10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)
þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the Fiscal Year Ended December 29, 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 Incorporation or Organization)	(I.R.S. Employer Identification No.)

1300 MoPac Expressway South, 3^rd Floor

Austin, Texas 78746

(Address of principal executive offices, including Zip code)

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

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange On Which Registered
Common Stock, $1.00 Par Value per Share, non-cumulative Preferred Share Purchase Rights	New York Stock Exchange New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes þ     No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934.  Yes o     No þ

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.  Yes þ     No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ

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

Large accelerated filer þ     Accelerated filer o     Non-accelerated filer o     Smaller reporting company o

(Do not check if a smaller reporting company)

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

The aggregate market value of the Common Stock held by non-affiliates of the registrant, based on the closing sales price of the Common Stock on the New York Stock Exchange on June 29, 2007, was approximately $5,098,255,000. For purposes of this computation, all officers, directors, and five percent beneficial owners of the registrant (as indicated in Item 12) are deemed to be affiliates. Such determination should not be deemed an admission that such directors, officers, or five percent beneficial owners are, in fact, affiliates of the registrant.

As of February 22, 2008, there were 106,274,170 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company’s definitive proxy statement to be prepared in connection with the 2008 Annual Meeting of Shareholders are incorporated by reference into Part III of this report.

TABLE OF CONTENTS

		Page
PART I.
Item 1.	Business		1
Item 1A.	Risk Factors		8
Item 1B.	Unresolved Staff Comments		11
Item 2.	Properties		11
Item 3.	Legal Proceedings		14
Item 4.	Submission of Matters to a Vote of Security Holders		15
PART II.
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		15
Item 6.	Selected Financial Data		17
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		38
Item 8.	Financial Statements and Supplementary Data		39
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		79
Item 9A.	Controls and Procedures		79
Item 9B.	Other Information		79
PART III.
Item 10.	Directors, Executive Officers and Corporate Governance		80
Item 11.	Executive Compensation		80
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		81
Item 13.	Certain Relationships and Related Transactions, and Director Independence		81
Item 14.	Principal Accounting Fees and Services		81
PART IV.
Item 15.	Exhibits, Financial Statement Schedules		81
SIGNATURES			85
Pulpwood Supply Agreement
Sawtimber Supply Agreement
2008 Incentive Plan
Form of Nonqualified Stock Option Agreement, as Revised in 2008, Issued Pursuant to 2003 Stock Incentive Plan
Form of Restricted Stock Units Agreement Issued Pursuant to the 2008 Incentive Plan
Subsidiaries of the Company
Consent of Ernst & Young LLP
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

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PART I

Item 1.   Business

Introduction

Temple-Inland Inc. is a Delaware corporation that was organized in 1983. We manufacture corrugated packaging and building products, which we report as separate operating segments. The following chart presents our corporate structure at year-end 2007. It does not contain all our subsidiaries, many of which are dormant or immaterial entities. A list of our subsidiaries is filed as an exhibit to this Annual Report on Form 10-K. All subsidiaries shown are 100 percent owned by their immediate parent company listed in the chart, unless indicated otherwise.

Our principal executive offices are located at 1300 MoPac Expressway South, 3^rd Floor, Austin, Texas 78746. Our telephone number is (512) 434-5800.

Financial Information

Financial information about our principal operating segments and revenues by geographic areas are shown in our notes to financial statements contained in Item 8, and revenues and unit sales by product line are contained in Item 7 of this Annual Report on Form 10-K.

Transformation Plan

On February 25, 2007, our board of directors unanimously authorized a transformation plan that included the spin-off of our real estate business and our financial services business. The spin-offs were completed on December 28, 2007 through distributions to our stockholders of all of the shares of common stock of Forestar Real Estate Group Inc., which holds all of the assets and liabilities formerly associated with our real estate business, and Guaranty Financial Group Inc., which holds all of the assets and liabilities formerly associated with our financial services business. Our consolidated financial statements contained in this Annual Report on Form 10-K have been reclassified for all periods presented to report Forestar and Guaranty as discontinued operations.

As part of the transformation plan, we also sold our strategic timberland on October 31, 2007 for approximately $2.38 billion. The total consideration consisted almost entirely of notes due in 2027, which are

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secured by irrevocable standby letters of credit. In December 2007, we pledged the notes as collateral for nonrecourse loans. The net cash proceeds from the nonrecourse loans, after current taxes and transaction costs, were approximately $1.8 billion. We used these proceeds to pay a special dividend to our shareholders of $10.25 per share and reduce debt by approximately $700 million.

Narrative Description of the Business

Corrugated Packaging.  Our corrugated packaging segment provided 77.5 percent of our 2007 consolidated net revenues. Our vertically integrated corrugated packaging operation includes:

•  five linerboard mills,

•  one corrugating medium mill, and

•  64 converting facilities.

We manufacture containerboard and convert it into a complete line of corrugated packaging. We sold eight percent of the containerboard we produced in 2007 in the domestic and export markets. We converted the remaining internal production, in combination with containerboard we purchased from other producers, into corrugated containers at our converting facilities. While we have the capacity to convert more containerboard than we produce, we routinely buy and sell various grades of containerboard depending on our product mix.

Our nationwide network of converting facilities produces a wide range of products from commodity brown boxes to intricate die cut containers that can be printed with multi-color graphics. Even though the corrugated packaging business is characterized by commodity pricing, each order for each customer is a custom order. Our corrugated packaging is sold to a variety of customers in the food, paper, glass containers, chemical, appliance, and plastics industries, among others. We also manufacture bulk containers constructed of multi-wall corrugated board for extra strength, which are used for bulk shipments of various materials.

We serve over 9,500 corrugated packaging customers with 17,000 shipping destinations. We have no single customer to which sales equal ten percent or more of consolidated revenues or the loss of which would have a material adverse effect on our corrugated packaging segment.

Sales of corrugated packaging track changing population patterns and other demographics. Historically, there has been a correlation between the demand for corrugated packaging and orders for nondurable goods.

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.

Building Products.  Our building products segment provided 20.5 percent of our 2007 consolidated net revenues. We manufacture a wide range of building products, including:

•  lumber,

•  gypsum wallboard,

•  particleboard,

•  medium density fiberboard (or MDF), and

•  fiberboard.

We sell building products throughout the continental United States, with the majority of sales occurring in the southern United States. We have no single customer to which sales equal ten percent or more of consolidated revenues or the loss of which would have a material adverse effect on our building products segment. Most of our products are sold by account managers and representatives to distributors, retailers, and original equipment manufacturers. Sales of building products are heavily dependent upon the level of residential housing expenditures, including the repair and remodeling market.

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We also own a 50 percent interest in Del-Tin Fiber LLC, a joint venture that produces MDF at a facility in El Dorado, Arkansas.

Raw Materials

Wood fiber, in various forms, is the principal raw material we use in manufacturing our products. In October 2007, in conjunction with our transformation plan, we sold our 1.5 million acres of strategic timberland and entered into long-term fiber supply agreements with the purchaser. During 2007, owned timberland supplied approximately 41 percent of our virgin wood fiber requirements. The balance of our virgin wood fiber requirements was purchased from numerous landowners and other timber owners, as well as other producers of wood by-products. In 2008, we currently expect that we will purchase at market prices approximately 50 percent of our wood fiber requirements under our long-term fiber supply agreements, the most significant of which were entered into in connection with our timberland sale. The remainder of our virgin wood fiber requirements will be purchased at market prices from numerous landowners and other timber owners, as well as other producers of wood by-products.

Linerboard and corrugating medium are the principal materials used to make corrugated boxes. Our mills at Rome, Georgia and Bogalusa, Louisiana, only manufacture linerboard. Our Ontario, California; Maysville, Kentucky; and Orange, Texas, mills are traditionally linerboard mills, but can also manufacture corrugating medium. Our New Johnsonville, Tennessee, mill only manufactures corrugating medium. The principal raw material used by the Rome, Georgia; Orange, Texas; and Bogalusa, Louisiana, mills is virgin wood fiber, but each mill is also able to use recycled fiber for up to 15 percent of its wood fiber requirements. The Ontario, California, and Maysville, Kentucky, mills use only recycled fiber. The mill at New Johnsonville, Tennessee, uses a combination of virgin wood and recycled fiber.

In 2007, recycled fiber represented approximately 36 percent of the total wood fiber needs of our containerboard operations. We purchase recycled fiber at market prices on the open market from numerous suppliers. We generally produce more linerboard and less corrugating medium than is used by our converting facilities. The deficit of corrugating medium is filled through open market purchases and/or trades, and we sell any excess linerboard in the open market.

We obtain gypsum for our wallboard operations in Fletcher, Oklahoma, from one outside source through a long-term purchase contract at market prices. At our gypsum wallboard plants in West Memphis, Arkansas, and Cumberland City, Tennessee, synthetic gypsum is used as a raw material. Synthetic gypsum is a by-product of coal-burning electrical power plants. We have a long-term supply agreement for synthetic gypsum produced at a Tennessee Valley Authority electrical plant located adjacent to our Cumberland City plant. Synthetic gypsum acquired pursuant to this agreement supplies all the synthetic gypsum required by our Cumberland City and West Memphis plants. In 2007, our gypsum wallboard plant in McQueeney, Texas, primarily used gypsum obtained from its own quarry and gypsum acquired from the same source that supplies the Fletcher, Oklahoma, plant. In 2008, we expect the McQueeney plant will use synthetic gypsum and gypsum from our quarry.

We believe the sources outlined above will be sufficient to supply our raw material needs for the foreseeable future. We hedge very little of our raw material costs. The wood fiber market is difficult to predict and there can be no assurance of the future direction of prices for virgin wood or recycled fiber. Future increases in wood fiber prices could adversely affect our results of operations.

Energy

Electricity and steam requirements at our manufacturing facilities are either supplied by a local utility or generated internally through the use of a variety of fuels, including natural gas, fuel oil, coal, petroleum coke, tire derived fuel, wood bark, and other waste products resulting from the manufacturing process. By utilizing these waste products and other wood by-products as a biomass fuel to generate electricity and steam, we were able to generate approximately 84 percent of our energy requirements in 2007 at our mills in Rome, Georgia; Bogalusa, Louisiana; and Orange, Texas. In some cases where natural gas or fuel oil is used, our facilities possess a dual capacity enabling the use of either fuel as a source of energy.

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The natural gas needed to run our natural gas fueled power boilers, package boilers, and turbines is acquired pursuant to a multiple vendor solicitation process that provides for the purchase of gas, primarily on a firm basis with a few operations on an interruptible basis, at rates favorable to spot market rates. It is likely that prices of natural gas will continue to fluctuate in the future. We hedge very little of our energy costs.

Employees

We have approximately 12,000 employees, of which approximately 5,000 are covered by collective bargaining agreements. These agreements generally run for a term of three to six years and have varying expiration dates. The following table summarizes certain information about our principal collective bargaining agreements:

		Approximate Number of
Location	Bargaining Unit(s)	Employees Covered	Expiration Dates
Linerboard Mill, Orange, Texas	United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union (or USW), Local 1398, and USW, Local 391	202 hourly production employees and 79 hourly maintenance employees	July 31, 2008
Linerboard Mill, Bogalusa, Louisiana	USW, Local 189, and International Brotherhood of Electrical Workers (or IBEW), Local 1077	338 hourly production employees and 26 electrical maintenance employees	July 31, 2009
Linerboard Mill, Rome, Georgia	USW, Local 804, IBEW, Local 613, United Association of Journeymen & Apprentices of the Plumbing & Pipefitting Industry Local 72, and International Association of Machinists & Aerospace Workers, Local 414	247 hourly production employees, 28 electrical maintenance employees, 25 pipefitter maintenance employees, and 63 mechanical maintenance employees	August 31, 2010
Evansville, Indiana and Middletown, Ohio, Box Plants (or Northern Multiple)	USW, Local 1046 and USW, Local 114, respectively	94 and 100 hourly production and maintenance employees, respectively	April 30, 2008
Rome, Georgia and Orlando, Florida, Box Plants (or Southern Multiple)	USW Local 838 and USW Local 834, respectively	112 and 101 hourly production and maintenance employees, respectively	December 1, 2008

We have additional collective bargaining agreements with employees at various other manufacturing facilities. These agreements each cover a relatively small number of employees and are negotiated on an individual basis at each such facility.

We consider our relations with our employees to be good.

Environmental Protection

We are committed to protecting the health and welfare of our employees, the public, and the environment and strive to maintain compliance with all state and federal environmental regulations in a manner that is also

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cost effective. When we construct new facilities or modernize existing facilities, we generally use state of the art technology for air and water emissions. This forward-looking approach is intended to minimize the effect that changing regulations have on capital expenditures for environmental compliance.

Our operations are subject to federal, state, and local provisions regulating discharges into the environment and otherwise related to the protection of the environment. Compliance with these provisions, primarily the Federal Clean Air Act, Clean Water Act, Comprehensive Environmental Response, Compensation and Liability Act of 1980 (or CERCLA), as amended by the Superfund Amendments and Reauthorization Act of 1986 (or SARA), and Resource Conservation and Recovery Act (or RCRA), requires us to invest substantial funds to modify facilities to assure compliance with applicable environmental regulations. Capital expenditures directly related to environmental compliance totaled $12 million in 2007. This amount does not include capital expenditures for environmental control facilities made as a part of major mill modernizations and expansions or capital expenditures made for another purpose that have an indirect benefit on environmental compliance.

Future expenditures for environmental control facilities will depend on new laws and regulations and other changes in legal requirements and agency interpretations thereof, as well as technological advances. We expect the prominence of environmental regulation and compliance to continue for the foreseeable future. Given these uncertainties, we currently estimate that capital expenditures for environmental purposes, excluding expenditures related to the Maximum Achievable Control Technology (or MACT) programs and landfill closures discussed below, will be $9 million in 2008, $16 million in 2009, and $9 million in 2010. The estimated expenditures could be significantly higher if more stringent laws and regulations are implemented.

The U.S. Environmental Protection Agency (or EPA) has issued extensive regulations governing air and water emissions from the forest products industry. Compliance with these MACT regulations will be required as they become enacted.

On September 13, 2004, EPA published the Boiler MACT, regulations affecting industrial boilers and process heaters burning all fuel types with the exception of small gas-fired units. On July 30, 2007, the U.S. Court of Appeals for the D.C. Circuit remanded and vacated the Boiler MACT. In order to accurately gauge our liability regarding future related regulations, we continue to monitor and are actively engaged in the process the EPA is undertaking to develop new standards for industrial boilers and process heaters.

The Plywood and Composite Wood Panel (or PCWP) MACT standards were published July 30, 2004. Compliance with PCWP MACT was required by October 1, 2008. On June 19, 2007, the U.S. Court of Appeals for the D.C. Circuit rejected the PCWP MACT “low risk option” and the one-year compliance extension previously granted by EPA. As a result, the PCWP MACT compliance date reverted back to the October 1, 2007 deadline contained in the standards published in 2004. We have 12 building products facilities affected by the regulation. In a limited number of cases, one year extension requests were submitted to state regulatory agencies to allow for installation of appropriate PCWP MACT pollution control equipment. All of our extension requests were granted and we anticipate full compliance. Capital expenditures to comply with PCWP MACT are estimated at $6 million, of which we spent $2 million in 2007.

We use company-owned landfills for disposal of non-hazardous waste at three containerboard mills and two building products facilities. We also have two additional sites that we are remediating. Based on third-party cost estimates, we expect to spend, on an undiscounted basis, $27 million over the next 25 years to ensure proper closure of these landfills and remediation of these two additional sites for which we have established a reserve.

At one of these sites, we continue to work with environmental consultants and the Louisiana Department of Environmental Quality (DEQ) to remediate the source of contaminated water discovered in a manhole adjacent to our facility in Bogalusa, Louisiana. Phase II of the investigation process, which involved drilling more and deeper test wells in the affected area, is complete. Our investigation report, including a final remediation plan, was approved by the Louisiana DEQ in December 2007. We have incurred $2 million in costs to date and estimate that we will incur additional remediation expenses of about $10 million, for which we have established a reserve.

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In addition to these capital expenditures, we spend a significant amount on ongoing maintenance costs to continue compliance with environmental regulations. We do not believe, however, that these capital expenditures or maintenance costs will have a material adverse effect on our earnings. In addition, expenditures for environmental compliance should not have a material effect on our competitive position because our competitors are also subject to these regulations.

Our facilities are periodically inspected by environmental authorities. We are required to file with these authorities periodic reports on the discharge of pollutants. Occasionally, one or more of these facilities may operate in violation of applicable pollution control standards, which could subject the company to fines or penalties. We believe that any fines or penalties that may be imposed as a result of these violations will not have a material adverse effect on our earnings or competitive position. No assurance can be given, however, that any fines levied in the future for any such violations will not be material.

Under CERCLA, liability for the cleanup of a Superfund site may be imposed on waste generators, site owners and operators, and others regardless of fault or the legality of the original waste disposal activity. While joint and several liability is authorized under CERCLA, as a practical matter, the cost of cleanup is generally allocated among the many waste generators. We are named as a potentially responsible party in five proceedings relating to the cleanup of hazardous waste sites under CERCLA and similar state laws, excluding sites for which our records disclose no involvement or for which our potential liability has been finally determined. In all but one of these sites, we are either designated as a de minimus potentially responsible party or believe our financial exposure is insignificant. We have conducted investigations of all five sites, and currently estimate that the remediation costs to be allocated to us are about $2 million and should not have a material effect on our earnings or competitive position. There can be no assurance that we will not be named as a potentially responsible party at additional Superfund sites in the future or that the costs associated with the remediation of those sites would not be material.

Competition

We operate in highly competitive industries. The commodity nature of our manufactured products gives us little control over market pricing or market demand for our products. The level of competition in a given product or market may be affected by economic factors, including interest rates, housing starts, home repair and remodeling activities, and the strength of the dollar, as well as other market factors including supply and demand for these products, geographic location, and the operating efficiencies of competitors. Our competitive position is influenced by varying factors depending on the characteristics of the products involved. The primary factors are product quality and performance, price, service, and product innovation.

The corrugated packaging industry is highly competitive with over 1,350 box plants in the United States. Our box plants accounted for approximately 12.5 percent of total industry shipments in 2007, making us the third largest producer of corrugated packaging in the United States. Although corrugated packaging is dominant in the national distribution process, our products also compete with various other packaging materials, including products made of paper, plastics, wood, and metals.

In building products markets, we compete with many companies that are substantially larger and have greater resources in the manufacturing of building products.

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Executive Officers of the Registrant

The names, ages, and titles of our executive officers are:

Name	Age		Office
Doyle R. Simons		44	Chairman of the Board and Chief Executive Officer
J. Patrick Maley III		46	President and Chief Operating Officer
Bart J. Doney		58	Group Vice President
Jack C. Sweeny		61	Group Vice President
Dennis J. Vesci		60	Group Vice President
Grant F. Adamson		49	Chief Governance Officer
J. Bradley Johnston		52	Chief Administrative Officer
Randall D. Levy		56	Chief Financial Officer
Scott Smith		53	Chief Information Officer
Leslie K. O’Neal		52	Vice President, Assistant General Counsel and Secretary
Carolyn C. Sloan		47	Vice President, Internal Audit
C. Morris Davis		65	General Counsel
Troy L. Hester		51	Principal Accounting Officer and Corporate Controller
David W. Turpin		57	Treasurer

Doyle R. Simons became Chairman of the Board and Chief Executive Officer on December 29, 2007. He was previously named Executive Vice President in February 2005 following his service as Chief Administrative Officer since November 2003. Since joining the Company in 1992, Mr. Simons has served as Vice President, Administration from November 2000 to November 2003 and Director of Investor Relations from 1994 through 2000.

J. Patrick Maley III became President and Chief Operating Officer on December 29, 2007. He was previously named Executive Vice President — Paper in November 2004 following his appointment as Group Vice President in May 2003. Prior to joining the Company, Mr. Maley served in various capacities from 1992 to 2003 at International Paper.

Bart J. Doney became Group Vice President in February 2000. Mr. Doney has served as an officer of our corrugated packaging segment since 1990.

Jack C. Sweeny became Group Vice President in May 1996. Since November 1982, Mr. Sweeny has served in various capacities in our building products segment.

Dennis J. Vesci became Group Vice President in August 2005. Mr. Vesci has served as an officer of our corrugated packaging segment since 1998.

Grant F. Adamson became Chief Governance Officer in May 2006. Mr. Adamson joined the Company in 1991 and has served in various capacities including Assistant General Counsel.

J. Bradley Johnston became Chief Administrative Officer in February 2005. Prior to that, Mr. Johnston served as General Counsel from August 2002 through May 2006 and in various capacities in our former financial services segment since 1993.

Randall D. Levy became Chief Financial Officer in May 1999. Mr. Levy joined the Company in 1989 serving in various capacities in our former financial services segment before being named Chief Financial Officer.

Scott Smith became Chief Information Officer in February 2000. Prior to that, Mr. Smith served in various capacities within our former financial services segment since 1988.

Leslie K. O’Neal was named Vice President in August 2002 and became Secretary in February 2000 after serving as Assistant Secretary since 1995. Ms. O’Neal also serves as Assistant General Counsel, a position she has held since 1985.

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Carolyn C. Sloan was named Vice President, Internal Audit, in August 2005. Ms. Sloan joined the Company in 2001 as Director, Internal Audit.

C. Morris Davis became General Counsel in May 2006. Mr. Davis joined Temple-Inland after 39 years with the law firm of McGinnis, Lochridge & Kilgore in Austin, where he served seven years as the firm’s managing partner.

Troy L. Hester was named Principal Accounting Officer in August 2006. Mr. Hester has been with Temple-Inland since 1999 and has served in various capacities including Controller-Financial Services, Vice President Accounting Center, and was named Corporate Controller in May 2006.

David W. Turpin has served as Treasurer since joining the Company in June 1991.

The Board of Directors annually elects officers to serve until their successors have been elected and have qualified or as otherwise provided in our Bylaws.

Available Information

From our Internet website, http://www.templeinland.com, you may obtain additional information about us including:

•  our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, including amendments to these reports, and other documents as soon as reasonably practicable after we file them with the Securities and Exchange Commission (or SEC);

•  beneficial ownership reports filed by officers, directors, and principal security holders under Section 16(a) of the Securities Exchange Act of 1934, as amended (or the Exchange Act); and

•  corporate governance information that includes our

•  corporate governance principles,

•  audit committee charter,

•  management development and executive compensation committee charter,

•  nominating and governance committee charter,

•  standards of business conduct and ethics,

•  code of ethics for senior financial officers, and

•  information on how to communicate directly with our board of directors.

We will also provide printed copies of any of these documents to any shareholder upon request. In addition, the materials we file with the SEC may be read and copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. Information about the operation of the Public Reference Room is available by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information that is filed electronically with the SEC.

Item 1A.   Risk Factors

The business segments in which we operate are highly competitive.

The business segments in which we operate are highly competitive and are affected to varying degrees by supply and demand factors and economic conditions, including changes in interest rates, new housing starts, home repair and remodeling activities, 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. No single company is dominant in any of our industries.

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Our corrugated packaging competitors include large, vertically-integrated paperboard and packaging products companies and numerous smaller companies. Because these products are globally traded commodities, the industries in which we compete are particularly sensitive to price fluctuations as well as other factors, including innovation, design, quality, and service, with varying emphasis on these factors depending on the product line. To the extent that one or more of our competitors become more successful with respect to any key competitive factor, our business could be materially adversely affected. Although corrugated packaging is dominant in the national distribution process, our products also compete with various other packaging materials, including products made of paper, plastics, wood, and various types of metal.

In the building products markets, we compete with many companies that are substantially larger and have greater resources in the manufacturing of building products.

The profitability of our business is affected by changes in raw material and other costs.

Virgin wood fiber and recycled fiber are the principal raw materials we use to manufacture corrugated packaging and certain of our building products. We purchase virgin wood fiber in highly competitive, price sensitive markets. The price for wood fiber has historically fluctuated on a cyclical basis and has often depended on a variety of factors over which we have no control, including environmental and conservation regulations, natural disasters, the price and level of imported timber and the continuation of any applicable tariffs, and weather. In addition, the increase in demand for old corrugated containers, especially from China, may cause a significant increase in the cost of recycled fiber used in the manufacture of recycled containerboard and related products. Such costs are likely to continue to fluctuate. While we have not experienced any significant difficulty in obtaining virgin wood fiber and recycled fiber in economic proximity to our facilities, this may not continue to be the case for any or all of our facilities.

Our profitability is also sensitive to changes in the prices of energy and transportation. While we have attempted to contain energy costs through internal generation and in some instances the use of by-products from our manufacturing processes as fuel, no assurance can be given that such efforts will be successful in the future or that energy prices will not rise to levels that would have a material adverse effect on our results of operations. We hedge very little of our energy needs.

The corrugated packaging and building products industries are cyclical in nature and experience periods of overcapacity.

The operating results of our corrugated packaging and building products segments reflect each such industry’s general cyclical pattern. While the cycles of each industry do not historically coincide, demand and prices in each tend to drop substantially in an economic downturn. The building products industry is further influenced by the residential construction and remodeling markets. Further, each industry periodically experiences substantial overcapacity. Both industries are capital intensive, which leads to high fixed costs and generally results in continued production as long as prices are sufficient to cover marginal costs. These conditions have contributed to substantial price competition and volatility in these industries, even when demand is strong. Any increased production by our competitors could depress prices for our products. From time to time, we have closed certain of our facilities or have taken downtime based on prevailing market demand for our products and may continue to do so, reducing our total production levels. Certain of our competitors have also temporarily closed or reduced production at their facilities, but can reopen and/or increase production capacity at any time, which could exacerbate the overcapacity in these industries and depress prices.

Our manufacturing activities are subject to environmental regulations and liabilities that could have a negative effect on our operating results.

Our manufacturing operations are subject to federal, state, and local provisions regulating the discharge of materials into the environment and otherwise related to the protection of the environment. Compliance with these provisions has required us to invest substantial funds to modify facilities to ensure compliance with applicable environmental regulations. In other sections of this Annual Report on Form 10-K, we provide

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certain estimates of expenditures we expect to make for environmental compliance in the next few years. However, we could incur additional significant expenditures due to changes in law or the discovery of new information, and such expenditures could have a material adverse effect on our financial condition, cash flows, and results of operations.

Downward changes in demand for housing in the market regions where we operate could decrease profitability in our building products segment.

The residential homebuilding industry is sensitive to changes in economic conditions, including interest rates and availability of financing. Adverse changes in these conditions generally, or in the market regions where we operate, could decrease demand for new homes in these areas. Decline in housing demand could have a negative effect on the pricing and demand for many of our building products, particularly lumber and gypsum wallboard, which could result in a decrease in our revenues and earnings.

If certain internal restructuring transactions and the distributions of Forestar and Guaranty 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 entered into certain internal restructuring transactions in preparation for the spin-offs of Forestar and Guaranty. These transactions are complex and could cause us to incur significant tax liabilities. We received a private letter ruling from the IRS and opinions of tax counsel regarding the tax-free nature of these transactions and the distributions. The ruling and opinions 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 ruling or opinions and could be subject to significant tax liabilities. Notwithstanding the ruling 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.

If the sale of our strategic timberland did not qualify for installment method reporting for U.S. federal income tax purposes, we could incur significant U.S. federal income tax liabilities the payment of which we believe to be deferred.

We sold our strategic timberland in a manner intended for U.S. federal income tax purposes to defer recognition of a substantial portion of the gain on the sale. Under the installment method, we will not be required to pay U.S. federal income taxes on the deferred gain until we are required to recognize the gain. We received opinions of tax counsel regarding the timberland sale and the deferred gain. The opinions 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 may not be able to rely on the opinions. Notwithstanding the opinions, the IRS could determine on audit that the gain does not qualify for deferral if it determines that any of these facts, assumptions, representations, or undertakings are not correct or have been violated or that the transaction otherwise does not qualify for the installment method.

We have interest rate risk in connection with our financial assets and nonrecourse financial liabilities of special purpose entities.

In October 2007, we received $2.38 billion in notes due in 2027 from the sale of our timberland, which we later contributed to two wholly-owned, bankruptcy-remote special purpose entities. In December 2007, the special purpose entities pledged the notes as collateral for $2.14 billion nonrecourse loans payable in 2027. Both the notes and the borrowings require quarterly interest payments based on variable interest rates that reset quarterly. Because of the differences in references rates, margins, and reset dates, there could be periods in which the interest paid on the nonrecourse financial liabilities is significantly more than the interested received on the financial assets.

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Item 1B.   Unresolved Staff Comments

None.

Item 2.   Properties

We own and operate manufacturing facilities throughout the United States, four converting plants in Mexico, and one in Puerto Rico. We believe our manufacturing facilities are suitable for their purposes and adequate for our business. Additional information about selected facilities by business segment follows:

Containerboard Mills

		Number of		Annual		2007
Location	Product	Machines		Capacity		Production
				(In tons)
Ontario, California	Linerboard and corrugating medium		1		336,000		334,479
Rome, Georgia	Linerboard		2		837,000		834,069
Orange, Texas	Linerboard and corrugating medium		2		730,000		725,546
Bogalusa, Louisiana	Linerboard		2		915,000		916,021
Maysville, Kentucky	Linerboard and corrugating medium		1		454,000		455,102
New Johnsonville, Tennessee	Corrugating medium		1		348,000		349,706
					3,620,000		3,614,923
Newport, Indiana*	Corrugating medium, linerboard,		1		308,000		300,882
	and gypsum facing paper

* The table shows the full capacity of this facility that is owned by a joint venture in which we own a 50 percent interest. In 2007, we purchased 52,788 tons of corrugating medium and linerboard and 42,136 tons of gypsum facing paper from the venture.

Converting Facilities*

	Corrugator
Location	Size
Phoenix, Arizona	98²
Fort Smith, Arkansas	87²
Fort Smith, Arkansas(1)***	None
Bell, California	98²
Buena Park, California(1)	85²
El Centro, California(1)	87²
Gilroy, California(1)	87²
Gilroy, California(1)***	98²
Ontario, California	87²
Santa Fe Springs, California	98²
Santa Fe Springs, California(1)**	87² and 85²
Santa Fe Springs, California(1)***	None
Tracy, California	110²
Union City, California(1)***	None
Wheat Ridge, Colorado	87²
Orlando, Florida	98²
Tampa, Florida(1)	78²
Rome, Georgia	98²
Carol Stream, Illinois	87²
Chicago, Illinois	87²

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	Corrugator
Location	Size
Chicago, Illinois(1)***	None
Elgin, Illinois	78²
Elgin, Illinois***	None
Crawfordsville, Indiana	98²
Evansville, Indiana	98²
Indianapolis, Indiana	87²
Indianapolis, Indiana***	None
St. Anthony, Indiana***	None
Tipton, Indiana***	110²
Garden City, Kansas	98²
Kansas City, Kansas	87²
Bogalusa, Louisiana	98²
Minden, Louisiana	98²
Minneapolis, Minnesota	87²
St. Louis, Missouri	87²
St. Louis, Missouri***	98²
Milltown, New Jersey(1)***	None
Spotswood, New Jersey	98²
Binghamton, New York	87²
Buffalo, New York***	None
Scotia, New York***	None
Utica, New York***	None
Warren County, North Carolina	98²
Madison, Ohio***	None
Marion, Ohio	87²
Middletown, Ohio	98²
Streetsboro, Ohio	98²
Biglerville, Pennsylvania	98²
Hazleton, Pennsylvania	98²
Littlestown, Pennsylvania***	None
Scranton, Pennsylvania	68²
Vega Alta, Puerto Rico	87²
Lexington, South Carolina	98²
Ashland City, Tennessee(1)***	None
Elizabethton, Tennessee(1)***	None
Dallas, Texas	98²
Edinburg, Texas	87²
San Antonio, Texas	98²
San Antonio, Texas***	98²
Petersburg, Virginia	87²
San Jose Iturbide, Mexico	98²
Monterrey, Mexico	87²
Los Mochis, Sinaloa, Mexico	87²
Guadalajara, Mexico(1)***	None

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*	The annual capacity of the converting facilities is a function of the product mix, customer requirements and the type of converting equipment installed and operating at each plant, each of which varies from time to time.
**	These plants each contain more than one corrugator.
***	Sheet or sheet feeder plants.

⁽¹⁾ Leased facilities.

Additionally, we own a graphics resource center in Indianapolis, Indiana, that has a 100” preprint press. We lease 37 warehouses located throughout much of the United States.

Building Products

		Rated Annual
Description	Location	Capacity
		(In millions of
		board feet)
Lumber	Diboll, Texas		199	*
Lumber	Pineland, Texas		310	**
Lumber	Buna, Texas		198
Lumber	Rome, Georgia		165
Lumber	DeQuincy, Louisiana		198
Total lumber			1,070

*	Includes separate finger jointing capacity of 20 million board feet.
**	Includes separate stud mill capacity of 110 million board feet.

		Rated Annual
Description	Location	Capacity
		(In millions of
		square feet)
Gypsum Wallboard	West Memphis, Arkansas		440
Gypsum Wallboard	Fletcher, Oklahoma		460
Gypsum Wallboard	McQueeney, Texas		400
Gypsum Wallboard	Cumberland City, Tennessee		800
Total gypsum wallboard			2,100
Particleboard	Monroeville, Alabama		160
Particleboard	Thomson, Georgia		160
Particleboard	Diboll, Texas		160
Particleboard	Hope, Arkansas		200
Particleboard(1)(2)	Mt. Jewett, Pennsylvania		200
Total particleboard			880
MDF*	El Dorado, Arkansas		160
MDF(1)	Mt. Jewett, Pennsylvania		140
Total MDF			300
Fiberboard	Diboll, Texas		460

* The table shows the full capacity of this facility that is owned by a joint venture in which we own a 50 percent interest.

(1)	Leased facilities.
(2)	Due to market conditions, we curtailed production at this facility beginning in 2003 and made the decision in 2007 to cease production permanently.

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Other

We occupy approximately 190,000 square feet of leased office space in Austin, Texas. We own and occupy a 150,000 square feet office building in Diboll, Texas.

At year-end 2007, property and equipment having a net book value of $2 million were subject to liens in connection with $14 million of debt.

Item 3.   Legal Proceedings

General

We are involved in various legal proceedings that arise from time to time in the ordinary course of doing business. We believe that adequate reserves have been established for any probable losses and that the outcome of any of these proceedings should not 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. A summary of our more significant legal matters is set forth below.

Antitrust Litigation

On May 14, 1999, we and eight other linerboard manufacturers were named as defendants in a consolidated class action complaint that alleged a civil violation of Section 1 of the Sherman Act. In addition, complaints containing allegations similar to those in the class action were filed by certain opt-out plaintiffs. Over the last several years, we have paid a total of $13 million to settle the class action and a majority of the opt-out claims. In December 2007, we agreed to participate in binding arbitration in an effort to resolve most of the remaining claims. As a result of the arbitration, we paid $48 million on the claims submitted to arbitration and to settle all remaining opt-out claims in the federal litigation.

One related Kansas state court claim for approximately $26 million in statutory damages, which could be trebled under applicable state law, is still pending against us.

Bogalusa Litigation

On October 15, 2003, a release of nitrogen dioxide and nitrogen oxide took place at our linerboard mill in Bogalusa, Louisiana. The mill followed appropriate protocols for handling this type of event, notifying the Louisiana Department of Environmental Quality, the U.S. Environmental Protection Agency, and local law enforcement officials. The federal and state environmental agencies have analyzed the reports we prepared and have not indicated that they will take any action against us.

To date, we have been served with 11 lawsuits seeking damages for various personal injuries allegedly caused by either exposure to the released gas or fears of exposure. These 11 lawsuits have been consolidated under Louisiana state rules for purpose of discovery and are set for trial in third quarter 2008. We are vigorously defending against these allegations.

Asbestos

We are a defendant in various lawsuits involving alleged workplace exposure to asbestos. These cases involve exposure to asbestos in premises owned or operated by us. We do not manufacture any products that contain asbestos and all our cases in this area are limited to workplace exposure claims. Historically, our aggregate annual settlements related to asbestos claims have been approximately $1 million. The number of claims has remained relatively constant in the past few years despite the fact that the majority of the claims relate to a facility we sold at the end of 1999.

Other

We are also defending two cases in California state court alleging violations of that state’s on-duty meal break laws. In 2007, we settled three additional meal break cases.

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

We did not submit any matter to a vote of our shareholders in fourth quarter 2007.

PART II

Item 5.   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our Common Stock is traded on the New York Stock Exchange. The high and low sales prices for our Common Stock and dividends paid in each fiscal quarter in the two most recent fiscal years were:

	2007						2006
	Price Range						Price Range
	High		Low		Dividends		High		Low		Dividends
First Quarter	$	63.61	$	44.29	$	0.28	$	47.92	$	40.83	$	0.25
Second Quarter	$	64.45	$	59.00	$	0.28	$	47.68	$	38.12	$	0.25
Third Quarter	$	66.28	$	49.17	$	0.28	$	45.48	$	39.78	$	0.25
Fourth Quarter*	$	57.51	$	29.09	$	10.53	$	46.71	$	37.84	$	0.25
For the Year	$	66.28	$	29.09	$	11.37	$	47.92	$	37.84	$	1.00

* Includes a special dividend of $10.25 per share paid in December 2007.

Shareholders

Our stock transfer records indicated that as of February 22, 2008, there were approximately 4,750 holders of record of our Common Stock.

Dividend Policy

As indicated above, we paid quarterly dividends during each of the two most recent years in the amounts shown. In addition to our regular quarterly dividend, we paid a special dividend of $10.25 per share in December 2007 as part of our transformation plan. On February 1, 2008, the Board of Directors declared a quarterly dividend on our Common Stock of $0.10 per share payable on March 14, 2008, to shareholders of record on February 29, 2008. The Board periodically reviews the dividend policy, and the declaration of dividends will necessarily depend upon our earnings and financial requirements and other factors within the discretion of the Board.

Issuer Purchases of Equity Securities⁽¹⁾

							Maximum
					Total Number		Number of
					of Shares		Shares That
					Purchased as		May Yet be
	Total		Average		Part of Publicly		Purchased
	Number of		Price		Announced		Under the
	Shares		Paid per		Plans or		Plans
Period	Purchased		Share		Programs		or Programs
Month 1 (10/1/2007 — 10/31/2007)		—	$	—		—		6,650,000
Month 2 (11/1/2007 — 11/30/2007)		—	$	—		—		6,650,000
Month 3 (12/1/2007 — 12/31/2007)		—	$	—		—		6,650,000
Total		—	$	—		—

⁽¹⁾ 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. We have purchased 4,350,000 shares under this authorization, which has no expiration date. On February 2, 2007, we announced that our Board of Directors authorized the

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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. 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.

Performance Graph

We composed an index of our peers consisting of AbitibiBowater Inc., Caraustar Industries, Inc., Domtar Corporation, International Paper Company, MeadWestvaco Corporation, Packaging Corporation of America, Smurfit-Stone Container Corporation, and Weyerhaeuser Corporation (Peer Index). During the five preceding years, our cumulative total stockholder return compared to the Standard & Poor’s 500 Stock Index and to the Peer Index was as shown in the following table:

Assumes $100 invested on the last trading day in fiscal year 2002
*Total return assumes reinvestment of dividends

Other

See Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters for disclosure regarding securities authorized for issuance under equity compensation plans.

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Item 6.   Selected Financial Data

	For the Year
	2007			2006(a)			2005			2004			2003(b)
	(Dollars in millions, except per share)
Revenues:
Corrugated packaging	$	3,044		$	2,977		$	2,825		$	2,736		$	2,700
Building products		806			1,119			898			851			684
Timber and timberland		76			89			120			107			108
Total revenues	$	3,926		$	4,185		$	3,843		$	3,694		$	3,492
Segment operating income:
Corrugated packaging	$	287		$	255		$	120		$	96		$	18
Building products		8			221			125			129			2
Timber and timberland		65			63			72			52			42
Segment operating income		360			539			317			277			62
Items not allocated to segments:
General and administrative		(100	)		(107	)		(91	)		(79	)		(73	)
Share-based compensation		(34	)		(38	)		(21	)		(12	)		(6	)
Gain on sale of timberland		2,053			—			—			—			—
Other operating income (expense)(c)		(188	)		26			(85	)		(42	)		(133	)
Other non-operating income (expense)(c)		(35	)		93			—			—			(8	)
Net interest income on financial assets and nonrecourse financial liabilities of special purpose entities(d)		10			—			—			—			—
Interest expense on debt		(111	)		(123	)		(109	)		(125	)		(135	)
Income (loss) before taxes		1,955			390			11			19			(293	)
Income tax (expense) benefit(e)		(753	)		(103	)		7			8			264
Income from continuing operations		1,202			287			18			27			(29	)
Discontinued operations(f)		103			181			158			133			131
Effect of accounting change(g)		—			—			—			—			(1	)
Net income	$	1,305		$	468		$	176		$	160		$	101
Diluted earnings per share:
Income from continuing operations	$	11.12		$	2.59		$	0.16		$	0.24		$	(0.27	)
Discontinued operations(f)		0.96			1.63			1.38			1.18			1.21
Effect of accounting change(g)		—			—			—			—			(0.01	)
Net income	$	12.08		$	4.22		$	1.54		$	1.42		$	0.93
Dividends per common share(h)	$	11.37		$	1.00		$	0.90		$	1.22		$	0.68
Average diluted shares outstanding		108.1			110.8			114.5			112.4			108.4
Common shares outstanding at year-end		106.1			104.9			111.0			112.2			109.2
Depreciation and amortization	$	214		$	225		$	218		$	219		$	233
Capital expenditures	$	237		$	204		$	220		$	219		$	134
At Year-End:
Assets:
Manufacturing assets	$	3,559		$	3,627		$	3,411		$	3,522		$	3,474
Financial assets of special purpose entities		2,383			—			—			—			—
Assets of discontinued operations		—			16,847			18,219			16,622			17,893
Total assets	$	5,942		$	20,474		$	21,630		$	20,144		$	21,367
Debt (long-term excluding current maturities and nonrecourse financial liabilities of special purpose entities)	$	852		$	1,584		$	1,498		$	1,485		$	1,611
Nonrecourse financial liabilities of special purpose entities	$	2,140		$	—		$	—		$	—		$	—
Liability for pension and postretirement benefits	$	256		$	366		$	407		$	432		$	396
Shareholders’ equity	$	780		$	2,189		$	2,080		$	2,107		$	1,988
Ratio of debt to total capitalization		52	%		42	%		42	%		41	%		45	%

^(a) In January 2006, we purchased our partner’s 50 percent interest in Standard Gypsum LP for $150 million and assumed debt of $28 million. Unaudited pro forma information assuming this acquisition and related financing had occurred at the beginning of 2005 follows: revenues $4.04 billion; income from continuing operations $32 million; and income from continuing operations, per diluted share $0.28. These pro forma results are not necessarily an indication of what actually would have occurred if the acquisition and financing transactions had been completed at the beginning of the periods presented and are not intended to be indicative of future results.

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(b)

The 2003 fiscal year, which ended on January 3, 2004, had 53 weeks. The extra week did not have a significant effect on earnings or financial position. As a result of the consolidation of our administrative functions and adoption of a shared services concept, beginning 2004, we changed the way we allocate costs to our business segments. The effect of this change was to increase segment operating income and to increase unallocated expenses by a like amount. The 2003 amounts have been reclassified to reflect this change.

(c)

Other operating and non-operating income (expense) consists of:

	For the Year
	2007			2006			2005			2004			2003
	(In millions)
Other operating income (expense):
Transformation costs (advisory and legal fees, change of control and employee related)	$	(69	)	$	—		$	—		$	—		$	—
Closure and sale of converting and production facilities and sale of non-strategic assets		(55	)		(4	)		(50	)		(27	)		(83	)
Litigation		(56	)		(6	)		(13	)		—			—
Environmental remediation		(9	)		(8	)		(3	)		—			—
Softwood Lumber Agreement		—			42			—			—			—
Hurricane related costs and, in 2006, related insurance proceeds		—			2			(16	)		—			—
Consolidation of administrative functions		—			—			—			(11	)		(48	)
Other		1			—			(3	)		(4	)		(2	)
	$	(188	)	$	26		$	(85	)	$	(42	)	$	(133	)
Other non-operating income (expense):
Charges related to early repayment of debt	$	(40	)	$	—		$	(6	)	$	(2	)	$	(8	)
Tax litigation and other settlements		—			89			2			—			—
Interest and other income		5			4			4			2			—
	$	(35	)	$	93		$	—		$	—		$	(8	)

(d)	In October 2007, we received $2.38 billion in notes from the sale of our timberland, which we later contributed to two wholly-owned, bankruptcy-remote special purpose entities. In December 2007, the special purpose entities pledged the notes as collateral for $2.14 billion nonrecourse loans payable in 2027. Both the notes and the borrowings require quarterly interest payments based on variable interest rates that reset quarterly. We include these two special purpose entities in our consolidated financial statements.
(e)	Income taxes include one-time tax benefits of: $7 million in 2007, of which $3 million is related to changes to the State of Texas margin tax and $4 million is related to the resolution of state income tax matters; $36 million in 2006, of which $6 million is related to the State of Texas margin tax and $30 million is related to the non-taxable tax litigation settlement; $16 million in 2005 related to the sale of our Pembroke, Canada MDF facility; and $20 million in 2004 and $165 million in 2003 related to the resolution and settlement of prior years’ tax examinations.
(f)	Discontinued operations include the operations of our financial services and real estate segments, which were spun off to our shareholders on December 28, 2007, and the non-strategic operations obtained in the Gaylord acquisition, including the multi-wall bag business and kraft paper mill which were sold in January 2003 and the chemical business which was sold in August 2007. The resolution and settlement of environmental and other indemnifications we provided in the 1999 sale of the bleached paperboard operation are also included in 2004.
(g)	In 2003, we adopted Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for Asset Retirement Obligations, which resulted in an after-tax cumulative effect charge of $1 million.
	In 2006, (i) we adopted the modified prospective application of SFAS No. 123 (revised December 2004), Share-Based Payment, which decreased 2006 income before taxes by $6 million; (ii) we began applying the guidance in Emerging Issues Task Force (EITF) Issue No. 04-13, Accounting for Purchases and Sales

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	of Inventory with the Same Counterparty, which decreased income before taxes by $7 million in 2006 and $2 million in 2007; and (iii) we adopted SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, which increased our liability for pension and postretirement benefits by $76 million, decreased prepaid expenses and other assets by $16 million, decreased deferred income taxes by $35 million, and decreased shareholders’ equity by $57 million.
	In 2007, (i) we adopted Financial Accounting Standards Board (FASB) Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, which 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), (ii) we adopted the measurement provisions of SFAS No. 158, Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans, which reduced beginning retained earnings by $5 million, and (iii) we adopted FASB Staff Position No. AUG AIR-1, Accounting for Planned Major Maintenance Activities, electing the expense-as-incurred method which had no effect on our annual earnings or financial position.
(h)	Includes special dividends of $10.25 per share in 2007 and $0.50 per share in 2004.

Item 7.   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 risk and uncertainties. We note that 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 impaired assets, pension and postretirement costs, and contingency reserves;

•  competitive actions by other companies;

•  changes in laws or regulations;

•  our ability to execute certain strategic and business improvement initiatives; 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. Except as required by law, 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

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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 total segment operating income, less general and administrative expenses and share-based compensation not allocated to segments; divided by total assets, less certain assets and certain current liabilities. As a result of our transformation in 2007, we modified the return portion of this calculation. The ROI for all prior years has been recalculated to reflect this change. 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.

Accounting Policies

Critical Accounting Estimates

In preparing our financial statements, we follow generally accepted accounting principles, which in many cases require us to make assumptions, estimates, and judgments that affect the amounts reported. Our significant accounting policies are included in Note 1 to the Consolidated Financial Statements. Many of these principles are relatively straightforward. There are, however, a few accounting policies that are critical because they are important in determining our financial condition and results, and they are difficult for us to apply. They include asset impairments, contingency reserves, and pension accounting. The difficulty in applying these policies arises from the assumptions, estimates and judgments that we have to make currently about matters that are inherently uncertain, such as future economic conditions, operating results and valuations, as well as our intentions. As the difficulty increases, the level of precision decreases, meaning actual results can, and probably will, be different from those currently estimated. We base our assumptions, estimates, and judgments on a combination of historical experiences and other factors that we believe are reasonable. We have discussed the selection and disclosure of these critical accounting estimates with our Audit Committee.

•  Measuring assets for impairment requires estimating intentions as to holding periods, future operating cash flows and residual values of the assets under review. Changes in our intentions, market conditions, or operating performance could require us to revise the impairment charges we previously provided.

•  The expected long-term rate of return on pension plan assets is an important assumption in determining pension expense. In selecting that rate, currently 6.875 percent, particular consideration is given to our asset allocation because approximately 80 percent of our plan assets are debt related with a duration that closely matches that of our benefit obligation. Another important consideration is the discount rate used to determine the present value of our benefit obligation, currently 6.125 percent. Differences between actual and expected rates of return and changes in the discount rate will affect future pension expense and funded status. For example, a 25 basis point change in the discount rate would affect the projected benefit obligation by about $42 million and the interest cost on the projected benefit obligation by about $5 million. However, due to our move in late 2007 to a more matched position between our plan assets and our projected benefit obligation, we would expect a 25 basis point change in the discount rate to affect the funded status of our plan by only $12 million and the total net periodic benefit expense by only $2 million.

•  Contingency reserves are established for potential losses related to litigation, environmental remediation, and disputes with taxing authorities, among other items. Estimating these reserves requires us to make certain judgments and assumptions regarding actual or potential claims, interpretations to be made by courts or

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regulatory bodies, and other factors and events that are outside our control. Changes and inaccuracies in our interpretations and actions of others could require us to revise the reserves we previously provided.

New Accounting Pronouncements and Change in Measurement Date of our Defined Benefit and Postretirement Plans

In the last three years, we adopted a number of new accounting pronouncements, including in 2007, FASB Staff Position No. AUG AIR-1, Accounting for Planned Major Maintenance Activities; FIN 48, Accounting for Uncertainty in Income Taxes; and a fiscal year-end measurement date for valuing plan assets and obligations for our defined benefit and postretirement benefit plans as required by SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans. In addition, there are four new accounting pronouncements that we will be required to adopt in 2008 and 2009, none of which we expect to have a significant effect on our financial position, results of operations or cash flows. Please read Note 1 to the Consolidated Financial Statements for additional information.

Transformation

On December 28, 2007, we completed our transformation plan that was approved by our board of directors in February 2007. A summary of the significant elements of the transformation plan follows:

•  On October 31, 2007, we sold 1.55 million acres of timberland for $2.38 billion to an investment entity affiliated with The Campbell Group, LLC and recognized a pre-tax gain of $2.053 billion, which is included in other operating income. The acreage sold consisted of 1.38 million acres owned in fee and leases covering 175,000 acres. The total consideration consisted almost entirely of notes due in 2027 that are secured by irrevocable letters of credit issued by independent financial institutions. We also entered into a 20-year fiber supply agreement for pulpwood and a 12-year fiber supply agreement for sawtimber. Both agreements are at market prices and are subject to extension.

•  We contributed the notes and irrevocable letters of credit received in connection with the sale of our timberland to two wholly-owned, bankruptcy-remote special purpose entities. On December 3, 2007, the special purpose entities pledged the notes received from the sale of the timberland as collateral for $2.14 billion nonrecourse loans payable in 2027. The net cash proceeds, after alternative minimum and other taxes related to sale of the timberland and transactions costs, were $1.8 billion. We used $1.1 billion of the net cash proceeds to pay a $10.25 per share special cash dividend to our shareholders in December 2007. The remaining $700 million was used to reduce debt. We have concluded that we are the primary beneficiary of these special purpose entities. As a result, we include these special purpose entities in our consolidated financial statements.

•  On December 28, 2007, we completed the spin-off of our real estate segment, Forestar Real Estate Group Inc. (Forestar), and our financial services segment, Guaranty Financial Group Inc. (Guaranty). These spin-offs were effected through tax-free distributions of one share of Forestar and one share of Guaranty for every three shares of Temple-Inland common stock. These spin-offs reduced retained earnings by $1.6 billion. Our financial information has been reclassified to reflect Forestar and Guaranty as discontinued operations for all periods presented.

The transformation plan significantly changed our capital structure and operations. At year-end 2007, Temple-Inland is a manufacturing company focused on corrugated packaging and building products.

Results of Operations for the Years 2007, 2006, and 2005

Summary

Our two key objectives are:

•  Maximizing ROI and

•  Profitably growing our business

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We will accomplish our key objectives through execution of our strategic initiatives. Our key strategic initiatives in corrugated packaging are:

•  Maintaining full integration,

•  Driving for low cost through asset utilization and manufacturing excellence,

•  Improving mix and margins through sales excellence, and

•  Growing our business.

Our key strategic initiatives in building products are:

•  Delivering a tailored portfolio of building products,

•  Driving for low cost through manufacturing excellence,

•  Serving growing markets with favorable demographics, and

•  Promoting sales excellence.

In 2007, consistent with our key strategic initiatives:

•  We had record production in our containerboard mills through manufacturing excellence.

•  We continued to drive for low cost.

•  We improved asset utilization in our box plants through manufacturing excellence.

•  We grew our box shipments by one percent through sales excellence (excluding shipments from Performance Sheets, which was sold in August 2006).

A summary of our consolidated results from continuing operations follows:

	For the Year
	2007			2006			2005
	(Dollars in millions, except per share)
Consolidated revenues	$	3,926		$	4,185		$	3,843
Income from continuing operations		1,202			287			18
Income from continuing operations, per diluted share		11.12			2.59			0.16
ROI		7.8	%		13.4	%		7.2	%

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

•  In connection with our transformation plan, we recognized a $2.053 billion gain on sale of our strategic timberland, and we incurred $109 million in expenses primarily related to early repayment of debt, change of control agreements and other employee payments, and legal and advisory services.

•  We experienced higher prices for our corrugated packaging products; however, we experienced lower prices and volumes for most of our building 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 higher cost of recycled fiber used at our containerboard mills offset some of the benefits.

•  We recognized $120 million in charges, including $64 million as a result of the decision to cease production permanently at our Mt. Jewett particleboard facility and $56 million for the settlement of antitrust and other litigation.

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

•  We continued to see benefits in our manufacturing operations from our initiatives to lower costs, improve asset utilization, and increase operating efficiencies.

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•  We experienced improved markets for our corrugated packaging and building products, principally gypsum wallboard and particleboard. We acquired our partner’s 50 percent interest in Standard Gypsum LP in January.

•  Charges related to facility closures and environmental remediation at a paper mill site totaled $12 million.

•  We realized one-time cash gains of $89 million related to the settlement of tax litigation and $42 million related to the Softwood Lumber Agreement entered into between the U.S. and Canada.

In 2005, significant items affecting income from continuing operations included:

•  We continued to see benefits in our manufacturing operations from our initiatives to lower costs, improve asset utilization, and increase operating efficiencies.

•  Charges related to facility closures were $58 million.

•  In connection with the sale of our Canadian MDF facility, we recognized a one-time tax benefit of $16 million.

•  Hurricanes Katrina and Rita adversely affected segment operating income by about $11 million due to production downtime and re-start expenses.

•  Hurricane related losses and other unusual expenses related to litigation and the early repayment of debt totaled $32 million.

Business Segments

As a result of the transformation plan, at year-end 2007, we have two ongoing business segments: corrugated packaging and building products. Timber and timberland, which managed our timber resources, is no longer an active segment as a result of the sale of our timberlands in fourth quarter 2007. Our financial information has been reclassified to reflect the spun-off entities, Forestar and Guaranty, as discontinued operations.

Our operations are affected to varying degrees by supply and demand factors and economic conditions including changes in new housing starts, home repair and remodeling activities, 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:

	For the Year
	2007			2006			2005
	(Dollars in millions)
Revenues	$	3,044		$	2,977		$	2,825
Costs and expenses		(2,757	)		(2,722	)		(2,705	)
Segment operating income	$	287		$	255		$	120
Segment ROI		14.3	%		12.5	%		5.6	%

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Hurricanes Katrina and Rita adversely affected 2005 segment operating results by about $10 million principally related to mill production downtime and re-start expenses at our Bogalusa, Louisiana and Orange, Texas linerboard mills.

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

	Year over Year
	Increase (Decrease)
	2007			2006			2005
Corrugated packaging
Average prices		3	%		6	%		2	%
Shipments, average week(a)		(1	)%		(2	)%		2	%
Industry shipments, average week(b)		(2	)%		1	%		1	%
Linerboard
Average prices		5	%		22	%		(6	)%
Shipments, in thousand tons		(7	)		46			(56	)

(a)	Excluding the impact of the sale of Performance Sheets in August 2006, our shipments were up one percent in 2007.
(b)	Source: Fibre Box Association

In 2007, corrugated packaging prices and linerboard prices moved higher as a result of price increases implemented in 2006 and 2007. In 2006, corrugated packaging and linerboard prices moved higher reflecting price increases implemented in late 2005 and in 2006.

Linerboard shipments to third parties were slightly lower than in 2006. Linerboard shipments and sales to third parties increased in 2006 due to increased mill production.

Costs and expenses were up one percent in 2007 compared with 2006 and up one percent in 2006 compared with 2005. In 2007, higher raw material costs were partially offset by lower pension and postretirement costs, $8 million in business interruption and other insurance proceeds primarily related to an equipment outage and other operational issues at our mills that occurred in 2006, and cost reductions attributable to the sale of Performance Sheets. Increased mill reliability and efficiency resulted in lower maintenance costs and improved raw material yield and energy usage. In 2006, higher wood fiber and freight costs were partially offset by lower recycled fiber, energy, and healthcare costs.

Fluctuations in our significant cost and expense components included:

	Year over Year
	Increase (Decrease)
	2007			2006			2005
	(In millions)
Wood fiber	$	8		$	16		$	22
Recycled fiber		77			(9	)		(6	)
Energy, principally natural gas		(1	)		(8	)		30
Freight		(3	)		32			40
Depreciation		(11	)		(7	)		1
Health care		(1	)		(3	)		(16	)
Pension and postretirement		(12	)		(2	)		(3	)

The costs of our 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 in 2008. The decrease in depreciation was principally due to the continued use of fully depreciated assets and the sale of Performance Sheets in August 2006.

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Information about our converting facilities and mills follows:

	For the Year
	2007			2006			2005
Number of converting facilities (at year end)		64			64			65
Corrugated packaging shipments, in million tons		3.4			3.4			3.4
Mill production, in million tons		3.6			3.6			3.4
Percent mill production used internally		92	%		91	%		92	%
Percent of total fiber requirements sourced from recycled fiber		36	%		34	%		36	%
Corrugating medium purchases from our Premier Boxboard Limited LLC joint venture, in thousand tons		53			85			68

Building Products

We manufacture lumber, gypsum wallboard, particleboard, medium density fiberboard (MDF), and fiberboard. Our building products segment revenues are principally derived from sales of these products. We also own a 50 percent interest in Del-Tin Fiber LLC, a joint venture that produces MDF at a facility in El Dorado, Arkansas.

In 2006, we purchased our partner’s 50 percent interest in Standard Gypsum LP, a joint venture that produced gypsum wallboard. Results of operations have been consolidated since the date of purchase.

A summary of our building products results follows:

	For the Year
	2007			2006			2005
	Actual			Actual			Actual			Pro forma(a)
	(Dollars in millions)
Revenues	$	806		$	1,119		$	898		$	1,095
Costs and expenses		(798	)		(898	)		(773	)		(938	)
Segment operating income	$	8		$	221		$	125		$	157
Segment ROI		1.4	%		37.7	%		34.6	%		43.5	%

^(a) Pro forma to reflect the results of operations from Standard Gypsum LP as if the acquisition occurred at the beginning of 2005.

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

	Year over Year
	Increase (Decrease)
	2007			2006			2005
Lumber:
Average prices		(13	)%		(16	)%		5	%
Shipments		1	%		7	%		1	%
Gypsum wallboard:
Average prices		(27	)%		26	%		16	%
Shipments		(26	)%		132	%		12	%
Particleboard:
Average prices		2	%		15	%		(1	)%
Shipments		(17	)%		(5	)%		8	%
MDF:
Average prices		1	%		5	%		(1	)%
Shipments		(5	)%		(30	)%		(20	)%

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Demand for most products was down due to challenging market conditions in the housing industry. We expect this trend to continue in 2008.

Segment operating income also includes our share of income from our gypsum wallboard joint venture (in 2005) and MDF joint venture of $1 million in 2007, $3 million in 2006, and $28 million in 2005. The operating results from the joint ventures generally fluctuate in relation to the price and shipment changes noted above.

Costs and expenses were down 11 percent in 2007 compared with 2006, and up 16 percent in 2006 compared with 2005. The lower costs in 2007 were primarily driven by lower volumes. The increase in cost in 2006 is primarily attributable to the acquisition of Standard Gypsum LP in January 2006, partially offset by lower wood fiber costs and cost reductions attributable to the sale of our Pembroke MDF facility in June 2005.

Fluctuations in our significant cost and expense components included:

	Year over Year
	Increase (Decrease)
	2007			2006			2005
	(In millions)
Wood fiber	$	(32	)	$	(12	)	$	19
Energy, principally natural gas		(21	)		16			13
Freight		(12	)		26			11
Chemicals		(5	)		(1	)		14
Depreciation		1			9			(3	)
Health care		1			(1	)		(6	)
Pension and postretirement		1			(3	)		2

The cost of our fiber, energy, freight, and chemicals fluctuates based on the market prices we pay for these commodities. It is likely that these costs will continue to fluctuate in 2008.

Information about our converting and manufacturing facilities follows:

	For the Year
	2007			2006			2005
Number of converting and manufacturing facilities (at year end)		16			17			17
Average operating rates for all product lines excluding sold or closed facilities:
High		102	%		106	%		102	%
Low		59	%		86	%		91	%
Gypsum facing paper purchases from our Premier Boxboard Limited LLC joint venture, in thousand tons		42			68			71
Percent of gypsum facing paper supplied by our Premier Boxboard Limited LLC joint venture		65	%		76	%		77	%

Markets for our building products continue to be challenging. Production in our converting operations is being reduced to match demand for our products. In December 2007, we permanently ceased production at our Mt. Jewett particleboard manufacturing plant.

Timber and Timberland

Timber and timberland, which managed our timber resources, is no longer an active segment as a result of the sale of timber and timberland in October 2007.

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A summary of our timber and timberland results follows:

	For the Year
	2007(a)			2006			2005
	(Dollars in millions)
Revenues	$	76		$	89		$	120
Costs and expenses		(11	)		(26	)		(48	)
Segment operating income	$	65		$	63		$	72
Segment ROI		20.4	%		19.5	%		18.0	%

^(a) Reflects ten months of operating results.

In 2005, we sold about 7,000 acres of timber and timberland to a joint venture in which our former real estate segment owned a 50 percent interest and an unrelated public company owned the other 50 percent. This acreage was sold pursuant to the terms of a long-standing option agreement, which was about to expire. The joint venture intended to hold the land for future development and sale. We recognized about half of the $10 million gain in income in 2005 and recognized the remainder in 2007 when we spun-off our real estate segment. As a result of Hurricane Rita, we recorded a $7 million loss due to damage to our timberland in 2005, which is not included in segment operating income.

Information about our timber harvest follows:

	For the Year
	2007(a)		2006		2005
Timber harvest, in million tons:
Sawtimber		2.1		2.6		2.4
Pulpwood		2.9		3.4		3.3
		5.0		6.0		5.7

^(a) Reflects ten months of operating results.

Income and Expenses Not Allocated to Segments

Unallocated income and 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 interest income and expense.

The decrease in general and administrative expense in 2007 was principally due to a decrease in incentive compensation. Incentive compensation fluctuates based on changes in ROI.

Our share-based compensation fluctuates because a significant portion of our share-based awards are cash based and are affected by changes in the market price of our common stock. Based on our current expectations, it is likely that share-based compensation expense for 2008 will be in the range of $20 million to $30 million.

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

	For the Year
	2007			2006			2005
	(In millions)
Transformation costs	$	(69	)	$	—		$	—
Closure and sale of converting and production facilities and sale of non-strategic assets		(55	)		(4	)		(50	)
Litigation		(56	)		(6	)		(13	)
Environmental remediation		(9	)		(8	)		(3	)
Softwood Lumber Agreement		—			42			—
Hurricane related costs and, in 2006, related insurance proceeds		—			2			(16	)
Other		1			—			(3	)
	$	(188	)	$	26		$	(85	)

We continue our efforts to enhance return on investment by lowering costs, improving operating efficiencies, and increasing asset utilization. As a result, we continue to review operations that are unable to meet return objectives and determine appropriate courses of action, including possibly consolidating and closing facilities and selling under-performing assets. In 2007, we permanently ceased production at our particleboard plant in Mt. Jewett, Pennsylvania and recognized a $64 million charge, primarily related to the present value of remaining lease payments under our long-term operating lease of the plant and impairment of the related equipment.

Also, in December 2007, we resolved most of the remaining claims regarding an alleged violation of Section 1 of the Sherman Act and recognized a charge of $46 million. We are also defending two cases in California state court alleging violations of that state’s on-duty meal break laws. In 2007, we settled three additional meal break cases.

In 2006, the U.S. and Canada entered into the Softwood Lumber Agreement, which provided for the refund to domestic lumber producers of a portion of duties previously collected by the U.S. government. Our portion of this refund was $42 million.

Other non-operating income (expense) includes $40 million of expenses associated with the early repayment of debt in 2007 and a gain of $89 million related to the settlement of tax litigation in 2006.

Net interest income on financial assets and nonrecourse financial liabilities of special purpose entities relates to interest income on the $2.38 billion of notes received from the sale of our timberland in October 2007 and interest expense on the $2.14 billion of borrowings secured by a pledge of the notes receivable in December 2007. The notes receivable were contributed to and the borrowings were made by two wholly-owned, bankruptcy-remote special purpose entities, which we consolidate for financial reporting purposes. The borrowings are nonrecourse to us.

The change in interest expense in 2007 was due to lower average levels of debt outstanding compared with 2006. At year-end 2007, we had $0.9 billion of debt with fixed interest rates that averaged 7.08 percent. This compares with $1.4 billion of debt with fixed interest rates that averaged 7.02 percent and $0.2 billion of debt with variable interest rates that averaged 5.88 percent at year-end 2006.

Income Taxes

Our effective tax rate, which is income tax expense (benefit) as a percentage of income from continuing operations before taxes, was 39 percent in 2007, 26 percent in 2006, and (64) percent in 2005. These rates reflect in 2007, non-deductible transformation related expenses, one-time tax benefit of $3 million related to changes to the State of Texas margin tax and a $4 million benefit from the resolution of state tax matters; in 2006, one-time benefits resulting from settlement of tax litigation with the U.S. Government and the new State of Texas margin tax; and in 2005, a one-time benefit related to the sale of a foreign subsidiary.

We anticipate that our effective tax rate in 2008 will approximate 40 percent.

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Discontinued Operations

On December 28, 2007, we spun off to our shareholders in tax free distributions, our real estate segment and financial services segment, which included certain real estate and minerals activities in our timber and timberland segment.

As a result, we report the results of operations of these segments as discontinued operations. Expenses allocated to these discontinued operations included interest expense of $7 million in 2007, $4 million in 2006, and none in 2005 and share-based compensation expense of $7 million in 2007, $8 million in 2006, and $5 million in 2005.

In addition, on August 31, 2007 we sold our previously acquired chemical operations. We received cash proceeds of $1 million and recognized a pre-tax loss of $6 million on the sale.

A summary of earnings from our discontinued operations follows:

	For the Year
	2007			2006			2005
	(In millions)
Real estate income before taxes	$	41		$	83		$	59
Financial services income before taxes		138			204			192
Chemical operations and other(a)		(13	)		(2	)		1
Income from discontinued operations before taxes		166			285			252
Income tax expense		(63	)		(104	)		(94	)
Discontinued operations	$	103		$	181		$	158

^(a) 2007 includes a $6 million charge for environmental remediation.

Average Shares Outstanding

Average shares outstanding and average diluted shares outstanding decreased in 2007, 2006, and 2005 due to the effects of share repurchases in 2006 and 2005.

Capital Resources and Liquidity

Sources and Uses of Cash

Cash from operations was $296 million in 2007, $780 million in 2006, and $508 million in 2005.

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. We experienced improved pricing and shipments for most of our products in 2006 and 2005, but experienced deterioration in pricing and volume for our building products in 2007 due to challenging conditions in the housing market. 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.

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	For the Year
	2007			2006			2005
	(In millions)
We received cash from:
Operations	$	296		$	649		$	508
Tax litigation settlement, net		—			89			—
Softwood Lumber Agreement payments		—			42			—
From operations		296			780			508
Exercise of options and in 2005 the settlement of equity purchase contracts		35			57			393
Nonrecourse borrowing secured by financial assets of special purpose entities (net of costs of $4 million)		2,136			—			—
Borrowings, net		—			40			13
Other		36			64			45
Total sources		2,503			941			959
We used cash to:
Reduce borrowings, net (including $38 million of debt tender premium)		(780	)		—			—
Return to shareholders through:
Dividends		(1,212	)		(108	)		(102	)
Repurchase of common stock		(24	)		(318	)		(527	)
Reinvest in the business through:
Capital expenditures		(237	)		(204	)		(220	)
Acquisition, joint ventures, and other		(21	)		(149	)		(23	)
Total uses		(2,274	)		(779	)		(872	)
Discontinued operations, net		(32	)		(132	)		(96	)
Change in cash and cash equivalents	$	197		$	30		$	(9	)

We issued 1,009,246 net shares of common stock in 2007; 1,736,335 net shares of common stock in 2006; and 1,833,688 net shares in 2005 to employees exercising options. In addition, in 2005, we issued 10,875,739 shares of our common stock and received $345 million in cash in conjunction with the final settlement of our Upper DECS^(sm) equity purchase contracts.

We paid cash dividends to shareholders of $11.37 per share in 2007 including a special dividend of $10.25 per share, $1.00 per share in 2006, and $0.90 per share in 2005. On February 1, 2008, our Board of Directors declared a regular quarterly dividend of $0.10 per share payable on March 14, 2008.

From February 2005 through year-end 2007, our Board of Directors approved repurchase programs aggregating 29.0 million shares. As of year-end 2007, we had repurchased 22.4 million shares under these programs. In 2007, we initiated no share purchases, but we settled $24 million of share purchases that were initiated in fourth quarter 2006. As of year-end 2007, there are 6.6 million shares remaining under current repurchase authorizations.

Capital expenditures and timberland reforestation were 111 percent of depreciation and amortization in 2007, 91 percent in 2006, and 101 percent in 2005. Most of the 2007 expenditures relate to initiatives to increase reliability and efficiency at our linerboard mills and increase asset utilization in our converting facilities. Capital expenditures are expected to approximate $195 million in 2008, or about 97 percent of expected 2008 depreciation and amortization.

In 2007, we reduced our outstanding debt by $742 million, principally with proceeds from the transactions related to our transformation plan. In 2006, we used $150 million of our credit facilities to fund

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the purchase of the remaining 50 percent interest in Standard Gypsum LP. Following the purchase, we paid off $56 million of the venture’s long-term debt, of which $28 million was related to the purchased interest. In 2005, market conditions provided the opportunity to lengthen our debt maturity profile in a cost effective manner. As a result, we issued $250 million of debt due in 2016 and $250 million of debt due in 2018. The proceeds were used to refinance debt due in 2006 and 2007.

Liquidity and Contractual Obligations

At year-end 2007 our contractual obligations consist of:

	Payments Due or Expiring by Year
	Total			2008		2009-10		2011-12		Thereafter
	(In millions)
Long-term debt (including current maturities)(a)	$	855		$	13	$	35	$	294	$	513
Nonrecourse financial liabilities of special purposes entities(a)		2,140			—		—		—		2,140
Less, related financial assets of special purpose entities(a)		(2,140	)		—		—		—		(2,140	)
Principal portion of capital lease obligations(a)		188			—		—		—		188
Less, related municipal bonds we own(a)		(188	)		—		—		—		(188	)
Contractual interest payments on fixed- rate, long-term debt and capital lease obligations, net of interest on related municipal bonds we own		437			60		117		116		144
Operating leases(b)		222			38		61		40		83
Purchase obligations(c)		3,173			265		445		441		2,022
Other long-term liabilities(a)		37			7		21		2		7
	$	4,724		$	383	$	679	$	893	$	2,769

(a)	Denotes items included on our balance sheet.
(b)	In 2007, we recorded an impairment charge related to a long-term operating lease. As a result, $60 million present value of our future operating lease payments are included on our balance sheet, of which, $3 million is in current liabilities and $57 million in other long-term liabilities.
(c)	In 2007, we entered into 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. These purchase obligations are valued at year-end 2007 market prices, however, our actual future purchases will be at the then current market price.

Our sources of short-term funding are our operating cash flows and borrowings under our credit agreements and accounts receivable securitization facility. Our contractual obligations due in 2008 will likely be repaid from our operating cash flow or from our unused borrowing capacity. At year-end 2007, we had $1.067 billion in unused borrowing capacity under our committed credit agreements and accounts receivable securitization facility:

				Accounts
	Committed			Receivable
	Credit			Securitization
	Agreements			Facility			Total
	(In millions)
Committed	$	835		$	247		$	1,082
Less: borrowings and commitments		(14	)		(1	)		(15	)
Unused borrowing capacity at year-end 2007	$	821		$	246		$	1,067

Our committed credit agreements include a $750 million revolving credit facility that expires in 2011. The remainder of the committed agreements expire between 2008 and 2010.

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Our accounts receivable securitization facility expires in 2010. Under this facility, a wholly-owned, bankruptcy-remote subsidiary purchases, on an on-going basis, substantially all of our trade receivables. As we need funds, the subsidiary draws under its revolving credit agreement, pledges the trade receivables as collateral, and remits the proceeds to us. In the event of liquidation of the subsidiary, its creditors would be entitled to satisfy their claims from the subsidiary’s pledged receivables prior to distributions back to us. We included this subsidiary in our consolidated financial statements.

Our debt agreements, accounts receivable securitization facility, and credit agreements contain terms, conditions, and financial covenants customary for such agreements including minimum levels of interest coverage and limitations on leverage. At year-end 2007, we had complied with the terms, conditions, and financial covenants of these agreements. None of our credit agreements or the accounts receivable securitization facility are restricted as to availability based on the ratings of our long-term debt. Under the terms of our Senior Notes due 2016 and Senior Notes due 2018, the interest rate on the notes automatically adjusts if our long-term debt rating is decreased below investment grade by Moody’s Investor Services, Inc. (Moody’s) or Standard and Poor’s Rating Services, a division of McGraw-Hill, Inc. (S&P). The interest rate on these notes was increased 25 basis points during third quarter 2007 following a change in our long-term debt rating by Moody’s. In addition, as required by our operating lease agreements for our particleboard and MDF facilities in Mt. Jewett, Pennsylvania, we provided an $11 million letter of credit to support a portion of our obligations due to this change in our long-term debt rating. Our long-term debt is currently rated BBB- by S&P and Ba1 by Moody’s. At year-end 2007, property and equipment having a book value of $2 million were subject to liens in connection with $14 million of debt.

Operating leases represent pre-tax obligations and include $146 million for the lease of particleboard and MDF facilities in Mt. Jewett, Pennsylvania, which expire in 2019. The rest of our operating lease obligations are for facilities and equipment. As a result of an impairment charge in 2007, $60 million present value of our operating lease obligations is included on our balance sheet, of which $3 million is in current liabilities and $57 million is in other long-term liabilities.

In 2007, we received $2.38 billion in notes from the sale of timberland, which we contributed to two wholly-owned, bankruptcy-remote special purpose entities. The notes are secured by irrevocable letters of credit and are due in 2027. The special purpose entities pledged the notes and irrevocable letters of credit to secure $2.14 billion nonrecourse loans payable in 2027. In the event of liquidation of the special purpose entities, these creditors would be entitled to satisfy their claims from the pledged notes and irrevocable letters of credit prior to distributions back to us. We include these special purpose entities in our consolidated financial statements.

In the 1990’s, we entered into two sale-lease back transactions of production facilities with municipalities. We entered into these transactions to mitigate property and similar taxes associated with these facilities. The municipalities purchased these facilities from us for $188 million, our carrying value, and we leased the facilities back from the municipalities under lease agreements, which expire in 2022 and 2025. Concurrently, we purchased $188 million of interest-bearing bonds issued by these municipalities. The bond terms are identical to the lease terms, are secured by payments under the capital lease obligations, and the municipalities are obligated only to the extent the underlying lease payments are made by us. The interest rate implicit in the leases is the same as the interest rate on the bonds. As a result, the present value of the capital lease obligations is $188 million, the same as the principal amount of the bonds. Since there is no legal right of offset, the $188 million of bonds are included in other assets and the $188 million present value of the capital lease obligations are included in other long-term liabilities. There is no net effect from these transactions as we are in substance both the obligor on, and the holder of, the bonds.

Purchase obligations are market priced obligations principally for pulpwood, timber, and gypsum used in our manufacturing and converting processes and for major committed capital expenditures.

We have other long-term liabilities, principally liabilities for pension and postretirement benefits, unrecognized tax benefits, and deferred income taxes that are not included in the table because they do not have scheduled maturities.

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At year-end 2007, the liability for pension benefits was $119 million and the liability for postretirement benefits was $137 million. We expect our 2008 voluntary, discretionary contributions to our defined benefit pension plan to approximate 2008 service cost, which is estimated to be about $30 million. In addition, we have amended our supplemental defined benefit pension plan to allow for lump-sum settlements at the time of retirement. We offered a one-time window for our current retirees to take a lump-sum distribution in January 2008. We expect these lump-sum payments to aggregate $42 million in 2008. We also estimate that we will be required to pay in the range of $17 million to $20 million per year over the next five years to fund payments to participants of our supplemental defined benefit plan and retiree health care claims. Please read Pension, Postretirement Medical and Health Care Matters for additional information.

At year-end 2007, our net deferred income tax liability was $663 million, including $286 million of alternative minimum tax credits related to the 2007 sale of our timberland. We do not expect any significant changes in our deferred tax liability in 2008. We expect our cash tax rate in 2008 to be below 20 percent compared with 15 percent in 2007. The cash tax rate is impacted by utilization of our alternative minimum tax credits and deductions for 2008 payments associated with our 2007 transformation.

We have interest rate derivative instruments outstanding at year-end 2007. These interest rate instruments expire in 2008. They are non-exchange traded and are valued using either third-party resources or models. At year-end 2007, the aggregate fair value of our interest rate instruments was a $1 million liability.

Off-Balance Sheet Arrangements

From time to time, we enter into off-balance sheet arrangements to facilitate our operating activities. At year-end 2007, our off-balance sheet unfunded arrangements, excluding contractual interest payments, operating leases, and purchase and other obligations included in the table of contractual obligations, consisted of:

	Expiring by Year
	Total		2008		2009-10		2011-12		Thereafter
	(In millions)
Joint venture guarantees	$	70	$	18	$	52	$	—	$	—
Performance bonds and recourse obligations		56		56		—		—		—
	$	126	$	74	$	52	$	—	$	—

We participate in two joint ventures engaged in manufacturing and selling paper and building products. Our partner in each of these ventures is a publicly-held company unrelated to us. At year-end 2007, these ventures had $85 million in long-term debt and $6 million of debt included in current maturities, along with various letters of credit. We guaranteed $70 million of the joint ventures’ debt service obligations and letters of credit. Our joint venture partners also provided guarantees and letters of credit. Generally we would be called upon to fund the guarantees due to the lack of specific performance by the joint ventures, such as non-payment of debt.

Performance bonds and recourse obligations are primarily for workers’ compensation and general liability claims.

Pension, Postretirement Medical and Health Care Matters

Our non-cash defined benefit pension expense was $35 million in 2007, $46 million in 2006, and $49 million in 2005. For the year 2008, we expect our non-cash defined benefit pension expense to be about $37 million. We also expect a one-time expense of $15 million related to lump sum settlements of supplemental benefits.

For accounting purposes, we measure the projected benefit obligation of our defined benefit plans and value the plan assets as of year-end 2007 to determine the funded status. The funded status is included on our balance sheet. At year-end 2007, the funded status of our defined benefit plans was a liability of $119 million compared with a liability of $231 million at year-end 2006. The change was principally due to an increase in the discount rate, a better than expected return on plan assets, and an increase in plan assets due in part to the $60 million of voluntary, discretionary contributions we made in 2007. Unrecognized actuarial losses, which

33

are included in accumulated other comprehensive income and principally represent the delayed recognition of changes in the assumed discount rate and differences between expected and actual returns, were $166 million at year-end 2007 and $253 million at year-end 2006. These losses will be recognized over the average remaining service period of our current employees, which is about nine years. We expect about $5 million of these losses will be recognized in 2008, compared with $14 million recognized in 2007.

We did not have any ERISA cash-funding requirement in 2007, and we expect our cash-funding requirement to be minimal in 2008. We made voluntary, discretionary contributions of $60 million to the defined benefit plan in 2007. We expect our 2008 voluntary, discretionary contributions to our defined benefit plan to approximate 2008 service cost, which is estimated to be about $30 million. Passage of the Pension Protection Act of 2006, which requires a minimum level of annual funding, is not expected to affect significantly our annual cash contributions.

The benefits payable from our defined benefit plan are a series of fixed monthly retirement payments. On an annual basis an actuarial assessment of the estimated amount and timing of these retirement payments is performed. The actuarial estimate is subject to variability due to changes in key assumptions regarding future wage inflation, participant mortality and other actuarial risks. Prior to the date of retirement, our obligation is to accumulate funds in our qualified plan sufficient to meet these related benefit payments. The weighted average timeframe of the retirement payments is generally in the 10-15 year range.

The benefit obligation, which is the present value of the estimated retirement payments, conceptually is very similar to the fair value of a portfolio of long-term bonds. The funded status of our benefit obligation that is matched by long-term bonds of similar duration should remain relatively unchanged even if long-term interest rates change.

In the last two months of 2007, we transitioned to a more matched position between our assets and liabilities in our qualified defined benefit plan. This action is expected to reduce the volatility of our defined benefit expense and our funding requirements. As a result, our expected long-term rate of return for 2008 expense is 6.875 percent compared with the 2007 rate of 8 percent. The lower expected long-term rate of return reflects the higher allocation of invested funds in fixed income securities that better match our defined benefit obligation.

For accounting purposes we measure the postretirement medical plans projected benefit obligation as of year-end 2007 to determine the funded status. At year-end 2007, the funded status of these plans was a liability of $137 million compared with $135 million at year-end 2006.

About 26 percent of our employees participated in a consumer driven health plan in 2007 compared with 29 percent in 2006. In 2007, the total cost of providing health benefits was about $88 million of which we incurred $57 million and our employees incurred $31 million. In 2006, the total cost of providing health benefits was about $97 million of which we incurred $67 million and our employees incurred $30 million.

Energy and the Effects of Inflation

Energy costs decreased $22 million in 2007, increased $8 million in 2006, and increased $43 million in 2005. The decrease in 2007 is primarily attributable to reduced production because of the decreased demand for our building products as a result of the declines in the housing industry. The increase in energy costs for 2006 is primarily attributable to the acquisition of Standard Gypsum LP in January 2006. Our energy costs fluctuate based on the market prices we pay. We hedge very little of our energy needs. It is likely that these costs will continue to fluctuate in 2008.

Inflationary increases in compensation and certain input costs such as fiber, energy and freight have had a negative impact on our operating results. However, we have managed to partially offset the impact of inflation through increased productivity. Our fixed assets are, and our timber and timberland were, carried at historical costs. If carried at current replacement costs, depreciation expense and the cost of timber cut or timberland sold would have been significantly higher than what we reported.

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Environmental Protection

Our operations are subject to federal, state, and local provisions regulating discharges into the environment and otherwise related to the protection of the environment. Compliance with these provisions requires us to invest substantial funds to modify facilities to assure compliance with applicable environmental regulations. A more detailed discussion regarding our compliance with environmental regulation can be found in Business — Environmental Regulation.

Litigation Matters

We are involved in various legal proceedings that arise from time to time in the ordinary course of doing business. In our opinion, the possibility of a material loss from any of these proceedings is considered to be remote, and we do not expect that the effect of these proceedings will be material to our financial position, results of operations, or cash flow. It is possible, however, that charges related to these matters could be significant to results of operations or cash flows in any one accounting period. A more detailed discussion regarding our most significant litigation matters can be found in Legal Proceedings.

35

Calculation of Non-GAAP Financial Measures

				Corrugated			Building			Timber and
	Consolidated			Packaging			Products			Timberland
	(Dollars in millions)
Year 2007
Return:
Segment operating income determined in accordance with GAAP	$	360		$	287		$	8		$	65
Expenses not allocated to segments:
General and administrative		(100	)		N/A			N/A			N/A
Share-based compensation		(34	)		N/A			N/A			N/A
	$	226		$	287		$	8		$	65
Investment:
Beginning of year total assets or segment assets determined in accordance with GAAP	$	20,474		$	2,275		$	638		$	330
Adjustments:
Current liabilities (excluding current portion of long-term debt)		(550	)		(271	)		(76	)		(11	)
Assets of discontinued operations		(16,847	)		N/A			N/A			N/A
Municipal bonds related to capital leases included in other assets		(188	)		N/A			N/A			N/A
	$	2,889		$	2,004		$	562		$	319
ROI		7.8	%		14.3	%		1.4	%		20.4	%
Year 2006
Return:
Segment operating income determined in accordance with GAAP	$	539		$	255		$	221		$	63
Expenses not allocated to segments:
General and administrative		(107	)		N/A			N/A			N/A
Share-based compensation		(38	)		N/A			N/A			N/A
	$	394		$	255		$	221		$	63
Investment:
Beginning of year total assets or segment assets determined in accordance with GAAP	$	21,630		$	2,308		$	456		$	333
Adjustments:
Current liabilities (excluding current portion of long-term debt)		(476	)		(269	)		(66	)		(10	)
Assets of discontinued operations		(18,219	)		N/A			N/A			N/A
Municipal bonds related to capital leases included in other assets		(188	)		N/A			N/A			N/A
Acquisition of Standard Gypsum LP in January 2006		196			N/A			196			N/A
	$	2,943		$	2,039		$	586		$	323
ROI		13.4	%		12.5	%		37.7	%		19.5	%
Year 2005
Return:
Segment operating income determined in accordance with GAAP	$	317		$	120		$	125		$	72
Expenses not allocated to segments:
General and administrative		(91	)		N/A			N/A			N/A
Share-based compensation		(21	)		N/A			N/A			N/A
	$	205		$	120		$	125		$	72
Investment:
Beginning of year total assets or segment assets determined in accordance with GAAP	$	20,144		$	2,448		$	423		$	409
Adjustments:
Current liabilities (excluding current portion of long-term debt)		(503	)		(323	)		(62	)		(9	)
Assets of discontinued operations		(16,622	)		N/A			N/A			N/A
Municipal bonds related to capital leases included in other assets		(188	)		N/A			N/A			N/A
	$	2,831		$	2,125		$	361		$	400
ROI		7.2	%		5.6	%		34.6	%		18.0	%

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Statistical and Other Data

Revenues and unit sales, excluding joint venture operations, follows:

	For the Year
	2007		2006		2005
	(Dollars in millions)
Revenues
Corrugated Packaging
Corrugated packaging	$	2,905	$	2,841	$	2,728
Linerboard		139		136		97
	$	3,044	$	2,977	$	2,825
Building Products
Pine lumber	$	244	$	278	$	312
Particleboard		181		214		195
Gypsum wallboard(a)		228		420		143
Medium density fiberboard(a)		62		65		87
Fiberboard		52		72		83
Other		39		70		78
	$	806	$	1,119	$	898
Timber and Timberland
Fiber and other	$	76	$	89	$	120
Unit sales
Corrugated Packaging
Corrugated packaging, thousands of tons		3,351		3,371		3,437
Linerboard, thousands of tons		303		310		264
		3,654		3,681		3,701
Building Products
Pine lumber, million board feet		838		829		777
Particleboard, million square feet		506		609		640
Gypsum wallboard, million square feet(a)		1,475		1,990		859
Medium density fiberboard, million square feet(a)		135		142		202
Fiberboard, million square feet		288		362		431

^(a) Comparisons of revenue and unit sales of gypsum wallboard are affected by the 2006 acquisition of our partner’s interest in Standard Gypsum LP. Comparisons for MDF are affected by the sale of the Pembroke facility in second quarter 2005.

37

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

Our current level of interest rate risk is primarily due to our variable-rate, long-term debt and financial assets and nonrecourse financial liabilities of special purpose entities. 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 year-end 2007, with comparative year-end 2006 information. These estimates assume 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 to follow.

	Increase (Decrease) in
Change in	Income Before Taxes
Interest Rates	At Year-End 2007			At Year-End 2006
	(In millions)
+2%	$	(4	)	$	(3	)
+1%		(2	)		(2	)
−1%		2			2
−2%		4			4

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

Foreign Currency Risk

We do not have significant exposure to foreign currency fluctuations on our financial instruments because most of these instruments are denominated in U.S. dollars.

Commodity Price Risk

From time to time we use commodity derivative instruments to mitigate our exposure to changes in product pricing and manufacturing costs. These instruments cover a small portion of our volume and range in duration from three months to three years. Considering the fair value of these instruments at year-end 2007, we believe the potential loss in fair value resulting from a hypothetical ten percent change in the underlying commodity prices would not be significant.

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Item 8.   Financial Statements and Supplementary Data

	Page
Management’s Annual Report on Internal Control over Financial Reporting		40
Report of Independent Registered Public Accounting Firm		41
Report of Independent Registered Public Accounting Firm		42
Temple-Inland Inc. and Subsidiaries:
Consolidated Balance Sheets		43
Consolidated Statements of Income		44
Consolidated Statements of Cash Flows		45
Consolidated Statements of Shareholders’ Equity		46
Notes to Consolidated Financial Statements		47

39

MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of Temple-Inland is responsible for establishing and maintaining adequate internal control over financial reporting. Management has designed our internal control over financial reporting to provide reasonable assurance that our published financial statements are fairly presented, in all material respects, in conformity with generally accepted accounting principles.

Management is required by paragraph (c) of Rule 13a-15 of the Securities Exchange Act of 1934, as amended, to assess the effectiveness of our internal control over financial reporting as of each year end. In making this assessment, management used the Internal Control — Integrated Framework issued in July 1994 by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Management conducted the required assessment of the effectiveness of our internal control over financial reporting as of year end. Based upon this assessment, management believes that our internal control over financial reporting is effective as of year-end 2007.

Ernst & Young LLP, the independent registered public accounting firm that audited our financial statements included in this Form 10-K, has also audited our internal control over financial reporting. Their attestation report follows this report of management.

40

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of Temple-Inland Inc.:

We have audited Temple-Inland Inc’s internal control over financial reporting as of December 29, 2007 based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Temple-Inland Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting including in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Temple-Inland Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 29, 2007 based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Temple-Inland Inc. and subsidiaries as of December 29, 2007 and December 30, 2006 and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 29, 2007 and our report dated February 25, 2008 expressed an unqualified opinion thereon.

Ernst & Young LLP

Austin, Texas

February 25, 2008

41

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of Temple-Inland Inc.:

We have audited the accompanying consolidated balance sheets of Temple-Inland Inc. and subsidiaries as of December 29, 2007 and December 30, 2006, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 29, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Temple-Inland Inc. and subsidiaries at December 29, 2007 and December 30, 2006, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 29, 2007, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1 to the Consolidated Financial Statements, in 2006, the Company changed its method of accounting for the funded status of defined pension and other postretirement benefit plans, and in 2007 the Company changed the measurement date for measuring the funded status of defined pension and other postretirement benefit plans. Additionally, during 2007 the Company changed its method of accounting for and disclosure of uncertainties associated with certain aspects of measurement and recognition of income taxes.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Temple-Inland Inc.’s internal control over financial reporting as of December 29, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2008 expressed an unqualified opinion thereon.

Ernst & Young LLP

Austin, Texas

February 25, 2008

42

TEMPLE-INLAND INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	At Year-End
	2007			2006
	(In millions)
ASSETS
Current Assets
Cash and cash equivalents	$	227		$	30
Trade receivables, net of allowance for doubtful accounts of $14 in 2007 and $14 in 2006		433			452
Inventories:
Work in process and finished goods		116			109
Raw materials		224			211
Supplies and other		121			115
Total inventories		461			435
Deferred tax asset		99			61
Prepaid expenses and other		57			60
Total current assets		1,277			1,038
Timber and Timberland		—			315
Property and Equipment
Land and buildings		641			637
Machinery and equipment		3,423			3,400
Construction in progress		120			82
Less allowances for depreciation		(2,552	)		(2,491	)
Total property and equipment		1,632			1,628
Financial Assets of Special Purpose Entities		2,383			—
Goodwill		365			365
Assets of Discontinued Operations		—			16,847
Other Assets		285			281
TOTAL ASSETS	$	5,942		$	20,474
LIABILITIES
Current Liabilities
Accounts payable	$	244		$	229
Accrued employee compensation and benefits		108			126
Accrued interest		31			32
Accrued property taxes		11			19
Accrued income taxes		258			—
Other accrued expenses		173			129
Current portion of long-term debt		3			13
Current portion of pension and postretirement benefits		62			15
Total current liabilities		890			563
Long-Term Debt		852			1,584
Nonrecourse Financial Liabilities of Special Purpose Entities		2,140			—
Deferred Tax Liability		762			244
Liability for Pension Benefits		71			229
Liability for Postretirement Benefits		123			122
Liabilities of Discontinued Operations		—			15,291
Other Long-Term Liabilities		324			252
TOTAL LIABILITIES		5,162			18,285
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 in 2007 and 2006, including shares held in the treasury		124			124
Additional paid-in capital		475			468
Accumulated other comprehensive loss		(139	)		(191	)
Retained earnings		987			2,501
Cost of shares held in the treasury: 17,464,189 shares in 2007 and 18,754,907 shares in 2006		(667	)		(713	)
TOTAL SHAREHOLDERS’ EQUITY		780			2,189
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	5,942		$	20,474

Please read the notes to consolidated financial statements.

43

TEMPLE-INLAND INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

	For the Year
	2007			2006			2005
	(In millions)
NET REVENUES	$	3,926		$	4,185		$	3,843
COSTS AND EXPENSES
Cost of sales		(3,390	)		(3,476	)		(3,382	)
Selling		(112	)		(107	)		(97	)
General and administrative		(197	)		(214	)		(198	)
Gain on sale of timberland		2,053			—			—
Other operating income (expense)		(189	)		32			(46	)
		(1,835	)		(3,765	)		(3,723	)
OPERATING INCOME		2,091			420			120
Other non-operating income (expense)		(35	)		93			—
Interest income on financial assets of special purpose entities		19			—			—
Interest expense on nonrecourse financial liabilities of special purpose entities		(9	)		—			—
Interest expense on debt		(111	)		(123	)		(109	)
INCOME FROM CONTINUING OPERATIONS BEFORE TAXES		1,955			390			11
Income tax expense		(753	)		(103	)		7
INCOME FROM CONTINUING OPERATIONS		1,202			287			18
Discontinued operations		103			181			158
NET INCOME	$	1,305		$	468		$	176
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic		106.0			108.8			112.6
Diluted		108.1			110.8			114.5
EARNINGS PER SHARE
Basic:
Income from continuing operations	$	11.33		$	2.64		$	0.16
Discontinued operations		0.98			1.66			1.40
Net income	$	12.31		$	4.30		$	1.56
Diluted:
Income from continuing operations	$	11.12		$	2.59		$	0.16
Discontinued operations		0.96			1.63			1.38
Net income	$	12.08		$	4.22		$	1.54

Please read the notes to consolidated financial statements.

44

TEMPLE-INLAND INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Year
	2007			2006			2005
	(In millions)
CASH PROVIDED BY (USED FOR) OPERATIONS
Net income	$	1,305		$	468		$	176
Adjustments:
Gain on sale of timberland		(2,053	)		—			—
Impairments		64			—			24
Loss on early payment of debt		40			—			—
Loss on sale of Pembroke		—			—			25
Depreciation and amortization		214			225			218
Non-cash share-based compensation		39			38			26
Non-cash pension and postretirement expense		44			56			58
Cash contribution to pension and postretirement plans		(80	)		(76	)		(76	)
Deferred income taxes		435			34			40
Earnings of joint ventures		(5	)		(11	)		(39	)
Dividends from joint ventures		8			12			43
Tax benefit of stock options exercised		—			—			7
Other		14			18			16
Changes in:
Receivables		19			(28	)		(16	)
Inventories		(30	)		(10	)		—
Accounts payable and accrued expenses		274			32			4
Prepaid expenses and other		8			22			2
		296			780			508
CASH PROVIDED BY (USED FOR) INVESTING
Capital expenditures		(225	)		(187	)		(192	)
Reforestation and net acquisition of timber and timberland		(12	)		(17	)		(28	)
Sale of timberland		(21	)		—			—
Sales of non-strategic assets and operations and proceeds from sale of property and equipment		24			64			45
Acquisitions, net of cash acquired, and joint ventures		(5	)		(148	)		(5	)
Other		4			1			2
		(235	)		(287	)		(178	)
CASH PROVIDED BY (USED FOR) FINANCING
Nonrecourse borrowing secured by financial assets of special purpose entities		2,140			—			—
Payments of debt		(567	)		(47	)		(502	)
Borrowings under accounts receivable securitization facility, net		(163	)		133			15
Borrowings under revolving credit facility, net		(12	)		(56	)		—
Change in book overdrafts		13			2			(13	)
Fees associated with debt		(42	)		—			—
Other additions to debt		—			10			500
Cash dividends paid to shareholders		(1,212	)		(108	)		(102	)
Repurchase of common stock		(24	)		(318	)		(527	)
Exercise of options		20			47			48
Tax benefit of stock options exercised		15			10			—
Settlement of equity purchase contracts		—			—			345
Other		—			(4	)		(7	)
		168			(331	)		(243	)
CASH PROVIDED BY (USED FOR) DISCONTINUED OPERATIONS
Net cash provided by (used for) operating activities		(33	)		255			78
Net cash provided by (used for) investing activities		(619	)		1,056			(1,785	)
Net cash provided by (used for) financing activities		620			(1,443	)		1,611
		(32	)		(132	)		(96	)
Effect of exchange rate changes on cash and cash equivalents		—			—			—
Net increase (decrease) in cash and cash equivalents		197			30			(9	)
Cash and cash equivalents at beginning of year		30			—			9
Cash and cash equivalents at year-end	$	227		$	30		$	—

Please read the notes to consolidated financial statements.

45

TEMPLE-INLAND INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

						Accumulated
			Additional			Other
	Common		Paid-In			Comprehensive			Retained			Treasury
	Stock		Capital			Income / (Loss)			Earnings			Stock			Total
	(In millions)
Balance at year-end 2004	$	123	$	350		$	(192	)	$	2,067		$	(241	)	$	2,107
Comprehensive income, net of tax:
Net income		—		—			—			176			—			176
Unrealized gains/(losses) on securities		—		—			(3	)		—			—			(3	)
Defined benefits		—		—			3			—			—			3
Foreign currency translation adjustment		—		—			4			—			—			4
Derivative financial instruments		—		—			(1	)		—			—			(1	)
Comprehensive income for the year 2005																179
Dividends paid on common stock — $0.90 per share		—		—			—			(102	)		—			(102	)
Share-based compensation, net of distributions — 578,774 shares		—		13			—			—			19			32
Exercise of stock options — 1,833,688 net shares		—		—			—			—			48			48
Tax benefit from exercise of stock options		—		7			—			—			—			7
Settlement of equity purchase contracts — 10,875,739 shares		1		75			—			—			269			345
Repurchase of common stock — 14,500,000 shares		—		—			—			—			(536	)		(536	)
Balance at year-end 2005	$	124	$	445		$	(189	)	$	2,141		$	(441	)	$	2,080
Comprehensive income, net of tax:
Net income		—		—			—			468			—			468
Unrealized gains/(losses) on securities		—		—			(1	)		—			—			(1	)
Defined benefits		—		—			57			—			—			57
Foreign currency translation adjustment		—		—			(2	)		—			—			(2	)
Derivative financial instruments		—		—			1			—			—			1
Comprehensive income for the year 2006																523
Dividends paid on common stock — $1.00 per share		—		—			—			(108	)		—			(108	)
Share-based compensation, net of distributions — 10,289 shares		—		28			—			—			(1	)		27
Exercise of stock options — 1,736,335 net shares		—		(15	)		—			—			62			47
Tax benefit from exercise of stock options		—		10			—			—			—			10
Repurchase of common stock — 7,850,000 shares		—		—			—			—			(333	)		(333	)
Adoption of SFAS No. 158, net of tax		—		—			(57	)		—			—			(57	)
Balance at year-end 2006	$	124	$	468		$	(191	)	$	2,501		$	(713	)	$	2,189
Comprehensive income, net of tax:
Net income		—		—			—			1,305			—			1,305
Unrealized gains/(losses) on securities		—		—			(36	)		—			—			(36	)
Defined benefits		—		—			53			—			—			53
Foreign currency translation adjustment		—		—			—			—			—			—
Derivative financial instruments		—		—			—			—			—			—
Comprehensive income for the year 2007																1,322
Regular dividends paid on common stock — $1.12 per share		—		—			—			(118	)		—			(118	)
Special dividend paid on common stock — $10.25 per share		—		—			—			(1,094	)		—			(1,094	)
Share-based compensation, net of distributions — 281,472 shares		—		2			—			—			16			18
Exercise of stock options — 1,009,246 net shares		—		(10	)		—			—			30			20
Tax benefit from exercise of stock options		—		15			—			—			—			15
Adoption of FASB Interpretation No. 48, net of tax		—		—			—			5			—			5
Adoption of measurement provisions of SFAS No. 158, net of tax		—		—			—			(5	)		—			(5	)
Spin-off of Forestar		—		—			—			(434	)		—			(434	)
Spin-off of Guaranty		—		—			35			(1,173	)		—			(1,138	)
Balance at year-end 2007	$	124	$	475		$	(139	)	$	987		$	(667	)	$	780

Please read the notes to consolidated financial statements.

46

TEMPLE-INLAND INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Summary of Significant Accounting Policies

Basis of Presentation

On December 28, 2007, we completed our transformation plan that was approved by our board of directors in February 2007. A summary of the significant elements of the transformation plan follows:

•  On October 31, 2007, we sold 1.55 million acres of timberland for $2.38 billion to an investment entity affiliated with The Campbell Group, LLC and recognized a pre-tax gain of $2.053 billion, which is included in other operating income. The acreage sold consisted of 1.38 million acres owned in fee and leases covering 175,000 acres. The total consideration consisted almost entirely of notes due in 2027, which are secured by irrevocable letters of credit issued by independent financial institutions. We also entered into a 20-year fiber supply agreement for pulpwood and a 12-year fiber supply agreement for sawtimber. Both agreements are at market prices, and are subject to extension.

•  We contributed the notes and irrevocable letters of credit received in connection with the sale of our timberlands to two wholly-owned, bankruptcy-remote special purpose entities. On December 3, 2007, the special purpose entities pledged the notes receivable from the sale of timberland as collateral for $2.14 billion nonrecourse loans payable 2027. The net cash proceeds, after alternative minimum and other taxes related to sale of the timberland and transaction costs, were $1.8 billion. We used $1.1 billion of the net cash proceeds to pay a $10.25 per share special cash dividend to our shareholders in December 2007. The remaining $700 million was used to reduce debt. We have concluded that we are the primary beneficiary of these special purpose entities. As a result we include these special purpose entities in our consolidated financial statements.

•  On December 28, 2007, we completed the spin-off of our real estate segment, Forestar Real Estate Group Inc. (Forestar), and our financial services segment, Guaranty Financial Group Inc. (Guaranty). These spin-offs were effected through tax-free distributions of one share of Forestar and one share of Guaranty for every three shares of Temple-Inland common stock. These spin-offs reduced retained earnings by $1.6 billion. Our financial information has been reclassified to reflect Forestar and Guaranty as discontinued operations for all periods presented.

The transformation plan significantly changed our capital structure and operations. At year-end 2007, Temple-Inland is a manufacturing company focused on corrugated packaging and building products.

Our consolidated financial statements include the accounts of Temple-Inland Inc., its subsidiaries and special purpose and variable interest entities of which we are the primary beneficiary. We account for our investment in other entities in which we have significant influence over operations and financial policies using the equity method.

We prepare our financial statements in accordance with generally accepted accounting principles, which require us to make estimates and assumptions about future events. Actual results can, and probably will, differ from those we currently estimate. We eliminate all material intercompany accounts and transactions.

Our fiscal year ends on the Saturday closest to December 31, which from time to time means that a fiscal year will include 53 weeks instead of 52 weeks. All of the periods presented had 52 weeks. Fiscal year 2007 ended on December 29, 2007, fiscal year 2006 ended on December 30, 2006, and fiscal year 2005 ended on December 31, 2005.

We translate the balance sheets of our international operations where the functional currency is other than the U.S. dollar into U.S. dollars at year-end exchange rates. We include adjustments resulting from financial statement translation in other comprehensive income.

47

TEMPLE-INLAND INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Asset Retirement Obligations and Environmental Obligations

We recognize legal obligations associated with the retirement of long-lived assets when the obligation is incurred. We record the estimated present value of the retirement obligation and increase the carrying value of the long-lived asset by a like amount. Over time, we accrete or increase the liability to its settlement value and we depreciate or decrease the asset to zero. When we settle the obligation we recognize a gain or loss for any difference between the settlement amount and the then recorded obligation. At year-end 2005, we adopted Financial Accounting Standards Board (FASB) Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations an interpretation of FASB Statement No. 143. This interpretation clarified that the term “conditional asset retirement obligation” refers to a legal obligation to perform an asset retirement obligation in which the timing and/or method of settlement are conditional on future events that may or may not be within our control. As a result, even though the timing and/or method of settlement may be uncertain, the retirement obligation should be recognized if it can be reasonably estimated. The effect on earnings and financial position of adopting this interpretation was not significant.

Our asset retirement obligations consist principally of costs to remediate landfills we operate. The present value of these asset retirement obligations was $13 million at year-end 2007 and $16 million at year-end 2006 and is included in other long-term liabilities. Accretion expense was less than $1 million in 2007, $1 million in 2006 and less than $1 million in 2005.

Many of our manufacturing facilities contain asbestos and lead paint. We are currently not required to remove any of these materials, but we could be required to do so in the future if we were to demolish or undertake major renovations of these facilities. At this time, we have no such plans, which makes it impractical to estimate the fair value of any related asset retirement obligations. Accordingly, a liability has not been recognized for these asset retirement obligations.

In addition, we record environmental remediation liabilities on an undiscounted basis when environmental assessments or remediation are probable and we can reasonably estimate the cost. We adjust these liabilities as further information is obtained or circumstances change. Accrued remediation liabilities were $13 million at year-end 2007, of which $11 million is included in other accrued expenses and $2 million in other long-term liabilities. At year-end 2006, accrued remediation liabilities were $13 million of which $9 million were included in other accrued expenses, $2 million in other long-term liabilities, and $2 million in liabilities of discontinued operations.

Capitalized Software

We capitalize purchased software costs as well as the direct internal and external costs associated with software we develop for our own use. We amortize these capitalized costs using the straight-line method over estimated useful lives ranging from three to seven years. The carrying value of capitalized software was $35 million at year-end 2007 and $46 million at year-end 2006 and is included in other assets. The amortization of these capitalized costs was $15 million in 2007, $17 million in 2006, and $15 million in 2005 and is included in cost of sales and general and administrative expense.

Cash and Cash Equivalents

Cash and cash equivalents include cash and other short-term instruments with original maturities of three months or less.

Derivatives

We use, from time to time and then only to a limited degree, derivative instruments to mitigate our exposure to risks associated with changes in interest rates, product pricing and manufacturing costs. We do not enter into derivatives for trading purposes. We defer and include in other comprehensive income changes in

48

TEMPLE-INLAND INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

the fair value of derivative instruments designated as cash flow hedges until the hedged transactions are completed. At that time, we recognize these deferred gains or losses in income. We recognize the ineffective portion of these hedges, which is not significant, in income. We recognize changes in the fair value of derivative instruments designated as fair value hedges in income, as well as changes in the fair value of the hedged item. We recognize changes in the fair value of derivative instruments that are not designated as hedges in income. We include the carrying value of derivative instruments in other assets and other liabilities.

Derivative financial instruments are designated and documented as hedges at the inception of the contract and on an ongoing basis. We assess and measure the effectiveness of derivative instruments, using correlation ratios, at inception and on an ongoing basis. If a derivative instrument ceases to be highly effective as a hedge or if the derivative instrument is terminated or settled prior to the expected maturity or realization of the underlying item, we stop using hedge accounting.

Fair Value of Financial Instruments

In the absence of quoted market prices, we estimate the fair value of financial instruments. Our estimates are affected by the assumptions we make, including the discount rate and estimates of the amount and timing of future cash flows. Where these fair values approximate carrying value, no separate disclosure of fair value is shown.

Goodwill and Other Intangible Assets

We do not amortize goodwill and other indefinite lived intangible assets. Instead, we measure these assets for impairment based on estimated fair values at least annually or more frequently if impairment indicators exist. We perform the annual impairment measurement as of the beginning of the fourth quarter of each year. Intangible assets with finite useful lives are amortized over their estimated lives.

Impairment of Long-Lived Assets

We review long-lived assets held for use for impairment when events or circumstances indicate that their carrying value may not be recoverable. Impairment exists if the carrying amount of the long-lived asset is not recoverable from the undiscounted cash flows expected from its use and eventual disposition. We determine the amount of the impairment loss by comparing the carrying value of the long-lived asset to its estimated fair value. In the absence of quoted market prices, we determine estimated fair value generally based on the present value of future probability weighted cash flows expected from the use and eventual disposition of the long-lived asset. We carry assets held for sale at the lower of carrying value or estimated fair value less costs to sell.

Income Taxes

We provide deferred income taxes using current tax rates for temporary differences between the financial accounting carrying value of assets and liabilities and their tax accounting carrying values. We recognize and value income tax exposures for the various taxing jurisdictions where we operate based on tax laws, tax elections, commonly accepted tax positions, and management estimates. We include tax penalties and interest in income tax expense.

In 2007, we adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes. As a result of the implementation, 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.

49

TEMPLE-INLAND INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Inventories

We carry inventories at the lower of cost or market. We determine cost using the average cost method, which approximates the first-in, first-out method.

In 2006, we began applying the guidance in Emerging Issues Task Force (EITF) Issue No. 04-13, Accounting for Purchases and Sales of Inventory with the Same Counterparty. This guidance requires that non-monetary exchanges of similar inventory be valued at the carrying value of the inventory given up instead of the fair value of the inventory received and is applied to exchange agreements entered into or renewed subsequent to first quarter 2006. Our corrugated packaging segment enters into these agreements that generally represent the exchange of linerboard we manufacture for corrugated medium manufactured by others. We include these exchanges in cost of sales. The effect of applying this guidance was to increase cost of sales $2 million in 2007 and $7 million in 2006.

Pension and Postretirement Plans

At year-end 2006 we adopted Statement of Financial Accounting Standards (SFAS) No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, requiring the funded status of defined benefit plans be shown on the balance sheet. In 2007, we transitioned to a year-end measurement date for valuing plan assets and obligations for our defined benefit and postretirement benefit plans as further required by SFAS No. 158. Previously we used a measurement date of September 30. 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.

The following table shows the effect of applying SFAS No. 158 on individual line items in the 2006 consolidated balance sheet:

	Before Application		Adjustments			After Application
	of SFAS No. 158		Increase (Decrease)			of SFAS No. 158
	(In millions)
Prepaid expenses and other	$	76	$	(16	)	$	60
Deferred tax liability		279		(35	)		244
Liability for pension benefits		156		73			229
Liability for postretirement benefits		119		3			122
Total liabilities		18,244		41			18,285
Accumulated other comprehensive loss		134		57			191
Total shareholders’ equity		2,246		(57	)		2,189

50

TEMPLE-INLAND INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Property and Equipment

We carry property and equipment at cost less accumulated depreciation. We capitalize the cost of significant additions and improvements, and we expense the cost of repairs and maintenance, including planned major maintenance. We capitalize interest costs incurred on major construction projects. We depreciate these assets using the straight-line method over their estimated useful lives as follows:

			Carrying
			Value At
	Estimated		Year-End
Classification	Useful Lives		2007
	(In millions)
Land and land improvements		N/A	$	40
Buildings and building improvements		10 to 40 years		298
Machinery and equipment:
Paper machines		5 to 25 years		632
Mill equipment		5 to 25 years		79
Converting equipment		3 to 20 years		410
Other production equipment		5 to 25 years		5
Transportation equipment		3 to 20 years		28
Office and other equipment		3 to 5 years		20
Construction in progress		N/A		120
			$	1,632

We include in property and equipment $57 million of assets subject to capital leases. We depreciate these assets and any improvements to leased assets using the straight-line method over the shorter of their lease term or their estimated useful lives. We expense operating leases ratably over the lease term.

Revenue Recognition

We recognize product revenue upon passage of title, which occurs at the time the product is delivered to the customer, the price is fixed and determinable, and we are reasonably sure of collection. Other revenue, which is not significant, is recognized when the service has been performed, the value is determinable, and we are reasonably sure of collection.

We include the amounts billed to customers for shipping in net revenues and the related costs in cost of sales.

We exclude from revenue, amounts we collect from customers that represent sales tax or other taxes that are based on the sale. These amounts are included in other accrued expenses until paid.

Share-Based Compensation

Beginning January 2006, we adopted the modified prospective application method contained in SFAS No. 123 (revised December 2004), Share-Based Payment (SFAS 123(R)), to account for share-based payments. As a result, we apply this pronouncement to new awards or modifications of existing awards in 2006 and thereafter. We had been expensing over the service period the fair value of share-based compensation awards granted, modified or settled in 2003 through 2005, using the prospective transition method of accounting contained in SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123. The principal effects of adopting SFAS 123(R) are:

•  The fair value of awards granted to retirement eligible employees is expensed at the date of grant because our stock option awards and some of our other awards provide for accelerated or continued

51

TEMPLE-INLAND INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

vesting upon retirement. Previously, the fair value of these awards was expensed over the expected service period. This change accelerated about $6 million of expense into first quarter 2006 related to awards granted in 2006. We will continue to expense the fair value of awards granted prior to 2006 over the expected service period.

•  Forfeitures over the expected term of the award are estimated at the date of grant and the estimates adjusted to reflect actual subsequent forfeitures. Previously, we had reflected forfeitures as they occurred. The effect of this change was not significant.

•  Tax benefits recognized as a result of the exercise of employee stock options are classified as a financing cash flow. Prior to 2006, we classified these tax benefits as an operating cash flow.

•  The fair value of unvested outstanding options at the beginning of first quarter 2006 will be expensed over the remaining service period. The effect of this change was not significant because we began accounting for options at fair value determined at the date of grant in 2003. As a result, this applied only to our unvested outstanding options granted prior to 2003.

Adoption of this new pronouncement did not change the methodology we use to determine the fair value of our share-based compensation arrangements. We use the Black-Scholes-Merton option-pricing model for stock options and the grant date or period-end fair value of our common stock for all other awards.

Prior to 2003, we used the intrinsic value method in accounting for stock options. As a result, no share-based compensation expense related to those stock options granted prior to 2003 is reflected in net income for 2005. The following table illustrates the effect on net income and earnings per share as if the fair value method had been applied to all options granted.

	For the Year
	2005
	(In millions,
	except per share)
Net income, as reported	$	176
Add: Share-based compensation expense, net of related tax effects, included in the determination of reported net income(a)		19
Deduct: Total share-based compensation expense, net of related tax effects, determined under the fair value based method for all awards(a)		(23	)
Pro forma net income	$	172
Earnings per share
Basic, as reported	$	1.56
Basic, pro forma	$	1.53
Diluted, as reported	$	1.54
Diluted, pro forma	$	1.50

^(a) Includes treasury stock contributions to fulfill our obligation for matching contributions to our 401(k) plans of $3 million, net of related tax effects.

Special Purpose and Variable Interest Entities

We account for special purpose and variable interest entities using FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities an Interpretation of ARB No. 51. This interpretation provides guidance for determining whether an entity is a variable interest entity and which beneficiary of the variable interest entity, if any, should consolidate the variable interest entity.

52

TEMPLE-INLAND INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Timber and Timberland

In 2007, we sold all of our strategic timber and timberland.

We carried timber and timberland at cost, less the cost of timber cut. We capitalized the costs we paid to purchase timber and timberland, and we allocated that cost to the timber, timberland, and if applicable, mineral rights, based on estimated relative fair values, which in the case of significant purchases, we based on third-party appraisals.

We expensed the cost of timber cut based on the relationship of the timber carrying value to the estimated volume of recoverable timber multiplied by the amount of timber cut. We included the cost of timber cut in depreciation expense. We determined the estimated volume of recoverable timber using statistical information and other data related to growth rates and yields gathered from physical observations, models, and other information gathering techniques. Changes in yields were generally due to adjustments in growth rates and similar matters and were accounted for prospectively as changes in estimates. We capitalized reforestation costs incurred in developing viable seedling plantations (up to two years from planting), such as site preparation, seedlings, planting, fertilization, insect and wildlife control, and herbicide application. We expensed all other costs, such as property taxes and costs of forest management personnel, as incurred. Once the seedling plantation was viable, we expensed all costs to maintain the viable plantations, such as fertilization, herbicide application, insect and wildlife control, and thinning, as incurred. We capitalized costs incurred to initially build roads as land improvements, and we expensed as incurred costs to maintain these roads.

We determined the carrying value of timberland sold using the area method by county, which was based on the relationship of carrying value of timberland to total acres of timberland multiplied by acres of timberland sold. We determined the carrying value of timber sold by the average cost method, which was based on the relationship of timber carrying value to the estimate of recoverable timber multiplied by the amount of timber sold.

Pending Accounting Pronouncements

SFAS No. 141(R), Business Combinations — This new standard requires most identifiable assets, liabilities, noncontrolling interests, and goodwill acquired in a business combination to be recorded at full fair value. The new standard also changes the approach to determining the purchase price; the accounting for acquisition cost; and the accounting practices for acquired contingencies, restructuring costs, long-lived assets, in-process research and development, share-based payment awards, indemnification costs, and tax benefits. SFAS No. 141(R) is effective for any business combination occurring after our year-end 2008.

SFAS No. 157, Fair Value Measures — This standard defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This guidance applies to fair value measurements already required or permitted and will be effective for our first quarter 2008. We do not expect that adoption will have a significant effect on our earnings or financial position.

SFAS No. 159, The Fair Value Options for Financial Assets and Financial Liabilities — This standard 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 do not anticipate electing this option.

SFAS No. 160, Noncontrolling Interest in Consolidated Financial Statements — This new standard specifies that noncontrolling interests be reported as a part of equity, not as a liability or other item outside of

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equity. SFAS No. 160 is effective for our first quarter 2009. Based on our current understanding, we do not expect that adoption will have a significant effect on our earnings or financial position.

Note 2 — Acquisitions

In 2006, we purchased for $150 million our partner’s 50 percent interest in Standard Gypsum LP, which manufactured and sold gypsum wallboard. We also paid off the partnership’s $56 million credit agreement, of which $28 million related to the purchased interest. We financed this purchase with borrowings under our revolving credit facilities. We believe that this acquisition will allow us to continue to generate earnings and returns from our gypsum wallboard operations, as these operations are low cost and are located near fast growing markets.

We no longer maintain Standard Gypsum as a separate legal entity and include all of its assets and liabilities, results of operations, and cash flows in our consolidated financial statements. Previously we had accounted for our interest in Standard Gypsum using the equity method. We allocated the purchase price to the 50 percent of the assets acquired and liabilities assumed based on our estimates of their fair value at the date of acquisition. We based these estimates of fair values on independent appraisals and other information. Goodwill is allocated to the building products segment, and we anticipate that all of the goodwill will be deductible for income tax purposes. The other 50 percent of the assets and liabilities, which we already owned, were included at their carrying value.

A summary of the net assets at the date of acquisition (50 percent at fair value and 50 percent at carrying value) follows:

	Total
	(In millions)
Current assets	$	35
Property and equipment		74
Goodwill		129
Total assets		238
Current liabilities		(13	)
Current portion of long-term debt		(56	)
Total liabilities		(69	)
Net assets at date of acquisition	$	169

Unaudited pro forma information assuming this acquisition and related financing had occurred at the beginning of 2005 would have resulted in revenues of $4.04 billion, income from continuing operations of $32 million, and income from continuing operations per diluted share of $0.28.

We derived these pro forma results by adjusting for the effects of the purchase price allocations and financing described above. These pro forma results are not necessarily an indication of what would have occurred if the acquisition and financing had been completed at the beginning of 2005 and are not intended to be indicative of future results.

Note 3 — Joint Ventures

Our significant manufacturing joint venture investments at year-end 2007 are: Premier Boxboard Limited LLC, a 50 percent owned venture that produces gypsum facing paper and corrugating medium in Newport, Indiana , and Del-Tin Fiber LLC, a 50 percent owned venture that produces medium density fiberboard in El Dorado, Arkansas.. The joint venture partner in each of these ventures is a publicly-held company unrelated to us. In January 2006, we purchased our partner’s 50 percent interest in Standard Gypsum LP. As a result,

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beginning in 2006, we include all of its assets and liabilities, results of operations, and cash flow in our consolidated financial statements. Please read Note 2 for additional information.

Combined summarized financial information for these joint ventures follows:

	At Year-End
	2007			2006
	(In millions)
Current assets	$	29		$	26
Total assets		234			241
Current liabilities(a)		25			24
Long-term debt		85			90
Equity		124			127
Our investment in joint ventures:
50 percent share in joint ventures’ equity	$	62		$	63
Unamortized basis difference		(30	)		(32	)
Investment in joint ventures	$	32		$	31

^(a) Includes current maturities of debt of $6 million in 2007 and $6 million in 2006.

	For the Year
	2007		2006		2005
	(In millions)
Net revenues	$	200	$	192	$	378
Operating income		13		24		85
Earnings		5		17		74
Our equity in earnings:
50 percent share of earnings	$	3	$	8	$	37
Amortization of basis difference		2		3		2
Equity in earnings of joint ventures	$	5	$	11	$	39

We and our joint venture partners contribute to these ventures and receive distributions from them equally. In 2007, we contributed $4 million to these ventures and received $8 million in distributions, in 2006 we contributed $3 million and received $12 million in distributions, and in 2005 we contributed $5 million and received $43 million in distributions.

Our investment in these joint ventures is included in other assets, and our equity in their earnings is included in other operating income (expense). Our investment in and our equity in their earnings differs from our 50 percent interest due to the difference between the fair value of net assets contributed to the Premier Boxboard joint venture and our carrying value of those assets. When we contributed the Newport, Indiana mill and its associated debt to the Premier Boxboard joint venture in 2000, the fair value of the net assets exceeded our carrying value by $55 million. The joint venture recorded the contributed assets at fair value. We did not recognize a gain as a result of the contribution of assets, thus creating a difference in the carrying value of our investment and our underlying equity in the venture. We are amortizing this difference over the same period as the underlying mill assets are being depreciated by the joint venture to reflect depreciation of the mill as if it were consolidated by us at its historical carrying value. At year-end 2007, the unamortized basis difference was $30 million.

We provide marketing services to the Del-Tin joint venture, and prior to 2006, we provided marketing and management services to the Standard Gypsum joint venture. Fees for these services were $2 million in 2007, $3 million in 2006, and $8 million in 2005 and are included as a reduction of cost of sales and selling

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expense. We also purchase, at market rates, finished products from the Premier Boxboard joint venture, which aggregated $47 million in 2007, $62 million in 2006, and $40 million in 2005.

In 2005, we sold about 7,000 acres of timber and timberland to a joint venture in which our former real estate segment owned 50 percent and an unrelated public company owned the other 50 percent. This acreage was sold pursuant to the terms of a long-standing option agreement, which was about to expire. The joint venture intended to hold the land for future development and sale. We recognized about half of the $10 million gain in income in 2005 and recognized the remainder in 2007 when we spun off our real estate segment.

Note 4 — Long-Term Debt

Long-term debt consists of:

	At Year-End
	2007			2006
	(In millions)
Borrowings under bank credit agreements — average interest rate of 6.26% in 2007 and 5.89% in 2006	$	—		$	12
Accounts receivable securitization facility — average interest rate of 5.44% in 2007 and 5.05% in 2006		1			164
6.75% Notes, payable in 2009		14			300
7.875% Senior Notes, payable in 2012, net of discounts		285			498
6.375% Senior Notes, payable in 2016, net of discounts		249			249
6.625% Senior Notes, payable in 2018, net of discounts		248			248
Revenue bonds, payable 2007 through 2024 — average interest rate of 5.41% in 2007 and 5.75% in 2006		51			65
Other indebtedness due through 2027 — average interest rate of 7.89% in 2007 and 6.99% in 2006		7			61
		855			1,597
Less current portion of long-term debt		(3	)		(13	)
	$	852		$	1,584

At year-end 2007, we had $835 million in committed credit agreements. These committed agreements include a $750 million credit agreement that expires in 2011. The remaining $85 million of credit agreements expire between 2008 and 2010. At year-end 2007, our unused capacity under these facilities was $821 million.

At year-end 2007, we had a $250 million accounts receivable securitization facility that expires in 2010. Under this facility, a wholly-owned, bankruptcy-remote subsidiary purchases, on an on-going basis, substantially all our trade receivables. As we need funds, the subsidiary draws under its revolving credit arrangement, pledges the trade receivables as collateral, and remits the proceeds to us. In the event of liquidation of the subsidiary, its creditors would be entitled to satisfy their claims from the subsidiary’s assets prior to distributions back to us. At year-end 2007, the subsidiary owned $361 million in net trade receivables against which it had borrowed $1 million under this facility. At year-end 2007, the unused capacity under this facility was $246 million. We include this subsidiary in our consolidated financial statements.

Maturities of our debt during the next five years are (in millions): 2008 — $3; 2009 — $33; 2010 — $2; 2011 — $11; 2012 — $293; and thereafter — $513. We have classified $10 million of 2008 stated maturities as long-term based on our intent and ability to refinance them on a long-term basis.

In December 2007, we completed a cash tender offer for $286 million of 6.75% Notes payable in 2009 and $213 million of 7.875% Senior Notes payable in 2012. We incurred $40 million in costs related to these tender offers, which was included in other non-operating (income) expense.

In December 2005, we completed a cash tender offer for $425 million of debt. We incurred $6 million in costs related to this tender offer, which was included in other non-operating (income) expense.

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We capitalized and deducted from interest expense interest incurred on major construction and information technology projects of $1 million in 2007, $1 million in 2006, and $1 million in 2005. We paid interest of $125 million in 2007, $106 million in 2006, and $109 million in 2005.

Note 5 — Financial Assets and Nonrecourse Financial Liabilities of Special Purpose Entities

In October 2007, we received $2.38 billion in notes from the sale of 1.55 million acres of timberland, which we contributed to two wholly-owned, bankruptcy-remote special purpose entities. The notes are secured by irrevocable letters of credit, are due in 2027, and require quarterly interest payments based on variable interest rates that reset quarterly (4.98 percent at year-end 2007).

In December 2007, the special purpose entities pledged the notes and irrevocable letters of credit to secure $2.14 billion nonrecourse loans payable in 2027. These borrowings require quarterly interest payments based on variable interest rates that reset quarterly (5.67 percent at year-end 2007).

We include these special purpose entities in our consolidated financial statements.

Note 6 — Capital Stock

From February 2005 through year-end 2007, our Board of Directors approved repurchase programs aggregating 29.0 million shares. As of year-end 2007, we had repurchased 22.4 million shares under these programs. In 2007, we initiated no share purchases , but we settled $24 million of share purchases that were initiated in fourth quarter 2006. As of year-end 2007, there are 6.6 million shares remaining under current repurchase authorizations.

Pursuant to the Shareholder Rights Plan, each share of common stock outstanding is coupled with one-quarter of a preferred stock purchase right (Right). Each Right entitles our shareholders to purchase, under certain conditions, one one-hundredth of a share of newly issued Series A Junior Participating Preferred Stock at an exercise price of $200. Rights will be exercisable only if someone acquires beneficial ownership of 20 percent or more of our common shares or commences a tender or exchange offer, upon consummation of which they would beneficially own 25 percent or more of our common shares. We will generally be entitled to redeem the Rights at $0.01 per Right at any time until the 10th business day following public announcement that a 20 percent position has been acquired. The Rights will expire on February 20, 2009.

Please read Note 9 for information about additional shares of common stock that could be issued under terms of our share-based compensation plans.

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Note 7 — Accumulated Other Comprehensive Income (Loss)

The components of and changes in accumulated other comprehensive income (loss) were:

	Unrealized
	Gains (Losses)						Foreign
	on Available-			Defined			Currency
	For-Sale			Benefit			Translation			Derivative
	Securities			Plans			Adjustment			Instruments			Total
	(In millions)
Balance at beginning of year 2005	$	5		$	(171	)	$	(26	)	$	—		$	(192	)
Changes during the year		(4	)		6			4			(1	)		5
Deferred taxes on changes		1			(3	)		—			—			(2	)
Net change for 2005		(3	)		3			4			(1	)		3
Balance at year-end 2005	$	2		$	(168	)	$	(22	)	$	(1	)	$	(189	)
Changes during the year		(1	)		95			(2	)		1			93
Deferred taxes on changes		—			(38	)		—			—			(38	)
Net change for 2006		(1	)		57			(2	)		1			55
Adoption of SFAS No. 158, net of deferred taxes of $35		—			(57	)		—			—			(57	)
Balance at year-end 2006	$	1		$	(168	)	$	(24	)	$	—		$	(191	)
Changes during the year		(56	)		85			—			—			29
Deferred taxes on changes		20			(32	)		—			—			(12	)
Net change for 2007		(36	)		53			—			—			17
Spin-off of Guaranty		35			—			—			—			35
Balance at year-end 2007	$	—		$	(115	)	$	(24	)	$	—		$	(139	)

Note 8 — Pension and Postretirement Plans

The annual expense of our benefit plans consists of:

	For the Year
	2007		2006		2005
	(In millions)
401 (k) matching plan	$	17	$	16	$	16
Defined benefit		35		46		49
Postretirement medical		8		9		8
	$	60	$	71	$	73

Our 401(k) matching plan covers substantially all employees and is fully funded.

Our defined benefit plan covers substantially all salaried and hourly employees. Salaried and nonunion hourly employee benefits are based on compensation and years of service, while union hourly plans are based on negotiated benefits and years of service. Our policy is to fund our qualified defined benefit plan on an actuarial basis to accumulate assets sufficient to meet the benefits to be paid in accordance with ERISA requirements. However, from time to time we may make voluntary, discretionary contributions. Our supplemental defined benefit plan is unfunded.

Our postretirement medical plan provides medical benefits to eligible salaried and hourly employees who begin drawing retirement benefits immediately after termination of employment. Our postretirement plan

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provides for medical coverage, including a prescription drug subsidy, for certain participants. Our postretirement plan is funded to the extent of benefit payments.

Additional information about our defined benefit and postretirement medical plans follows.

Obligations and Funded Status

Beginning in 2007, we measure the defined benefit and postretirement medical plans benefit obligation, value plan assets, and determine funded status and annual expense at year end. Prior to 2007, we used September 30 as our measurement date. The projected benefit obligation of our defined benefit plan represents the present value of benefits earned adjusted for projected future compensation increases to the date of retirement. The accumulated postretirement benefit obligation of our postretirement benefits plan represents the present value of benefits attributable to employee service periods. The projected benefit obligation and the accumulated postretirement benefit obligation are collectively referred to as benefit obligation. The fair value of plan assets represents the fair value, generally market value at the measurement date, of all plan assets. The funded status for the plans represents the difference between the benefit obligation and the fair value of the plan assets.

A summary of the changes in the benefit obligation, plan assets, and funded status follows:

	For the Year
	Defined Benefits																		Postretirement
	Qualified						Supplemental						Total						Benefits
	2007			2006			2007			2006			2007			2006			2007			2006
	(In millions)
Benefit obligation — beginning of valuation period	$	(1,284	)	$	(1,300	)	$	(56	)	$	(51	)	$	(1,340	)	$	(1,351	)	$	(139	)	$	(155	)
Service cost		(32	)		(27	)		(1	)		(1	)		(33	)		(28	)		(2	)		(2	)
Interest cost		(94	)		(71	)		(4	)		(2	)		(98	)		(73	)		(10	)		(8	)
Plan amendments		—			(1	)		—			—			—			(1	)		—			—
Actuarial gain (loss)		16			51			(4	)		(4	)		12			47			(3	)		11
Benefits paid by the plan		84			64			6			2			90			66			21			18
Participant contributions		—			—			—			—			—			—			(4	)		(3	)
Benefit obligation — end of valuation period		(1,310	)		(1,284	)		(59	)		(56	)		(1,369	)		(1,340	)		(137	)		(139	)
Fair value of plan assets — beginning of valuation period		1,094			1,004			—			—			1,094			1,004			—			—
Actual return		165			94			—			—			165			94			—			—
Benefits paid by the plan		(84	)		(64	)		(6	)		(2	)		(90	)		(66	)		(21	)		(19	)
Contributions we made		75			60			6			2			81			62			17			16
Participant contributions		—			—			—			—			—			—			4			3
Fair value of plan assets — end of valuation period		1,250			1,094			—			—			1,250			1,094			—			—
Funded status — end of valuation period		(60	)		(190	)		(59	)		(56	)		(119	)		(246	)		(137	)		(139	)
Contributions we made after the annual measurement date		—			15			—			—			—			15			—			4
Funded status at year-end	$	(60	)	$	(175	)	$	(59	)	$	(56	)	$	(119	)	$	(231	)	$	(137	)	$	(135	)

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Assets and (liabilities) included in the consolidated balance sheet and a reconciliation to funded status follows:

	At Year-End
	Defined						Postretirement
	Benefits						Benefits
	2007			2006			2007			2006
	(In millions)
Liability/funded status	$	(119	)	$	(231	)	$	(137	)	$	(135	)
Accumulated other comprehensive loss:
Unrecognized net loss	$	166		$	253		$	21		$	19
Unamortized prior service cost		13			16			(13	)		(16	)
Additional minimum liability		—			—			—			—
Total accumulated other comprehensive loss	$	179		$	269		$	8		$	3

Additional Information

The accumulated benefit obligation of our defined benefit plan represents the present value of benefits earned without regard to projected future compensation increases. Our defined benefit plans have accumulated benefit obligations in excess of plan assets as follows:

	At Year-End
	2007			2006
	(In millions)
Projected benefit obligation	$	(1,369	)	$	(1,340	)
Accumulated benefit obligation	$	(1,305	)	$	(1,267	)
Fair value of plan assets		1,250			1,094
Contributions we made after the annual measurement date		—			15
Excess of accumulated benefit obligation over fair value of plan assets	$	(55	)	$	(158	)
Excess of accumulated benefit obligation over fair value of plan assets consists of:
Qualified plan	$	(1	)	$	(108	)
Supplemental plan		(54	)		(50	)
	$	(55	)	$	(158	)

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Components of Net Periodic Benefit Expense and Other Amounts Recognized in Other Comprehensive Income

	For the Year
	Defined Benefits									Postretirement Benefits
	2007			2006			2005			2007			2006			2005
	(In millions)
Net periodic benefit expense:
Service costs — benefits earned during the period	$	27		$	28		$	25		$	1		$	2		$	2
Interest cost on benefit obligation		78			73			72			8			8			8
Expected return on plan assets		(85	)		(78	)		(72	)		—			—			—
Amortization of prior service costs		2			2			2			(2	)		(2	)		(2	)
Amortization of actuarial net loss		14			22			23			1			1			—
Total net periodic benefit expense(a)		36			47			50			8			9			8
Amounts recognized in other comprehensive income, pre-tax		(90	)		(95	)		(6	)		5			—			—
Total recognized in net periodic benefit expense and other comprehensive income, pre-tax	$	(54	)	$	(48	)	$	44		$	13		$	9		$	8

^(a) Includes amounts allocated to discontinued operations of $1 million in 2007, 2006, and 2005.

We estimate that our 2008 net periodic pension expense will be about $37 million. In addition, we expect a one-time expense of $15 million in 2008 related to lump-sum settlements of supplemental benefits. The 2008 net periodic pension expense includes $5 million of net loss and $6 million of prior service cost that will be amortized from accumulated other comprehensive loss. We estimate that our 2008 net periodic postretirement expense will be about $8 million, which includes $1 million of net loss that will be amortized from accumulated other comprehensive loss and a credit of $2 million for prior service cost that will be amortized from a gain component of the net accumulated other comprehensive loss.

Assumptions

The assumptions we used to determine defined benefit obligations were:

	Defined Benefits						Postretirement Benefits
	2007			2006			2007			2006
Discount rate		6.125	%		6.00	%		6.125	%		6.00	%
Rate of compensation increase		3.70	%		3.80	%		—			—

The assumptions we used to determine annual net periodic benefit expense were:

	Defined Benefits									Postretirement Benefits
	2007			2006			2005			2007			2006			2005
Discount rate		6.00	%		5.50	%		6.00	%		6.00	%		5.50	%		6.00	%
Expected return on plan assets		8.00	%		8.00	%		8.50	%		—			—			—
Rate of compensation increase		3.80	%		3.70	%		3.70	%		—			—			—

The discount rate is used to determine the present value of the benefit obligations. To arrive at this rate for 2007, we used the December one-month average of the Moody’s AA corporate bond rate adjusted to reflect the effect of compounding and for 2006, we used the September one-month average. We believe that this rate is a reasonable proxy for the rate necessary to accumulate funds required to pay the benefits when due.

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The expected long-term rate of return on plan assets is an assumption we make reflecting the anticipated weighted average rate of earnings on the plan assets over the long-term. To arrive at this rate, we developed estimates of the key components underlying capital asset returns including: market-based estimates of inflation, real risk-free rates of return, yield curve structure, credit risk premiums, and equity risk premiums. As appropriate, these components were used to develop benchmark estimates of expected long-term rates of return for each asset class, which were portfolio weighted. Our actual return on plan assets was 9.8 percent in 2007, 10.0 percent in 2006, and 15.0 percent in 2005.

We used the 1994 Group Annuity Mortality Tables to determine benefit obligations and annual defined benefit expense.

The assumed health care cost trend rates we used to determine the expense of the postretirement benefit plans were:

	For the Year
	2007			2006
Health care trend rate assumed for the next year		9.0	%		8.0	%
Rate to which the cost trend rate is assumed to decline (ultimate trend rate)		4.5	%		4.5	%
Year that the rate reaches the ultimate trend rate		2014			2013

These assumed health care cost trend rates have a significant effect on the amounts reported for the postretirement benefit plans. For example, a one-percentage-point change in assumed health care cost trend rates would have the following effect:

	1 Percentage		1 Percentage
	Point Increase		Point Decrease
	(In millions)
Increase (decrease) in:
Total service and interest cost components	$	1	$	(1	)
Accumulated postretirement benefit obligation		11		(9	)

Plan Assets

Our defined benefit investment strategies have been developed as part of a comprehensive asset/liability management process that considers the interaction between both assets and liabilities of the plan. These strategies consider not only the expected risk and returns on plan assets, but also the detailed actuarial projections of liabilities as well as plan-level objectives such as projected contributions, expense, and funded status.

In prior years, our principal pension investment strategies included asset allocation and active asset management. The range of target asset allocations was determined after giving consideration to the expected returns of each asset class, the expected variability or volatility of the asset class returns over time, and the complementary nature or correlation of the asset classes within the portfolio. The strategy also employed an active management approach for the portfolio. Each asset class was managed by one or more external money managers with the objective of generating returns, net of management fees that exceed market-based benchmarks.

In the last two months of 2007, we made significant changes to our asset allocation to a more matched position between our assets and liabilities in our qualified defined benefit plan. This action is expected to reduce the volatility of our defined benefit expense and our funding requirements. As shown in the following table, we have moved to an 80 percent asset allocation of debt securities. This portfolio of debt securities has a duration that we believe reasonably approximates our benefit obligation. The remaining 20 percent asset

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allocation (15 percent equity securities; 5 percent real estate) provides market exposure to help mitigate the effects of inflation risk, mortality risk and actuarial risk.

The defined benefit plan weighted-average asset allocations and the range of target allocations follow:

	Range of						Percentage of
	Target						Plan Assets at
	Allocations						Year-End
	2007			2006			2007			2006
Asset category:
Debt securities		78-88	%		33-37	%		80	%		35	%
Equity securities		10-15	%		50-61	%		15			59
Real estate		0-7	%		0-7	%		5			6
								100	%		100	%

Equity securities include 591,896 shares of Temple-Inland common stock totaling $12 million or one percent of total plan assets at year-end 2007 and $31 million or three percent of total plan assets as of the 2006 measurement date.

Cash Flows

We expect our 2008 voluntary, discretionary contributions to our defined benefit plan to approximate 2008 service cost, which is estimated to be about $30 million. We have no minimum 2008 funding requirement under ERISA. Beginning in 2008, benefits earned under the supplemental defined benefit plan will be paid upon retirement or when the employee terminates. In addition, existing retirees were given the option to receive, in January 2008, a lump-sum settlement of supplemental benefits earned. We expect to make lump-sum settlement payments of $42 million in 2008.

The postretirement benefit plan is not subject to minimum regulatory funding requirements. Since the postretirement benefit plans are unfunded, the expected $13 million contribution represents the estimated health claims to be paid for plan participants, net of retiree contributions in 2008.

At year-end 2007, the plans are expected to make the following benefit payments over the next ten years:

	Defined Benefits				Postretirement
	Qualified		Supplemental		Benefits
	(In millions)
2008(a)	$	72	$	49	$	13
2009		75		6		12
2010		78		6		12
2011		82		5		12
2012		85		5		12
2013-2017		470		17		56

^(a) Includes $42 million in lump-sum settlements in the supplemental plan.

Note 9 — 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. As a result of the spin-off of Forestar and Guaranty, all outstanding share-based awards were equitably adjusted into three separate awards: one related to Temple-Inland common stock, one

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related to Forestar common stock, and one related to Guaranty common stock. The adjustment was made so that immediately following the spin-off, the number of shares relating to each award were adjusted to reflect the distribution ratios and, for options, the per share option exercise price of the original award, was proportionally allocated between Temple-Inland, Forestar, and Guaranty awards based on relative per share trading prices of their common stock immediately following the spin-off. All awards issued as part of this adjustment and the Temple-Inland awards will continue to be subject to their original vesting schedules. Share-based compensation expense on awards held by employees of Temple-Inland will be based on the original grant date fair value for share settled awards, the original grant date Black-Scholes-Merton value for stock option awards, and the sum of the period-end market prices (adjusted for the distribution ratios) of the three companies stock for cash settled awards. After the spin-off, Forestar and Guaranty employees no longer participate in our share-based compensation plans.

We generally grant awards annually in February, and we use treasury stock to fulfill awards settled in common stock and stock option exercises. A summary of these plans follows:

Restricted or performance units

Restricted or performance units generally have a three-year term; vest after three years from the date of grant or the attainment of stated ROI based performance goals, generally measured over a three-year period; and are settled in cash or common stock as determined on the date of grant. The restricted and performance units provide for accelerated vesting upon retirement, death, disability, or if there is a change in control. We also have director awards and bonus deferral plans that can be settled in cash or stock. A summary of activity for 2007 follows:

				Weighted Average		Aggregate
				Grant Date Fair		Current
	Units			Value per Unit		Value
	(In thousands)					(In millions)
Not vested beginning of 2007		1,408		$	39
Granted		949			52
Vested		(539	)		30
Forfeited		(16	)		44
Awards held by Forestar employees at date of spin-off		(121	)		50
Awards held by Guaranty employees at date of spin-off		(265	)		49
Not vested year-end 2007		1,416			48	$	43
Not vested year-end 2007 to be settled in cash and subject to:
Time vesting requirements		711				$	22
Performance requirements		705					21
		1,416				$	43

The fair value of units vested was $26 million in 2007, less than $1 million in 2006, and $1 million in 2005. The fair value of units vested and to be settled in cash was $26 million at year-end 2007 of which $4 million is included in other current liabilities and $22 million is included in long-term liabilities. The fair value of awards settled in cash in 2007 was less than $1 million. There were no awards settled in cash in 2006 or 2005.

Restricted stock

Restricted stock awards generally vest after three to six years, and provide for accelerated vesting upon retirement, death, disability, or if there is a change in control. Compensation costs are recognized ratably over the service period. There were no restricted stock awards granted in 2007. There were 435,600 restricted stock

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awards outstanding at year-end 2007 with a weighted average grant date fair value of $33 per share and an aggregate current value of $13 million or $30 per share. The fair value of restricted stock vested in 2007 was $4 million.

Stock options

Stock options have a ten-year term, generally become exercisable ratably over four years and provide for accelerated or continued vesting upon retirement, death, disability, or if there is a change in control. Options are granted with an exercise price equal to the market value of our common stock on the date of grant. In addition to the equitable adjustments related to the Forestar and Guaranty spin-offs, the exercise price of all stock option awards was equitably adjusted by $9.85 per share to reflect the effect of the special cash dividend paid in December 2007. The adjustment was based on the difference between the closing price on the day before the stock traded ex-dividend and the opening price on the day the stock began trading ex-dividend. A summary of our activity for 2007 follows:

						Weighted		Aggregate
				Weighted		Average		Intrinsic Value
				Average		Remaining		(Current value
				Exercise Price		Contractual		less exercise
	Shares			per Share(a)		Term		price)
	(In thousands)					(In years)		(In millions)
Outstanding beginning of 2007		6,012		$	15
Granted		1,028			25
Exercised		(1,057	)		21
Forfeited		(35	)		40
Awards held by Forestar employees at date of spin-off		(266	)		17
Awards held by Guaranty employees at date of spin-off		(971	)		17
Outstanding year-end 2007		4,711			15		6	$	14
Exercisable year-end 2007		2,889			12		4	$	19

^(a) The weighted average exercise price per share has been adjusted to reflect the spin-off of Forestar and Guaranty, and the special cash dividend.

The intrinsic value of options exercised was $29 million in 2007, $31 million in 2006, and $24 million in 2005.

We estimated the fair value of the options granted using the Black-Scholes-Merton option-pricing model and the following assumptions:

	For the Year
	2007			2006			2005
Expected dividend yield		2.3	%		2.4	%		2.3	%
Expected stock price volatility		22.8	%		25.1	%		28.2	%
Risk-free interest rate		4.9	%		4.4	%		4.2	%
Expected life of options in years		6			6			8
Weighted average estimated fair value of options granted adjusted for spin-offs:
Temple-Inland options	$	7.39		$	6.82		$	6.61
Forestar options		3.09			2.85			2.77
Guaranty options		1.99			1.83			1.77
Weighted average estimated fair value of options at original grant date	$	12.47		$	11.50		$	11.15

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The share-based compensation expense on awards held by employees of Temple-Inland will be based on the original grant date Black-Scholes-Merton value. The expected stock price volatility is based on historical prices of our common stock for a period corresponding to the expected life of the options with appropriate consideration given to current conditions and events. The expected life of options is based on historical experience. We use historical data to estimate pre-vesting forfeitures stratified into two groups based on job level.

Share-based compensation expense

Share-based compensation expense consists of:

	For the Year
	2007		2006		2005
	(In millions)
Restricted or performance units-cash	$	23	$	15	$	3
Restricted or performance units-stock		6		11		13
Stock options		10		12		5
401(k) match		—		—		5
	$	39	$	38	$	26

Share-based compensation expense is included in:

	For the Year
	2007		2006		2005
	(In millions)
Cost of sales	$	7	$	6	$	5
Selling expense		2		1		1
General and administrative		25		31		20
Other operating income (expense)		5		—		—
	$	39	$	38	$	26

Share-based compensation expense for awards granted to Forestar and Guaranty employees is included in discontinued operations.

The amount of share-based compensation capitalized was not significant. We contributed treasury stock to fulfill our 401(k) matching obligation in first quarter 2005.

The fair value of awards granted to retirement-eligible employees and expensed at the date of grant was $3 million in 2007, primarily related to stock options. The increase in share-based compensation in 2006 is due to an increase in our share price.

Unrecognized share-based compensation for all awards not vested was $23 million at year-end 2007. It is likely that this cost will be recognized as expense over the next 3 years.

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Note 10 — Other Operating Income (Expense)

	For the Year
	2007			2006			2005
	(In millions)
Transformation costs	$	(69	)	$	—		$	—
Closures and sales of converting and production facilities and sales of non-strategic assets		(55	)		(4	)		(50	)
Litigation		(56	)		(6	)		(13	)
Environmental remediation		(9	)		(8	)		(3	)
Softwood Lumber Agreement		—			42			—
Hurricane related costs, and in 2006, related insurance recoveries		—			2			(16	)
Other charges		(5	)		(5	)		(3	)
Equity in earnings of manufacturing joint ventures		5			11			39
	$	(189	)	$	32		$	(46	)

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

In 2007, we permanently ceased production at our Mt. Jewett particleboard manufacturing facility, which we lease from a third party. As a result, we recognized charges of $64 million, including $60 million that represents the present value of the $77 million of future operating lease payments. This charge does not affect our continuing obligations under the lease, including paying rent and maintaining the equipment. The present value of the future payments is included on our balance sheet, of which $3 million is included in current liabilities and $57 million in other long-term liabilities.

In December 2007, we entered into arbitration in an effort to resolve most of the remaining claims regarding an alleged violation of Section 1 of the Sherman Act. The arbitrator awarded plaintiffs $46 million on the claims submitted to arbitration. Also in 2007, we reached agreements to settle three of the five cases in California state court alleging violations of that state’s on duty meal break laws. We recognized $10 million of litigation expense in 2007 related to this matter.

In 2006, we sold one corrugated packaging converting facility, sold certain non-strategic assets, and finalized our estimates of losses related to the prior year’s closures. In addition, we increased accruals for ongoing environmental remediation at the Antioch, California paper mill site closed in connection with our acquisition of Gaylord in 2002. As a result of these actions, we recognized losses of $12 million. Also in 2006, we received $42 million in connection with the Softwood Lumber Agreement between the U.S. and Canada, and we received $2 million of insurance proceeds related to cost incurred in connection with the 2005 hurricanes.

In 2005, we closed four corrugated packaging facilities, sold our Pembroke, Canada MDF facility, and effected other workforce reductions. As a result, we recognized losses of $53 million, including $38 million in impairments and losses on sales, $8 million in severance and retention obligations, and $7 million in other exit costs. The loss on the sale of the Pembroke MDF facility was $25 million, and other exit costs associated with the sale were $1 million. Also in 2005, Hurricanes Katrina and Rita adversely affected our operations. In addition to being forced to curtail production and incur start up costs at several facilities, we recognized losses and unusual expenses of $16 million, including $7 million in impairments related to our Texas and Louisiana timberland, $6 million in facility damages, and $3 million in employee and community assistance and other costs.

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Activity within our accruals for exit costs was:

	Beginning		Additions/			Cash			Year-
	of Year		Revisions			Payments			End
	(In millions)
For the Year 2007
Involuntary employee terminations	$	1	$	—		$	(1	)	$	—
Demolition and environmental remediation		8		1	(a)		(8	)		1
	$	9	$	1		$	(9	)	$	1
For the Year 2006
Involuntary employee terminations	$	1	$	1		$	(1	)	$	1
Contract termination penalties		2		—			(2	)		—
Demolition and environmental remediation		9		8	(a)		(9	)		8
	$	12	$	9		$	(12	)	$	9
For the Year 2005
Involuntary employee terminations	$	2	$	7		$	(8	)	$	1
Contract termination penalties		6		(4	)		—			2
Demolition and environmental remediation		16		1			(8	)		9
	$	24	$	4		$	(16	)	$	12

^(a) In 2007 and 2006, we revised our estimates relating to the demolition and related environmental remediation costs associated with our exit activities. We added $6 million in 2007 and $8 million in 2006 to this accrual by charging other operating expense. We transferred $6 million to Forestar as part of the spin-off.

Note 11 — Income Taxes

Income tax expense on income from continuing operations consist of:

	For the Year
	2007			2006			2005
	(In millions)
Current tax provision:
U.S. Federal	$	(278	)	$	(57	)	$	57
State and other		(10	)		(8	)		(3	)
		(288	)		(65	)		54
Deferred tax provision:
U.S. Federal		(410	)		(43	)		(47	)
State and other		(55	)		5			—
		(465	)		(38	)		(47	)
Income tax expense	$	(753	)	$	(103	)	$	7
Income taxes (paid) refunded, net	$	3		$	(88	)	$	39

In 2007, we recognized one-time tax benefits of $3 million resulting from changes to the State of Texas margin tax enacted in May 2007 and another $4 million related to the settlement of state tax examinations.

In 2006, we entered into a settlement agreement with the U.S. Government to resolve pending tax litigation we filed to recover tax benefits promised to us in connection with our savings and loan acquisitions in 1988. Under the terms of the settlement agreement, we received a $95 million non-taxable cash payment

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for past and future tax benefits that would have been available to us had legislation enacted in 1993 not eliminated those tax benefits and $4 million of taxable interest income. In connection with the settlement, we incurred legal fees of $10 million, which were contingent upon the settlement. The net pre-tax gain related to this settlement was $89 million and is included in other non-operating income (expense).

Also in 2006, the Texas State Legislature enacted a new margin tax to replace the existing franchise tax, which for us results in a lower overall State of Texas tax rate. As a result, we recognized a one-time, non-cash benefit of $6 million of which $2 million related to the reduction of previously provided deferred state income taxes and $4 million related to reducing the valuation allowance for Texas investment credits.

In 2005, we recognized a one-time tax benefit of $16 million as a result of the sale of our Pembroke, Canada MDF facility.

Income from continuing operations before taxes consist of:

	For the Year
	2007		2006		2005
	(In millions)
U.S.	$	1,948	$	381	$	4
Non-U.S.		7		9		7
	$	1,955	$	390	$	11

A reconciliation of the federal statutory rate to the effective income tax rate on continuing operations follows:

	For the Year
	2007			2006			2005
Federal statutory rate		35	%		35	%		35	%
State, net of federal benefit		3			—			15
Foreign		—			—			(4	)
Other		1			—			37
		39	%		35	%		83	%
Settlement of tax litigation		—			(8	)		—
State of Texas tax legislation		—			(1	)		—
Sale of foreign subsidiary		—			—			(147	)
Effective tax rate		39	%		26	%		(64	)%

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Significant components of deferred taxes are:

	At Year-End
	2007			2006
	(In millions)
Deferred Tax Liabilities:
Property, equipment, and intangible assets		$(350	)	$	(330	)
Timber and timberland, including deferred gain on sale in 2007		(822	)		(77	)
U.S. taxes on unremitted foreign earnings		(16	)		(14	)
Other		(4	)		(15	)
		(1,192	)		(436	)
Deferred Tax Assets:
Alternative minimum tax credits		286			—
Foreign and state net operating loss carryforwards		22			26
Pension and postretirement benefits		104			140
Employee benefits		59			53
Accruals not deductible until paid		51			31
Other		35			30
Gross deferred tax assets		557			280
Less valuation allowance		(28	)		(27	)
		529			253
Net Deferred Tax Liability		$(663	)	$	(183	)

The net deferred tax liability is classified on our balance sheet as follows:

	At Year-End
	2007			2006
	(In millions)
Current deferred tax assets	$	99		$	61
Non-current deferred tax liabilities		(762	)		(244	)
Net deferred tax liability	$	(663	)	$	(183	)

The increase in deferred taxes primarily reflects the deferred gain on the sale of our strategic timberland offset by the resulting payment of alternative minimum taxes. Our alternative minimum tax credit can be carried forward indefinitely. Our foreign and state net operating loss carryforwards and credits will expire from 2008 through 2027. A valuation allowance is provided for these foreign and state net operating loss carryforwards and credits.

We or one of our subsidiaries files U.S. federal income tax returns, and income tax returns in various states and foreign jurisdictions. The Internal Revenue Service has completed the examinations of our tax returns through 2003, and we are no longer subject to examination by state or foreign tax authorities for years before 2000. We have various income tax audits in process as of year-end 2007, and we do not expect that the resolution of these matters will have a significant effect on our earnings or financial position.

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A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	(In millions)
Balance beginning of 2007	$	20
Additions based on tax positions related to the current year		4
Reductions for tax positions of prior years		(1	)
Settlements/collections		3
Balance end of 2007	$	26

Of the $26 million of unrecognized tax benefits, $13 million would affect our effective tax rate if recognized. Interest accrued related to unrecognized tax benefits is included in income tax (expense) benefit. Unrecognized tax benefits includes approximately $1 million of accrued interest and no penalties related to years 2007, 2006, and 2005. We do not expect material changes to our tax reserve during the next 12 months.

Note 12 — Litigation

We are involved in various legal proceedings that arise from time to time in the ordinary course of doing business and believe that adequate reserves have been established for any probable losses. Expenses related to litigation are included in operating income. We do not believe that the outcome of any of these proceedings should 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 or cash flows in any one accounting period.

We are a defendant in litigation alleging a civil violation of Section 1 of the Sherman Act. We and the other defendants have entered into various settlement agreements that resolved the class action portion of this litigation and the majority of the opt-out claims. Our payments under the settlement agreements have totaled $59 million of which $46 million was paid in 2007, $5 million in 2005, and $8 million in 2003. The trial for our one remaining state court claim is presently scheduled for first quarter 2008. We believe that we have established adequate reserves for this case.

We are also defending two cases in California state court alleging violations of that state’s on duty meal break laws. In 2007, we settled three additional meal break cases. We believe we have established adequate reserves for these cases.

Note 13 — Commitments and Other Contingencies

We lease manufacturing and other facilities and equipment under operating lease agreements. Future minimum rental commitments under non-cancelable operating leases having a remaining term in excess of one year are (in millions): 2008 — $38; 2009 — $34; 2010 — $27; 2011 — $22; 2012 — $18; and thereafter — $83. Total rent expense was $43 million in 2007, $43 million in 2006, and $46 million in 2005. In 2007, we recorded an impairment charge related to a long-term operating lease. As a result, $60 million of our future operating lease payments are included on our balance sheet, of which $3 million is in current liabilities and $57 million is in other long-term liabilities.

We also lease two production facilities under sale-lease back transactions with two municipalities. The municipalities purchased the production facilities from us in 1992 and 1995 for $188 million, our carrying value, and we leased the facilities back from the municipalities under lease agreements, which expire in 2022 and 2025. Concurrently, we purchased $188 million of interest-bearing bonds issued by these municipalities. The bonds have terms that are identical to the lease terms, are secured by payments under the capital lease obligation, and the municipalities are obligated only to the extent the underlying lease payments are made by us. The interest rates implicit in the leases are the same as the interest rates on the bonds. As a result, the present value of the capital lease obligations is $188 million, the same as the principal amount of the bonds.

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Because there is no legal right of offset, the bonds are included in other assets at their cost of $188 million and the $188 million present value of the sale-lease back obligations are included in other long-term liabilities. The implicit interest expense on the leases and the interest income on the bonds are included in other non-operating income (expense). There is no net effect from these transactions as we are in substance both the obligor on, and the holder of, the bonds.

At year-end 2007, we had unconditional purchase obligations, principally for sawtimber, pulpwood and gypsum, aggregating $3.173 billion that will be paid over the next twelve to twenty years. This includes $1.470 billion related to a 20-year fiber supply agreement for pulpwood and a 12-year fiber supply agreement for sawtimber. Both of these agreements are subject to extension. These purchase obligations are valued at year-end 2007 market prices, however, our actual future purchases will be at the then current market price.

In connection with our joint venture operations, we have guaranteed debt service and other obligations and letters of credit aggregating $70 million at year-end 2007. Generally we would fund these guarantees for lack of specific performance by the joint ventures, such as non-payment of debt.

Note 14 — Derivative Instruments and Variable Interest Entities

We have used interest rate agreements in the normal course of business to mitigate the risk inherent in interest rate fluctuations by entering into contracts with major U.S. securities firms. At year-end 2007, we have two interest rate swap agreements that mature in 2008. The two agreements have a total notional amount of $50 million.

Under these swap agreements, we pay a fixed interest rate of 6.55 percent and receive a floating interest rate (4.60 percent at year-end 2007). At year-end 2007, the fair value of these interest rate swaps was a $1 million liability which is included in other current liabilities. The interest rate swap agreements were initially designated as a hedge of interest cash flows anticipated from specific variable-rate borrowings. By year-end 2007, no portion of the interest rate swap agreements qualified for hedge accounting since we have repaid virtually all of our variable-rate borrowings. Changes in the fair value of the interest rate swap agreements that qualified for hedge accounting increased other comprehensive income by $1 million in 2006 and decreased other comprehensive income $1 million in 2005. There was no material hedge ineffectiveness in 2006 or 2005. As a result of the termination of the hedge designation in 2007, we reclassified less than $1 million from other comprehensive income and charged other non-operating expense. Changes in the fair value of the interest rate swap agreements that did not qualify for hedge accounting were less than $1 million of expense in 2007, $1 million of income in 2006, and $2 million of income in 2005, and are included in other non-operating income (expense).

We also have used, to a limited degree, derivative instruments to mitigate our exposure to changes in anticipated cash flows from sale of products and manufacturing costs. These derivative contracts had notional amounts that represent less than one percent of our annual sales of linerboard and purchases of recycled fiber. These instruments expired in 2005. Operating income increased $1 million in 2005 as a result of linerboard and recycled fiber derivatives, and there was no material hedge ineffectiveness.

In 1999, we entered into an agreement to lease particleboard and medium density fiberboard facilities in Mt. Jewett, Pennsylvania. The lease is for 20 years and includes fixed price purchase options in 2014 and at the end of the lease. The option prices were intended to approximate the estimated fair values of the facilities at those dates and do not represent a guarantee of the facilities’ residual values. After exhaustive efforts, we were unable to determine whether the lease is with a variable interest entity or if there is a primary beneficiary because the unrelated third-party lessors will not provide the necessary financial information. We account for the lease as an operating lease, and at year-end 2007 our financial interest was limited to our obligation to make the remaining $146 million of contractual lease payments, approximately $12 million per year.

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Note 15 — Other Information

Our allowance for doubtful accounts was $14 million at year-end 2007 and $14 million at year-end 2006. The provision for doubtful accounts was $3 million in 2007, $3 million in 2006, and $4 million in 2005. Accounts charged-off, net of recoveries were $3 million in 2007, $3 million in 2006, and $6 million in 2005.

Note 16 — Fair Value of Financial Instruments

Carrying value and the estimated fair value of our financial instruments are:

	At Year-End
	2007				2006
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
	(In millions)
Financial liabilities
Fixed-rate, long-term debt	$	854	$	909	$	1,413	$	1,483

Differences between carrying value and fair value are primarily due to instruments that provide fixed interest rates or contain fixed interest rate elements. Inherently, such instruments are subject to fluctuations in fair value due to subsequent movements in interest rates. We value other financial instruments using quoted market prices where available or expected cash flows, discounted using rates that represent current rates for similar instruments. We excluded financial instruments from the table that are either carried at fair value or have fair values that approximate their carrying amount due to their short-term nature or variable interest rates.

At year-end 2007, we had guaranteed joint venture obligations principally related to fixed-rate debt instruments totaling $70 million. The estimated fair value of these guarantees is not significant.

Note 17 — Earnings Per Share

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

	For the Year
	2007		2006		2005
	(In millions)
Earnings for basic and diluted earnings per share:
Income from continuing operations	$	1,202	$	287	$	18
Discontinued operations		103		181		158
Net income	$	1,305	$	468	$	176
Weighted average shares outstanding:
Weighted average shares outstanding — basic		106.0		108.8		112.6
Dilutive effect of equity purchase contracts		—		—		0.4
Dilutive effect of stock options (Note 9)		2.1		2.0		1.5
Weighted average shares outstanding — diluted		108.1		110.8		114.5

Average common shares outstanding exclude unvested restricted shares. At year-end 2007, options for 1,122,545 shares were antidilutive.

Certain employees of Forestar and Guaranty participated in our employee stock option program. Following the spin-offs, these employees retained stock option rights associated with our stock. These stock options will remain a consideration in our dilutive effect of stock options until they are exercised, cancelled or expire. At year-end 2007, employees of Forestar and Guaranty held options for 1,236,437 shares of Temple-

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TEMPLE-INLAND INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Inland stock, of which 551,627 were exercisable. The weighted average exercise price of these options at year-end 2007 was $17 per share and the weighted average remaining contractual term is 7 years.

Note 18 — Segment Information

At year-end 2007, we have two business segments: corrugated packaging and building products. Timber and timberland is no longer an active segment as a result of the sale of our timberlands in fourth quarter 2007. Corrugated packaging manufactures containerboard and corrugated packaging. Building products manufactures a variety of building products. Timber and timberland managed our timber resources.

We evaluate performance based on operating income before unallocated items and income taxes. Unallocated items represent items managed on a company-wide basis and include corporate general and administrative expense, share-based compensation, other operating and non-operating income (expense), and 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.

							Items Not
							Allocated to
	Corrugated		Building		Timber and		Segments and
	Packaging		Products		Timberland		Eliminations			Total
	(In millions)
For the year or at year-end 2007:
Revenues from external customers	$	3,044	$	806	$	76	$	—		$	3,926
Depreciation and amortization		142		45		11		16			214
Equity income from joint ventures		4		1		—		—			5
Income (loss) from continuing operations before taxes		287		8		65		1,595	(b)		1,955
Total assets		2,301		623		—		3,018			5,942
Investment in equity method investees and joint ventures		11		23		—		—			34
Goodwill		236		129		—		—			365
Capital expenditures and reforestation		167		42		13		15			237
For the year or at year-end 2006:
Revenues from external customers	$	2,977	$	1,119	$	89	$	—		$	4,185
Depreciation and amortization		153		44		14		14			225
Equity income from joint ventures		8		3		—		—			11
Income (loss) from continuing operations before taxes		255		221		63		(149	)(b)		390
Total assets		2,275		638		330		384			3,627	(a)
Investment in equity method investees and joint ventures		11		22		—		—			33
Goodwill		236		129		—		—			365
Capital expenditures and reforestation		117		46		19		22			204
For the year or at year-end 2005:
Revenues from external customers	$	2,825	$	898	$	120	$	—		$	3,843
Depreciation and amortization		160		35		12		11			218
Equity income from joint ventures		11		28		—		—			39
Income (loss) from continuing operations before taxes		120		125		72		(306	)(b)		11
Total assets		2,308		456		333		314			3,411	(a)
Investment in equity method investees and joint ventures		11		36		—		—			47
Goodwill		236		—		—		—			236
Capital expenditures and reforestation		126		43		30		21			220

^(a) Excludes assets of discontinued operations of $16,847 million in 2006 and $18,219 million in 2005.

74

TEMPLE-INLAND INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

^(b) Items not allocated to segments consists of:

	For the Year
	2007			2006			2005
	(In millions)
General and administrative	$	(100	)	$	(107	)	$	(91	)
Share-based compensation		(34	)		(38	)		(21	)
Gain on sale of timberland		2,053			—			—
Other operating income (expense)		(188	)		26			(85	)
Other non-operating income (expense)		(35	)		93			—
Net interest income on financial assets and nonrecourse financial liabilities of special purpose entities		10			—			—
Interest		(111	)		(123	)		(109	)
	$	1,595		$	(149	)	$	(306	)
Other operating income (expense) applies to:
Corrugated packaging	$	(64	)	$	(21	)	$	(38	)
Building products		(63	)		42			(27	)
Timber and timberland		2,060			—			—
Unallocated		(68	)		5			(20	)
	$	1,865		$	26		$	(85	)

Please read Note 10 for further information about other operating income (expense).

Revenues and property and equipment based on the location of our operations were:

	For the Year
Geographic Information	2007		2006		2005
	(In millions)
Revenues from external customers:
United States	$	3,739	$	4,009	$	3,660
Mexico		187		176		156
Canada(a)		—		—		27
	$	3,926	$	4,185	$	3,843

	At Year-End
	2007		2006		2005
	(In millions)
Property and equipment:
United States	$	1,596	$	1,591	$	1,582
Mexico		36		37		38
Canada(a)		—		—		1
	$	1,632	$	1,628	$	1,621

^(a) In 2005, we sold our MDF facility located in Pembroke, Canada, as a result, we have no significant assets or ongoing operations in Canada.

75

TEMPLE-INLAND INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 19 — Summary of Quarterly Results of Operations (Unaudited)

Selected quarterly financial results for 2007 and 2006 have been reclassified to reflect Forestar and Guaranty as discontinued operations:

	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter
	(In millions, except per share)
2007
Total revenues	$	1,003	$	1,023	$	963	$	937
Gross profit	$	144	$	146	$	129	$	117
Income from continuing operations(a)	$	7	$	26	$	11	$	1,158
Discontinued operations		31		40		25		7
Net income	$	38	$	66	$	36	$	1,165
Earnings per share(b)
Basic:
Income from continuing operations	$	0.07	$	0.24	$	0.11	$	10.88
Discontinued operations		0.29		0.39		0.23		0.08
Net income	$	0.36	$	0.63	$	0.34	$	10.96
Diluted:
Income from continuing operations	$	0.07	$	0.24	$	0.11	$	10.69
Discontinued operations		0.28		0.38		0.22		0.07
Net income	$	0.35	$	0.62	$	0.33	$	10.76

^(a) Income from continuing operations includes the following items:

	First			Second			Third			Fourth
	Quarter			Quarter			Quarter			Quarter
	(In millions)
Gain on sale of timberland	$	—		$	—		$	—		$	2,053
Other operating income (expense):
Transformation costs (advisory and legal fees, change of control and employee related)	$	(4	)	$	(4	)	$	(2	)	$	(59	)
Closures and sales of converting and production facilities and sales of non-strategic assets		—			8			(1	)		(62	)
Litigation		(10	)		—			—			(46	)
Environmental remediation		—			—			—			(9	)
Other		—			(5	)		(3	)		9
	$	(14	)	$	(1	)	$	(6	)	$	(167	)
Other non-operating income (expense):
Charges related to early repayment of debt	$	—		$	—		$	—		$	(40	)
Interest and other income		—			1			1			3
	$	—		$	1		$	1		$	(37	)

^(b) The sum of earnings per share for the quarters does not equal earnings per share for the year due to the use of average shares outstanding for each period.

76

TEMPLE-INLAND INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter
	(In millions, except per share)
2006
Total revenues	$	1,043	$	1,090	$	1,051	$	1,001
Gross profit	$	155	$	203	$	190	$	161
Income from continuing operations(a)(b)	$	29	$	148	$	49	$	61
Discontinued operations		50		43		46		42
Net income(b)	$	79	$	191	$	95	$	103
Earnings per share(c)
Basic:
Income from continuing operations(b)	$	0.26	$	1.35	$	0.45	$	0.59
Discontinued operations		0.45		0.39		0.42		0.40
Net income(b)	$	0.71	$	1.74	$	0.87	$	0.99
Diluted:
Income from continuing operations(b)	$	0.26	$	1.32	$	0.44	$	0.57
Discontinued operations		0.44		0.38		0.42		0.39
Net income(b)	$	0.70	$	1.70	$	0.86	$	0.96

^(a) Income from continuing operations includes the following items:

	First		Second			Third			Fourth
	Quarter		Quarter			Quarter			Quarter
	(In millions)
Other operating income (expense):
Closures and sales of converting and production facilities and sales of non-strategic assets	$	—	$	(1	)	$	(4	)	$	1
Litigation		—		—			(4	)		(2	)
Environmental remediation		—		—			—			(8	)
Softwood Lumber Agreement		—		—			—			42
Hurricane related insurance recoveries		—		—			—			2
	$	—	$	(1	)	$	(8	)	$	35
Other non-operating income (expense):
Tax litigation settlement	$	—	$	89		$	—		$	—
Interest and other income		1		2			1			—
	$	1	$	91		$	1		$	—

^(b) 2006 quarters have been recast for the retrospective application of FASB Staff Position No. AUG AIR — 1 Accounting for Planned Major Maintenance.

^(c)The sum of earnings per share for the quarters does not equal earnings per share for the year due to the use of average shares outstanding for each period.

Note 20 — Discontinued Operations

On December 28, 2007, we spun off to our shareholders in tax-free distributions, our real estate segment and our financial services segment, which included certain real estate and minerals activities in our timber and timberland segment.

77

TEMPLE-INLAND INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As a result, we report the assets and liabilities and results of operations of these segments as discontinued operations. Expense allocated to these discontinued operations included interest expense of $7 million in 2007, $4 million in 2006, and none in 2005 and share-based compensation expense of $7 million in 2007, $8 million in 2006, and $5 million in 2005.

In addition, on August 31, 2007 we sold the previously acquired chemical operations. We received cash proceeds of $1 million and recognized a pre-tax loss of $6 million on the sale. Assets of this operation were previously reported as assets held-for-sale. We have ongoing environmental remediation activities related to this operation for which we have established a reserve. Any changes to our estimate of cost will impact current operations.

A summary of the assets and liabilities of discontinued operations at year-end 2006 follows:

					Chemical
	Real		Financial		Operations
	Estate		Services		and Other		Total
	(In millions)
Cash and cash equivalents	$	3	$	372	$	5	$	380
Loans and loans held for sale		—		9,640		—		9,640
Securities		—		5,644		—		5,644
Real estate		564		—		—		564
Property and equipment		2		214		7		223
Other assets		31		357		8		396
Total Assets	$	600	$	16,227	$	20	$	16,847
Deposits	$	—	$	9,486	$	—	$	9,486
Debt		44		5,177		—		5,221
Other liabilities		43		87		7		137
Subordinated notes payable to trust		—		142		—		142
Preferred stock issued by subsidiaries		—		305		—		305
Total Liabilities	$	87	$	15,197	$	7	$	15,291

A summary of earnings from our discontinued operations follows:

	For the Year
	2007			2006			2005
	(In millions)
Real estate income before taxes	$	41		$	83		$	59
Financial services income before taxes		138			204			192
Chemical operations and other(a)		(13	)		(2	)		1
Income from discontinued operations before taxes		166			285			252
Income tax expense		(63	)		(104	)		(94	)
Discontinued operations	$	103		$	181		$	158

^(a) 2007 includes a $6 million charge for environmental remediation.

Note 21 — Subsequent Events

On February 1, 2008, our Board of Directors declared a quarterly dividend of $0.10 per share payable on March 14, 2008.

78

Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

We have had no changes in or disagreements with our independent registered public accounting firm to report.

Item 9A.   Controls and Procedures

(a) Disclosure controls and procedures

Our management, with the participation of the 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 (or 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) Internal control over financial reporting

Management’s report on internal control over financial reporting is included in Item 8. Financial Statements and Supplementary Data.

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) in fourth quarter 2007 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.   Other Information

None.

79

PART III

Item 10.   Directors, Executive Officers and Corporate Governance

Set forth below is certain information about the members of our Board of Directors:

			Year First
			Elected to
Name	Age		the Board		Principal Occupation
Doyle R. Simons		44		2007	Chairman and Chief Executive Officer of Temple-Inland Inc.
Afsaneh M. Beschloss		52		2002	President and Chief Executive Officer of The Rock Creek Group
Dr. Donald M. Carlton		70		2003	Former President and Chief Executive Officer of Radian International LLC
Cassandra C. Carr		63		2004	Senior Advisor, Public Strategies, Inc.
E. Linn Draper, Jr.		66		2004	Former Chairman, President and Chief Executive Officer of American Electric Power Company, Inc.
Larry R. Faulkner		62		2005	President of Houston Endowment Inc.
James T. Hackett		54		2000	Chairman, President and Chief Executive Officer of Anadarko Petroleum Corporation
Jeffrey M. Heller		68		2004	Vice Chairman of Electronic Data Systems, Inc.
J. Patrick Maley, III		46		2007	President and Chief Operating Officer of Temple-Inland Inc.
W. Allen Reed		60		2000	Former Chairman of the Board of General Motors Asset Management Corporation
Richard M. Smith		62		2006	Chairman of Newsweek
Arthur Temple III		66		1983	Chairman of the Board of First Bank & Trust, East Texas and the T.L.L. Temple Foundation
Larry E. Temple		72		1991	Attorney-at-law

The remaining information required by this item is incorporated herein by reference from our definitive proxy statement, involving the election of directors, to be filed pursuant to Regulation 14A with the SEC not later than 120 days after the end of the fiscal year covered by this Form 10-K (or Definitive Proxy Statement). Certain information required by this item concerning executive officers is included in Part I of this report.

Item 11.   Executive Compensation

The information required by this item is incorporated by reference from our Definitive Proxy Statement.

80

Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Securities Authorized for Issuance Under Equity Compensation Plans

Information at year-end 2007 about our compensation plans under which our Common Stock may be issued follows:

			(c)
			Number of Securities
	(a)	(b)	Remaining Available
	Number of Securities	Weighted-Average	for Future Issuance
	to be Issued Upon	Exercise Price of	Under Equity
	Exercise of Outstanding	Outstanding Options,	Compensation Plans
	Options, Warrants and	Warrants and	(Excluding Securities
Plan Category	Rights	Rights	Reflected in Column(a))
Equity compensation plans approved by security holders	7,108,174	$15	None
Equity compensation plans not approved by security holders	None	None	None
Total	7,108,174	$15	None

The remaining information required by this item is incorporated by reference from our Definitive Proxy Statement.

Item 13.   Certain Relationships and Related Transactions, and Director Independence

The information required by this item is incorporated by reference from our Definitive Proxy Statement.

Item 14.   Principal Accounting Fees and Services

The information required by this item is incorporated by reference from our Definitive Proxy Statement.

PART IV

Item 15.   Exhibits, Financial Statement Schedules

(a) Documents Filed as Part of Report.

1. Financial Statements

Our consolidated financial statements are included in Part II, Item 8 of this Annual Report on Form 10-K.

2. Financial Statement Schedules

All schedules are omitted as the required information is either inapplicable or the information is presented in our consolidated financial statements and notes thereto in Item 8 above.

3. Exhibits

Exhibit
Number				Exhibit
	3	.01	—	Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q for the quarter ended June 30, 2007, and filed with the Commission on August 7, 2007)
	3	.02	—	Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Form 10-Q for the quarter ended June 30, 2007, and filed with the Commission on August 7, 2007)
	4	.01	—	Form of Specimen Common Stock Certificate of the Company (incorporated by reference to Exhibit 4.03 to registration statement on Form S-8 (Reg. No. 33-27286) filed by the Company with the Commission on March 2, 1989)
	4	.02	—	Indenture dated as of September 1, 1986, between the Registrant and Bank of New York Trust Company, N.A. (successor to Chemical Bank), as Trustee (or Senior Notes Indenture) (incorporated by reference to Exhibit 4.01 to registration statement on Form S-1 (Reg. No. 33-8362) filed by the Company with the Commission on August 29, 1986)

81

Exhibit
Number				Exhibit
	4	.03	—	First Supplemental Indenture to the Senior Notes Indenture, dated as of April 15, 1988, between the Company and Bank of New York Trust Company, N.A. (successor to The Chase Manhattan Bank and Chemical Bank), as Trustee (incorporated by reference to Exhibit 4.02 to registration statement on Form S-3, Registration No. 33-20431, filed with the Commission on March 2, 1988)
	4	.04	—	Second Supplemental Indenture to the Senior Notes Indenture, dated as of December 27, 1990, between the Company and Bank of New York Trust Company, N.A. (successor to The Chase Manhattan Bank and Chemical Bank), as Trustee (incorporated by reference to Exhibit 4.03 to Form 8-K, filed with the Commission on December 27, 1990)
	4	.05	—	Third Supplemental Indenture to the Senior Notes Indenture, dated as of May 9, 1991, between the Company and Bank of New York Trust Company, N.A. (successor to The Chase Manhattan Bank and Chemical Bank), as Trustee (incorporated by reference to Exhibit 4 to Form 10-Q for the quarter ended June 29, 1991, filed with the Commission on August 7, 1991)
	4	.06	—	Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock, dated February 16, 1989 (incorporated by reference to Exhibit 4.04 to the Company’s Form 10-K for the year ended December 31, 1988, and filed with the Commission on March 21, 1989)
	4	.07	—	Rights Agreement, dated February 20, 1999, between the Company and Computershare Trust Company, N.A. (f/k/a First Chicago Trust Company of New York), as Rights Agent (incorporated by reference to Exhibit 1 to the Company’s registration statement on Form 8A filed with the Commission on February 19, 1999)
	4	.08	—	Form of Fixed-rate Medium Term Note, Series F, of the Company (incorporated by reference to Exhibit 4.05 to the Company’s Form 8-K filed with the Commission on June 3, 1998)
	4	.09	—	Form of 7.875% Senior Notes due 2012 of the Company (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed with the Commission on May 3, 2002)
	4	.10	—	Form of 6.375% Senior Notes due 2016 of the Company (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed with the Commission on December 6, 2005)
	4	.11	—	Form of 6.625% Senior Notes due 2018 of the Company (incorporated by reference to Exhibit 4.2 to the Company’s Form 8-K filed with the Commission on December 6, 2005)
	10	.01	—	Credit Agreement dated July 28, 2005, with Bank of America, N.A., as administrative agent and L/C Issuer; Citibank, N.A. and The Toronto Dominion Bank, as co-syndication agents; BNP Paribas and The Bank Of Nova Scotia, as co-documentation agents; Banc of America Securities LLC and Citigroup Global Markets Inc., as joint lead arrangers and joint book managers; and the lenders party thereto (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on August 1, 2005)
	10	.02*	—	Temple-Inland Inc. 1993 Stock Option Plan (incorporated by reference to the Company’s definitive proxy statement in connection with the Annual Meeting of Shareholders held May 6, 1994, and filed with the Commission on March 21, 1994)
	10	.03*	—	First amendment to Temple-Inland Inc. 1993 Stock Option Plan (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended September 30, 2006, and filed with the Commission on November 7, 2006)
	10	.04*	—	Temple-Inland Inc. 1997 Stock Option Plan (incorporated by reference to the Company’s Definitive Proxy Statement in connection with the Annual Meeting of Shareholders held May 2, 1997, and filed with the Commission on March 17, 1997), as amended May 7, 1999 (incorporated by reference to the Company’s definitive proxy statement in connection with the Annual Meeting of Shareholders held May 7, 1999, and filed with the Commission on March 26, 1999)
	10	.05*	—	First amendment to Temple-Inland Inc. 1997 Stock Option Plan (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended September 30, 2006, and filed with the Commission on November 7, 2006)
	10	.06*	—	Temple-Inland Inc. 1997 Restricted Stock Plan (incorporated by reference to the Company’s Definitive Proxy Statement in connection with the Annual Meeting of Shareholders held May 2, 1997, and filed with the Commission on March 17, 1997)
	10	.07*	—	Temple-Inland Inc. 2001 Stock Incentive Plan (incorporated by reference to the Company’s definitive proxy statement in connection with the Annual Meeting of Shareholders held May 4, 2001, and filed with the Commission on March 23, 2001)

82

Exhibit
Number				Exhibit
	10	.08*	—	First amendment to Temple-Inland Inc. 2001 Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q for the quarter ended September 30, 2006, and filed with the Commission on November 7, 2006)
	10	.09*	—	Temple-Inland Inc. 2003 Stock Incentive Plan (incorporated by reference to Appendix A of the Company’s definitive proxy statement dated March 31, 2003, and prepared in connection with the annual meeting of stockholders held May 2, 2003)
	10	.10*	—	First amendment to Temple-Inland Inc. 2003 Stock Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company’s Form 10-Q for the quarter ended September 30, 2006, and filed with the Commission on November 7, 2006)
	10	.11*	—	Form of Nonqualified Stock Option Agreement issued pursuant to the Temple-Inland Inc. 2003 Stock Incentive Plan (incorporated by reference to Exhibit 10.23 to the Company’s Form 10-K for the year ended January 3, 2004, and filed with the Commission on February 23, 2004)
	10	.12*	—	Revised Form of Performance Stock Units Agreement issued pursuant to the Temple-Inland Inc. 2003 Stock Incentive Plan (incorporated by reference to Exhibit 10.08 to the Company’s Form 10-K for the year ended December 31, 2005, and filed with the commission on March 8, 2006)
	10	.13*	—	Revised Form of Restricted Stock Unit Agreement issued pursuant to the Temple-Inland Inc. 2003 Stock Incentive Plan (incorporated by reference to Exhibit 10.09 to the Company’s Form 10-K for the year ended December 31, 2005, and filed with the commission on March 8, 2006)
	10	.14*	—	Revised Form of Nonqualified Stock Option Agreement for Non-Employee Directors issued pursuant to the Temple-Inland Inc. 2003 Stock Incentive Plan (incorporated by reference to Exhibit 10.10 to the Company’s Form 10-K for the year ended December 31, 2005, and filed with the commission on March 8, 2006)
	10	.15*	—	Amendment to outstanding Temple-Inland Option Agreements and Restricted Stock Agreements (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the Commission on December 31, 2007)
	10	.16*	—	Amended and restated Temple-Inland Nonqualified Deferred Compensation Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on December 31, 2007)
	10	.17*	—	Amended and restated Temple-Inland Directors’ Fee Deferral Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on December 31, 2007)
	10	.18*	—	Amended and restated Temple-Inland Supplemental Executive Retirement Plan (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the Commission on December 31, 2007)
	10	.19*	—	Employment Agreement between the company and Doyle R. Simons, dated August 9, 2007 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on August 10, 2007)
	10	.20*	—	Change in Control Agreement dated June 1, 2003, between the Company and J. Patrick Maley III (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended September 28, 2003, and filed with the Commission on November 12, 2003)
	10	.21*	—	Change in Control Agreement dated October 2, 2000, between the Company and Jack C. Sweeny (incorporated by reference to Exhibit 10.29 to the Company’s Form 10-K for the year ended December 30, 2000, and filed with the Commission on March 5, 2001)
	10	.22*	—	Change in Control Agreement dated October 2, 2000, between the Company and Randall D. Levy (incorporated by reference to Exhibit 10.31 to the Company’s Form 10-K for the year ended December 30, 2000, and filed with the Commission on March 5, 2001)
	10	.23	—	Loan Agreement, dated December 3, 2007, by and among TIN Land Financing, LLC, Citibank, N.A., Citicorp North America, Inc., as Agent, and the other Lenders named therein (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on December 4, 2007)
	10	.24	—	Loan Agreement, dated December 3, 2007, by and among TIN Timber Financing, LLC, Citibank, N.A., Citicorp North America, Inc., as Agent, and the other Lenders named therein (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on December 4, 2007)
	10	.25	—	Pulpwood Supply Agreement, dated October 31, 2007, by and between TIN Inc. and CPT LOGCO, LLC (1)(2)
	10	.26	—	Sawtimber Supply Agreement, dated October 31, 2007, by and between TIN Inc. and CPT LOGCO, LLC (1)(2)
	10	.27*	—	Temple-Inland Inc. 2008 Incentive Plan (1) (3)

83

Exhibit
Number				Exhibit
	10	.28*	—	Form of Nonqualified Stock Option Agreement, as revised in 2008, issued pursuant to the Temple-Inland Inc. 2003 Stock Incentive Plan (1)
	10	.29*	—	Form of Restricted Stock Units Agreement issued pursuant to the Temple-Inland Inc. 2008 Incentive Plan (1)
	21		—	Subsidiaries of the Company (1)
	23		—	Consent of Ernst & Young LLP (1)
	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 (1)
	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 (1)
	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 (1)
	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 (1)

*	Management contract or compensatory plan or arrangement.
(1)	Filed herewith
(2)	Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. The omissions have been indicated with asterisks (“***”), and the omitted text has been filed separately with the Commission.
(3)	To be submitted for shareholder approval at the 2008 Annual Meeting of Stockholders.

84

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Temple-Inland Inc.
(Registrant)

By:  /s/  Doyle R. Simons

Doyle R. Simons

Chairman of the Board and

Chief Executive Officer

Date: February 25, 2008

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Capacity	Date
/s/  Doyle R. Simons Doyle R. Simons	Director, Chairman of the Board, and Chief Executive Officer	February 25, 2008
/s/  Randall D. Levy Randall D. Levy	Chief Financial Officer	February 25, 2008
/s/  Troy L. Hester Troy L. Hester	Principal Accounting Officer	February 25, 2008
/s/  Afsaneh M. Beschloss Afsaneh M. Beschloss	Director	February 25, 2008
/s/  Donald M. Carlton Donald M. Carlton	Director	February 25, 2008
/s/  Cassandra C. Carr Cassandra C. Carr	Director	February 25, 2008
/s/  E. Linn Draper, Jr. E. Linn Draper, Jr.	Director	February 25, 2008
/s/  Larry R. Faulkner Larry R. Faulkner	Director	February 25, 2008
/s/  James T. Hackett James T. Hackett	Director	February 25, 2008
/s/  Jeffrey M. Heller Jeffrey M. Heller	Director	February 25, 2008

85

Signature	Capacity	Date
/s/  J. Patrick Maley III J. Patrick Maley III	Director	February 25, 2008
/s/  W. Allen Reed W. Allen Reed	Director	February 25, 2008
/s/  Richard M. Smith Richard M. Smith	Director	February 25, 2008
/s/  Arthur Temple III Arthur Temple III	Director	February 25, 2008
/s/  Larry E. Temple Larry E. Temple	Director	February 25, 2008

86

EX-10.25

Exhibit 10.25

PORTIONS OF THIS EXHIBIT MARKED BY ***
HAVE BEEN OMITTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION

PULPWOOD SUPPLY AGREEMENT

BY AND BETWEEN

TIN INC., as Purchaser

AND

CPT LOGCO, LLC, as Seller

Table of Contents

ARTICLE I DEFINITIONS			1
	Section 1.1	Definitions	1
ARTICLE II HARVEST VOLUMES			7
	Section 2.1	Obligation to Purchase and Sell	7
	Section 2.2	Annual Plan and Forecast Plan	7
	Section 2.3	Obligated Volume	7
	Section 2.4	Uncommitted Volume and Quarterly Meetings	8
	Section 2.5	Biomass	8
	Section 2.6	Post-Harvest Carbon Rights	8
ARTICLE III PRODUCT SPECIFICATIONS			9
	Section 3.1	Product Specifications	9
	Section 3.2	Rejected Product	9
ARTICLE IV PRICE SCHEDULE			9
	Section 4.1	Base Price	9
	Section 4.2	Quarterly Price	9
ARTICLE V DELIVERY, FORCE MAJEURE AND PAYMENT			10
	Section 5.1	Delivery, Scaling and Weighing	10
	Section 5.2	Force Majeure	12
	Section 5.3	Change in Mill Operations	13
	Section 5.4	Payment	13
ARTICLE VI TERM			13
	Section 6.1	Term	13
	Section 6.2	Extension of Term	14
	Section 6.3	Termination	14
	Section 6.4	Effect of Termination	14
ARTICLE VII REPRESENTATIONS AND WARRANTIES			14
	Section 7.1	Representations and Warranties of Purchaser	14
	Section 7.2	Representations and Warranties of Seller	15
ARTICLE VIII SELLER’S MANAGEMENT			16
	Section 8.1	Seller’s Management	16
ARTICLE IX DEFAULT AND DISPUTE RESOLUTION			17
	Section 9.1	Default by Purchaser	17
	Section 9.2	Default by Seller	17
	Section 9.3	Specific Performance	18
	Section 9.4	Liquidated Damages	18
	Section 9.5	Assignment of Agreement	18
	Section 9.6	Dispute Resolution	19
ARTICLE X INDEMNITY AND INSURANCE			20
	Section 10.1	Purchaser’s Indemnity	20
	Section 10.2	Seller’s Indemnity	21
	Section 10.3	Insurance	21
	Section 10.4	Notice of Claim	22
ARTICLE XI ASSIGNMENT AND TRANSFERS			22
	Section 11.1	Seller’s Assignment Rights	22

-ii-

	Section 11.2	Purchaser’s Assignment Rights	22
ARTICLE XII AUDIT RIGHTS			22
	Section 12.1	Audit Rights	22
ARTICLE XIII NOTICES			23
	Section 13.1	Notices	23
ARTICLE XIV MISCELLANEOUS			24
	Section 14.1	Amendments	24
	Section 14.2	Recording of Agreement	24
	Section 14.3	Compliance with Laws	24
	Section 14.4	Confidentiality	24
	Section 14.5	Estoppel Certificates	24
	Section 14.6	No Waiver; Remedies	25
	Section 14.7	Accounting Terms	25
	Section 14.8	Binding Effect; Governing Law	25
	Section 14.9	Counterparts	25
	Section 14.10	Time of the Essence	25
	Section 14.11	Incorporation of Exhibits and Schedules	25
	Section 14.12	Interest	25
	Section 14.13	Further Assurances	25
	Section 14.14	Most Favored Status	25
	Section 14.15	Attorney’s Fees	26
	Section 14.16	Severability	26
	Section 14.17	Captions and Headings	26
	Section 14.18	Construction	26
	Section 14.19	Relationship	26
	Section 14.20	Integration	27
	Section 14.21	Uniform Commercial Code	27

INDEX

SCHEDULES
Schedule 1	Specifications
Schedule 2	2008 Annual Plan
Schedule 3	2008 Forecast Plan (for years 2009-2011)
Schedule 4	Allocation of Annual Harvest Volume
Schedule 5	Freight Adjustment
Schedule 6	Initial Price and Base Price
Schedule 7	Pricing Example
Schedule 8	Distinctive Sites
Schedule 9	Biomass Harvest Locations

EXHIBITS
Exhibit A	Description of Property
Exhibit B	Form of Support Agreement

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PULPWOOD SUPPLY AGREEMENT

     THIS PULPWOOD SUPPLY AGREEMENT (this “Agreement”) is made and entered into as of this 31^st day of October, 2007 (the “Effective Date”) by and between TIN INC., a Delaware corporation (“Purchaser”), and CPT LOGCO, LLC, a Delaware limited liability company (“Seller”).

RECITALS

A.	Purchaser and Landowner entered into that certain Purchase Agreement dated August 3, 2007, as amended by that certain Amended and Restated Purchase Agreement dated October 31, 2007 (as amended, the “Purchase Agreement”), pursuant to which Purchaser sold and Crown Pine Timber 1, L.P., a Delaware limited partnership, Crown Pine Timber 2, L.P., a Delaware limited partnership, Crown Pine Timber 3, L.P., a Delaware limited partnership, and Crown Pine Timber 4, L.P., a Delaware limited partnership (collectively, “Landowner”), acquired approximately 1,469,507 acres of real property located in Anderson, Angelina, Cherokee, Houston, Jefferson, Liberty, Nacogdoches, Orange, Panola, Rusk, San Jacinto, Shelby, Trinity, Newton, Sabine, San Augustine, Hardin, Jasper, Polk and Tyler Counties, Texas; and Allen, Beauregard, Calcasieu, Jefferson Davis, Rapides, Sabine and Vernon Parishes, Louisiana, being more particularly described in Exhibit A attached hereto (the “Property”); and
B.	Purchaser and Crown Pine Parent, L.P., a Delaware limited partnership, of which each entity constituting Landowner is a wholly owned subsidiary, are simultaneously entering into a Pulpwood Support Agreement substantially in the form attached hereto as Exhibit B (the “Support Agreement”), pursuant to which Landowner is providing certain assurances and agreements to Purchaser with respect to the availability of the cutting rights contemplated and required by this Agreement; and
C.	Purchaser desires to buy and receive, and Seller desires to sell, deliver and provide Product (as defined herein) from the Property; and
D.	Purchaser and Seller desire to purchase and sell Product pursuant to the terms of this Agreement at the fair market price;

     IN CONSIDERATION of the mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Purchaser hereby agree as follows:

ARTICLE I

DEFINITIONS

     Section 1.1 Definitions. As used herein, the following terms will have the meanings ascribed thereto:

     “AAA” means the American Arbitration Association.

     “Acts of God” means events which are caused solely by the effects of nature or natural causes, without interference by any person, consisting of insect infestations, floods, earthquakes, tornados, hurricanes, fires, lightening and extraordinary amounts of rain that materially and adversely impact the ability to harvest timber.

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

     “Agreement” shall have the meaning provided in the first paragraph of this Agreement.

     “Annual Harvest Option Volume” means *** of the excess of the Annual Harvest Volume over the Obligation Floor.

     “Annual Harvest Volume” means the volume of Product that Seller plans to harvest during a Harvest Year as set forth in the Annual Plan for such Harvest Year.

     “Annual Juvenile Wood Percentage” means the proportion (expressed as a percentage) that the volume of Juvenile Wood that Seller plans to harvest during a Harvest Year bears to the Annual Harvest Volume for such Harvest Year, which proportion shall in no case exceed ***.

     “Annual Minimum Volume” means the volume of Product that Seller is obligated to make available for harvest from the Property during a Harvest Year. The Annual Minimum Volume for each Harvest Year is set forth on Schedule 4 attached hereto.

     “Annual Plan” means a written annual harvest plan prepared by Seller pursuant to Section 2.2 hereof detailing (i) the planned Annual Harvest Volume (by tract), (ii) tract locations for the Product during a Harvest Year, and (iii) the volume of Juvenile Wood included within the Annual Harvest Volume. An Annual Plan shall include stand data (including age of each stand) and a map of each tract to be harvested during such Harvest Year; provided, however, Seller may substitute tracts from the Property without notice to or consent of Purchaser so long as such substitution does not result in increased cost or inconvenience to Purchaser.

     “Base Price” means the price for Product equal to the third (3^rd) quarter price for the Primary Delivery Zone set forth in *** as the average price for delivered pine pulpwood, ***.

     “Biomass” means standing trees (excluding Pulpwood and other merchantable timber) and/or vegetation that can be commercially preharvested, or standing and down woody material and debris existing after a harvesting operation.

     “Biomass Offer” has the meaning set forth in Section 2.5 hereof.

     “Carbon Rights” means any carbon sequestration credits or offsets, renewable energy credits or similar method of attribution of a value, right or privilege for carbon sequestration that may be used to satisfy limits on carbon dioxide emissions or to reduce taxes, assessments or penalties on carbon dioxide emissions.

2

     “Carryover Volume” has the meaning provided in Section 5.1(c) hereof.

     “Certificate of Insurance” means a written certification with respect to each party’s insurance policies required hereunder by or on behalf of the insurance company or companies issuing the insured party’s insurance policies stating, (i) the name of the insurance company or companies issuing the insurance policy, (ii) the deductible amount, (iii) types of coverage, (iv) the premium amount, (v) the expiration date, (vi) the policy limit or face amount, (vii) waiver of subrogation, (viii) that the other party may rely on such certificate, and (ix) that such insurance policy shall not be cancelled, amended or non-renewed without providing the other party with at least thirty (30) days’ prior written notice.

     “Change Event” means (i) a closing of the Mill or an operating line within the Mill, (ii) the sale of the Mill, or (iii) a material decrease in Purchaser’s requirements for Product as a result of a change in a manufacturing process.

     “Conservation Block” means the conservation areas containing approximately *** acres described on Exhibit A.

     “Delivery Plan” has the meaning set forth in Section 5.1(a) hereof.

     “Delivery Point” means the Mill or such other location at which the Product is delivered by Seller, as shall be designated in the Delivery Plan described in Section 5.1(a), or by Purchaser in Purchaser’s sole discretion from time to time.

     “Distinctive Site” means any site described on Schedule 8 attached hereto.

     “Effective Date” shall have the meaning provided in the first paragraph of this Agreement.

     “Environmental Laws” means any United States federal, state or local laws and the regulations promulgated thereunder, relating to pollution or protection of the environment or to threatened or endangered species, 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 or toxic substances or petroleum (and its fractions) 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 or toxic substances or petroleum (and its fractions), including, without limitation, the following laws and regulations promulgated thereunder as amended from time to 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) the Endangered Species Act, 16 U.S.C. §1531 et seq.; and (viii) all laws of the

3

states in which the Property is located that are based on, or substantially similar to, the federal statutes listed in parts (i) through (vii) of this paragraph.

     “Final Quarterly Price” means a price for Product, determined as of the end of any calendar quarter during the term, as follows:

(i) if Purchaser purchased greater than *** of all of its product delivered to the Mill from parties other than Seller during such calendar quarter (excluding the purchase of Substitute Products, woodyard transactions, internal transactions, timber deeds and supply agreements having a term in excess of ***), then the Final Quarterly Price for such calendar quarter shall be equal to the weighted average price for all such deliveries by other parties; or

(ii) if Purchaser purchased *** or less of all of its Products from such other parties described in subparagraph (i) of this definition during such calendar quarter, the Final Quarterly Price for such calendar quarter shall equal the applicable *** average price for delivered pine pulpwood for such calendar quarter, ***.

For both (i) and (ii) above, such weighted average shall exclude all deliveries to the Mill from yard systems and all transactions: (x) with Seller pursuant to this Agreement, (y) non-market-based or fixed price supply agreements, and (z) supply agreements in excess of one (1) year containing price based on a mill weighted average cost, index, or other such indicators.

     “Force Majeure” means any cause, condition or event beyond the reasonable control of a party, which the party in question, despite the use of good faith and commercially reasonable efforts, is unable to overcome, that delays or prevents such party’s performance of its obligations hereunder, consisting solely of war, war-like operations, invasions, rebellion, acts of terrorism, military or usurped power, sabotage, acts of government, acts of public enemy, riots, fires, explosions, Acts of God, labor strikes, disputes or lockouts by employees, general suspension of payments by banks in the United States, and an involuntary ceasing of operations at the Mill for a minimum of thirty (30) consecutive days. Force Majeure shall not include, (i) a party’s financial inability to perform, (ii) non-violent, civil demonstrations, (iii) an act or omission arising from the willful misconduct of the party claiming that a Force Majeure event has occurred, or (iv) any rainfall which does not constitute an Act of God.

     “Forecast Plan” means a written harvest plan prepared by Seller pursuant to Section 2.2 detailing the forecasted Annual Harvest Volume during the two (2) Harvest Years immediately following the Harvest Year in the Annual Plan delivered to Purchaser pursuant to Section 2.2, and, for tracts to be harvested during the first Harvest Year set forth in any Forecast Plan, designation of the geographic locations from which the Product will be harvested.

     “Freight Adjustment” means an increase or decrease in the applicable Quarterly Price or Final Quarterly Price for Product delivered pursuant to this Agreement in accordance with the formula set forth on Schedule 5; provided that the parties shall agree upon any adjustments to the Freight Adjustment every *** year after the year of the Effective Date.

4

     “Harvest Year” means a calendar year beginning on January 1 and ending on December 31. The first full “Harvest Year” of this Agreement shall begin on January 1, 2008 and end on December 31, 2008. The periods from the Effective Date to December 31, 2007 and from January 1 in the final calendar year of the Term to the date the Term expires shall be deemed partial “Harvest Years.”

     “Initial Option Period” has the meaning set forth in Section 6.2 hereof.

     “Juvenile Wood” means Product which is less than *** years in age.

     “Liens” means any and all liens, charges, mortgages, deeds to secure debt, pledges, security interests, options of record, adverse claims or other encumbrances of a liquidated amount or which are otherwise statutorily enforceable, other than liens for ad valorem taxes not yet due and payable.

     “Master Stumpage Agreement” means, collectively, those certain Master Pulpwood Stumpage Agreements dated October 31, 2007, by and between Seller and each entity constituting Landowner, with respect to the Property.

     “Mill” means the Orange Linerboard Mill located in Orange, Texas and any other mill that Purchaser leases or in which Purchaser has an ownership interest exceeding forty-nine percent (49%) in the States of Texas or Louisiana during the Term of this Agreement.

     “Obligated Volume” means the minimum volume of Product from the Property, determined by Purchaser in accordance with Section 2.3, that Seller is required to deliver to Purchaser and Purchaser is required to purchase during a Harvest Year in accordance with the terms of this Agreement.

     “Obligation Floor” means, for any given Harvest Year, the smallest permissible Obligated Volume, being *** tons of Product.

     “Option” has the meaning set forth in Section 6.2 hereof.

     “Panel” has the meaning set forth in Section 9.6(a) hereof.

     “Panel Chairman” has the meaning set forth in Section 9.6(a) hereof.

     “Person” means any individual, sole proprietorship, trust, estate, executor, legal representative, unincorporated association, institution, corporation, company, partnership, limited liability company, limited liability partnership, joint venture, government (whether national, federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof) or other entity.

     “Price Dispute” has the meaning set forth in Section 9.6(b) hereof.

5

     “Primary Delivery Zone” with respect to any Delivery Point means all those tracts of Property located not more than *** road miles from such Delivery Point.

     “Product” means the Pulpwood harvested from the Property meeting the applicable Specifications.

     “Property” shall have the meaning provided in Recital A of this Agreement.

     “Pulpwood” means pine roundwood, including topwood, customarily intended according to industry standards to be chipped, shredded, flaked, ground or otherwise converted to make pulp, paper, or composite panel products, now or hereafter standing and growing on the Property.

     “Purchaser” shall have the meaning provided in the first paragraph of this Agreement.

     “Purchaser Event of Default” has the meaning set forth in Section 9.1 hereof.

     “Purchaser Indemnitee” has the meaning set forth in Section 10.2 hereof.

     “Quarterly Delivery Variance” has the meaning set forth in Section 5.1(b) hereof.

     “Quarterly Price” means, for any calendar quarter after 2007, the Final Quarterly Price for the immediately preceding calendar quarter adjusted by the average *** Adjustment Factor applicable to the calendar quarter in question for the immediately preceding *** years.

     “Renewal Period” has the meaning set forth in Section 6.2 hereof.

     “Residual Biomass” means Biomass associated with stands harvested from the Property by Seller in connection with the performance of its obligations under this Agreement.

     “SFI Standards” means standards for harvesting activities meeting the minimum requirements for compliance with the standards of the Sustainable Forestry Initiative, 2005-2009, of the American Forest and Paper Association and any successor thereto, as those standards may be modified from time to time by the American Forest and Paper Association and any successor thereto.

     “Secondary Delivery Zone” with respect to any Delivery Point means all those tracts of Property located more than *** road miles from such Delivery Point.

     “Seller” shall have the meaning provided in the first paragraph of this Agreement.

     “Seller Event of Default” has the meaning set forth in Section 9.2 hereof.

     “Seller Indemnitee” has the meaning set forth in Section 10.1 hereof.

     “Specifications” means the technical specifications for Product delivered to Purchaser in accordance with this Agreement, as they exist from time to time pursuant to the terms of Section

6

3.1. The Specifications as of the Effective Date are more particularly set out in Schedule 1 hereto.

     “Substitute Products” shall have the meaning provided in Section 5.1(e).

     “Term” shall have the meaning provided in Section 6.1.

     “Termination Date” means the effective date of termination of this Agreement in accordance with its terms by Purchaser or Seller at any time other than the expiration of the Term.

     ***

     “*** Adjustment Factor” means, for any calendar quarter, the percentage change in pricing for the product type in question in the relevant geographic region between the end of the immediately preceding calendar quarter and the end of the applicable calendar quarter, as such prices are reported by ***.

     “Transfer” means any direct or indirect transfer, sale, assignment, pledge, hypothecation or other disposition of ownership or control of the Property.

     “Uncommitted Volume” means any Product that Seller elects to harvest from the Property during a Harvest Year in excess of the Annual Harvest Volume set forth in the Annual Plan for such Harvest Year.

ARTICLE II

HARVEST VOLUMES

     Section 2.1 Obligation to Purchase and Sell. In accordance with the terms hereof, during the Term Purchaser covenants and agrees to purchase and receive from Seller and Seller covenants and agrees to sell, deliver and provide to Purchaser, in each Harvest Year, the Obligated Volume at the Delivery Point(s) specified by Purchaser.

     Section 2.2 Annual Plan and Forecast Plan. On or before September 30 of each year during the Term, Seller shall deliver to Purchaser an Annual Plan for the immediately following Harvest Year and a Forecast Plan. The aggregate Annual Harvest Volume of Product set forth in an Annual Plan shall in no event be less than the Annual Minimum Volume for the same Harvest Year. The annual volume set forth in an Annual Plan (i) shall not vary by more than *** from the forecast volume for such Harvest Year as set forth in the previous year’s Forecast Plan, and (ii) shall not vary by more than *** from the forecast volume for such Harvest Year as set forth in the Forecast Plan delivered to Purchaser two years earlier. The Annual Plan for Harvest Year 2008 and Forecast Plan for Harvest Years 2009 and 2010 are attached hereto as Schedule 2 and Schedule 3, respectively.

     Section 2.3 Obligated Volume. On or before November 1 of each year during the Term, Purchaser shall notify Seller in writing of the Obligated Volume which Purchaser elects to

7

purchase and receive from Seller during the upcoming Harvest Year and Seller agrees to deliver such Obligated Volume in accordance with the terms of this Agreement. The Obligated Volume shall equal the sum of (i) the Obligation Floor plus (ii) such portion of the Annual Harvest Option Volume that Purchaser elects to purchase during the upcoming Harvest Year. The Obligated Volume for Harvest Year 2007 shall be *** tons, and the Obligated Volume for Harvest Year 2008 shall be agreed upon by the parties on or before November 15, 2007.

     Section 2.4 Uncommitted Volume and Quarterly Meetings. Purchaser and Seller shall meet quarterly each Harvest Year, on or before March 1, June 1, September 1 and December 1, to discuss the then-current Obligated Volume and any Uncommitted Volume. Purchaser shall have the right to purchase at the applicable Quarterly Price any portion, not to exceed ***, of the Uncommitted Volume. Seller shall make all of the Uncommitted Volume contained within the Primary Delivery Zone available to fulfill any such portion purchased by Purchaser, and shall deliver such portion in accordance with a delivery schedule that the parties shall mutually agree upon at the time of Purchaser’s election. Seller shall not have the right to count any purchased Uncommitted Volume towards the Obligated Volume. Purchaser and Seller shall compute the Final Quarterly Price for such purchased Uncommitted Volume pursuant to, and shall remit any excess in accordance with, Section 4.2.

     Section 2.5 Biomass. Purchaser shall have the right to offer, on or before November 1 of each calendar year during the Term, to purchase, collect and retain any Residual Biomass by notifying Seller in writing of the volume of Residual Biomass that Purchaser offers to purchase, collect and retain, which notice shall include the price Purchaser will pay for such Biomass and, with reasonable specificity, the location of such Biomass (a “Biomass Offer”). Seller shall have thirty (30) days to accept or reject such Biomass Offer by written notice delivered to Purchaser. If Seller fails to deliver such written notice within the thirty (30) day period, Seller shall be deemed to have rejected the Biomass Offer. Seller shall have the right to sell such Residual Biomass to any third party only upon the actual or deemed rejection of such Biomass Offer and under no other circumstances. If Seller accepts a Biomass Offer, Purchaser and Seller shall enter into a usual and customary agreement with respect to Purchaser’s entrance upon the Property and Purchaser’s collection of Biomass from the Property. Notwithstanding anything in this Section 2.5 to the contrary, “Residual Biomass” shall exclude any Biomass that Seller is obligated to sell to a third party under a contract with a term of at least one (1) year. Purchaser shall purchase, collect and retain *** tons of Residual Biomass during Harvest Year 2007 and *** tons of Residual Biomass in Harvest Year 2008 from the harvest locations as set forth in Schedule 9.

     Section 2.6 Post-Harvest Carbon Rights. Prior to the severance of the Product from the Property, Seller shall have exclusive Carbon Rights in the Property and in all standing, harvested or fallen trees or other vegetation on the Property. To the extent Carbon Rights associated with severed wood products can be transferred under any existing or future, mandatory or voluntary, carbon dioxide allocation, trading, taxation or other emissions limitation regime, the sale of Product under this Agreement shall include as part of such sale any and all Carbon Rights associated with the Product. Purchaser shall have no claim or right to any Carbon Rights associated with the Property (whether fee or leasehold interest), or, prior to the severance of Product from the Property, with standing, harvested or fallen trees or other vegetation on the Property, but Seller shall not separate any transferable Carbon Rights from Product sold to Purchaser prior to sale.

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ARTICLE III

PRODUCT SPECIFICATIONS

     Section 3.1 Product Specifications. Any and all Product delivered shall meet the Specifications. Purchaser may modify, amend, add to, alter, revise or change the Specifications at any time during the Term by giving Seller not less than thirty (30) days advance written notice of any modification, amendment, addition, alteration, revision or change to the Specifications, provided that any such modification, amendment, addition, alteration, revision or change to the Specifications does not materially and adversely impact Seller’s ability to comply with its obligations hereunder; provided further that any such modification, amendment, addition, alteration, revision or change to the Specifications shall be applicable to all suppliers of the Mill, and provided further that Purchaser shall not modify the Specifications to set higher standards for Seller than for any other suppliers of comparable product to the applicable Delivery Points.

     Section 3.2 Rejected Product. Purchaser has the right to reject any or all Product not meeting the Specifications applicable at the time of delivery; provided, however, at Seller’s request, Purchaser shall (i) provide Seller with a written or photographic explanation for the basis of any such rejection, and (ii) afford Seller the opportunity to inspect, within a reasonable period of time, any such rejected Product. Product rejected for failure to meet Specifications shall not be included in calculating whether Seller met its required Obligated Volume. EXCEPT FOR THE SPECIFICATIONS SET FORTH IN THIS AGREEMENT, SELLER DISCLAIMS ALL WARRANTIES OF ANY KIND INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. In the event Purchaser rejects any or all Product not meeting the Specifications, Purchaser, at Seller’s sole cost, risk and expense, may reload, or cause to be reloaded, the rejected Product onto Seller’s vehicles or any other vehicles delivering Product to Purchaser. Seller shall remove and dispose of any rejected Product at Seller’s sole cost, risk and expense. Notwithstanding the foregoing, Purchaser shall have the option, at its sole election, to purchase any of such rejected Product following any requested written or photographic explanation and inspection process as described above, at a price mutually agreed to by Seller and Purchaser, in which event such Product shall not be included in calculating whether Seller met its required Obligated Volume.

ARTICLE IV

PRICE SCHEDULE

     Section 4.1 Base Price. The Base Price as of the Effective Date of this Agreement is set forth in Schedule 6 attached hereto. The resulting Quarterly Price in effect between the Effective Date and December 31, 2007, shall be equal to the Base Price adjusted by the average *** Adjustment Factor applicable to the fourth calendar quarter for the immediately preceding ***.

     Section 4.2 Quarterly Price. The price paid by Purchaser for Product delivered during any calendar quarter during the Term shall be the Quarterly Price. Within twenty (20) days after the end of every calendar quarter, Seller and Purchaser shall compute the Final Quarterly Price.

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If the Final Quarterly Price is greater than the Quarterly Price paid for such calendar quarter, then Purchaser shall remit to Seller the additional amount owed by Purchaser within fifteen (15) days after the calculation. If the Final Quarterly Price is less than the Quarterly Price paid for such calendar quarter, then Seller shall remit to Purchaser the amount of such overage, and if Seller fails to remit such amount within fifteen (15) days after the calculation of such overage, Purchaser shall have the right to offset the overage against amounts next due and owing to Seller under this Agreement. An example of the pricing mechanism set forth herein is set forth on Schedule 7 attached hereto.

ARTICLE V

DELIVERY, FORCE MAJEURE AND PAYMENT

     Section 5.1 Delivery, Scaling and Weighing.

     (a) No later than each November 1 during the Term, Purchaser shall propose to Seller a target quarterly delivery schedule with respect to the Obligated Volume for the upcoming Harvest Year. The parties shall work together to jointly develop a mutually acceptable quarterly delivery schedule for such Harvest Year (the “Delivery Plan”), which Delivery Plan shall be agreed upon no later than December 1. The quarterly volumes set forth in the Delivery Plan will be based on Purchaser’s targeted quarterly inventory volumes for the Mill but will fall within the percentage ranges for Obligated Volume set forth below:

Calendar Quarter	Percentage of Obligated Volume
1	***
2	***
3	***
4	***

     (b) The parties recognize a mutual benefit to produce and accept Product as consistently as possible with such Delivery Plan. Seller shall use commercially reasonable efforts to dispatch deliveries on a relatively even flow basis within each calendar quarter of the Harvest Year. It is understood and agreed that material deviations to the Delivery Plan may occur due to weather conditions or other unforeseen events. In such event, quarterly deliveries may be less than the Delivery Plan’s applicable quarterly volume by up to *** (the total percentage of such variance being the “Quarterly Delivery Variance”).

     (c) In the event the Quarterly Delivery Variance during any quarter *** of the total volume required to be delivered during such quarter under the applicable Delivery Plan, Purchaser may purchase Products or substitutes therefor (in either case, “Substitute Products”)

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from any third party in sufficient volumes to equal the Quarterly Delivery Variance at current fair market prices for the applicable Products. If Purchaser purchases such Substitute Products, Seller, in lieu of the remedies set forth in Section 9.4, shall promptly pay Purchaser the difference between the highest price paid by Purchaser for the corresponding volume of such Substituted Products and the applicable Quarterly Price. If Seller fails or refuses to pay such amount to Purchaser within ten (10) days after Purchaser’s request therefor, Purchaser shall have the right to offset such amount against amounts next due and owing to Seller by Purchaser hereunder. The applicable Obligated Volume shall be reduced by the volume of Substitute Products purchased by Purchaser.

     (d) In the event the quarterly deliveries exceed the Delivery Plan’s applicable quarterly volume by more than ***, any such volume delivered by Seller in excess of such *** threshold shall be sold at a price agreed upon by Purchaser and Seller at the time of such delivery, and, unless agreed to by Purchaser in writing, such excess volume shall not be applied against the Obligated Volume.

     (e) If there is a negative annual variance at the end of any Harvest Year, Purchaser shall have the right either to deduct the amount of such negative variance from the applicable Obligated Volume or to require Seller to deliver such variance from the Delivery Plan (the “Carryover Volume”) in the first quarter of the following Harvest Year, at a price equal to the lower of: (i) the lowest Final Quarterly Price for all quarters during the previous Harvest Year, or (ii) the final Quarterly Price for the calendar quarter in which the Carryover Volume is delivered. Any delivery in the following Harvest Year will first be counted towards meeting the Carryover Volume requirement. Deliveries during the fourth quarter shall only be applied against the then current Harvest Year’s delivery requirements. The parties shall work together in good faith to adjust delivery schedules to accommodate temporary or unforeseen hardships for either party. Each party shall notify the other party of any anticipated delays as soon as such delay is anticipated.

     (f) Unless otherwise agreed to in writing by Purchaser, any portion of the Annual Harvest Volume harvested within the Primary Delivery Zone shall be delivered to the Mill or such other Delivery Point designated by Purchaser in accordance herewith until the Obligated Volume for such Harvest Year has been fully met. Prior to delivering Product to a Delivery Point from the Secondary Delivery Zone with respect to a Delivery Point, Seller must obtain the written consent of Purchaser, which consent may be withheld in Purchaser’s reasonable discretion, unless such delivery was contemplated by the Delivery Plan for such Harvest Year. Any Product delivered by Seller from within a Secondary Delivery Zone in accordance with the preceding sentence shall be subject to a Freight Adjustment.

     (g) Purchaser may elect, in its sole discretion and upon seven (7) days’ prior written notice to Seller, to redirect the delivery of all or a portion of the Product to be delivered by Seller hereunder to another Delivery Point, provided that if the new Delivery Point is located more than *** road miles from the harvested tract, such redirected portion of the Product shall be subject to a Freight Adjustment. Subject to Purchaser’s prior written consent, exercisable in Purchaser’s reasonable discretion, Seller may redirect the delivery of all or a portion of the Product to be delivered by Seller hereunder to a Delivery Point other than the Delivery Point required under the applicable Delivery Plan.

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     (h) All Product subject to this Agreement shall be delivered to Purchaser F.O.B. to the designated Delivery Point during the regular business hours of such Delivery Point. Risk of loss and title to the Product shall pass from Seller when the Product is unloaded and accepted by Purchaser pursuant to the terms hereof. All Product delivered hereunder by Seller shall be scaled or weighed by Purchaser, or its designee, upon delivery at the respective Delivery Point using privately verified scales, which data shall be recorded by the scaler (or weigher) on scale or weight tickets and a copy of each ticket shall be given to Seller or its designated representative. Additional information reasonably required by the parties from time to time or by state law, including but not limited to origin by tract location of delivered Product, shall also be included on the scale ticket or provided in such other format as may be reasonably requested by Purchaser. Seller shall (i) adhere to Purchaser’s requirements for delivery as are established from time to time to conform with changes in law, forestry practices and Purchaser’s operational requirements, provided such adjustments are comparable to industry standards and are similar to those required by Purchaser of its other suppliers and (ii) comply with all applicable laws, rules and regulations.

     (i) If the volume of Product in the Primary Delivery Zone is sufficient to satisfy the Obligated Volume, Purchaser may purchase a volume of Juvenile Wood such that the percentage of Juvenile Wood contained in such Product is less than the Annual Juvenile Wood Percentage for such Harvest Year; provided, however, Seller shall have the right to deliver, without any otherwise applicable Freight Adjustment, such additional amount of Juvenile Wood from the Secondary Delivery Zone as may be necessary to achieve the Annual Juvenile Wood Percentage. Under no circumstances shall Purchaser be required to purchase Juvenile Wood during any Harvest Year in excess of the amount equal to the product of (x) the Annual Juvenile Wood Percentage for such Harvest Year multiplied by (y) the Obligated Volume. Any volume of Juvenile Wood in excess of the volume of Juvenile Wood purchased by Purchaser pursuant to the first two (2) sentences of this Section 5.1(i) may be acquired by Purchaser, at Purchaser’s sole election, at a price to be negotiated by Purchaser and Seller, but shall not count against the Obligated Volume unless otherwise approved in writing by Purchaser.

     Section 5.2 Force Majeure. Subject to the provisions of this Section 5.2, neither party shall be liable hereunder, and performance shall be excused, for a delay in or failure of performance of its obligations hereunder caused by a Force Majeure event, provided, however, no excuse for performance due to a Force Majeure delay under this Section 5.2 shall be effective unless the party experiencing such delay shall have notified the other party of the delay within ten (10) days of the event giving rise to such delay, unless the failure to provide this notice has not caused prejudice to the other party, in which event excuse for performance shall be effective. To the extent performance has been excused, neither party shall be required to make up performance which has been excused upon termination or expiration of the Force Majeure event. The parties shall use commercially reasonable efforts to mitigate the effects of the Force Majeure event, and if the cause of Force Majeure can be minimized or remedied, the parties shall use reasonable best efforts to do so promptly.

     (a) Notwithstanding anything herein to the contrary, if, as a result of a Force Majeure event pursuant to which a delay in Seller’s performance is excused hereunder, or for any other reason deliveries from Seller are reduced to the extent Purchaser cannot maintain its scheduled Products inventory at the Mill, Purchaser shall, upon notice to Seller, have the right to

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obtain Substitute Products from sources other than Seller until such time as Seller is again able to commence the delivery of Product to Purchaser. After Seller gives notice to Purchaser that it is again able to commence delivery of Product pursuant to the terms of this Agreement, Purchaser shall notify Seller of any commitments for Substitute Products that Purchaser has entered into. Purchaser shall not be required to accept from Seller the amount by which the Products volume was reduced until such time as Purchaser has accepted delivery of all Substitute Products contracted by Purchaser, provided that no such contract for Substitute Products shall be for a term longer than one (1) month without consent of Seller, which consent shall not be unreasonably withheld, conditioned or delayed.

     (b) Notwithstanding anything herein to the contrary, if, as a result of a Force Majeure event pursuant to which Purchaser cannot accept the quantity of Products provided for herein, Purchaser shall promptly so notify Seller, and Seller shall thereafter have the right to contract for the sale of any such Products Purchaser is unable to accept. Upon notice from Purchaser to Seller that Purchaser is again able to accept such Products, Seller will notify Purchaser of any commitments for the sale of Products that Seller has entered into and Seller shall not be required to deliver, or make available, as the case may be, such Products to Purchaser until Seller has provided all Products contracted by Seller, provided that no such Agreement shall be entered into for a term longer than one (1) month without the written consent of Purchaser, which consent shall not be unreasonably withheld, conditioned or delayed. If a Force Majeure event prevents operation of the Mill or any portion thereof, Purchaser will use its commercially reasonable efforts, within sixty (60) days of such event or as soon thereafter as reasonably practicable, to notify Seller of whether Purchaser intends to continue the operations of the Mill and the anticipated date such operations will begin. In the event Purchaser has not reassigned some or all of the Products applicable to the Mill to another Delivery Point in accordance herewith, then, within six (6) months after the shutdown of the Mill or portion thereof, either Purchaser or Seller may terminate this Agreement with respect to the portion of the Products that has not been reassigned upon thirty (30) days written notice.

     Section 5.3 Change in Mill Operations. Purchaser shall have the right to substantially curtail production at the Mill at Purchaser’s sole discretion. In the event production at the Mill is, or Purchaser determines will be, reduced by more than *** for more than thirty (30) days, as measured against normal and customary operations, upon ninety (90) days’ prior notice to Seller of such curtailment of production, the Obligated Volume and the Obligation Floor shall be appropriately reduced until such curtailment expires, and Seller may sell to other purchasers an amount of Product equal to the reduced portion of Obligated Volume.

     Section 5.4 Payment. Purchaser shall pay Seller within fifteen (15) days after the date of delivery of Product to the designated Delivery Point.

ARTICLE VI
TERM

     Section 6.1 Term. Unless this Agreement is earlier terminated pursuant to Section 6.3 or Article IX hereof, this Agreement shall commence on the Effective Date and shall expire at midnight on the date which is twenty (20) years after the Effective Date (said period, as the same may be extended pursuant to Section 6.2 below, the “Term”).

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     Section 6.2 Extension of Term. Provided that no Purchaser Event of Default exists at the time Purchaser elects to extend the Term pursuant to this Section 6.2, Purchaser shall have one (1) option (the “Option”) to extend the Term of this Agreement for a period of *** years (the “Initial Option Period”). Purchaser may exercise the Option to extend the Term, in its sole discretion, by giving written notice to Seller of its election to extend the Term at least *** prior to the then-current expiration date of the Term. Upon the expiration of the Initial Option Period and upon the expiration of each successive *** period thereafter (each such successive *** period a “Renewal Period”), unless either party gives written notice to the other party, at least *** prior to the expiration of the Initial Option Period or the Renewal Period, as the case may be, of its election not to renew this Agreement, this Agreement shall renew automatically for an additional Renewal Period.

     Section 6.3 Termination. In addition to Purchaser’s other rights to terminate this Agreement set forth herein, Purchaser may, in its sole discretion, terminate this Agreement upon the occurrence of a Change Event by giving not less than *** prior written notice of its election to terminate this Agreement.

     Section 6.4 Effect of Termination. Upon the earlier of the expiration of the Term or the termination of this Agreement pursuant to Article IX, this Agreement will become null and void and have no further force and effect; provided, however, that the provisions of Articles IX and X hereof shall survive the expiration or termination of this Agreement and remain in full force and effect; provided, further that no termination or expiration of this Agreement shall relieve either party of any obligation accrued prior to the effective date of expiration or termination, or of any liability for any breach of this Agreement by such party prior to the date of such termination.

ARTICLE VII

REPRESENTATIONS AND WARRANTIES

     Section 7.1 Representations and Warranties of Purchaser. Purchaser represents and warrants to Seller that the statements contained in this Section 7.1 are correct and complete as of the Effective Date.

     (a) Purchaser is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. Purchaser has all necessary corporate power and authority to (i) conduct its business as it is presently being conducted, (ii) execute this Agreement and (iii) perform its obligations and consummate the transactions contemplated hereby. Purchaser is duly qualified to do business in the States of Texas and Louisiana and the failure to be qualified to do business in any other jurisdiction would not, individually or in the aggregate, have a material adverse effect on the financial condition or results of operations of Purchaser or Purchaser’s ability to perform its obligations under this Agreement.

     (b) All corporate and other actions or proceedings to be taken by or on the part of Purchaser to authorize and permit the execution and delivery by Purchaser of this Agreement, the performance by Purchaser of its obligations hereunder and to consummate the transactions contemplated hereby have been duly and properly taken. This Agreement has been duly

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executed and delivered by Purchaser. Upon execution by Purchaser of this Agreement, assuming the valid authorization, execution and delivery by Seller of this Agreement, this Agreement shall constitute a legal, valid and binding obligation of Purchaser that is enforceable against Purchaser in accordance with its terms.

     (c) The execution and delivery by Purchaser of this Agreement and the consummation by Purchaser of the transactions contemplated hereby will not result in a breach or violation of, or default under: (i) any judgment, order, injunction, decree or ruling of any governmental authority applicable to Purchaser or any of its assets; (ii) to Purchaser’s knowledge (as defined below), any applicable statute, law, ordinance, rule or regulation; (iii) the terms, conditions or provisions of Purchaser’s certificate of incorporation, bylaws or any standing resolution of its Board of Directors; or (iv) any note or other evidence of indebtedness, mortgage, deed of trust, indenture, or other agreement or instrument to which Purchaser is a party or by which Purchaser may be bound, except for any such breach, violation or default that would not materially adversely affect the ability of Purchaser to perform its obligations hereunder.

     (d) There are no approvals, consents, permits or registration requirements with respect to any applicable governmental authority or any other Person that are or will be necessary for the valid execution and delivery by the Purchaser of this Agreement or the performance of its obligations hereunder.

     As used in this Section 7.1, the term “Purchaser’s knowledge” means the actual knowledge, without inquiry, of Morris Davis or George Vorpahl.

     Section 7.2 Representations and Warranties of Seller. Seller represents and warrants to Purchaser that the statements contained in this Section 7.2 are correct and complete as of the Effective Date.

     (a) Seller is a limited liability company duly formed, validly existing and in good standing under the laws of the State of Delaware. Seller has all necessary power and authority to (i) conduct its business as it is presently being conducted, (ii) execute this Agreement and (iii) perform its obligations and consummate the transactions contemplated hereby. Seller is duly qualified to do business in the States of Texas and Louisiana, and the failure to be qualified to do business in any other jurisdiction would not, individually or in the aggregate, have a material adverse effect on the financial condition or results of operations of Seller.

     (b) All actions or proceedings to be taken by or on the part of Seller to authorize and permit the execution and delivery by Seller of this Agreement, the performance by Seller of its obligations hereunder and to consummate the transactions contemplated hereby have been duly and properly taken. This Agreement has been duly executed and delivered by Seller. Upon execution by Seller of this Agreement, assuming the valid authorization, execution and delivery by Purchaser of this Agreement, this Agreement shall constitute a legal, valid and binding obligation of Seller that is enforceable against Seller in accordance with its terms.

     (c) The execution and delivery by Seller of this Agreement and the consummation by Seller of the transactions contemplated hereby will not result in a breach or violation of, or default under: (i) any judgment, order, injunction, decree, or ruling of any court

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or governmental authority applicable to Seller or any of its assets; (ii) to Seller’s knowledge (as defined below), any statute, law, ordinance, rule or regulation; (iii) the terms, conditions, or provisions of Seller’s bylaws, charter, or other documents of governance; or (iv) any note or other evidence of indebtedness, any mortgage, deed of trust or indenture, or any lease or other agreement or instrument to which Seller is a party or by which Seller may be bound, except for any such breach, violation or default that would not materially adversely affect the validity or enforceability of this Agreement or the ability of Seller to perform its obligation hereunder.

     (d) There are no approvals, consents, permits or registration requirements with respect to any applicable governmental authority or any other Person that are or will be necessary for the valid execution and delivery by the Seller of this Agreement or the performance of its obligations hereunder.

     (e) Seller has good and marketable title to the Products free and clear of all Liens, except for such Liens that would not otherwise materially adversely affect Purchaser’s rights in and to the Products delivered, or made available, to Purchaser pursuant to this Agreement. Seller shall pay, or cause to be paid, all severance taxes or other levies upon or incident to the production and delivery of Products hereunder which will or may constitute a Lien thereon or on any products manufactured therefrom.

     As used in this Section 7.2, the term “Seller’s knowledge” means the actual knowledge, without inquiry, of Jerry Brodie.

ARTICLE VIII

SELLER’S MANAGEMENT

     Section 8.1 Seller’s Management. Except as expressly provided otherwise in Section 2.5, Seller will be responsible for the designation, layout and timing of harvest areas, logging and transportation to the designated Delivery Point, and all other activities associated with ownership of the Property. Seller agrees to manage the Property in accordance in all material respects with applicable state best management practices for forestry and in a manner that meets the minimum requirements for compliance with SFI Standards, including providing third party certification of same, or such other third party certification program as is approved in writing from time to time by Purchaser. Seller’s contracts with logging professionals that produce and deliver Product under this Agreement shall require that they (i) maintain logger training and continuing education requirements in accordance with Sustainable Forestry Initiative State Implementation Committee standards, or such other third party certification organization standards approved in writing by Purchaser, and (ii) comply with applicable state best management practices for forestry and all applicable laws, including, without limitation, any weight restriction laws, ordinances or regulations, and Seller shall use diligent, good faith efforts to ensure compliance with such requirements. Following written request by Purchaser, Seller shall collect and provide Purchaser with tract identification information for all Product delivered in accordance herewith. Seller shall keep evidence of compliance with the terms of this Section 8.1 during the Term, which should include copies of education certificates and any other appropriate evidence of compliance. Seller will act in good faith and use its commercially reasonable efforts to cause all Products to meet the applicable Specifications.

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ARTICLE IX

DEFAULT AND DISPUTE RESOLUTION

     Section 9.1 Default by Purchaser. The following events shall constitute events of default by the Purchaser (each a “Purchaser Event of Default”):

     (a) Purchaser fails to pay as and when due any amount payable by it under this Agreement, and any such failure remains uncured fifteen (15) days after written notice thereof has been delivered to Purchaser;

     (b) Purchaser fails to perform or observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed, and any such failure remains uncured for thirty (30) days after written notice thereof has been delivered to Purchaser; or

     (c) Any representation or warranty of Purchaser under this Agreement is incorrect in any material respect.

If any Purchaser Event of Default occurs and continues fifteen (15) days after such initial written notice thereof has been given to Purchaser, then Seller may, by written notice to Purchaser, in addition to Seller’s other remedies available herein in equity, at law, or otherwise, suspend delivery of Product otherwise deliverable to Purchaser pursuant to the terms of this Agreement, and deliver such Product to an alternate third-party purchaser at a price reasonably consistent with then-existing market conditions (such Product counting toward the applicable Obligated Volume); provided that Purchaser shall be liable in the event of such delivery to an alternate purchaser for the difference between the applicable Quarterly Price for such Product and the price actually paid to Seller by such alternate third-party purchaser for such Product. If any Purchaser Event of Default occurs and continues fifteen (15) days after a second written notice thereof has been given to Purchaser upon or after expiration of the initial 15-day cure period, then Seller may, by written notice to Purchaser, in addition to Seller’s other remedies available herein, in equity, at law, or otherwise, (i) terminate this Agreement, or (ii) pursue specific performance of this Agreement.

     Section 9.2 Default by Seller. The following events shall constitute events of default by the Seller (each a “Seller Event of Default”):

     (a) Seller fails to pay as and when due any amount payable by it under this Agreement, and any such failure remains uncured fifteen (15) days after written notice thereof has been delivered to Seller;

     (b) Seller fails to perform or observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed, and any such failure remains uncured thirty (30) days after written notice thereof has been delivered to Seller;

     (c) Any representation or warranty of Seller under this Agreement is incorrect in any material respect;

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     (d) Seller fails to deliver in any calendar quarter, at least ninety percent (90%) of the applicable quarterly volume in the Delivery Plan; or

     (e) Seller fails to deliver at least ninety percent (90%) of the Obligated Volume in any Harvest Year.

If any Seller Event of Default occurs and continues fifteen (15) days after such initial written notice thereof has been given to Seller, then Purchaser may, by written notice to Seller, in addition to Purchaser’s other remedies available herein in equity, at law, or otherwise, suspend acceptance of Product otherwise deliverable to Purchaser pursuant to the terms of this Agreement, and accept such Product from an alternate third-party supplier at a price reasonably consistent with then-existing market conditions (such Product counting toward the applicable Obligated Volume); provided that Seller shall be liable in the event of such acceptance from an alternate supplier for the difference between the applicable Quarterly Price for such Product and the price actually paid by Purchaser to such alternate third-party supplier for such Product. If any Seller Event of Default occurs and continues fifteen (15) days after a second written notice thereof has been given to Seller upon or after expiration of the initial 15-day cure period, then Purchaser may, by written notice to Seller, in addition to Purchaser’s other remedies available herein, in equity, at law, or otherwise, (i) terminate this Agreement, or (ii) pursue specific performance of this Agreement.

     Section 9.3 Specific Performance. With respect to Purchaser’s and Seller’s rights to seek specific performance pursuant to Sections 9.1 and 9.2, each party acknowledges and agrees that the other party would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached. Accordingly, each of the parties agrees that the other party shall be entitled to an injunction or injunctions to prevent breaches of the terms of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having jurisdiction over the parties and the matter, in addition to any other remedy to which they may be entitled hereunder.

     Section 9.4 Liquidated Damages. Without limiting the rights and remedies set forth in Section 9.2 and Section 9.3, in the event of a Seller Event of Default due to Seller’s failure or inability, for any reason other than Force Majeure, to timely deliver the volumes of Product as required under this Agreement, then Purchaser may elect, in addition to any other rights Purchaser may have under Section 9.2 and Section 9.3, to require Seller to pay to Purchaser, as liquidated damages and not as a penalty, an amount equal to the difference between any cover price paid by Purchaser and the unpaid price under this Agreement plus *** of such amount. If Seller fails or refuses to pay such amount to Purchaser within ten (10) days after Purchaser’s request therefor, Purchaser shall have the right to offset such amount against amounts next due and owing to Seller by Purchaser hereunder. In the event of a Seller Event of Default, each party hereby waives the right to recover incidental, consequential or punitive damages from the other party hereto.

     Section 9.5 Assignment of Agreement. In the event of a Seller Event of Default that remains uncured fifteen (15) days after the second written notice given pursuant to Section 9.2, Seller shall, not later than five (5) days after receiving a written request from Purchaser, assign to

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Purchaser all of Seller’s rights, interests and obligations in and under the Master Stumpage Agreement and Purchaser shall assume the obligations of Seller thereunder from and after the date of such assignment, provided, however, that Seller shall remain responsible (and Purchaser shall not be responsible) for any obligations of Seller thereunder arising prior to such assignment. Notwithstanding the foregoing, Purchaser may, at Purchaser’s option, elect to pay any outstanding invoices payable by Seller under the Master Stumpage Agreement, in which event Purchaser shall have recourse against Seller for any amounts so paid, including, without limitation, the right to offset any such amounts against amounts payable by Purchaser to Seller hereunder.

     Section 9.6 Dispute Resolution.

     (a) In the event of any dispute, claim, question or disagreement arising from or relating to this Agreement or the breach thereof, each party shall use its commercially reasonable efforts to settle the dispute, claim, question or disagreement. To this effect, upon written notice from either party to the other party requesting that discussions be initiated (a “Dispute Notice”), Purchaser and Seller 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 Purchaser and Seller do not reach such a solution within a period of fifteen (15) days after delivery of such Dispute Notice, the parties shall have all rights and remedies set forth in this Agreement or otherwise available under applicable law. If the parties mutually agree to arbitrate a dispute, then the applicable dispute, claim or controversy shall be submitted to resolution in the following manner:

     (i) Arbitration shall be according to the rules of the AAA (but not administered by AAA), except as herein modified by the parties or otherwise as agreed to by the parties.

     (ii) Within ten (10) days of the agreement of the parties to arbitrate, each party will select an arbitrator, notify the other party of its selection and submit to the other party and its selected arbitrator its position regarding such claim, dispute or controversy. Within ten (10) days after such notice, the respective arbitrators will select a third arbitrator as the chairman of the panel (the “Panel Chairman”). The arbitrators selected by Purchaser and Seller, together with the Panel Chairman, shall be, collectively, referred to herein as the “Panel.”

     (iii) All arbitrators on the Panel shall have experience in the business of producing, procuring and selling forest products in the Southern region of the United States. Furthermore, the Panel Chairman shall be a forestry professional with at least ten (10) years of experience in Southern timber harvesting practices who has not performed any work as an employee or consultant for either party during the previous five (5) years, unless otherwise agreed upon by Purchaser and Seller.

     (iv) A majority decision of the Panel and resolution must be reached within fifteen (15) days after the selection of the Panel Chairman. Decisions of the panel must be in writing and will be final and binding upon the parties, and judgment may be entered thereon by any court having jurisdiction.

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     (b) Notwithstanding anything to the contrary contained in Section 9.6(a), above, Seller and Purchaser agree to submit any dispute as to Base Price, Quarterly Price, Final Quarterly Price, Freight Adjustment or any other dispute with respect to price (a “Price Dispute”) to binding arbitration to be resolved by a Panel selected in accordance with the provisions of Section 9.6(a)(ii) above, which Panel shall act in accordance with the following procedure:

(i)	Within fifteen (15) days after the selection of the Panel, each party will submit in writing to the Panel its position with respect to the price or cost in dispute and any materials such party wishes to submit supporting the use of the proposed purchase and sale price.
(ii)	Within fifteen (15) days following the submission of the position of each party, the Panel will choose one of the two submitted positions (and no other) based upon the Panel’s determination of the position that better reflects the actual market price or cost at issue. If only one position is submitted, the Panel will choose such position.
(iii)	The Panel shall assess the costs of such arbitration and reasonable attorney fees against the party whose position was not chosen or who did not submit a position.

During the arbitration proceedings of any Price Dispute, the Price for the purchase and sale of such Product for the calendar quarter in question shall be the average of the two submitted prices and Seller shall continue to deliver Product and Purchaser shall continue to accept Product as otherwise required by this Agreement. Upon the resolution of such Price Dispute, Purchaser and Seller agree to adjust the Price for any Product sold by Seller and purchased by Purchaser during such arbitration proceeding to reflect the Price as determined by the Panel and promptly reimburse each other accordingly to effect such adjustment.

     (c) Except as provided in Section 9.6(b), above, each party shall bear its own cost of presenting its case, and one-half of the cost incurred by the Panel.

     (d) The parties and the Panel shall treat the proceedings, any resolution thereof and any related discovery as confidential, except in connection with a judicial challenge to, or enforcement of, an award and unless otherwise required by law.

ARTICLE X

INDEMNITY AND INSURANCE

     Section 10.1 Purchaser’s Indemnity. Purchaser shall defend, indemnify and hold harmless the Seller, its Affiliates and their assignees, subcontractors, members, shareholders, directors, officers, managers, partners, employees, agents and consultants (each, a “Seller Indemnitee”), from and against all claims and causes of action, pending or threatened, of any kind or nature, by third parties, related to or arising out of any bodily injury to, or death of, any Person, or any physical damage to tangible property, resulting from, or attributable to,

20

Purchaser’s breach of this Agreement or the negligent or intentional wrongful acts or omissions of Purchaser, its Affiliates or any of their employees, agents or contractors; except to the extent such injury or damage also results in part from the negligent or intentionally wrongful act or omission of any Seller Indemnitee. Notwithstanding anything herein to the contrary, Purchaser shall indemnify any Seller Indemnitee for any incidental, consequential or punitive damages that such Seller Indemnitee is required to pay to any third party as a result of such breach, act or omission of Purchaser, its Affiliates or any of their employees, agents or contractors.

     Section 10.2 Seller’s Indemnity. Seller shall defend, indemnify and hold harmless the Purchaser, its Affiliates and their assignees, subcontractors, members, shareholders, directors, officers, managers, partners, employees, agents and consultants (each, a “Purchaser Indemnitee”), from and against all claims and causes of action, pending or threatened, of any kind or nature, by third parties, related to or arising out of any bodily injury to, or death of, any Person, or any physical damage to tangible property, resulting from, or attributable to, Seller’s breach of this Agreement or the negligent or intentional wrongful acts or omissions of Seller, its Affiliates or any of their employees, agents or contractors; except to the extent such injury or damage also results in part from the negligent or intentionally wrongful act or omission of any Purchaser Indemnitee. Notwithstanding anything herein to the contrary, Seller shall indemnify any Purchaser Indemnitee for any incidental, consequential or punitive damages that such Purchaser Indemnitee is required to pay to any third party as a result of such breach, act or omission of Seller, its Affiliates or any of their employees, agents or contractors.

     Section 10.3 Insurance. Each party, and any contractors engaged by or on behalf of such party, will keep in effect during the Term, at its sole expense, the following insurance coverages:

     (a) Comprehensive general liability insurance with limits not less than $2,000,000 for bodily injury to one person, $2,000,000 for bodily injury to any group of persons as a result of one occurrence, and $2,000,000 for property damage; provided, however each party’s contractors’ policies shall provide coverage for general liability with limits not less than $1,000,000 per occurrence bodily injury liability and property damage liability combined and $1,000,000 in the aggregate;

     (b) Commercial Auto Liability insurance with limits not less than $1,000,000 combined single limits insuring “Any Auto” or “All Owned Autos,” “Hired Autos” and “Non-owned Autos;”

     (c) Employer’s Liability Insurance with limits not less than the following:

(i)	Each accident — $100,000,
(ii)	Disease (policy) — $500,000, and
(iii)	Disease (each employee) — $100,000; and

     (d) Worker’s compensation insurance, covering all employees, including owners, partners and executive officers, with limits no less than the statutory limits of the state where the work is being performed. Each party’s worker’s compensation policy shall be endorsed to waive

21

all rights of subrogation against the other party and all subsidiaries thereof where permitted by law, and policies shall include excess and stop-gap worker’s compensation coverage for all contractors and subcontractors of the insured party.

     Such policies will name the other party as an additional insured by endorsements to the policies, as if the additional insureds were the named insured, without restrictions. Each party shall provide the other party with Certificates of Insurance throughout the term of this Agreement, as requested.

     Notwithstanding the provisions of Article IX, Purchaser shall have the right to withhold any and all payments for Products or services provided hereunder if Seller does not procure insurance coverage, allows coverage required hereunder to lapse or be cancelled, or does not provide evidence of required insurance in accordance herewith.

     Either party may, at such party’s option and upon no less than ninety (90) days advance written notice to the other party, amend the coverages and policy limits set forth in this Section 10.3 without the consent of the other party, provided that such new coverages and policy limits shall be substantially similar to the coverage requirements imposed generally in the commercial forestry industry in the Southern region of the United States.

     Section 10.4 Notice of Claim. Purchaser and Seller shall immediately give the other party written notice of any alleged claim by a third party arising out of this Agreement or the actions or activities contemplated by this Agreement.

ARTICLE XI

ASSIGNMENT AND TRANSFERS

     Section 11.1 Seller’s Assignment Rights. Any proposed assignment by Seller of its rights and obligations under this Agreement that is subject to Sections 3.3(b) and 3.3(c) of the Support Agreement shall be governed by such provisions. Otherwise, Seller may assign its rights and obligations under this Agreement only to an assignee with the financial and operational capability to fulfill the obligations of Seller hereunder and otherwise satisfactory to Purchaser as determined in its reasonable discretion.

     Section 11.2 Purchaser’s Assignment Rights. Purchaser shall have the right to assign its rights and obligations under this Agreement, in whole or in part, without the prior consent of Seller.

ARTICLE XII

AUDIT RIGHTS

     Section 12.1 Audit Rights. Either party shall have the right to audit the other party’s compliance with the terms of this Agreement, including the terms of Articles 2, 3, 4 and 5 by notifying the party to be audited of the requesting party’s exercise of such right within six (6) months after the end of the Harvest Year for which the requesting party intends to exercise such right. The audited party shall provide the requesting party or its representative with access

22

during normal business hours to all records and other information necessary to complete such audit as are commercially reasonable. Furthermore, the requesting party shall have the right to access the Property or the Mill, as the case may be, and to inspect any and all deliveries of Product for purposes of monitoring the performance of the audited party’s obligations pursuant to the terms herein, including the right to audit. All nonpublic information acquired in the course of either party’s exercise of the audit rights provided for by this Section 12.1 shall be subject to the provisions of Section 14.4.

ARTICLE XIII

NOTICES

     Section 13.1 Notices. All notices required or permitted to be given hereunder shall be in writing, signed by the party giving such notice or its legal counsel, and shall be deemed to be delivered, whether or not actually received, (i) when personally delivered by commercial courier service or other messenger; (ii) three (3) days after being deposited with the United States Postal Service with postage paid for certified delivery with return receipt requested; (iii) when sent by next day business commercial service delivery, or (iv) when transmitted by e-mail evidenced by a confirmatory response e-mail or by facsimile evidenced by a confirmed receipt, with a copy sent by any of the means permitted by clauses (i), (ii) or (iii) above on the same day the e-mail or facsimile transmission is sent by the party giving such notice. For purposes of notice, the addresses of the parties are as follows:

Purchaser:	TIN Inc.
	303 South Temple Drive
	Diboll, Texas 75941
	Attention: Group Vice President                   Building Products
	Facsimile: (936) 829-1248
	E-mail: JackSweeny@templeinland.com
Copy to:	Temple-Inland Inc.
	1300 S. Mopac Expressway
	Austin, Texas 78746
	Attention: General Counsel
	Facsimile: (512) 434-8051
	E-mail: GeorgeVorpahl@templeinland.com
Seller:	CPT LogCo, LLC
	c/o The Campbell Group
	1 SW Columbia, Suite 1700
	Portland, Oregon 97258
	Attention: Jerry Brodie
	Facsimile: (503) 275-9667
	E-mail: JBrodie@campbellgroup.com

23

Copy to:	Schwabe, Williamson & Wyatt
	1211 SW Fifth Avenue, Suite 1800
	Portland, Oregon 97204
	Attention: Kirk Johansen
	Facsimile: (503) 796-2900
	E-mail: kjohansen@schwabe.com

or to such other address or addresses as any party may from time to time, upon five (5) business days’ advance written notice to the other party, designate as to itself.

ARTICLE XIV

MISCELLANEOUS

     Section 14.1 Amendments. No amendment or waiver of any provision of this Agreement will in any event be effective unless the same shall be in writing and signed by both parties. This Agreement constitutes the full and complete understanding of the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements and understandings, both oral and written, between the parties with respect thereto.

     Section 14.2 Recording of Agreement. Seller and Purchaser shall cause to be recorded a Memorandum of Agreement against the Property at the appropriate public records office(s) in the jurisdiction(s) in which the Property is located giving notice of the rights of Purchaser under this Agreement. Purchaser agrees to execute and deliver, within thirty (30) days following Seller’s request therefor, appropriate recordable documents reasonably necessary to evidence the release of any portion of the Property that is conveyed or otherwise transferred by Seller pursuant to the terms of this Agreement, and Purchaser consents to the recording of such documents in the appropriate public records office.

     Section 14.3 Compliance with Laws. Each party agrees that its performance of this Agreement shall comply with all applicable federal, state and local laws, rules and regulations, including, without limitation, all Environmental Laws, and that each party shall obtain and maintain in effect all necessary licenses and permits incident to its operations in the performance of this Agreement.

     Section 14.4 Confidentiality. To the fullest extent permitted under applicable law, the parties hereto shall keep the nonpublic terms, conditions and provisions of this Agreement confidential; provided, however, the parties may release information as required by applicable law, and to their respective lenders, partners, employees, consultants and contractors so long as any such party is made aware of the provisions of this Section 14.4.

     Section 14.5 Estoppel Certificates. Both parties agree that within twenty (20) days of the other party’s request for the same, the providing party shall deliver to the requesting party an estoppel certificate in form reasonably satisfactory to the requesting party setting forth (to the extent the providing party may truthfully certify to the same), among other things, that this Agreement is in full force and effect, that, to its knowledge, no breach exists on behalf of the

24

requesting party hereunder, and the portion of the Obligated Volume harvested by Purchaser as of such date.

     Section 14.6 No Waiver; Remedies. No failure on the part of either party to exercise, and no delay in exercising, any right under this Agreement will operate as a waiver thereof; nor will any single or partial exercise of any right under this Agreement preclude any other or further exercise thereof or the exercise of any other right.

     Section 14.7 Accounting Terms. All accounting terms not specifically defined herein will be construed in accordance with United States generally accepted accounting principles consistently applied, except as otherwise stated herein.

     Section 14.8 Binding Effect; Governing Law. This Agreement will be binding upon and inure to the benefit of Purchaser and Seller and their respective successors and permitted assigns. This Agreement will be governed by, and construed in accordance with, the laws of the State of Texas, without giving effect to the conflicts of law principles thereof.

     Section 14.9 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties may execute this Agreement by signing any such counterpart.

     Section 14.10 Time of the Essence. Time is of the essence of this Agreement.

     Section 14.11 Incorporation of Exhibits and Schedules. All exhibits and schedules referred to in this Agreement are hereby incorporated herein by this reference.

     Section 14.12 Interest. At the election of the payee, any amount not paid when due hereunder, and which remains unpaid for a period of fifteen (15) days or more after written notice of such non-payment to the Person obligated to make such payment, will bear interest at the rate of five percent (5%) above the prime rate, as published in the “Money Rates” table of the Wall Street Journal from time to time, whichever is greater, from the date due until paid; provided, that in no event shall the interest rate exceed the maximum lawful rate allowed under applicable law.

     Section 14.13 Further Assurances. Seller and Purchaser further covenant to cooperate with one another in all reasonable respects necessary to consummate and give effect to the transactions contemplated by this Agreement (including executing and delivering such instruments or other writings as the other party may reasonably request), and each will take all reasonable actions within its authority to secure cooperation of any necessary third parties.

     Section 14.14 Most Favored Status. During the Term, each party to this Agreement shall treat the other on the most favorable basis compared to its other suppliers or purchasers with respect to its sales, purchases and deliveries hereunder or any other matters in the customary operation of its business. Without limiting the generality of the foregoing sentence, during the occurrence of adverse weather conditions or an adverse change in the market that do not amount to a Force Majeure event, (a) Purchaser shall not, to the extent commercially practicable, reduce the volume of Product required to be purchased under this Agreement until such time as Purchaser has ceased acceptance of delivery of similar wood products purchased from other

25

suppliers that are not Affiliates of Seller and (b) Seller shall, to the extent commercially practicable, deliver all Product harvested from the Property to Purchaser, and to no other Person, until such time as the volume requirements for the applicable Delivery Plan have been met.

     Section 14.15 Attorney’s Fees. Except as expressly provided otherwise in Section 9.6, if arbitration, mediation, litigation or any other proceeding of any nature whatsoever (including any proceeding under the U.S. Bankruptcy Code) is instituted or appealed in connection with any controversy arising out of this Agreement or to interpret or enforce any rights, the prevailing party shall be entitled to recover its attorneys’, paralegals’, accountants’, and other experts’ fees and all other fees, costs, and expenses actually incurred, as determined to be reasonable by the arbitrator(s) or court(s), in addition to all other amounts provided by law. The prevailing party will be deemed to be the party to have won on the issues with the greatest value as determined by the court(s) or arbitrator(s).

     Section 14.16 Severability. Whenever possible, each provision in this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Agreement.

     Section 14.17 Captions and Headings. The captions and headings used in this Agreement are for convenience and reference only and do not constitute a part of this Agreement and shall not be deemed to limit, characterize or in any way affect any provision of this Agreement, and all provisions of this Agreement shall be enforced and construed as if no caption or heading had been used in this Agreement.

     Section 14.18 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 14.19 Relationship. The only relationship between Seller and Purchaser shall be that of vendor and purchaser of the Product to be cut and removed from the Property, and neither party shall in any respect be deemed to be or represent itself to be an agent of the other party. Furthermore, no relationship of employer-employee or master and servant is intended, nor shall it be construed, to exist between the parties, or between any party and any servant, agent, employee and/or supplier of any other party, by reason of this Agreement. Each party shall select and pay its own servants, agents, employees and/or suppliers and neither party nor its servants, agents, employees, or suppliers shall be subject to any orders, supervision or control of the other party.

26

     Section 14.20 Integration. This Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter contained herein.

     Section 14.21 Uniform Commercial Code. This Agreement is subject to Section 1.304 of the Business and Commerce Code of Texas.

[Signature Pages Follow]

27

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed, sealed and delivered by their respective officers thereunto duly authorized, as of the date first above written.

PURCHASER

TIN INC., a Delaware corporation

By:

Name:

Title:

[Seller Signature Page Follows]

28

SELLER:
CPT LOGCO, LLC, a Delaware limited liability company
By:
Name:	Stanley G. Renecker
Title:	Authorized Signatory

29

SCHEDULE 1

SPECIFICATIONS

TIN Inc.

Orange

Purchased Delivered Pine Pulpwood Specifications

June 2007

1) Length: Tree Length (PP): Minimum — ***
Maximum — ***
Interlaced Loads (PP): Minimum — ***
Maximum — ***
Overlapped Loads (PP): Minimum — ***
Maximum —***
***

2) Maximum Diameter ***

3) Top Size: Minimum — ***

4) Fork: ***

5) Crook: ***

6) Burn/Char: ***

7) Rotten Wood: ***

8) Foreign Material: ***

9) Clear Hollows: ***

10) General Quality ***

11) Receiving: ***

***

Schedule 1

SCHEDULE 2

2008 ANNUAL PLAN

Compstand	Est. Year	County	Technique	Harvest Acres	Total PP
***	***	***	***	***	***

Schedule 2

SCHEDULE 3

2008 FORECAST PLAN

2009 Pine Pulpwood Forecast

	Product		Tons
BUNA AREA	Sum of Pine Pulpwood ***		***
	Sum of Pine Pulpwood ***		***
		Total	***
DIBOLL AREA	Sum of Pine Pulpwood ***		***
	Sum of Pine Pulpwood ***		***
		Total	***
PINELAND AREA	Sum of Pine Pulpwood ***		***
	Sum of Pine Pulpwood ***		***
		Total	***
DEQUNICY AREA	Sum of Pine Pulpwood ***		***
	Sum of Pine Pulpwood ***		***
		Total	***
	Total Pine Pulpwood ***		***
	Total Pine Pulpwood ***		***
		Grand Total	***
2010 Pine Pulpwood Forecast
	Total Pine Pulpwood		***

***

Schedule 3

SCHEDULE 4

ANNUAL MINIMUM VOLUME

		Annual Minimum Volumes
	Minimum Annual PPW Harvest Plan (000 Tons)
YEAR	NTX	STX	LA	CONS	TOTAL
2008	***	***	***	***	***
2009	***	***	***	***	***
2010	***	***	***	***	***
2011	***	***	***	***	***
2012	***	***	***	***	***
2013	***	***	***	***	***
2014	***	***	***	***	***
2015	***	***	***	***	***
2016	***	***	***	***	***
2017	***	***	***	***	***
2018	***	***	***	***	***
2019	***	***	***	***	***
2020	***	***	***	***	***
2021	***	***	***	***	***
2022	***	***	***	***	***
2023	***	***	***	***	***
2024	***	***	***	***	***
2025	***	***	***	***	***
2026	***	***	***	***	***
2027	***	***	***	***	***
2028	***	***	***	***	***
2029	***	***	***	***	***
2030	***	***	***	***	***
2031	***	***	***	***	***
2032	***	***	***	***	***

Schedule 4

SCHEDULE 5

FREIGHT ADJUSTMENT

DEFINITIONS

A	Base Haul Rate $*** per loaded ton-mi as the base $  per loaded ton-mile trucking Cost
B	Benchmark Fuel Price $*** per gallon as the base $  per gallon retail on-highway diesel price
C	Current Fuel Price Based on ***
D	***
E	*** ***
F	Rate Adjustment Factor ***
G	Current Haul Rate ***

HAUL RATE FUEL ADJUSTMENT

			Calculation
A	Base Haul Rate	$***
B	Benchmark Fuel Price	$***
C	Current Fuel Price	$***
D	***	***	***
E	***	***
F	Rate Adjustment Factor	***	***
G	Current Haul Rate	$***	***

Schedule 5

SCHEDULE 6

BASE PRICE

3Q 04

4Q 04

3Q 05

4Q 05

3Q 06

4Q 06

3Q 07

Louisiana

Zone 1

$

*

**

$

*

**

$

*

**

$

*

**

$

*

**

$

*

**

$

*

**

Texas

Zone 2

$

*

**

$

*

**

$

*

**

$

*

**

$

*

**

$

*

**

$

*

**

Texas

Zone 1

$

*

**

$

*

**

$

*

**

$

*

**

$

*

**

$

*

**

$

*

**

Average Delivered using *** Adjustment Factor

$

*

**

$

*

**

$

*

**

$

*

**

$

*

**

$

*

**

$

*

**

Base Price

$

*

**

*** Adjustment Factor

Average prior three years *** Adjustment Factor

*

**%

***%

LA1

***%

TX2

Quarterly Price

$

*

**

***%

TX1

Schedule 6

SCHEDULE 7

PRICING EXAMPLE

PINE PULPWOOD DELIVERED PRICING TIMETABLE AND PRICE CALCULATION
Pricing process timetable is outlined below:
***

Example pricing calculation:

***

Schedule 7

SCHEDULE 8

DISTINCTIVE SITES

SITE	ACRES	DESCRIPTION	LOCATION
***	***	***	***
***	***	***	***
***	***	***	***
***	***	***	***
***	***	***	***
***	***	***	***
***	***	***	***
***	***	***	***
***	***	***	***
***	***	***	***
***	***	***	***

Schedule 8

SCHEDULE 9

BIOMASS HARVEST LOCATIONS

***

Schedule 9

Exhibit A

Description of Property

***

CONSERVATION BLOCK

***

Exhibit B

Form of Support Agreement

[see attached]

PULPWOOD SUPPORT AGREEMENT

***

EX-10.26

Exhibit 10.26

PORTIONS OF THIS EXHIBIT MARKED BY ***
HAVE BEEN OMITTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION

SAWTIMBER SUPPLY AGREEMENT

BY AND BETWEEN

TIN INC., as Purchaser

AND

CPT LOGCO, LLC, as Seller

Table of Contents

ARTICLE I DEFINITIONS	1
Section 1.1 Definitions	1
ARTICLE II HARVEST VOLUMES	7
Section 2.1 Obligation to Purchase and Sell	7
Section 2.2 Annual Plan and Forecast Plan	8
Section 2.3 Obligated Volume	8
Section 2.4 Uncommitted Volume and Quarterly Meetings	8
Section 2.5 Biomass	8
Section 2.6 Post-Harvest Carbon Rights	9
ARTICLE III PRODUCT SPECIFICATIONS	9
Section 3.1 Product Specifications	9
Section 3.2 Rejected Product	9
ARTICLE IV PRICE SCHEDULE	10
Section 4.1 Initial Price	10
Section 4.2 Quarterly Price	10
ARTICLE V DELIVERY, FORCE MAJEURE AND PAYMENT	10
Section 5.1 Delivery, Scaling and Weighing	10
Section 5.2 Force Majeure	13
Section 5.3 Change Event	14
Section 5.4 Payment	14
ARTICLE VI TERM	14
Section 6.1 Term	14
Section 6.2 Extension of Term	14
Section 6.3 Effect of Termination	14
ARTICLE VII REPRESENTATIONS AND WARRANTIES	14
Section 7.1 Representations and Warranties of Purchaser	14
Section 7.2 Representations and Warranties of Seller	15
ARTICLE VIII SELLER’S MANAGEMENT	16
Section 8.1 Seller’s Management	16
ARTICLE IX DEFAULT AND DISPUTE RESOLUTION	17
Section 9.1 Default by Purchaser	17
Section 9.2 Default by Seller	18
Section 9.3 Specific Performance	18
Section 9.4 Liquidated Damages	19
Section 9.5 Assignment of Agreement	19
Section 9.6 Dispute Resolution	19
ARTICLE X INDEMNITY AND INSURANCE	21
Section 10.1 Purchaser’s Indemnity	21
Section 10.2 Seller’s Indemnity	21
Section 10.3 Insurance	21
Section 10.4 Notice of Claim	22
ARTICLE XI ASSIGNMENT AND TRANSFERS	22
Section 11.1 Seller’s Assignment Rights	22
Section 11.2 Purchaser’s Assignment Rights	23

-ii-

ARTICLE XII AUDIT RIGHTS	23
Section 12.1 Audit Rights	23
ARTICLE XIII NOTICES	23
Section 13.1 Notices	23
ARTICLE XIV MISCELLANEOUS	24
Section 14.1 Amendments	24
Section 14.2 Recording of Agreement	24
Section 14.3 Compliance with Laws	25
Section 14.4 Confidentiality	25
Section 14.5 Estoppel Certificates	25
Section 14.6 No Waiver; Remedies	25
Section 14.7 Accounting Terms	25
Section 14.8 Binding Effect; Governing Law	25
Section 14.9 Counterparts	25
Section 14.10 Time of the Essence	25
Section 14.11 Incorporation of Exhibits and Schedules	25
Section 14.12 Interest	25
Section 14.13 Further Assurances	26
Section 14.14 Most Favored Status	26
Section 14.15 Attorney’s Fees	26
Section 14.16 Severability	26
Section 14.17 Captions and Headings	26
Section 14.18 Construction	26
Section 14.19 Relationship	27
Section 14.20 Integration	27
Section 14.21 Uniform Commercial Code	27

INDEX

SCHEDULES
Schedule 1	Specifications
Schedule 2	2008 Annual Plan
Schedule 3	2008 Forecast Plan (for years 2009-2011)
Schedule 4	Annual Minimum Volumes and Annual Obligation Floors
Schedule 5	Freight Adjustment
Schedule 6	Initial Price
Schedule 7	Product Volume Range
Schedule 8	Distinctive Sites
Schedule 9	Biomass Harvest Locations
Schedule 10	Obligated Volume Products and Delivery Points for 2007 and 2008
Schedule 11	Pricing Example

EXHIBITS
Exhibit A	Description of Property
Exhibit B	Form of Support Agreement

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SAWTIMBER SUPPLY AGREEMENT

     THIS SAWTIMBER SUPPLY AGREEMENT (this “Agreement”) is made and entered into as of this 31^st day of October, 2007 (the “Effective Date”) by and between TIN INC., a Delaware corporation (“Purchaser”), and CPT LOGCO, LLC, a Delaware limited liability company (“Seller”).

RECITALS

A.	Purchaser and Landowner entered into that certain Purchase Agreement dated August 3, 2007, as amended by that certain Amended and Restated Purchase Agreement dated October 31, 2007 (as amended, the “Purchase Agreement”), pursuant to which Purchaser sold and Crown Pine Timber 1, L.P., a Delaware limited partnership, Crown Pine Timber 2, L.P., a Delaware limited partnership, Crown Pine Timber 3, L.P., a Delaware limited partnership, and Crown Pine Timber 4, L.P., a Delaware limited partnership (collectively, “Landowner”), acquired approximately 1,469,507 acres of real property located in Anderson, Angelina, Cherokee, Houston, Jefferson, Liberty, Nacogdoches, Orange, Panola, Rusk, San Jacinto, Shelby, Trinity, Newton, Sabine, San Augustine, Hardin, Jasper, Polk and Tyler Counties, Texas; and Allen, Beauregard, Calcasieu, Jefferson Davis, Rapides, Sabine and Vernon Parishes, Louisiana, being more particularly described in Exhibit A attached hereto (the “Property”); and
B.	Purchaser and Crown Pine Parent, L.P., a Delaware limited partnership, of which each entity constituting Landowner is a wholly owned subsidiary, are simultaneously entering into a Sawtimber Support Agreement substantially in the form attached hereto as Exhibit B (the “Support Agreement”), pursuant to which Landowner is providing certain assurances and agreements to Purchaser with respect to the availability of the cutting rights contemplated and required by this Agreement; and
C.	Purchaser desires to buy and receive, and Seller desires to sell, deliver and provide Product (as defined herein) from the Property; and
D.	Purchaser and Seller desire to purchase and sell Product pursuant to the terms of this Agreement at the fair market price;

     IN CONSIDERATION of the mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Purchaser hereby agree as follows:

ARTICLE I

DEFINITIONS

     Section 1.1 Definitions. As used herein, the following terms will have the meanings ascribed thereto:

     “AAA” means the American Arbitration Association.

     “Acts of God” means events which are caused solely by the effects of nature or natural causes, without interference by any person, consisting of insect infestations, floods, earthquakes, tornados, hurricanes, fires, lightening and extraordinary amounts of rain that materially and adversely impact the ability to harvest timber.

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

     “Agreement” shall have the meaning provided in the first paragraph of this Agreement.

     “Annual Harvest Option Volume” means *** of the excess of the Annual Harvest Volume over the Obligation Floor.

     “Annual Harvest Volume” means the volume of Product that Seller plans to harvest during a Harvest Year as set forth in the Annual Plan for such Harvest Year.

     “Annual Minimum Volume” means the volume of Product that Seller is obligated to make available for harvest from the Property during a Harvest Year. The Annual Minimum Volume for each Harvest Year is set forth on Schedule 4 attached hereto.

     “Annual Plan” means a written annual harvest plan prepared by Seller pursuant to Section 2.2 hereof detailing (i) the planned Annual Harvest Volume of each Product (by tract) and (ii) tract locations for the Product during a Harvest Year. An Annual Plan shall include stand data (including age of each stand) and a map of each tract to be harvested during such Harvest Year; provided, however, Seller may substitute tracts from the Property without notice to or consent of Purchaser so long as such substitution does not result in increased cost or inconvenience to Purchaser.

     “Biomass” means standing trees (excluding Pulpwood and other merchantable timber) and/or vegetation that can be commercially preharvested, or standing and down woody material and debris existing after a harvesting operation.

     “Biomass Offer” has the meaning set forth in Section 2.5 hereof.

     “Carbon Rights” means any carbon sequestration credits or offsets, renewable energy credits or similar method of attribution of a value, right or privilege for carbon sequestration that may be used to satisfy limits on carbon dioxide emissions or to reduce taxes, assessments or penalties on carbon dioxide emissions.

     “Carryover Volume” has the meaning provided in Section 5.1(c) hereof.

     “Certificate of Insurance” means a written certification with respect to each party’s insurance policies required hereunder by or on behalf of the insurance company or companies issuing the insured party’s insurance policies stating, (i) the name of the insurance company or companies issuing the insurance policy, (ii) the deductible amount, (iii) types of coverage, (iv) the premium amount, (v) the expiration date, (vi) the policy limit or face amount, (vii) waiver of

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subrogation, (viii) that the other party may rely on such certificate, and (ix) that such insurance policy shall not be cancelled, amended or non-renewed without providing the other party with at least thirty (30) days’ prior written notice.

     “Change Event” means (i) a closing of a Mill or an operating line within a Mill, (ii) the sale of a Mill, or (iii) a material decrease in Purchaser’s requirements for Product as a result of a change in a manufacturing process at a Mill.

     “Chip-n-Saw” means pine sawtimber having a minimum top (diameter inside bark) equal to or greater than ***.

     “Conservation Block” means the conservation areas containing approximately *** acres described on Exhibit A.

     “Delivery Plan” has the meaning set forth in Section 5.1(a) hereof.

     “Delivery Point” means each Mill, Purchaser’s woodyard in Silsbee, Texas, Purchaser’s woodyard in Lufkin, Texas and/or such other location at which the Product is delivered by Seller, as shall be designated in the Delivery Plan or by Purchaser in Purchaser’s sole discretion from time to time.

     “Distinctive Site” means any site described on Schedule 8 attached hereto.

     “Effective Date” shall have the meaning provided in the first paragraph of this Agreement.

     “Environmental Laws” means any United States federal, state or local laws and the regulations promulgated thereunder, relating to pollution or protection of the environment or to threatened or endangered species, 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 or toxic substances or petroleum (and its fractions) 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 or toxic substances or petroleum (and its fractions), including, without limitation, the following laws and regulations promulgated thereunder as amended from time to 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) the Endangered Species Act, 16 U.S.C. §1531 et seq.; and (viii) all laws of the states in which the Property is located that are based on, or substantially similar to, the federal statutes listed in parts (i) through (vii) of this paragraph.

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     “Final Quarterly Price” means a price computed for each Product at each applicable Delivery Point equal to the weighted average delivered cost for such Product at such Delivery Point, excluding the purchase of Substitute Products, woodyard transactions, transactions with Seller (pursuant to this Agreement or otherwise), internal transactions, timber deeds and supply agreements having a term in excess of ***. If a minimum of *** tons of quarterly comparable purchases for such Product at such Delivery Point, representing not less than *** different suppliers, does not exist then the pricing information for the closest Delivery Point which meets the tonnage and supplier threshold set forth above shall be used. If no Delivery Point meets such threshold, then Seller and Purchaser shall negotiate the Final Quarterly Price in good faith and any dispute with respect to such price shall be resolved in accordance with Section 9.6(b) hereof.

     “Force Majeure” means any cause, condition or event beyond the reasonable control of a party, which the party in question, despite the use of good faith and commercially reasonable efforts, is unable to overcome, that delays or prevents such party’s performance of its obligations hereunder, consisting solely of war, war-like operations, invasions, rebellion, acts of terrorism, military or usurped power, sabotage, acts of government, acts of public enemy, riots, fires, explosions, Acts of God, labor strikes, disputes or lockouts by employees, general suspension of payments by banks in the United States, and an involuntary ceasing of operations at the Mill for a minimum of thirty (30) consecutive days. Force Majeure shall not include, (i) a party’s financial inability to perform, (ii) non-violent, civil demonstrations, (iii) an act or omission arising from the willful misconduct of the party claiming that a Force Majeure event has occurred, or (iv) any rainfall which does not constitute an Act of God.

     “Forecast Plan” means a written harvest plan prepared by Seller pursuant to Section 2.2 detailing the forecasted Annual Harvest Volume during the two (2) Harvest Years immediately following the Harvest Year in the Annual Plan delivered to Purchaser pursuant to Section 2.2, and, for tracts to be harvested during the first Harvest Year set forth in any Forecast Plan, designation of the geographic locations from which the Product will be harvested.

     “Freight Adjustment” means an increase or decrease in the applicable Quarterly Price or Final Quarterly Price for Product delivered pursuant to this Agreement in accordance with the formula set forth on Schedule 5 provided that the parties shall agree upon any adjustments to the Freight Adjustment every *** year after the year of the Effective Date.

     “Harvest Year” means a calendar year beginning on January 1 and ending on December 31. The first full “Harvest Year” of this Agreement shall begin on January 1, 2008 and end on December 31, 2008. The periods from the Effective Date to December 31, 2007 and from January 1 in the final calendar year of the Term to the date the Term expires shall be deemed partial “Harvest Years.”

     “Initial Price” has the meaning set forth in Section 4.1 hereof.

     “Large Sawtimber” means pine sawtimber having a top (diameter inside bark) equal to or greater than 11 inches.

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     “Liens” means any and all liens, charges, mortgages, deeds to secure debt, pledges, security interests, options of record, adverse claims or other encumbrances of a liquidated amount or which are otherwise statutorily enforceable, other than liens for ad valorem taxes not yet due and payable.

     “Master Stumpage Agreement” means, collectively, those certain Master Sawtimber Stumpage Agreements dated October 31, 2007, by and between Seller and each entity constituting Landowner, with respect to the Property.

     “Medium Sawtimber” means pine sawtimber having a top (diameter inside bark) equal to or greater than 9 inches.

     “Mill” means any of the sawmills owned by Purchaser and located in Buna, Texas, Diboll, Texas, Pineland, Texas and DeQuincy, Louisiana, the stud mill owned by Purchaser in Pineland, Texas and any other mill that Purchaser leases or in which Purchaser has an ownership interest exceeding forty-nine percent (49%) in the States of Texas or Louisiana during the Term of this Agreement.

     “Obligated Volume” means the minimum volume of Product from the Property, determined by Purchaser in accordance with Section 2.3, that Seller is required to deliver to Purchaser and Purchaser is required to purchase during a Harvest Year in accordance with the terms of this Agreement.

     “Obligation Floor” means, for any given Harvest Year, the smallest permissible Obligated Volume, as set forth on Schedule 4 attached hereto.

     “Option” has the meaning set forth in Section 6.2 hereof.

     “Option Period” has the meaning set forth in Section 6.2 hereof.

     “Panel” has the meaning set forth in Section 9.6(a) hereof.

     “Panel Chairman” has the meaning set forth in Section 9.6(a) hereof.

     “Person” means any individual, sole proprietorship, trust, estate, executor, legal representative, unincorporated association, institution, corporation, company, partnership, limited liability company, limited liability partnership, joint venture, government (whether national, federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof) or other entity.

     “Pole” means sawtimber with characteristics making it suitable for use as a utility or structural pole.

     “Price Dispute” has the meaning set forth in Section 9.6(b) hereof.

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     “Primary Delivery Zone” with respect to any Delivery Point means all those tracts of Property located not more than *** road miles from such Delivery Point.

     “Product” means the harvested Chip-n-Saw, Small Sawtimber, Medium Sawtimber and Large Sawtimber meeting the applicable Specifications, excluding Poles as determined by Seller in Seller’s sole discretion.

     “Product Reduction” means the amount of Product volume no longer required by a Mill due to a Change Event.

     “Product Volume Range” means the range of Obligated Volume (expressed as a percentage) for each Product which shall be delivered to each Mill during any Harvest Year. The initial schedule of Product Volume Ranges is set forth on Schedule 7 hereto. Purchaser shall have the right to amend the Product Volume Ranges at any time and from time to time during the Term provided that no such change shall materially impair the ability of Seller to comply with its obligations under this Agreement.

     “Property” shall have the meaning provided in Recital A of this Agreement.

     “Purchaser” shall have the meaning provided in the first paragraph of this Agreement.

     “Purchaser Event of Default” has the meaning set forth in Section 9.1 hereof.

     “Purchaser Indemnitee” has the meaning set forth in Section 10.2 hereof.

     “Quarterly Delivery Variance” has the meaning set forth in Section 5.1(b) hereof.

     “Quarterly Price” means, for any calendar quarter, the Final Quarterly Price for each Product at the applicable Delivery Point for the immediately preceding calendar quarter adjusted by the average *** Adjustment Factor applicable to the calendar quarter in question for the immediately preceding ***.

     “Renewal Period” has the meaning set forth in Section 6.2 hereof.

     “Residual Biomass” means Biomass associated with stands harvested from the Property by Seller in connection with the performance of its obligations under this Agreement.

     “SFI Standards” means standards for harvesting activities meeting the minimum requirements for compliance with the standards of the Sustainable Forestry Initiative, 2005-2009, of the American Forest and Paper Association and any successor thereto, as those standards may be modified from time to time by the American Forest and Paper Association and any successor thereto.

     “Secondary Delivery Zone” with respect to any Delivery Point means all those tracts of Property located more than *** road miles from such Delivery Point.

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     “Seller” shall have the meaning provided in the first paragraph of this Agreement.

     “Seller Event of Default” has the meaning set forth in Section 9.2 hereof.

     “Seller Indemnitee” has the meaning set forth in Section 10.1 hereof.

     “Small Sawtimber” means pine sawtimber having a top (diameter inside bark) equal to or greater than ***.

     “Specifications” means the technical specifications for Product delivered to Purchaser in accordance with this Agreement, as they exist from time to time pursuant to the terms of Section 3.1. The Specifications as of the Effective Date are more particularly set out in Schedule 1 hereto.

     “Substitute Products” shall have the meaning provided in Section 5.1(c).

     “Term” shall have the meaning provided in Section 6.1.

     “Termination Date” means the effective date of termination of this Agreement in accordance with its terms by Purchaser or Seller at any time other than the expiration of the Term.

     ***

     “*** Adjustment Factor” means, for any calendar quarter, the percentage change in the applicable average price for the applicable product type in the relevant geographic zone between the end of the immediately preceding calendar quarter and the end of the applicable calendar quarter, as such average prices are reported by *** and ***. For Chip-n-Saw the applicable average price will be for delivered pine chip-n-saw. For Small Sawtimber the applicable average price will be *** delivered pine chip-n-saw and *** delivered pine sawtimber. For Medium and Large Sawtimber the applicable average price will be for delivered pine sawtimber.

     “Transfer” means any direct or indirect transfer, sale, assignment, pledge, hypothecation or other disposition of ownership or control of the Property.

     “Uncommitted Volume” means any Product that Seller elects to harvest from the Property during a Harvest Year in excess of the Annual Harvest Volume for such Product set forth in the Annual Plan for such Harvest Year.

ARTICLE II

HARVEST VOLUMES

     Section 2.1 Obligation to Purchase and Sell. In accordance with the terms hereof, during the Term Purchaser covenants and agrees to purchase and receive from Seller and Seller covenants and agrees to sell, deliver and provide to Purchaser, in each Harvest Year, the Obligated Volume at the Delivery Point(s) specified by Purchaser.

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     Section 2.2 Annual Plan and Forecast Plan. On or before September 30 of each year during the Term, Seller shall deliver to Purchaser an Annual Plan for the immediately following Harvest Year and a Forecast Plan. The aggregate Annual Harvest Volume of Product set forth in an Annual Plan shall in no event be less than the Annual Minimum Volume for the same Harvest Year. The annual volume set forth in an Annual Plan (i) shall not vary by more than *** from the forecast volume for such Harvest Year as set forth in the previous year’s Forecast Plan, and (ii) shall not vary by more than *** from the forecast volume for such Harvest Year as set forth in the Forecast Plan delivered to Purchaser two years earlier. The Annual Plan for Harvest Year 2008 and Forecast Plan for Harvest Years 2009 and 2010 are attached hereto as Schedule 2 and Schedule 3, respectively.

     Section 2.3 Obligated Volume. On or before November 1 of each year during the Term, Purchaser shall notify Seller in writing of the Obligated Volume which Purchaser elects to purchase and receive from Seller during the upcoming Harvest Year which will be broken down by Product and Delivery Point and Seller agrees to deliver such volume of each Product to each such Delivery Point in accordance with the terms of this Agreement. The Obligated Volume shall equal the sum of (i) the Obligation Floor plus (ii) such portion of the Annual Harvest Option Volume that Purchaser elects to purchase during the upcoming Harvest Year. The Obligated Volume for Harvest Year 2007 shall be *** tons and the Obligated Volume for Harvest Year 2008 shall be *** tons, broken down by Product and Delivery Point as set forth in Schedule 10 hereto.

     Section 2.4 Uncommitted Volume and Quarterly Meetings. Purchaser and Seller shall meet quarterly each Harvest Year, on or before March 1, June 1, September 1 and December 1, to discuss the then-current Obligated Volume and any Uncommitted Volume. Purchaser shall have the right to purchase at the applicable Quarterly Price any portion, not to exceed ***, of the Uncommitted Volume. Seller shall make all of the Uncommitted Volume contained within each Primary Delivery Zone available to fulfill any such portion purchased by Purchaser, and shall deliver such portion in accordance with a delivery schedule that the parties shall mutually agree upon at the time of Purchaser’s election. Seller shall not have the right to count any purchased Uncommitted Volume towards the Obligated Volume. Purchaser and Seller shall compute the Final Quarterly Price for such purchased Uncommitted Volume pursuant to, and shall remit any excess in accordance with, Section 4.2.

     Section 2.5 Biomass. Purchaser shall have the right to offer, on or before November 1 of each calendar year during the Term, to purchase, collect and retain any Residual Biomass by notifying Seller in writing of the volume of Residual Biomass that Purchaser offers to purchase, collect and retain, which notice shall include the price Purchaser will pay for such Biomass and, with reasonable specificity, the location of such Biomass (a “Biomass Offer”). Seller shall have thirty (30) days to accept or reject such Biomass Offer by written notice delivered to Purchaser. If Seller fails to deliver such written notice within the thirty (30) day period, Seller shall be deemed to have rejected the Biomass Offer. Seller shall have the right to sell such Residual Biomass to any third party only upon the actual or deemed rejection of such Biomass Offer and under no other circumstances. If Seller accepts a Biomass Offer, Purchaser and Seller shall enter into a usual and customary agreement with respect to Purchaser’s entrance upon the Property and Purchaser’s collection of Biomass from the Property. Notwithstanding anything in this Section 2.5 to the contrary, “Residual Biomass” shall exclude any Biomass that Seller is obligated to sell

8

to a third party under a contract with a term of at least one (1) year. Purchaser shall purchase, collect and retain *** tons of Residual Biomass during Harvest Year 2007 and *** tons of Residual Biomass in Harvest Year 2008 from the harvest locations as set forth in Schedule 9.

     Section 2.6 Post-Harvest Carbon Rights. Prior to the severance of the Product from the Property, Seller shall have exclusive Carbon Rights in the Property and in all standing, harvested or fallen trees or other vegetation on the Property. To the extent Carbon Rights associated with severed wood products can be transferred under any existing or future, mandatory or voluntary, carbon dioxide allocation, trading, taxation or other emissions limitation regime, the sale of Product under this Agreement shall include as part of such sale any and all Carbon Rights associated with the Product. Purchaser shall have no claim or right to any Carbon Rights associated with the Property (whether fee or leasehold interest), or, prior to the severance of Product from the Property, with standing, harvested or fallen trees or other vegetation on the Property, but Seller shall not separate any transferable Carbon Rights from Product sold to Purchaser prior to sale.

ARTICLE III

PRODUCT SPECIFICATIONS

     Section 3.1 Product Specifications. Any and all Product delivered shall meet the Specifications. Purchaser may modify, amend, add to, alter, revise or change the Specifications at any time during the Term by giving Seller not less than thirty (30) days advance written notice of any modification, amendment, addition, alteration, revision or change to the Specifications, provided that any such modification, amendment, addition, alteration, revision or change to the Specifications does not materially and adversely impact Seller’s ability to comply with its obligations hereunder; provided further that any such modification, amendment, addition, alteration, revision or change to the Specifications shall be applicable to all suppliers of the applicable Mill, and provided further that Purchaser shall not modify the Specifications to set higher standards for Seller than for any other suppliers of comparable product to the applicable Delivery Points.

     Section 3.2 Rejected Product. Purchaser has the right to reject any or all Product not meeting the Specifications applicable at the time of delivery; provided, however, at Seller’s request, Purchaser shall (i) provide Seller with a written or photographic explanation for the basis of any such rejection, and (ii) afford Seller the opportunity to inspect, within a reasonable period of time, any such rejected Product. Product rejected for failure to meet Specifications shall not be included in calculating whether Seller met its required Obligated Volume. EXCEPT FOR THE SPECIFICATIONS SET FORTH IN THIS AGREEMENT, SELLER DISCLAIMS ALL WARRANTIES OF ANY KIND INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. In the event Purchaser rejects any or all Product not meeting the Specifications, Purchaser, at Seller’s sole cost, risk and expense, may reload, or cause to be reloaded, the rejected Product onto Seller’s vehicles or any other vehicles delivering Product to Purchaser. Seller shall remove and dispose of any rejected Product at Seller’s sole cost, risk and expense. Notwithstanding the foregoing, Purchaser shall have the option, at its sole election, to purchase any of such rejected Product following any requested written or photographic explanation and

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inspection process as described above, at a price mutually agreed to by Seller and Purchaser, in which event such Product shall not be included in calculating whether Seller met its required Obligated Volume.

ARTICLE IV

PRICE SCHEDULE

     Section 4.1 Initial Price. The initial price for each Product delivered by Seller to Purchaser at each Delivery Point during the period commencing on the Effective Date and ending on December 31, 2007 shall be as set forth in Schedule 6 attached hereto (the “Initial Price”).

     Section 4.2 Quarterly Price. The price paid by Purchaser for Product delivered during any calendar quarter during the Term shall be the Quarterly Price. Within twenty (20) days after the end of every calendar quarter, Seller and Purchaser shall compute the Final Quarterly Price. If the Final Quarterly Price is greater than the Quarterly Price paid for such calendar quarter, then Purchaser shall remit to Seller the additional amount owed by Purchaser within fifteen (15) days after the calculation. If the Final Quarterly Price is less than the Quarterly Price paid for such calendar quarter, then Seller shall remit to Purchaser the amount of such overage, and if Seller fails to remit such amount within fifteen (15) days after the calculation of such overage, Purchaser shall have the right to offset the overage against amounts next due and owing to Seller under this Agreement. An example of the pricing mechanism set forth herein is set forth on Schedule 11 attached hereto.

ARTICLE V

DELIVERY, FORCE MAJEURE AND PAYMENT

     Section 5.1 Delivery, Scaling and Weighing.

     (a) No later than each November 1 during the Term, Purchaser shall propose to Seller a target quarterly delivery schedule with respect to the Obligated Volume for the upcoming Harvest Year. The parties shall work together to jointly develop a mutually acceptable quarterly delivery schedule for such Harvest Year (the “Delivery Plan”), which Delivery Plan shall be agreed upon no later than December 1. The quarterly volumes set forth in the Delivery Plan will be based on Purchaser’s targeted quarterly inventory volumes for each Mill but will fall within the percentage ranges for Obligated Volume set forth below:

Calendar Quarter	Percentage of Obligated Volume
1	***
2	***
3	***
4	***

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The Delivery Plan shall set forth the allocation of the Obligated Volume among the Delivery Points by Product, which allocation must fall within the then applicable Product Volume Range. During any Harvest Year Purchaser may, upon five (5) days’ prior written notice to Seller, re-allocate the Obligated Volume among the Delivery Points, provided that if, as a result of such re-allocation, the haul distance from the harvested tract to the new Delivery Point exceeds ***road miles, an appropriate Freight Adjustment shall be made.

     (b) The parties recognize a mutual benefit to produce and accept Product as consistently as possible with such Delivery Plan. Seller shall use commercially reasonable efforts to dispatch deliveries on a relatively even flow basis within each calendar quarter of the Harvest Year. It is understood and agreed that material deviations to the Delivery Plan may occur due to weather conditions or other unforeseen events. In such event, quarterly deliveries may be less than the Delivery Plan’s total applicable quarterly volume by up to *** (the total percentage of such variance being the “Quarterly Delivery Variance”).

     (c) In the event the Quarterly Delivery Variance during any quarter exceeds *** of the total volume required to be delivered during such quarter pursuant to the applicable Delivery Plan, Purchaser may purchase Products or substitutes therefor (in either case, “Substitute Products") from any third party in sufficient volumes to equal the Quarterly Delivery Variance at current fair market prices for the applicable Products. If Purchaser purchases such Substitute Products, Seller, in lieu of the remedies set forth in Section 9.4, shall promptly pay Purchaser the difference between the highest price paid by Purchaser for the corresponding volume of Product at each relevant Delivery Point for such Substituted Products and the applicable Final Quarterly Price. If Seller fails or refuses to pay such amount to Purchaser within ten (10) days after Purchaser’s request therefor, Purchaser shall have the right to offset such amount against amounts next due and owing to Seller by Purchaser hereunder. The applicable Obligated Volume shall be reduced by the volume of any Substitute Products purchased by Purchaser.

     (d) In the event the quarterly deliveries exceed the Delivery Plan’s applicable quarterly volume by more than ***, any such volume delivered by Seller in excess of such *** threshold shall be sold at a price agreed upon by Purchaser and Seller at the time of such delivery, and, unless agreed to by Purchaser in writing, such excess volume shall not be applied against the Obligated Volume.

     (e) At the end of any Harvest Year, if there is (i) a negative annual variance with respect to the Obligated Volume required to be delivered to any Delivery Point pursuant to the Annual Plan for such Harvest Year, or (ii) a negative annual variance between (A) the percentage of any particular Product delivered to a specified Delivery Point and (B) the lower bound of the applicable Product Volume Range with respect to such Delivery Point, Purchaser shall have the right either to deduct the amount of such negative annual variance from the Obligated Volume for the Product or Products causing the negative annual variance, as the case may be, or to require Seller to deliver such volume of Product or Products causing the negative annual

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variance, as the case may be, (the "Carryover Volume”), in the first quarter of the following Harvest Year to such Delivery Point, at a price equal to the lower of: (x) the lowest Final Quarterly Price for the applicable Product for all quarters during the previous Harvest Year, or (y) the Final Quarterly Price for the applicable Product for the calendar quarter in which the Carryover Volume is delivered. If Seller is required to deliver Carryover Volume as a result of clause (i) of this Section 5.1(e), Seller may deliver as Carryover Volume any mix of Products accepted at such Delivery Point provided that the volume of each Product, when added to the volume of such Product delivered to such Delivery Point during the year of the negative annual variance, falls within the Product Volume Range for such Product at such Delivery Point. Any delivery in the following Harvest Year will first be counted towards meeting the Carryover Volume requirement. Deliveries during the fourth quarter shall only be applied against the then current Harvest Year’s delivery requirements. The parties shall work together in good faith to adjust delivery schedules to accommodate temporary or unforeseen hardships for either party. Each party shall notify the other party of any anticipated delays as soon as such delay is anticipated.

     (f) Unless otherwise agreed to in writing by Purchaser, any portion of the Annual Harvest Volume harvested within the Primary Delivery Zone shall be delivered to a Mill or such other Delivery Point designated by Purchaser in accordance herewith, until the Obligated Volume for such Harvest Year has been fully met. Prior to delivering any Product to a Delivery Point from the Secondary Delivery Zone with respect to such Delivery Point, Seller must obtain the written consent of Purchaser, which consent may be withheld in Purchaser’s sole discretion, unless such delivery was contemplated by the Delivery Plan for such Harvest Year. Any Product delivered by Seller from within a Secondary Delivery Zone in accordance with the preceding sentence shall be subject to a Freight Adjustment.

     (g) Under no circumstances shall Purchaser be required to purchase during any Harvest Year any Product at any Delivery Point in excess of the upper bound of the Product Volume Range for such Product at such Delivery Point.

     (h) Subject to Purchaser’s prior written consent, exercisable in Purchaser’s reasonable discretion, Seller may redirect the delivery of all or a portion of the Product to be delivered by Seller hereunder to a Delivery Point other than the Delivery Point required under the applicable Delivery Plan.

     (i) All Product subject to this Agreement shall be delivered to Purchaser F.O.B. to the designated Delivery Point during the regular business hours of such Delivery Point. Risk of loss and title to the Product shall pass from Seller when the Product is unloaded and accepted by Purchaser pursuant to the terms hereof. All Product delivered hereunder by Seller shall be scaled or weighed by Purchaser, or its designee, upon delivery at the respective Delivery Point using privately verified scales, which data shall be recorded by the scaler (or weigher) on scale or weight tickets and a copy of each ticket shall be given to Seller or its designated representative. Additional information reasonably required by the parties from time to time or by state law, including but not limited to origin by tract location of delivered Product, shall also be included on the scale ticket or provided in such other format as may be reasonably requested by Purchaser. Seller shall (i) adhere to Purchaser’s requirements for delivery as are established from time to time to conform with changes in law, forestry practices and Purchaser’s operational

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requirements, provided such adjustments are comparable to industry standards and are similar to those required by Purchaser of its other suppliers and (ii) comply with all applicable laws, rules and regulations.

     Section 5.2 Force Majeure. Subject to the provisions of this Section 5.2, neither party shall be liable hereunder, and performance shall be excused, for a delay in or failure of performance of its obligations hereunder caused by a Force Majeure event, provided, however, no excuse for performance due to a Force Majeure delay under this Section 5.2 shall be effective unless the party experiencing such delay shall have notified the other party of the delay within ten (10) days of the event giving rise to such delay, unless the failure to provide this notice has not caused prejudice to the other party, in which event excuse for performance shall be effective. To the extent performance has been excused, neither party shall be required to make up performance which has been excused upon termination or expiration of the Force Majeure event. The parties shall use commercially reasonable efforts to mitigate the effects of the Force Majeure event, and if the cause of Force Majeure can be minimized or remedied, the parties shall use reasonable best efforts to do so promptly.

     (a) Notwithstanding anything herein to the contrary, if, as a result of a Force Majeure event pursuant to which a delay in Seller’s performance is excused hereunder, or for any other reason deliveries from Seller are reduced to the extent Purchaser cannot maintain its scheduled Products inventory at the Mill, Purchaser shall, upon notice to Seller, have the right to obtain Substitute Products from sources other than Seller until such time as Seller is again able to commence the delivery of Product to Purchaser. After Seller gives notice to Purchaser that it is again able to commence delivery of Product pursuant to the terms of this Agreement, Purchaser shall notify Seller of any commitments for Substitute Products that Purchaser has entered into. Purchaser shall not be required to accept from Seller the amount by which the Products volume was reduced until such time as Purchaser has accepted delivery of all Substitute Products contracted by Purchaser, provided that no such contract for Substitute Products shall be for a term longer than one (1) month without consent of Seller, which consent shall not be unreasonably withheld, conditioned or delayed.

     (b) Notwithstanding anything herein to the contrary, if, as a result of a Force Majeure event pursuant to which Purchaser cannot accept the quantity of Products provided for herein, Purchaser shall promptly so notify Seller, and Seller shall thereafter have the right to contract for the sale of any such Products Purchaser is unable to accept. Upon notice from Purchaser to Seller that Purchaser is again able to accept such Products, Seller will notify Purchaser of any commitments for the sale of Products that Seller has entered into and Seller shall not be required to deliver, or make available, as the case may be, such Products to Purchaser until Seller has provided all Products contracted by Seller, provided that no such Agreement shall be entered into for a term longer than one (1) month without the written consent of Purchaser, which consent shall not be unreasonably withheld, conditioned or delayed. If a Force Majeure event prevents operation of the Mill or any portion thereof, Purchaser will use its commercially reasonable efforts, within sixty (60) days of such event or as soon thereafter as reasonably practicable, to notify Seller of whether Purchaser intends to continue the operations of the Mill and the anticipated date such operations will begin. In the event Purchaser has not reassigned some or all of the Products applicable to the Mill to another Delivery Point in accordance herewith, then, within six (6) months after the shutdown of the Mill or portion

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thereof, either Purchaser or Seller may terminate this Agreement with respect to the portion of the Products that has not been reassigned upon thirty (30) days written notice.

     Section 5.3 Change Event. If during the Term a Change Event occurs with respect to any Mill, Purchaser, at its sole election may either (i) redirect the corresponding Product Reduction to another Delivery Point subject to a Freight Adjustment as contemplated by Section 5.1(a) hereof, or (ii) upon ninety (90) days’ prior notice to Seller, terminate its rights under this Agreement (which termination shall be effective on the later of (x) the occurrence of such Change Event, or (y) the date ninety (90) days after the delivery of such notice) with respect to all or a portion of such Product Reduction and Seller and Purchaser shall be released from all liability under this Agreement with respect to such Product Reduction and the Obligation Floor shall be proportionately reduced.

     Section 5.4 Payment. Purchaser shall pay Seller within fifteen (15) days after the date of delivery of Product to the designated Delivery Point.

ARTICLE VI
TERM

     Section 6.1 Term. Unless this Agreement is earlier terminated pursuant to Section 6.3 or Article IX hereof, this Agreement shall commence on the Effective Date and shall expire at midnight on the date which is twelve (12) years after the Effective Date (said period, as the same may be extended pursuant to Section 6.2 below, the “Term”).

     Section 6.2 Extension of Term. Upon the expiration of the initial twelve (12) year Term and upon the expiration of each successive *** period thereafter (each such successive *** period a “Renewal Period”), unless either party delivers written notice to the other party, at least *** prior to the expiration of the initial twelve (12) year Term or the Renewal Period, as the case may be, of its election not to renew this Agreement, this Agreement shall renew automatically for an additional Renewal Period.

     Section 6.3 Effect of Termination. Upon the earlier of the expiration of the Term or the termination of this Agreement pursuant to Article IX, this Agreement will become null and void and have no further force and effect; provided, however, that the provisions of Articles IX and X hereof shall survive the expiration or termination of this Agreement and remain in full force and effect; provided, further that no termination or expiration of this Agreement shall relieve either party of any obligation accrued prior to the effective date of expiration or termination, or of any liability for any breach of this Agreement by such party prior to the date of such termination.

ARTICLE VII

REPRESENTATIONS AND WARRANTIES

     Section 7.1 Representations and Warranties of Purchaser. Purchaser represents and warrants to Seller that the statements contained in this Section 7.1 are correct and complete as of the Effective Date.

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     (a) Purchaser is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. Purchaser has all necessary corporate power and authority to (i) conduct its business as it is presently being conducted, (ii) execute this Agreement and (iii) perform its obligations and consummate the transactions contemplated hereby. Purchaser is duly qualified to do business in the States of Texas and Louisiana and the failure to be qualified to do business in any other jurisdiction would not, individually or in the aggregate, have a material adverse effect on the financial condition or results of operations of Purchaser or Purchaser’s ability to perform its obligations under this Agreement.

     (b) All corporate and other actions or proceedings to be taken by or on the part of Purchaser to authorize and permit the execution and delivery by Purchaser of this Agreement, the performance by Purchaser of its obligations hereunder and to consummate the transactions contemplated hereby have been duly and properly taken. This Agreement has been duly executed and delivered by Purchaser. Upon execution by Purchaser of this Agreement, assuming the valid authorization, execution and delivery by Seller of this Agreement, this Agreement shall constitute a legal, valid and binding obligation of Purchaser that is enforceable against Purchaser in accordance with its terms.

     (c) The execution and delivery by Purchaser of this Agreement and the consummation by Purchaser of the transactions contemplated hereby will not result in a breach or violation of, or default under: (i) any judgment, order, injunction, decree or ruling of any governmental authority applicable to Purchaser or any of its assets; (ii) to Purchaser’s knowledge (as defined below), any applicable statute, law, ordinance, rule or regulation; (iii) the terms, conditions or provisions of Purchaser’s certificate of incorporation, bylaws or any standing resolution of its Board of Directors; or (iv) any note or other evidence of indebtedness, mortgage, deed of trust, indenture, or other agreement or instrument to which Purchaser is a party or by which Purchaser may be bound, except for any such breach, violation or default that would not materially adversely affect the ability of Purchaser to perform its obligations hereunder.

     (d) There are no approvals, consents, permits or registration requirements with respect to any applicable governmental authority or any other Person that are or will be necessary for the valid execution and delivery by the Purchaser of this Agreement or the performance of its obligations hereunder.

     As used in this Section 7.1, the term “Purchaser’s knowledge” means the actual knowledge, without inquiry, of Morris Davis or George Vorpahl.

     Section 7.2 Representations and Warranties of Seller. Seller represents and warrants to Purchaser that the statements contained in this Section 7.2 are correct and complete as of the Effective Date.

     (a) Seller is a limited liability company duly formed, validly existing and in good standing under the laws of the State of Delaware. Seller has all necessary power and authority to (i) conduct its business as it is presently being conducted, (ii) execute this Agreement and (iii) perform its obligations and consummate the transactions contemplated hereby. Seller is duly qualified to do business in the States of Texas and Louisiana, and the failure to be qualified to do

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business in any other jurisdiction would not, individually or in the aggregate, have a material adverse effect on the financial condition or results of operations of Seller.

     (b) All actions or proceedings to be taken by or on the part of Seller to authorize and permit the execution and delivery by Seller of this Agreement, the performance by Seller of its obligations hereunder and to consummate the transactions contemplated hereby have been duly and properly taken. This Agreement has been duly executed and delivered by Seller. Upon execution by Seller of this Agreement, assuming the valid authorization, execution and delivery by Purchaser of this Agreement, this Agreement shall constitute a legal, valid and binding obligation of Seller that is enforceable against Seller in accordance with its terms.

     (c) The execution and delivery by Seller of this Agreement and the consummation by Seller of the transactions contemplated hereby will not result in a breach or violation of, or default under: (i) any judgment, order, injunction, decree, or ruling of any court or governmental authority applicable to Seller or any of its assets; (ii) to Seller’s knowledge (as defined below), any statute, law, ordinance, rule or regulation; (iii) the terms, conditions, or provisions of Seller’s bylaws, charter, or other documents of governance; or (iv) any note or other evidence of indebtedness, any mortgage, deed of trust or indenture, or any lease or other agreement or instrument to which Seller is a party or by which Seller may be bound, except for any such breach, violation or default that would not materially adversely affect the validity or enforceability of this Agreement or the ability of Seller to perform its obligation hereunder.

     (d) There are no approvals, consents, permits or registration requirements with respect to any applicable governmental authority or any other Person that are or will be necessary for the valid execution and delivery by the Seller of this Agreement or the performance of its obligations hereunder.

     (e) Seller has good and marketable title to the Products free and clear of all Liens, except for such Liens that would not otherwise materially adversely affect Purchaser’s rights in and to the Products delivered, or made available, to Purchaser pursuant to this Agreement. Seller shall pay, or cause to be paid, all severance taxes or other levies upon or incident to the production and delivery of Products hereunder which will or may constitute a Lien thereon or on any products manufactured therefrom.

     As used in this Section 7.2, the term “Seller’s knowledge” means the actual knowledge, without inquiry, of Jerry Brodie.

ARTICLE VIII

SELLER’S MANAGEMENT

     Section 8.1 Seller’s Management. Except as expressly provided otherwise in Section 2.5, Seller will be responsible for the designation, layout and timing of harvest areas, logging and transportation to the designated Delivery Point, and all other activities associated with ownership of the Property. Seller agrees to manage the Property in accordance in all material respects with applicable state best management practices for forestry and in a manner that meets the minimum requirements for compliance with SFI Standards, including providing third party certification of

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same, or such other third party certification program as is approved in writing from time to time by Purchaser. Seller’s contracts with logging professionals that produce and deliver Product under this Agreement shall require that they (i) maintain logger training and continuing education requirements in accordance with Sustainable Forestry Initiative State Implementation Committee standards, or such other third party certification organization standards approved in writing by Purchaser, and (ii) comply with applicable state best management practices for forestry and all applicable laws, including, without limitation, any weight restriction laws, ordinances or regulations, and Seller shall use diligent, good faith efforts to ensure compliance with such requirements. Following written request by Purchaser, Seller shall collect and provide Purchaser with tract identification information for all Product delivered in accordance herewith. Seller shall keep evidence of compliance with the terms of this Section 8.1 during the Term, which should include copies of education certificates and any other appropriate evidence of compliance. Seller will act in good faith and use its commercially reasonable efforts to cause all Products to meet the applicable Specifications.

ARTICLE IX

DEFAULT AND DISPUTE RESOLUTION

     Section 9.1 Default by Purchaser. The following events shall constitute events of default by the Purchaser (each a “Purchaser Event of Default”):

     (a) Purchaser fails to pay as and when due any amount payable by it under this Agreement, and any such failure remains uncured fifteen (15) days after written notice thereof has been delivered to Purchaser;

     (b) Purchaser fails to perform or observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed, and any such failure remains uncured for thirty (30) days after written notice thereof has been delivered to Purchaser; or

     (c) Any representation or warranty of Purchaser under this Agreement is incorrect in any material respect.

If any Purchaser Event of Default occurs and continues fifteen (15) days after such initial written notice thereof has been given to Purchaser, then Seller may, by written notice to Purchaser, in addition to Seller’s other remedies available herein in equity, at law, or otherwise, suspend delivery of Product otherwise deliverable to Purchaser pursuant to the terms of this Agreement, and deliver such Product to an alternate third-party purchaser at a price reasonably consistent with then-existing market conditions (such Product counting toward the applicable Obligated Volume); provided that Purchaser shall be liable in the event of such delivery to an alternate purchaser for the difference between the applicable Quarterly Price for such Product and the price actually paid to Seller by such alternate third-party purchaser for such Product. If any Purchaser Event of Default occurs and continues fifteen (15) days after a second written notice thereof has been given to Purchaser upon or after expiration of the initial 15-day cure period, then Seller may, by written notice to Purchaser, in addition to Seller’s other remedies available

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herein, in equity, at law, or otherwise, (i) terminate this Agreement, or (ii) pursue specific performance of this Agreement.

     Section 9.2 Default by Seller. The following events shall constitute events of default by the Seller (each a “Seller Event of Default”):

     (a) Seller fails to pay as and when due any amount payable by it under this Agreement, and any such failure remains uncured fifteen (15) days after written notice thereof has been delivered to Seller;

     (b) Seller fails to perform or observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed, and any such failure remains uncured thirty (30) days after written notice thereof has been delivered to Seller;

     (c) Any representation or warranty of Seller under this Agreement is incorrect in any material respect;

     (d) Seller fails to deliver in any calendar quarter at least ninety percent (90%) of the applicable quarterly volume in the Delivery Plan; or

     (e) Seller fails to deliver at least ninety percent (90%) of the Obligated Volume in any Harvest Year.

If any Seller Event of Default occurs and continues fifteen (15) days after such initial written notice thereof has been given to Seller, then Purchaser may, by written notice to Seller, in addition to Purchaser’s other remedies available herein in equity, at law, or otherwise, suspend acceptance of Product otherwise deliverable to Purchaser pursuant to the terms of this Agreement, and accept such Product from an alternate third-party supplier at a price reasonably consistent with then-existing market conditions (such Product counting toward the applicable Obligated Volume); provided that Seller shall be liable in the event of such acceptance from an alternate supplier for the difference between the applicable Quarterly Price for such Product and the price actually paid by Purchaser to such alternate third-party supplier for such Product. If any Seller Event of Default occurs and continues fifteen (15) days after a second written notice thereof has been given to Seller upon or after expiration of the initial 15-day cure period, then Purchaser may, by written notice to Seller, in addition to Purchaser’s other remedies available herein, in equity, at law, or otherwise, (i) terminate this Agreement, or (ii) pursue specific performance of this Agreement.

     Section 9.3 Specific Performance. With respect to Purchaser’s and Seller’s rights to seek specific performance pursuant to Sections 9.1 and 9.2, each party acknowledges and agrees that the other party would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached. Accordingly, each of the parties agrees that the other party shall be entitled to an injunction or injunctions to prevent breaches of the terms of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having jurisdiction over the parties and the matter, in addition to any other remedy to which they may be entitled hereunder.

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     Section 9.4 Liquidated Damages. Without limiting the rights and remedies set forth in Section 9.2 and Section 9.3, in the event of a Seller Event of Default due to Seller’s failure or inability, for any reason other than Force Majeure, to timely deliver the specified mix of volumes of Products as required under this Agreement, then Purchaser may elect, in addition to any other rights Purchaser may have under Section 9.2 and Section 9.3, to require Seller to pay to Purchaser, as liquidated damages and not as a penalty, an amount equal to the difference between any cover price paid by Purchaser and the unpaid price under this Agreement plus *** of such amount. If Seller fails or refuses to pay such amount to Purchaser within ten (10) days after Purchaser’s request therefor, Purchaser shall have the right to offset such amount against amounts next due and owing to Seller by Purchaser hereunder. In the event of a Seller Event of Default, each party hereby waives the right to recover incidental, consequential or punitive damages from the other party hereto.

     Section 9.5 Assignment of Agreement. In the event of a Seller Event of Default that remains uncured fifteen (15) days after the second written notice given pursuant to Section 9.2, Seller shall, not later than five (5) days after receiving a written request from Purchaser, assign to Purchaser all of Seller’s rights, interests and obligations in and under the Master Stumpage Agreement and Purchaser shall assume all obligations thereunder from and after the date of such assignment, provided, however, that Seller shall remain responsible (and Purchaser shall not be responsible) for any obligations of Seller thereunder arising prior to such assignment. Notwithstanding the foregoing, Purchaser may, at Purchaser’s option, elect to pay any outstanding invoices payable by Seller under the Master Stumpage Agreement, in which event Purchaser shall have recourse against Seller for any amounts so paid, including, without limitation, the right to offset any such amounts against amounts payable by Purchaser to Seller hereunder.

     Section 9.6 Dispute Resolution. In the event of any dispute, claim, question or disagreement arising from or relating to this Agreement or the breach thereof, each party shall use its commercially reasonable efforts to settle the dispute, claim, question or disagreement. To this effect, upon written notice from either party to the other party requesting that discussions be initiated (a “Dispute Notice”), Purchaser and Seller 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 Purchaser and Seller do not reach such a solution within a period of fifteen (15) days after delivery of such Dispute Notice, the parties shall have all rights and remedies set forth in this Agreement or otherwise available under applicable law. If the parties mutually agree to arbitrate a dispute, then the applicable dispute, claim or controversy shall be submitted to resolution in the following manner:

     (i) Arbitration shall be according to the rules of the AAA (but not administered by AAA), except as herein modified by the parties or otherwise as agreed to by the parties.

     (ii) Within ten (10) days of the agreement of the parties to arbitrate, each party will select an arbitrator, notify the other party of its selection and submit to the other party and its selected arbitrator its position regarding such claim, dispute or controversy. Within ten (10) days after such notice, the respective arbitrators will select a third arbitrator as the chairman of the panel (the “Panel Chairman”). The arbitrators

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     selected by Purchaser and Seller, together with the Panel Chairman, shall be, collectively, referred to herein as the “Panel.”

     (iii) All arbitrators on the Panel shall have experience in the business of producing, procuring and selling forest products in the Southern region of the United States. Furthermore, the Panel Chairman shall be a forestry professional with at least ten (10) years of experience in Southern timber harvesting practices who has not performed any work as an employee or consultant for either party during the previous five (5) years, unless otherwise agreed upon by Purchaser and Seller.

     (iv) A majority decision of the Panel and resolution must be reached within fifteen (15) days after the selection of the Panel Chairman. Decisions of the panel must be in writing and will be final and binding upon the parties, and judgment may be entered thereon by any court having jurisdiction.

     (b) Notwithstanding anything to the contrary contained in Section 9.6(a), above, Seller and Purchaser agree to submit any dispute as to Base Price, Quarterly Price, Final Quarterly Price, Freight Adjustment or any other dispute with respect to price (a “Price Dispute”) to binding arbitration to be resolved by a Panel selected in accordance with the provisions of Section 9.6(a)(ii) above, which Panel shall act in accordance with the following procedure:

(i)	Within fifteen (15) days after the selection of the Panel, each party will submit in writing to the Panel its position with respect to the price or cost in dispute and any materials such party wishes to submit supporting the use of the proposed purchase and sale price.
(ii)	Within fifteen (15) days following the submission of the position of each party, the Panel will choose one of the two submitted positions (and no other) based upon the Panel’s determination of the position that better reflects the actual market price or cost at issue. If only one position is submitted, the Panel will choose such position.
(iii)	The Panel shall assess the costs of such arbitration and reasonable attorney fees against the party whose position was not chosen or who did not submit a position.

During the arbitration proceedings of any Price Dispute, the Price for the purchase and sale of such Product for the calendar quarter in question shall be the average of the two submitted prices and Seller shall continue to deliver Product and Purchaser shall continue to accept Product as otherwise required by this Agreement. Upon the resolution of such Price Dispute, Purchaser and Seller agree to adjust the Price for any Product sold by Seller and purchased by Purchaser during such arbitration proceeding to reflect the Price as determined by the Panel and promptly reimburse each other accordingly to effect such adjustment.

     (c) Except as provided in Section 9.6(b), above, each party shall bear its own cost of presenting its case, and one-half of the cost incurred by the Panel.

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     (d) The parties and the Panel shall treat the proceedings, any resolution thereof and any related discovery as confidential, except in connection with a judicial challenge to, or enforcement of, an award and unless otherwise required by law.

ARTICLE X

INDEMNITY AND INSURANCE

     Section 10.1 Purchaser’s Indemnity. Purchaser shall defend, indemnify and hold harmless the Seller, its Affiliates and their assignees, subcontractors, members, shareholders, directors, officers, managers, partners, employees, agents and consultants (each, a “Seller Indemnitee”), from and against all claims and causes of action, pending or threatened, of any kind or nature, by third parties, related to or arising out of any bodily injury to, or death of, any Person, or any physical damage to tangible property, resulting from, or attributable to, Purchaser’s breach of this Agreement or the negligent or intentional wrongful acts or omissions of Purchaser, its Affiliates or any of their employees, agents or contractors; except to the extent such injury or damage also results in part from the negligent or intentionally wrongful act or omission of any Seller Indemnitee. Notwithstanding anything herein to the contrary, Purchaser shall indemnify any Seller Indemnitee for any incidental, consequential or punitive damages that such Seller Indemnitee is required to pay to any third party as a result of such breach, act or omission of Purchaser, its Affiliates or any of their employees, agents or contractors.

     Section 10.2 Seller’s Indemnity. Seller shall defend, indemnify and hold harmless the Purchaser, its Affiliates and their assignees, subcontractors, members, shareholders, directors, officers, managers, partners, employees, agents and consultants (each, a “Purchaser Indemnitee”), from and against all claims and causes of action, pending or threatened, of any kind or nature, by third parties, related to or arising out of any bodily injury to, or death of, any Person, or any physical damage to tangible property, resulting from, or attributable to, Seller’s breach of this Agreement or the negligent or intentional wrongful acts or omissions of Seller, its Affiliates or any of their employees, agents or contractors; except to the extent such injury or damage also results in part from the negligent or intentionally wrongful act or omission of any Purchaser Indemnitee. Notwithstanding anything herein to the contrary, Seller shall indemnify any Purchaser Indemnitee for any incidental, consequential or punitive damages that such Purchaser Indemnitee is required to pay to any third party as a result of such breach, act or omission of Seller, its Affiliates or any of their employees, agents or contractors.

     Section 10.3 Insurance. Each party, and any contractors engaged by or on behalf of such party, will keep in effect during the Term, at its sole expense, the following insurance coverages:

     (a) Comprehensive general liability insurance with limits not less than $2,000,000 for bodily injury to one person, $2,000,000 for bodily injury to any group of persons as a result of one occurrence, and $2,000,000 for property damage; provided, however each party’s contractors’ policies shall provide coverage for general liability with limits not less than $1,000,000 per occurrence bodily injury liability and property damage liability combined and $1,000,000 in the aggregate;

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     (b) Commercial Auto Liability insurance with limits not less than $1,000,000 combined single limits insuring “Any Auto” or “All Owned Autos,” “Hired Autos” and “Non-owned Autos;”

     (c) Employer’s Liability Insurance with limits not less than the following:

(i)	Each accident — $100,000,
(ii)	Disease (policy) — $500,000, and
(iii)	Disease (each employee) — $100,000; and

     (d) Worker’s compensation insurance, covering all employees, including owners, partners and executive officers, with limits no less than the statutory limits of the state where the work is being performed. Each party’s worker’s compensation policy shall be endorsed to waive all rights of subrogation against the other party and all subsidiaries thereof where permitted by law, and policies shall include excess and stop-gap worker’s compensation coverage for all contractors and subcontractors of the insured party.

     Such policies will name the other party as an additional insured by endorsements to the policies, as if the additional insureds were the named insured, without restrictions. Each party shall provide the other party with Certificates of Insurance throughout the term of this Agreement, as requested.

     Notwithstanding the provisions of Article IX, Purchaser shall have the right to withhold any and all payments for Products or services provided hereunder if Seller does not procure insurance coverage, allows coverage required hereunder to lapse or be cancelled, or does not provide evidence of required insurance in accordance herewith.

     Either party may, at such party’s option and upon no less than ninety (90) days advance written notice to the other party, amend the coverages and policy limits set forth in this Section 10.3 without the consent of the other party, provided that such new coverages and policy limits shall be substantially similar to the coverage requirements imposed generally in the commercial forestry industry in the Southern region of the United States.

     Section 10.4 Notice of Claim. Purchaser and Seller shall immediately give the other party written notice of any alleged claim by a third party arising out of this Agreement or the actions or activities contemplated by this Agreement.

ARTICLE XI

ASSIGNMENT AND TRANSFERS

     Section 11.1 Seller’s Assignment Rights. Any proposed assignment by Seller of its rights and obligations under this Agreement that is subject to Sections 3.3(b) and 3.3(c) of the Support Agreement shall be governed by such provisions. Otherwise, Seller may assign its rights and obligations under this Agreement only to an assignee with the financial and

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operational capability to fulfill the obligations of Seller hereunder and otherwise satisfactory to Purchaser as determined in its reasonable discretion.

     Section 11.2 Purchaser’s Assignment Rights. Purchaser shall have the right to assign its rights and obligations under this Agreement, in whole or in part, without the prior consent of Seller.

ARTICLE XII

AUDIT RIGHTS

     Section 12.1 Audit Rights. Either party shall have the right to audit the other party’s compliance with the terms of this Agreement, including the terms of Articles 2, 3, 4 and 5 by notifying the party to be audited of the requesting party’s exercise of such right within six (6) months after the end of the Harvest Year for which the requesting party intends to exercise such right. The audited party shall provide the requesting party or its representative with access during normal business hours to all records and other information necessary to complete such audit as are commercially reasonable. Furthermore, the requesting party shall have the right to access the Property or the Mill, as the case may be, and to inspect any and all deliveries of Product for purposes of monitoring the performance of the audited party’s obligations pursuant to the terms herein, including the right to audit. All nonpublic information acquired in the course of either party’s exercise of the audit rights provided for by this Section 12.1 shall be subject to the provisions of Section 14.4.

ARTICLE XIII

NOTICES

     Section 13.1 Notices. All notices required or permitted to be given hereunder shall be in writing, signed by the party giving such notice or its legal counsel, and shall be deemed to be delivered, whether or not actually received, (i) when personally delivered by commercial courier service or other messenger; (ii) three (3) days after being deposited with the United States Postal Service with postage paid for certified delivery with return receipt requested; (iii) when sent by next day business commercial service delivery, or (iv) when transmitted by e-mail evidenced by a confirmatory response e-mail or by facsimile evidenced by a confirmed receipt, with a copy sent by any of the means permitted by clauses (i), (ii) or (iii) above on the same day the e-mail or facsimile transmission is sent by the party giving such notice. For purposes of notice, the addresses of the parties are as follows:

Purchaser:	TIN Inc.
	303 South Temple Drive
	Diboll, Texas 75941
	Attention: Group Vice President
	Building Products
	Facsimile: (936) 829-1248

23

	E-mail: JackSweeny@templeinland.com
Copy to:	Temple-Inland Inc.
	1300 S. Mopac Expressway
	Austin, Texas 78746
	Attention: General Counsel
	Facsimile: (512) 434-8051
	E-mail: GeorgeVorpahl@templeinland.com
Seller:	CPT LogCo, LLC
	c/o The Campbell Group
	1 SW Columbia, Suite 1700
	Portland, Oregon 97258
	Attention: Jerry Brodie
	Facsimile: (503) 275-9667
	E-mail: JBrodie@campbellgroup.com
Copy to:	Schwabe, Williamson & Wyatt
	1211 SW Fifth Avenue, Suite 1800
	Portland, Oregon 97204
	Attention: Kirk Johansen
	Facsimile: (503) 796-2900
	E-mail: kjohansen@schwabe.com

or to such other address or addresses as any party may from time to time, upon five (5) business days’ advance written notice to the other party, designate as to itself.

ARTICLE XIV

MISCELLANEOUS

     Section 14.1 Amendments. No amendment or waiver of any provision of this Agreement will in any event be effective unless the same shall be in writing and signed by both parties. This Agreement constitutes the full and complete understanding of the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements and understandings, both oral and written, between the parties with respect thereto.

     Section 14.2 Recording of Agreement. Seller and Purchaser shall cause to be recorded a Memorandum of Agreement against the Property at the appropriate public records office(s) in the jurisdiction(s) in which the Property is located giving notice of the rights of Purchaser under this Agreement. Purchaser agrees to execute and deliver, within thirty (30) days following Seller’s request therefor, appropriate recordable documents reasonably necessary to evidence the release of any portion of the Property that is conveyed or otherwise transferred by Seller pursuant to the terms of this Agreement, and Purchaser consents to the recording of such documents in the appropriate public records office.

24

     Section 14.3 Compliance with Laws. Each party agrees that its performance of this Agreement shall comply with all applicable federal, state and local laws, rules and regulations, including, without limitation, all Environmental Laws, and that each party shall obtain and maintain in effect all necessary licenses and permits incident to its operations in the performance of this Agreement.

     Section 14.4 Confidentiality. To the fullest extent permitted under applicable law, the parties hereto shall keep the nonpublic terms, conditions and provisions of this Agreement confidential; provided, however, the parties may release information as required by applicable law, and to their respective lenders, partners, employees, consultants and contractors so long as any such party is made aware of the provisions of this Section 14.4.

     Section 14.5 Estoppel Certificates. Both parties agree that within twenty (20) days of the other party’s request for the same, the providing party shall deliver to the requesting party an estoppel certificate in form reasonably satisfactory to the requesting party setting forth (to the extent the providing party may truthfully certify to the same), among other things, that this Agreement is in full force and effect, that, to its knowledge, no breach exists on behalf of the requesting party hereunder, and the portion of the Obligated Volume harvested by Purchaser as of such date.

     Section 14.6 No Waiver; Remedies.No failure on the part of either party to exercise, and no delay in exercising, any right under this Agreement will operate as a waiver thereof; nor will any single or partial exercise of any right under this Agreement preclude any other or further exercise thereof or the exercise of any other right.

     Section 14.7 Accounting Terms. All accounting terms not specifically defined herein will be construed in accordance with United States generally accepted accounting principles consistently applied, except as otherwise stated herein.

     Section 14.8 Binding Effect; Governing Law. This Agreement will be binding upon and inure to the benefit of Purchaser and Seller and their respective successors and permitted assigns. This Agreement will be governed by, and construed in accordance with, the laws of the State of Texas, without giving effect to the conflicts of law principles thereof.

     Section 14.9 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties may execute this Agreement by signing any such counterpart.

     Section 14.10 Time of the Essence. Time is of the essence of this Agreement.

     Section 14.11 Incorporation of Exhibits and Schedules. All exhibits and schedules referred to in this Agreement are hereby incorporated herein by this reference.

     Section 14.12 Interest. At the election of the payee, any amount not paid when due hereunder, and which remains unpaid for a period of fifteen (15) days or more after written notice of such non-payment to the Person obligated to make such payment, will bear interest at the rate of five percent (5%) above the prime rate, as published in the “Money Rates” table of the Wall Street Journal from time to time, whichever is greater, from the date due until paid;

25

provided, that in no event shall the interest rate exceed the maximum lawful rate allowed under applicable law.

     Section 14.13 Further Assurances. Seller and Purchaser further covenant to cooperate with one another in all reasonable respects necessary to consummate and give effect to the transactions contemplated by this Agreement (including executing and delivering such instruments or other writings as the other party may reasonably request), and each will take all reasonable actions within its authority to secure cooperation of any necessary third parties.

     Section 14.14 Most Favored Status. During the Term, each party to this Agreement shall treat the other on the most favorable basis compared to its other suppliers or purchasers with respect to its sales, purchases and deliveries hereunder or any other matters in the customary operation of its business. Without limiting the generality of the foregoing sentence, during the occurrence of adverse weather conditions or an adverse change in the market that do not amount to a Force Majeure event, (a) Purchaser shall not, to the extent commercially practicable, reduce the volume of Product required to be purchased under this Agreement until such time as Purchaser has ceased acceptance of delivery of similar wood products purchased from other suppliers that are not Affiliates of Seller and (b) Seller shall, to the extent commercially practicable, deliver all Product harvested from the Property to Purchaser, and to no other Person, until such time as the volume requirements for the applicable Delivery Plan have been met.

     Section 14.15 Attorney’s Fees. Except as expressly provided otherwise in Section 9.6, if arbitration, mediation, litigation or any other proceeding of any nature whatsoever (including any proceeding under the U.S. Bankruptcy Code) is instituted or appealed in connection with any controversy arising out of this Agreement or to interpret or enforce any rights, the prevailing party shall be entitled to recover its attorneys’, paralegals’, accountants’, and other experts’ fees and all other fees, costs, and expenses actually incurred, as determined to be reasonable by the arbitrator(s) or court(s), in addition to all other amounts provided by law. The prevailing party will be deemed to be the party to have won on the issues with the greatest value as determined by the court(s) or arbitrator(s).

     Section 14.16 Severability. Whenever possible, each provision in this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Agreement.

     Section 14.17 Captions and Headings. The captions and headings used in this Agreement are for convenience and reference only and do not constitute a part of this Agreement and shall not be deemed to limit, characterize or in any way affect any provision of this Agreement, and all provisions of this Agreement shall be enforced and construed as if no caption or heading had been used in this Agreement.

     Section 14.18 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

26

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 14.19 Relationship. The only relationship between Seller and Purchaser shall be that of vendor and purchaser of the Product to be cut and removed from the Property, and neither party shall in any respect be deemed to be or represent itself to be an agent of the other party. Furthermore, no relationship of employer-employee or master and servant is intended, nor shall it be construed, to exist between the parties, or between any party and any servant, agent, employee and/or supplier of any other party, by reason of this Agreement. Each party shall select and pay its own servants, agents, employees and/or suppliers and neither party nor its servants, agents, employees, or suppliers shall be subject to any orders, supervision or control of the other party.

     Section 14.20 Integration. This Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter contained herein.

     Section 14.21 Uniform Commercial Code. This Agreement is subject to Section 1.304 of the Business and Commerce Code of Texas.

[Signature Pages Follow]

27

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed, sealed and delivered by their respective officers thereunto duly authorized, as of the date first above written.

PURCHASER

TIN INC., a Delaware corporation

By:

Name:

Title:

[Seller Signature Page Follows]

28

SELLER:
CPT LOGCO, LLC, a Delaware limited liability company
By:
Name:	Stanley G. Renecker
Title:	Authorized Signatory

29

SCHEDULE 1

SPECIFICATIONS

TEMPLE-INLAND
BUNA LUMBER OPERATION
PURCHASED DELIVERED MEDIUM TREE LENGTH LOG SPECIFICATIONS (PSTM)
June 22, 2007

1)	Length: ***
2)	Butt Size: ***
3)	Top Size: ***
4)	Minimum Age: All stems must be ***
5)	Knots: ***
6)	Redheart: ***
7)	Catface/ cronartium: ***
8)	Crook/fork: ***
9)	Sweep: ***
10)	Butt spur/slant: ***
11)	Foreign material: ***
12)	Dead log/ bug log: ***
13)	Charred/ Burned logs: ***
14)	General Quality: ***
15)	Culling: ***
16)	Receiving: ***

Schedule 1

TEMPLE-INLAND
BUNA LUMBER OPERATION
PURCHASED DELIVERED SMALL TREE LENGTH LOG SPECIFICATIONS (PSTS)
June 22, 2007

1)	Composition: ***
2)	Length: ***
3)	Butt Size: ***
4)	Top Size: ***.
5)	Minimum Age: All stems must be ***
6)	Knots: ***
7)	Redheart: ***
8)	Catface/cronartium: ***
9)	Crook/fork: ***
10)	Sweep: ***
11)	Butt spur/Slant: ***
12)	Foreign Material: ***
13)	Dead log/ bug log: ***
14)	Charred/Burned logs: ***
15)	General Quality: ***
16)	Culling: ***
17)	Receiving: ***

TEMPLE-INLAND
BUNA LUMBER OPERATION
PURCHASED DELIVERED LARGE TREE LENGTH LOG SPECIFICATIONS (PSTL)
June 22, 2007

1)	Length: ***
2)	Butt Size: ***
3)	Top Size: ***
4)	Minimum Age: All stems must be ***
5)	Knots: ***
6)	Redheart: ***
7)	Catface/cronartium: ***
8)	Crook/fork: ***
9)	Sweep: ***
10)	Butt spur/slant: ***
11)	Foreign material: ***
12)	Dead log/bug log: ***
13)	Charred/Burned logs: ***
14)	General Quality: ***
15)	Culling: ***
16)	Receiving: ***

TEMPLE-INLAND
DIBOLL LUMBER OPERATION
PURCHASED DELIVERED MEDIUM TREE LENGTH LOG SPECIFICATIONS (PSTM)
June 22, 2007

1)	Length: ***
2)	Butt Size: ***
3)	Top Size: ***
4)	Minimum Age: All stems must be ***
5)	Knots: ***
6)	Redheart: ***
7)	Catface/cronartium: ***
8)	Crook/fork: ***
9)	Sweep: ***
10)	Butt spur/slant: ***
11)	Foreign material: ***
12)	Dead log/ bug log: ***
13)	Charred/ Burned logs: ***
14)	General Quality: ***
15)	Culling: ***
16)	Receiving: ***

TEMPLE-INLAND
DIBOLL LUMBER OPERATION
PURCHASED DELIVERED SMALL TREE LENGTH LOG SPECIFICATIONS (PSTS)
June 22, 2007

1)	Composition: ***
2)	Length: ***
3)	Butt Size: ***
4)	Top Size: ***
5)	Minimum Age: All stems must be ***
6)	Knots: ***
7)	Redheart: ***
8)	Catface/cronartium: ***
9)	Crook/fork: ***
10)	Sweep: ***
11)	Butt spur/slant: ***
12)	Foreign material: ***
13)	Dead log/ bug log: ***
14)	Charred/Burned logs: ***
15)	General Quality: ***
16)	Culling: ***
17)	Receiving: ***

TEMPLE — INLAND
PINELAND SAWMILL AND STUDMILL
PURCHASE DELIVERED CHIP-N-SAW SPECIFICATIONS (PSCS)
June 22, 2007

1)	Length: ***
2)	Butt size: ***
3)	Top size: ***
4)	Minimum Age: All stems must be ***
5)	Knots: ***.
6)	Redheart: ***
7)	Catface/ cronartium: ***
8)	Crook/fork: ***
9)	Sweep: ***
10)	Butt spur/ slant: ***
11)	Foreign material: ***
12)	Dead log/ bug log: ***
13)	Charred/ Burned Logs: ***
14)	General Quality: ***
15)	Culling: ***
16)	Receiving: ***

TEMPLE-INLAND
PINELAND LUMBER OPERATION
PURCHASED DELIVERED MEDIUM TREE LENGTH LOG SPECIFICATIONS (PSTM)
June 22, 2007

1)	Length: ***
2)	Butt Size: ***
3)	Top Size: ***
4)	Minimum Age: All stems must be ***
5)	Knots: ***
6)	Redheart: ***
7)	Catface/ cronartium: ***
8)	Crook/fork: ***
9)	Sweep: ***
10)	Butt spur/slant: ***
11)	Foreign material: ***
12)	Dead log/ bug log: ***
13)	Charred/ Burned logs: ***
14)	General Quality: ***
15)	Culling: ***
16)	Receiving: ***

TEMPLE-INLAND
PINELAND SAWMILL
PURCHASED DELIVERED SMALL TREE LENGTH LOG SPECIFICATIONS (PSTS)
June 22, 2007

1)	Composition: ***
2)	Length: ***
3)	Butt Size: ***
4)	Top Size: ***
5)	Minimum Age: All stems must be ***
6)	Knots: ***
7)	Redheart: ***
8)	Catface/cronartium: ***
9)	Crook/fork: ***
10)	Sweep: ***
11)	Butt spur/slant: ***
12)	Foreign Material: ***
13)	Dead log/ bug log: ***
14)	Charred/Burned logs: ***
15)	General Quality: ***
16)	Culling: ***
17)	Receiving: ***

TEMPLE-INLAND
SWLA LUMBER OPERATION
PURCHASED DELIVERED LARGE TREE LENGTH LOG SPECIFICATIONS (PSTL)
June 22, 2007

1)	Length: ***
2)	Butt Size: ***
3)	Top Size: ***
4)	Minimum Age: All stems must be ***
5)	Knots: ***
6)	Redheart: ***
7)	Catface/cronartium: ***
8)	Crook/fork: ***
9)	Sweep: ***
10)	Butt spur/slant: ***
11)	Foreign material: ***
12)	Dead log/bug log: ***
13)	Charred/Burned logs: ***
14)	General Quality: ***
15)	Culling: ***
16)	Receiving: ***

TEMPLE-INLAND
SWLA LUMBER OPERATION
PURCHASED DELIVERED MEDIUM TREE LENGTH LOG SPECIFICATIONS (PSTM)
June 22, 2007

1)	Length: ***
2)	Butt Size: ***
3)	Top Size: ***
4)	Minimum Age: All stems must be ***
5)	Knots: ***
6)	Redheart: ***
7)	Catface/ cronartium: ***
8)	Crook/fork: ***
9)	Sweep: ***
10)	Butt spur/slant: ***
11)	Foreign material: ***
12)	Dead log/ bug log: ***
13)	Charred/ Burned logs: ***
14)	General Quality: ***
15)	Culling: ***
16)	Receiving: ***

TEMPLE-INLAND
SWLA LUMBER OPERATION
PURCHASED DELIVERED SMALL TREE LENGTH LOG SPECIFICATIONS (PSTS)
June 22, 2007

1)	Composition: ***
2)	Length: ***
3)	Butt Size: ***
4)	Top Size: ***
5)	Minimum Age: All stems must be ***
6)	Knots: ***
7)	Redheart: ***
8)	Catface/cronartium: ***
9)	Crook/fork: ***
10)	Sweep: ***
11)	Butt spur/slant: ***
12)	Foreign material: ***
13)	Dead log/ bug log: ***
14)	Charred/Burned logs: ***
15)	General Quality: ***
16)	Culling: ***
17)	Receiving: ***

SCHEDULE 2

2008 ANNUAL PLAN

Compstand	Est. Year	County	Technique	Harvest Acres	Total PP
***	***	***	***	***	***

Schedule 2

SCHEDULE 3

2008 FORECAST PLAN

2009 Pine Sawtimber Forecast

	Product	Tons
BUNA AREA	Sum of PSCS ***		*	**
	Sum of PSCS ***		*	**
	Sum of PSTS ***		*	**
	Sum of PSTS ***		*	**
	Sum of PSTM ***		*	**
	Sum of PSTM ***		*	**
	Sum of PSTL ***		*	**
	Sum of PSTL ***		*	**
	Sum of PSMP		*	**
			*	**
DIBOLL AREA	Sum of PSCS ***		*	**
	Sum of PSCS ***		*	**
	Sum of PSTS ***		*	**
	Sum of PSTS ***		*	**
	Sum of PSTM ***		*	**
	Sum of PSTM ***		*	**
	Sum of PSTL ***		*	**
	Sum of PSTL ***		*	**
	Sum of PSMP		*	**
			*	**
PINELAND AREA	Sum of PSCS ***		*	**
	Sum of PSCS ***		*	**
	Sum of PSTS ***		*	**
	Sum of PSTS ***		*	**
	Sum of PSTM ***		*	**
	Sum of PSTM ***		*	**
	Sum of PSTL ***		*	**
	Sum of PSTL ***		*	**
	Sum of PSMP		*	**
			*	**
DEQUINCY AREA	Sum of PSCS ***		*	**
	Sum of PSCS ***		*	**
	Sum of PSTS ***		*	**
	Sum of PSTS ***		*	**
	Sum of PSTM ***		*	**
	Sum of PSTM ***		*	**
	Sum of PSTL ***		*	**
	Sum of PSTL ***		*	**
	Sum of PSMP		*	**
			*	**

Schedule 3

	Product	Tons
	Sum of PSCS ***		*	**
	Sum of PSCS ***		*	**
	Sum of PSTS ***		*	**
	Sum of PSTS ***		*	**
	Sum of PSTM ***		*	**
	Sum of PSTM ***		*	**
	Sum of PSTL ***		*	**
	Sum of PSTL ***		*	**
	Sum of PSMP		*	**
	Total		*	**
2010 Pine Sawtimber Forecast
	Sum of PSCS		*	**
	Sum of PSTS		*	**
	Sum of PSTM		*	**
	Sum of PSTL		*	**
	Sum of PSMP		*	**
	Total		*	**
	***

SCHEDULE 4

ANNUAL MINIMUM VOLUMES AND ANNUAL OBLIGATION FLOORS

Annual Minimum Volumes

Annual Obligation Floors

Minimum Annual PST

Harvest Plan (000 Tons)

(000 Tons)

Year

NTX

STX

LA

CONS

TOTAL

NTX

STX

LA

CONS

TOTAL

2008

***

***

***

***

***

***

***

***

***

***

2009

***

***

***

***

***

***

***

***

***

***

2010

***

***

***

***

***

***

***

***

***

***

2011

***

***

***

***

***

***

***

***

***

***

2012

***

***

***

***

***

***

***

***

***

***

2013

***

***

***

***

***

***

***

***

***

***

2014

***

***

***

***

***

***

***

***

***

***

2015

***

***

***

***

***

***

***

***

***

***

2016

***

***

***

***

***

***

***

***

***

***

2017

***

***

***

***

***

***

***

***

***

***

2018

***

***

***

***

***

***

***

***

***

***

2019

***

***

***

***

***

***

***

***

***

***

Schedule 4

SCHEDULE 5

FREIGHT ADJUSTMENT

DEFINITIONS

A	Base Haul Rate
	$*** per loaded ton-mi as the base $  per loaded ton-mile trucking Cost
B	Benchmark Fuel Price
	$*** per gallon as the base $  per gallon retail on-highway diesel price
C	Current Fuel Price
	Based on ***
D	***
E	***
F	Rate Adjustment Factor
	***
G	Current Haul Rate
	***

HAUL RATE FUEL ADJUSTMENT

			Calculation
A	Base Haul Rate	$***
B	Benchmark Fuel Price	$***
C	Current Fuel Price	$***
D	***	***	***
E	***	***
F	Rate Adjustment Factor	***	***
G	Current Haul Rate	$***	***

Schedule 5

SCHEDULE 6

INITIAL PRICE

PSCS

PSTS

PSTM

PSTL

Northern Chipmill & Wdyd

$

*

**

$

*

**

Buna

$

*

**

$

*

**

$

*

**

Diboll

$

*

**

$

*

**

DeQuincy

$

*

**

$

*

**

$

*

**

Pineland Lumber

$

*

**

$

*

**

Pineland Studmill

$

*

**

Silsbee Wdyd

$

*

**

$

*

**

$

*

**

Note: ***

PSTL Pricing Calculation

	3rd
	Quarter						3rd
	PD						Quarter
Mill	Volume			Volume %			PD Price
DeQuincy		*	**		*	**%	$	*	**
Buna		*	**		*	**%	$	*	**
	3-Year *** Adjustment Factor							*	**
	Quarterly Price						$	*	**

Schedule 6

SCHEDULE 7

PRODUCT VOLUME RANGE

Minimum/Maximum Percentage of Delivery Volume

By Product and Location

Medium

Sawtimber/Large

Chip-n-Saw

Small Sawtimber

Sawtimber

Location

Minimum

Maximum

Minimum

Maximum

Minimum

Maximum

Buna Lumber &

*

**%

*

**%

*

**%

*

**%

*

**%

*

**%

Silsbee Woodyard

DeQuincy Lumber

*

**%

*

**%

*

**%

*

**%

*

**%

*

**%

Medium Sawtimber

Diboll Lumber &

*

**%

*

**%

*

**%

*

**%

*

**%

*

**%

Northern Woodyard

Pineland Lumber

*

**%

*

**%

*

**%

*

**%

*

**%

*

**%

Pineland Studmill

*

**%

*

**%

*

**%

*

**%

*

**%

*

**%

Schedule 7

SCHEDULE 8

DISTINCTIVE SITES

SITE	ACRES	DESCRIPTION	LOCATION
***	***	***	***
***	***	***	***
***	***	***	***
***	***	***	***
***	***	***	***
***	***	***	***
***	***	***	***
***	***	***	***
***	***	***	***
***	***	***	***
***	***	***	***

Schedule 8

SCHEDULE 9

BIOMASS HARVEST LOCATIONS

***

Schedule 9

SCHEDULE 10

OBLIGATED VOLUME PRODUCTS AND DELIVERY POINTS FOR 2007 AND 2008

PST

Obligated Volume 2007

Sawtimber	PSCS	PSTS	PSTM/PSTL	Total
Buna	***	***	***	***
Dequincy	***	***	***	***
Diboll	***	***	***	***
Pineland Lumber	***	***	***	***
Pineland Studmill	***	***	***	***
			Total	***
			See Note (1)

Obligated Volume 2008

Sawtimber	PSCS	PSTS	PSTM/PSTL	Total
Buna	***	***	***	***
Silsbee Woodyard	***	***	***	***
Dequincy	***	***	***	***
Diboll	***	***	***	***
Northern Woodyard	***	***	***	***
Pineland Lumber	***	***	***	***
Pineland Studmill	***	***	***	***
			Total	***
			See Note (2&3)

Note (1): ***

Note (2): ***

Note (3): ***

Schedule 10

Additional Volume 2007

Sawtimber	PSCS	PSTS	PSTM/PSTL	Total
Buna	***	***	***	***
Dequincy	***	***	***	***
Diboll	***	***	***	***
Pineland Lumber	***	***	***	***
Pineland Studmill	***	***	***	***
			Total	***
			See Note (4)

Note (4): ***

Schedule 10

SCHEDULE 11

PRICING EXAMPLE

     PINE SAWTIMBER DELIVERED PRICING TIMETABLE AND PRICE CALCULATION

•	Pricing process timetable is outlined below:
	— ***
•	Example pricing calculation:
	— ***

Schedule 11

Exhibit A

Description of Property

***

CONSERVATION BLOCK

***

Exhibit B

Form of Support Agreement

[see attached]

SAWTIMBER SUPPORT AGREEMENT

***

EX-10.27

Exhibit 10.27

TEMPLE-INLAND INC.
2008 INCENTIVE PLAN

     1. Definitions. In the Plan, except where the context otherwise indicates, the following definitions shall apply:

          1.1. “Affiliate” means a corporation, partnership, business trust, limited liability company, or other form of business organization at least a majority of the total combined voting power of all classes of stock or other equity interests of which is owned by the Company, either directly or indirectly, and any other entity designated by the Committee in which the Company has a significant interest.

          1.2. “Agreement” means an agreement or other document evidencing an Award. An Agreement may be in written or such other form as the Committee may specify in its discretion, and the Committee may, but need not, require a Participant to sign an Agreement.

          1.3. “Award” means a grant of an Option, Restricted Stock, a Restricted Stock Unit, a Performance Award, or an Other Stock-Based Award.

          1.4. “Board” means the Board of Directors of the Company.

          1.5. “Code” means the Internal Revenue Code of 1986, as amended.

          1.6. “Committee” means the Management Development and Executive Compensation Committee of the Board or such other committee(s), subcommittee(s) or person(s) the Board appoints to administer the Plan or to make and/or administer specific Awards hereunder. If no such appointment is in effect at any time, “Committee” shall mean the Board. Notwithstanding the foregoing, “Committee” means the Board for purposes of granting Awards to members of the Board who are not Employees, and administering the Plan with respect to those Awards, unless the Board determines otherwise.

          1.7. “Common Stock” means the Company’s common stock, par value $1.00 per share.

          1.8. “Company” means Temple-Inland Inc. and any successor thereto.

          1.9. “Date of Exercise” means the date on which the Company receives notice of the exercise of an Option in accordance with Section 7.

          1.10. “Date of Grant” means the date on which an Award is granted under the Plan.

          1.11. “Eligible Person” means any person who is (a) an Employee, (b) a member of the Board or the board of directors of an Affiliate, or (c) a consultant or independent contractor to the Company or an Affiliate.

          1.12. “Employee” means any person who the Committee determines to be an employee of the Company or an Affiliate.

          1.13. “Exercise Price” means the price per Share at which an Option may be exercised.

          1.14. “Fair Market Value” means, unless otherwise determined by the Committee, the closing price of a share of Common Stock on the New York Stock Exchange (“NYSE”) as of the relevant date; provided, however, that in the case of an Option, in all events Fair Market Value shall be determined pursuant to a method permitted by Section 409A of the Code for determining the fair market value of stock subject to a nonqualified stock option that does not provide for a deferral of compensation within the meaning of Section 409A of the Code.

          1.15. “Incentive Stock Option” means an Option that the Committee designates as an incentive stock option under Section 422 of the Code.

          1.16. “Nonqualified Stock Option” means an Option that is not an Incentive Stock Option.

          1.17. “Option” means an option to purchase Shares granted pursuant to Section 6.

          1.18. “Option Period” means the period during which an Option may be exercised.

          1.19. “Other Stock-Based Award” means an Award granted pursuant to Section 11.

          1.20. “Participant” means an Eligible Person who has been granted an Award.

          1.21. “Performance Award” means a performance award granted pursuant to Section 10.

          1.22. “Performance Goals” means performance goals that the Committee establishes, which may be based on satisfactory internal or external audits, achievement of balance sheet or income statement objectives, cash flow, customer satisfaction metrics and achievement of customer satisfaction goals, dividend payments, earnings (including before or after taxes, interest, depreciation, and amortization), earnings growth, earnings per share; economic value added, expenses (including plant costs and sales, general and administrative expenses), improvement of financial ratings, internal rate of return, market share, net asset value, net income, net operating gross margin, net operating profit after taxes (“NOPAT”), net sales growth, NOPAT growth, operating income, operating margin, comparisons to the performance of other companies, pro forma income, regulatory compliance, return measures (including return on assets, designated assets, capital, committed capital, net capital employed, equity, sales, or stockholder equity, and

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return versus the Company’s cost of capital), revenues, sales, stock price (including growth measures and total stockholder return), comparison to stock market indices, implementation or completion of one or more projects or transactions (including mergers, acquisitions, dispositions, and restructurings), working capital, or any other objective goals that the Committee establishes. Performance Goals may be absolute in their terms or measured against or in relationship to other companies comparably, similarly or otherwise situated. Performance Goals may be particular to an Eligible Person or the department, branch, Affiliate, or division in which the Eligible Person works, or may be based on the performance of the Company, one or more Affiliates, or the Company and one or more Affiliates, and may cover such period as the Committee may specify.

          1.23. “Plan” means this Temple-Inland Inc. 2008 Incentive Plan, as amended from time to time.

          1.24. “Restricted Stock” means Shares granted pursuant to Section 8.

          1.25. “Restricted Stock Units” means an Award providing for the contingent grant of Shares (or the cash equivalent thereof) pursuant to Section 9.

          1.26. “Section 422 Employee” means an Employee who is employed by the Company or a “parent corporation” or “subsidiary corporation” (each as defined in Sections 424(e) and (f) of the Code) with respect to the Company, including a “parent corporation” or “subsidiary corporation” that becomes such after adoption of the Plan.

          1.27. “Share” means a share of Common Stock.

          1.28. “Ten-Percent Stockholder” means a Section 422 Employee who (applying the rules of Section 424(d) of the Code) owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or a “parent corporation” or “subsidiary corporation” (each as defined in Sections 424(e) and (f) of the Code) with respect to the Company.

Unless the context expressly requires the contrary, references in the Plan to (a) the term “Section” refers to the sections of the Plan, and (b) the word “including” means “including (without limitation).”

     2. Purpose. The Plan is intended to assist the Company and its Affiliates in attracting and retaining Eligible Persons of outstanding ability and to promote the alignment of their interests with those of the stockholders of the Company.

     3. Administration. The Committee shall administer the Plan and shall have plenary authority, in its discretion, to grant Awards to Eligible Persons, subject to the provisions of the Plan. The Committee shall have plenary authority and discretion, subject to the provisions of the Plan, to determine the Eligible Persons to whom it grants Awards, the terms (which terms need not be identical) of all Awards, including without limitation, the Exercise Price of Options, the time or times at which Awards are granted, the number of Shares covered by Awards, whether an Option shall be an Incentive Stock

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Option or a Nonqualified Stock Option, any exceptions to nontransferability, any Performance Goals applicable to Awards, any provisions relating to vesting, and the periods during which Options may be exercised and Restricted Stock shall be subject to restrictions. In making these determinations, the Committee may take into account the nature of the services rendered or to be rendered by Award recipients, their present and potential contributions to the success of the Company and its Affiliates, and such other factors as the Committee in its discretion shall deem relevant. Subject to the provisions of the Plan, the Committee shall have plenary authority to interpret the Plan and Agreements, prescribe, amend and rescind rules and regulations relating to them, and make all other determinations deemed necessary or advisable for the administration of the Plan and Awards granted hereunder. The determinations of the Committee on the matters referred to in this Section 3 shall be binding and final. The Committee may delegate its authority under this Section 3 and the terms of the Plan to such extent it deems desirable and is consistent with the requirements of applicable law.

     4. Eligibility. Awards may be granted only to Eligible Persons, provided that (a) Incentive Stock Options may be granted only to Eligible Persons who are Section 422 Employees; and (b) Options may be granted only to persons with respect to whom Shares constitute stock of the service recipient (within the meaning of Section 409A of the Code and the applicable Treasury Regulations thereunder).

     5. Stock Subject to Plan.

          5.1. Subject to adjustment as provided in Section 13, the maximum number of Shares that may be issued under the Plan is 7,375,000 Shares. Shares issued under the Plan may, in whole or in part, be authorized but unissued Shares or Shares that shall have been, or may be, reacquired by the Company in the open market, in private transactions, or otherwise. The number of Shares authorized for issuance under the Plan shall be decreased by 2.33 Shares for each Share issued pursuant to Awards that are not Options (any Awards that are not Options being “Full Value Awards”).

          5.2. Subject to adjustment as provided in Section 13, the maximum number of Shares with respect to which an Employee may be granted Awards under the Plan during any calendar year is 500,000 Shares. The maximum number of Shares with respect to which an Employee has been granted Awards shall be determined in accordance with Section 162(m) of the Code.

          5.3. If an Option expires or terminates for any reason without having been fully exercised, if shares of Restricted Stock are forfeited, or if Shares covered by an Award are not issued or are forfeited, the unissued or forfeited Shares that had been subject to the Award shall be available for the grant of additional Awards; provided, however, that: (a) in the case of Full Value Awards, the number of Shares that again become available for the grant of Awards under the Plan shall reflect the last sentence of Section 5.1, so that, by way of example, if 100 shares of Restricted Stock are forfeited, 233 Shares shall again be available for the grant of Awards, subject to the last sentence of Section 5.1; (b) in the case of Shares that are withheld to pay withholding taxes, no such withheld Shares shall be available for the grant of Awards hereunder; (c) in the case of

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the surrender of all or a portion of an Option pursuant to Section 6.4 hereof, the excess of the number of Shares as to which the Option is surrendered over the number of Shares issued to the Participant in consideration for such surrender shall not be available for the grant of Awards hereunder; and (d) in the case of delivery of Shares pursuant to Section 7.2 hereof as payment of the Exercise Price, no such Shares shall be available for the grant of Awards hereunder.

     6. Options.

          6.1. Options granted under the Plan shall be either Incentive Stock Options or Nonqualified Stock Options, as designated by the Committee. Each Option granted under the Plan shall be identified as either a Nonqualified Stock Option or an Incentive Stock Option, and each Option shall be evidenced by an Agreement that specifies the terms and conditions of the Option. Options shall be subject to the terms and conditions set forth in this Section 6 and such other terms and conditions not inconsistent with the Plan as the Committee may specify. The Committee, in its discretion, may condition the grant or vesting of an Option upon the achievement of one or more specified Performance Goals.

          6.2. The Exercise Price of an Option granted under the Plan shall not be less than 100% of the Fair Market Value of a Share on the Date of Grant. Notwithstanding the foregoing, in the case of an Incentive Stock Option granted to an Employee who, on the Date of Grant is a Ten-Percent Shareholder, the Exercise Price shall not be less than 110% of the Fair Market Value of a Share on the Date of Grant.

          6.3. The Committee shall determine the Option Period for an Option, which shall be specifically set forth in the Agreement, provided that an Option shall not be exercisable after ten years (five years in the case of an Incentive Stock Option granted to an Employee who on the Date of Grant is a Ten-Percent Stockholder) from its Date of Grant.

          6.4. To the extent authorized by the Committee, and in accordance with such rules as the Committee may prescribe, a Participant may surrender to the Company an Option (or a portion thereof) that has become exercisable and receive upon such surrender, without any payment to the Company (other than required tax withholding amounts) that number of Shares (equal to the highest whole number of Shares) having an aggregate Fair Market Value as of the date of surrender equal to that number of Shares subject to the Option (or portion thereof) being surrendered multiplied by an amount equal to the excess of (i) the Fair Market Value on the date of surrender over (ii) the Exercise Price, plus an amount of cash equal to the fair market value of any fractional Share to which the Participant would be entitled but for the parenthetical above relating to the issuance of a whole number of Shares. Any such surrender shall be treated as the exercise of the Option (or portion thereof).

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     7. Exercise of Options.

          7.1. Subject to the terms of the applicable Agreement, an Option may be exercised, in whole or in part, by delivering to the Company a notice of the exercise, in such form as the Committee may prescribe, accompanied by (a) full payment for the Shares with respect to which the Option is exercised or (b) to the extent provided in the applicable Agreement, irrevocable instructions to a broker to deliver promptly to the Company cash equal to the exercise price of the Option.

          7.2. To the extent provided in the applicable Agreement or otherwise authorized by the Committee, payment may be made by delivery (including constructive delivery) of Shares (provided that such Shares, if acquired pursuant to an Option or other Award granted hereunder or under any other compensation plan maintained by the Company or any Affiliate, have been held by the Participant for such period, if any, as the Committee may specify) valued at Fair Market Value on the Date of Exercise or surrender of the Option (or portion thereof) as provided in Section 6.4.

     8. Restricted Stock Awards. Each grant of Restricted Stock under the Plan shall be subject to an Agreement specifying the terms and conditions of the Award. Restricted Stock granted under the Plan shall consist of Shares that are restricted as to transfer, subject to forfeiture, and subject to such other terms and conditions as the Committee may specify. Such terms and conditions may provide, in the discretion of the Committee, for the lapse of such transfer restrictions or forfeiture provisions to be contingent upon the achievement of one or more specified Performance Goals.

     9. Restricted Stock Unit Awards. Each grant of Restricted Stock Units under the Plan shall be evidenced by an Agreement that (a) provides for the issuance of Shares (or the cash equivalent thereof) to a Participant at such time(s) as the Committee may specify and (b) contains such other terms and conditions as the Committee may specify, including, terms that condition the issuance or vesting of Restricted Stock Unit Awards upon the achievement of one or more specified Performance Goals.

     10. Performance Awards. Each Performance Award granted under the Plan shall be evidenced by an Agreement that (a) provides for the payment of cash or issuance of Shares to a Participant contingent upon the attainment of one or more specified Performance Goals over such period as the Committee may specify, and (b) contains such other terms and conditions as the Committee may specify. If the terms of a Performance Award provide for payment in the form of Shares, for purposes of Section 5.2, the Performance Award shall be deemed to cover a number of Shares equal to the maximum number of Shares that may be issued upon payment of the Award. The maximum cash amount payable to any Employee pursuant to all Performance Awards granted to an Employee during a calendar year shall not exceed $5 million. The Committee may, in its discretion, grant Performance Awards pursuant to which the amount and payment of the Award is determined by reference to a percentage of a bonus or incentive pool that applies to more than one Participant, and the amount of the bonus or incentive pool may, in the discretion of the Committee, be either fixed in amount or determined based upon the achievement of one or more Performance Goals.

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     11. Other Stock-Based Awards. The Committee may in its discretion grant stock-based awards (including awards based on dividends) of a type other than those otherwise provided for in the Plan, including the issuance or offer for sale of unrestricted Shares (“Other Stock-Based Awards”). Other Stock-Based Awards shall cover such number of Shares and have such terms and conditions as the Committee shall determine, including terms that condition the payment or vesting the Other Stock-Based Award upon the achievement of one or more Performance Goals.

     12. Dividends and Dividend Equivalents. The terms of an Award, other than an Option, may provide a Participant with the right, subject to such terms and conditions as the Committee may specify, to receive dividend payments or dividend equivalent payments with respect to Shares covered by such Award, which payments may be either made currently or credited to an account established for the Participant, and may be settled in cash or Shares, as determined by the Committee. In the discretion of the Committee, payment of dividends or dividend equivalents may be contingent upon the achievement of one or more Performance Goals.

     13. Capital Events and Adjustments.

          13.1. In the event of any change in the outstanding Common Stock by reason of any stock dividend, stock split, reverse stock split, spin-off, split-off, recapitalization, reclassification, combination or exchange of shares, merger, consolidation, liquidation or the like, the Committee shall provide for a substitution for or adjustment in: (a) the number and class of securities subject to outstanding Awards or the type of consideration to be received upon the exercise or vesting of outstanding Awards, (b) the Exercise Price of Options, (c) the aggregate number and class of Shares for which Awards thereafter may be granted under the Plan, and (d) the maximum number of Shares with respect to which an Employee may be granted Awards during any calendar year.

          13.2. Any provision of the Plan or any Agreement to the contrary notwithstanding, in the event of a merger or consolidation to which the Company is a party, the Committee shall take such actions, if any, as it deems necessary or appropriate to prevent the enlargement or diminishment of Participants’ rights under the Plan and Awards granted hereunder, and may, in its discretion, cause any Award granted hereunder to be canceled in consideration of a cash payment equal to the fair value of the canceled Award, as determined by the Committee in its discretion. The fair value of an Option shall be deemed to be equal to the product of (a) the number of Shares the Option covers (and has not previously been exercised) and (b) the excess, if any, of the Fair Market Value of a Share as of the date of cancellation over the Exercise Price of the Option.

     14. Termination or Amendment. The Board may amend or terminate the Plan in any respect at any time; provided, however, that after the stockholders of the Company have approved the Plan, the Board shall not amend or terminate the Plan without approval of (a) the Company’s stockholders to the extent applicable law or regulations or the requirements of the principal exchange or interdealer quotation system on which the

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Common Stock is listed or quoted, if any, requires stockholder approval of the amendment or termination, and (b) each affected Participant if the amendment or termination would adversely affect the Participant’s rights or obligations under any Award granted prior to the date of the amendment or termination.

     15. Modification, Substitution of Awards. Subject to the terms and conditions of the Plan, the Committee may modify the terms of any outstanding Awards; provided, however, that (a) no modification of an Award shall, without the consent of the Participant, alter or impair any of the Participant’s rights or obligations under such Award, and (b) subject to Section 13, in no event may an Option be (i) modified to reduce the Exercise Price of the Option or (ii) cancelled or surrendered in consideration for cash, other Awards, or the grant of a new Option with a lower Exercise Price.

     16. Foreign Employees. Without amendment of the Plan, the Committee may grant Awards to Eligible Persons who are subject to the laws of foreign countries or jurisdictions on such terms and conditions different from those specified in the Plan as may in the judgement of the Committee be necessary or desirable to foster and promote achievement of the purposes of the Plan. The Committee may make such modifications, amendments, procedures, sub-plans and the like as may be necessary or advisable to comply with provisions of laws of other countries or jurisdictions in which the Company or any Affiliate operates or has employees.

     17. Stockholder Approval. The Plan, and any amendments hereto requiring stockholder approval pursuant to Section 14 are subject to approval by vote of the stockholders of the Company at the next annual or special meeting of stockholders following adoption by the Board.

     18. Withholding. The Company’s obligation to issue or deliver Shares or pay any amount pursuant to the terms of any Award granted hereunder shall be subject to satisfaction of applicable federal, state, local, and foreign tax withholding requirements. To the extent authorized by the Committee, and in accordance with such rules as the Committee may prescribe, a Participant may satisfy any withholding tax requirements by one or any combination of the following means: (a) tendering a cash payment, (b) authorizing the Company to withhold Shares otherwise issuable to the Participant, or (c) delivering to the Company already-owned and unencumbered Shares.

     19. Term of Plan. Unless sooner terminated by the Board pursuant to Section 14, the Plan shall terminate on the date that is ten years after the earlier of the date that the Plan is adopted by the Board or approved by the Company’s stockholders, and no Awards may be granted or awarded after such date. The termination of the Plan shall not affect the validity of any Award outstanding on the date of termination.

     20. Indemnification of Committee. In addition to such other rights of indemnification as they may have as members of the Board or Committee, the Company shall indemnify members of the Committee against all reasonable expenses, including attorneys’ fees, actually and reasonably incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any

8

of them may be a party by reason of any action taken or failure to act under or in connection with the Plan or any Award granted hereunder, and against all amounts reasonably paid by them in settlement thereof or paid by them in satisfaction of a judgment in any such action, suit or proceeding, if such members acted in good faith and in a manner which they believed to be in, and not opposed to, the best interests of the Company.

     21. General Provisions.

          21.1. The establishment of the Plan shall not confer upon any Eligible Person any legal or equitable right against the Company, any Affiliate or the Committee, except as expressly provided in the Plan. Participation in the Plan shall not give an Eligible Person any right to be retained in the service of the Company or any Affiliate.

          21.2. Neither the adoption of the Plan nor its submission to the Company’s stockholders shall be taken to impose any limitations on the powers of the Company or its Affiliates to issue, grant or assume options, warrants, rights, restricted stock or other awards otherwise than under the Plan, or to adopt other stock option, restricted stock, or other plans, or to impose any requirement of stockholder approval upon the same.

          21.3. The interests of any Eligible Person under the Plan and/or any Award granted hereunder are not subject to the claims of creditors and may not, in any way, be transferred, assigned, alienated or encumbered except to the extent provided in an Agreement.

          21.4. The Plan shall be governed, construed and administered in accordance with the laws of the State of Texas without giving effect to the conflict of laws principles.

          21.5. The Committee may require each person acquiring Shares pursuant to Awards granted hereunder to represent to and agree with the Company in writing that such person is acquiring the Shares without a view to distribution thereof. The certificates for such Shares may include any legend which the Committee deems appropriate to reflect any restrictions on transfer. All certificates for Shares issued pursuant to the Plan shall be subject to such stock transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Common Stock is then listed or interdealer quotation system upon which the Common Stock is then quoted, and any applicable federal or state securities laws. The Committee may place a legend or legends on any such certificates to make appropriate reference to such restrictions.

          21.6. The Company shall not be required to issue any certificate or certificates for Shares with respect to Awards granted under the Plan, or record any person as a holder of record of Shares, without obtaining, to the complete satisfaction of the Committee, the approval of all regulatory bodies the Committee deems necessary,

9

and without complying to the Board’s or Committee’s complete satisfaction, with all rules and regulations under federal, state or local law the Committee deems applicable.

          21.7. To the extent that the Plan provides for issuance of stock certificates to reflect the issuance of Shares, the issuance may be effected on a noncertificated basis, to the extent not prohibited by applicable law or the rules of any stock exchange or automated dealer quotation system on which the Shares are traded. No fractional Shares shall be issued or delivered pursuant to the Plan or any Award. The Committee shall determine whether cash, other Awards, or other property shall be issued or paid in lieu of any fractional Shares or whether any fractional Shares or any rights thereto shall be forfeited or otherwise eliminated.

          21.8. Notwithstanding any other provision of the Plan to the contrary, to the extent any Award (or a modification of an Award) under the Plan results in the deferral of compensation (for purposes of Section 409A of the Code), the terms and conditions of the Award shall comply with Section 409A of the Code.

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EX-10.28

Exhibit 10.28

TEMPLE-INLAND INC.
NONQUALIFIED STOCK OPTION AGREEMENT

     This Agreement is entered into between TEMPLE-INLAND INC., a Delaware corporation (“Temple-Inland”) and the Employee named above, and is an integral and inseparable term of Employee’s employment as a salaried employee of Temple-Inland or one of its Affiliates. In consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, Temple-Inland and the Employee hereby agree as follows:

1. Grant of Option. Pursuant to, and subject to the terms and conditions set forth in the Plan, Temple-Inland hereby irrevocably grants to the Employee, as a matter of separate agreement and not in lieu of salary or any other compensation for services, the option to purchase all or any part of the above stated number of shares of the Common Stock at the above stated price on the terms and conditions herein set forth (the “Option”). The Option is a Nonstatutory Stock Option and is not intended to qualify as an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”).

2. Governing Documents. This Agreement and the award hereunder is subject to all the restrictions, terms and provisions of the Temple-Inland Inc. 2008 Incentive Plan (the “Plan”) and of the Temple-Inland Inc. Stock Option Terms and Conditions dated February 1, 2008 (the “Terms and Conditions”; and together with the Plan, the “Plan Documents”) which are herein incorporated by reference and to the terms of which the Employee hereby agrees. Capitalized terms used in this Agreement that are not defined herein shall have the meaning set forth in the Plan Documents.

3. Exercise of Option. The Option shall become exercisable in installments on and after each “Date Exercisable” as stated above. The Option may be exercised in whole, at any time, or in part, from time to time, as to all or any of the shares as to which the Option is then exercisable under the Option (provided that the Option may not be exercised as to less than the lesser of 100 shares or the number of shares as to which the Option is then exercisable). The term of the Option shall commence on the Date of Grant and shall expire on the Expiration Date stated above or such earlier date as is prescribed in the Plan Documents. Except as otherwise provided in the Plan Documents, the Option shall not be exercisable unless the Employee shall, at the time of exercise, be an employee of Temple-Inland or one of its Affiliates. The Option may be exercised only upon notice to Temple-Inland and payment of the Exercise Price and tax withholding in the manner set forth in the Plan Documents.

4. No Stockholder Rights. The Employee shall have none of the rights of a stockholder with respect to the shares of Common Stock subject to the Option until such shares shall have been transferred to the Employee upon the exercise of the Option.

5. Employment Requirement. The Employee agrees that the Employee will remain in the employ of Temple-Inland or of an Affiliate for a period ending on one year from the date hereof and that the Employee will, during such employment, devote his or her time, energy and skill to the service of Temple-Inland or such Affiliate and the promotion of its interests, subject to vacations, sick leave and other absences in accordance with the regular policies of Temple-Inland or such Affiliate. Notwithstanding the foregoing, if the Employee has been granted one or more options under the Plan or the Temple-Inland Inc. 2003 Stock Incentive Plan, the period of time during which the Employee shall be obligated to remain in the employ of Temple-Inland or of an Affiliate hereunder and under the terms of such other option agreement or agreements shall run concurrently and not consecutively. Such employment shall be at the pleasure of Temple-Inland or such Affiliate and shall be at such compensation as Temple-Inland or such Affiliate shall determine from time to time. Upon termination of the Employee’s employment (voluntary or involuntary, with or without cause) within the one (1) year period described above without the

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written consent of Temple-Inland or such Affiliate to waive this requirement, the Option shall forthwith terminate.

6. Arbitration. The Employee and Temple-Inland agree that this Agreement arises out of, and is inseparable from, the Employee’s employment with Temple-Inland or any of its Affiliates. The Employee and Temple-Inland further agree to final and binding arbitration as the exclusive forum for resolution of any dispute of any nature whatsoever, whether initiated by the Employee or Temple-Inland, arising out of, related to, or connected with Employee’s employment with, or termination by, Temple-Inland or any of its Affiliates. This includes, without limitation, any dispute arising out of the application, interpretation, enforcement, or claimed breach of this Agreement. The only exceptions to the scope of this arbitration provision are claims arising under any written agreement between the Employee and Temple-Inland or its Affiliate that expressly provides that such claims are not subject to binding arbitration. Arbitration under this provision shall be conducted under the employment dispute rules and procedures of either the American Arbitration Association or of JAMS/Endispute, according to the preference of the party initiating such arbitration. Appeal from, or confirmation of, any arbitration award under this paragraph may be made to any court of competent jurisdiction under standards applicable to appeal or confirmation of arbitration awards under the Federal Arbitration Act. This arbitration provision and related proceedings shall be subject to and governed by the Federal Arbitration Act.

7. Stockholder Approval. The Option granted hereby is granted subject to approval of the Plan at Temple-Inland’s first annual stockholders meeting following the date of this Agreement, and if the Plan is not so approved by Temple-Inland’s stockholders at such stockholders meeting, the Option shall be immediately cancelled and shall be void ab initio.

8. Miscellaneous. The Committee may from time to time modify or amend this Agreement in accordance with the provisions of the Plan Documents. This Agreement shall be binding upon and inure to the benefit of Temple-Inland and its successors and assigns and shall be binding upon and inure to the benefit of the Employee and his or her legatees, distributees and personal representatives. By signing this Agreement, the Employee acknowledges and expressly agrees that the Employee has read the Agreement and the Plan Documents and agrees to their terms. This Agreement may be executed by Temple-Inland and the Employee by means of electronic or digital signatures, which shall have the same force and effect as manual signatures. The Employee acknowledges and agrees that clicking “I Accept” on the Company’s online grant acceptance screen has the effect of affixing the Employee’s electronic signature to this Agreement. This Agreement shall be governed by and construed in accord with federal law, where applicable, and otherwise with the laws of the State of Texas.

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TEMPLE-INLAND INC.
STOCK OPTION TERMS AND CONDITIONS
FEBRUARY 1, 2008

1. Definitions: For purposes of this Temple-Inland Inc. Stock Option Terms and Conditions (the “Terms and Conditions”), the Temple Inland Inc. 2008 Incentive Plan (the “Plan”; and together with the Terms and Conditions, the “Plan Documents”), and the Options to which this Terms and Conditions applies, the following terms shall have the meanings set forth below:

a. Change in Control:

i. A change in control shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:

(1)	any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of Temple-Inland (not including in the securities beneficially owned by such Person any securities acquired directly from Temple-Inland or its Affiliates) representing 20% or more of the combined voting power of Temple-Inland’s then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clauses (a), (b) or (c) of paragraph (3) below;
(2)	within any twenty-four (24) month period, the following individuals cease for any reason to constitute a majority of the number of directors then serving on the Board: individuals who, on the Effective Date, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of Temple-Inland) whose appointment or election by the Board or nomination for election by Temple-Inland’s shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended;
(3)	there is consummated a merger, consolidation of Temple-Inland or any direct or indirect subsidiary of Temple-Inland with any other corporation or any recapitalization of Temple-Inland (for purposes of this paragraph (III), a “Business Event”) unless, immediately following such Business Event (a) the directors of Temple-Inland immediately prior to such Business Event continue to constitute at least a majority of the board of directors of Temple-Inland, the surviving entity or any parent thereof, (b) the voting securities of Temple-Inland outstanding immediately prior to such Business Event continue to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of Temple-Inland or any subsidiary of Temple-Inland, at least 60% of the combined voting power of the securities of Temple-Inland or such surviving entity or any parent thereof outstanding immediately after such Business Event, and (c) in the event of a recapitalization, no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of Temple-Inland or such surviving entity or any parent thereof (not including in the securities Beneficially Owned by such Person any securities acquired directly from Temple-Inland or its Affiliates) representing 20% or more of the combined voting power of the then outstanding securities of Temple-Inland or such surviving entity or any

3

	parent thereof (except to the extent such ownership existed prior to the Business Event);
(4)	the shareholders of Temple-Inland approve a plan of complete liquidation or dissolution of Temple-Inland;
(5)	there is consummated an agreement for the sale, disposition or long-term lease by Temple-Inland of substantially all of Temple-Inland’s assets, other than (a) such a sale, disposition or lease to an entity, at least 50% of the combined voting power of the voting securities of which are owned by shareholders of Temple-Inland in substantially the same proportions as their ownership of Temple-Inland immediately prior to such sale or disposition or (b) the distribution directly to Temple-Inland’s shareholders (in one distribution or a series of related distributions) of all of the stock of one or more subsidiaries of Temple-Inland that represent substantially all of Temple-Inland’s assets; or
(6)	any other event that the Board, in its sole discretion, determines to be a Change in Control for purposes of this Agreement.
	Notwithstanding the foregoing, a “Change in Control” under clauses (1) through (5) above shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of Temple-Inland immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in one or more entities which, singly or together, immediately following such transaction or series of transactions, own all or substantially all of the assets of Temple-Inland as constituted immediately prior to such transaction or series of transactions.

ii. For purposes of this definition of “Change in Control”:

(1)	“Affiliate” shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act.
(2)	“Beneficial Owner” shall have the meaning set forth in Rule 13d-3 under the Exchange Act.
(3)	“Effective Date” means the Date of Grant of the applicable Option.
(4)	“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to time.
(5)	“Person” shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) Temple-Inland or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of Temple-Inland or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the stockholders of Temple-Inland in substantially the same proportions as their ownership of stock of Temple-Inland.

b. Disability: means Termination of Service due to a Participant’s becoming disabled (within the meaning of Section 409A of the Code).

4

c.	Exercise Price: means the Exercise Price, as defined in the Plan.
d.	Group: means Temple-Inland and its Affiliates.
e.	Participant: means any Eligible Employee who has been granted an Option, or any transferee of an Option by reason of the death of the Eligible Employee or pursuant to the requirements of applicable law.
f.	Plan: means the Temple-Inland Inc. 2008 Incentive Plan.
g.	Retirement: means a Participant’s Termination of Service after either (i) attaining age 65 or (ii) attaining age 55 and completing at least five years of service with Temple-Inland or any of its Affiliates.
h.	Temple-Inland: means Temple-Inland Inc. and any successor.
i.	Termination of Service: means the Eligible Employee’s termination of employment by the Group for any reason.

Capitalized terms used herein but not defined herein shall have the meaning assigned to such terms in the Plan.

2.

Acceptance of Option Agreement: An Option shall be immediately cancelled and expire if the applicable Option Agreement is not accepted (in such manner as may be specified by Temple-Inland) by a Participant (or his or her agent or attorney) and delivered to Temple-Inland (in such manner as may be specified by Temple-Inland) within 60 days after the Grant Date of the Option (unless an extension of such deadline for extenuating circumstances is approved by a Vice President of Temple-Inland).

3.	Exercise of Options:
a.	Temple-Inland shall not be required to deliver certificates or instruments for shares with respect to which an Option is exercised until the exercise price for the shares of Common Stock being purchased has been paid in full, except as provided in paragraph 3.d. hereof.
b.	In order to exercise an Option, notice must be provided to Temple-Inland in such form as may be specified by Temple-Inland. Such notice shall state that the Participant elects to exercise a specified Option, the number of shares of Common Stock in respect of which it is being exercised, and the manner of payment of the exercise price of the Option.
c.	Except as provided in paragraph 3.d. hereof, the notice shall be accompanied by payment of the full exercise price of the Option with respect to the number of shares being purchased. The Exercise Price shall be paid in cash, by irrevocable instructions to a broker to deliver promptly to Temple-Inland cash equal to the Exercise Price of the Option, or unless otherwise provided in the applicable Option Agreement, in whole shares of Common Stock held by the Participant for such period, if any, as may be specified by the Committee, or partly in cash and partly in such Common Stock. Cash payments shall be made by certified or bank cashier’s check, or by the wire transfer of immediately available funds, in each case payable to the order of Temple-Inland (or such other person or entity as may be specified by Temple-Inland). Payments of the Exercise Price of an Option that are made in the form of Common Stock (which shall be valued at Fair Market Value) may be made by (i) delivery of stock certificates in negotiable form with an issue date indicating the Common Stock has been held by the Participant for such period, if any, as may be specified by the Committee, or (ii) unless otherwise determined by the Committee, delivery of the Participant’s representation that on the

5

date of exercise he or she owns the requisite number of shares which he or she has held for such period, if any, as may be specified by the Committee, and, unless such shares are registered in the Participant’s name as verified by Temple-Inland’s transfer agent’s records, a representation executed by the Participant’s brokerage firm or other entity in whose name such shares are registered that on the date of exercise the Participant beneficially owns the requisite number of shares and has held such shares for such period, if any, as may be specified by the Committee, (“Certificateless Exercise”). Delivery of such a representation pursuant to a Certificateless Exercise shall be treated as the delivery of the specified number of shares of Common Stock; provided, however, that the number of shares issued to the Participant upon exercise of the Option shall be reduced by the number of shares specified in the representation.

d.

Unless otherwise prohibited by the Committee, and in accordance with such rules as the Committee may prescribe, a Participant may surrender to Temple-Inland an Option (or a portion thereof) that has become exercisable and receive upon such surrender, without any payment to Temple-Inland (other than required tax withholding amounts) that number of shares (equal to the highest whole number of shares) having an aggregate Fair Market Value as of the date of surrender equal to that number of shares subject to the Option (or portion thereof) being surrendered multiplied by an amount equal to the excess of (i) the Fair Market Value on the date of surrender over (ii) the Exercise Price, plus an amount of cash equal to the fair market value of any fractional share to which the Participant would be entitled but for the parenthetical above relating to the issuance of a whole number of shares. Any such surrender shall be treated as the exercise of the Option (or portion thereof) and the provisions of paragraph 3.c. hereof shall not apply.

e.

Except as provided in paragraph 5 hereof, no Option may be exercised at any time unless the holder thereof is then an Employee of the Group.

4. Withholding: Temple-Inland’s obligation to deliver shares of Common Stock upon the exercise of an Option shall be subject to the satisfaction of applicable federal, state and local tax withholding requirements. Unless otherwise prohibited by the Committee, and in accordance with rules prescribed by the Committee, each Participant may satisfy any such withholding tax obligation by any of the following means or by a combination of such means: (a) tendering a cash payment; (b) authorizing Temple-Inland to withhold shares of Common Stock from the shares otherwise issuable to the Participant as the result of the exercise of an Option, or (c) delivering to Temple-Inland unencumbered shares of Common Stock held by the Participant for such period, if any, as may be specified by the Committee. Shares of Common Stock that are withheld or delivered to satisfy applicable withholding taxes shall be valued at their Fair Market Value on the date the withholding tax obligation arises. Only the required statutory minimum tax may be withheld; excess tax withholding is not allowed.

5. Termination of Employment: In the event of the Termination of Service of a Participant to whom an Option has been granted, the Option may, subject to the provisions of paragraph 3 hereof, be exercised as follows:

	Vested Option Exercise	Treatment of Unvested
Termination	Period	Options
Death	12 months	Immediately Vest
Disability	36 months	Immediately Vest
Retirement	Until Expiration of Option	Immediately Vest
Other Termination of Service	3 months	Forfeited

6

	Notwithstanding the foregoing, in no event may an Option be exercised after expiration of its stated term. Options granted under the Plan to Eligible Employees shall not be affected by any change of employment so long as the Participant continues to be an employee of the Group. An Agreement may contain such provisions as the Committee may approve with respect to the effect of approved leaves of absence for employees.
6.	Adjustments upon Changes in Capitalization: Notwithstanding any other provisions of the Plan, in the event of any change in the outstanding Common Stock by reason of any stock dividend, split-up, spin-off, recapitalization, reclassification, combination or exchange of shares, merger, consolidation or liquidation and the like, the Committee shall provide for a substitution for or adjustment in (i) the number and class of shares subject to outstanding Options, and (ii) the exercise prices of outstanding Options. The Committee’s determinations with regard to the adjustments or substitutions provided for by this paragraph shall be conclusive. The Committee may at any time, in its sole discretion, make such amendments to the terms of Option Agreements as it deems necessary or appropriate to reflect any adjustments or substitutions made under the Plan or pursuant to this paragraph. With respect to such options and/or other awards, if any, that may have been granted to the Participant under the Temple-Inland Inc. 2003 Stock Incentive Plan prior to the date hereof, the Participant (a) acknowledges and agrees that pursuant to memoranda dated August 9, 2007, November 14, 2007, and January 11, 2008, the Participant has been advised of certain changes and adjustments made by the Committee to such options and other awards (including changes and adjustments relating to Temple-Inland’s spin-off of Guaranty Financial Group Inc. and Forestar Real Estate Group Inc., and such options’ and other awards’ change in control and retirement provisions), (b) acknowledges and agrees to such changes and adjustments, and (c) acknowledges and agrees that with respect to such options, if any, the Temple-Inland Inc. Stock Option Terms and Conditions document dated November 2, 2007 (the “November 2, 2007 Option Terms and Conditions”) and included in the prospectus dated January 1, 2008 for the Temple-Inland Inc. 2003 Stock Incentive Plan supersedes and replaces the previously in effect Temple Inland Inc. Standard Terms and Conditions document to the extent provided in the November 2, 2007 Option Terms and Conditions.
7.	Change in Control: Notwithstanding any contrary waiting period, installment period or other limitation or restriction in any Option Agreement or in the Plan, each outstanding Option granted under the Plan shall become exercisable in full for the aggregate number of shares covered thereby, in the event of a Change in Control. Any provision of the Plan Documents or any Option Agreement to the contrary notwithstanding, in the event of a merger or consolidation to which Temple-Inland is a party, the Committee shall take such actions, if any, as it deems necessary or appropriate to prevent the enlargement or diminishment of Participants’ rights under any Option, and may, in its discretion, cause any Option to be canceled in consideration of a payment equal to the product of (a) the number of shares of Common Stock that the Option covers (and has not previously been exercised) and (b) the excess, if any, of the Fair Market Value of a share of Common Stock as of the date of cancellation over the Exercise Price of the Option.
8.	Nonalienation of Benefits: Except as required by applicable law, no right or benefit under the Plan or any Option shall be subject to anticipation, alienation, sale, assignment, hypothecation, pledge, exchange, transfer, encumbrance or charge, and any attempt to anticipate, alienate, sell, assign, hypothecate, transfer, pledge, exchange, transfer, encumber or charge the same shall be void. No right or benefit under the Plan or any Option shall in any manner be liable for or subject to the debts, contracts, liabilities or torts of the person entitled to such benefit. If any Participant shall become bankrupt or attempt to anticipate, alienate, sell, assign, hypothecate, pledge, exchange, transfer, encumber or charge any right or benefit under the Plan or any Option, then such right or benefit shall, in the discretion of the Committee, cease and terminate, and in such

7

	event, the Committee in its discretion may hold or apply the same or any part thereof for the benefit of the Participant or his beneficiary, spouse, children or other dependents, or any of them, in such manner and in such proportion as the Committee may deem proper.
9.	No Right to Continued Employment; No Additional Rights: Nothing contained in the Plan or in any Option Agreement shall confer on any Participant any right to continue in the employ of Temple-Inland or any of its Affiliates or interfere in any way with the right of Temple-Inland or an Affiliate to terminate the employment of a Participant at any time, with or without cause, notwithstanding the possibility that the number of shares of Common Stock purchasable by such person under his or her Option (or Options) may thereby be reduced or eliminated. Nothing in the Plan Documents or any Option Agreement shall be construed to give any employee of Temple-Inland or any Affiliate any right to receive an award of Options or as evidence of any agreement or understanding, express or implied, that Temple-Inland or any Affiliate will employ the Participant in any particular position or at any particular rate of remuneration, or for any particular period of time.
10.	Exclusion from Pension, Profit-Sharing and Other Benefit Computations: By acceptance of an Option award under the Plan, a Participant shall be deemed to have agreed that any compensation arising from the Option constitutes special incentive compensation that shall not be taken into account as “salary”, “pay”, “compensation” or “bonus” in determining the amount of any payment under any pension, retirement or profit-sharing plan of Temple-Inland or any Affiliate. In addition, each Participant shall be deemed to have agreed that neither the award, vesting, nor exercise of an Option shall be taken into account in determining the amount of any life insurance coverage or short or long-term disability coverage provided by Temple-Inland or any Affiliate.

11. Applicability: This Terms and Conditions shall apply to all Options to which the Committee designates it as applying, and the Committee may designate it as applying to an Option in whole or in part in its discretion.

12. Plan Controls: In the event of any conflict between the Plan and the terms of an Option Agreement or the Terms and Conditions, the Plan shall govern.

8

EX-10.29

Exhibit 10.29

Tier I

TEMPLE-INLAND INC.
RESTRICTED STOCK UNITS AGREEMENT

     This Agreement is entered into between TEMPLE-INLAND INC., a Delaware corporation (“Temple-Inland”) and the Employee named above, and is an integral and inseparable term of Employee’s employment as an employee of Temple-Inland or an Affiliate. In consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, Temple-Inland and the Employee hereby agree as follows:

1. Grant of Restricted Stock Units. Subject to the restrictions, terms and conditions of this Agreement and the Plan Documents (as hereafter defined), Temple-Inland hereby awards to the Employee the number of restricted stock units stated above (the “Restricted Stock Units”).

2. Governing Documents. This Agreement and the Restricted Stock Units awarded hereby are subject to all the restrictions, terms and provisions of the Temple-Inland Inc. 2003 Stock Incentive Plan (the “Plan”) and the Temple-Inland Standard Terms and Conditions for Restricted Stock Units dated February 1, 2008 (the “Standard Terms and Conditions”; together with the Plan, the “Plan Documents”) which are herein incorporated by reference and to the terms of which the Employee hereby agrees. Capitalized terms used in this Agreement that are not defined herein shall have the meaning set forth in the Plan Documents.

3. No Stockholder Rights. The Restricted Stock Units will be represented by a book entry credited in the name of the Employee and are not actual shares of Common Stock. The Employee will not have the right to vote the Restricted Stock Units. The Employee was granted “Bonus Phantom Shares” as of the date hereof which entitle the Employee to certain dividend equivalent payments for cash dividends with respect to the Restricted Stock Units, subject to the achievement of the performance goals specified by the Committee at the time of grant of the Bonus Phantom Shares. The Employee acknowledges and agrees that (a) the Employee’s sole rights with respect to dividend equivalent payments with respect to the cash dividends arise from the Bonus Phantom Shares and, (b) the Employee has no rights under this Agreement or the Plan Documents with respect to the payment of dividend equivalent payments or the adjustment of the Restricted Stock Units to reflect the payment of cash dividends.

4. General Vesting Requirements. Except as otherwise provided in the Plan Documents and subject to the conditions of paragraphs 5 and 6 hereof: (a) all of the Employee’s Restricted Stock Units shall vest as of the occurrence of a Vesting Date, provided that the Employee has not incurred a Separation From Service prior to the Vesting Date, (b) no payment of the Restricted Stock Units shall be made unless the Performance Goal set forth in Exhibit A hereto has been achieved, and (c) any Restricted Stock Units that have not vested on or prior to the earlier of the Employee’s Separation From Service or the Scheduled Vesting Date shall be forfeited, and the Employee shall not thereafter have any rights with respect to the Restricted Stock Units so forfeited.

5. Retirement Vesting. Notwithstanding paragraph 4 hereof, any Restricted Stock Units that do not vest as of a Vesting Date that occurs by reason of Employee’s Retirement solely by reason of the second sentence of paragraph 6 hereof shall remain outstanding and shall vest as of the Scheduled Vesting Date (which shall be the Vesting Date for purposes of paragraph 7 hereof), subject to the Performance Goal set forth in Exhibit A hereof being achieved as of the Scheduled Vesting Date.

6. Committee Certification of Performance Goals. Notwithstanding anything herein to the contrary, in no event shall any Restricted Stock Units vest as of the Scheduled Vesting Date unless the Committee has certified that the Performance Goal set forth in Exhibit A hereto has been achieved. In the case of a Vesting Date described in clause (b) of the definition of Vesting Date (as set forth in the Standard Terms and Conditions) that occurs by reason of Retirement, in no event shall any Restricted Stock Units vest as of such Vesting Date unless the Committee has certified that Temple-Inland has achieved the

1

Exhibit 10.29

Tier I

Performance Goal set forth in Exhibit A through the end of the later of the calendar quarter during which Retirement occurred or the first full calendar quarter after the Date of Grant.

7. Payment of Restricted Stock Units. Subject to the terms and conditions hereof, Exhibit B hereto and the Plan Documents, Temple-Inland will pay to the Employee the cash value of the Restricted Stock Units (determined based on Fair Market Value of the Common Stock on the Vesting Date) as soon as practicable after the Vesting Date, but not later than ninety days after the Vesting Date (or, if earlier, March 15 of the calendar year following the Vesting Date), provided that if the Vesting Date occurs upon or after a Change in Control, payment shall be made not later than the fifth business day after the Vesting Date.

8. Arbitration. The Employee and Temple-Inland agree that this Agreement arises out of, and is inseparable from, the Employee’s employment with Temple-Inland or any of its Affiliates. The Employee and Temple-Inland further agree to final and binding arbitration as the exclusive forum for resolution of any dispute of any nature whatsoever, whether initiated by the Employee or Temple-Inland, arising out of, related to, or connected with Employee’s employment with, or termination by, Temple-Inland or any of its Affiliates. This includes, without limitation, any dispute arising out of the application, interpretation, enforcement, or claimed breach of this Agreement. The only exceptions to the scope of this arbitration provision are claims arising under any written agreement between the Employee and Temple-Inland or its Affiliate that expressly provides that such claims are not subject to binding arbitration. Arbitration under this provision shall be conducted under the employment dispute rules and procedures of either the American Arbitration Association or of JAMS/Endispute, according to the preference of the party initiating such arbitration. Appeal from, or confirmation of, any arbitration award under this paragraph may be made to any court of competent jurisdiction under standards applicable to appeal or confirmation of arbitration awards under the Federal Arbitration Act. This arbitration provision and related proceedings shall be subject to and governed by the Federal Arbitration Act.

9. Miscellaneous. The Committee may from time to time modify or amend this Agreement in accordance with the provisions of the Plan. This Agreement shall be binding upon and inure to the benefit of Temple-Inland and its successors and assigns and shall be binding upon and inure to the benefit of the Employee and his or her legatees, distributees and personal representatives. By signing this Agreement, the Employee acknowledges and expressly agrees that the Employee has read the Agreement and the Plan Documents and agrees to their terms. This Agreement may be executed by Temple-Inland and the Employee by means of electronic or digital signatures, which shall have the same force and effect as manual signatures. The Employee acknowledges and agrees that clicking “I Accept” on the Company’s online grant acceptance screen has the effect of affixing the Employee’s electronic signature to this Agreement. This Agreement shall be governed by and construed in accord with federal law, where applicable, and otherwise with the laws of the State of Texas.

2

Exhibit 10.29

Tier I

Exhibit A

PERFORMANCE GOAL

The RSU Phantom Shares Performance Goal is an ROI of at least one percent (annualized) for the Performance Measurement Period. ROI means operating income (as currently shown on the parent company income statement, or the reported equivalent in the event of any change in reporting), excluding significant unusual items (currently reported as other operating income (expense) not allocated to segments, or the reported equivalent in the event of any change in reporting) divided by beginning of year investment defined as parent company total assets (or the reported equivalent in the event of any change in reporting), less certain assets (assets held for sale, municipal bonds related to capital leases included in other assets and acquisitions/divestitures) and certain liabilities (current liabilities, excluding current portion of long-term debt).

For purposes of the foregoing, “Performance Measurement Period” means the period beginning the first day of Temple-Inland’s fiscal year that includes the Date of Grant and ending on the last day of the fiscal year immediately preceding the Scheduled Vesting Date (or, in the case of any Vesting Date that occurs by reason of the Employee’s Retirement, through the end of the later of the calendar quarter during which Retirement occurs or the first full calendar quarter after the Date of Grant).

3

Exhibit 10.29

Tier I

Exhibit B

SECTION 409A PAYMENT DATE
IN THE EVENT OF CERTAIN CHANGES IN CONTROL

If, prior to the calendar year that includes the Scheduled Vesting Date, the Employee will have either (a) attained age 65 or (b) attained age 55 and completed at least five years of employment by Temple-Inland or any of its Affiliates, and assuming that the Employee does not incur a Separation From Service prior to such calendar year, then the following shall apply:

Notwithstanding the provisions of paragraph 7 of the Agreement, if the Vesting Date occurs by reason of a Change in Control and such Change in Control does not constitute a “change in control event” (within the meaning of Treasury Regs. § 1.409A-3(i)(5)), (a) payment of the cash value of the Restricted Stock Units shall not be made as soon as practicable after such Vesting Date but shall instead be made as soon as practicable (but in all events within five business days) after the earlier of the Employee’s Separation From Service (subject to paragraph 9 of the Temple-Inland Inc. Standard Terms and Conditions for Restricted Stock Units) or the Scheduled Vesting Date and (b) the cash value of the Restricted Stock Units shall be determined based on Fair Market Value on the earlier of such dates.

4

Exhibit 10.29

Tier I

TEMPLE-INLAND INC.
STANDARD TERMS AND CONDITIONS
FOR RESTRICTED STOCK UNITS
February 1, 2008

1. Certain Definitions: For purposes of this Temple-Inland Inc. Standard Terms and Conditions for Restricted Stock Units (the “Standard Terms and Conditions”), the Temple-Inland Inc. 2003 Stock Incentive Plan (the “Plan,” and together with the Standard Terms and Conditions, the “Plan Documents”), and Restricted Stock Units to which this Standard Terms and Conditions applies, the following terms shall have the meanings set forth below:

a. Change in Control:

i. A change in control shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:

(1)	any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of Temple-Inland (not including in the securities beneficially owned by such Person any securities acquired directly from Temple-Inland or its Affiliates) representing 20% or more of the combined voting power of Temple-Inland’s then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clauses (a), (b) or (c) of paragraph (3) below;
(2)	within any twenty-four (24) month period, the following individuals cease for any reason to constitute a majority of the number of directors then serving on the Board: individuals who, on the Effective Date, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of Temple-Inland) whose appointment or election by the Board or nomination for election by Temple-Inland’s shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended;
(3)	there is consummated a merger, consolidation of Temple-Inland or any direct or indirect subsidiary of Temple-Inland with any other corporation or any recapitalization of Temple-Inland (for purposes of this paragraph (III), a “Business Event”) unless, immediately following such Business Event (a) the directors of Temple-Inland immediately prior to such Business Event continue to constitute at least a majority of the board of directors of Temple-Inland, the surviving entity or any parent thereof, (b) the voting securities of Temple-Inland outstanding immediately prior to such Business Event continue to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of Temple-Inland or any subsidiary of Temple-Inland, at least 60% of the combined voting power of the securities of Temple-Inland or such surviving entity or any parent thereof outstanding immediately after such Business Event, and (c) in the event of a recapitalization, no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of Temple-Inland or such surviving entity or any parent thereof (not including in the securities Beneficially Owned by such Person any securities acquired directly from Temple-Inland or its Affiliates) representing 20% or more of the combined voting power of the then outstanding securities of Temple-Inland or such surviving entity or

5

Exhibit 10.29

Tier I

any parent thereof (except to the extent such ownership existed prior to the Business Event);

(4)	the shareholders of Temple-Inland approve a plan of complete liquidation or dissolution of Temple-Inland;
(5)	there is consummated an agreement for the sale, disposition or long-term lease by Temple-Inland of substantially all of Temple-Inland’s assets, other than (a) such a sale, disposition or lease to an entity, at least 50% of the combined voting power of the voting securities of which are owned by shareholders of Temple-Inland in substantially the same proportions as their ownership of Temple-Inland immediately prior to such sale or disposition or (b) the distribution directly to Temple-Inland’s shareholders (in one distribution or a series of related distributions) of all of the stock of one or more subsidiaries of Temple-Inland that represent substantially all of Temple-Inland’s assets; or
(6)	any other event that the Board, in its sole discretion, determines to be a Change in Control for purposes of this Agreement.
	Notwithstanding the foregoing, a “Change in Control” under clauses (1) through (5) above shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of Temple-Inland immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in one or more entities which, singly or together, immediately following such transaction or series of transactions, own all or substantially all of the assets of Temple-Inland as constituted immediately prior to such transaction or series of transactions.

ii. For purposes of this definition of “Change in Control”:

(1)	“Affiliate” shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act.
(2)	“Beneficial Owner” shall have the meaning set forth in Rule 13d-3 under the Exchange Act.
(3)	“Effective Date” means, the Date of Grant of the applicable Restricted Stock Units.
(4)	“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to time.
(5)	“Person” shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) Temple-Inland or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of Temple-Inland or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the stockholders of Temple-Inland in substantially the same proportions as their ownership of stock of Temple-Inland.

b.	Participant: means any Eligible Employee who has been awarded Restricted Stock Units pursuant to the Plan.
c.	Restricted Stock Units: means a book entry representing an award of Phantom Shares of Common Stock that are subject to restrictions as provided herein.

6

Exhibit 10.29

Tier I

d.	Restricted Stock Units Agreement: means the written agreement executed by Temple-Inland and an Eligible Employee.
e.	Retirement: means a Participant’s Separation From Service after either (i) attaining age 65 or (ii) attaining age 55 and completing at least five years of service with Temple-Inland or any of its Affiliates.
f.	Separation From Service: means a Participant’s separation from service (within the meaning of Section 409A of the Code) with Temple-Inland and its Affiliates after the Date of Grant of the relevant Restricted Stock Units.
g.	Temple-Inland: means Temple-Inland Inc. and any successor thereto.
h.	Vesting Date: means, with respect to any award of Restricted Stock Units hereunder, the earliest of (a) such date or dates as the Committee shall specify in the Restricted Stock Units Agreement evidencing such award of Restricted Stock Units as the Scheduled Vesting Date(s), (b) the Participant’s Retirement, (c) the occurrence of a Change in Control, (d) the Participant’s death, or (e) the Participant’s becoming disabled (within the meaning of Section 409A of the Code).

	Capitalized terms used herein but not defined herein shall have the meaning assigned to such terms in the Plan.
2.	Acceptance of Restricted Stock Units Agreement; Time of Grant of Options; Stock Option Agreements: Restricted Stock Units shall be immediately cancelled and expire if the applicable Restricted Stock Units Agreement is not accepted (in such manner as may be specified by Temple-Inland) by such Participant (or his or her agent or attorney) and delivered to Temple-Inland (in such manner as may be specified by Temple-Inland) within 60 days after the Date of Grant of the Restricted Stock Units (unless an extension of such deadline for extenuating circumstances is approved by a Vice President of Temple-Inland).
3.	Form of Awards: Restricted Stock Units, when issued, will be represented by a book entry in the name of the Participant.
4.	Nonalienation of Benefits: Except as required by applicable law, no right or benefit under the Plan or any Restricted Stock Units Agreement shall be subject to anticipation, alienation, sale, assignment, hypothecation, pledge, exchange, transfer, encumbrance or charge, and any attempt to anticipate, alienate, sell, assign, hypothecate, transfer, pledge, exchange, transfer, encumber or charge the same shall be void. No right or benefit hereunder shall in any manner be liable for or subject to the debts, contracts, liabilities or torts of the person entitled to such benefit. If any Participant shall become bankrupt or attempt to anticipate, alienate, sell, assign, hypothecate, pledge, exchange, transfer, encumber or charge any right or benefit under the Plan or any Restricted Stock Units Agreement, then such right or benefit shall, in the discretion of the Committee, cease and terminate, and in such event, the Committee in its discretion may hold or apply the same or any part thereof for the benefit of the Participant or his beneficiary, spouse, children or other dependents, or any of them, in such manner and in such proportion as the Committee may deem proper.
5.	Withholding: Temple-Inland’s obligation to pay Restricted Stock Units in accordance with, and subject to the terms of, the applicable Restricted Stock Units Agreement, shall be subject to the satisfaction of applicable federal, state and local tax withholding requirements. Restricted Stock Unit payments that are withheld to satisfy applicable withholding taxes shall be determined based on the Fair Market Value of the Common Stock on the date the withholding tax obligation arises. Only the required statutory minimum tax may be withheld; excess tax withholding is not allowed.
6.	No Right to Continued Employment; No Additional Rights: Nothing contained in the Plan or in any Restricted Stock Units Agreement shall confer on any Participant any right to continue in the employ of Temple-Inland or any of its Affiliates or interfere in any way with the right of Temple-Inland or an Affiliate to terminate the employment of a Participant at any time, with or without cause, notwithstanding the Restricted Stock Units awarded to the Participant may be forfeited. Nothing in the Plan Documents or any Restricted Stock Units Agreement shall be construed to give any employee of Temple-Inland or any Affiliate any right to receive an award of Restricted Stock Units or as evidence of any agreement or understanding, express or

7

Exhibit 10.29

Tier I

	implied, that Temple-Inland or any Affiliate will employ the Participant in any particular position or at any particular rate of remuneration, or for any particular period of time.
7.	Changes in Stock: In the event of any change in the outstanding stock covered by Restricted Stock Units by reason of any stock dividend, split-up, spin-off, recapitalization, reclassification, combination or exchange of shares, merger, consolidation or liquidation or the like, the Committee shall provide for a substitution for or adjustment in the number and class of shares covered by the Restricted Stock Units. The Committee’s determination with regard to any such substitution or adjustment shall be conclusive. The Committee may at any time, in its sole discretion, make such amendments to the terms of Restricted Stock Units Agreements as it deems necessary or appropriate to reflect any adjustments or substitutions made pursuant to this paragraph.
8.	Exclusion from Pension, Profit-Sharing and Other Benefit Computations: By acceptance of a Restricted Stock Units award under the Plan, a Participant shall be deemed to have agreed that any compensation arising out of the award constitutes special incentive compensation that shall not be taken into account as “salary”, “pay”, “compensation” or “bonus” in determining the amount of any payment under any pension, retirement or profit-sharing plan of Temple-Inland or any Affiliate. In addition, each Participant shall be deemed to have agreed that neither the award, vesting nor payment of Restricted Stock Units shall be taken into account in determining the amount of any life insurance coverage or short or long-term disability coverage provided by Temple-Inland or any Affiliate.
9.	Section 409A: Notwithstanding any provision to the contrary in a Restricted Stock Units Agreement or the Plan, if a Participant is a “specified employee” (within the meaning of Section 409A(a)(2)(B) of the Code), then to the extent required by Section 409A(a)(2)(B) of the Code, no payment of Restricted Stock Units shall be made to the Participant prior to the earlier of (a) the expiration of the six month period measured from the date of the Participant’s Separation From Service, and (b) the date of the Participant’s death.
10.	Applicability: This Standard Terms and Conditions shall apply to Restricted Stock Units as to which the Committee designates it as applying, and the Committee may designate it as applying in whole or in part in its discretion to a Restricted Stock Units award.
11.	Plan Controls: In the event of any conflict between the Plan and the terms of a Restricted Stock Units Agreement or the Standard Terms and Conditions, the Plan shall govern.

8

EX-21

Exhibit 21

TEMPLE-INLAND INC.
SUBSIDIARIES

All Subsidiaries are wholly-owned unless noted otherwise.

	Jurisdiction of
Subsidiary Name	Incorporation
TIN Inc.	Delaware
Corporate Commercial Realty, Inc.	Delaware
Del-Tin Fiber L.L.C. (50%)	Delaware
GCC Southeastern Corporation	Delaware
Gaylord Container de Mexico, S.A. de C.V.	Mexico
El Morro Corrugated Box Corporation	Delaware
El Morro Corrugated Box Corporation	Puerto Rico
Harima M.I.D, Inc. (25%)	Japan
Inland International Holding Company	Delaware
CLS, S.A. de C.V.	Mexico
Crockett Baja, S.A. de C.V.	Mexico
Inland Corrugados de Mexico, S.A. de C.V.	Mexico
Grupo Inland, S.A. de C.V.	Mexico
Inland Corrugados de Monterrey, S.A. de C.V.	Mexico
IM Servicios, S.A. de C.V.	Mexico
Inland Paper Company, Inc.	Indiana
Midwest Sheets Company, LLC	Delaware
Premier Boxboard L.L.C. (50%)	Delaware
Sabine River & Northern Railroad Company	Texas
Schiffenhaus California, LLC (25%)	Delaware
Scotch Investment Company	Texas
Sunbelt Insurance Company	Texas
Templar Essex Inc	Delaware
Temple Associates, Inc.	Texas
Temple-Inland Forest Products International Inc.	Delaware
507789 N.B. Ltd.	New Brunswick
Temple-Inland Resource Company	Nevada
Temple-Inland Funding Corporation	Nevada
Texas South-Eastern Railroad Company	Texas
TIN Land Financing LLC	Delaware
TIN Timber Financing LLC	Delaware

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in this Annual Report (Form 10-K) of Temple-Inland Inc. of our report dated February 25, 2008, with respect to the consolidated financial statements of Temple-Inland Inc., included in the 2007 Annual Report to Shareholders of Temple-Inland Inc.

We consent to the incorporation by reference in the following Registration Statements:

1)	Registration Statement (Form S-3 No. 333-130034) of Temple-Inland Inc.
2)	Registration Statement (Form S-8 No. 333-129545) of Temple-Inland Inc.
3)	Registration Statement (Form S-8 No. 333-129546) of Temple-Inland Inc.
4)	Registration Statement (Form S-8 No. 333-129547) of Temple-Inland Inc.
5)	Registration Statement (Form S-8 No. 333-129548) of Temple-Inland Inc.
6)	Registration Statement (Form S-8 No. 333-129549) of Temple-Inland Inc.
7)	Registration Statement (Form S-8 No. 333-113180) of Temple-Inland Inc.
8)	Registration Statement (Form S-8 No. 333-105072) of Temple-Inland Inc.
9)	Registration Statement (Form S-8 No. 333-33702) of Temple-Inland Inc.
10)	Registration Statement (Form S-8 No. 333-27469) of Temple-Inland Inc.
11)	Registration Statement (Form S-8 No. 33-63104) of Temple-Inland Inc.
12)	Registration Statement (Form S-8 No. 33-54388) of Temple-Inland Inc.
13)	Registration Statement (Form S-8 No. 33-48034) of Temple-Inland Inc.
14)	Registration Statement (Form S-8 No. 33-43802) of Temple-Inland Inc.
15)	Registration Statement (Post Effective Amendment Number 1 on Form S-8 No. 33-27286) of Temple-Inland Inc.
16)	Registration Statement (Post Effective Amendment Number 2 on Form S-8 No. 33-32124) of Temple-Inland Inc.

of our report dated February 25, 2008, with respect to the consolidated financial statements of Temple-Inland Inc., incorporated herein by reference, and our report dated February 25, 2008, with respect to the effectiveness of Temple-Inland Inc.’s internal control over financial reporting, included in this Annual Report (Form 10-K) for the year ended December 29, 2007.

/s/ Ernst & Young
Austin, Texas
February 25, 2008

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO EXCHANGE ACT RULE 13a-14(a)

I, Doyle R. Simons, certify that:

1. I have reviewed this Annual Report on Form 10-K 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 this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) 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:

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.

/s/  Doyle R. Simons

Doyle R. Simons

Chief Executive Officer

Date: February 25, 2008

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 Annual Report on Form 10-K 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 this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) 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:

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.

/s/  Randall D. Levy

Randall D. Levy

Chief Financial Officer

Date: February 25, 2008

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, Doyle R. Simons, Chief Executive Officer of Temple-Inland Inc., 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 Annual Report on Form 10-K 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 Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Temple-Inland Inc.

/s/ Doyle R. Simons Doyle R. Simons

February 25, 2008

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, Chief Financial Officer of Temple-Inland Inc., 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 Annual Report on Form 10-K 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 Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Temple-Inland Inc.

/s/ Randall D. Levy Randall D. Levy

February 25, 2008