TIN Temple Inland

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934

(Amendment No. 1)

Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:

þ		Preliminary Proxy Statement
o		Confidential, for Use of the Commission (as permitted by Rule 14a-6(e)(2))
o		Definitive Proxy Statement
o		Definitive Additional Materials
o		Soliciting Material Pursuant to §240.14a-12

TEMPLE-INLAND INC.

(Name of Registrant as Specified in Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than Registrant)

Payment of Filing Fee (Check the appropriate box):

o		No fee required.
þ		Fee computed below per Exchange Act Rules 14a-6(i)(1) and 0-11.

     (1) Title of each class of securities to which transaction applies: common stock, par value $1.00 per share, of Temple-Inland Inc., including the associated rights to purchase shares of Series B Junior Participating Preferred Stock.

     (2) Aggregate number of securities to which transaction applies: As of September 20, 2011, 109,616,012 shares of common stock outstanding, 9,986,496 shares reserved for issuance pursuant to options and restricted shares, and 2,200,000 shares of Series B Junior Participating Preferred Stock reserved for issuance pursuant to the Rights Agreement, dated June 7, 2011, between Temple-Inland Inc. and Computershare Trust Company, N.A.

     (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

     The maximum aggregate value was determined based upon the sum of (A) 109,616,012 shares of Temple-Inland common stock multiplied by $32.00 per share; (B) 6,165,048 shares of Temple-Inland common stock for issuance pursuant to options with exercise prices less than $32.00 multiplied by $15.87 (which is the difference between $32.00 and the weighted average exercise price of $16.13 per share); and (C) other stock-based awards with respect to 3,821,448 shares of Temple-Inland common stock multiplied by $32.00 per share. In accordance with Section 14(g) of the Securities Exchange Act of 1934, as amended, the filing fee was determined by multiplying 0.0001161 by the sum calculated in the preceding sentence.

     (4) Proposed maximum aggregate value of transaction:

     $3,727,838,032

     (5) Total fee paid:

     $432,802

þ		Fee paid previously with preliminary materials.
o		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

Amount Previously Paid:

Form, Schedule or Registration Statement No.:

Filing Party:

1300 MoPac Expressway South, 3 ^rd Floor
Austin, Texas 78746
www.templeinland.com

 

[ • ] [ • ], 2011

 

Dear Stockholder,

 

You are cordially invited to attend a special meeting of Temple-Inland Inc. stockholders to be held at [the Hyatt Regency Austin, 208 Barton Springs, Austin, Texas 78704, on [ • ], [ • ] [ • ], 2011, at 9:00 a.m., local time].

 

At the special meeting, you will be asked to consider and vote upon a proposal to adopt the merger agreement under which Temple-Inland would be acquired by International Paper Company. In addition, you will be asked to consider and vote, on an advisory (non-binding) basis, on a proposal to approve the compensation that may be paid or become payable to our named executive officers in connection with the merger, including the agreements and understandings pursuant to which such compensation may be paid or become payable, as described in the section entitled “The Merger — Interests of Temple-Inland’s Directors and Executive Officers in the Merger — Golden Parachute Compensation for Temple-Inland’s Named Executive Officers.” We entered into this merger agreement on September 6, 2011. If the merger agreement is adopted and the merger is completed, you, as a holder of Temple-Inland common stock, will be entitled to receive $32.00 in cash for each share of Temple-Inland common stock owned by you at the consummation of the merger, and Temple-Inland Inc. will become a wholly-owned subsidiary of International Paper Company.

 

After careful consideration, our board of directors has unanimously determined that the merger and the other transactions contemplated by the merger agreement are fair to, advisable and in the best interests of Temple-Inland and its stockholders and unanimously recommends that you vote “FOR” the adoption of the merger agreement and “FOR” the approval, on an advisory (non-binding) basis, of the compensation that may be paid or become payable to Temple-Inland’s named executive officers in connection with the merger, including the agreements and understandings pursuant to which such compensation may be paid or become payable, as described in the section entitled “The Merger — Interests of Temple-Inland’s Directors and Executive Officers in the Merger — Golden Parachute Compensation for Temple-Inland’s Named Executive Officers.”

 

Your vote is very important, regardless of the number of shares of common stock you own.   We cannot consummate the merger unless the merger agreement is approved by the affirmative vote of the holders of outstanding shares of our common stock representing at least a majority of shares entitled to vote at the special meeting. Therefore, the failure of any stockholder to vote will have the same effect as a vote by that stockholder against the adoption of the merger agreement.

 

The attached proxy statement provides you with detailed information about the special meeting, the merger agreement and the merger. A copy of the merger agreement is attached as Annex A to this document. We encourage you to read this document and the merger agreement carefully and in their entirety. You may also obtain more information about Temple-Inland from documents we have filed with the Securities and Exchange Commission.

 

Thank you in advance for your continued support and your consideration of this matter.

 

Sincerely,

 

Doyle R. Simons
Chairman and Chief Executive Officer

 

Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the merger, passed upon the merits or fairness of the merger or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.

 

This proxy statement is dated [ • ] [ • ], 2011 and is first being mailed to stockholders on or about [ • ] [ • ], 2011.

1300 MoPac Expressway South, 3 ^rd Floor
Austin, Texas 78746
www.templeinland.com

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held on [ • ], [ • ] [ • ], 2011

 

To the Stockholders of Temple-Inland Inc.:

 

A special meeting of stockholders of Temple-Inland Inc., a Delaware corporation, or Temple-Inland, will be held at [the Hyatt Regency Austin, 208 Barton Springs, Austin, Texas 78704, on [ • ], [ • ] [ • ], 2011, at 9:00 a.m., local time] for the following purposes:

 

1. To consider and vote on a proposal to adopt the Agreement and Plan of Merger, dated as of September 6, 2011, among Temple-Inland, International Paper Company, a New York corporation, and Metal Acquisition Inc., a Delaware corporation and a wholly-owned subsidiary of International Paper Company, as it may be amended from time to time, pursuant to which Metal Acquisition Inc. will merge with and into Temple-Inland.

 

2. To approve, on an advisory (non-binding) basis, the compensation to be paid to Temple-Inland’s named executive officers that is based on or otherwise relates to the merger, discussed under the section entitled “The Merger — Interests of Temple-Inland’s Directors and Executive Officers in the Merger — Golden Parachute Payments for Temple-Inland’s Named Executive Officers” beginning on page [ • ].

 

3. To consider and vote on a proposal to adjourn the special meeting to a later date or time, if necessary or appropriate, to solicit additional proxies in the event there are insufficient votes at the time of the special meeting or any adjournment or postponement thereof to adopt the merger agreement.

 

4. To consider and vote on such other business as may properly come before the special meeting or any adjournment or postponement of the special meeting.

 

Our board of directors has specified the close of business on October 14, 2011 as the record date for the purpose of determining the stockholders who are entitled to receive notice of, and to vote at, the special meeting. Only stockholders of record at the close of business on the record date are entitled to notice of and to vote at the special meeting and at any adjournment thereof. Each stockholder is entitled to one vote for each share of Temple-Inland common stock held on the record date.

 

Under Delaware law, Temple-Inland stockholders who do not vote in favor of the merger agreement and the merger will have the right to seek appraisal of the fair value of their shares as determined by the Delaware Court of Chancery if the merger is completed, but only if they submit a written demand for such an appraisal prior to the vote on the merger agreement and the merger and strictly comply with the other Delaware law procedures explained in the accompanying proxy statement.

 

Regardless of whether you plan to attend the special meeting in person, we request that you complete, sign, date and return the enclosed proxy or submit your proxy by telephone or the Internet prior to the special meeting to ensure that your shares will be represented at the special meeting. If you have Internet access, we encourage you to submit your proxy via the Internet. Properly executed proxy cards with no instructions indicated on the proxy card will be voted “FOR” the adoption of the merger agreement, “FOR” the approval, on an advisory (non-binding) basis, of the compensation that may be paid or become payable to Temple-Inland’s named executive officers in connection with the merger and “FOR” the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies. If you attend the special meeting, you may revoke your proxy and vote in person if you wish, even if you have previously returned your proxy card. Your prompt attention is greatly appreciated.

 

THE TEMPLE-INLAND BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ADOPTION OF THE MERGER AGREEMENT, “FOR” THE APPROVAL, ON AN ADVISORY (NON-BINDING) BASIS, OF THE COMPENSATION THAT MAY BE PAID OR BECOME

PAYABLE TO TEMPLE-INLAND’S NAMED EXECUTIVE OFFICERS IN CONNECTION WITH THE MERGER AND “FOR” THE PROPOSAL TO ADJOURN THE SPECIAL MEETING, IF NECESSARY OR APPROPRIATE.

 

By Order of the Board of Directors,

 

Leslie K. O’Neal, Senior Vice President/Corporate Secretary

 

[ • ] [ • ], 2011

Austin, Texas

ADDITIONAL INFORMATION

 

This document incorporates important business and financial information about Temple-Inland from documents that are not included in or delivered with this document. See “Where You Can Find More Information” on page [ • ]. You can obtain documents incorporated by reference in this document by requesting them in writing or by telephone from Temple-Inland Inc., 1300 MoPac Expressway South, 3rd Floor, Austin, TX 78746, Attn: Corporate Secretary, telephone (512) 434-5800. You will not be charged for any of these documents that you request. If you wish to request documents, you should do so by [ • ] [ • ], 2011 in order to receive them before the special meeting.

 

For additional questions about the merger, assistance in submitting proxies or voting shares of Temple-Inland common stock, or additional copies of the proxy statement or the enclosed proxy card, please contact our proxy solicitor:

 

D.F. King & Co., Inc.
48 Wall Street, 22nd Floor
New York, NY 10005

 

Banks and Brokers call collect: (212) 269-5550
All others call toll-free: (800) 431-9633

 

TABLE OF CONTENTS

 

 

 

SUMMARY

 

The Companies (Page [ • ])

 

The Merger (Page [ • ])

 

The Special Meeting (Page [ • ])

 

Recommendation of the Temple-Inland Board (Page [ • ])

	•	its knowledge of Temple-Inland’s business, operations, financial condition, earnings, actual and contingent liabilities, and prospects, as well as the risks in achieving those prospects;
	•	its knowledge of the current economic environment generally, including the recent downturn in the U.S. and global equity markets;
	•	its knowledge of the uncertainty regarding the current and future outlook for the corrugated packaging and building products industries, and the challenges facing industry participants, including the delay in changes to linerboard prices that, as of June 2011, had been widely expected by industry analysts to increase in September 2011, and the resulting impact on Temple-Inland’s expected financial results for 2011 and future years;

	•	the lack of improvement in the performance of Temple-Inland’s building products business in 2011 and the expectation by the Temple-Inland board that achievement of historical levels of profitability in that business would not occur for a number of years; in this regard, the Temple-Inland board considered the continued

	•	recent and historical market prices for Temple-Inland common stock, as compared to the financial terms of the merger, including the fact that the merger consideration of $32.00 per share of Temple-Inland common stock represented approximately a 52% premium over $21.01, the closing price of shares of Temple-Inland common stock on the NYSE on June 6, 2011, the last full trading day before the first public announcement of IP’s offer to acquire Temple-Inland, and approximately a 30% premium over $24.63, the closing price of Temple-Inland shares on the NYSE on September 2, 2011, the last full trading day prior to public announcement of the merger;
	•	the fact that the multiple of Temple-Inland’s last 12 months EBITDA to its enterprise value implied by the merger is at the high end of the range when compared to precedent transactions, which the Temple-Inland board believed was particularly meaningful given Temple-Inland’s record EBITDA over such period;
	•	the feedback from many of Temple-Inland’s stockholders, including numerous long-term institutional stockholders, who strongly desired Temple-Inland to enter into a transaction to sell the Company to IP;

	•	the improved per share consideration and the significant adverse changes in a number of the Temple-Inland board’s expectations and assumptions regarding economic conditions and industry dynamics prevailing at the time IP commenced its original offer of $30.60 per share (which the Temple-Inland board then believed grossly undervalued Temple-Inland), including the following: (1) economic conditions and outlook had deteriorated, including a downturn in the U.S. and global equity markets, (2) the prospects for a turnaround in the buildings products business had worsened as a result of continued weakness and uncertainty with respect to the housing market, (3) projected linerboard price increases that industry analysts had widely expected to be implemented in the August/September timeframe did not materialize, impacting the performance and projected performance of the corrugated packaging business, (4) even though Temple-Inland did not believe that the Bogalusa incident (as defined in the section entitled “The Merger — Background of the Merger”) or the Tepper litigation (as defined in the section entitled “The Merger — Background of the Merger”) would individually or in the aggregate materially adversely affect Temple-Inland (and believed the allegations of the Tepper litigation to be without merit), these events negatively affected Temple-Inland’s stock price and created the risk of a continuing adverse impact on its future stock price, and (5) feedback from many Temple-Inland stockholders, including numerous long-term institutional stockholders, who strongly desired a near-term, negotiated transaction due to the foregoing adverse events;

	•	the financial presentation of Goldman Sachs and its opinion to the Temple-Inland board, to the effect that, as of the date of the merger agreement, and based upon and subject to the factors and assumptions set forth therein, the cash consideration to be paid to the holders of the outstanding shares of Temple-Inland common stock (other than IP and its affiliates) pursuant to the merger agreement was fair from a financial point of view to such holders. The full text of the written opinion of Goldman Sachs, which sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached to this proxy statement as Annex B;
	•	the fact that the financial and other terms and conditions of the merger agreement and the transactions contemplated thereby, including the level of the commitment by IP to obtain applicable regulatory approvals and the absence of a financing condition, were the product of intensive arm’s-length negotiations among the parties and were designed to provide substantial certainty that the merger would ultimately be consummated on a timely basis; and
	•	the fact that the merger consideration consists solely of cash, providing Temple-Inland stockholders with certainty of value and liquidity upon consummation.

 

Opinion of Goldman, Sachs & Co. (Page [ • ])

Treatment of Options and Other Equity Awards (Page [ • ])

Material U.S. Federal Income Tax Consequences of the Merger (Page [ • ])

Interests of Temple-Inland’s Directors and Executive Officers in the Merger (Page [ • ])

	•	Equity compensation awards vest upon closing of the merger and short-term incentive compensation plans will be paid at the greater of target level and actual performance if the closing of the merger occurs in 2011 and on a pro rata basis at target level if the closing of the merger occurs in 2012.
	•	All of Temple-Inland’s executive officers, including all of its named executive officers, are eligible to receive severance and other benefits in the case of qualifying terminations of employment (such as a termination of employment by Temple-Inland without “cause” or by the applicable executive officer for “good reason”) in connection with a change in control under individual employment or change in control agreements with Temple-Inland.
	•	Under certain of Temple-Inland’s deferred compensation programs, upon the closing of the merger, the deferred compensation accounts for each participant will be distributed in a lump sum.
	•	Executive officers and directors of Temple-Inland also have rights to indemnification and directors’ and officers’ liability insurance that will survive the closing of the merger.

 

Common Stock Ownership of Directors and Executive Officers (Page [ • ])

 

Amendment to Temple-Inland’s Rights Agreement (Page [ • ])

 

Appraisal Rights (Page [ • ])

 

Conditions to the Merger (Page [ • ])

	•	adoption of the merger agreement by an affirmative vote of at least a majority of the outstanding shares of Temple-Inland common stock;
	•	absence of any statute, rule or regulation by any court, arbitral tribunal or other governmental or other regulatory authority or agency of competent jurisdiction that prohibits or makes unlawful the consummation of the merger, and the absence of any judgment, injunction, order, restraint or prohibition of a court or other tribunal of competent jurisdiction in effect temporarily or permanently prohibiting the consummation of the merger;

	•	expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (which we refer to as the HSR Act), Mexico’s Federal Law on Economic Competition or any agreement with the Antitrust Division of the U.S. Department of Justice, which we refer to as the Antitrust Division; and
	•	the expiration, lapse or termination of all applicable waiting and other time periods and the receipt of all regulatory clearances under other applicable state or foreign, antitrust, competition, fair trade or other applicable laws in any relevant jurisdiction, other than the failure of which to expire, lapse, terminate or be obtained would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on (1) Temple-Inland and its subsidiaries, taken as a whole, (2) IP and its subsidiaries, taken as a whole, but deemed for this purpose to be the same size as Temple-Inland and its subsidiaries, taken as a whole, or (3) Temple-Inland, IP and their respective subsidiaries, taken as a whole, but deemed for this purpose to be the same size as Temple-Inland and its subsidiaries, taken as a whole (we refer to (1), (2) or (3) herein as a regulatory material adverse effect), or result in criminal liability for any officer or director of IP, Temple-Inland or any of their respective subsidiaries.

	•	IP’s and Metal Acquisition Inc.’s representations and warranties being true and correct, subject to various materiality qualifiers, on the date of the merger agreement and on the date of the closing of the merger (or in the case of representations and warranties that are made as of a particular date or period, as of the specified date or period);
	•	IP’s and Metal Acquisition Inc.’s performance in all material respects of and compliance in all material respects with all covenants required to be performed or complied with by them under the merger agreement; and
	•	the receipt by Temple-Inland of an officer’s certificate by IP certifying to the effect that the foregoing two conditions have been satisfied.

	•	Temple-Inland’s representations and warranties being true and correct, subject to various materiality and other qualifiers, on the date of the merger agreement and on the date of the closing of the merger (or in the case of representations and warranties that are made as of a particular date or period, as of the specified date or period);
	•	Temple-Inland’s performance in all material respects of and compliance in all material respects with all obligations and covenants required to be performed or complied with by it under the merger agreement;
	•	the receipt by IP of an officer’s certificate by Temple-Inland certifying to the effect that the foregoing two conditions have been satisfied; and
	•	there not having occurred, since January 1, 2011, a material adverse effect on Temple-Inland.

 

Termination of the Merger Agreement (Page [ • ])

	•	the other party has breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in the merger agreement, which breach or failure to perform (1) would cause a condition of the terminating party’s obligation to consummate the merger not to be satisfied, and (2) cannot be cured within 20 business days, but only if the party seeking to terminate is not in material breach of any representation, warranty, covenant or agreement in the merger agreement;

	•	the merger has not been completed on or before June 6, 2012 (which we refer to as the outside date) and the party seeking to terminate the merger agreement has not breached in any material respect its obligations under the merger agreement in any manner that has been a principal cause of the failure to consummate the merger on or before the outside date;
	•	the special meeting has concluded without the approval of the merger by Temple-Inland’s stockholders, but Temple-Inland may not exercise this termination right if it has materially breached the non-solicitation provisions of the merger agreement; and
	•	a final and non-appealable order, decree or ruling permanently restraining, enjoining or otherwise prohibiting the consummation of the merger has been entered by a governmental entity in a jurisdiction that is material to the business and operations of Temple-Inland, and the party seeking to terminate the merger agreement has complied with its obligations to obtain the required governmental and other approvals.
	•	IP may also terminate the merger agreement if the Temple-Inland board agrees to, approves, endorses or recommends a competing proposal (as defined in the section entitled “The Merger Agreement — No Solicitation”), or withdraws, changes, amends, modifies or qualifies in a manner adverse to IP its recommendation that Temple-Inland stockholders vote in favor of the adoption of the merger agreement.

 

Termination Fees (Page [ • ])

	•	(1) IP terminates the merger agreement because the Temple-Inland board has agreed to, approved, endorsed or recommended a competing proposal, or withdrawn, changed, amended, modified or qualified in a manner adverse to IP its recommendation that Temple-Inland stockholders vote to adopt the merger agreement, or (2) Temple-Inland terminates the merger agreement because of a breach of the merger agreement by IP during any time at which IP would have been entitled to terminate the merger agreement due to a change of the recommendation of the Temple-Inland board; or
	•	(1) a competing proposal has been publicly announced or has become publicly known and not withdrawn prior to the special meeting, (2) IP terminates the merger agreement on the grounds that the merger has not been completed by the outside date or the approval of Temple-Inland stockholders was not obtained at the special meeting and (3) concurrently with or within 12 months after such termination, a definitive agreement providing for a competing proposal is entered into or consummated by Temple-Inland.

 

No Solicitation (Page [ • ])

	•	solicit, initiate or knowingly facilitate or encourage the submission or announcement of any proposal or offer that constitutes, or may reasonably be expected to lead to, a competing proposal;

	•	enter into, maintain, participate in or continue any discussions or negotiations regarding, or furnish to any person any nonpublic information with respect to, any proposal or offer that constitutes, or may reasonably be expected to lead to, a competing proposal;
	•	engage in discussions with any person with respect to any competing proposal (other than to clarify the terms of the competing proposal);
	•	agree to, approve, endorse or recommend any competing proposal (or publicly propose to do so);
	•	withdraw, change, amend, modify or qualify in a manner adverse to IP or Metal Acquisition Inc., the Temple-Inland board’s recommendation that Temple-Inland stockholders vote in favor of adopting the merger agreement (or publicly propose to do so), or otherwise make any public statement inconsistent with the Temple-Inland board’s recommendation that Temple-Inland stockholders vote in favor of the merger agreement;
	•	enter into any letter of intent or similar document or any agreement or commitment providing for any competing proposal; or
	•	resolve, propose or agree to do any of the foregoing.

	•	furnish non-public information to the third party under a confidentiality agreement that contains terms that are no less favorable in the aggregate to Temple-Inland than those contained in the confidentiality agreement between IP and Temple-Inland, and that does not include any provision having the effect of prohibiting Temple-Inland from satisfying its obligations under the merger agreement; and
	•	engage in discussions or negotiations with the third party with respect to the competing proposal.

Regulatory Approvals (Page [ • ])

 

Current Market Price of Temple-Inland Common Stock (Page [ • ])

 

The following questions and answers address briefly some questions you may have regarding the special meeting and the proposed merger. These questions and answers may not address all questions that may be important to you as a holder of shares of Temple-Inland common stock. For important additional information, please refer to the more detailed discussion contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to in this proxy statement. We sometimes make reference to Temple-Inland Inc. and its subsidiaries in this proxy statement by using the terms “Temple-Inland,” the “Company,” “we,” “our” or “us.”

 

 

 

 

 

Temple-Inland Inc.
1300 MoPac Expressway South, 3 ^rd Floor
Austin, Texas 78746
Attn.: Leslie K. O’Neal, Senior Vice President and Corporate Secretary

 

 

D.F. King & Co., Inc.
48 Wall Street, 22nd Floor
New York, NY 10005

Banks and Brokers call collect: (212) 269-5550
All others call toll-free: (800) 431-9633

 

If your brokerage firm, bank, trust or other nominee holds your shares in “street name,” you should also call your brokerage firm, bank, trust or other nominee for additional information.

 

This proxy statement, and the documents to which we refer you in this proxy statement, include forward-looking statements based on estimates and assumptions. There are forward-looking statements throughout this proxy statement, including, without limitation, in statements containing words such as “believes,” “estimates,” “anticipates,” “continues,” “predict,” “potential,” “contemplates,” “expects,” “may,” “will,” “likely,” “could,” “should” or “would” or other similar words or phrases. These statements are subject to risks, uncertainties and other factors, including, among others:

 

 

In addition, we are subject to risks and uncertainties and other factors detailed in Temple-Inland’s annual report on Form 10-K for the fiscal year ended January 1, 2011, filed with the Securities and Exchange Commission, which we refer to as the SEC, on February 22, 2011, and updated in our subsequently filed quarterly reports on Form 10-Q and current reports on Form 8-K, which should be read in conjunction with this proxy statement. See “Where You Can Find More Information” on page [ • ]. Many of the factors that will determine Temple-Inland’s future results are beyond Temple-Inland’s ability to control or predict. In light of the significant uncertainties inherent in the forward-looking statements contained herein, readers should not place undue reliance on forward-looking statements, which reflect management’s views only as of the date hereof. We cannot guarantee any future results, levels of activity, performance or achievements. The statements made in this proxy statement represent Temple-Inland’s views as of the date of this proxy statement, and it should not be assumed that the statements made herein remain accurate as of any future date. Moreover, we assume no obligation to update forward-looking statements or update the reasons that actual results could differ materially from those anticipated in forward-looking statements, except as required by law.

 

This proxy statement is being furnished to Temple-Inland stockholders as part of the solicitation of proxies by the Temple-Inland board for use at the special meeting to be held at [the Hyatt Regency Austin, 208 Barton Springs, Austin, Texas 78704, on [ • ], [ • ] [ • ], 2011, at 9:00 a.m., local time] or at any postponement or adjournment thereof. The purpose of the special meeting is for Temple-Inland stockholders to consider and vote upon adoption of the merger agreement, on an advisory (non-binding) basis, the compensation to be paid to Temple-Inland’s named executive officers that is based on or otherwise relates to the merger, the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies and such other business as may properly come before the special meeting or any adjournment or postponement of the special meeting. Temple-Inland stockholders must adopt the merger agreement in order for the merger to occur. If Temple-Inland stockholders fail to adopt the merger agreement, the merger will not occur. A copy of the merger agreement is attached to this proxy statement as Annex A. You are urged to read the merger agreement in its entirety.

 

We have fixed the close of business on October 14, 2011 as the record date for the special meeting, and only holders of record of Temple-Inland common stock on the record date are entitled to vote at the special meeting. As of the record date, there were [ • ] shares of Temple-Inland common stock outstanding and entitled to vote.

 

Each share of Temple-Inland common stock entitles its holder to one vote on all matters properly coming before the special meeting.

 

A majority of the shares of Temple-Inland common stock issued, outstanding and entitled to vote at the special meeting constitutes a quorum for the purpose of considering the proposals. Shares of Temple-Inland common stock represented at the special meeting but not voted, including shares of Temple-Inland common stock for which proxies have been received but for which stockholders have abstained from voting, will be treated as present at the special meeting for purposes of determining the presence or absence of a quorum for the transaction of all business.

 

Vote for Approval of the Merger

 

You may vote FOR or AGAINST , or you may ABSTAIN from voting on, the proposal to adopt the merger agreement. Consummation of the merger requires the adoption of the merger agreement by the affirmative vote of the holders of outstanding shares of Temple-Inland common stock representing at least a majority of the shares entitled to vote at the special meeting. Therefore, if you abstain or fail to vote, it will have the same effect as a vote “AGAINST” the adoption of the merger agreement.

 

Advisory (Non-Binding) Vote on Golden Parachutes

 

In accordance with Section 14A of the Exchange Act of 1934, as amended (which we refer to as the Exchange Act), Temple-Inland is providing its stockholders with the opportunity to cast an advisory (non-binding) vote on the compensation that may be paid or become payable to its named executive officers in connection with the merger and the agreements and understandings pursuant to which such compensation may be paid or become payable. As required by those rules, Temple-Inland is asking its stockholders to vote on the adoption of the following resolution:

 

“RESOLVED, that the compensation that may be paid or become payable to Temple-Inland’s named executive officers in connection with the merger and the agreements or understandings pursuant to which such compensation may be paid or become payable, as disclosed in the table in the section of the proxy statement entitled “Interests of Temple-Inland’s Directors and Executive Officers in the Merger — Golden Parachute Compensation for Temple Inland’s Named Executive Officers,” including the associated narrative discussion, are hereby APPROVED.”

Temple-Inland has entered into individual agreements that provide for benefits upon a qualifying termination of employment following a change in control because it is necessary to do so in order to recruit new executives in its industry, which has experienced ongoing consolidation. These change in control protections also serve as a retention device, particularly during a potential change in control when executives may leave to pursue other employment out of concern for their job security.

 

The vote on executive compensation payable in connection with the merger is a vote separate and apart from the vote to adopt the merger agreement. Accordingly, you may vote to adopt the merger agreement and vote not to approve the executive compensation and vice versa. Because the vote on executive compensation paid or that may become payable in connection with the merger is advisory only, it will not be binding on either Temple-Inland or IP. Accordingly, because Temple-Inland is contractually obligated to pay the compensation, if the merger agreement is adopted and the merger is completed, the compensation will be payable, subject only to the conditions applicable thereto, regardless of the outcome of the advisory vote.

 

The affirmative vote of at least a majority of the shares of Temple-Inland common stock present in person or by proxy and entitled to vote on the matter will be required to approve the advisory resolution on executive compensation payable to Temple-Inland’s named executive officers in connection with the merger. Therefore, if you abstain, it will have the same effect as a vote “AGAINST” the adoption of the proposal, and if you fail to vote, it will have no effect on the outcome of the proposal unless the shares are counted as present at the special meeting .

 

Vote for Approval of an Adjournment of the Special Meeting

 

The adoption of the proposal to adjourn the special meeting to a later time, if necessary or appropriate, to solicit additional proxies requires the affirmative vote of at least a majority of the shares of Temple-Inland common stock represented in person or by proxy at the special meeting and entitled to vote thereon. Therefore, if you abstain, it will have the same effect as a vote “AGAINST” the adoption of the proposal to adjourn the special meeting, and if you fail to vote, it will have no effect on the outcome of the proposal unless the shares are counted as present at the special meeting.

 

As of [ • ], [ • ] [ • ], 2011, Temple-Inland’s directors and executive officers held and are entitled to vote, in the aggregate, approximately [ • ] shares of Temple-Inland common stock, representing approximately [ • ]% of the outstanding shares of Temple-Inland common stock. We currently expect that each of Temple-Inland’s directors and executive officers will vote their shares of Temple-Inland common stock in favor of the proposals to be presented at the special meeting.

 

If you are a stockholder of record of your shares of Temple-Inland common stock and you submit a proxy by telephone or the Internet or by returning a signed and dated proxy card by mail that is received by Temple-Inland at any time prior to the closing of the polls at the special meeting, your shares will be voted at the special meeting as you indicate. If you sign your proxy card without indicating your vote, your shares will be voted “FOR” the adoption of the merger agreement, “FOR” the approval, on an advisory basis, of the compensation that may be paid or become payable to Temple-Inland’s named executive officers in connection with the merger and “FOR” the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies, and in accordance with the recommendations of the Temple-Inland board on any other matters properly brought before the special meeting, or at any adjournment or postponement thereof, for a vote.

 

If your shares of Temple-Inland common stock are held in “street name,” you will receive instructions from your brokerage firm, bank, trust or other nominee that you must follow in order to have your shares of Temple-Inland common stock voted. If you have not received such voting instructions or require further information regarding such voting instructions, contact your broker. Brokers who hold shares of Temple-Inland common stock in “street name” for a beneficial owner of those shares typically have the authority to vote in their discretion on “routine” proposals when they have not received instructions from beneficial owners. However, brokers are not allowed to exercise their voting discretion with respect to the approval of matters that are “non-routine,” such as adoption of the merger agreement, without specific instructions from the beneficial owner. Broker non-votes are

shares held by a broker or other nominee that are represented at the meeting, but with respect to which the broker or other nominee is not instructed by the beneficial owner of such shares to vote on the particular proposal and the broker does not have discretionary voting power on such proposal. If your broker or other nominee holds your shares of Temple-Inland common stock in “street name,” your broker or other nominee will vote your shares only if you provide instructions on how to vote by filling out the voter instruction form sent to you by your broker with this proxy statement.

 

Proxies received by Temple-Inland at any time prior to the closing of the polls at the special meeting, in the case of proxies submitted by using proxy cards, or [ • ] a.m. [ • ] time on [ • ] [ • ], 2011, in the case of proxies submitted by telephone or Internet, that have not been revoked or superseded before being voted, will be voted at the special meeting.

 

If you are a stockholder of record of your shares of Temple-Inland common stock, you have the right to change or revoke your proxy at any time before the vote taken at the special meeting:

 

 

Written notices of revocation and other communications with respect to the revocation of any proxies should be addressed to:

 

Temple-Inland Inc.

1300 MoPac Expressway South, 3 ^rd Floor

Austin, Texas 78746

Attn.: Leslie K. O’Neal, Senior Vice President and Corporate Secretary

 

If you are a “street name” holder of Temple-Inland common stock, you may change your vote by submitting new voting instructions to your brokerage firm, bank, trust or other nominee. You must contact your brokerage firm, bank, trust or other nominee to obtain instructions as to how to change or revoke your proxy.

 

Under the terms of the merger agreement, if there are insufficient votes at the time of the special meeting, or any adjournment or postponement thereof, to adopt the merger agreement, then Temple-Inland may, and IP may require Temple-Inland to, adjourn or postpone the special meeting up to two times for a period of not more than 15 calendar days in the aggregate. The stockholders by a vote of the holders of a majority of the votes entitled to be cast by the stockholders, present in person or by proxy (which may be voted by the proxyholders at the meeting), may, without further notice to any stockholder (unless a new record date is set or the adjournment is for more than 30 days), adjourn the meeting to a different time and place to permit further solicitations of proxies. At any such adjourned meeting at which a quorum may be present, any business may be transacted that might have been transacted at the meeting as originally called. Any signed proxies received by Temple-Inland prior to the closing of the polls at the special meeting in which no voting instructions are provided on such matter will be voted “FOR” an adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies. Because a majority of the votes represented at the meeting is required to approve the proposal to adjourn the meeting, abstentions will have the same effect on such proposal as a vote “AGAINST” the proposal. Any adjournment or postponement of the special meeting for the purpose of soliciting additional proxies will allow Temple-Inland stockholders who have already sent in their proxies to revoke them at any time prior to their use at the special meeting as adjourned or postponed.

 

This solicitation of proxies is being made by Temple-Inland and the cost of this solicitation is being borne by Temple-Inland. We have retained D.F. King & Co., Inc., a professional proxy solicitation firm, to assist in the solicitation of proxies for the special meeting for a fee of approximately $20,000, plus reimbursement of reasonable out-of-pocket expenses. D.F. King’s employees and our directors, officers and employees may solicit the return of proxies by personal contact, mail, electronic mail, facsimile, telephone or the Internet. D.F. King expects that approximately 50 of its employees will assist in the solicitation. We may also issue press releases asking for your vote or post letters or notices to you on our website, www.templeinland.com. Our directors, officers and employees may also solicit proxies by personal interview, mail, electronic mail, telephone, facsimile or other means of communication. These persons will not be paid additional remuneration for their efforts. We will also request brokers and other fiduciaries to forward proxy solicitation material to the beneficial owners of shares of Temple-Inland common stock that the brokers and fiduciaries hold of record. Upon request, we will reimburse them for their reasonable out-of-pocket expenses.

 

If you have questions about the merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please call our proxy solicitor, D.F. King, toll-free at (800) 431-9633 or collect at (212) 269-5550.

 

A list of our stockholders entitled to vote at the special meeting will be available for inspection for any purpose germane to the meeting at our principal executive offices at least ten days prior to the date of the special meeting and continuing through the special meeting. The list will also be available at the meeting for inspection by any stockholder present at the meeting.

 

 

Temple-Inland is a Delaware corporation that was organized in 1983. We manufacture corrugated packaging and building products, which we report as separate operating segments. Our principal executive offices are located at 1300 MoPac Expressway South, 3rd Floor, Austin, Texas 78746. Our telephone number is (512) 434-5800. Temple-Inland’s home page on the Internet is www.templeinland.com. The information provided on Temple-Inland’s website is not part of this proxy statement and is not incorporated herein by reference.

 

International Paper Company is a global paper and packaging company that is complemented by an extensive North American merchant distribution system, with primary markets and manufacturing operations in North America, Europe, Latin America, Russia, Asia and North Africa. IP is a New York corporation, incorporated in 1941 as the successor to the New York corporation of the same name organized in 1898. IP’s principal executive offices are located at 6400 Poplar Avenue, Memphis, Tennessee 38197, and its telephone number is (901) 419-7000. IP’s home page on the Internet is www.internationalpaper.com. The information provided on IP’s website is not part of this proxy statement and is not incorporated herein by reference.

 

Metal Acquisition Inc., a Delaware corporation and a wholly-owned subsidiary of IP, was formed solely for the purpose of facilitating IP’s acquisition of Temple-Inland. Metal Acquisition Inc. has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with its acquisition of Temple-Inland, including the commencement of a tender offer for all outstanding shares of Temple-Inland common stock on July 12, 2011. Upon consummation of the proposed merger, Metal Acquisition Inc. will merge with and into Temple-Inland and will cease to exist. Metal Acquisition Inc.’s principal executive offices are located at 6400 Poplar Avenue, Memphis, Tennessee 38197, and its telephone number is (901) 419-7000.

 

On May 17, 2011, John Faraci, Chairman and CEO of IP, telephoned Doyle Simons, Chairman and CEO of Temple-Inland, to propose that IP acquire all the outstanding shares of Temple-Inland’s common stock for $30.60 per share in cash. Mr. Simons told Mr. Faraci that he believed IP’s proposal severely undervalued Temple-Inland. Mr. Faraci also requested an in-person meeting with Mr. Simons. That same day, Mr. Simons contacted E. Linn Draper, Lead Director of the Temple-Inland board, and informed Dr. Draper of the proposal and discussed calling a meeting of the Temple-Inland board to discuss the proposal. Mr. Simons also contacted Temple-Inland’s existing independent financial advisor, Goldman Sachs, and legal advisor, Wachtell, Lipton, Rosen & Katz, which we refer to as Wachtell Lipton.

 

The next day, Mr. Simons convened a telephonic meeting of the Temple-Inland board. Also participating were representatives from Temple-Inland’s independent financial and legal advisors. Mr. Simons updated the board as to IP’s proposal, and the board discussed the process to be followed in analyzing and responding to the proposal, including the request for Mr. Simons to meet with Mr. Faraci in person. Mr. Simons explained that the Company and Goldman Sachs would analyze the financial terms of the proposal and that after this analysis was complete the board would reconvene to consider the proposal. After the meeting, Mr. Simons called Mr. Faraci and agreed to meet in person on May 26, 2011. On May 20, 2011, Mr. Simons received a letter dated May 19, 2011 from Mr. Faraci summarizing the terms of the proposal that he had previously conveyed to Mr. Simons over the phone.

 

As previously agreed, on May 26, 2011, Mr. Simons met with Mr. Faraci in person in Austin, Texas. Mr. Faraci repeated IP’s proposal to purchase all of the outstanding shares of Temple-Inland common stock for a price of $30.60 per share in cash and presented Mr. Simons with certain advocacy materials relating to IP’s proposed price. Mr. Simons again told Mr. Faraci that he believed that the proposal severely undervalued Temple-Inland. Mr. Simons also informed Mr. Faraci that he was scheduling a board meeting to review IP’s proposal and that such a meeting would take place within the next ten days. Mr. Simons told Mr. Faraci that he would contact Mr. Faraci following the board meeting.

 

On May 27, 2011, Mr. Simons received a second letter from Mr. Faraci repeating IP’s proposal to acquire Temple-Inland for $30.60 per share of Temple-Inland common stock. Mr. Faraci requested a response to the proposal no later than Saturday, June 4. Mr. Faraci concluded the letter by stating that although IP preferred to enter into a negotiated transaction with Temple-Inland, IP was prepared to make an unsolicited offer directly to the Temple-Inland stockholders.

 

On June 4, 2011, the Temple-Inland board met and, after careful consideration with Goldman Sachs and Wachtell Lipton, voted unanimously to reject IP’s proposal after the board determined unanimously that the proposal grossly undervalued Temple-Inland and was not in the best interest of Temple-Inland’s stockholders. The board authorized Mr. Simons to communicate its rejection to Mr. Faraci. Later that day, Mr. Simons called Mr. Faraci to communicate the board’s rejection of the proposal. Shortly after the call, Mr. Simons also sent Mr. Faraci a letter repeating the Temple-Inland board’s rejection of IP’s proposal of $30.60 per share.

 

On June 6, 2011, Mr. Faraci called Mr. Simons to express his disappointment with the Temple-Inland board’s rejection of the proposal and inform him that IP would be making its proposal public. Shortly after the phone call and the closing of trading on the NYSE, IP issued a press release announcing its proposal to acquire all outstanding shares of Temple-Inland common stock for $30.60 in cash per share. After issuing the press release, Mr. Faraci also sent a letter to Mr. Simons, stating that given the lack of interest expressed by the Temple-Inland board’s unanimous rejection of IP’s proposal, IP would take its offer directly to Temple-Inland’s stockholders.

 

Later that day, Temple-Inland issued a press release stating that after careful consideration with its independent financial and legal advisors, the Temple-Inland board had previously voted unanimously to reject IP’s initial proposal at the same price of $30.60 per share after the board had determined unanimously that the proposal grossly undervalued Temple-Inland and was not in the best interest of Temple-Inland’s stockholders.

 

At a meeting on June 7, 2011, the Temple-Inland board, after presentations by Temple-Inland’s independent financial and legal advisors, and after careful consideration, voted unanimously to adopt a stockholder rights plan

and declare a dividend distribution of one preferred share purchase right on each outstanding share of Temple-Inland common stock. Following the board meeting, Temple-Inland issued a press release announcing its adoption of the stockholder rights plan.

 

On June 23, 2011, at Mr. Faraci’s request, Mr. Simons met Mr. Faraci in person in Washington, D.C. Mr. Faraci stated that IP would like the opportunity to conduct due diligence with respect to what IP characterized as a “minority interest” in the net debt figure for Temple-Inland, the net present value of Temple-Inland’s timber financing transaction and the liabilities for pension and retiree medical benefits. Mr. Simons again informed Mr. Faraci that IP’s current proposal undervalued the Company. Mr. Simons added that if IP were to make a proposal that provided appropriate value to the Company’s stockholders, he would recommend to the Temple-Inland board that IP be allowed to conduct due diligence and that the companies enter into negotiations.

 

At various times following public announcement of IP’s proposal, Temple-Inland’s management and the Temple-Inland board considered various strategic alternatives that might have been available to Temple-Inland, including having contacts with certain third parties regarding potential transactions, but none of these alternatives progressed beyond a high-level conceptual stage and none resulted in negotiations.

 

On July 12, 2011, IP commenced a tender offer for all the shares of Temple-Inland common stock for $30.60 per share in cash, with an initial expiration date of August 9, 2011.

 

On July 16, 2011, the Temple-Inland board of directors met to review the terms of IP’s tender offer with the assistance of Goldman Sachs and Wachtell Lipton. During this meeting, Goldman Sachs rendered an oral opinion to the Temple-Inland board, subsequently confirmed in writing, that as of July 16, 2011 and based upon and subject to the factors and assumptions set forth in its written opinion, the consideration proposed to be paid to the holders of Temple-Inland common stock (other than Metal Acquisition Inc. and its affiliates) pursuant to IP’s tender offer was inadequate from a financial point of view to such holders. At the meeting, the Temple-Inland board unanimously determined that IP’s tender offer grossly undervalued Temple-Inland and was not in the best interests of Temple-Inland and its stockholders. Accordingly, the Temple-Inland board unanimously determined to recommend that the Temple-Inland stockholders reject IP’s offer and not tender their shares of Temple-Inland common stock into the tender offer.

 

On July 18, 2011, Temple-Inland filed a Solicitation/Recommendation Statement on Schedule 14D-9, in which it announced that the Temple-Inland board had rejected the unsolicited tender offer from IP and recommended that Temple-Inland stockholders not tender their shares into IP’s offer.

 

On August 9, 2011, IP extended to September 8, 2011 its tender offer for $30.60 per share of Temple-Inland common stock.

 

On August 17, 2011, Temple-Inland announced that on August 13, 2011 its paper mill located in Bogalusa, Louisiana suspended operations as predictive testing for Biochemical Oxygen Demand indicated that the mill would exceed its maximum daily permit levels for discharge to the Pearl River due to an operational upset at the mill, which we refer to as the Bogalusa incident. In addition, on August 23, 2011, the Company announced that it was named as a defendant in a lawsuit filed in the United States District Court for the Northern District of Texas captioned Tepper v. Temple-Inland Inc. , Case 3:11-cv-02088-D (filed August 22, 2011), which we refer to as the Tepper litigation, seeking substantial damages and alleging, among other things, that Temple-Inland and certain of its affiliates, officers and directors caused the failure of Guaranty Financial Group and its wholly-owned subsidiary, Guaranty Bank. Temple-Inland had previously disclosed that the liquidating trustee might file such a claim and stated that Temple-Inland believed that the claims made in the Tepper litigation were without merit and that it intended to defend them vigorously.

 

Additional information relating to the Bogalusa incident and the Tepper litigation was provided in the Current Reports on Form 8-K filed by Temple-Inland on August 17, 2011, August 23, 2011 and August 29, 2011.

 

On August 29, 2011, Temple-Inland announced that it had received approval from the Louisiana Department of Environmental Quality to restart its paper mill located in Bogalusa, Louisiana and that it estimated the downtime at the Bogalusa mill from the outage to be approximately 50,000 tons at a cost (including downtime) of

approximately $20 million. Also, on that date, Temple-Inland filed a Current Report on Form 8-K summarizing certain of the reasons it believed that the Tepper litigation was without merit.

 

Later in the day on August 29, 2011, Mr. Faraci called Mr. Simons to again request the opportunity to conduct due diligence with respect to the matters that IP had specified on June 23, 2011 and also with respect to the Bogalusa incident and the Tepper litigation.

 

On September 2, 2011, following Mr. Faraci’s request, the Temple-Inland board met with its independent financial advisor and legal advisor to discuss the status of IP’s tender offer. At that meeting, the Temple-Inland board discussed current economic and industry conditions, revised financial analyses and forecasts, recent developments involving the Company and feedback from many of the Company’s stockholders, including numerous long-term institutional stockholders, who strongly desired Temple-Inland to enter into a transaction with IP. The Temple-Inland board authorized the commencement of expedited due diligence and the entering into of negotiations for a potential acquisition of Temple-Inland and directed Mr. Simons to convey to Mr. Faraci Temple-Inland’s offer to enter into negotiations to sell Temple-Inland at a price of $34.50 per share in cash and to provide IP with expedited due diligence. Mr. Simons conveyed to Mr. Faraci the offer to enter into negotiations at the proposed price and stated that Wachtell Lipton would be sending a draft merger agreement and confidentiality agreement to IP’s outside legal counsel, Debevoise & Plimpton LLP, which we refer to as Debevoise, immediately following the call. Mr. Faraci responded that he would not enter into price negotiations without first conducting due diligence on the specified matters described above. Shortly following this call, Wachtell Lipton sent a draft confidentiality agreement and a draft merger agreement to Debevoise.

 

Later that evening, Mr. Faraci told Mr. Simons that IP would be able to provide Mr. Simons with an indication of price 72 hours after Temple-Inland and IP entered into a confidentiality agreement. Following this call, on the evening of September 2, 2011, Debevoise sent comments on the confidentiality agreement to Wachtell Lipton. Later that night, Temple-Inland and IP entered into a confidentiality agreement relating to the non-public information concerning Temple-Inland that IP would receive from Temple-Inland.

 

On September 3, 2011, Temple-Inland began providing IP and its advisors with access to a data room that contained information responsive to IP’s due diligence requests. Representatives of Temple-Inland also conducted telephonic due diligence sessions with representatives of IP. Due diligence continued on September 4, 2011, and on that day representatives of Temple-Inland conducted in-person due diligence sessions with representatives of IP. These due diligence sessions included principally a discussion of the topics IP had requested in the June 23, 2011 meeting and the status and anticipated consequences of the Bogalusa incident and the Tepper litigation, including Temple-Inland’s reasons for its belief that such litigation was without merit.

 

On September 4, 2011, Debevoise returned a markup of the merger agreement to Wachtell Lipton. Wachtell Lipton and Debevoise discussed certain provisions of the merger agreement over the next few days and exchanged markups with each other.

 

On the night of September 5, 2011, the Temple-Inland board held a telephonic meeting during which Mr. Simons updated the board on the due diligence provided to IP over the long holiday weekend and Wachtell Lipton described certain terms of the proposed merger agreement. During the board meeting, Mr. Simons received a call from Mr. Faraci, who told him that IP’s board had just met by phone and had authorized him to offer a “best and final” price of $32.00 in cash per share of Temple-Inland common stock, which offer was contingent on Temple-Inland signing the merger agreement substantially in the form in which it then stood. Mr. Simons conveyed this message to the Temple-Inland board, and the board instructed Mr. Simons to continue to negotiate with Mr. Faraci with respect to price and certain contractual terms relating to deal certainty that it requested be strengthened.

 

Following the Temple-Inland board meeting, Mr. Simons called Mr. Faraci and conveyed the Temple-Inland board’s message. Mr. Faraci stated that he had no additional flexibility with respect to price but that he could consider the other requests. Wachtell Lipton and Debevoise continued to negotiate the terms of the merger agreement through the night of September 5 and early morning of September 6.

 

No provision of the merger agreement specifically addresses the matters that IP had specified in its due diligence request, except that the parties discussed whether and to what extent adverse developments relating to either the Bogalusa incident or the Tepper litigation could affect IP’s obligation to consummate the merger. As

described below under “The Merger Agreement — Representations and Warranties,” IP and Temple-Inland agreed that any liabilities associated with the Bogalusa incident and/or the Tepper litigation (and matters arising from the same state of facts) may be taken into account in determining whether Temple-Inland experienced a material adverse effect only to the extent that the aggregate of any such effects result in or are reasonably likely to result in a material deterioration.

 

Early on the morning of September 6, 2011, the Temple-Inland board met by telephone and Wachtell Lipton provided the Temple-Inland board with a summary of the proposed merger agreement, including an update on revisions that were made to the terms of the merger agreement overnight following the Temple-Inland board’s meeting the prior night. Representatives of Goldman Sachs also reviewed with the Temple-Inland board the financial terms of IP’s proposal of $32.00 per share. Goldman Sachs delivered to the Temple-Inland board an oral opinion, which opinion was subsequently confirmed in writing, to the effect that, as of that date and based upon and subject to the factors and assumptions set forth therein, the cash merger consideration to be received by the holders (other than IP and its affiliates) of the outstanding shares of Temple-Inland common stock pursuant to the merger agreement was fair from a financial point of view to such holders. The full text of the written opinion of Goldman Sachs, which sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with such opinion, is attached as Annex B hereto.

 

After considering the proposed terms of the merger agreement with IP and the various presentations of its legal and financial advisors, and taking into consideration the factors described under “— Reasons for the Merger; Recommendation of the Temple-Inland Board,” the Temple-Inland board unanimously determined that the merger and the other transactions contemplated by the merger agreement are fair to, advisable and in the best interests of Temple-Inland stockholders and adopted and approved the merger agreement, the merger and the other transactions contemplated by the merger agreement and recommended that Temple-Inland’s stockholders adopt the merger agreement.

 

Later that morning, Temple-Inland and IP executed the definitive merger agreement. Shortly thereafter, Temple-Inland and IP issued a joint press release announcing the execution of the merger agreement.

 

After careful consideration, the Temple-Inland board unanimously determined that the merger agreement and the transactions contemplated by the merger agreement are fair to, advisable and in the best interests of Temple-Inland and its stockholders, and unanimously adopted and approved the merger agreement and the transactions contemplated by the merger agreement.

 

In reaching its decision to adopt and approve, and declare advisable, the merger agreement and the transactions contemplated by the merger agreement, the Temple-Inland board consulted with Temple-Inland’s management, as well as its independent financial advisor and legal advisor, and considered a number of factors that the Temple-Inland board believed supported its decision, including the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

The Temple-Inland board also considered a variety of risks and other potentially negative factors concerning the merger agreement and the transactions contemplated by the merger agreement, including the following:

 

 

 

 

 

 

The foregoing discussion of the factors considered by the Temple-Inland board is not intended to be exhaustive, but rather includes the material factors considered by the Temple-Inland board. In reaching its decision to adopt and approve, and declare advisable, the merger agreement and the transactions contemplated by the merger agreement, the Temple-Inland board did not quantify or assign any relative weights to the factors considered, and individual directors may have given different weights to different factors. The Temple-Inland board considered all these factors as a whole, including discussions with, and questioning of, Temple-Inland management and Temple-Inland’s independent financial advisor and legal advisor, and overall considered the factors to be favorable to, and to support, its determination.

 

For the reasons set forth above, the Temple-Inland board unanimously determined that the merger and the transactions contemplated by the merger agreement are fair to, advisable and in the best interests of Temple-Inland and its stockholders, and unanimously adopted and approved, and declared advisable, the merger agreement. The Temple-Inland board unanimously recommends that the Temple-Inland stockholders vote “FOR” the adoption of the merger agreement.

 

Goldman Sachs delivered its opinion to the Temple-Inland board that, as of September 6, 2011 and based upon and subject to the factors and assumptions set forth therein, the $32.00 per share of Temple-Inland common stock in cash to be paid to the holders (other than IP and its affiliates) of outstanding shares of Temple-Inland common stock pursuant to the merger agreement was fair from a financial point of view to such holders.

 

The full text of the written opinion of Goldman Sachs, dated September 6, 2011, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached to this proxy statement as Annex B. Goldman Sachs provided its opinion for the information and assistance of the Temple-Inland board in connection with its consideration of the merger. The Goldman Sachs opinion is not a recommendation as to how any holder of Temple-Inland common stock or other securities should vote with respect to the merger or any other matter.

 

In connection with rendering the opinion described above and performing its related financial analyses, Goldman Sachs reviewed, among other things:

 

 

 

Goldman Sachs also held discussions with members of the senior management of Temple-Inland regarding their assessment of the past and current business operations, financial condition and future prospects of Temple-Inland; reviewed the reported price and trading activity for Temple-Inland common stock; compared certain financial and stock market information for Temple-Inland and IP with similar information for certain other companies the securities of which are publicly traded; reviewed the financial terms of certain recent business combinations in the corrugated and paper packaging industries specifically and in other industries generally; and performed such other studies and analyses, and considered such other factors, as it deemed appropriate.

 

For purposes of rendering the opinion described above, Goldman Sachs relied upon and assumed, without assuming any responsibility for independent verification, the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by it and it does not assume any responsibility for any such information. In that regard, Goldman Sachs assumed with the consent of the Temple-Inland board that the Revised Forecasts were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of Temple-Inland. Goldman Sachs did not make an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or other off-balance-sheet assets and liabilities) of Temple-Inland, nor was any evaluation or appraisal of the assets or liabilities of Temple-Inland furnished to Goldman Sachs. Goldman Sachs assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the merger will be obtained without any adverse effect on the expected benefits of the merger in any way meaningful to its analysis. Goldman Sachs has also assumed that the merger will be consummated on the terms set forth in the merger agreement, without the waiver or modification of any term or condition the effect of which would be in any way meaningful to its analysis.

 

Goldman Sachs’ opinion does not address the underlying business decision of Temple-Inland to engage in the merger, or the relative merits of the merger as compared to any strategic alternatives that may be available to Temple-Inland; nor does it address any legal, regulatory, tax or accounting matters. Goldman Sachs’ opinion addresses only the fairness from a financial point of view, as of the date of the opinion, of the $32.00 per share of Temple-Inland common stock in cash to be paid to the holders (other than IP and its affiliates) of outstanding shares of Temple-Inland common stock pursuant to the merger agreement. Goldman Sachs’ opinion does not express any view on, and does not address, any other term or aspect of the merger agreement or merger or any term or aspect of any other agreement or instrument contemplated by the merger agreement or entered into or amended in connection with the merger, including, without limitation, the fairness of the merger to, or any consideration received in connection therewith by, the holders of any other class of securities, creditors, or other constituencies of Temple-Inland; nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of Temple-Inland, or class of such persons, in connection with the merger, whether relative to the $32.00 per share of Temple-Inland common stock in cash to be paid to the holders (other than IP and its affiliates) of outstanding shares of Temple-Inland common stock pursuant to the merger agreement or otherwise. Goldman Sachs does not express any opinion as to the impact of the merger on the solvency or viability of Temple-Inland or IP or the ability of Temple-Inland or IP to pay their respective obligations when they come due. Goldman Sachs’ opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to it as of, the date of the opinion and Goldman Sachs assumed no responsibility for updating, revising or reaffirming its opinion based on circumstances, developments or events occurring after the date of its opinion. Goldman Sachs’ advisory services and its opinion were provided for the information and assistance of the Temple-Inland board in connection with its consideration of the merger and its opinion does not constitute a recommendation as to how any holder of Temple-Inland common stock should vote with respect to such merger or any other matter. Goldman Sachs’ opinion was approved by a fairness committee of Goldman Sachs.

 

The following is a summary of the material financial analyses delivered by Goldman Sachs to the Temple-Inland board in connection with rendering the opinion described above. The following summary, however, does not purport to be a complete description of the financial analyses performed by Goldman Sachs, nor does the order of analyses described represent relative importance or weight given to those analyses by Goldman Sachs. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read

together with the full text of each summary and are alone not a complete description of Goldman Sachs’ financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before September 2, 2011 and is not necessarily indicative of current market conditions.

 

Summary of Transaction.   Goldman Sachs analyzed the $32.00 to be paid per share of Temple-Inland common stock under the merger agreement in relation to the per share price of Temple-Inland common stock on May 16, 2011 (the day before IP first approached Temple-Inland about a possible transaction), the per share price of Temple-Inland common stock on June 6, 2011 (the last trading day before IP’s offer was made public) and the per share price of Temple-Inland common stock on September 2, 2011 (the last trading day prior to the joint announcement that Temple-Inland and IP had entered into the merger agreement). Goldman Sachs also analyzed the $32.00 to be paid per share of Temple-Inland common stock under the merger agreement in relation to the 52-week high per share price of Temple-Inland common stock for the 52-week period ended June 6, 2011 and the average trading prices of Temple-Inland common stock for the one-week, one-month, 60-day and 90-day periods ended June 6, 2011. The following table presents the results of this analysis:

 

 

Goldman Sachs also calculated and compared various financial multiples and ratios for Temple-Inland based on data from Temple-Inland’s filings and press releases and estimates from the Institutional Brokers Estimate System (“IBES”). The following ratios were calculated:

 

 

 

The following table presents the results of this analysis:

 

 

Illustrative Discounted Cash Flow Analysis.   Using the Revised Forecasts prepared by Temple-Inland’s management, Goldman Sachs calculated indications of net present values per share of Temple-Inland common stock of estimated unlevered free cash flows for Temple-Inland for the second half of fiscal year 2011 through fiscal year 2015, applying discount rates ranging from 9.5% to 10.5%, reflecting estimates of Temple-Inland’s weighted average cost of capital, using a mid-year convention. Goldman Sachs also calculated illustrative terminal values for fiscal year 2015 based on (i) perpetuity growth rates ranging from 1.0% to 3.0% and (ii) forward multiples of steady-state EBITDA of 6.0x to 7.5x. Based on the Revised Forecasts, steady-state EBITDA was calculated separately for Temple-Inland’s corrugated packaging and building products businesses and, in the case of the latter, was estimated by management at $229 million (pre-corporate allocation) which was calculated based on an assumed average housing start level of 1.5 million total annual housing starts; the $229 million in steady-state EBITDA for building products compares to $22 million in pre-corporate allocation 2010 EBITDA for building products. Goldman Sachs then calculated indications of net present values of these illustrative terminal values for fiscal year 2015, by applying discount rates ranging from 9.5% to 10.5%, using a mid-year convention for a discounted cash flow analysis using the perpetuity growth method or a year-end convention for the terminal value when using a terminal multiple approach. The analysis employing the perpetuity growth method resulted in a range of illustrative per share indications from $28.48 to $41.11 and the analysis employing the EBITDA multiple method resulted in a range of illustrative per share indications from $30.49 to $38.71.

 

Illustrative Present Value of Future Share Price and Total Return to Shareholders Analysis.   Goldman Sachs performed an illustrative analysis of the implied present value of Temple-Inland’s future share price and total shareholder return per share, which is designed to provide an indication of the present value of a theoretical future value of a company’s equity as a function of such company’s estimated future earnings and its assumed price to future earnings per share multiple as well as dividends Temple-Inland is expected to pay. For this analysis, Goldman Sachs used certain financial information from the Revised Forecasts prepared by Temple-Inland’s management for each of the fiscal years 2012 to 2015. Goldman Sachs first calculated the implied values per share of Temple-Inland common stock for each of the fiscal years 2012 to 2015, by applying a range of EV to EBITDA multiples from 6.0x to 7.5x, to estimated EBITDA for each of the fiscal years 2012 to 2015, and then deducted the forecast net debt for each period to arrive at illustrative future equity values. Goldman Sachs then divided those illustrative future equity values by the fully diluted shares outstanding and discounted those values back to the present, using a discount rate of 11.2%, reflecting an estimate of Temple-Inland’s cost of equity. The implied values per share of Temple-Inland common stock also reflected the present value of dividends estimated to be received from 2012 through 2015 and included dividends received in the second half of 2011. This analysis resulted in a range of illustrative implied present values per share of Temple-Inland common stock from $24.69 to $36.80.

 

Illustrative Leveraged Buyout Analysis.   Using the Revised Forecasts prepared by Temple-Inland’s management and publicly available historical information, Goldman Sachs performed an illustrative leveraged buyout analysis. In performing the illustrative leveraged buyout analysis, Goldman Sachs assumed that the merger closed at fiscal year-end 2011, customary financing fees, advisory fees and debt breakage costs. Based on a range of illustrative purchase prices per share of Temple-Inland of $30.60 to $40.00 (including within this range the merger consideration of $32.00 per share), an illustrative leverage level of 5.7x 2011E Adjusted EBITDA and a range of illustrative exit Adjusted EBITDA multiples of 6.0x to 7.5x for the assumed exit at the end of 2015, which reflect

illustrative implied prices at which a hypothetical financial buyer might exit its investment, this analysis resulted in illustrative internal rate of equity returns to a hypothetical financial buyer ranging from 1.7% to 22.9%.

 

Analysis at Transaction Price.   Goldman Sachs reviewed and compared certain financial information for Temple-Inland to corresponding financial information, ratios and public market multiples for the following publicly traded corporations in the corrugated and paper packaging industries:

 

 

Although none of the selected companies is directly comparable to Temple-Inland, the companies included were chosen because they are publicly traded companies with operations that for purposes of analysis may be considered similar to certain operations of Temple-Inland given their operations in, and exposure to, the containerboard and corrugated packaging markets.

 

Goldman Sachs calculated and compared various financial multiples of Temple-Inland and the selected companies. The multiples of Temple-Inland and for each of the selected companies were based on SEC filings, IBES estimates and other publicly available information. With respect to Temple-Inland and the selected companies, Goldman Sachs calculated EV as a multiple of estimated EBITDA for the calendar years 2011 and 2012. Goldman Sachs also calculated the estimated P/E multiple for the calendar years 2011 and 2012. Goldman Sachs calculated the multiples for Temple-Inland based on the transaction price of $32.00 per share of Temple-Inland common stock.

 

The following table presents a summary of the results of this analysis:

 

 

The table below presents the IBES estimates, as of September 2, 2011, for each of the corrugated and paper packaging companies included in the analysis and Temple-Inland, for each of 2011 and 2012:

 

 

Selected Transactions Analysis.   Goldman Sachs analyzed certain information relating to the following selected transactions in the corrugated and paper packaging industries since May 1997:

 

 

 

For each of the selected transactions, Goldman Sachs calculated and compared EV as a multiple of last twelve months EBITDA, using publicly available data including the applicable acquiror’s stock price at announcement, and then calculated the median of this multiple for all of the selected transactions. While none of the companies that participated in the selected transactions is directly comparable to Temple-Inland, the companies that participated in the selected transactions are companies with operations that, for the purposes of analysis, may be considered similar to certain of Temple-Inland’s results, market size and product profile given their operations in, and exposure to, the containerboard and corrugated packaging markets.

 

The following table presents the results of this analysis with the proposed transaction multiple calculated using market data as of September 2, 2011:

 

 

General.   The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Goldman Sachs’ opinion. In arriving at its fairness determination, Goldman Sachs considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, Goldman Sachs made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses. No company or transaction used in the above analyses as a comparison is directly comparable to Temple-Inland or the contemplated merger.

 

Goldman Sachs prepared these analyses for purposes of Goldman Sachs providing its opinion to the Temple-Inland board as to the fairness from a financial point of view of the $32.00 per share of Temple-Inland common stock in cash to be paid to the holders (other than IP and its affiliates) of outstanding shares of Temple-Inland common stock pursuant to the merger agreement. These analyses do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of Temple-Inland, IP, Goldman Sachs or any other person assumes responsibility if future results are materially different from those forecast.

 

The merger consideration was determined through arm’s-length negotiations between Temple-Inland and IP and was approved by the Temple-Inland board. Goldman Sachs provided advice to Temple-Inland during these negotiations. Goldman Sachs did not, however, recommend any specific amount of consideration to Temple-Inland or the Temple-Inland board or that any specific amount of consideration constituted the only appropriate consideration for the merger.

 

As described above, Goldman Sachs’ opinion to the Temple-Inland board was one of many factors taken into consideration by the Temple-Inland board in making its determination to approve the merger agreement. The foregoing summary does not purport to be a complete description of the analyses performed by Goldman Sachs in

connection with the fairness opinion and is qualified in its entirety by reference to the written opinion of Goldman Sachs attached as Annex B.

 

Goldman Sachs and its affiliates are engaged in investment banking and financial advisory services, commercial banking, securities trading, investment management, principal investment, financial planning, benefits counseling, risk management, hedging, financing, brokerage activities and other financial and non-financial activities and services for various persons and entities. In the ordinary course of these activities and services, Goldman Sachs and its affiliates may at any time make or hold long or short positions and investments, as well as actively trade or effect transactions, in the equity, debt and other securities (or related derivative securities) and financial instruments (including bank loans and other obligations) of third parties, Temple-Inland, IP and any of their respective affiliates or any currency or commodity that may be involved in the merger for their own account and for the accounts of their customers. Goldman Sachs acted as financial advisor to Temple-Inland in connection with, and participated in certain of the negotiations leading to, the merger. Goldman Sachs may also in the future provide investment banking services to Temple-Inland, IP, and their respective affiliates for which its Investment Banking Division may receive compensation.

 

The Temple-Inland board selected Goldman Sachs as its financial advisor because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the merger. Pursuant to an engagement letter dated June 4, 2011, Temple-Inland engaged Goldman Sachs to act as its financial advisor in connection with IP’s offer. Pursuant to the terms of this engagement letter, Temple-Inland has agreed to pay Goldman Sachs a transaction fee currently estimated to be approximately $23 million, $1 million of which became payable upon signing of the engagement letter and the remainder of which is payable immediately prior to consummation of the merger. Under the engagement letter, in the event a sale of Temple-Inland is not completed by June 4, 2012, Temple-Inland is required to pay Goldman Sachs a financial advisory fee of $20 million, less the $1 million that became payable upon signing of the engagement letter. Accordingly, approximately $3 million, or 13 percent, of the transaction fee is contingent upon the consummation of the merger. In addition, Temple-Inland has agreed to reimburse Goldman Sachs’ expenses arising, and indemnify Goldman Sachs against certain liabilities that may arise, out of Goldman Sachs’ engagement.

 

Temple-Inland does not as a matter of general practice publicly disclose financial projections due to the unpredictability of the underlying assumptions and estimates inherent in preparing financial projections. In evaluating a possible transaction with IP, management of Temple-Inland prepared the Revised Forecasts and provided them to the Temple-Inland board and its advisors. The Revised Forecasts were not prepared for public disclosure and were not provided to IP prior to the execution of the Merger Agreement. A summary of the Revised Forecasts is included in this proxy statement. The Revised Forecasts were prepared in September 2011 and reflected a declining economic outlook and projected Temple-Inland performance. You should note that the Revised Forecasts constitute forward-looking statements. See “Cautionary Statement Concerning Forward-Looking Information” on page [ • ].

 

This summary of the Revised Forecasts is not provided to influence your decision regarding whether to vote for the proposal to adopt the merger agreement, but is being included only because the Revised Forecasts were made available to the Temple-Inland board and its advisors in evaluating a potential transaction with IP. The inclusion of this information should not be regarded as an indication that the Temple-Inland board or its advisors or any other person considered, or now considers, the Revised Forecasts to be a reliable prediction of actual future results, and the Revised Forecasts should not be relied upon as such. Temple-Inland’s internal financial projections, upon which the Revised Forecasts were based, are subjective in many respects. There can be no assurance that the Revised Forecasts will be realized or that actual results will not be significantly higher or lower than projected. The Revised Forecasts also cover multiple years and such information by its nature becomes subject to greater uncertainty with each successive year. Economic and business environments can and do change quickly, which adds an additional significant level of uncertainty as to whether the results portrayed in the Revised Forecasts will be achieved. As a result, the inclusion of the Revised Forecasts in this proxy statement does not constitute an admission or representation by Temple-Inland that the information is material.

 

In addition, the Revised Forecasts were not prepared with a view toward public disclosure or toward complying with generally accepted accounting principles in the United States (which we refer to as GAAP), the published guidelines of the SEC regarding projections and the use of non-GAAP financial measures, or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. Neither Temple-Inland’s independent registered public accounting firm, nor any other independent accountants, have compiled, examined, or performed any procedures with respect to the Revised Forecasts, nor have they expressed any opinion or any other form of assurance on such information or its achievability.

 

The Revised Forecasts were based on numerous variables and assumptions that are inherently uncertain and may be beyond the control of Temple-Inland. Temple-Inland believes the assumptions that its management used as a basis for the Revised Forecasts were reasonable at the time management prepared the Revised Forecasts, taking into account the relevant information available to management at the time. Important factors that may affect actual results and cause the Revised Forecasts not to be achieved include general economic conditions, demand for new housing, accuracy of certain accounting assumptions, changes in actual or projected cash flows, competitive pressures, future sales volume, significant increases in the costs of certain commodities, timely implementation of price increases, successful execution of cost saving strategies, changes in tax laws, integration risks associated with recent acquisitions, increases in transportation costs, and other factors described or referenced under “Cautionary Statement Concerning Forward-Looking Information ” beginning on page [ • ]. In addition, the Revised Forecasts also reflect assumptions that are subject to change and do not reflect revised prospects for Temple-Inland’s business, changes in general business or economic conditions, or any other transaction or event that has occurred or that may occur after the date the Revised Forecasts were prepared and that was not anticipated at the time the Revised Forecasts were prepared. Accordingly, there can be no assurance that the Revised Forecasts will be realized or that future financial results will not materially vary from the Revised Forecasts.

 

Neither Temple-Inland, its affiliates and representatives, nor anyone else has made or makes any representation to any stockholder or to anyone else regarding the information included in the summary of the Revised Forecasts set forth below or regarding the ultimate performance of Temple-Inland compared to such information. Readers of this proxy statement are cautioned not to rely on the summary of the Revised Forecasts set forth below. Some or all of the assumptions that have been made regarding, among other things, the timing of certain occurrences or impacts, may have changed since the date the Revised Forecasts were prepared. Temple-Inland has not updated and does not intend to update, or otherwise revise the Revised Forecasts to reflect circumstances existing after the date the Revised Forecasts were prepared or to reflect the occurrence of future events, even if any or all of the assumptions on which the Revised Forecasts were based are no longer appropriate.

 

The following is a summary of the Revised Forecasts prepared by management of Temple-Inland and given to the Temple-Inland board and its advisors:

 

Summary of the Revised Forecasts

 

 

 

 

 

IP will need approximately $3.7 billion to fund the merger consideration payable in respect of all of the shares of Temple-Inland common stock pursuant to the merger agreement and to pay related fees, commissions and expenses, and expects to assume approximately $0.6 billion of existing Temple-Inland debt. IP intends to use approximately $1.5 billion of cash on hand and temporary investments in connection with the transaction. In addition, IP has entered into a commitment letter (which we refer to as the Commitment Letter) dated July 7, 2011 with UBS Loan Finance LLC (which we refer to as UBS) and UBS Securities LLC (which we refer to as UBSS). IP subsequently entered into additional party joinders (which we refer to as the Joinders) dated as of July 27, 2011 with CoBank, ACB, HSBC Securities USA Inc. and HSBC Bank USA, N.A., BNP Paribas Securities Corp. and BNP Paribas, Deutsche Bank Securities Inc. and Deutsche Bank AG New York Branch and RBS Securities Inc. and The Royal Bank of Scotland plc pursuant to which such banks joined the Commitment Letter as parties. Each Joinder is an “Additional Party Joinder” referred to in the Commitment Letter. Pursuant to the Commitment Letter and these Joinders, (i) CoBank, ACB, HSBC Bank USA, N.A., BNP Paribas, Deutsche Bank AG New York Branch and The Royal Bank of Scotland plc (which we refer to as the Additional Banks) and UBS have committed to provide a term loan facility (which we refer to as the Term Facility) to IP in an aggregate amount of up to $1.2 billion and (ii) the Additional Banks (other than CoBank, ACB) and UBS have committed to provide a bridge loan facility (which we refer to as the Bridge Facility and, which together with the Term Facility, we refer to as the Facilities) in an aggregate amount of up to $1.0 billion, although the Bridge Facility may be replaced in whole or in part by the proceeds of a notes offering (which we refer to as the Notes Offering). UBS and the Additional Banks have formed a syndicate of other banks that would also become lenders under the Facilities. The Commitment Letter was filed as Exhibit (b)(1) to the Schedule TO-T filed by IP on July 12, 2011.

 

IP expects to contribute or otherwise advance funds to Metal Acquisition Inc. to enable IP to consummate the merger. Based upon the combination of cash otherwise available to IP, borrowings under the Facilities and/or proceeds from the Notes Offering, IP expects to have sufficient cash on hand to fund the merger consideration payable in respect of all of the shares of Temple-Inland common stock pursuant to the merger agreement.

 

Borrowings under the Facilities will be unsecured and guaranteed by IP’s U.S. subsidiaries if any such subsidiary guarantees indebtedness of IP for borrowed money of $100 million or more.

 

The commitment and obligation of UBS and the Additional Banks to make the loans under the Facilities will be conditioned upon, among other things, the execution and delivery of definitive documentation for the Facilities; completion of the merger; absence of material adverse effect with respect to IP or Temple-Inland; accuracy in all material respects of certain representations and warranties and delivery of certain financial statements.

 

The Commitment Letter contains separate conditions as to the absence of a material adverse effect with respect to each of IP and Temple-Inland. With respect to IP, (1) the commitment and obligation of UBS and the Additional Banks to make the loans under the Facilities is conditioned on the absence of a material adverse effect since December 31, 2010 and (2) the definition of “material adverse effect” means a material adverse effect on the business, operations and financial condition of IP and its subsidiaries, taken as a whole. With respect to Temple-Inland, (a) the commitment and obligation of UBS and the Additional Banks to make the loans under the Facilities is conditioned on the absence of a material adverse effect since January 1, 2011 and (b) the definition of “material adverse effect” is (as a result of an amendment to the commitment letter entered into in connection with the entry into the merger agreement) substantially the same as the definition of “Company Material Adverse Effect” set forth in the merger agreement.

 

The representations that must be true at closing in order for UBS and the Additional Banks to be required to make available the loans under the Facilities are as follows: (1) with respect to Temple-Inland, the representations made by Temple-Inland in the merger agreement that are material to the interests of the lenders under the Facilities, but only to the extent that IP has the right to terminate its obligations under the merger agreement, or to decline to consummate the merger, as a result of a breach of such representations and (2) with respect to IP, the representations and warranties to be made by IP in the definitive loan and related agreements and documentation relating to (a) corporate power and authority, (b) the enforceability of the definitive loan and related agreements and documentation, (c) Federal Reserve margin regulations, (d) the Investment Company Act of 1940, as amended, and (e) the USA Patriot Act.

We understand that IP has neither sought nor made alternative financing arrangements should the Facilities and the Notes Offering not be available.

 

The merger is not conditioned upon the completion of any financing arrangements and, subject to the satisfaction of the other conditions to closing of the merger set forth in the merger agreement, IP is required to consummate the merger whether or not it is able to obtain financing.

 

In considering the recommendation of the Temple-Inland board that you vote to approve and adopt the merger agreement, you should be aware that some of Temple-Inland’s executive officers and directors have interests in the merger that are different from, or in addition to, those of Temple-Inland’s stockholders generally. The members of the Temple-Inland board were aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger, and in recommending to the stockholders that the merger agreement be approved and adopted. For purposes of all of the Temple-Inland agreements and plans described below, the completion of the transactions contemplated by the merger agreement will constitute a change in control.

 

Equity Compensation Awards

 

The merger agreement provides that, upon closing of the merger, each then outstanding Temple-Inland option will vest and be cancelled in exchange for the right to receive an amount in cash equal to the product of (1) the total number of shares of Temple-Inland common stock subject to the option times (2) the excess, if any, of the per share merger consideration over the exercise price per share of Temple-Inland common stock for such option. In addition, the merger agreement provides that, upon closing of the merger each then outstanding Temple-Inland restricted share, phantom share, restricted unit, performance stock unit and restricted stock unit will vest in full, and the holder of such restricted share, phantom shares, restricted units, performance stock units or restricted stock units (other than cash-settled fixed price restricted units) will be entitled to receive the per share merger consideration with respect to each such equity award. Each cash-settled fixed price restricted unit will vest in full and the holder of the cash-settled fixed price restricted units will receive a cash payment equal to the fixed price at the time the cash-settled fixed price restricted units were granted multiplied by the number of outstanding cash-settled fixed price restricted units held by each holder.

 

The following table summarizes, with respect to (1) each Temple-Inland named executive officer (whom we refer to herein as the Named Executive Officers), (2) all executive officers other than the Named Executive Officers (whom we refer to herein as the Other Executive Officers) as a group and (3) all directors, as a group, the aggregate, positive difference in value between $32.00 and the per share exercise prices (which we refer to as the Spread Value) of the options to purchase shares of Temple-Inland common stock held by such directors and executive officers as of [ • ], 2011:

 

 

 

Note: Mr. Vesci retired from the Company effective June 1, 2011.

 

Short-Term Incentive Compensation

 

Temple-Inland maintains an annual incentive plan for its employees and executives, in which all of its executive officers participate. The merger agreement provides that if the merger closes in 2011, the short-term incentive bonuses for 2011 will be paid out at the greater of target and actual performance (using the previously established goals) at the closing of the merger. If the merger has not closed by January 1, 2012, the Company may establish annual incentive targets and performance goals that are substantially similar to the annual incentive targets and performance goals under Temple-Inland’s 2011 incentive compensation plan, and the short-term incentive bonuses will be paid out at target level on a pro-rata basis based on the number of days completed in the applicable performance cycle at the time of the closing of the merger. For an estimate of the amounts payable to our Named Executive Officers under our annual incentive plan in connection with the merger, see “— Golden Parachute Compensation for Temple-Inland’s Named Executive Officers” below. Assuming that the merger is completed on September [ • ], 2011, and that the payment is made based on actual levels (actual levels are currently greater than target levels) under the applicable annual incentive plan, the actual short-term incentives that will be payable to the Other Executive Officers, in the aggregate, is approximately $2.6 million.

 

Individual Agreements

 

Chief Executive Officer’s Employment Agreement and Executive Officer Change in Control Agreements

 

Temple-Inland previously entered into an employment agreement with Doyle Simons, its chief executive officer, that contains certain change in control provisions, and previously entered into agreements with each of its executive officers that contain substantially similar change in control provisions. The agreements provide for certain payments and benefits to be made or provided upon a termination of employment by Temple-Inland without “cause” or if the executive officer terminates employment with “good reason,” in each case during the 24-month period immediately following a change in control (which we refer to, in each case, as a qualifying termination of employment). For the purposes of these agreements, “good reason” includes a material reduction of authority, duties or responsibilities, a material diminution in base salary, a material change in the geographic location at which the executive must perform services, or any other material breach of the applicable agreement.

 

The change in control provisions in these agreements with the executive officers provide for substantially similar payments and benefits other than the severance multiple. The change in control provisions for the Named Executive Officers and three of the Other Executive Officers provide for a severance multiple (including with respect to the provision of benefits) of three times, while the severance multiple under the change in control provisions for the remaining Other Executive Officers is two times. Dennis Vesci retired effective June 1, 2011 and as a result he will be entitled to limited benefits under his change in control agreement.

 

The following is a summary of the payments and benefits that the executive officers are entitled to upon a qualifying termination of employment following the closing of the merger under the applicable provisions of the chief executive officer’s employment agreement and the change in control agreements with the other executive officers:

 

 

 

In the event that the executive officers are subject to the so-called “golden parachute” excise tax imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (which we refer to as the Code), the applicable executive will receive an additional payment such that he or she will be placed in the same after-tax position as if no excise tax had been imposed. However, the foregoing payment will only be paid if the change in control payments exceed 110% of the amount that would not be subject to the excise tax. Otherwise, payments are reduced to the maximum amount that will not trigger the excise tax.

 

In addition, under the terms of his employment agreement, for the two-year period immediately following his termination of employment, Mr. Simons is subject to a non-compete and a non-solicitation of employees, suppliers and customers.

 

In connection with entering into the merger agreement, the parties agreed that (i) Mr. Simons would receive all of the severance payments and benefits under his employment agreement at the closing of the merger and (ii) Mr. Maley would have the right to terminate his employment with “good reason” and receive all of the severance payments and benefits under his change in control agreement immediately following the closing of the merger.

 

Quantification of the Payments and Benefits Under the Individual Agreements

 

For an estimate of the amounts payable to our Named Executive Officers under the individual agreements described above in connection with a qualifying termination of employment following the merger, see “— Golden Parachute Compensation for Temple-Inland’s Named Executive Officers” below. We estimate that the aggregate amount of the cash severance payments (including short-term incentive compensation) described above that would be payable to the Other Executive Officers, assuming that the effective time of the merger was September [ • ], 2011 and all such Other Executive Officers experienced a qualifying termination of employment at such time is approximately $13.4 million.

 

Nonqualified Deferred Compensation Plans

 

Temple-Inland maintains nonqualified deferred compensation plans in which certain of its employees, including its executive officers, and its non-employee directors are eligible to participate. Three of these plans, the Amended and Restated Temple-Inland Nonqualified Deferred Compensation Plan, the Amended and Restated Temple-Inland Directors’ Fee Deferral Plan (which we refer to as the Fee Deferral Plan) and the Amended and Restated Retirement and Deferred Compensation Plan for Directors of Temple-Inland Inc. provide that participant accounts will be distributed upon consummation of the merger. In addition, the Fee Deferral Plan provides non-employee directors additional payments in the event that any participants under the Fee Deferral Plan are subject to the so-called “golden parachute” excise tax imposed under Section 4999 of the Code. The applicable non-employee directors will receive an additional payment such that he or she will be placed in the same after-tax position as if no excise tax had been imposed.

 

Golden Parachute Compensation for Temple-Inland’s Named Executive Officers

 

The following table sets forth the amount of payments and benefits that each Temple-Inland Named Executive Officer would receive in connection with the merger, assuming the closing of the merger occurred on

September [ • ], 2011, and the employment of the applicable Named Executive Officer was terminated on such date by the surviving corporation of the merger for any reason other than cause, death, disability or retirement or by the Named Executive Officer for good reason. The payments and benefits are subject to an advisory vote of Temple-Inland’s stockholders, as described under [ • ].

 

Golden Parachute Compensation

 

 

 

 

 

 

 

No Compensation Payable to IP Executive Officers

 

None of IP’s executive officers are entitled to receive compensation that is based on or otherwise related to the merger.

 

Insurance and Indemnification of Temple-Inland Directors and Officers

 

The merger agreement provides that IP will and will cause the surviving corporation of the merger to, honor and fulfill in all respects the obligations of Temple-Inland and its subsidiaries to the fullest extent permissible under applicable law, under Temple-Inland’s and its subsidiaries’ organizational documents in effect on the date of the merger agreement and under any indemnification or other similar agreements in effect on the date of the merger agreement to the individuals covered thereby, arising out of or relating to actions or omissions in their capacity as such occurring at or prior to the effective time of the merger, including in connection with the approval of the merger agreement and the transactions contemplated thereby.

 

The merger agreement also provides that, for six years after the effective time of the merger, IP will, and will cause the surviving corporation of the merger to, indemnify and hold harmless each current and former director, officer or employee of Temple-Inland and its subsidiaries as of the effective time of the merger, in such capacity, and also with respect to any such person, in their capacity as a director, officer, member, trustee or fiduciary of another entity serving at the request of or on behalf of Temple-Inland or any of its subsidiaries, which we refer to as covered persons, against and from any costs, expenses (including attorneys’ fees), liabilities and amounts paid in settlement to the extent arising out of or pertaining to (1) any alleged action or omission at or prior to the effective time of the merger, or (2) the merger agreement or the transactions contemplated thereby, to the extent that any such covered person is and is permitted to be indemnified by Temple-Inland or any of its subsidiaries as of the date of the merger agreement.

 

For six years after the effective time of the merger, the certificate of incorporation and bylaws of the surviving corporation of the merger must contain provisions no less favorable with respect to indemnification, advancement of expenses and exculpation of covered persons for periods prior to and including the effective time of the merger than were set forth in Temple-Inland’s organizational documents as of the date of the merger agreement.

 

In addition, for six years following the effective time of the merger, IP must cause to be maintained in effect the policies of directors’ and officers’ liability insurance maintained by Temple-Inland and its subsidiaries as of the date of the merger agreement with respect to claims arising from or related to facts or events occurring at or before the effective time of the merger, covering all individuals covered thereby as of the date of the merger agreement. IP’s obligation to provide this insurance coverage is subject to a cap of 300% of the annual premiums paid by Temple-Inland in the prior fiscal year for such insurance. If IP cannot maintain the existing or equivalent insurance coverage without exceeding the 300% cap, IP is required to maintain the most advantageous insurance policies available at an annual premium equal to the 300% cap. In lieu of the foregoing insurance coverage, Temple-Inland may elect to purchase at any time prior to the effective time of the merger a directors’ and officers’ liability insurance “tail” or “runoff” insurance program for a period of six years after the effective time of the merger with respect to wrongful acts and/or omissions committed or allegedly committed at or prior to the effective time of the merger, subject to a cap of six times the 300% cap.

 

 

The following is a general discussion of the material U.S. federal income tax consequences to “U.S. holders” and “non-U.S. holders” (in each case, as defined below) of Temple-Inland common stock whose shares are exchanged for cash in the merger. The following discussion is based upon the Code, the U.S. Treasury regulations promulgated thereunder and judicial and administrative authorities, rulings and decisions, all as in effect as of the date of this proxy statement. These authorities may change, possibly with retroactive effect, and any such change could affect the accuracy of the statements and conclusions set forth in this discussion. This discussion does not address any tax consequences arising under the unearned income Medicare contribution tax pursuant to the Health Care and Education Reconciliation Act of 2010, and any state, local or foreign tax consequences, nor does it address any U.S. federal tax considerations other than those pertaining to the U.S. federal income tax.

 

The following discussion applies only to holders of shares of Temple-Inland common stock who hold such shares as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment).

Further, this discussion does not purport to consider all aspects of U.S. federal income taxation that might be relevant to holders in light of their particular circumstances and does not apply to holders subject to special treatment under the U.S. federal income tax laws (such as, for example, dealers or brokers in securities, commodities or foreign currencies, traders in securities that elect to apply a mark-to-market method of accounting, banks and certain other financial institutions, insurance companies, mutual funds, tax-exempt organizations, holders liable for the alternative minimum tax, partnerships or other pass-through entities or investors in partnerships or such other pass-through entities, regulated investment companies, real estate investment trusts, controlled foreign corporations, passive foreign investment companies, former citizens or residents of the United States, U.S. expatriates, holders whose functional currency is not the U.S. dollar, holders who hold shares of Temple-Inland common stock as part of a hedge, straddle, constructive sale or conversion transaction or other integrated investment, holders who acquired Temple-Inland common stock pursuant to the exercise of employee stock options, through a tax qualified retirement plan or otherwise as compensation, or holders who exercise appraisal rights). This discussion also assumes that shares of Temple-Inland common stock are not U.S. real property interests within the meaning of Section 897 of the Code.

 

If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds shares of Temple-Inland common stock, the tax treatment of a partner in such partnership will generally depend on the status of the partner and the activities of the partnership. If you are a partner of a partnership holding shares of Temple-Inland common stock, you should consult your tax advisor regarding the tax consequences of exchanging the shares of Temple-Inland common stock for cash pursuant to the merger.

 

Holders of Temple-Inland common stock should consult their tax advisors as to the specific tax consequences to them of the receipt of cash in exchange for shares of Temple-Inland common stock pursuant to the merger, including the applicability and effect of the alternative minimum tax and any state, local, foreign and other tax laws.

 

U.S. Holders

 

For purposes of this discussion, the term “U.S. holder” means a beneficial owner of shares of Temple-Inland common stock that is:

 

 

The receipt of cash by U.S. holders in exchange for shares of Temple-Inland common stock pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes and may also be a taxable transaction under applicable state, local, foreign and other tax laws. In general, a U.S. holder who receives cash in exchange for shares of Temple-Inland common stock pursuant to the merger will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between (1) the amount of cash received in such exchange and (2) the U.S. holder’s adjusted tax basis in such shares. Gain or loss must be determined separately for each block of shares of Temple-Inland common stock ( i.e. , shares acquired for the same cost in a single transaction) exchanged pursuant to the merger. Such gain or loss generally will be capital gain or loss and generally will be long-term capital gain or loss if the U.S. holder’s holding period for such shares is more than one year as of the date of the merger. Long-term capital gains of certain non-corporate U.S. holders, including individuals, are generally subject to U.S. federal income tax at preferential rates. The deductibility of capital losses is subject to limitations.

Non-U.S. Holders

 

The term “non-U.S. holder” means a beneficial owner of shares of Temple-Inland common stock that is not a U.S. holder or a partnership.

 

Payments made to a non-U.S. holder in exchange for shares of Temple-Inland common stock pursuant to the merger will generally not be subject to U.S. federal income tax unless:

 

 

Information Reporting and Backup Withholding

 

Payments made to U.S. holders in exchange for shares of Temple-Inland common stock pursuant to the merger will be subject to information reporting and may be subject to backup withholding (currently at a rate of 28%). To avoid backup withholding, U.S. holders that do not otherwise establish an exemption should complete and return Internal Revenue Service Form W-9, certifying that such U.S. holder is a U.S. person, the taxpayer identification number provided is correct and such U.S. holder is not subject to backup withholding. Certain holders (including, with respect to certain types of payments, corporations) generally are not subject to backup withholding. Backup withholding is not an additional tax. U.S. holders may use amounts withheld as a credit against their U.S. federal income tax liability or may claim a refund of any excess amounts withheld by timely filing a claim for refund with the IRS.

 

Payments made to non-U.S. holders in exchange for shares of Temple-Inland common stock pursuant to the merger effected through a non-U.S. office of a U.S. broker or of a non-U.S. broker with certain specified U.S. connections generally will be subject to information reporting (but not backup withholding) unless such non-U.S. holder provides a properly executed IRS Form W-8BEN (or other applicable IRS Form W-8) certifying such non-U.S. holder’s non-U.S. status or by otherwise establishing an exemption. Payments made to non-U.S. holder in exchange for shares of Temple-Inland common stock pursuant to the merger effected through a U.S. office of a broker generally will be subject to information reporting and backup withholding (currently at a rate of 28%) unless such non-U.S. holder provides a properly executed IRS Form W-8BEN (or other applicable IRS Form W-8) certifying such non-U.S. holder’s non-U.S. status or by otherwise establishing an exemption. Backup withholding is not an additional tax. Non-U.S. holders may use amounts withheld as a credit against their U.S. federal income tax liability or may claim a refund of any excess amounts withheld by timely filing a claim for refund with the IRS.

 

Under the HSR Act, the merger may not be completed until certain information and documentary materials have been provided to the Antitrust Division and the FTC by IP and Temple-Inland, and certain waiting periods have expired or been terminated. IP and Temple-Inland filed their notification and report forms with the Antitrust Division and the FTC under the HSR Act on July 12, 2011 and July 22, 2011, respectively, in connection with IP’s now-terminated cash tender offer for 100% of Temple-Inland common stock commenced on July 12, 2011. On July 27, 2011, IP and Temple-Inland received the Second Request. The notification and report forms filed by IP and Temple-Inland in connection with IP’s cash tender offer remain applicable to the merger. On August 24, 2011, IP and Temple-Inland entered into separate timing agreements with the Antitrust Division, and on October 21, 2011,

each certified substantial compliance with the Second Request. Accordingly, pursuant to the timing agreements, the parties may not consummate the merger until December 31, 2011 at the earliest, unless the Antitrust Division provides IP and Temple-Inland with prior written notice that the investigation has been closed. The period of non-consummation under these timing agreements may be extended by court order or with the consent of IP and Temple-Inland.

 

IP and Temple-Inland (and their respective subsidiaries) each conduct business in Mexico, and they are required to make a notification to the MFCC. On September 26, 2011, IP and Temple-Inland filed a notification of concentration with the MFCC. On October 21, 2011, the MFCC published a notice on its website that the transaction was unconditionally approved. As a result of such approval and the MFCC’s prior decision not to issue a “stop order,” the parties may close the transaction at any time without violating Mexican law. Also on September 26, 2011, IP, with the consent of Temple-Inland, filed a notification of concentration with the Turkish Competition Authority. On October 18, 2011, the Turkish Competition Authority issued a decision unconditionally approving the transaction. As a result of such approval, the parties may close the transaction at any time without violating Turkish law.

 

The parties also derive revenues in other jurisdictions where merger control filings or approvals may be required or advisable in connection with the consummation of the merger. The parties have made or will make filings in such other jurisdictions as may be required or advisable.

 

The Antitrust Division and the FTC frequently scrutinize the legality under the antitrust laws of transactions such as the merger. At any time before or after the merger, the Antitrust Division, the FTC, a state attorney general, or a foreign competition authority could take action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the merger or seeking divestiture of substantial businesses or assets of IP or Temple-Inland or their subsidiaries. Private parties may also bring legal actions under the antitrust laws under certain circumstances.

 

While we believe that we will receive the requisite approvals and clearances for the merger, there can be no assurance that a challenge to the merger on antitrust grounds will not be made or, if a challenge is made, of the result of such challenge. Similarly, there can be no assurance that IP and Temple-Inland will obtain the regulatory approvals necessary to consummate the merger or that the granting of these approvals will not involve the imposition of conditions to the consummation of the merger or require changes to the terms of the merger. These conditions or changes could result in the conditions to the merger not being satisfied prior to the outside date or at all. Should the FTC, the Antitrust Division, state antitrust authorities or competition authorities in foreign countries raise antitrust objections to the merger, IP is required to take all actions as may be necessary to resolve such objections and agree to avoid or eliminate, and minimize the impact of any impediment so as to close the merger before the outside date. However, IP will not be required to take any action that, individually or in the aggregate, would reasonably be expected to have a regulatory material adverse effect.

 

On June 7, 2011, Temple-Inland entered into a rights agreement with Computershare Trust Company, N.A., as rights agent, which generally imposes a significant penalty upon any person or group that acquires beneficial ownership of 10% or more of the outstanding shares of Temple-Inland common stock without the approval of the Temple-Inland board.

 

On September 6, 2011, Temple-Inland entered into an amendment to the rights agreement rendering it inapplicable to the merger agreement and the transactions contemplated by the merger agreement. In particular, the amendment to the rights agreement provides that (1) no person will be deemed to be an Acquiring Person (as defined in the rights agreement) and no distribution of rights will occur solely by virtue of the approval, execution, delivery or performance of the merger agreement or the voting agreement or the consummation of the merger or any other transactions contemplated by the merger agreement and (2) the rights will expire at the effective time of the merger.

 

The summary of the material provisions of the merger agreement below and elsewhere in this proxy statement is qualified in its entirety by reference to the merger agreement, a copy of which is attached to this proxy statement as Annex A. This summary does not purport to be complete and may not contain all of the information about the merger agreement that is important to you. We urge you to read carefully the merger agreement in its entirety as it is the legal document governing the merger.

 

The merger agreement provides that, subject to the terms and conditions of the merger agreement, and in accordance with the DGCL at the effective time of the merger, Metal Acquisition Inc. will be merged with and into Temple-Inland and, as a result of the merger, the separate corporate existence of Metal Acquisition Inc. will cease, and Temple-Inland will continue as the surviving corporation (which we refer to as the surviving corporation) and become a wholly-owned subsidiary of IP. Temple-Inland will continue to be governed by the DGCL, and all of its rights, privileges, immunities, powers and franchises will continue unaffected by the merger.

 

The closing of the merger will occur on a date specified by the parties no later than the second business day after all of the conditions set forth in the merger agreement and described under “— Conditions to the Merger” are satisfied or waived (other than those conditions that by their terms are to be satisfied at the closing, but subject to satisfaction or waiver of such conditions), or at such other time as agreed to by the parties. The merger will become effective when the certificate of merger has been duly filed with the Delaware Secretary of State or at a later time as agreed to by the parties.

 

At the effective time of the merger, IP will become the sole owner of Temple-Inland and its business. Therefore, current Temple-Inland stockholders will cease to have direct or indirect ownership interests in Temple-Inland or rights as Temple-Inland stockholders, will not participate in any future earnings or growth of Temple-Inland, will not benefit from any appreciation in value of Temple-Inland and will not bear the future risks of Temple-Inland’s operations.

 

Following completion of the merger, Temple-Inland common stock will be delisted from the NYSE and deregistered under the Exchange Act. As a result, there will be no public market for shares of Temple-Inland common stock. This will make certain provisions of the Exchange Act, such as the requirement of furnishing a proxy or information statement in connection with stockholders’ meetings, no longer applicable to Temple-Inland. After the effective date of the merger, Temple-Inland will also no longer be required to file periodic reports with the SEC on account of shares of Temple-Inland common stock.

 

The directors of Metal Acquisition Inc. immediately prior to the effective time of the merger will be the directors of the surviving corporation, each to hold office in accordance with the certificate of incorporation and bylaws of the surviving corporation.

 

At the effective time of the merger, the certificate of incorporation and bylaws of Temple-Inland will be amended and restated in their entirety to be in the form of the certificate of incorporation and bylaws attached as Annexes A and B, respectively, to the merger agreement, and, as so amended and restated, shall be the certificate of incorporation and bylaws of the surviving corporation until thereafter changed or amended in accordance with their terms or by applicable law.

 

At the effective time of the merger, by virtue of the merger, each share of Temple-Inland common stock issued and outstanding immediately prior to the effective time of the merger will be cancelled and converted into the right to receive $32.00 in cash, without interest, other than the following shares, which will be cancelled and no payment made with respect thereto:

 

 

 

The price to be paid for each share of Temple-Inland common stock in the merger will be adjusted appropriately to reflect the effect of any change in the outstanding shares of capital stock of Temple-Inland, including by reason of any reclassification, recapitalization, stock split (including reverse stock split) or combination or exchange of shares, or any stock dividend with respect to the shares of Temple-Inland common stock that occurs prior to the effective time of the merger.

 

Each share of common stock of Metal Acquisition Inc. outstanding immediately prior to the effective time of the merger will be converted into and become one fully paid and nonassessable share of common stock of the surviving corporation with the same rights, powers and privileges as the shares so converted and will constitute the only outstanding shares of capital stock of the surviving corporation.

 

Prior to the effective time of the merger, IP will designate a bank or trust company reasonably acceptable to Temple-Inland to act as the paying agent for the per share merger consideration (which we refer to as the paying agent). Prior to, at or promptly after the effective time of the merger, IP or Metal Acquisition Inc. will deposit with the paying agent for the merger the aggregate consideration to be paid to the former holders of shares of Temple-Inland common stock.

 

Promptly after the effective time of the merger (and in no event later than three business days), IP will, and will cause the surviving corporation to, cause the paying agent to send you (and make available for collection by hand) a letter of transmittal and instructions advising you how to surrender your stock certificates or book-entry shares in exchange for the merger consideration.

 

The paying agent will pay you your merger consideration after you have (1) surrendered your stock certificates or book-entry shares to the paying agent together with a properly completed letter of transmittal and any other documents required by the paying agent and (2) provided to the paying agent any other items specified by the letter of transmittal, within five business days following the later of the effective time of the merger and the paying agent’s receipt of the certificates or book-entry shares (or affidavit of loss in lieu thereof).

 

Interest will not be paid or accrue in respect of any cash payments of merger consideration. The surviving corporation will reduce the amount of any merger consideration paid to you by any applicable withholding taxes.

 

If you hold stock certificates and the paying agent is to pay some or all of your merger consideration to a person other than you, you must have your stock certificates properly endorsed or otherwise in proper form for transfer, and you must pay any transfer or other similar taxes payable by reason of the transfer or establish to the surviving corporation’s satisfaction that the taxes have been paid or are not required to be paid. Payment of the merger consideration with respect to book-entry shares will only be made to the person in whose name such book-entry shares are registered.

 

You should not forward your stock certificates to the paying agent without a letter of transmittal, and you should not return your stock certificates with the enclosed proxy.

 

The transmittal instructions will tell you what to do if you have lost your stock certificate, or if it has been stolen or destroyed. You will have to provide an affidavit to that fact and, if required by the surviving corporation, post a bond in an amount that the surviving corporation reasonably directs as indemnity against any claim that may be made against it in respect of the stock certificate.

 

Upon demand, the paying agent will return to the surviving corporation all funds in its possession 12 months after the effective time of the merger, and the paying agent’s duties will terminate. After that time, if you have not received payment of the merger consideration, you may look only to the surviving corporation for payment of the merger consideration, without interest, subject to applicable abandoned property, escheat and similar laws.

 

Stock Options.   Upon the closing of the merger, each outstanding option to acquire Temple-Inland common stock, whether or not vested, that remains outstanding as of the closing of the merger will be cancelled in exchange for the right to receive a cash payment equal to the number of shares of Temple-Inland common stock underlying the option multiplied by the amount (if any) by which the per share merger consideration exceeds the applicable exercise price of the option, less any applicable withholding taxes.

 

Other Equity-Based Awards.   Upon the closing of the merger, each restricted share, phantom share, restricted unit, performance stock unit and restricted stock unit (other than cash-settled fixed price restricted units) will be vested in full and cancelled in exchange for the right to receive a cash payment equal to the per share merger consideration, less any applicable withholding taxes.

 

The merger agreement contains representations and warranties by each of the parties to the merger agreement, which were made only for purposes of that agreement and as of specific dates. The representations, warranties and covenants in the merger agreement were made solely for the benefit of the parties to the merger agreement; may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the merger agreement instead of establishing these matters as facts; and may be subject to standards of materiality applicable to the contracting parties that differ from those generally applicable to investors. Investors are not third-party beneficiaries under the merger agreement and in reviewing the representations, warranties and covenants contained in the merger agreement or any descriptions thereof in this summary, it is important to bear in mind that such representations, warranties and covenants or any descriptions were not intended by the parties to the merger agreement to be characterizations of the actual state of facts or condition of Temple-Inland, IP or Metal Acquisition Inc., or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the merger agreement, which subsequent information may or may not be fully reflected in Temple-Inland’s public disclosures. For the foregoing reasons, the representations, warranties and covenants or any descriptions of those provisions should not be read alone and should instead be read in conjunction with the other information contained in the reports, statements and filings that Temple-Inland publicly files with the SEC.

 

In the merger agreement, Temple-Inland has made customary representations and warranties to IP and Metal Acquisition Inc. with respect to, among other things:

 

 

 

Many of the representations and warranties in the merger agreement made by Temple-Inland are qualified by a “materiality” or “material adverse effect” standard (that is, they will not be deemed to be untrue or incorrect unless their failure to be true or correct, individually or in the aggregate, would, as the case may be, be material or have a material adverse effect on Temple-Inland).

 

Under the merger agreement a material adverse effect with respect to Temple-Inland is generally defined as any fact, change, event, circumstance or occurrence that, individually or in the aggregate, has had a material adverse effect on the financial condition, business, assets or results of operations of Temple-Inland and its subsidiaries, taken as a whole, but does not include facts, changes, events, circumstances or occurrences resulting from the following:

 

 

 

 

 

In the merger agreement, IP and Metal Acquisition Inc. made customary representations and warranties to Temple-Inland with respect to, among other things:

 

 

 

The representations and warranties contained in the merger agreement and in any certificate or other writing delivered pursuant to the merger agreement will not survive the effective time of the merger.

 

Except as disclosed in Temple-Inland’s disclosure letter that accompanied the merger agreement, required pursuant to or permitted by the merger agreement, required by law, or consented to in writing by IP (which consent may not be unreasonably withheld, delayed or conditioned), from the date of the merger agreement until the earlier of the effective time of the merger or the termination of the merger agreement, Temple-Inland will, and will cause each of its subsidiaries to:

 

 

In addition, except as disclosed in Temple-Inland’s disclosure letter that accompanied the merger agreement, expressly required by the merger agreement, required by law or any agreement in effect on the date of the merger agreement, or consented to in writing by IP (which consent may not be unreasonably withheld, delayed or conditioned), from the date of the merger agreement until the earlier of the effective time of the merger or the termination of the merger agreement, with certain exceptions, Temple-Inland will not, nor will it permit its subsidiaries to:

 

 

 

 

From and after the date of the merger agreement until the date, if any, on which the merger agreement is terminated, Temple-Inland has agreed not to, to not permit its subsidiaries to, and to use its reasonable best efforts to cause its representatives (which include directors, officers, employees and financial and legal advisors) not to, directly or indirectly:

 

 

Temple-Inland has agreed not to release any third party from, or waive any provision of, any confidentiality or standstill agreement to which it is a party, and, subject to the exception described below, to use its reasonable best

efforts to cause its and its subsidiaries’ representatives to (1) immediately cease and cause to be terminated any discussions or negotiations with any parties that may have been conducted prior to the date of the merger agreement with respect to a competing proposal, (2) use its reasonable best efforts to obtain the return or the destruction of, in accordance with the terms of any applicable confidentiality agreement, any confidential information previously furnished by Temple-Inland, its subsidiaries or its or their representatives to any third party and (3) cause any physical or virtual data room to no longer be accessible to or by any person other than IP and its affiliates.

 

If, however, at any time before the stockholders of Temple-Inland approve the merger, Temple-Inland receives from a third party a bona fide competing proposal that (1) constitutes a superior proposal or (2) the Temple-Inland board determines in good faith, after consultation with Temple-Inland’s outside legal and financial advisors, could reasonably be expected to result in a superior proposal, and Temple-Inland provides IP with 24-hour advance notice, Temple-Inland is permitted to:

 

 

Temple-Inland is required to promptly (and in any event within 24 hours) notify IP if it or any of its subsidiaries receives any proposal, inquiry, offer or request relating to or constituting a competing proposal, any request for discussions or negotiations, or any request for information relating to Temple-Inland or its subsidiaries in connection with a competing proposal or a potential competing proposal or for access to the properties or books and records of Temple-Inland or any of its subsidiaries of which Temple-Inland, its subsidiaries or any of their respective representatives becomes aware. Temple-Inland is also required to promptly (and in any event within 24 hours) provide IP with a copy of any written communication from a third party informing Temple-Inland that it is considering making a competing proposal, a copy of any competing proposal and such other details of any competing proposal that IP may reasonably request. Temple-Inland is also required to keep IP reasonably informed on a current basis of any change to the terms of any competing proposal, and must provide IP notice of any meeting of the Temple-Inland board at which any competing proposal is reasonably likely to be considered at substantially the same time as notice of such meeting is provided to the members of the Temple-Inland board.

 

A “competing proposal” means any proposal made by a person or group (other than a proposal or offer by IP or any of its subsidiaries) at any time that is structured to permit any person or group to, or as a result of which any person or group would, acquire beneficial ownership of at least 20% of the assets of, equity interest in, or businesses of, Temple-Inland (whether pursuant to a merger, consolidation or other business combination, sale of shares of capital stock, sale of assets, tender offer or exchange offer or otherwise, including any single or multi-step transaction or series of related transactions), in each case other than the merger.

 

A “superior proposal” means a competing proposal for or in respect of more than 80% of the outstanding Temple-Inland common stock or assets of Temple-Inland, that the Temple-Inland board determines in good faith, after consultation with the Company’s financial and legal advisors, and taking into account the estimated timing and certainty of consummation and relevant financial, legal, regulatory factors, and such other factors as the Temple-Inland board considers to be appropriate, is more favorable to Temple-Inland’s stockholders (in their capacity as such) than the transactions contemplated by the merger agreement.

 

Subject to the provisions described below, the Temple-Inland board unanimously agreed to recommend that Temple-Inland stockholders vote in favor of the adoption and approval of the merger agreement and approval of the merger in accordance with the applicable provisions of the DGCL. The Temple-Inland board also agreed to include the board recommendation in this proxy statement.

Notwithstanding the restrictions described in the “No Solicitation” section above, in response to (1) an event, fact, circumstance or development (unrelated to a competing proposal) that was neither known nor reasonably foreseeable by the Temple-Inland board as of the date of the merger agreement that becomes known to the Temple-Inland board prior to the time stockholder approval has been obtained, which we refer to as an intervening event, or (2) the receipt of a bona fide competing proposal (that did not arise or result from a breach of the no solicitation provision) that has not been withdrawn, at any time prior to obtaining the approval of Temple-Inland stockholders, the Temple-Inland board may agree to, approve, endorse or recommend such competing proposal and/or withdraw, change, amend, modify or qualify its recommendation of the merger to Temple-Inland stockholders, but only if the Temple-Inland board has concluded in good faith, after consultation with Temple-Inland’s outside legal and financial advisors, that (a) in the case of a competing proposal, such competing proposal constitutes a superior proposal or (b) in the case of an intervening event or a competing proposal, the failure to effect a change in the Temple-Inland board’s recommendation of the merger would be reasonably likely to be inconsistent with the exercise of the fiduciary duties of the Temple-Inland board to Temple-Inland and its stockholders under applicable law.

 

Neither Temple-Inland nor the Temple-Inland board may withdraw, change, amend, modify or qualify, in a manner adverse to IP or Metal Acquisition Inc., the Temple-Inland board’s recommendation that Temple-Inland stockholders vote in favor of adopting the merger agreement unless (1) Temple-Inland gives IP and Metal Acquisition Inc. at least five business days prior written notice of the board’s intention to take such action, describing in detail the intervening event or superior proposal that serves as the basis for such action (and, in the case of a superior proposal, attaching a copy of the final form of any related agreements), (2) for a period of five business days after the delivery of such notice (which we refer to as a match period), Temple-Inland, to the extent requested by IP, negotiates with IP with respect to revisions to the terms of the merger agreement and the transactions contemplated by the merger agreement, and (3) at the end of the match period, the Temple-Inland board determines, after consultation with its outside financial and legal advisors and after giving effect to any proposals, amendments or modifications offered by IP and Metal Acquisition Inc. (a) that such competing proposal remains a superior proposal or (b) to effect a change of recommendation in connection with such intervening event. If there is a material revision or amendment to any superior proposal, Temple-Inland must deliver to IP an additional notice and copies of the relevant proposed transaction agreement and other material documents, and a new two-business-day match period will commence during which time Temple-Inland will be obligated to take the actions described above in this paragraph.

 

The merger agreement does not prohibit Temple-Inland or the Temple-Inland board from disclosing to its stockholders a position contemplated by Rule 14d-9 or Rule 14e-2(a) promulgated under the Exchange Act (or any similar communication to stockholders); however, if such a disclosure would constitute a change in the Temple-Inland board’s recommendation of the merger, it must first comply with the requirements described above.

 

From the effective time of the merger through December 31, 2012, each Temple-Inland employee who continues employment will be provided with (1) base salary that is substantially comparable to that provided immediately prior to the effective time of the merger and (2) employee benefits (other than equity incentives) that are, in the aggregate, substantially comparable to those provided to such employees immediately prior to the effective time of the merger.

 

For 2011, annual bonuses will be paid at the earlier of the effective time of the merger or the time that such bonuses are ordinarily paid, determined based on the greater of actual performance and target level. If the effective time of the merger occurs in 2012, pro rata annual bonuses would be paid at target at the effective time of the merger, and thereafter, continuing employees will participate in IP’s annual incentive compensation plans and will be provided with bonus opportunities that are, in the aggregate, substantially comparable to those provided to similarly situated employees of IP.

 

For the 18-month period following the effective time of the merger, each continuing employee who is terminated will be provided with severance benefits under the applicable Temple-Inland severance plan as in effect as of the signing of the merger agreement.

 

The merger agreement contains standard provisions under which IP will give credit to each continuing employee for his or her years of service with Temple-Inland for all purposes under IP employee benefit plans, subject to certain customary exceptions.

 

IP and Temple-Inland have made certain other covenants to and agreements with each other regarding various other matters including:

 

 

 

 

Each party has agreed to use its reasonable best efforts to obtain all regulatory clearances and approvals required to consummate the merger. In particular, each party has agreed to:

 

 

In addition, should the FTC, the Antitrust Division, the MFCC, state antitrust authorities or competition authorities in other foreign countries or third parties raise antitrust objections to the merger, IP is required to take all actions as may be necessary to resolve such objections and to avoid or eliminate, and minimize the impact of any impediment so as to close the merger before the outside date, but IP is not required to take any action that, individually or in the aggregate, would reasonably be expected to have a regulatory material adverse effect (as defined above). If any lawsuit or other legal proceeding is instituted challenging the merger agreement or seeking to enjoin the merger, both parties must use reasonable best efforts to contest and resist such action and seek to remove any decree, judgment, injunction or order that prohibits, prevents or restricts the closing of the merger.

 

IP is entitled to direct the antitrust defense of the merger in any investigation, litigation or negotiations with any governmental entity or other person relating to the merger or regulatory filings. IP and Temple-Inland have agreed, subject to certain limitations, to:

 

 

 

Conditions to Each Party’s Obligations.   Each party’s obligation to consummate the merger is subject to the satisfaction or waiver of the following mutual conditions:

 

 

 

 

Conditions to Temple-Inland’s Obligations.   The obligation of Temple-Inland to consummate the merger is subject to the satisfaction or waiver of further conditions, including:

 

 

 

Conditions to IP’s and Metal Acquisition Inc.’s Obligations.   The obligation of IP and Metal Acquisition Inc. to consummate the merger is subject to the satisfaction or waiver of further conditions, including:

 

 

 

 

Temple-Inland and IP may terminate the merger agreement by mutual written consent at any time before the consummation of the merger. In addition, with certain exceptions, either IP or Temple-Inland may terminate the merger agreement at any time before the consummation of the merger if:

 

 

IP may also terminate the merger agreement if the Temple-Inland board agrees to, approves, endorses or recommends a competing proposal, or withdraws, changes, amends, modifies or qualifies in a manner adverse to IP its recommendation that Temple-Inland stockholders vote in favor of the adoption of the merger agreement.

 

Effect of Termination

 

If the merger agreement is terminated in accordance with its terms, there will be no liability on the part of IP, Metal Acquisition Inc. or Temple-Inland, except that the confidentiality agreement between IP and Temple-Inland, the provisions relating to the payment of fees and certain other provisions will survive such termination and except that termination will not relieve (1) any party from any liability for any failure to consummate the merger and related transactions if required to do so pursuant to the merger agreement (it being understood that the failure of IP or Metal Acquisition Inc. to receive the proceeds of IP’s financing or of any alternative financing will not relieve IP or Metal Acquisition Inc. from any such liability or of their obligations to consummate the merger or any related transaction), or (2) any party to the merger agreement from liability for a willful breach of its covenants or agreements set forth in the merger agreement prior to such termination (which the parties acknowledge and agree will not be limited to reimbursement of expenses or out-of- pocket costs, and may include the benefit of the bargain lost by IP and Metal Acquisition Inc., or by Temple-Inland’s stockholders (taking into consideration relevant matters, including the total amount payable to such stockholders under the merger agreement and the time value of money), which will be deemed in such event to be damages of Temple-Inland). In addition, payment by IP of the $200 million fee referred to below will not relieve IP or Metal Acquisition Inc. of any other liability under the merger agreement, including for any breach of the provision relating to its obligation to seek consents and approvals.

 

Temple-Inland has agreed to pay IP a termination fee of $105 million if:

 

 

IP has agreed to pay Temple-Inland a fee of $200 million if (1) Temple-Inland or IP terminates the merger agreement because the merger has not been completed by the outside date or a final and non-appealable order, decree or ruling permanently restraining, enjoining or otherwise prohibiting the consummation of the merger has been entered by a governmental entity in a jurisdiction that is material to the business and operations of Temple-Inland and (2) at the time of the termination, all of IP’s and Metal Acquisition Inc.’s conditions to consummating the merger have been satisfied or waived (or if the closing would have taken place on the date of the termination, the conditions would have been satisfied) other than the conditions relating to regulatory approvals and injunctions (to the extent any such injunctions relate to regulatory law).

 

The merger agreement may be amended, modified and supplemented if such amendment, modification or supplement is in writing and is signed by each party to the merger agreement. However, subsequent to the adoption of the merger agreement by Temple-Inland stockholders, no amendment, modification or supplement to the merger agreement may be made that requires the approval of Temple-Inland’s stockholders under applicable law unless the required further approval is obtained.

 

Under the DGCL, you have the right to dissent from the merger and to receive payment in cash for the fair value of your shares of Temple-Inland common stock as determined by the Delaware Court of Chancery, together with interest, if any, as determined by the Court, in lieu of the consideration you would otherwise be entitled to pursuant to the merger agreement. These rights are known as appraisal rights. Stockholders electing to exercise appraisal rights must comply with the provisions of Section 262 of the DGCL in order to perfect their rights. Strict compliance with the statutory procedures is required to perfect appraisal rights under Delaware law.

 

The following is intended as a brief summary of the material provisions of the Delaware statutory procedures required to be followed by a Temple-Inland stockholder in order to dissent from the merger and perfect appraisal rights.

 

This summary, however, is not a complete statement of all applicable requirements and is qualified in its entirety by reference to Section 262 of the DGCL, the full text of which appears in Annex C to this proxy statement. Failure to precisely follow any of the statutory procedures set forth in Section 262 of the DGCL may result in the loss or waiver of your appraisal rights. All references in this summary to a “stockholder” are to the record holder of shares of Temple-Inland common stock unless otherwise indicated.

 

Beneficial owners of shares of Temple-Inland common stock who do not also hold such of record may have the registered owner, such as a broker, bank or other nominee, submit the required demand in respect of those shares. If shares of Temple-Inland common stock are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of a demand for appraisal should be made by or for the fiduciary, and if the shares of Temple-Inland common stock are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand should be executed by or for all joint owners. An authorized agent, including an authorized agent for two or

more joint owners, may execute the demand for appraisal for a stockholder of record; however, the agent must identify the record owner or owners and expressly disclose the fact that, in executing the demand, he or she is acting as agent for the record owner. In the event a record owner, such as a broker, who holds shares of Temple-Inland common stock as a nominee for others, exercises his or her right of appraisal with respect to the shares of Temple-Inland common stock held for one or more beneficial owners, while not exercising this right for other beneficial owners, we recommend that the written demand state the number of shares of Temple-Inland common stock as to which appraisal is sought. Where no number of shares is expressly mentioned, we will presume that the demand covers all shares held in the name of the record owner. If you hold your shares of Temple-Inland common stock in a brokerage account or in other nominee form and you wish to exercise appraisal rights, you should consult with your broker or the other nominee to determine the appropriate procedures for the making of a demand for appraisal by the nominee.

 

Section 262 requires that stockholders for whom appraisal rights are available be notified not less than 20 days before the stockholders’ meeting to vote on the merger in connection with which appraisal rights will be available. A copy of Section 262 must be included with such notice. This proxy statement constitutes our notice to Temple-Inland stockholders of the availability of appraisal rights in connection with the merger in compliance with the requirements of Section 262 and a copy of the full text of Section 262 is attached hereto as Annex C. If you wish to consider exercising your appraisal rights, you should carefully review the text of Section 262 contained in Annex C to this proxy statement since failure to timely and properly comply with the requirements of Section 262 will result in the loss of your appraisal rights under the DGCL.

 

If you elect to demand appraisal of your shares, you must satisfy each of the following conditions:

 

 

If you fail to comply with any of these conditions and the merger is completed, you will be entitled to receive the merger consideration, but you will have no appraisal rights with respect to your shares of Temple-Inland common stock.

 

All demands for appraisal pursuant to Section 262 should be addressed to Temple-Inland Inc., 1300 MoPac Expressway South, 3rd Floor, Austin, TX 78746, Attn: Corporate Secretary, and must be delivered before the vote on the merger agreement is taken at the special meeting and should be executed by, or on behalf of, the record holder of the shares of common stock.

 

Within 10 days after the effective date of the merger, the surviving corporation must give written notice that the merger has become effective to each stockholder who has properly filed a written demand for appraisal and who did not vote in favor of the merger agreement and the merger. At any time within 60 days after the effective date of the merger, any stockholder who has demanded an appraisal, and who has not commenced an appraisal proceeding or joined that proceeding as a named party, has the right to withdraw such stockholder’s demand for appraisal and to accept the cash payment specified by the merger agreement for his or her shares of common stock; after this period,

the stockholder may withdraw such demand for appraisal only with the consent of the surviving corporation. Within 120 days after the effective date of the merger, any stockholder who has complied with Section 262 will, upon written request to the surviving corporation, be entitled to receive a written statement setting forth the aggregate number of shares not voted in favor of the merger agreement and the merger and with respect to which demands for appraisal rights have been received and the aggregate number of holders of such shares. A person who is the beneficial owner of shares of common stock held in a voting trust or by a nominee on behalf of such person may, in such person’s own name, request from the corporation the statement described in the previous sentence. Such written statement will be mailed to the requesting stockholder within 10 days after such written request is received by the surviving corporation or within 10 days after expiration of the period for delivery of demands for appraisal, whichever is later. Within 120 days after the effective time, either the surviving corporation or any stockholder who has complied with the requirements of Section 262 and who is otherwise entitled to appraisal rights may file a petition in the Delaware Court of Chancery demanding a determination of the fair value of the shares held by all stockholders entitled to appraisal. A person who is the beneficial owner of shares of Temple-Inland common stock held in a voting trust or by a nominee on behalf of such person may, in such person’s own name, file the petition described in the previous sentence. Upon the filing of the petition by a stockholder, service of a copy of such petition shall be made upon Temple-Inland, as the surviving corporation. The surviving corporation has no obligation to file such a petition in the event there are dissenting stockholders. Accordingly, the failure of a stockholder to file such a petition within the period specified could nullify the stockholder’s previously written demand for appraisal. There is no present intent on the part of Temple-Inland to file an appraisal petition, and stockholders seeking to exercise appraisal rights should not assume that Temple-Inland will file such a petition or that Temple-Inland will initiate any negotiations with respect to the fair value of such shares. Accordingly, stockholders who desire to have their shares appraised should initiate any petitions necessary for the perfection of their appraisal rights within the time periods and in the manner prescribed in Section 262.

 

If a petition for appraisal is duly filed by a stockholder and a copy of the petition is delivered to the surviving corporation, the surviving corporation will then be obligated, within 20 days after receiving service of a copy of the petition, to file in the office of the Register in Chancery in which the petition was filed a duly verified list containing the names and addresses of all stockholders who have demanded payment for their shares and with whom agreements as to the value of their shares have not been reached by the surviving corporation. The Register in Chancery, if so ordered by the Delaware Court of Chancery, must give notice of the time and place fixed for the hearing of such petition by registered or certified mail to the surviving corporation and to the stockholders shown on the list at the addresses therein stated. Such notice must also be given by one or more publications at least one week before the day of the hearing, in a newspaper of general circulation published in the City of Wilmington, Delaware or such publication as the Delaware Court of Chancery deems advisable. The forms of the notices by mail and by publication must be approved by the Delaware Court of Chancery, and the costs thereof will be borne by the surviving corporation. At the hearing on such petition, the Delaware Court of Chancery will determine the stockholders who have complied with Section 262 and who have become entitled to appraisal rights. The Delaware Court of Chancery may require the stockholders who have demanded appraisal for their shares and who hold stock represented by certificates to submit their stock certificates to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; if any stockholder fails to comply with that direction, the Delaware Court of Chancery may dismiss the proceedings as to that stockholder.

 

After determination of the stockholders entitled to appraisal of their shares of Temple-Inland common stock, the Delaware Court of Chancery will appraise the shares, determining their fair value exclusive of any element of value arising from the accomplishment or expectation of the merger, together with interest, if any. Unless the Delaware Court of Chancery in its discretion determines otherwise for good cause shown, interest from the effective date of the merger through the date of payment of the judgment will be compounded quarterly and will accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective date of the merger and the date of payment of the judgment. Upon application by the surviving corporation or by any stockholder entitled to participate in the appraisal proceeding, the Delaware Court of Chancery may, in its discretion, proceed to trial upon the appraisal prior to the final determination of the stockholders entitled to an appraisal. Any stockholder whose name appears on the list filed by the surviving corporation and who has submitted such stockholder’s certificates of stock to the Register in Chancery, if such is required, may participate fully in all proceedings until it is finally determined that such stockholder is not entitled to appraisal rights under Section 262.

When the fair value is determined, the Delaware Court of Chancery will direct the payment of such value, with interest thereon, if any, by the surviving corporation to the stockholders entitled to receive the same, in the case of holders of uncertificated stock forthwith, and in the case of holders of shares represented by certificates upon the surrender to the surviving corporation of the certificates representing such stock.

 

In determining fair value, the Delaware Court of Chancery is required to take into account all relevant factors. In Weinberger v. UOP, Inc ., the Delaware Supreme Court discussed the factors that could be considered in determining fair value in an appraisal proceeding, stating that “proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court” should be considered, and that “[f]air price obviously requires consideration of all relevant factors involving the value of a company.”

 

The Delaware Supreme Court has stated that in making this determination of fair value, the court must consider market value, asset value, dividends, earnings prospects, the nature of the enterprise and any other facts that could be ascertained as of the date of the merger that throw any light on future prospects of the merged corporation. Section 262 provides that fair value is to be “exclusive of any element of value arising from the accomplishment or expectation of the merger.” In Cede & Co. v. Technicolor, Inc. , the Delaware Supreme Court stated that such exclusion is a “narrow exclusion [that] does not encompass known elements of value,” but rather applies only to the speculative elements of value arising from such accomplishment or expectation. In Weinberger , the Delaware Supreme Court also stated that “elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, may be considered.”

 

You should be aware that the fair value of your shares of Temple-Inland common stock as determined under Section 262 could be more than, the same as, or less than the value that you are entitled to receive under the terms of the merger agreement.

 

Moreover, we do not anticipate offering more than the per share merger consideration to any stockholder exercising appraisal rights and reserve the right to assert, in any appraisal proceeding, that, for purposes of Section 262, the “fair value” of a share of Temple-Inland common stock is less than the per share merger consideration.

 

Costs of the appraisal proceeding may be imposed upon the surviving corporation and the stockholders participating in the appraisal proceeding by the Delaware Court of Chancery as the Court deems equitable in the circumstances. Upon the application of a stockholder, the Delaware Court of Chancery may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts, to be charged pro rata against the value of all shares entitled to appraisal. Any stockholder who had demanded appraisal rights will not, after the effective time of the merger, be entitled to vote shares subject to that demand for any purpose or to receive payments of dividends or any other distribution with respect to those shares, other than with respect to payment as of a record date prior to the effective time; however, if no petition for appraisal is filed within 120 days after the effective date of the merger, or if the stockholder delivers a written withdrawal of his or her demand for appraisal and an acceptance of the terms of the merger within 60 days after the effective date of the merger or thereafter with the written approval of Temple-Inland, then the right of that stockholder to appraisal will cease. No appraisal proceeding in the Delaware Court of Chancery will be dismissed as to any stockholder without the prior approval of the Court, and such approval may be conditioned upon such terms as the Delaware Court of Chancery deems just; provided, however, that any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party will maintain the right to withdraw its demand for appraisal and to accept the cash that such holder would have received pursuant to the merger agreement within 60 days after the effective date of the merger.

 

In view of the complexity of Section 262, stockholders who may wish to dissent from the merger and pursue appraisal rights should consult their legal advisors.

 

Our common stock is traded on the NYSE under the symbol “TIN.” On [ • ] [ • ], 2011, there were [ • ] registered stockholders of our common stock. Below is a summary of the NYSE high and low sales prices of shares of Temple-Inland common stock on the NYSE, as reported in published financial sources as well as the cash dividend paid per share for the periods specified below. The closing sale price of Temple-Inland common stock on

the NYSE on June 6, 2011, the last full trading day before the first public announcement of IP’s offer to acquire Temple-Inland for $30.60 per share, was $21.01, and the closing sale price of Temple-Inland common stock on the NYSE on September 2, 2011, the last full trading day prior to the announcement of the merger, was $24.63. On [ • ] [ • ], 2011, the closing price for Temple-Inland common stock on the NYSE was $[ • ] per share. You are encouraged to obtain current market quotations for Temple-Inland common stock in connection with voting your shares.

 

 

Temple-Inland has paid dividends on its common stock every year since 1984. Under the merger agreement, Temple-Inland is prohibited from paying dividends other than quarterly cash dividends not to exceed $0.13 per share.

 

SUBMISSION OF STOCKHOLDER PROPOSALS

 

If the merger is consummated prior to our 2012 annual meeting of stockholders, we will not have public stockholders, and there will be no public participation in any future meetings of stockholders. However, if the merger is not consummated prior to our 2012 annual meeting of stockholders, the following deadlines apply to the submission of stockholder proposals to be considered at our 2012 annual meeting of stockholders.

 

Any stockholder proposal submitted to Temple-Inland for inclusion in the proxy statement and proxy relating to the 2012 annual meeting of stockholders and any notice of a matter that a stockholder intends to bring before that meeting must be received by the Corporate Secretary of Temple-Inland no later than the close of business on November 24, 2011. Under Temple-Inland’s Amended and Restated Bylaws, no matter may be brought before, or acted upon at, any meeting of stockholders except pursuant to Temple-Inland’s notice of meeting, as directed by the Temple-Inland board or upon motion of any stockholder who has provided the notice required by the Bylaws to the Corporate Secretary of Temple-Inland of that intent (a) in the case of the annual meeting of stockholders, by the date as may be specified in the proxy statement for the prior year’s annual meeting of stockholders, or (b) in the case of a meeting other than the annual meeting of stockholders, not less than 75 days nor more than 100 days prior to the meeting date (unless the first public announcement of the date of such meeting is less than 90 days prior to the date of such meeting, in which case notice must be given on the tenth day following the date of first public

announcement). The chairman of the meeting has the power and duty to determine whether any business proposed to be brought before the meeting was proposed in accordance with the procedures set forth in the Bylaws and, if any proposed business is not in compliance with the Bylaws, to declare that such defective proposal shall be disregarded.

SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table lists the beneficial owners of more than 5% of the outstanding shares of Temple-Inland common stock based on information disclosed to the Securities and Exchange Commission as of the dates indicated below.

 

 

 

 

The following table lists the shares of Temple-Inland common stock owned by the directors, Named Executive Officers and all current executive officers and directors as a group as of [ • ] [ • ], 2011.

 

SECURITY OWNERSHIP OF MANAGEMENT