contract or transaction is fair to the Company as of the time it is authorized or ratified by the board of directors (or committee thereof) or the stockholders.

     Section 3. Nonexclusive. This provision shall not be construed to invalidate a contract or transaction which would be valid in the absence of this provision.

ARTICLE XIII

MISCELLANEOUS

     Section 1. Execution of Documents. The Board of Directors shall designate the officers, employees and agents of the Company who shall have power to execute and deliver deeds, contracts, mortgages, bonds, debentures, checks, drafts and other orders for the payment of money and other documents for and in the name of the Company and may authorize such officers, employees and agents to delegate such power (including authority to redelegate) by written instrument to other officers, employees or agents of the Company. Such delegation may be by resolution or

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otherwise and the authority granted shall be general or confined to specific matters, all as the Board may determine. In the absence of such designation referred to in the first sentence of this Section, the officers of the Company shall have such power so referred to, to the extent incident to the normal performance of their duties.

     Section 2. Deposits. All funds of the Company not otherwise employed shall be deposited from time to time to the credit of the Company or otherwise as the Board of Directors or any officer of the Company to whom power in that respect shall have been delegated by the Board shall select.

     Section 3. Checks. All checks, drafts and other orders for the payment of money out of the funds of the Company, and all notes or other evidences of indebtedness of the Company, shall be signed on behalf of the Company in such manner as shall from time to time be determined by resolution of the Board of Directors or of any committee thereof empowered to authorize the same.

     Section 4. Proxies in Respect of Stock or Other Securities of Other Corporations. The Board of Directors shall designate the officers of the Company who shall have authority from time to time to appoint an agent or agents of the Company to exercise in the name and on behalf of the Company the powers and rights which the Company may have as the holder of stock or other securities in any other corporation, and to vote or consent in respect of such stock or securities; such designated officers may instruct the person or persons so appointed as to the manner of exercising such powers and rights; and such designated officers may execute or cause to be executed in the name and on behalf of the Company and under its corporate seal, or otherwise, such written proxies, powers of attorney or other instruments as they may deem necessary or proper in order that the Company may exercise its said powers and rights.

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EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO EXCHANGE ACT RULE 13a-14(a)

I, Kenneth M. Jastrow, II, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Temple-Inland Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in the report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has

materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 7, 2007	/s/ Kenneth M. Jastrow, II
	Kenneth M. Jastrow, II
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO EXCHANGE ACT RULE 13a-14(a)

I, Randall D. Levy, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Temple-Inland Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in the report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has

materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 7, 2007	/s/ Randall D. Levy
	Randall D. Levy
	Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification of Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

     I, Kenneth M. Jastrow, II, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that this Quarterly Report on Form 10-Q fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in this Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Temple-Inland Inc.

/s/ Kenneth M. Jastrow, II

Kenneth M. Jastrow, II

Chief Executive Officer

August 7, 2007

EX-32.2

Exhibit 32.2

Certification of Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

     I, Randall D. Levy, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that this Quarterly Report on Form 10-Q fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in this Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Temple-Inland Inc.

/s/ Randall D. Levy

Randall D. Levy

Chief Financial Officer

August 7, 2007