-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KXdrFk7/aanFk3xRWKU1rhtiPpRtY/PNFu2LOY3IVPvuDWjNcLazMckhbUCvcpSb /fe6U6ueG/FW639vfhd7jA== 0000950124-04-000703.txt : 20040305 0000950124-04-000703.hdr.sgml : 20040305 20040305172540 ACCESSION NUMBER: 0000950124-04-000703 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 33 CONFORMED PERIOD OF REPORT: 20031228 FILED AS OF DATE: 20040305 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEYERHAEUSER CO CENTRAL INDEX KEY: 0000106535 STANDARD INDUSTRIAL CLASSIFICATION: LUMBER & WOOD PRODUCTS (NO FURNITURE) [2400] IRS NUMBER: 910470860 STATE OF INCORPORATION: WA FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04825 FILM NUMBER: 04653000 BUSINESS ADDRESS: STREET 1: 33663 WEYERHAEUSER WAY SOUTH CITY: FEDERAL WAY STATE: WA ZIP: 98003 BUSINESS PHONE: 2539242345 MAIL ADDRESS: STREET 1: 33663 WEYERHAEUSER WAY SOUTH CITY: FEDERAL WAY STATE: WA ZIP: 98003 10-K 1 v96705e10vk.htm FORM 10-K QUARTER ENDING 12/28/2003 Weyerhaeuser Company
Table of Contents

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549

FORM 10-K

         
  x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
   
         
    For the fiscal year ended December 28, 2003 or    
         
  o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
   
         
    For the transition period from      __________________      to     _______________    

Commission File Number 1-4825

WEYERHAEUSER COMPANY

     
A Washington Corporation   (IRS Employer Identification No. 91-0470860)

Federal Way, Washington 98063-9777
Telephone (253) 924-2345

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

     
Title of Each Class   Name of Each Exchange on Which Registered:

 
Common Shares ($1.25 par value)   Chicago Stock Exchange
New York Stock Exchange
Pacific Stock Exchange
     
Exchangeable Shares (no par value)   Toronto Stock Exchange

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

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No o.

As of June 27, 2003, 219,041,943 shares of the registrant’s common stock ($1.25 par value) were outstanding and the aggregate market value of the registrant’s voting shares held by non-affiliates was approximately $11,707,791,855.

As of January 30, 2004, 221,377,712 shares of the registrant’s common stock ($1.25 par value) were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Annual Report to Shareholders for the fiscal year ended December 28, 2003, are incorporated by reference into Parts I, II and IV.

Portions of the Notice of Annual Meeting of Shareholders and Proxy Statement for the company’s 2004 Annual Meeting of Shareholders to be held April 13, 2004 are incorporated by reference into Part II and III.

 


PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market Price for Registrant’s Common Equity and Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Information
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
SIGNATURES
Independent Auditors’ Report
Schedule II – Valuation and Qualifying Accounts
EXHIBIT 10.(G)
EXHIBIT 10.(H)
EXHIBIT 10.(I)
EXHIBIT 10.(J)
EXHIBIT 12
EXHIBIT 13
EXHIBIT 14
EXHIBIT 21
EXHIBIT 23
EXHIBIT 31
EXHIBIT 32
EXHIBIT 99


Table of Contents

Weyerhaeuser Company and Subsidiaries

TABLE OF CONTENTS


         
        Page No.
       
Part I        
Item 1.   Business   3
Item 2.   Properties   8
Item 3.   Legal Proceedings   11
Item 4.   Submission of Matters to a Vote of Security Holders   15
Part II        
Item 5.   Market Price for Registrant’s Common Equity and Related Stockholder Matters   16
Item 6.   Selected Financial Data   16
Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations   16
Item 7A   Quantitative and Qualitative Disclosures About Market Risk   18
Item 8.   Financial Statements and Supplementary Information   18
Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure   18
Item 9A   Controls and Procedures   19
Part III        
Item 10.   Directors and Executive Officers of the Registrant   20
Item 11.   Executive Compensation   22
Item 12.   Security Ownership of Certain Beneficial Owners and Management   22
Item 13.   Certain Relationships and Related Transactions   22
Item 14.   Principal Accountant Fees and Services   22
Part IV        
Item 15.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K   23
    Signatures   25
    Independent Auditors’ Reports on Financial Statement Schedules   26
    Schedule II – Valuation and Qualifying Accounts   28

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PART I


Item 1. Business

Weyerhaeuser Company (the company) was incorporated in the state of Washington in January 1900 as Weyerhaeuser Timber Company. It is principally engaged in the growing and harvesting of timber; the manufacture, distribution and sale of forest products; and real estate development and construction. Its principal business segments are Timberlands; Wood Products; Pulp and Paper; Containerboard, Packaging and Recycling; and Real Estate and Related Assets. Throughout this document, the term “company” refers to Weyerhaeuser Company and all of its majority-owned domestic and foreign subsidiaries. The term “Weyerhaeuser” refers to the forest products-based operations and excludes the Real Estate and Related Assets operations.

Information with respect to the description and general development of the company’s business, included on pages 14 through 23 and 26 through 29, Description of the Business of the Company, contained in the company’s 2003 Annual Report to Shareholders, is incorporated herein by reference.

Financial information with respect to industry segments and geographical areas, included in Notes 22 and 23 of Notes to Financial Statements contained in the company’s 2003 Annual Report to Shareholders, is incorporated herein by reference.

Timberlands

Weyerhaeuser is engaged in the management of 6.7 million acres of company-owned and .8 million acres of leased commercial forestland in North America, most of it highly productive and located extremely well to serve both domestic and international markets. Weyerhaeuser also has renewable, long-term licenses on 29.9 million acres of forestland located in five provinces throughout Canada that are managed by our Canadian operations. The standing timber inventory on these lands is approximately 493 million cunits (a cunit is 100 cubic feet of solid wood). The relationship between cubic measurement and the quantity of end products that may be produced from timber varies according to the species, size and quality of timber, and will change through time as the mix of these variables changes. The end products are generally measured in board feet for lumber and square feet for panel products. To sustain the timber supply from its fee timberlands, Weyerhaeuser is engaged in extensive planting, suppression of nonmerchantable species, precommercial and commercial thinning, fertilization, and operational pruning, all of which increase the yield from its fee timberland acreage.

                                           
      Inventory   Thousands of Acres at December 28, 2003
     
 
      Millions   Fee   Long-term   License        
      of Cunits   Ownership   Leases   Arrangements   Total
     
 
 
 
 
Geographic Area
                                       
United States
                                       
 
West
    62       2,274                   2,274  
 
South
    56       3,740       788             4,528  
 
 
   
     
     
     
     
 
Total United States
    118       6,014       788             6,802  
 
 
   
     
     
     
     
 
Canada
                                       
 
Alberta
    99                   7,616       7,616  
 
British Columbia
    146       662             3,908       4,570  
 
New Brunswick
    1                   177       177  
 
Ontario
    47       1             5,947       5,948  
 
Saskatchewan
    82                   12,214       12,214  
 
 
   
     
     
     
     
 
Total Canada
    375       663             29,862       30,525  
 
 
   
     
     
     
     
 
International (1) (2)
    3       203       7       76       286  
 
 
   
     
     
     
     
 
TOTAL
    496       6,880       795       29,938       37,613  
 
 
   
     
     
     
     
 


(1)   International represents timberlands outside of North America, the activities of which are reported in the Corporate and Other segment.
 
(2)   Includes Weyerhaeuser percentage ownership of timberlands owned and managed through joint ventures.

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Item 1. Business – continued

                                           
                  Thousands of Acres
      Thousands of Acres   Millions of  
     
  Seedlings   Stocking        
      Harvested(1)   Planted (2)   Planted   Control   Fertilization
     
 
 
 
 
2003 Activity
                                       
United States
                                       
 
West
    46.9       43.2       20.6       12.0       81.0  
 
South
    138.3       149.4       67.2       9.4       482.2  
 
 
   
     
     
     
     
 
Total United States
    185.2       192.6       87.8       21.4       563.2  
 
 
   
     
     
     
     
 
Canada
                                       
 
Alberta
    40.6       16.1       8.5       10.2        
 
British Columbia
    37.3       33.7       16.8       1.1       9.0  
 
New Brunswick
    1.5       0.1       0.3       0.7        
 
Ontario
    29.4       14.8       7.8       0.8        
 
Saskatchewan
    40.0       12.0       8.5       3.5        
 
 
   
     
     
     
     
 
Total Canada
    148.8       76.7       41.9       16.3       9.0  
 
 
   
     
     
     
     
 
International (3) (4)
    3.9       7.1       3.0       28.2       2.9  
 
 
   
     
     
     
     
 
TOTAL
    337.9       276.4       132.7       65.9       575.1  
 
 
   
     
     
     
     
 
                                         
Sales volumes (millions):   2003   2002   2001   2000   1999

 
 
 
 
 
Raw materials – cubic ft.
    413       370       286       310       287  
                                           
Selected product prices:   2003   2002   2001   2000   1999

 
 
 
 
 
Export logs (#2 sawlog-bark on) – $/MBF
                                       
 
Coastal – Douglas fir - Longview
  $ 707     $ 697     $ 757     $ 888     $ 777  
 
Coastal – Hemlock
    365       416       398       545       532  

Wood Products

Weyerhaeuser’s wood products businesses produce and sell softwood lumber, plywood and veneer, oriented strand board and composite panels, hardwood lumber, and engineered lumber products. These products are sold primarily through the company’s own sales organizations and building materials distribution business. The raw materials required to produce these products are purchased from third parties, transferred at market price from Weyerhaeuser’s Timberlands segment, or obtained from long-term licensing arrangements. Building materials, including products not produced by Weyerhaeuser, such as treated products, are sold to wholesalers, retailers and industrial users.


(1)   Includes 6.7 thousand acres of right-of-way and other harvest that does not require planting.
 
(2)   Represents acres planted with seedlings. In Canada, natural regeneration is also used to reforest areas that have been harvested.
 
(3)   International represents timberlands outside of North America, the activities of which are reported in the Corporate and Other segment.
 
(4)   Includes Weyerhaeuser percentage ownership of timberlands owned and managed through joint ventures.

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PART I


Item 1. Business – continued

                                         
Sales volumes (millions)(1):   2003   2002   2001   2000   1999

 
 
 
 
 
Softwood lumber – board ft.
    8,981       8,623       7,203       7,442       5,734  
Plywood and veneer – sq. ft. (3/8”)
    2,904       2,903       2,042       2,297       2,048  
Composite panels – sq. ft. (3/4”)
    1,210       1,147       253       379       410  
Oriented strand board – sq. ft. (3/8”)
    4,361       4,205       3,738       3,634       2,716  
Hardwood lumber – board ft.
    427       427       413       423       397  
Raw materials – cubic ft.
    488       595       549       692       305  
                                           
Selected product prices:   2003   2002   2001   2000   1999

 
 
 
 
 
Lumber (common) – $/MBF
                                       
 
2x4 Douglas fir (kiln dried)
  $ 347     $ 328     $ 334     $ 341     $ 408  
 
2x4 Douglas fir (green)
    307       289       297       314       384  
 
2x4 Southern yellow pine (kiln dried)
    330       302       325       339       413  
 
2x4 Spruce-pine-fir (kiln dried)
    242       236       250       257       342  
Plywood (1/2” CDX) – $/MSF
                                       
 
West
    335       287       294       300       369  
 
South
    365       248       263       264       320  
Oriented strand board (7/16"-24/16)
                                       
 
North Central price – $/MSF
    296       160       160       206       262  

Pulp and Paper

Weyerhaeuser’s pulp and paper businesses include: Pulp, which includes the manufacture of papergrade, absorbent, dissolving and specialty pulp grades which are marketed worldwide; and Paper, which manufactures a range of both coated and uncoated papers and business forms marketed through our own sales force and through paper merchants and printers.

In addition, through its investment in North Pacific Paper Corporation, Weyerhaeuser has a 50 percent interest in NORPAC, a joint venture that owns a newsprint manufacturing facility in Washington state.

                                         
Sales volumes (thousands) (1):   2003   2002   2001   2000   1999

 
 
 
 
 
Pulp – air-dry metric tons
    2,479       2,378       2,113       2,129       2,273  
Paper – tons
    2,822       2,742       1,301       1,375       1,240  
Coated groundwood – tons
    234       210       206       214       220  
Liquid packaging board – tons
    256       229       243       255       248  
Paper converting – tons
    1,882       1,859       831       829       788  


(1)   Reflects the acquisitions of MacMillan Bloedel in November 1999 and Willamette Industries in February 2002.

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PART I


Item 1. Business – continued

                                         
Selected product prices (per ton):   2003   2002   2001   2000   1999

 
 
 
 
 
Pulp – NBKP-air-dry metric-U.S.
  $ 553     $ 488     $ 547     $ 685     $ 541  
Paper – uncoated free sheet-U.S.
    622       658       695       730       646  

Containerboard, Packaging and Recycling

Weyerhaeuser’s containerboard, packaging and recycling businesses include: Containerboard, which manufactures linerboard, corrugating medium and kraft paper, primarily used to produce corrugated boxes at Weyerhaeuser’s packaging facilities and also marketed to domestic and foreign customers through our sales force and agents; Packaging, which manufactures industrial and agricultural packaging marketed through our own sales force; and Recycling, which operates an extensive wastepaper collection system and markets it to company mills and worldwide customers. The segment also operates facilities that manufacture paper bags, preprint linerboard, inks and printing plates.

                                         
Sales volumes (thousands) (1):   2003   2002   2001   2000   1999

 
 
 
 
 
Containerboard – tons
    890       983       883       1,055       576  
Packaging – MSF
    72,741       70,330       48,870       52,886       45,203  
Recycling – tons
    2,290       2,292       2,837       3,177       2,785  
Bags – tons
    100       93                    
                                         
Selected product prices (per ton):   2003   2002   2001   2000   1999

 
 
 
 
 
Linerboard – 42 lb.-Eastern U.S.
  $ 366     $ 401     $ 424     $ 453     $ 383  
Recycling – old corrugated containers
    61       60       40       79       67  
Recycling – old newsprint
    40       36       25       56       23  

Real Estate and Related Assets

The Real Estate and Related Assets segment includes Weyerhaeuser Real Estate Company (WRECO), a wholly-owned subsidiary, and the company’s other real estate related activities. WRECO is primarily engaged in developing single-family housing and residential lots for sale, including development of master-planned communities. Operations are concentrated mainly in selected metropolitan areas in southern California, Nevada, Washington, Texas, Maryland and Virginia. Additionally, WRECO is an investor and investment manager for institutional investors in residential real estate.

                                         
Unit statistics:   2003   2002   2001   2000   1999

 
 
 
 
 
Single-family homes sold
    5,005       4,374       3,868       3,833       3,431  
Single-family homes closed
    4,626       4,280       3,651       3,369       3,431  
Single-family homes sold but not closed
    2,261       1,882       1,788       1,571       1,107  


(1)   Reflects the acquisition of MacMillan Bloedel in November 1999 and Willamette Industries in February 2002.

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PART I


Item 1. Business continued

Available Information

The company is subject to the information reporting requirements of the Securities Exchange Act of 1934 (the “Exchange Act”) and the company files periodic reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”) relating to the company’s business, financial results and other matters. The reports, proxy statements and other information the company files may be inspected and copied at prescribed rates at the SEC’s Public Reference Room at 450 Fifth Street NW, Washington, D.C. 20549. You may obtain information on the operation of the SEC’s Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet site that contains reports, proxy statements and other information regarding issuers like the company that file electronically with the SEC. The address of the SEC’s internet site is www.sec.gov. The company also posts its reports, proxy statements and other information that are transmitted electronically to the SEC on the company’s internet site as soon as reasonably practicable after such material is filed with, or furnished to, the SEC and such information is available free of charge. The company’s internet site is www.weyerhaeuser.com.

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PART I


Item 2. Properties

Timberlands

Timberlands annual log production, which reflects the acquisition of Willamette Industries (Willamette) in February 2002:

                                         
Production in millions   2003   2002   2001   2000   1999

 
 
 
 
 
Logs – cubic ft.
    629       663       517       606       521  
Fee depletion – cubic ft.
    943       936       748       700       634  

Wood Products

Production capacities, facilities and annual production, which reflect the acquisitions of Willamette in February 2002 and MacMillan Bloedel in November 1999, are summarized by major product as follows:

                                                         
            Number                                        
    Production   of                                        
Production in millions   Capacity   Facilities   2003   2002   2001   2000   1999

 
 
 
 
 
 
 
Softwood lumber – board ft.
    7,722       43       7,113       6,831       5,335       5,645       4,532  
Plywood and veneer – sq. ft. (3/8”)
    2,659       13       2,411       2,278       1,099       1,340       1,065  
Composite panels – sq. ft. (3/4”)
    1,095       6       988       864       93       206       281  
Oriented strand board – sq. ft. (3/8”)
    4,350       10       4,170       4,020       3,443       3,438       2,452  
Hardwood lumber – board ft.
    434       12       441       406       410       397       376  

Principal manufacturing facilities are located as follows:

     
Lumber and plywood   Engineered lumber
Alabama, Arkansas, Georgia, Louisiana, Mississippi, North Carolina, Oklahoma, Oregon, South Carolina, Washington; Alberta, British Columbia, Ontario and Saskatchewan, Canada
 
Alabama, California, Georgia, Kentucky, Louisiana, Minnesota, Ohio, Oregon, West Virginia; Alberta, British Columbia and Ontario, Canada; and New South Wales, Australia
 
Oriented strand board   Hardwood lumber
Louisiana, Michigan, North Carolina, West Virginia; Alberta, New Brunswick, Ontario and Saskatchewan, Canada
 
Arkansas, Michigan, Oklahoma, Oregon, Pennsylvania, Washington, Wisconsin; and British Columbia, Canada
 
Composite panels    
Arkansas, Louisiana, Oregon and South Carolina
   

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Item 2. Properties – continued

Pulp and Paper

Production capacities, facilities and annual production, which reflect the acquisitions of Willamette in February 2002 and MacMillan Bloedel in November 1999, are summarized by major product as follows:

                                                         
            Number                                        
    Production   of                                        
Production in thousands   Capacity   Facilities   2003   2002   2001   2000   1999

 
 
 
 
 
 
 
Pulp – air-dry metric tons
    2,840       12       2,522       2,281       2,140       2,282       2,219  
Paper – tons
    3,045       8       2,833       2,611       1,244       1,388       1,292  
Coated groundwood – tons
    240       1       239       210       211       215       219  
Liquid packaging board – tons
    260       1       261       227       240       261       251  
Paper converting – tons
    2,175       16       1,882       1,844       777       850       779  

Principal manufacturing facilities are located as follows:

     
Pulp   Liquid packaging board
Georgia, Kentucky, Mississippi, North Carolina, South Carolina, Washington; Alberta, British Columbia, Ontario and Saskatchewan, Canada
 
Washington
 
Paper   Paper converting
Kentucky, North Carolina, Pennsylvania, South Carolina, Tennessee, and Wisconsin; Ontario and Saskatchewan, Canada
 
California, Indiana, Kentucky, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Washington, Wisconsin; Ontario and Saskatchewan, Canada
 
Coated groundwood    
Mississippi
   

Containerboard, Packaging and Recycling

Production capacities, facilities and annual production, which reflect the acquisitions of Willamette in February 2002 and MacMillan Bloedel in November 1999, are summarized by major product as follows:

                                                         
            Number                                        
    Production   of                                        
Production in thousands   Capacity   Facilities   2003   2002   2001   2000   1999

 
 
 
 
 
 
 
Containerboard – tons
    6,300       10       6,003       6,004       3,699       3,578       2,622  
Packaging – MSF
    106,000       97       77,830       75,100       51,646       55,932       47,404  
Recycling – tons
    N/A       19       6,216       6,092       4,726       4,448       4,287  
Bags – tons
    155       4       98       93                    

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Item 2. Properties continued

Principal manufacturing facilities are located as follows:

     
Containerboard   Recycling
Alabama, California, Iowa, Kentucky, Louisiana, North Carolina, Oklahoma, Oregon; Xalapa, Mexico
 
Arizona, California, Colorado, Illinois, Iowa, Kansas, Maryland, Minnesota, Nebraska, North Carolina, Oregon, Tennessee, Texas, Utah, Virginia and Washington
 
Packaging   Kraft bags and sacks
Alabama, Arizona, Arkansas, California, Colorado, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Tennessee, Texas, Virginia, Washington, Wisconsin; and Guanajuato, Ixtac, Mexico City and Tehuacan, Mexico
 
California, Missouri, Oregon, and Texas

Real Estate and Related Assets

Real estate operations are located as follows:

     
Single-family housing   Commercial projects
California, Maryland, Nevada, Texas, Virginia and Washington
 
California
 
Residential land development   Real estate investments
California, Maryland, Nevada, Texas, Virginia and Washington
 
Arizona, California, Colorado, Florida, Idaho, Maryland, Nevada, Oregon, Utah, Virginia and Washington
 
Commercial and retail land development    
California, Texas and Washington
   

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PART I


Item 3. Legal Proceedings

Legal Proceedings

Hardboard Siding Claims. The company announced in June 2000 it had entered into a proposed nationwide settlement of its hardboard siding class action cases and, as a result, took a charge of $130 million before taxes to cover the estimated cost of the settlement and related claims. The court approved the settlement in December 2000. An appeal from the settlement was denied in March 2002, and the settlement is now binding on all parties. In the third quarter of 2001, the company reassessed the adequacy of the reserve and increased the reserve by an additional $43 million. The company incurred claims and related costs in the amount of $11 million in 2003, $11 million in 2002 and $37 million in 2001 and charged these costs against the reserve. As of December 28, 2003, the company had approximately $83 million in reserves remaining for hardboard siding claims. While the company believes that the reserve balances established for these matters are adequate, the company is unable to estimate at this time the amount of additional charges, if any, that may be required for these matters in the future.

The settlement class consists of all persons who own or owned structures in the United States on which the company’s hardboard siding had been installed from January 1, 1981, through December 31, 1999. This is a claims-based settlement, which means that the claims will be paid as submitted over a nine-year period. An independent adjuster will review each claim submitted and determine whether it qualifies for payment under the terms of the settlement agreement. The following table presents an analysis of the claims activity related to the hardboard siding class action cases:

                         
    2003   2002   2001
   
 
 
Number of claims filed during the period
    3,830       2,995       6,480  
Number of claims resolved
    4,245       4,690       2,580  
Number of claims unresolved at end of period
    1,830       2,245       3,940  
Number of damage awards paid
    1,770       1,830       400  
Average damage award paid
  $ 3,400     $ 1,900     $ 1,700  

The increase in the average damage award paid in 2003 was due primarily to the existence of more awards for multi-family structures and fewer awards for single family residences in 2003 than in 2002 or 2001.

The company negotiated settlements with its insurance carriers for recovery of $52 million of costs related to these claims. The company has received the full $52 million in recoveries from its insurance carriers.

The company is a defendant in state trial court in three cases that are outside of the settlement involving primarily multi-family structures and residential developments. One of those cases was settled in January 2004, and the impact was not significant. The company anticipates that other individuals and entities that have opted out of the settlement may file lawsuits against the company. In January 2002, a jury returned a verdict in favor of the company in a lawsuit involving hardboard siding manufactured by the company and installed by a developer in a residential development located in Modesto, California. The verdict has been appealed and is not included in the three cases mentioned at the state court level.

Antitrust Litigation. In May 1999, two civil antitrust lawsuits were filed against the company in U.S. District Court, Eastern District of Pennsylvania. Both suits name as defendants several other major containerboard and packaging producers. The complaint in the first case alleges the defendants conspired to fix the price of linerboard and that the alleged conspiracy had the effect of increasing the price of corrugated containers. The suit requested class certification for purchasers of corrugated containers during the period from October 1993 through November 1995. The complaint in the second case alleges that the company conspired to manipulate the price of linerboard and thereby the price of corrugated sheets. The suit requested class certification for purchasers of corrugated sheets during the period October 1993 through November 1995. Both suits seek damages, including treble damages, under the antitrust laws. No specific damage amounts have been claimed. In September 2001, the district court certified both classes. Class certification was upheld on appeal and class members were given until June 9, 2003, to opt out of the class. Approximately 165 members of the classes have opted out and filed lawsuits against the company in federal and state courts. In September 2003, the company, Georgia-Pacific and International Paper filed a motion with the court requesting preliminary approval of a $68 million settlement of the class action litigation. Weyerhaeuser’s portion was approximately $23 million before taxes. The company recognized an after-tax charge of $15 million, or 7 cents per share, in the third quarter of 2003. The court granted final approval of the settlement in December 2003. Since no objections were filed, the settlement is final and binding on the companies and class members. The company has not recorded a reserve for the opt-out cases and is unable to estimate at this time the amount of charges, if any, that may be required for this matter in the future.

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Item 3. Legal Proceedings continued

In December 2000, a lawsuit was filed against the company in U.S. District Court in Oregon alleging that from 1996 to present, the company had monopoly power or attempted to gain monopoly power in the Pacific Northwest market for alder logs and finished alder lumber. In August 2001, the complaint was amended to add an additional plaintiff. Prior to trial, one of the plaintiffs withdrew from the litigation. In April 2003, the jury returned a verdict in favor of one of the plaintiffs in the amount of $26 million, which was automatically trebled to $79 million under the antitrust laws. The company took a pretax charge of $79 million in its first quarter 2003 results. The company’s motion for a judgment notwithstanding the verdict was denied in July 2003. The company has appealed the matter to the U.S. Court of Appeals for the Ninth Circuit. While the company believes that the reserve balance established for this matter is adequate, the company is unable to estimate at this time the amount of additional charges, if any, which may be required for this matter in the future.

In April 2003, two separate lawsuits were filed in U.S. District Court in Oregon alleging that the company violated antitrust laws by monopolizing the markets for alder sawlogs and finished alder lumber. In June 2003, amended complaints were filed in both matters. The first suit (the Westwood case) was brought by four separate corporations located in Oregon and Washington that allege that between 1999 and the present, they suffered damages and asked the court to award damages, after trebling, of $101 million. Plaintiffs’ request for a temporary restraining order prohibiting the company from certain alder log-buying practices was denied by the court. The complaint also requests divestiture of a number of alder sawmills in Oregon, Washington and British Columbia. In July 2003, the company filed a motion to dismiss based on the insufficiencies in the pleadings. The judge directed the plaintiffs to correct deficiencies in the pleadings but refused to dismiss the case. The company renewed its motion to dismiss after review of the amended complaint. In November 2003, the court granted the company’s motion to dismiss the amended complaint because it failed to state a claim under the federal antitrust laws. The judge gave the plaintiffs five business days to file a new complaint to correct the deficiencies in the amended complaint. In November 2003 the court allowed a third amended complaint to be filed. The court also ruled that Weyerhaeuser would be precluded from litigating whether it attempted to and did willfully acquire and maintain monopoly power over alder sawlogs in the Pacific Northwest through anti-competitive conduct between 1996 and 2001. The court also precluded Weyerhaeuser from contesting that its conduct did not cause the prevailing plaintiff in the alder case that is on appeal material antitrust injury. We believe the court’s rulings are wrong as a matter of law and filed a motion to certify the matter for immediate appellate review by the Court of Appeals for the Ninth Circuit or, in the alternative, for reconsideration by the trial court. The trial court denied both motions in December 2003. The case is scheduled to go to trial on March 9, 2004. We have recently received information from plaintiffs seeking a range of damages, after trebling, of between $81 million and $118 million. The second suit was brought by Coast Mountain Hardwoods, Inc., a Canadian company that sold its assets to the company in 2000. In its proposed third amended complaint, the plaintiff alleges two causes of action, one for attempted monopolization of alder saw log and finished lumber markets, and a second cause of action for fraud and breach of fiduciary duty. On the antitrust cause of action, plaintiff seeks damages, after trebling, in the amount of $90 million (plus attorney’s fees, costs and disbursements). On the fraud and breach of fiduciary cause of action, plaintiff seeks compensatory damages in the amount of $30 million and punitive damages of $300 million. There is no trebling associated with the second cause of action. Request for divestiture of the company’s Northwest Hardwoods Division, a portion of its alder sawmills in British Columbia, Oregon and Washington; and certain forest licenses acquired in Canada have been dropped from the complaint. The company filed a motion to dismiss on the basis that the case should be heard in Canada rather than the United States because it involves an acquisition approved by Canadian regulatory bodies. The motion to dismiss was denied in October 2003. The company filed a motion for summary judgment on all antitrust claims. The court denied this motion in February 2004. Trial of this case is scheduled to begin on June 1, 2004. In June 2003, an alder antitrust complaint was filed in U.S. District Court in Oregon by Washington Alder, an alder sawmill located in Washington. The complaint alleges monopolization of the alder log and lumber markets from 1998 to present and seeks damages, after trebling, of $32 million. The company filed a motion to dismiss based on insufficiencies in the pleadings. In November 2003, the court granted the company’s motion to dismiss the amended complaint because it failed to state a claim under the federal antitrust laws. The judge gave the plaintiff five business days to file a new complaint to correct the deficiencies in the amended complaint. In November 2003, a second amended complaint was filed. In December 2003, the court denied our motion to consolidate this matter with the Westwood case and trial is scheduled to begin on May 11, 2004. Although the company denies liability and is vigorously defending these follow-on cases, all of the follow-on cases will be presided over by the same judge who presided in the case that is on appeal and the judge has issued a number of rulings adverse to the company, including a ruling in the Westwood case precluding the company from contesting key issues that were decided against the company in the alder lawsuit on appeal. Accordingly, the company recognizes that the company is not likely to prevail at the trial court level in these cases and intends to appeal any adverse judgments in these cases. The company has not recorded reserves related to these lawsuits and is unable to estimate at this time the amount of charges, if any, that may be required for these lawsuits in the future.

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Item 3. Legal Proceedings continued

Paragon Trade Brands, Inc., Litigation. In May 1999, the Equity Committee (Committee) in the Paragon Trade Brands, Inc. (Paragon), bankruptcy proceeding filed a motion in U.S. Bankruptcy Court for the Northern District of Georgia for authority to prosecute claims against the company in the name of the debtor’s estate. Specifically, the Committee asserted that the company breached certain warranties in agreements entered into between Paragon and the company in connection with Paragon’s public offering of common stock in January 1993. The Committee seeks to recover damages sustained by Paragon as a result of two patent infringement cases, one brought by Procter & Gamble and the other by Kimberly-Clark. In September 1999, the court authorized the Committee to commence an adversary proceeding against the company. The Committee commenced this proceeding in October 1999. Pursuant to a reorganization of Paragon, the litigation claims representative for the bankruptcy estate became the plaintiff in the proceeding. In June 2002, the Bankruptcy Court issued an oral opinion granting the plaintiff’s motion for partial summary judgment, holding the company liable to plaintiff for breaches of warranty and denying the company’s motion for summary judgment. In October 2002, the Bankruptcy Court issued a written order confirming the June oral opinion. In November 2002, the company filed a motion for reconsideration with the Bankruptcy Court. In June 2003, the judge issued an oral ruling denying the motion for reconsideration and set an October 30, 2003, trial date for determination of the damages. In September 2003, the U.S. District Court declined to grant discretionary review of the bankruptcy court’s partial summary judgment decision on liability. The damages phase of the case began on October 30, 2003, and was concluded on December 16, 2003. The bankruptcy court initially asked both parties to present findings of fact and conclusions of law by the end of January 2004 but then extended the date to February 9, 2004. The damages requested by the plaintiff have changed. In October 1999, the plaintiff was seeking damages in excess of $420 million. In its proposed findings of fact and conclusions of law, the plaintiff requested damages in the range of $675 to $832 million, primarily as a result of a new request for prejudgment interest. The company believes the plaintiff is not entitled to prejudgment interest under applicable law. The amount of damages, if any, the company may ultimately be exposed to is dependent on many unknown factors such as how the damages issues remaining to be decided by the bankruptcy court are resolved; whether an appeal to the U.S. District Court and/or Court of Appeals for the 11th Circuit is successful; the outcome of any retrial ordered by an appellate court; and whether a summary judgment in favor of the company on liability is ordered by an appellate court. The company has not established a reserve for this matter and is unable to estimate at this time the amount of charges, if any, that may be required in the future. The company plans to appeal the partial summary judgment decision on liability and any damages award on completion of the damages phase of the trial.

Other Litigation. The company is a party to other matters generally incidental to its business in addition to the matters described above.

Summary. Although the final outcome of any legal proceeding is subject to a great many variables and cannot be predicted with any degree of certainty, management currently believes that adequate reserves have been established for probable losses from litigation when the amount could be reasonably determined. Management further believes that the ultimate outcome of these legal proceedings could be material to operating results or cash flows in any given quarter or year but will not have a material adverse effect on the company’s long-term results of operations, liquidity or financial position.

Countervailing and Anti-dumping Duties

In April of 2001, the Coalition for Fair Lumber Imports (Coalition) filed two petitions with the U.S. Department of Commerce (Department) and the International Trade Commission (ITC), claiming that production of softwood lumber in Canada was being subsidized by Canada and that imports from Canada were being “dumped” into the U.S. market (sold at less than fair value). The Coalition asked that countervailing duty (CVD) and anti-dumping tariffs be imposed on softwood lumber imported from Canada.

In March 2002, the Department confirmed its preliminary finding that certain Canadian provinces were subsidizing logs by failing to collect full market price for stumpage. The Department established a final CVD rate of 18.79 percent. In the anti-dumping proceedings, the Department found that the six Canadian manufacturers examined, including the company, were engaged in sales at less than fair value and set cash deposit rates ranging from 2.18 percent to 12.44 percent. The company’s deposit rate was set at 12.39 percent. Because of statutory limitations that affected timing, the bonds covering duties following the preliminary determinations were released by the United States. The resulting reversal of accrued expenses was included in earnings during 2002.

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Item 3. Legal Proceedings continued

In May 2002, the ITC confirmed its earlier ruling that U.S. industry is threatened by subsidized and dumped imports. As a result, the company has made cash deposits relating to the CVD and anti-dumping actions at the rate of approximately $25 to $30 million a quarter. Following is a summary of the CVD and anti-dumping amounts recorded in the company’s statement of earnings:

                         
Dollar amounts in millions   2003   2002   2001
   
 
 
Charges for CVD and anti-dumping duties
  $ 97     $ 64     $ 50  
Reversals of 2001 charges for estimated CVD and anti-dumping duties
          (47 )      
 
   
     
     
 
 
  $ 97     $ 17     $ 50  
 
   
     
     
 

In June 2003, the Department began the process of an annual review to determine whether the company had engaged in dumping and whether Canada continued to subsidize softwood logs and, if so, the dumping duty and CVD to impose. It is expected that final verification and determination should be complete in late 2004. The determination will be subject to further review if appealed. The annual review process will be conducted for a period of five years. In 2007, both the countervailing duty and anti-dumping orders will be automatically reviewed in a “sunset” proceeding to determine whether dumping will continue or a countervailing subsidy is likely to recur.

The Canadian Government, the company and other Canadian companies appealed the Department’s (anti-dumping and CVD) and the ITC’s (injury) 2002 determinations in separate appeals under the North American Free Trade Agreement (NAFTA). The panel convened to review the Department’s findings on anti-dumping ruled that the Department must change its methodology for computing differences in merchandise when there is no product sold domestically that is similar to the exported product and, as a result, “comparable” products are used to calculate whether dumping is occurring. The panel convened to review the CVD decision ruled that cross-border comparisons are an invalid method to determine and measure subsidies. Finally, the panel convened to review the ITC finding of a threat of injury found that the ITC’s findings were not supported by the record and ordered the ITC to reconsider the findings. If the ITC fails to support its findings of threat of injury, the deposits collected to date would be refunded.

With the support of provincial governments, the federal government of Canada also moved for review by dispute settlement panels under the World Trade Organization (WTO) and those reviews are currently in process. One WTO panel has also issued an opinion finding that cross-border comparisons to determine and measure subsidies are not proper. In addition, the WTO appeals body has affirmed a panel ruling against the United States that the so-called “Byrd Amendment,” which gives U.S. firms cash from anti-dumping and countervailing duties applied on foreign imports, is inconsistent with U.S. international obligations. The U.S. administration has recommended that the law be changed to comply with that ruling, but whether or when Congress will implement that recommendation is uncertain.

In December 2003, the Department issued a decision on the remand from the NAFTA Panel in the CVD investigation. If the decision on remand is not further appealed or altered, it would have the effect of reducing the applicable CVD deposit rate to 13.3 percent. In addition, the WTO appellate body recently issued a decision in the CVD case, and a WTO panel is expected to issue a decision shortly in the anti-dumping case. It is not possible to predict whether these decisions will be appealed or their impact on Weyerhaeuser’s business at this time.

It is difficult to predict the net effect final duties will have on the company. In the event that final rates differ from the depository rates, ultimate charges may be higher or lower than those recorded to date. The company is unable to estimate at this time the amount of additional charges or reversals that may be necessary for this matter in the future. The U.S. and Canadian governments continue to discuss ways to settle the softwood lumber dispute, but there can be no assurance that they will be able to reach agreement or the terms and conditions of any agreement.

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Item 3. Legal Proceedings continued

Environmental Matters

In April 1999, Willamette’s Johnsonburg, Pennsylvania, paper and pulp mill received a notice of violation (NOV) from the U.S. Environmental Protection Agency (EPA) for alleged violations of the Clean Air Act (CAA). Management has met with federal and state officials to resolve the matters alleged in the NOV and will continue to work with officials to narrow issues in dispute. Management believes that it is reasonably possible that a settlement will be reached at a future date, that may involve payment of a penalty of up to approximately $1 million and the installation of pollution control equipment.

The company is also a party to various proceedings relating to the cleanup of hazardous waste sites under the Comprehensive Environmental Response Compensation and Liability Act, commonly known as “Superfund,” and similar state laws. The EPA and/or various state agencies have notified the company that it may be a potentially responsible party with respect to other hazardous waste sites as to which no proceedings have been instituted against the company. The company has established reserves for remediation costs on all of the approximately 73 active sites across its operations as of the end of 2003 totaling $51 million, down from $54 million at the end of 2002. This decrease reflects the incorporation of new information on all sites concerning remediation alternatives, updates on prior cost estimates and new sites, less the costs incurred to remediate these sites during this period. The company accrued remediation costs of $14 million in 2003 and $18 million in 2002. In 2001, the company reduced the accruals by $8 million. The company incurred remediation costs of $8 million in 2003, $9 million in 2002 and $14 million in 2001 and charged these costs against the reserve. Additionally, the company adopted the provisions of Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations, as of the beginning of 2003. Because the asset retirement obligations associated with landfills are accounted for separately, the company reduced its remediation cost accrual by $9 million as of the date it adopted the provisions of Statement 143. Based on currently available information and analysis, the company believes that it is reasonably possible that costs associated with all identified sites may exceed current accruals by amounts that may prove insignificant or that could range, in the aggregate, up to approximately $70 million over several years. This estimate of the upper end of the range of reasonably possible additional costs is much less certain than the estimates upon which accruals are currently based, and utilizes assumptions less favorable to the company among the range of reasonably possible outcomes. In estimating both its current accruals for environmental remediation and the possible range of additional future costs, the company has assumed that it will not bear the entire cost of remediation of every site to the exclusion of other known potentially responsible parties who may be jointly and severally liable. The ability of other potentially responsible parties to participate has been taken into account, based generally on each party’s financial condition and probable contribution on a per-site basis.

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

There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 28, 2003.

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PART II


Item 5. Market Price for Registrant’s Common Equity and Related Stockholder Matters

Information with respect to market prices, stockholders and dividends included in Notes 24 and 25 of Notes to Financial Statements in the company’s 2003 Annual Report to Shareholders, is incorporated herein by reference.

Following is information about securities authorized for issuance under the company’s equity compensation plans:

                         
                    Number of
                    securities
    Number of           remaining available
    securities to be           for future issuance
    issued upon   Weighted average   under equity
    exercise of   exercise price of   compensation plans
    outstanding   outstanding   (excluding
    options, warrants   options, warrants   securities reflected
    and rights   and rights   in column (a))
    (a)   (b)   (c)
   
 
 
Equity compensation plans approved by security holders
    15,692,405     $ 53.75       5,307,833  
Equity compensation plans not approved by security holders
    N/A       N/A       N/A  
Total
    15,692,405     $ 53.75       5,307,833  

Item 6. Selected Financial Data

Information with respect to selected financial data included in Note 25 of Notes to Financial Statements in the company’s 2003 Annual Report to Shareholders is incorporated herein by reference.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Information with respect to Management’s Discussion and Analysis included on pages 30-41 of the company’s 2003 Annual Report to Shareholders, is incorporated herein by reference.

The company’s expectations of segment performance in the first quarter of 2004 follow.

Timberlands

The company expects that the Timberlands segment’s contribution to earnings in the first quarter of 2004 will be higher than the fourth quarter of 2003, excluding the 2003 pretax gains on the sale on nonstrategic timberlands in the Carolinas and Tennessee, due primarily to higher domestic log sales volumes and prices in the West and higher seasonal fee harvest in the South.

Wood Products

Lumber and OSB prices increased early in the first quarter of 2004 as customers began accumulating inventories in anticipation of a strong building season. The increase in OSB prices was particularly sharp. High OSB prices will adversely impact first quarter earnings for the engineered lumber products business, but will be partially offset by first quarter price increases. Lumber and OSB prices are sensitive to weather-related disruptions, however the company expects these disruptions to be minimal in the first quarter. Woods Product’s prices have remained strong throughout the first quarter and first quarter earnings for the segment are expected to be above fourth quarter 2003 levels. The company expects Wood Products’ earnings to continue to be adversely affected by the Canadian softwood lumber issue.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations continued

Pulp and Paper

Pulp and Paper’s loss is expected to narrow in the first quarter of 2004 due to increased demand for fine paper, reduced downtime and improving softwood pulp markets. The company has implemented price increases for pulp and has announced additional price increases for both pulp and paper in the first quarter of 2004. In addition, the company will continue to focus on inventory management to match supply with demand and will assess rationalization, as necessary.

Containerboard, Packaging and Recycling

Earnings for this segment in the first quarter of 2004 are expected to be down from the fourth quarter of 2003 due primarily to lower average box prices in the first quarter, which reflect the impact of fourth quarter 2003 index price declines, and higher raw material costs. The company announced a price increase of $40 per ton on containerboard effective March 1, 2004, and an additional $10 per ton increase, effective April 1, 2004. The Company has also announced box price increases to reflect higher containerboard prices. However, because of various customer contract provisions, impacts of the price increase are not expected to be realized until the second quarter. Volumes are expected to improve seasonally and year-over-year during the first quarter of 2004, and increases in operating rates are expected to result in lower manufacturing costs during the first quarter of 2004. In addition, the company will continue to focus on inventory management to match supply with demand and will assess rationalization, as necessary.

Real Estate and Related Assets

First quarter earnings for Real Estate and Related Assets are expected to be comparable to fourth quarter of 2003, as markets are expected to remain strong. Real Estate and Related Assets has a backlog of approximately six months of homes sold, but not closed.

Forward-Looking Statements

Some information included in this report contains statements concerning the company’s future results and performance that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Some of these forward-looking statements can be identified by the use of forward-looking terminology such as “believes,” “will,” “expects,” “may,” “should,” “approximately,” “anticipates,” “indicates,” “plans,” and “estimates,” and the negative or other variations of those terms with comparable terminology or by discussions of strategy, plans or intentions. In particular, some of these forward-looking statements deal with the impact of forest management programs and sustainable forest management systems, the anticipated impact of the Canadian federal species at risk act (SARA), the expected impact of the resolution of Canadian aboriginal land claims, projected capital expenditures for environmental compliance and other capital expenditures, projected environmental remediation expenses, expected contributions to first quarter 2004 earnings by, or the narrowing of first quarter 2004 losses for, some of the company’s business segments, expectations regarding first quarter 2004 operating results and market conditions, including expectations regarding sales, volumes, prices and demand for some of the company’s products and raw materials, expectations regarding operating rates, manufacturing costs and backlog and the anticipated reduction in downtime in the Pulp and Paper segment, projected debt reduction and return to historical debt ratios, expected rate of return on pension plan assets, projected effects of reduction in returns and assumed discount rates on pension expense, expected contributions to pension plans, intent regarding dividend payments, expectations regarding the outcome of pending litigation, expectations regarding the adequacy of litigation reserves, expectations regarding the adequacy of the company’s capital resources and liquidity to post any appeal bonds or to pay any damage awards required in connection with pending or future litigation, and similar matters. The accuracy of such statements is subject to a number of risks, uncertainties and assumptions that may cause actual results to differ materially from those projected, including, but not limited to:

  The effect of general economic conditions, including the level of interest rates and housing starts;
 
  Market demand for the company’s products, which may be tied to the relative strength of various business segments;
 
  Energy prices and raw material costs;
 
  Performance of the company’s manufacturing operations;
 
  Successful execution of internal performance plans;

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations continued
 
  The level of competition from domestic and foreign producers;
 
  The effect of forestry, land use, environmental and other governmental regulations;
 
  Risk of loss from fires, floods and other natural disasters;
 
  The outcome of legal proceedings, including requirements that the company record charges, establish reserves or pay damages; and
 
  Performance of pension fund investments.

The company is also a large exporter and is affected by changes in economic activity in Europe and Asia, particularly Japan, and by changes in currency exchange rates, particularly the relative value of the U.S. dollar to the Euro and the Canadian dollar, and restrictions on international trade or tariffs imposed on imports, including the countervailing and anti-dumping duties imposed on the company’s softwood lumber shipments from Canada to the United States. These and other factors could cause or contribute to actual results differing materially from such forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will occur, or if any of them occurs, what effect they will have on the company’s results of operations or financial condition. The company expressly declines any obligation to publicly revise any forward-looking statements that have been made to reflect the occurrence of events after the date of this report.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Information with respect to market risk of financial instruments included on pages 38-39 of the company’s 2003 Annual Report to Shareholders is incorporated herein by reference.

Item 8. Financial Statements and Supplementary Information

Financial statements and supplementary information, included in the company’s 2003 Annual Report to Shareholders, are incorporated herein by reference.

         
    Page(s) in
    Annual Report
    to Shareholders
   
Independent Auditors’ Report
    42  
Consolidated Statement of Earnings
    43  
Consolidated Balance Sheet
    44-45  
Consolidated Statement of Cash Flows
    46-47  
Consolidated Statement of Shareholders’ Interest
    48  
Notes to Financial Statements
    49-81  
Selected Quarterly Financial Information (Unaudited)
    79  

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

Information with respect to changes in accountants included under the heading “Relationships with Independent Public Accountants” in the company’s Notice of Annual Meeting of Shareholders and Proxy Statement for the company’s 2004 Annual Meeting of Shareholders to be held April 13, 2004, is incorporated herein by reference.

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PART II


Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The company’s principal executive officer and principal financial officer have evaluated the effectiveness of the company’s disclosure controls and procedures as of the end of the period covered by this annual report on Form 10-K. Disclosure controls are controls and other procedures that are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s (SEC) rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that it files or submits under the Exchange Act is accumulated and communicated to management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Based on their evaluation, the company’s principal executive officer and principal financial officer believe the controls and procedures in place are effective to ensure that information required to be disclosed complies with the SEC’s rules and forms.

Changes in Internal Controls

There were no changes in the company’s internal control over financial reporting that occurred during the company’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting.

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PART III


Item 10. Directors and Executive Officers of the Registrant

Information with respect to Directors of the company included under the headings “Nominees for Election – Terms Expire in 2007,” “Continuing Directors - - Terms to Expire in 2005” and “Continuing Directors – Terms to Expire in 2006” in the Notice of Annual Meeting of Shareholders and Proxy Statement for the company’s 2004 Annual Meeting of Shareholders to be held April 13, 2004, is incorporated herein by reference. Information with regard to executive officers of the company contained in the Notice of Annual Meeting of Shareholders and Proxy Statement for the company’s 2004 Annual Meeting of Shareholders to be held April 13, 2004, under headings “Section 16(a) Beneficial Ownership Reporting Compliance,” “Certain Relationships and Related Party Transactions” and “Change in Control and Severance Agreements” is incorporated herein by reference.

The executive officers of the company are as follows:

             
Name   Title   Age

 
 
Marvin D. Cooper   Senior Vice President     60  
William R. Corbin   Executive Vice President     62  
Richard E. Hanson   Executive Vice President     60  
Mack L. Hogans   Senior Vice President     55  
James R. Keller   Senior Vice President     53  
Sandy D. McDade   Senior Vice President     52  
Susan M. Mersereau   Senior Vice President     57  
Michael R. Onustock   Senior Vice President     64  
Edward P. Rogel   Senior Vice President     57  
Steven R. Rogel   President     61  
Richard J. Taggart   Executive Vice President     61  
Jack P. Taylor   Senior Vice President     61  
George H. Weyerhaeuser, Jr.   Senior Vice President     50  

Marvin D. Cooper has been senior vice president, Pulp, Paper and Containerboard Manufacturing and Engineering, since February 2002. Prior to joining the company, he was executive vice president, Pulp and Paper Mills, for Willamette Industries, Inc. from 1998 until Willamette was acquired by the company. He was senior vice president, Pulp and Paper Mills for Willamette from 1997 to 1998. Prior to 1997, he held a number of management positions at Willamette in its pulp and fine paper businesses. He joined Willamette in 1980.

William R. Corbin has been executive vice president, Wood Products, since 1999. From 1995 to 1999, he was executive vice president, Timberlands and Distribution, and from 1992, when he joined the company, to 1995 he was executive vice president, Wood Products.

Richard E. Hanson has been executive vice president and Chief Operating Officer since February 2003. He was executive vice president, Timberlands from 2002 to 2003 and was senior vice president, Timberlands, from 1999 to 2002. He was vice president, Western Timberlands, from 1996 to 1998. He joined Weyerhaeuser in 1970 and has held numerous management positions in timberlands, wood products and paper businesses.

Mack L. Hogans has been senior vice president, Corporate Affairs, since 1995 and was vice president of Government Affairs from 1990 to 1995. He was the director of Government Affairs and public policy issues management from 1986 to 1990. He joined Weyerhaeuser in 1979 and has been a forester, branch manager for the Building Materials business and a government affairs manager.

James R. Keller has been senior vice president, Containerboard, Packaging and Recycling, since February 2002. From 1997 to 2002, he was vice president and general manager, Containerboard, Packaging and Recycling. He joined Weyerhaeuser in 1974 and has held numerous management positions in containerboard, newsprint and liquid packaging board, shipping containers and timberlands.

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Item 10. Directors and Executive Officers of the Registrant continued

Sandy D. McDade has been senior vice president, Canada, since March 2003. He was vice president, Strategic Planning from 2000 to 2003 and corporate secretary from 1993 to 2000. He joined Weyerhaeuser in 1980 and worked as a corporate and transaction lawyer until 2000.

Susan M. Mersereau has been senior vice president, Information Technology and Chief Information Officer since February 2003. She was vice president, Organizational Effectiveness for Containerboard, Packaging and Recycling from 1998 to 2003, vice president, Business Services and Aviation from 1992 to 1998, and vice president, Weyerhaeuser Information Systems from 1988 to 1992. She joined Weyerhaeuser in 1980 as a program manager and has held various information system management positions.

Michael R. Onustock has been senior vice president, Pulp and Paper, since February 2002. Prior to joining the company, he was executive vice president, Pulp and Fine Paper Marketing for Willamette Industries, Inc. from 1989 until Willamette was acquired by the company. He was vice president, Paper Group, for Willamette from 1980 to 1988. Prior to 1980, he held a number of management positions at Willamette in its pulp, paper and board businesses. He joined Willamette in 1973 following 11 years as containerboard sales manager with Boise Cascade.

Edward P. Rogel has been senior vice president, Human Resources since July 2003. He was vice president, Human Resources Operations from 2000 to 2003. He joined Weyerhaeuser in 1969 and has held numerous human resources positions with Weyerhaeuser in timberlands, wood products and pulp businesses, in addition to holding corporate-wide responsibilities.

Steven R. Rogel’s biography may be found on page 2 of the Notice of 2004 Annual Meeting of Shareholders and Proxy Statement for the company’s 2004 Annual Meeting of Shareholders to be held April 13, 2004, which is incorporated herein by reference.

Richard J. Taggart has been executive vice president and Chief Financial Officer since April 2003. He started his career with Weyerhaeuser in 1974 as a project manager in Wood Products. After leaving Weyerhaeuser in 1985, he became the head of finance for the U.S. subsidiary of CANFOR, a Canadian forest products company. Since rejoining Weyerhaeuser in 1990, he has served as finance and planning director for Engineered Fiber Products; vice president, Investor Relations; vice president and treasurer; and vice president, Finance.

Jack P. Taylor has been senior vice president, Timberlands since February 2003. He was vice president, Western Timberlands from 1999 to 2003. He joined Weyerhaeuser in 1969 and has worked in a variety of forestry, timberlands operations and raw materials management positions.

George H. Weyerhaeuser, Jr. has been senior vice president, Technology, since 1998 and was president and chief executive officer of Weyerhaeuser Canada Ltd., a subsidiary of the company, from 1993 to 1998. From 1990 to 1993, he was vice president, Manufacturing, Pulp, Paper and Packaging. He joined Weyerhaeuser in 1978 and has held various positions, including sawmill supervisor, vice president and mill manager for Containerboard, Pulp, Paper and Packaging.

Audit Committee Financial Expert

The Audit Committee of the Board of Directors consists of William D. Ruckelshaus, Robert J. Herbold, Martha R. Ingram and Donald F. Mazankowski. Each member is independent as defined under the New York Stock Exchange rules. The Board of Directors has determined that each Audit Committee member has sufficient knowledge in financial and accounting matters to serve on the Committee and that William D. Ruckelshaus is an “audit committee financial expert” as defined by SEC rules.

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PART III


Item 11. Executive Compensation

Information with respect to executive compensation contained in the Notice of Annual Meeting of Shareholders and Proxy Statement for the company’s 2004 Annual Meeting of Shareholders to be held April 13, 2004, under the headings “Directors’ Compensation,” “Compensation Committee Report on Executive Management Compensation,” “Compensation Committee Interlocks and Insider Participation” is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

Information with respect to security ownership of certain beneficial owners and management contained in the Notice of Annual Meeting of Shareholders and Proxy Statement for the company’s 2004 Annual Meeting of Shareholders to be held April 13, 2004, under the heading “Beneficial Ownership of Common Shares” is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions

Information with regard to certain relationships and related transactions contained in the Notice of Annual Meeting of Shareholders and Proxy Statement for the company’s 2004 Annual Meeting of Shareholders to be held April 13, 2004, under the headings “Certain Relationships and Related Party Transactions” is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

Information with respect to principal accountant fees and services in the Notice of Annual Meeting of Shareholders and Proxy Statement for the company’s 2004 Annual Meeting of Shareholders to be held April 13, 2004, under the heading “Relationships with Independent Public Accountants” is incorporated herein by reference.

Code of Ethics

The company has adopted a code of ethics that applies to all employees, including the principal executive officer, principal financial officer and principal accounting officer. The code of ethics has been filed as Exhibit 14 of this Form 10-K and is available on the company’s website at www.weyerhaeuser.com. A copy of the code of ethics is available upon request.

Corporate Governance Guidelines

The company has adopted corporate governance guidelines. The company’s corporate governance guidelines are available on the company’s website at www.weyerhaeuser.com. A copy of the corporate governance guidelines is available upon request.

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PART IV


Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

Financial Statements

The consolidated financial statements of the company, together with the report of independent auditors, included in the company’s 2003 Annual Report to Shareholders, are incorporated in Part II, Item 8 of this Form 10-K by reference.

         
    Page Number(s)
Financial Statement Schedules   in Form 10-K

 
Independent Auditors’ Reports on Financial Statement Schedules
    26  
Schedule II - Valuation and Qualifying Accounts
    28  

All other financial statement schedules have been omitted because they are not applicable or the required information is included in the consolidated financial statements, or the notes thereto, in the company’s 2003 Annual Report to Shareholders and incorporated herein by reference.

             
Exhibits        
  3 - -   (i)   Articles of Incorporation (incorporated by reference to 1999 Form 10-K filed with the Securities and Exchange Commission on March 10, 2000 — Commission File Number 1-4825)
             
        (ii)   Bylaws (incorporated by reference to 2000 Form 10-K filed with the Securities and Exchange Commission on March 16, 2001 — Commission File Number 1-4825)
             
  10 - -     Material Contracts
             
        (a)   Agreement with W. R. Corbin (incorporated by reference to 1998 Form 10-K filed with the Securities and Exchange Commission on March 12, 1999 — Commission File Number 1-4825)
             
        (b)   Agreement with S. R. Rogel (incorporated by reference to 1997 Form 10-K filed with the Securities and Exchange Commission on March 13, 1998 — Commission File Number 1-4825)
             
        (c)   Arrangement with Michael R. Onustock (incorporated by reference to 2002 Form 10-K filed with the Securities and Exchange Commission on March 5, 2003 — Commission File Number 1-4825)
             
        (d)   Arrangement with Marvin D. Cooper (incorporated by reference to 2002 Form 10-K filed with the Securities and Exchange Commission on March 5, 2003 — Commission File Number 1-4825)
             
        (e)   Form of Amended Executive Severance Agreement (incorporated by reference to 2002 Form 10-K filed with the Securities and Exchange Commission on March 5, 2003 - Commission File Number 1-4825)
             
        (f)   Description of the Weyerhaeuser Company Option Exercise/Share Purchase Program (incorporated by reference to 2001 Form 10-K filed with the Securities and Exchange Commission on February 28, 2002 — Commission File Number 1-4825)
             
        (g)   Second Amended and Restated 364-Day Revolving Credit Facility Agreement, dated as of March 25, 2003, among Weyerhaeuser Company, Weyerhaeuser Real Estate Company, the Lenders named therein, JPMorgan Chase Bank, as administrative agent, Morgan Stanley Senior Funding, Inc., as syndication agent, and The Bank of Tokyo-Mitsubishi, Ltd. and Deutsche Bank Securities Inc., as co-documentation agents.
             
        (h)   Amended and Restated Competitive Advance and Revolving Credit Facility Agreement, dated as of March 26, 2002, among Weyerhaeuser Company, the Lenders named therein, JPMorgan Chase Bank, as administrative agent, Morgan Stanley Senior Funding, Inc., as syndication agent, and The Bank of Tokyo-Mitsubishi, Ltd. and Deutsche Banc Alex. Brown Inc., as co-documentation agents, as amended by the First Amendment to Amended and Restated Competitive Advance and Revolving Credit Facility Agreement, dated as of October 23, 2003.
 
        (i)   Weyerhaeuser Company Long-Term Incentive Compensation Plan approved by shareholders on April 16, 1992, as amended through February 12, 1998.
 
        (j)   Amended and Restated Weyerhaeuser Company 1998 Long-Term Incentive Compensation Plan approved by shareholders on April 16, 2002, as amended June 5, 2002, October 8, 2002, and October 8, 2003.

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Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K – continued

         
11   - -   Statement Re: Computation of Per Share Earnings (incorporated by reference to Note 2 of Notes to Financial Statements in the company’s 2003 Annual Report to Shareholders)
         
12   - -   Statements regarding computation of ratios
         
13   - -   Portions of the company’s 2003 Annual Report to Shareholders specifically incorporated by reference herein
         
14   - -   Code of Business Conduct and Ethics
         
21   - -   Subsidiaries of the Registrant
         
23   - -   Independent Auditors’ Consent
         
31   - -   Certification pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended
         
32   - -   Certification pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350)
         
99   - -   2001 Report of Independent Public Accountants

Reports on Form 8-K

The registrant furnished reports on Form 8-K dated October 24, 2003 and January 23, 2004, reporting information under Item 12, Results of Operations and Financial Condition.

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SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 5, 2004.

   
  Weyerhaeuser Company
   
  /s/ Steven R. Rogel
Steven R. Rogel
  Chairman, President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities indicated on March 5, 2004.

     
/s/ Steven R. Rogel   /s/ Arnold G. Langbo

 
Steven R. Rogel   Arnold G. Langbo
Principal Executive Officer,   Director
Director and Chairman of the Board    
     
/s/ Richard J. Taggart   /s/ Donald F. Mazankowski

 
Richard J. Taggart   Donald F. Mazankowski
Principal Financial Officer   Director
     
/s/ Steven J. Hillyard   /s/ N. W. Piasecki

 
Steven J. Hillyard   Nicole W. Piasecki
Principal Accounting Officer   Director
     
/s/ R. F. Haskayne   /s/ William Ruckelshaus

 
Richard F. Haskayne   William D. Ruckelshaus
Director   Director
     
/s/ Robert J. Herbold   /s/ Richard H. Sinkfield

 
Robert J. Herbold   Richard H. Sinkfield
Director   Director
     
/s/ Martha R. Ingram   /s/ James N. Sullivan

 
Martha R. Ingram   James N. Sullivan
Director   Director
     
/s/ John I. Kieckhefer   /s/ Clayton Yeutter

 
John I. Kieckhefer   Clayton K. Yeutter
Director   Director

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FINANCIAL STATEMENT SCHEDULES


Independent Auditors’ Report

The Board of Directors and Shareholders of Weyerhaeuser Company:

Under date of February 11, 2004, we reported on the consolidated balance sheets of Weyerhaeuser Company and subsidiaries as of December 28, 2003, and December 29, 2002, and the related consolidated statements of earnings, cash flows and shareholders’ interest for each of the years in the two-year period then ended, which report is incorporated by reference in this annual report on Form 10-K. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related financial statement schedule in this Form 10-K for the years ended December 28, 2003, and December 29, 2002. This financial statement schedule is the responsibility of the company’s management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.

In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth herein.

The consolidated financial statements of Weyerhaeuser Company and subsidiaries as of December 30, 2001, and for the year then ended, were audited by other auditors who have ceased operations. As described in Note 4 to the consolidated financial statements, those financial statements have been revised to include the transitional disclosures required by Statement of Financial Accounting Standards No. 142, Goodwill and other Intangible Assets, which was adopted by the company as of December 31, 2001. Further, as described in Note 22 to the consolidated financial statements, the company changed the composition of its reportable segments in 2003 and 2002, and the amounts in the 2001 financial statements relating to reportable segments have been restated to conform to the 2003 composition of reportable segments. We audited the 2001 adjustments to Note 4 and the adjustments that were applied to restate the disclosures for reportable segments reflected in the 2001 financial statements. In our opinion, the 2001 disclosure in Note 22 is appropriate and the 2001 adjustments to Note 4 are appropriate and have been properly applied. However, we were not engaged to audit, review or apply any procedures to the 2001 financial statements of the company other than with respect to such disclosures and adjustments, and accordingly, we do not express an opinion or any form of assurance on the 2001 financial statements taken as a whole.

As discussed in Note 1 to the consolidated financial statements, Weyerhaeuser Company and subsidiaries adopted the provisions of Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations, in 2003.

     
    /s/ KPMG LLP
     
Seattle, Washington    
February 11, 2004    

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FINANCIAL STATEMENT SCHEDULES


This report is a copy of the audit report previously issued by Arthur Andersen LLP in connection with Weyerhaeuser Company’s filing on Form 10-K for the year ended December 30, 2001. This report has not been reissued by Arthur Andersen LLP in connection with this filing, and the page reference within this report has not been revised. Schedule II – Valuation and Qualifying Accounts is located on page 28 of this filing.

Report of Independent Public Accountants on Financial Statement Schedules

To Weyerhaeuser Company:

We have audited in accordance with auditing standards generally accepted in the United States, the financial statements included in Weyerhaeuser Company’s annual report to shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 11, 2002. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule shown on page 19 is the responsibility of the company’s management and is presented for purposes of complying with the Securities and Exchange Commission’s rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.

     
    ARTHUR ANDERSEN LLP
     
Seattle, Washington    
February 11, 2002    

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FINANCIAL STATEMENT SCHEDULES


Schedule II – Valuation and Qualifying Accounts

For the three years ended December 28, 2003
Dollar amounts in millions

                                     
                        Deductions        
        Balance at           From/   Balance at
        Beginning   Charged   (Additions to)   End of
Description   of Period   to Income   Reserve   Period

 
 
 
 
Weyerhaeuser
                               
Reserve deducted from related asset accounts:
                               
 
Doubtful accounts – Accounts receivable
                               
   
2003
  $ 13     $ 14     $ 11     $ 16  
   
 
   
     
     
     
 
   
2002
  $ 8     $ 15     $ 10     $ 13  
   
 
   
     
     
     
 
   
2001
  $ 5     $ 16     $ 13     $ 8  
   
 
   
     
     
     
 
Real Estate and Related Assets
                               
Reserves and allowances deducted from related asset accounts:
                               
 
Receivables
                               
   
2003
  $ 6     $ 3     $ 3     $ 6  
   
 
   
     
     
     
 
   
2002
  $ 5     $ 1     $     $ 6  
   
 
   
     
     
     
 
   
2001
  $ 5     $ 1     $ 1 (1)   $ 5  
   
 
   
     
     
     
 
 
Mortgage-related financial instruments
                               
   
2003
  $ 1     $     $ 1     $  
   
 
   
     
     
     
 
   
2002
  $ 2     $ 1     $ 2     $ 1  
   
 
   
     
     
     
 
   
2001
  $ 3     $     $ 1 (2)   $ 2  
   
 
   
     
     
     
 
 
Investments in unconsolidated entities held as assets
                               
   
2003
  $ 3     $ 1     $ 1     $ 3  
   
 
   
     
     
     
 
   
2002
  $ 2     $ 1     $     $ 3  
   
 
   
     
     
     
 
   
2001
  $ 1     $     $ (1 )(3)   $ 2  
   
 
   
     
     
     
 


(1)   Includes allowances transferred to partnership investments.
 
(2)   Includes allowances transferred to accrued liabilities.
 
(3)   Includes allowances transferred from receivables.

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Exhibits:        
  3 - -   (iii)   Articles of Incorporation (incorporated by reference to 1999 Form 10-K filed with the Securities and Exchange Commission on March 10, 2000 — Commission File Number 1-4825)
             
        (iv)   Bylaws (incorporated by reference to 2000 Form 10-K filed with the Securities and Exchange Commission on March 16, 2001 — Commission File Number 1-4825)
             
  10 - -   Material Contracts
             
        (a)   Agreement with W. R. Corbin (incorporated by reference to 1998 Form 10-K filed with the Securities and Exchange Commission on March 12, 1999 — Commission File Number 1-4825)
             
        (b)   Agreement with S. R. Rogel (incorporated by reference to 1997 Form 10-K filed with the Securities and Exchange Commission on March 13, 1998 — Commission File Number 1-4825)
             
        (c)   Arrangement with Michael R. Onustock (incorporated by reference to 2002 Form 10-K filed with the Securities and Exchange Commission on March 5, 2003 – Commission File Number 1-4825)
             
        (d)   Arrangement with Marvin D. Cooper (incorporated by reference to 2002 Form 10-K filed with the Securities and Exchange Commission on March 5, 2003 – Commission File Number 1-4825)
             
        (e)   Form of Amended Executive Severance Agreement (incorporated by reference to 2002 Form 10-K filed with the Securities and Exchange Commission on March 5, 2003 – Commission File Number 1-4825)
             
        (f)   Description of the Weyerhaeuser Company Option Exercise/Share Purchase Program (incorporated by reference to 2001 Form 10-K filed with the Securities and Exchange Commission on February 28, 2002 — Commission File Number 1-4825)
             
        (g)   Second Amended and Restated 364-Day Revolving Credit Facility Agreement, dated as of March 25, 2003, among Weyerhaeuser Company, Weyerhaeuser Real Estate Company, the Lenders named therein, JPMorgan Chase Bank, as administrative agent, Morgan Stanley Senior Funding, Inc., as syndication agent, and The Bank of Tokyo-Mitsubishi, Ltd. and Deutsche Bank Securities, Inc., as co-documentation agents
             
        (h)   Amended and Restated Competitive Advance and Revolving Credit Facility Agreement, dated as of March 26, 2002, among Weyerhaeuser Company, the Lenders named therein, JPMorgan Chase Bank, as administrative agent, Morgan Stanley Senior Funding, Inc., as syndication agent, and The Bank of Tokyo-Mitsubishi, Ltd. and Deutsche Banc Alex. Brown Inc., as co-documentation agents, as amended by the First Amendment to Amended and Restated Competitive Advance and Revolving Credit Facility Agreement, dated as of October 23, 2003.
 
        (i)   Weyerhaeuser Company Long-Term Incentive Compensation Plan approved by shareholders on April 16, 1992, as amended through February 12, 1998.
 
        (j)   Amended and Restated Weyerhaeuser Company 1998 Long-Term Incentive Compensation Plan approved by shareholders on April 16, 2002, as amended June 5, 2002, October 8, 2002, and October 8, 2003.
         
11   - -   Statement Re: Computation of Per Share Earnings (incorporated by reference to Note 2 of Notes to Financial Statements in the company’s 2003 Annual Report to Shareholders)
         
12   - -   Statements regarding computation of ratios
         
13   - -   Portions of the company’s 2003 Annual Report to Shareholders specifically incorporated by reference herein
         
14   - -   Code of Business Conduct and Ethics
         
21   - -   Subsidiaries of the Registrant

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Exhibits - continued

         
23   - -   Independent Auditors’ Consent
         
31   - -   Certification pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended
         
32   - -   Certification pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350)
         
99   - -   2001 Report of Independent Public Accountants

30 EX-10.(G) 3 v96705exv10wxgy.htm EXHIBIT 10.(G) exv10wxgy

 

Exhibit 10(g)

EXECUTION COPY

$1,200,000,000

SECOND AMENDED AND RESTATED 364-DAY
REVOLVING CREDIT FACILITY AGREEMENT

Dated as of March 25, 2003

among

WEYERHAEUSER COMPANY, and

WEYERHAEUSER REAL ESTATE COMPANY, as Borrowers

THE LENDERS NAMED HEREIN,

JPMORGAN CHASE BANK, as Administrative Agent,

MORGAN STANLEY SENIOR FUNDING, INC., as Syndication Agent,

and

THE BANK OF TOKYO-MITSUBISHI, LTD., and

DEUTSCHE BANK SECURITIES INC.,

as Co-Documentation Agents

J.P. MORGAN SECURITIES INC. and MORGAN STANLEY SENIOR FUNDING, INC.,

as Lead Arrangers and Joint Book Runners

 


 

          SECOND AMENDED AND RESTATED 364-DAY REVOLVING CREDIT FACILITY AGREEMENT dated as of March 25, 2003 among WEYERHAEUSER COMPANY, a Washington corporation (“Weyerhaeuser”), WEYERHAEUSER REAL ESTATE COMPANY, a Washington corporation (“WRECO,” together with Weyerhaeuser, the “Borrowers” and each, individually, a “Borrower”), the lenders listed in Schedule 2.01 (together with each assignee that becomes a party hereto pursuant to Section 9.04, a “Lender,” and collectively, the “Lenders”), JPMORGAN CHASE BANK, a New York banking corporation, as administrative agent for the Lenders (in such capacity, and its successors in such capacity, the “Administrative Agent”), MORGAN STANLEY SENIOR FUNDING, INC., as syndication agent (in such capacity, the “Syndication Agent”), and THE BANK OF TOKYO-MITSUBISHI, LTD. and DEUTSCHE BANK SECURITIES INC., as co-documentation agents (each, individually, a “Co-Documentation Agent,” and collectively, the “Co-Documentation Agents”).

W I T N E S S E T H:

          WHEREAS, the Borrowers have entered into that certain Amended and Restated 364-Day Revolving Credit Facility Agreement, dated as of March 26, 2002 (the “Existing 364-Day Revolving Credit Agreement”) with JPMorgan Chase Bank, as administrative agent, Morgan Stanley Senior Funding, Inc., as syndication agent, The Bank of Tokyo-Mitsubishi, Ltd. and Deutsche Bank Securities Inc. as co-documentation agents, and the lenders party thereto from time to time.

          WHEREAS, the Borrowers have requested that the Lenders amend and restate the Existing 364-Day Revolving Credit Agreement (a) to refinance the Existing 364-Day Revolving Credit Agreement, (b) to pay costs and expenses related to such re-financing and (c) to provide the Borrowers and their Subsidiaries with financing for general corporate purposes.

          WHEREAS, the Lenders have indicated their willingness to amend and restate the Existing 364-Day Revolving Credit Agreement on the terms and conditions of this Agreement.

          WHEREAS, Weyerhaeuser Real Estate Company, a Washington corporation and a wholly owned subsidiary of Weyerhaeuser, will derive a substantial benefit from the credit extended to Weyerhaeuser.

          NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the parties hereto hereby agree to amend and restate the Existing 364-Day Revolving Credit Agreement as follows:

ARTICLE I

DEFINITIONS

          Section 1.01 Defined Terms. As used in this Agreement, the following terms shall have the meanings specified below:

          “Adjusted Net Worth” shall mean, as of the date of any computation thereof, the aggregate amount of capital stock (less treasury stock), surplus and retained earnings of WRECO

 


 

and its Restricted Subsidiaries, after deducting (i) goodwill, patents, trade names, trademarks, unamortized debt discount and expense, deferred assets (other than prepaid taxes and insurance), experimental or organizational expense, any reappraisal, revaluation or write-up assets, and such other assets as are properly classified as “intangible assets” of WRECO and its Restricted Subsidiaries in accordance with GAAP, (ii) all minority interests in the capital stock and surplus of the Restricted Subsidiaries of WRECO, (iii) all Investments in Unrestricted Subsidiaries of WRECO, and (iv) all Investments of WRECO and its Restricted Subsidiaries in any joint venture, partnership or similar entity (not including any Investments in any Restricted Subsidiary of WRECO) entered into for the purpose of acquiring, developing, constructing, owning, operating, selling or leasing any Real Estate Assets.

          “Administrative Agent Fees” shall have the meaning given such term in Section 2.04(b).

          “Administrative Questionnaire” shall mean an Administrative Questionnaire in the form of Exhibit B hereto.

          “Affiliate” shall mean, when used with respect to a specified person, another person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the person specified.

          “Aggregate Credit Exposure” shall mean the aggregate amounts of the Lenders’ Credit Exposures.

          “Agreement” shall mean this Second Amended and Restated 364-Day Revolving Credit Facility Agreement, together with all amendments, supplements and modifications hereof.

          “Applicable Margin” shall have the meaning given such term in Section 2.06(d).

          “Applicable Percentage” of any Lender at any time shall mean the percentage of the Total Commitment represented by such Lender’s Commitment. In the event the Commitments shall have expired or been terminated, the Applicable Percentage shall be determined on the basis of the Commitments most recently in effect, but giving effect to assignments pursuant to Section 9.04.

          “Assignment and Acceptance” shall mean an assignment and acceptance entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.04), and accepted by the Administrative Agent, which acceptance shall be governed by the terms of Section 9.04, substantially in the form of Exhibit C.

          “Base Rate” shall mean, for any day, a rate per annum equal to the higher of (i) the Prime Rate and (ii) 1/2 of 1% plus the Federal Funds Rate, each as in effect from time to time. If for any reason the Administrative Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Federal Funds Rate, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms thereof, the Base Rate shall be determined without regard to clause (ii) of the first sentence of this definition, until the circumstances giving rise to such inability no longer exist. Any change in the Base Rate due to a change in the Prime Rate or the Federal

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Funds Rate shall be effective on the effective date of such change in the Prime Rate or the Federal Funds Rate, respectively.

          “Base Rate Borrowing” shall mean a Borrowing comprised of Base Rate Loans.

          “Base Rate Loan” shall mean any Loan bearing interest at a rate determined by reference to the Base Rate in accordance with the provisions of Article II.

          “Board” shall mean the Board of Governors of the Federal Reserve System of the United States.

          “Borrower” and “Borrowers” shall have the respective meanings given such terms in the introductory paragraph hereto.

          “Borrowing” shall mean a group of Loans of a single Type made by the Lenders on a single date and as to which a single Interest Period is in effect.

          “Business Day” shall mean any day (other than a day which is a Saturday, Sunday or legal holiday in the State of New York) on which banks are open for business in New York City; provided, however, that, when used in connection with a Eurodollar Loan, the term “Business Day” shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market.

          “Capital Base” shall mean, as of the date of any computation thereof, the sum of (i) Adjusted Net Worth plus (ii) the amount of WRECO/Weyerhaeuser Subordinated Debt then outstanding not to exceed Adjusted Net Worth.

          “Capital Lease Obligations” of any person shall mean the obligations of such person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such person under GAAP and, for purposes of this Agreement, the amount of such obligations at any time shall be the capitalized amount thereof at such time determined in accordance with GAAP.

          A “Change in Control” shall be deemed to have occurred with respect to (a) Weyerhaeuser if, (i) any person or group (within the meaning of Rule 13d-5 of the SEC as in effect on the date hereof) shall own directly or indirectly, beneficially or of record, shares representing more than 20% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of Weyerhaeuser; (ii) a majority of the seats (other than vacant seats) on the board of directors of Weyerhaeuser shall at any time have been occupied by persons who were neither (A) nominated by the management of Weyerhaeuser in accordance with its charter and by-laws, nor (B) appointed by directors so nominated; or (iii) any person or group shall otherwise directly or indirectly Control Weyerhaeuser, and (b) WRECO if Weyerhaeuser shall fail to own directly or indirectly, beneficially or of record, shares representing at least 79% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of WRECO.

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          “Closing Date” shall mean the first date on which the conditions precedent set forth in Section 4.02 shall have been satisfied.

          “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder. Section references to the Code are to the Code, as in effect at the date of this Agreement and any subsequent provisions of the Code, amendatory thereof, supplemental thereto or substituted therefor.

          “Commitment” shall mean, with respect to each Lender, the commitment of such Lender hereunder as set forth in Schedule 2.01 or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Commitment, as applicable, as such Lender’s Commitment may be permanently reduced, increased or terminated from time to time pursuant to Section 2.09, Section 2.18, Article VII or Section 9.04. Each Lender’s unused Commitment shall automatically and permanently terminate on the Revolver Termination Date, and, if the Term Loan Conversion is elected, each Lender’s remaining Commitment shall automatically and permanently terminate on the Termination Date.

          “Control” shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person, whether through the ownership of voting securities or by contract, and “Controlling” and “Controlled” shall have meanings correlative thereto.

          “Credit Exposure” shall mean, with respect to each Lender, at any time, the aggregate principal amount at such time of all outstanding Loans of such Lender to the Borrowers.

          “Default” shall mean any event or condition which upon notice, lapse of time or both would constitute an Event of Default.

          “Dollars,” “dollars” or “$” shall mean lawful money of the United States of America.

          “Domestic Subsidiary” shall mean any subsidiary organized under the laws of any State of the United States of America, substantially all the assets of which are located, and substantially all the business of which is conducted, in the United States of America.

          “Environmental Claims” shall mean any and all administrative, regulatory, or judicial actions, suits, demand letters, claims, liens, notices of noncompliance or violation, investigations, or proceedings relating in any way to any Environmental Law (hereinafter referred to as “claims”) or any permit issued under any such Environmental Law, including without limitation (a) any and all claims by Governmental Authorities for enforcement, cleanup, removal, response, remedial, or other actions or damages pursuant to any applicable Environmental Law, and (b) any and all claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation, or injunctive relief resulting from Hazardous Materials or arising from alleged injury or threat of injury to health, safety, or the environment.

          “Environmental Laws” shall mean any and all Federal, state, local and foreign statutes, laws, regulations, ordinances, codes, rules (including rules of common law), judgments,

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orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions now or hereafter in effect relating to the environment, health, safety, Hazardous Materials (including, without limitation, the manufacture, processing, distribution, use, treatment, storage, Release, and transportation thereof) or to industrial hygiene or the environmental conditions on, under or about real property, including, without limitation, soil, groundwater, and indoor and outdoor ambient air conditions.

          “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. Section references to ERISA are to ERISA, as in effect at the date of this Agreement and any subsequent provisions of ERISA, amendatory thereof, supplemental thereto or substituted therefor.

          “ERISA Affiliate” shall mean any trade or business (whether or not incorporated) that, together with Weyerhaeuser or WRECO, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414(b), (c), (m) or (o) of the Code.

          “Eurodollar Borrowing” shall mean a Borrowing comprised of Eurodollar Loans.

          “Eurodollar Loan” shall mean any Loan bearing interest at a rate determined by reference to the Eurodollar Rate in accordance with the provisions of Article II.

          “Eurodollar Rate” shall mean, with respect to any Eurodollar Borrowing for any Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Administrative Agent from time to time for the purpose of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the “Eurodollar Rate” with respect to such Eurodollar Borrowing for such Interest Period shall be the rate at which dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period.

          “Event of Default” shall have the meaning given such term in Article VII.

          “Excluded Sales” shall mean (a) the sale by Weyerhaeuser or any of its Subsidiaries in the ordinary course of its business of inventory and timberlands, (b) sales of accounts, receivables or other payment intangibles as part of a securitization transaction and (c) sales to Weyerhaeuser or any of its subsidiaries.

          “Existing 364-Day Revolving Credit Agreement” shall have the meaning given such term in the preliminary statements hereto.

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          “Facility Fees” shall have the meaning given such term in Section 2.04(a).

          “Federal Funds Rate” shall mean, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for the day of such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it.

          “Fees” shall mean the Facility Fees and the Administrative Agent Fees.

          “Financial Officer” of any corporation shall mean the chief financial officer, principal accounting officer, treasurer or controller of such corporation.

          “Five-Year Revolving Credit Facility Agreement” shall mean the Amended and Restated Competitive Advance and Revolving Credit Facility Agreement dated as of March 26, 2002, entered into by and among Weyerhaeuser, the lenders party thereto from time to time, the Syndication Agent, the Administrative Agent and the Co-Documentation Agents, as such agreement may be amended, restated, supplemented or otherwise modified from time to time.

          “GAAP” shall mean generally accepted accounting principles, applied on a consistent basis.

          “Governmental Authority” shall mean the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

          “Guarantee” of or by any person shall mean any obligation, contingent or otherwise, of such person guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of such person, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Indebtedness, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness of the payment of such Indebtedness, (c) to maintain working capital, equity capital or other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation; provided, however, that the term Guarantee shall not include endorsements for collection or deposit, in either case in the ordinary course of business.

          “Hazardous Materials” shall mean (a) any petroleum or petroleum products, flammable substances, explosives, radioactive materials, hazardous wastes, substances or contaminants, toxic wastes, substances or contaminants, or any other wastes, substances,

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contaminants or pollutants prohibited, limited or regulated by any Governmental Authority; (b) asbestos in any form that is or could become friable, urea formaldehyde foam insulation, transformers or other equipment that contains dielectric fluid containing levels of polychlorinated biphenyls or radon gas; (c) any chemicals, materials or substances defined as or included in the definition of “hazardous substances,” “hazardous wastes,” “hazardous materials,” “extremely hazardous wastes,” “restricted hazardous wastes,” “toxic substances,” “toxic pollutants,” “contaminants,” or “pollutants,” or words of similar import, under any applicable Environmental Law; and (d) any other chemical, material, or substance, exposure to which is prohibited, limited, or regulated by any Governmental Authority.

          “Indebtedness” of any person shall mean, without duplication, (a) all obligations of such person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such person upon which interest charges are customarily paid, (d) all obligations of such person under conditional sale or other title retention agreements relating to property or assets purchased by such person, (e) all obligations of such person issued or assumed as the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such person, whether or not the obligations secured thereby have been assumed, (g) all Guarantees by such person of Indebtedness of others, (h) all Capital Lease Obligations of such person, and (i) all obligations of such person as an account party in respect of letters of credit, letters of guaranty and bankers’ acceptances. The Indebtedness of any person shall include the Indebtedness of any partnership in which such person is a general partner.

          “Interest Period” shall mean, as to any Eurodollar Borrowing, the period commencing on the date of such Borrowing or on the date of conversion of a Borrowing of a different Type to a Eurodollar Borrowing or on the last day of the immediately preceding Interest Period applicable to such Borrowing or conversion thereof, as the case may be, and ending on the numerically corresponding day (or, if there is no numerically corresponding day, on the last day) in the calendar month that is 1, 2, 3 or 6 months thereafter, as the applicable Borrower may elect; provided, however, that if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of Eurodollar Loans, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day; provided further that no Interest Period for any Loan shall extend beyond the Termination Date. Interest shall accrue from and including the first day of an Interest Period to but excluding the last day of such Interest Period.

          “Investments” shall mean all investments in any Person, computed in accordance with GAAP, made by stock purchase, capital contribution, loan, advance, extension of credit, or creation or assumption of any other contingent liability or Guarantee in respect of any obligation of such Person, or otherwise; provided, however, that in computing any investment in any Person (i) all expenditures for such investment shall be taken into account at the actual amounts thereof in the case of expenditures of cash and at the fair value thereof (as determined in good faith by the Board of Directors of WRECO) or depreciated cost thereof (in accordance with GAAP),

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whichever is greater, in the case of expenditures of property, (ii) there shall not be included any Real Estate Assets, or any account or note receivable from such other Person arising from transactions in the ordinary course of business, and (iii) a Guarantee or other contingent liability of any kind in respect of any Indebtedness or other obligation of such Person shall be deemed an Investment equal to the amount of such Indebtedness or obligation.

          “Lead Arrangers” shall mean, collectively, J.P. Morgan Securities Inc., and Morgan Stanley Senior Funding, Inc.

          “Lender” and “Lenders” shall have the respective meanings given such terms in the introductory paragraph hereto.

          “Lender Affiliate” shall mean, (a) with respect to any Lender, (i) an Affiliate of such Lender or (ii) any entity (whether a corporation, partnership, trust or otherwise) that is engaged in making, purchasing, holding or otherwise investing in bank loans and similar extensions of credit in the ordinary course of its business and is administered or managed by a Lender or an Affiliate of such Lender and (b) with respect to any Lender that is a fund which invests in bank loans and similar extensions of credit, any other fund that invests in bank loans and similar extensions of credit and is managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor.

          “Lien” shall mean, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, encumbrance, charge or security interest in or on such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.

          “Loan” shall mean a Revolving Loan made by a Lender to a Borrower pursuant to Section 2.01 and a Term Loan made by a Lender to a Borrower pursuant to Section 2.19. Each Loan shall be a Eurodollar Loan or a Base Rate Loan.

          “Loan Documents” shall mean this Agreement, the OCBM Agreement and any notes issued in accordance with Section 2.05.

          “Mandatory Convertible Debt Securities” with respect to Weyerhaeuser, shall mean all obligations of Weyerhaeuser evidenced by bonds, notes, debentures, or other similar instruments, which by their terms convert mandatorily into equity interests of Weyerhaeuser no later than three years from the date of issuance of such bonds, notes, debentures, or other similar instruments; provided that at no time shall the aggregate outstanding principal amount of such obligations included in the definition of “Mandatory Convertible Debt Securities,” prior to their conversion, exceed $1,500,000,000.

          “Margin Stock” shall have the meaning given such term under Regulation U.

          “Material Adverse Effect” shall mean (a) a materially adverse effect on the business, financial condition, operations or properties of Weyerhaeuser and its Subsidiaries, taken as a whole, (b) a materially adverse effect on the ability of Weyerhaeuser or any of its Subsidiaries to perform its obligations under any Loan Documents to which it is or will be a

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party, or (c) a materially adverse effect on the rights and remedies available to the Administrative Agent and the Lenders under the Loan Documents.

          “Moody’s” shall mean Moody’s Investors Service, Inc., a corporation organized and existing under the laws of the State of Delaware, and its successors and assigns, and if such corporation shall for any reason no longer perform the functions of a securities rating agency, “Moody’s” shall be deemed to refer to any other nationally recognized rating agency designated by Weyerhaeuser and the Required Lenders.

          “Net Cash Proceeds” shall mean, with respect to any sale, lease, transfer or other disposition of any asset by any Person, the aggregate amount of cash received from time to time (whether as initial consideration or through payment or disposition of deferred consideration) by or on behalf of such Person in connection with such transaction after deducting therefrom only (without duplication) (a) the costs associated with such transaction (including reasonable and customary brokerage fees and commissions, legal fees and other similar fees and commissions), (b) the amount of taxes payable in connection with or as a result of such transaction, (c) the amount of any Indebtedness secured by a Lien on such asset that, by the terms of the agreement or instrument governing such Indebtedness, is required to be repaid upon disposition and (d) reserves for purchase price adjustments and retained fixed liabilities that are payable by such Person in cash to the extent required under GAAP in connection with such sale, lease, transfer or disposition (it being understood that immediately upon expiration of the retention period for such reserves, amounts held as reserves must be paid as a mandatory prepayment pursuant to Section 2.10(b)), in each case to the extent, but only to the extent, that the amounts so deducted are, (in the cases of (a) and (c) above, at the time of receipt of such cash), actually paid to a Person that is not an Affiliate of such Person or Weyerhaeuser or any of its Subsidiaries or any Affiliate of Weyerhaeuser or any of its Subsidiaries and are properly attributable to such transaction or to the asset that is the subject thereof; provided, however, that Net Cash Proceeds shall not include, (i) with respect to any sale, lease, transfer or other disposition of any asset by any Person, any cash receipts received from the sale of worn, damaged, or obsolete equipment, (ii) any cash receipts received from proceeds of insurance, condemnation awards (or payments in lieu thereof) or indemnity payments to the extent that such proceeds, awards or payments in respect of loss or damage to the assets are applied (or in respect of which expenditures were previously incurred) to replace or repair the assets in respect of which such proceeds were received, so long as such application is made within 180 days after the occurrence of such damage or loss and (iii) any rental payments received in connection with the lease of an asset in the ordinary course of business. In addition, no proceeds realized in a single transaction or series of related transactions shall constitute Net Cash Proceeds except for the portion (if any) of such proceeds in excess of $25,000,000.

          “OCBM Agreement” shall mean the Ownership and Capital Base Maintenance Agreement, dated as of February 12, 2002, and entered into by Weyerhaeuser.

          “PBGC” shall mean the Pension Benefit Guaranty Corporation established pursuant to Section 4002 of ERISA, or any successor thereto.

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          “Person” shall mean any natural person, corporation, business trust, joint venture, joint stock company, trust, unincorporated organization, association, company, partnership or government, or any agency or political subdivision thereof.

          “Plan” shall mean any multiemployer or single-employer plan as defined in Section 4001 of ERISA covered by Title IV of ERISA, which is maintained or contributed to by (or to which there is an obligation to contribute of), or at any time during the five calendar years preceding the date of this Agreement was maintained or contributed to by (or to which there was an obligation to contribute of), Weyerhaeuser or an ERISA Affiliate.

          “Prime Rate” shall mean the rate of interest per annum publicly announced from time to time by the Administrative Agent as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective on the date such change is publicly announced as effective. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer.

          “Rating” shall mean, as of any date, the rating by Moody’s and S&P in effect on such date, of the Senior Unsecured Long-Term Debt of Weyerhaeuser.

          “Real Estate Assets” shall mean all assets of WRECO and its Restricted Subsidiaries (determined, unless the context otherwise requires, on a consolidated basis for WRECO and its Restricted Subsidiaries) of the types described below, acquired and held for the purpose of, and arising out of, the development and/or sale or rental thereof in the ordinary course of business: (i) improved and unimproved land, buildings and other structures and improvements and fixtures located thereon, and (ii) contracts, mortgages, notes receivables and other choses in action.

          “Reduction Amount” shall have the meaning given such term in Section 2.09(c).

          “Register” shall have the meaning given such term in Section 9.04(c).

          “Regulation D” shall mean Regulation D of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.

          “Regulation T” shall mean Regulation T of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.

          “Regulation U” shall mean Regulation U of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.

          “Regulation X” shall mean Regulation X of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.

          “Reinvestment Proceeds” shall have the meaning given such term in Section 2.10(b).

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          “Related Parties” shall mean, with respect to any specified Person, such Person’s Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person’s Affiliates.

          “Release” shall mean disposing, discharging, injecting, spilling, leaking, dumping, emitting, escaping, emptying, seeping, placing, and the like, into or upon any land or water or air, or otherwise entering into the environment.

          “Reportable Event” shall mean an event described in Section 4043(c) of ERISA with respect to a Plan as to which the 30-day notice requirement has not been waived by statute, regulation or otherwise.

          “Required Lenders” shall mean, at any time, Lenders having Credit Exposures and unused Commitments representing more than 50% of the sum of the Aggregate Credit Exposure and unused Commitments at such time; provided that if either Borrower elects the Term Loan Conversion, then on or after the Revolver Termination Date, “Required Lenders” shall mean those Lenders having Term Loans representing more than 50% of the aggregate principal amount of all Term Loans outstanding at such time.

          “Restricted Subsidiary” shall mean, (i) with respect to Weyerhaeuser, each Subsidiary that has not been designated as an Unrestricted Subsidiary on Schedule 3.08 Part I and thereafter not designated by a Financial Officer of Weyerhaeuser as an Unrestricted Subsidiary after the Closing Date pursuant to Section 9.17 and (ii) with respect to WRECO, each Subsidiary that has not been designated as an Unrestricted Subsidiary on Schedule 3.08 Part II or thereafter designated by a Financial Officer of WRECO as an Unrestricted Subsidiary after the Closing Date pursuant to Section 9.17. On the Closing Date, the Company and its subsidiaries shall be deemed Restricted Subsidiaries unless a Financial Officer of Weyerhaeuser shall have designated any of such entities as an Unrestricted Subsidiary after the Closing Date.

          “Revolver Termination Date” shall mean March 23, 2004.

          “Revolving Borrowing” shall mean a Borrowing consisting of Revolving Loans.

          “Revolving Borrowing Request” shall mean a request made pursuant to Section 2.02(e) in the form of Exhibit A.

          “Revolving Loan” shall mean a Loan made by the Lenders to a Borrower pursuant to Section 2.01.

          “S&P” shall mean Standard & Poor’s Ratings Services, a division of the McGraw-Hill Companies, Inc., a corporation organized and existing under the laws of the State of New York, and its successors and assigns, and if such corporation shall for any reason no longer perform the functions of a securities rating agency, “S&P” shall be deemed to refer to any other nationally recognized rating agency designated by Weyerhaeuser and the Required Lenders.

          “SEC” shall mean the Securities and Exchange Commission or any successor.

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          “Senior Bank Financing” shall mean the credit facilities contemplated by (a) this Agreement, and (b) the Five-Year Revolving Credit Facility Agreement.

          “Senior Debt” shall mean all Indebtedness of any Person (other than WRECO) which is not expressed to be subordinate and junior in right of payment to any other Indebtedness of such Person, and, with respect to WRECO, shall mean all Indebtedness of WRECO other than Subordinated Debt.

          “Senior Unsecured Long-Term Debt” shall mean the unsecured bonds, debentures, notes or other Indebtedness of Weyerhaeuser, designated on its financial statements as senior long-term indebtedness. In the event more than one issue of Senior Unsecured Long-Term Debt shall be outstanding at any relevant time and different credit ratings shall have been issued by S&P or Moody’s for such issues, Senior Unsecured Long-Term Debt shall be deemed to refer to the lowest rated issue.

          “Statutory Reserves” shall mean a fraction (expressed as a decimal), the numerator of which is the number one, and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board and any other banking authority to which the Administrative Agent is subject with respect to the Eurodollar Rate, for eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserves shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.

          “Subordinated Debt” shall mean and include (i) Subordinated Promissory Notes of WRECO, in substantially the form annexed as Exhibit E hereto, and (ii) any other Indebtedness of WRECO now or hereafter created, issued or assumed which at all times is evidenced by a written instrument or instruments containing or having applicable thereto subordination provisions substantially the same as those in said Exhibit E hereto, providing for the subordination of such Indebtedness to such other Indebtedness of WRECO as shall be specified or characterized in such subordination provisions.

          “subsidiary” shall mean, with respect to any Person (herein referred to as the “parent”), any corporation, partnership, association or other business entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power to elect a majority of the board of directors or more than 50% of the general partnership interests are, at the time any determination is being made, owned, controlled or held, or (b) which is, at the time any determination is made, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent.

          “Subsidiary” shall mean any subsidiary of Weyerhaeuser or WRECO, provided that there shall be excluded from this definition (i) Nelson Forests Joint Venture, a joint venture

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formed under the laws of New Zealand, (ii) Wapawekka Lumber Ltd., a limited partnership formed under the laws of Saskatchewan, and (iii) Monterra Lumber Mills Limited, a limited partnership formed under the laws of Ontario, for so long as such business entities shall not be Controlled by Weyerhaeuser or any of its subsidiaries.

          “Termination Date” shall mean the later to occur of (a) the Revolver Termination Date or (b) if the Term Loan Conversion has been effected pursuant to Section 2.19, the first anniversary of the Revolver Termination Date.

          “Term Borrowing” shall mean a Borrowing consisting of Term Loans.

          “Term Loan” shall have the meaning given such term in Section 2.19.

          “Term Loan Conversion” shall have the meaning given such term in Section 2.19.

          “Term-Out Premium” shall have the meaning giving such term in Section 2.06.

          “Total Adjusted Shareholders’ Interest” shall mean, at any time, the amount of the preferred, preference and common shares accounts plus (or minus in the case of a deficit) the amount of other capital and retained earnings, in accordance with GAAP, of Weyerhaeuser and its consolidated Subsidiaries, less treasury common shares and the aggregate net book value (after deducting any reserves applicable thereto) of all items of the following character which are included in the consolidated assets of Weyerhaeuser and its consolidated Subsidiaries:

       (a) investments in Unrestricted Subsidiaries; and
 
       (b) without duplication, investments by Weyerhaeuser and its consolidated Subsidiaries in WRECO and its consolidated Subsidiaries.

          No effect shall be given for any increases or decreases attributable to unrealized foreign exchange gains or losses resulting from the application of FASB Statement 52.

          “Total Commitment” shall mean at any time the aggregate amount of the Commitments as in effect at such time, and on the date hereof shall mean $1,200,000,000.

          “Total Funded Indebtedness” with respect to Weyerhaeuser shall mean, at any time, the aggregate principal amount of all Indebtedness (other than Guarantees by such Person of Indebtedness of others) for borrowed money or for the deferred purchase price of property and Capital Lease Obligations of Weyerhaeuser and its consolidated Subsidiaries, excluding (a) the Indebtedness of Unrestricted Subsidiaries, (b) without duplication, the Indebtedness of WRECO and its consolidated Subsidiaries, and (c) 80% of the aggregate principal amount of the Mandatory Convertible Debt Securities outstanding at such time.

          “Transactions” shall have the meaning given such term in Section 3.02.

          “Transferee” shall have the meaning given such term in Section 2.17.

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          “Type,” when used in respect of any Loan or Borrowing, shall refer to the Rate by reference to which interest on such Loan or on the Loans comprising such Borrowing is determined. For purposes hereof, “Rate” shall include the Eurodollar Rate and the Base Rate.

          “Unfunded Current Liability” of any Plan shall mean the amount, if any, by which the present value of the accrued benefits under the Plan as of the close of its most recent plan year, determined in accordance with Statement of Financial Accounting Standards No. 35, based upon the actuarial assumptions used by the Plan’s actuary in the most recent annual valuation of the Plan, exceeds the fair market value of the assets allocable thereto, determined in accordance with Section 412 of the Code.

          “Unrestricted Subsidiary” shall mean, (i) with respect to Weyerhaeuser, each Subsidiary that has been designated as an Unrestricted Subsidiary on Schedule 3.08 Part I and any Subsidiary which has been designated by a Financial Officer of Weyerhaeuser as an Unrestricted Subsidiary after the Closing Date pursuant to Section 9.17, and (ii) with respect to WRECO, each Subsidiary that has been designated as an Unrestricted Subsidiary on Schedule 3.08 Part II and any Subsidiary which has been designated by a Financial Officer of WRECO as an Unrestricted Subsidiary after the Closing Date pursuant to Section 9.17.

          “Utilization Fee” shall have the meaning given such term in Section 2.06(e).

          “Weyerhaeuser” shall have the meaning given such term in the introductory paragraph hereto.

          “WRECO” shall have the meaning given such term in the introductory paragraph hereto.

          “WRECO/Weyerhaeuser Subordinated Debt” shall mean the Subordinated Promissory Notes issued by WRECO to Weyerhaeuser described in clause (i) of the definition of “Subordinated Debt.”

          Section 1.02 Terms Generally. The definitions in Section 1.01 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” All references herein to Articles, Sections, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Exhibits and Schedules to, this Agreement unless the context shall otherwise require.

          Section 1.03 Accounting Terms; GAAP. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that, if either Borrower notifies the Administrative Agent that such Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies either Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in

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effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith.

ARTICLE II

THE CREDITS

          Section 2.01 Commitments. Subject to the terms and conditions and relying upon the representations and warranties herein set forth, each Lender agrees, severally and not jointly, to make Loans to each Borrower requesting a Borrowing, at any time and from time to time on and after the date hereof and until the earlier of the Revolver Termination Date and the termination of the Commitment of such Lender, in an aggregate principal amount at any time outstanding not to exceed such Lender’s Commitment at such time, subject, however, to the conditions that:

       (a) at no time shall the outstanding aggregate principal amount of all Loans (including, if the Term Loan Conversion has been elected, Term Loans) made by all Lenders exceed the Total Commitment;
 
       (b) at no time shall the outstanding aggregate principal amount of all Loans (including, if the Term Loan Conversion has been elected, Term Loans) made by all Lenders to WRECO exceed $600,000,000; and
 
       (c) at all times the outstanding aggregate principal amount of all Loans made by each Lender shall equal the product of (i) the Applicable Percentage times (ii) the outstanding aggregate principal amount of all Loans made pursuant to Section 2.02 or 2.19.

          Each Lender’s Commitment is set forth opposite its name in Schedule 2.01, or in the case of each assignee that becomes a party hereto pursuant to Section 9.04, on the Register maintained by the Administrative Agent pursuant to Section 9.04(c).

          Within the foregoing limits, each Borrower may borrow, pay or prepay and reborrow hereunder, on and after the Closing Date and prior to the Revolver Termination Date, subject to the terms, conditions and limitations set forth herein, on a several and not joint basis.

          Section 2.02 Loans. (a) Each Revolving Loan and each Term Loan shall be made as part of a Borrowing consisting of Revolving Loans and Term Loans, respectively, made by the Lenders ratably in accordance with their respective Commitments; provided, however, that the failure of any Lender to make any Loan shall not in and of itself relieve any other Lender of its obligation to lend hereunder (it being understood, however, that no Lender shall be responsible for the failure of any other Lender to make any Loan required to be made by such other Lender). The Loans comprising any Borrowing shall be in an aggregate principal amount which is an integral multiple of $1,000,000 and not less than $25,000,000 (or an aggregate principal amount equal to the remaining balance of the available Commitments).

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          (b) Each Revolving Borrowing and each Term Borrowing shall be comprised entirely of Eurodollar Loans or Base Rate Loans, as the applicable Borrower may request pursuant to paragraph (e) hereof. Each Lender may at its option make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not (i) affect the obligation of the applicable Borrower to repay such Loan in accordance with the terms of this Agreement and (ii) entitle such Lender to any amounts pursuant to Sections 2.11 or 2.12 to which amounts such Lender would not be entitled if such Lender had made such Loan itself through its domestic branch. Borrowings of more than one Type may be outstanding at the same time; provided, however, that neither Borrower shall be entitled to request any Borrowing which, if made, would result in an aggregate of more than twenty (20) separate Loans from any Lender being outstanding hereunder at any one time. For purposes of the foregoing, Loans (other than Base Rate Loans) having different Interest Periods, regardless of whether they commence on the same date, shall be considered separate Loans.

          (c) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds to the Administrative Agent in New York, New York, not later than 12:00 noon (or in the case of Base Rate Loans, 2:00 p.m.), New York City time, and the Administrative Agent shall by 3:00 p.m., New York City time, credit the amounts so received to the general deposit account of the applicable Borrower maintained with the Administrative Agent or, if a Borrowing shall not occur on such date because any condition precedent herein specified shall not have been met, return the amounts so received to the respective Lenders. Unless the Administrative Agent shall have received notice from a Lender prior to the date and time of any Borrowing that such Lender will not make available to the Administrative Agent such Lender’s portion of such Borrowing, the Administrative Agent may assume that such Lender has made such portion available to the Administrative Agent on the date of such Borrowing in accordance with this paragraph (c) and the Administrative Agent may, in reliance upon such assumption, make available to the applicable Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have made such portion available to the Administrative Agent, such Lender and the applicable Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the applicable Borrower until the date such amount is repaid to the Administrative Agent at (i) in the case of the applicable Borrower, the interest rate applicable at the time to the Loans comprising such Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall repay to the Administrative Agent such corresponding amount, such amount shall constitute such Lender’s Loan as part of such Borrowing for purposes of this Agreement.

          (d) Notwithstanding any other provision of this Agreement, no Borrower shall be entitled to request any Borrowing with an Interest Period ending after the Termination Date; provided that no Revolving Borrowing shall have an Interest Period ending after the Revolver Termination Date.

          (e) In order to request a Revolving Borrowing, the Borrower requesting such Borrowing shall hand deliver or telecopy to the Administrative Agent a Revolving Borrowing Request in the form of Exhibit A (a) in the case of a Eurodollar Borrowing, not later than

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12:00 noon, New York City time, three Business Days before a proposed borrowing and (b) in the case of a Base Rate Borrowing, not later than 12:00 noon, New York City time, on the day of a proposed borrowing. Such notice shall be irrevocable and shall in each case specify (i) whether the Revolving Borrowing then being requested is to be a Eurodollar Borrowing or a Base Rate Borrowing; (ii) the date of such Revolving Borrowing (which shall be a Business Day) and the amount thereof; and (iii) if such Revolving Borrowing is to be a Eurodollar Borrowing, the Interest Period with respect thereto. If no election as to the Type of Revolving Borrowing is specified in any such notice, then the requested Revolving Borrowing shall be a Base Rate Borrowing. If no Interest Period with respect to any Eurodollar Borrowing is specified in any such notice, then the applicable Borrower shall be deemed to have selected an Interest Period of one month’s duration. The Administrative Agent shall promptly advise the Lenders of any notice given pursuant to this Section 2.02(e) and of each Lender’s portion of the requested Borrowing.

          Section 2.03 Conversion and Continuation of Loans. (a) Each Borrower shall, with respect to its respective Borrowings, have the right at any time, upon prior irrevocable written notice to the Administrative Agent given in the manner and at the times specified in Section 2.02(d) and 2.19, respectively, with respect to the Type of Borrowing into which conversion or continuation is to be made, to convert any of its Borrowings into a Borrowing of a different Type and to continue any of its Eurodollar Borrowings into a subsequent Interest Period of any permissible duration, subject to the terms and conditions of this Agreement and to the following:

       (i) each conversion or continuation shall be made pro rata among the Lenders in accordance with the respective principal amounts of Loans comprising the converted or continued Borrowing;
 
       (ii) if less than all the outstanding principal amount of any Borrowing shall be converted or continued, the aggregate principal amount of such Borrowing converted and/or continued shall in each case not be less than the minimum amount set forth in Section 2.02;
 
       (iii) if a Eurodollar Borrowing is converted at any time other than on the last day of the Interest Period applicable thereto, the applicable Borrower shall pay any amount due pursuant to Section 2.13;
 
       (iv) with respect to a Revolving Borrowing, if such Revolving Borrowing is to be converted into a Eurodollar Borrowing or if a Eurodollar Borrowing is to be continued, no Interest Period selected shall extend beyond the Revolver Termination Date;
 
       (v) with respect to a Term Borrowing, if such Term Borrowing is to be converted into a Eurodollar Borrowing or if a Eurodollar Borrowing is to be continued, no Interest Period selected shall extend beyond the Termination Date; and

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       (vi) interest accrued to the day immediately preceding each date of conversion or continuation shall be payable on each Borrowing (or part thereof) that is converted or continued concurrently with such conversion or continuation.

          (b) Each notice given pursuant to Section 2.03(a) shall be irrevocable and shall refer to this Agreement and specify (i) the identity and the amount of the Borrowing that the applicable Borrower requests to be converted or continued; (ii) whether such Borrowing (or any part thereof) is to be converted or continued as a Base Rate Borrowing or a Eurodollar Borrowing; (iii) if such notice requests a conversion, the date of such conversion (which shall be a Business Day); and (iv) if such Borrowing (or any part thereof) is to be converted into or continued as a Eurodollar Borrowing, the Interest Period with respect thereto. If no Interest Period is specified in any such notice with respect to any conversion to or continuation as a Eurodollar Borrowing, then the applicable Borrower shall be deemed to have selected an Interest Period of one month’s duration, in the case of a Eurodollar Borrowing. The Administrative Agent shall advise the Lenders of any notice given pursuant to Section 2.03(a) and of each Lender’s portion of any converted or continued Borrowing.

          (c) If the applicable Borrower shall not have given notice in accordance with this Section 2.03 to continue any Eurodollar Borrowing into a subsequent Interest Period (and shall not otherwise have given notice in accordance with this Section 2.03 to convert such Eurodollar Borrowing), such Eurodollar Borrowing shall automatically be converted into a Base Rate Borrowing. In the event of the occurrence and continuation of a Default or an Event of Default (i) all Eurodollar Borrowings of each Borrower shall be converted into Base Rate Borrowings on the last day of the Interest Period then in effect, and (ii) no Base Rate Borrowing may be converted into a Borrowing of another Type so long as a Default or Event of Default continues to exist.

          Section 2.04 Fees. (a) The Borrowers jointly and severally agree to pay to each Lender, through the Administrative Agent, on each March 31, June 30, September 30 and December 31 and on the date on which the Commitment of such Lender shall be terminated as provided herein, a facility fee (each, a “Facility Fee,” and collectively, the “Facility Fees”), calculated as specified below, on the amount of the Commitment of such Lender, whether used or unused, during the preceding quarter (or shorter period commencing with the Closing Date or ending with the Termination Date applicable to such Lender or any date on which the Commitment of such Lender shall be terminated). All Facility Fees shall be computed on the basis of a year of 365 or 366 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The Facility Fee due to each Lender shall commence to accrue on the Closing Date and shall cease to accrue on the earlier of the Termination Date applicable to such Lender and the termination of the Commitment of such Lender as provided herein.

          The Facility Fee for each Lender shall be calculated as a per annum rate in an amount equal to the product of such Lender’s Commitment hereunder and the applicable percentage specified in the table below, to be determined based upon the Ratings received from S&P and Moody’s by Weyerhaeuser:

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    Level 1   Level 2   Level 3   Level 4   Level 5
   
 
 
 
 
S&P:
  A- or better   BBB+   BBB   BBB-   Below BBB-
Moody’s:
  A3 or better   Baa1   Baa2   Baa3   Below Baa3
Facility Fee
    0.1000 %     0.1250 %     0.1500 %     0.2000 %     0.2500 %

          The Facility Fees shall change effective as of the date on which the applicable rating agency announces any change in its Ratings. In the event either S&P or Moody’s shall withdraw or suspend its Ratings, the remaining Rating announced by either S&P or Moody’s, as the case may be, shall apply. In the event neither agency shall provide a Rating, the Facility Fees shall be based on the lowest rating provided above. If the Ratings by S&P and Moody’s are split so that two consecutive Levels (as defined in the table above) apply, the higher of those Ratings shall determine the applicable percentage to calculate the Facility Fee. If the Ratings by S&P and Moody’s are split so that the applicable Levels in the table above are separated by only one intermediate Level, then such intermediate Level shall determine the applicable percentage to calculate the Facility Fee. If the Ratings by S&P and Moody’s are split so that the applicable Levels in the table above are separated by two intermediate Levels, then the intermediate Level representing the lowest Rating shall determine the applicable percentage to calculate the Facility Fee. The Facility Fees shall be calculated by the Administrative Agent, which calculation absent manifest error shall be final and binding on all parties.

          (b) Weyerhaeuser agrees to pay the Administrative Agent, for its own account, the administration fees (the “Administrative Agent Fees”) at the times and in the amounts agreed upon in the letter agreement dated as of December 13, 2001, among Weyerhaeuser, Morgan Stanley Senior Funding, Inc., J.P. Morgan Securities Inc. and the Administrative Agent.

          (c) All Fees shall be paid on the dates due, in immediately available funds, to the Administrative Agent for prompt distribution, if and as appropriate, among the Lenders. Once paid, none of the Fees shall be refundable under any circumstances.

          Section 2.05 Repayment of Loans; Evidence of Debt. (a) The outstanding principal balance of (i) each Revolving Loan shall, unless the Borrowers elect the Term Loan Conversion, be payable on the Revolver Termination Date and (ii) each Term Loan shall be payable on the Termination Date. Each Loan shall bear interest from the date thereof on the outstanding principal balance thereof as set forth in Section 2.06.

          (b) Each Lender shall, and is hereby authorized by the Borrowers to, maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of each Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.

          (c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from each Borrower to each Lender hereunder and (iii) the amount of any sum received

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by the Administrative Agent hereunder for the account of the Lenders and each Lender’s share thereof.

          (d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of each Borrower to repay its Loans in accordance with the terms of this Agreement.

          (e) Any Lender may request that Loans made by it be evidenced by a promissory note, substantially in the form of Exhibit F attached hereto. In such event, the applicable Borrower shall promptly, and in no event more than ten (10) Business Days after a request therefor, prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns). Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 9.04) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns).

          Section 2.06 Interest on Loans. (a) Subject to the provisions of Section 2.07, the Loans comprising each Eurodollar Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum equal to the Eurodollar Rate for the Interest Period in effect for such Borrowing plus the Applicable Margin, determined pursuant to paragraph (d) below.

          (b) Subject to the provisions of Section 2.07 the Loans comprising each Base Rate Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be) at a rate per annum equal to the Base Rate plus the Applicable Margin.

          (c) Interest on each Eurodollar Loan shall, except as otherwise provided in this Agreement, be payable on the last day of the Interest Period applicable thereto and, in case of a Eurodollar Loan with an Interest Period of more than three months’ duration, each day that would have been an interest payment date for such Loan had successive Interest Periods of three months’ duration been applicable to such Loan, and on the Termination Date or any earlier date on which this Agreement is, pursuant to its terms and conditions, terminated. Interest on each Base Rate Loan shall be payable quarterly in arrears on the last Business Day of each March, June, September and December, except as otherwise provided in this Agreement and on the Termination Date or any earlier date on which this Agreement is, pursuant to its terms and conditions, terminated. The applicable Eurodollar Rate or Base Rate for each Interest Period or day within an Interest Period, as the case may be, shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error.

          (d) As used herein, “Applicable Margin” shall mean the sum of (i) the applicable percentage per annum specified in the table below, to be determined based upon the Ratings received from S&P and Moody’s by Weyerhaeuser, (ii) the Utilization Fee, and (iii) if

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applicable, the Term-Out Premium. The applicable percentage referred to in Clause (i) of the immediately preceding sentence shall be determined based upon the Ratings, as follows:

                                         
    Level 1   Level 2   Level 3   Level 4   Level 5
   
 
 
 
 
S&P:
  A- or better   BBB+   BBB   BBB-   Below BBB-
Moody’s:
  A3 or better   Baa1   Baa2   Baa3   Below Baa3
Eurodollar Loan:
    0.5250 %     0.6250 %     0.8500 %     1.0500 %     1.5000 %
Base Rate Loan:
    0.0000 %     0.0000 %     0.0000 %     0.0500 %     0.5000 %

          The Applicable Margin shall change effective as of the date on which the applicable rating agency announces any change in its Ratings. In the event either S&P or Moody’s shall withdraw or suspend its Ratings, the remaining Rating announced by either S&P or Moody’s, as the case may be, shall apply. In the event neither agency shall provide a Rating, the Applicable Margin shall be based on the lowest rating provided above. If the Ratings by S&P and Moody’s are split so that two consecutive Levels (as defined in the table above) apply, the higher of those Ratings shall determine the Applicable Margin. If the Ratings by S&P and Moody’s are split so that the applicable Levels in the table above are separated by only one intermediate Level, then such intermediate Level shall determine the Applicable Margin. If the Ratings by S&P and Moody’s are split so that the applicable Levels in the table above are separated by two intermediate Levels, then the intermediate Level representing the lowest Rating shall determine the Applicable Margin. The Applicable Margin shall be calculated by the Administrative Agent, which calculation absent manifest error shall be final and binding on all parties.

          (e) As used herein, “Utilization Fee” shall mean (i) a percentage per annum equal to 0.250% for any date on which the sum of (A) the Aggregate Credit Exposure plus (B) the “Aggregate Credit Exposure,” as defined under the Five-Year Revolving Credit Facility Agreement, plus (C) the aggregate principal amount of outstanding Competitive Loans under the Five-Year Revolving Credit Facility Agreement, is equal to or exceeds 33% of the sum of (X) the Total Commitment and (Y) the “Total Commitment” as defined under the Five-Year Revolving Credit Facility Agreement, and (ii) a percentage per annum equal to 0.000% for any other date.

          (f) As used herein, “Term-Out Premium” shall mean, upon an election by a Borrower of a Term Loan Conversion pursuant to Section 2.19, a percentage per annum equal to 0.250%.

          Section 2.07 Default Interest. If a Borrower shall default in the payment of the principal of or interest on any of its Loans or any other amount becoming due hereunder, whether by scheduled maturity, notice of prepayment, acceleration or otherwise, such Borrower shall on demand from time to time by the Administrative Agent pay interest, to the extent permitted by law, on such defaulted amount up to (but not including) the date of actual payment (after as well as before judgment) at a rate per annum equal to the rate of interest applicable thereto at maturity or due date plus 2%.

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          Section 2.08 Alternate Rate of Interest. In the event, and on each occasion, that on the day two Business Days prior to the commencement of any Interest Period for a Eurodollar Borrowing the Administrative Agent shall have determined in good faith that dollar deposits in the principal amounts of the Eurodollar Loans comprising such Borrowing are not generally available in the London interbank market, or that the rates at which such dollar deposits are being offered will not adequately and fairly reflect the cost to the Required Lenders of making or maintaining their Eurodollar Loans during such Interest Period, or that reasonable means do not exist for ascertaining the Eurodollar Rate, the Administrative Agent shall, as soon as practicable thereafter, give written notice of such determination to the Borrowers and the Lenders. In the event of any such determination, until the Administrative Agent shall have advised the Borrowers and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any request by the Borrowers for a Eurodollar Borrowing pursuant to Section 2.02 shall be deemed to be a request for a Base Rate Borrowing, and (ii) any request by the Borrowers for a conversion to, or a continuation of, a Eurodollar Borrowing pursuant to Section 2.03 shall be deemed to be a request for, respectively, a continuation as, or a conversion to, a Base Rate Borrowing. Each determination by the Administrative Agent hereunder shall be conclusive absent manifest error.

          Section 2.09 Termination and Reduction of Commitments. (a) The unused Commitments of each Lender shall be automatically terminated on the Revolver Termination Date, and, if the Term Loan Conversion is elected, the remaining Commitments of each Lender shall be automatically terminated on the Termination Date.

          (b) Subject to Section 2.10(b), upon at least three Business Days’ prior irrevocable written notice to the Administrative Agent, the Borrowers may at any time in whole permanently terminate, or from time to time in part permanently reduce, the Total Commitment; provided, however, that (i) each partial reduction shall be in an integral multiple of $1,000,000 and in a minimum principal amount of $25,000,000 and (ii) no such termination or reduction shall be made which would reduce the Total Commitment to an amount less than the sum of the aggregate outstanding principal amount of Loans.

          (c) The Total Commitment shall be automatically and permanently reduced on each date on which prepayment thereof is required to be made pursuant to Section 2.10(b)(i) in the amount of such prepayment. In addition, the Total Commitment shall be automatically and permanently reduced on each date on which prepayment thereof is required to be made pursuant to Section 2.10(b)(i) in an amount equal to the applicable Reduction Amount. “Reduction Amount” shall mean, with respect to any sale, lease, transfer or other disposition of any assets of Weyerhaeuser or any of its Subsidiaries (other than Excluded Sales), on any date, the Net Cash Proceeds received with respect thereto on such date less (i) any amounts applied with respect thereto to prepay any outstanding amounts under the Senior Bank Financing pursuant to Section 2.10(b) (including the amounts required to be cash collateralized pursuant to Section 2.04(i) of the Five-Year Revolving Credit Facility Agreement), (ii) any amounts applied to reduce Commitments under the Five-Year Revolving Credit Facility Agreement, and (iii) the portion of such Net Cash Proceeds that constitutes Reinvestment Proceeds.

          (d) Subject to Section 2.18, each reduction in the Total Commitment hereunder shall be made ratably among the Lenders in accordance with their respective

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Commitments. The Borrowers jointly and severally agree to pay to the Administrative Agent for the account of the Lenders, on the date of each termination or reduction, the Facility Fees on the amount of the Commitments so terminated or reduced accrued through the date of such termination or reduction.

          Section 2.10 Prepayment. (a) Voluntary Prepayments. Each of the Borrowers shall have the right at any time and from time to time to prepay any of its respective Revolving Borrowings or Term Borrowings, in whole or in part, upon giving written notice (or telephone notice promptly confirmed by written notice) to the Administrative Agent: (i) before 12:00 noon, New York City time, three Business Days prior to prepayment, in the case of Eurodollar Loans and (ii) before 12:00 noon, New York City time, one Business Day prior to prepayment, in the case of Base Rate Loans; provided, however, that each partial prepayment shall be in an amount which is an integral multiple of $1,000,000 and not less than $25,000,000.

          (b) Mandatory Prepayments. (i) The Borrowers shall, within three Business Days of the date of receipt of the Net Cash Proceeds by Weyerhaeuser or any of its Domestic Subsidiaries from the sale, lease, transfer or other disposition of any assets of Weyerhaeuser or any of its Subsidiaries (other than any Excluded Sales), prepay any amounts outstanding under the Senior Bank Financing in an amount equal to the lesser of the amount of such Net Cash Proceeds and the amount so outstanding (including the amounts required to be cash collateralized pursuant to Section 2.04(i) of the Five-Year Revolving Credit Facility Agreement). Each such prepayment shall be applied first to any amounts outstanding or to be cash collateralized pursuant to the Five-Year Revolving Credit Facility Agreement in accordance with the terms and conditions set forth therein, and second to any principal amounts outstanding pursuant to this Agreement in accordance with the terms and conditions for prepayment set forth herein; provided that neither Borrower shall be required to make any prepayments pursuant to this Section 2.10(b)(i) if Weyerhaeuser or any of its Subsidiaries shall apply any of the Net Cash Proceeds it received from the sale, lease, transfer or other disposition of its assets for reinvestment in its business within 180 days after receipt thereof by Weyerhaeuser or any of its Subsidiaries (any such Net Cash Proceeds so reinvested, the “Reinvestment Proceeds”); provided further that Weyerhaeuser shall have notified the Administrative Agent of its intent to so reinvest such Net Cash Proceeds.

          (ii) On the date of any termination or reduction of the Commitments pursuant to Section 2.09, the Borrowers shall pay or prepay so much of their respective Borrowings as shall be necessary in order that the aggregate principal amount of Loans outstanding not exceed the Total Commitment, after giving effect to such termination or reduction.

          (iii) The amount remaining (if any) after the prepayment in full of the Loans may be retained by the Borrowers to the extent not required to be applied in accordance with clause (i) above, and the Commitments shall be permanently reduced in accordance with Section 2.09(c).

          (c) Each notice of prepayment under paragraph (a) above shall specify the prepayment date and the principal amount of each Borrowing (or portion thereof) to be prepaid, shall be irrevocable and shall commit the applicable Borrower to prepay such Borrowing (or portion thereof) by the amount stated therein on the date stated therein. All prepayments under

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this Section 2.10 shall be subject to Section 2.13 but otherwise without premium or penalty. All prepayments under this Section 2.10 shall be accompanied by accrued interest on the principal amount being prepaid to the date of payment.

          Section 2.11 Reserve Requirements; Change in Circumstances. (a) It is understood that the cost to each Lender (including the Administrative Agent) of making or maintaining any of the Eurodollar Loans may fluctuate as a result of the applicability of reserve requirements imposed by the Board at the ratios provided for in Regulation D. Each Borrower agrees to pay to each of such Lenders from time to time, as provided in paragraph (d) below, such amounts as shall be necessary to compensate such Lender for the portion of the cost of making or maintaining Eurodollar Loans to such Borrower resulting from any such reserve requirements provided for in Regulation D as in effect on the date thereof, it being understood that the rates of interest applicable to Eurodollar Loans have been determined on the assumption that no such reserve requirements exist or will exist and that such rates do not reflect costs imposed on the Lenders in connection with such reserve requirements. It is agreed that for purposes of this paragraph (a) the Eurodollar Loans made hereunder shall be deemed to constitute Eurocurrency Liabilities as defined in Regulation D and to be subject to the reserve requirements of Regulation D without the benefit of or credit for proration, exemptions or offsets which might otherwise be available to the Lenders from time to time under Regulation D.

          (b) Notwithstanding any other provision herein, if after the date of this Agreement any change in applicable law or regulation or in the interpretation or administration thereof by any governmental authority charged with the interpretation or administration thereof (whether or not having the force of law) shall change the basis of taxation of any payments to any Lender (including the Administrative Agent) of the principal of or interest on any Eurodollar Loan made by such Lender, or any Fees or other amounts payable hereunder (other than changes in respect of taxes imposed on the overall net income of such Lender by the jurisdiction in which such Lender has its principal office or by any political subdivision or taxing authority therein), or shall impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of or credit extended by such Lender, or shall impose on such Lender or the London interbank market any other condition affecting this Agreement, any Eurodollar Loan made by such Lender hereunder, and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or otherwise) in respect thereof by an amount deemed by such Lender to be material, then the applicable Borrower will pay to such Lender upon demand such additional amount or amounts as will compensate such Lender for such additional costs actually incurred or reduction actually suffered.

          (c) If after the date hereof any Lender (including the Administrative Agent) shall have determined that the general applicability of any law, rule, regulation or guideline adopted pursuant to or arising out of the July 1988 report of the Basle Committee on Banking Regulations and Supervisory Practices entitled “International Convergence of Capital Measurement and Capital Standards,” or the adoption after the date hereof of any other generally applicable law, rule, regulation or guideline regarding capital adequacy, or any change in any of the foregoing or in the interpretation or administration of any of the foregoing by any governmental authority, central bank or comparable agency charged with the interpretation or

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administration thereof, or compliance by any Lender (or any lending office of such Lender) or any Lender’s holding company with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Lender’s capital or on the capital of such Lender’s holding company, if any, as a consequence of this Agreement, the Loans made by such Lender pursuant hereto to a level below that which such Lender or such Lender’s holding company could have achieved but for such adoption, change or compliance (taking into consideration such Lender’s policies and the policies of such Lender’s holding company with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time, the applicable Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender or such Lender’s holding company for any such reduction suffered.

          (d) A certificate of a Lender (including the Administrative Agent) setting forth a reasonably detailed explanation of such amount or amounts as shall be necessary to compensate such Lender (or participating banks or other entities pursuant to Section 9.04) as specified in paragraph (a), (b) or (c) above, as the case may be, shall be delivered to the Borrowers and shall be conclusive absent manifest error. The Borrowers shall pay each Lender the amount shown as due on any such certificate delivered by it within 10 days after the receipt of the same.

          (e) Failure on the part of any Lender to demand compensation for any increased costs or reduction in amounts received or receivable or reduction in return on capital with respect to any period shall not constitute a waiver of such Lender’s right to demand compensation with respect to such period or any other period; provided that the Borrowers shall not be required to compensate a Lender pursuant to this Section 2.11 for any increased costs or reductions incurred more than 180 days prior to the date that such Lender notifies the Borrowers of such increased costs or reductions in accordance with paragraph (d) above and of such Lender’s intention to claim compensation thereof; provided further that, if the circumstances giving rise to such increased costs or reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof.

          Notwithstanding any other provision of this Section 2.11, no Lender shall demand compensation for any increased costs or reduction referred to above if it shall not be the general policy or practice of such Lender to demand such compensation in similar circumstances under comparable provisions of other credit agreements, if any (it being understood that this sentence shall not in any way limit the discretion of any Lender to waive the right to demand such compensation in any given case).

          Section 2.12 Change in Legality. (a) Notwithstanding any other provision herein contained, if any change in any law or regulation or in the interpretation thereof by any governmental authority charged with the administration or interpretation thereof shall make it unlawful for any Lender (including the Administrative Agent) to make or maintain any Eurodollar Loan or to give effect to its obligations as contemplated hereby with respect to any Eurodollar Loan, then, by written notice to the Borrowers and to the Administrative Agent, such Lender may:

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       (i) declare that Eurodollar Loans will not thereafter be made by such Lender hereunder and any request by either Borrower for a Eurodollar Borrowing or a conversion to or continuation of a Eurodollar Borrowing shall, as to such Lender only, be deemed a request for a Base Rate Loan unless such declaration shall be subsequently withdrawn; and
 
       (ii) require that all outstanding Eurodollar Loans made by it be converted into Base Rate Loans, in which event all such Eurodollar Loans shall be automatically converted into Base Rate Loans as of the effective date of such notice as provided in paragraph (b) below.

In the event any Lender shall exercise its rights under (i) or (ii) above, all payments and prepayments of principal which would otherwise have been applied to repay the Eurodollar Loans that would have been made by such Lender or the converted Eurodollar Loans of such Lender shall instead be applied to repay the Base Rate Loans made by such Lender in lieu of, or resulting from the conversion of, such Eurodollar Loans.

          (b) For purposes of this Section 2.12, a notice to a Borrower by any Lender shall be effective as to each Eurodollar Loan, if lawful, on the last day of the Interest Period currently applicable to such Eurodollar Loan; in all other cases such notice shall be effective on the date of receipt by such Borrower.

          Section 2.13 Indemnity. Each Borrower shall indemnify each Lender against any loss or expense which such Lender sustains or incurs as a consequence of (a) any failure by such Borrower to fulfill on the date of any borrowing hereunder the applicable conditions set forth in Article IV, (b) any failure by such Borrower to borrow or continue any Loan hereunder after irrevocable notice of such borrowing or continuation has been given pursuant to Section 2.02 or 2.03, as applicable, (c) any payment, prepayment or conversion of a Eurodollar Loan required by any other provision of this Agreement or otherwise made or deemed made to or by such Borrower on a date other than the last day of the Interest Period applicable thereto; provided that such Borrower shall not be required to indemnify a Lender pursuant to this clause (c) for any loss or expense to the extent any such loss or expense shall have been incurred pursuant to (i) Section 2.11, 2.12 or 2.17 or (ii) Section 2.10(a) more than six months prior to the date that the applicable Lender shall have notified such Borrower of its intention to claim compensation therefor, (d) any default in payment or prepayment of the principal amount of any Loan to such Borrower or any part thereof or interest accrued thereon, as and when due and payable (at the due date thereof, whether by scheduled maturity, acceleration, irrevocable notice of prepayment or otherwise), or (e) the occurrence of any Event of Default including, in each such case, any loss or reasonable expense sustained or incurred or to be sustained or incurred in liquidating or employing deposits from third parties acquired to effect or maintain such Loan or any part thereof as a Eurodollar Loan. Such loss or reasonable expense shall include an amount equal to the excess, if any, as reasonably determined by such Lender, of (i) its cost of obtaining the funds for the Loan being paid, prepaid, converted or not borrowed (based on the Eurodollar Rate) for the period from the date of such payment, prepayment or conversion or failure to borrow to the last day of the Interest Period for such Loan (or, in the case of a failure to borrow, the Interest Period for such Loan which would have commenced on the date of such failure) over (ii) the amount of interest (as reasonably determined by such Lender) that would be realized by such

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Lender in reemploying the funds so paid, prepaid or converted or not borrowed for such period or Interest Period, as the case may be. A certificate of any Lender setting forth a reasonably detailed explanation of any amount or amounts which such Lender is entitled to receive pursuant to this Section shall be delivered to such Borrower and shall be conclusive absent manifest error.

          Section 2.14 Pro Rata Treatment. Except as required under Sections 2.12 or 2.18, each Revolving Borrowing, each payment or prepayment of principal of any Revolving Borrowing, each payment of interest on the Revolving Loans, each payment of the Facility Fees, each reduction of the Commitments and each conversion of any Revolving Borrowing to a Borrowing of any Type, shall be allocated pro rata among the Lenders in accordance with their respective Commitments (or, if such Commitments shall have expired or been terminated, in accordance with the respective principal amounts of their outstanding Revolving Loans). Each payment of principal of any Term Borrowing shall be allocated pro rata among the Lenders participating in such Borrowing in accordance with the respective principal amounts of their outstanding Term Loans comprising such Borrowing. Each payment of interest on any Term Borrowing shall be allocated pro rata among the Lenders participating in such Borrowing in accordance with the respective amounts of accrued and unpaid interest on their outstanding Term Loans comprising such Borrowing. Each Lender agrees that in computing such Lender’s portion of any Borrowing to be made hereunder, the Administrative Agent may, in its discretion, round each Lender’s percentage of such Borrowing to the next higher or lower whole dollar amount.

          Section 2.15 Sharing of Setoffs. Each Lender agrees that if it shall, through the exercise of a right of banker’s lien, setoff or counterclaim against a Borrower, or pursuant to a secured claim under Section 506 of Title 11 of the United States Code or other security or interest arising from, or in lieu of, such secured claim, received by such Lender under any applicable bankruptcy, insolvency or other similar law or otherwise, or by any other means, obtain payment (voluntary or involuntary) in respect of any Loans (other than pursuant to Sections 2.09, 2.11 and 2.12) as a result of which the unpaid principal portion of its Loans shall be proportionately less than the unpaid principal portion of the Loans of any other Lender, it shall be deemed simultaneously to have purchased from such other Lender at face value, and shall promptly pay to such other Lender the purchase price for, a participation in the Loans of such other Lender, so that the aggregate unpaid principal amount of the Loans and participations in the Loans held by each Lender shall be in the same proportion to the aggregate unpaid principal amount of all Loans then outstanding as the principal amount of its Loans prior to such exercise of banker’s lien, setoff or counterclaim or other event was to the principal amount of all Loans outstanding prior to such exercise of banker’s lien, setoff or counterclaim or other event; provided, however, that, if any such purchase or purchases or adjustments shall be made pursuant to this Section 2.15 and the payment giving rise thereto shall thereafter be recovered, such purchase or purchases or adjustments shall be rescinded to the extent of such recovery and the purchase price or prices or adjustment restored without interest. Each Borrower expressly consents to the foregoing arrangements and agrees that any Lender holding a participation in a Loan deemed to have been so purchased may exercise any and all rights of banker’s lien, setoff or counterclaim with respect to any and all moneys owing by such Borrower to such Lender by reason thereof as fully as if such Lender had made a Loan directly to such Borrower in the amount of such participation.

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          Section 2.16 Payments. (a) The Borrowers shall make each payment (including principal of or interest on any Borrowing or any Fees or other amounts payable) hereunder and under any other Loan Document without setoff, counterclaim or deduction of any kind not later than 12:00 (noon), New York City time, on the date when due in dollars to the Administrative Agent at its offices at 270 Park Avenue, New York, New York, in immediately available funds.

          (b) Whenever any payment (including principal of or interest on any Borrowing or any Fees or other amounts payable) hereunder or under any other Loan Document shall become due, or otherwise would occur, on a day that is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of interest or Fees, if applicable.

          Section 2.17 Taxes. (a) Any and all payments by a Borrower hereunder shall be made, in accordance with Section 2.16, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding any income, franchise, branch profits or similar tax imposed on or measured by the net income or net profits of the Administrative Agent or any Lender (or any transferee or assignee that acquires a Loan (any such entity a “Transferee”)) by the United States or any jurisdiction under the laws of which it is organized or doing business or any political subdivision thereof (all such nonexcluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as “Taxes”). If either Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to the Lenders (or any Transferee) or the Administrative Agent, (i) the sum payable shall be increased by the amount necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.17) such Lender (or Transferee) or the Administrative Agent (as the case may be) shall receive an amount equal to the sum it would have received had no such deductions been made, (ii) such Borrower shall make such deductions and (iii) such Borrower shall pay the full amount deducted to the relevant taxing authority or other Governmental Authority in accordance with applicable law.

          (b) In addition, each Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made by such Borrower hereunder or under any other Loan Document or from the execution, delivery or registration of or performance under this Agreement or any other Loan Document, or otherwise with respect to such Borrower’s role in this Agreement or any other Loan Document (hereinafter referred to as “Other Taxes”).

          (c) Each Borrower will indemnify each Lender (or Transferee) and the Administrative Agent for the full amount of Taxes and Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable by such Borrower under this Section 2.17) paid by such Lender (or Transferee) or the Administrative Agent, as the case may be, and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted by the relevant taxing authority or other Governmental Authority. Each Borrower shall also indemnify each Lender (or any Transferee) and the Administrative Agent for the full amount of taxes imposed on or measured by the net income or receipts of such Lender (or any Transferee) or the Administrative Agent as the case may be, as such Lender (or Transferee) or the Administrative

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Agent shall determine are payable in respect of amounts paid by such Borrower to or on behalf of such Lender (or any Transferee) or the Administrative Agent, as the case may be, pursuant to this Section 2.17. Such indemnification shall be made within 30 days after the date any Lender (or Transferee) or the Administrative Agent, as the case may be, makes written demand therefor. If any Lender (or Transferee) or the Administrative Agent becomes entitled to a refund of Taxes or Other Taxes for which such Lender (or Transferee) or the Administrative Agent has received payment from a Borrower hereunder, such Lender (a Transferee) or Administrative Agent, as the case may be, shall, at the expense of such Borrower, use its reasonable efforts (consistent with internal policy, and legal and regulatory restrictions) to obtain such refund. If a Lender (or Transferee) or the Administrative Agent receives a refund or is entitled to claim a tax credit in respect of any Taxes or Other Taxes for which such Lender (or Transferee) or the Administrative Agent has received payment from a Borrower hereunder it shall promptly notify such Borrower of such refund or credit and shall, within 30 days after receipt of a request by such Borrower (or promptly upon receipt, if such Borrower has requested application for such refund or credit pursuant hereto), repay such refund or amount of credit to such Borrower, net of all out-of-pocket expenses of such Lender and without interest; provided that each Borrower, upon the request of such Lender (or Transferee) or the Administrative Agent, agrees to return such refund or amount of credit (plus penalties, interest or other charges) to such Lender (or Transferee) or the Administrative Agent in the event such Lender (or Transferee) or the Administrative Agent is required to repay such refund or such credit is denied or subsequently determined to be unavailable.

          (d) Within 30 days after the date of any payment of Taxes or Other Taxes withheld by either Borrower in respect of any payment to any Lender (or Transferee) or the Administrative Agent, such Borrower will furnish to the Administrative Agent, at its address referred to in Section 9.01, the original or a certified copy of a receipt evidencing payment thereof to the proper Governmental Authority.

          (e) Without prejudice to the survival of any other agreement contained herein, the agreements and obligations contained in this Section 2.17 shall survive the payment in full of the principal of and interest on all Loans made hereunder.

          (f) Each Lender (or Transferee), which is organized under the laws of a jurisdiction outside the United States shall, on or prior to the date of its execution and delivery of this Agreement or, in the case of a Transferee, on the date on which it becomes a Lender, and in the case of any Lender, on or prior to the date such Lender changes its funding office, and from time to time thereafter as requested in writing by either Borrower (but only so long thereafter as such Lender remains lawfully able to do so), shall deliver to the Borrowers and the Administrative Agent such certificates, documents or other evidence, as required by the Code or Treasury Regulations issued pursuant thereto, including Internal Revenue Service Form W-8BEN or Form W-8ECI and any other certificate or statement of exemption required by Treasury Regulation Section 1.1441-4(a) or 1.1441-6(c) or any subsequent version thereof, properly completed and duly executed by such Lender (or Transferee) establishing that any payment under the Loan Documents is (i) not subject to withholding under the Code because such payment is effectively connected with the conduct by such Lender (or Transferee) of a trade or business in the United States, or (ii) fully or partially exempt from United States tax under a provision of an applicable tax treaty, or (iii) not subject to withholding under the portfolio

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interest exception under Section 881(c) of the Code (and, if such Lender (or Transferee) delivers a Form W-8BEN claiming the benefits of exemption from United States withholding tax under Section 881(c), a certificate representing that such Lender (or Transferee) is not a “bank” for purposes of Section 881(c) of the Code, is not a 10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of either Borrower and is not a controlled foreign corporation related to either Borrower (within the meaning of Section 864(d)(4) of the Code). Unless the Borrowers and the Administrative Agent have received forms or other documents reasonably satisfactory to them indicating that payments hereunder are not subject to United States withholding tax or are subject to such tax at a rate reduced by an applicable tax treaty, each applicable Borrower or the Administrative Agent shall withhold taxes from such payments at the applicable statutory rate in the case of payments to or for any Lender (or Transferee) organized under the laws of a jurisdiction outside the United States. If a Lender (or Transferee) is unable to deliver one of these forms or if the forms provided by a Lender (or Transferee), at the time such Lender (or Transferee), first becomes a party to this Agreement or at the time a Lender (or Transferee), changes its funding office (other than at the request of a Borrower) indicate a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from Taxes unless and until such Lender (or Transferee), provides the appropriate forms certifying that a lesser rate applies, whereupon withholding tax at such lesser rate only shall be considered excluded from Taxes for periods governed by such appropriate forms; provided, however, that if at the effective date of a transfer pursuant to which a Lender (or Transferee) becomes a party to this Agreement, the Lender (or Transferee) assignor was entitled to payments under Section 2.17(a) in respect of United States withholding tax with respect to interest paid at such date, then, to such extent, the term Taxes shall include (in addition to withholding taxes that may be imposed in the future or other amounts otherwise includable in Taxes) United States withholding tax, if any, applicable with respect to the Lender (or Transferee), assignee on such date.

          (g) The Borrowers shall not be required to pay any additional amounts to any Lender (or Transferee) in respect of United States withholding tax pursuant to paragraph (a) above for any period in respect of which the obligation to pay such additional amounts would not have arisen but for a failure by such Lender (or Transferee), to comply with the provisions of paragraph (f) above unless such failure results from (i) a change in applicable law, regulation or official interpretation thereof or (ii) an amendment, modification or revocation of any applicable tax treaty or a change in official position regarding the application or interpretation thereof, in each case after the Closing Date (and, in the case of a Transferee, after the date of assignment or transfer).

          (h) Any Lender (or Transferee) claiming any additional amounts payable pursuant to this Section 2.17 shall use reasonable efforts (consistent with internal policy, and legal and regulatory restrictions) to file any certificate or document requested by the Borrowers or to change the jurisdiction of its applicable lending office if the making of such a filing or change would avoid the need for or reduce the amount of any such additional amounts which may thereafter accrue and would not, in the reasonable determination of such Lender (or Transferee) be materially disadvantageous to such Lender (or Transferee) or require the disclosure of information that the Lender (or Transferee) reasonably considers to be confidential.

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          Section 2.18 Mitigation Obligations; Replacement of Lenders. (a) If any Lender (including the Administrative Agent) requests compensation under Section 2.11, or if it becomes unlawful for any Lender (including the Administrative Agent) to make or maintain Eurodollar Loans under Section 2.12, or if a Borrower is required to pay any additional amount to any Lender, the Administrative Agent or any Governmental Authority for the account of any Lender or the Administrative Agent pursuant to Section 2.17, then such Lender or the Administrative Agent shall, at the request of such Borrower, use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender or the Administrative Agent, as the case may be, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.11 or 2.17 or no longer make it unlawful for such Lender or the Administrative Agent, to make or maintain Eurodollar Loans under Section 2.12, as the case may be, in the future and (ii) would not subject such Lender or the Administrative Agent, as the case may be, to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender or the Administrative Agent, as the case may be. The Borrowers hereby agree, jointly and severally, to pay all reasonable costs and expenses incurred by any Lender or the Administrative Agent in connection with any such designation or assignment.

          (b) If any Lender requests compensation under Section 2.11, or if it becomes unlawful for any Lender to make or maintain Eurodollar Loans under Section 2.12, or if a Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.17, or if any Lender defaults in its obligation to fund Loans hereunder, then the Borrowers may, at their sole expense and effort, upon notice to such Lender and the Administrative Agent, (i) require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 9.04), all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (x) the Borrowers shall have received the prior written consent of the Administrative Agent, which consent shall not unreasonably be withheld, (y) such assigning Lender shall have received payment of an amount equal to the outstanding principal of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrowers (in the case of all other amounts) and (z) in the case of any such assignment resulting from a claim for compensation under Section 2.11 or payments required to be made pursuant to Section 2.17, such assignment will result in a reduction in such compensation or payments or (ii) terminate the Commitment of such Lender upon notice given to such Lender within forty-five (45) days of receipt of the notice given by the Lender; provided that such notice shall be accompanied by prepayment in full of all Loans from such Lender, including accrued interest thereon and any breakage costs, accrued fees and all other amounts payable to such Lender, without extension, conversion or continuation. A Lender shall not be required to make any such assignment and delegation under clause (i) above or terminate its Commitment under clause (ii) above if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrowers to require such assignment and delegation or termination of Commitment cease to apply.

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          Section 2.19 Term Loan Conversion. (a) Not less than five days and not more than thirty days prior to the Revolver Termination Date, and subject to the conditions set forth in Section 4.03, each Borrower may elect to convert all or a portion of its respective Revolving Borrowings outstanding as of the Revolver Termination Date into Term Borrowings (the “Term Loan Conversion”) by delivery of a written notice to that effect to the Administrative Agent, who shall forward a copy of such notice to each of the Lenders. If such notice is given, each Lender severally agrees, on the terms and conditions hereinafter set forth, that each of its outstanding Revolving Loans that are part of the Borrowings subject to the election to convert will be converted into a term loan (each, a “Term Loan” and collectively, the “Term Loans”) having the same terms as the converted loan on the Revolver Termination Date. Any amount of any Lender’s Term Loans repaid may not be reborrowed, and the Term Loans so elected shall commence on the Revolver Termination Date and shall be payable on the Termination Date.

          (b) In order to elect the Term Loan Conversion, and in addition to the notice set forth in Section 2.19(a) above, the Borrower electing the Term Loan Conversion shall hand deliver or telecopy to the Administrative Agent a request (i) in the case of a Term Borrowing consisting of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the Revolver Termination Date, (ii) in the case of a Term Borrowing consisting of a Base Rate Borrowing, not later than 12:00 noon, New York City time, on the day of the Revolver Termination Date, which request shall be irrevocable and shall in each case specify (x) whether the Term Borrowing then being requested is to consist of a Eurodollar Borrowing or a Base Rate Borrowing; (y) the date of such Borrowing (which shall be the Revolver Termination Date) and the amount thereof (which shall be the amount of Revolving Borrowings of such Borrower outstanding on the Revolver Termination Date); and (z) if such Borrowing is to be a Eurodollar Borrowing, the Interest Period with respect thereto. If no election as to the Type of Borrowing is specified in any such notice, then the requested Borrowing shall be a Base Rate Borrowing. If no Interest Period with respect to any Eurodollar Borrowing is specified in any such notice, then such Borrower shall be deemed to have selected an Interest Period of one month’s duration. The Administrative Agent shall promptly advise the Lenders of any notice given pursuant to this Section 2.19 and of each Lender’s portion of the requested Borrowing.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

          Each of the Borrowers represents and warrants to each of the Lenders that:

          Section 3.01 Organization; Powers. Such Borrower and each of its Restricted Subsidiaries (a) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has all requisite power and authority to own its property and assets and to carry on its business as now conducted and as proposed to be conducted, (c) is qualified to do business in every jurisdiction where such qualification is required, except where the failure so to qualify would not result in a Material Adverse Effect, and (d) in the case of such Borrower, has the corporate power and authority to execute, deliver

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and perform its obligations under each of the Loan Documents and each other agreement or instrument contemplated thereby to which it is or will be a party and to borrow hereunder.

          Section 3.02 Authorization. The execution, delivery and performance by such Borrower of each of the Loan Documents and the borrowings hereunder, and the consummation of the other transactions contemplated hereby (collectively, the “Transactions”) (a) have been duly authorized by all requisite corporate and, if required, stockholder action and (b) (i) will not violate (A) any provision of law, statute, rule or regulation, (B) of the certificate or articles of incorporation or other constitutive documents or by-laws of such Borrower or any of its Restricted Subsidiaries, (C) any order of any Governmental Authority or (D) any provision of any indenture, agreement or other instrument to which such Borrower or any of its Restricted Subsidiaries is a party or by which any of them or any of their property is or may be bound, (ii) will not be in conflict with, result in a breach of or constitute (alone or with notice or lapse of time or both) a default under any such indenture, agreement or other instrument or (iii) will not result in the creation or imposition of any Lien upon or with respect to any property or assets now owned or hereafter acquired by such Borrower or any of its Restricted Subsidiaries except, in each case other than (a) and (b)(i)(B), as could not reasonably be expected to have a Material Adverse Effect.

          Section 3.03 Enforceability. This Agreement has been duly executed and delivered by such Borrower and constitutes, and each other Loan Document when executed and delivered by such Borrower will constitute, a legal, valid and binding obligation of such Borrower enforceable against such Borrower in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.

          Section 3.04 Consents and Approvals. No action, consent or approval of, registration or filing with, or any other action by any Governmental Authority or any other third party is or will be required in connection with the Transactions, except as have been made or obtained (without the imposition of any conditions that are not acceptable to the Lenders) and are in full force and effect (other than any action, consent, approval, registration or filing the absence of which could not reasonably be expected, either individually or in the aggregate with any such other consents, approvals, registrations or filings, to result in a Material Adverse Effect). No law or regulation shall be applicable, restraining, preventing or imposing materially adverse conditions upon the Transactions or the rights of the Borrowers and their respective subsidiaries freely to transfer or otherwise dispose of, or to create any Lien on, any properties now owned or hereafter acquired by any of them except, in each case, as could not reasonably be expected to have a Material Adverse Effect.

          Section 3.05 Financial Statements. (a) Weyerhaeuser has heretofore furnished to the Lenders its consolidated balance sheets and statements of earnings and statements of cash flows, together with the notes thereto, as of and for the fiscal year ended December 29, 2002, audited by and accompanied by the opinion of KPMG LLP, independent public accountants.

          (b) WRECO has heretofore furnished to the Lenders its consolidated balance sheets and statements of earnings and statements of cash flows, together with the notes thereto,

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as of and for the fiscal year ended December 29, 2002, audited by and accompanied by the opinion of KPMG LLP, independent public accountants.

          (c) Such financial statements referred to in Section 3.05(a) and (b) present fairly in all material respects the financial position and results of operations of Weyerhaeuser, WRECO and their respective consolidated subsidiaries as of such dates and for such periods. Such balance sheets and the notes thereto disclose all material liabilities, direct or contingent, of Weyerhaeuser, WRECO and their respective consolidated subsidiaries as of the dates thereof. Such financial statements were prepared in accordance with GAAP applied on a consistent basis.

          Section 3.06 No Material Adverse Change. Other than changes in operating results arising in the ordinary course of business and except as otherwise disclosed publicly or to the Lenders prior to the date hereof, there has been no material adverse change in the business, financial condition, operations or properties of Weyerhaeuser and its subsidiaries, taken as a whole, since December 29, 2002.

          Section 3.07 Title to Properties; Possession Under Leases. (a) Each of such Borrowers and its Restricted Subsidiaries has good and marketable title to, or valid leasehold interests in, all of its material properties and assets, except for defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties and assets for their intended purposes.

          (b) Each of such Borrowers and its Restricted Subsidiaries (i) has complied with all obligations under all leases to which it is a party, and (ii) enjoys peaceful and undisturbed possession under all such leases, except where such non-compliance or lack of peaceful and undisturbed possession would not result in a Material Adverse Effect. All leases to which the Borrowers and their respective Restricted Subsidiaries are a party are in full force and effect, except where such lack of force and effect would not result in a Material Adverse Effect.

          Section 3.08 Subsidiaries. Schedule 3.08 Part I for Weyerhaeuser and Schedule 3.08 Part II for WRECO (i) set forth as of the Closing Date a list of all subsidiaries of Weyerhaeuser and WRECO and the percentage ownership interest of Weyerhaeuser and WRECO therein, as applicable, and (ii) for Weyerhaeuser and WRECO, designate those Subsidiaries which are Unrestricted Subsidiaries.

          Section 3.09 Litigation; Compliance with Laws. (a) Except as disclosed in Weyerhaeuser’s Report on Form 10-K for the fiscal year ended December 29, 2002, there are no actions, suits, investigations, litigations or proceedings pending or, to the knowledge of the Borrowers, threatened against or affecting the Borrowers or any of their Restricted Subsidiaries in any court or before any arbitrator or Governmental Authority that could reasonably be expected to have a Material Adverse Effect.

          (b) Except as disclosed in Weyerhaeuser’s Report on Form 10-K for the fiscal year ended December 29, 2002, neither such Borrower nor any of its Restricted Subsidiaries is in violation of any law, rule or regulation, or in default with respect to any judgment, writ, injunction or decree of any Governmental Authority, where such violation or default could reasonably be expected to result in a Material Adverse Effect.

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          Section 3.10 Agreements. (a) Neither such Borrower nor any of its Restricted Subsidiaries is a party to any agreement or instrument or subject to any corporate restriction that has resulted in a Material Adverse Effect.

          (b) Neither such Borrower nor any of its Restricted Subsidiaries is in default in any manner under any material agreement or instrument (except for any indenture or other agreement or instrument evidencing Indebtedness) to which it is a party or by which it or any of its properties or assets are or may be bound, where such default could reasonably be expected to result in a Material Adverse Effect.

          Section 3.11 Federal Reserve Regulations. (a) Neither such Borrower nor any of its Restricted Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying Margin Stock.

          (b) No part of the proceeds of any Loan will be used, whether directly or indirectly, whether immediately, incidentally or ultimately, for any purpose which entails a violation of, or which is inconsistent with, the provisions of the Regulations of the Board, including Regulation T, U or X.

          Section 3.12 Investment Company Act; Public Utility Holding Company Act. Neither such Borrower nor any of its Restricted Subsidiaries is (a) an “investment company” as defined in, or subject to regulation under, the Investment Company Act of 1940 or (b) a “holding company” as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935.

          Section 3.13 Tax Returns. Each of such Borrower and its Subsidiaries has filed or caused to be filed all material Federal, state and local tax returns required to have been filed by it and has paid or caused to be paid all material taxes shown to be due and payable on such returns or on any assessments received by it, except taxes that are being contested in good faith by appropriate proceedings and for which such Borrower or Subsidiary, as the case may be, shall have set aside on its books appropriate reserves.

          Section 3.14 No Material Misstatements. No information, report, financial statement, exhibit or schedule furnished by or on behalf of such Borrower to the Administrative Agent or any Lender in connection with the negotiation of any Loan Document or included therein or delivered pursuant thereto, when taken together with the reports and other filings with the SEC, contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.

          Section 3.15 Compliance with ERISA. Except as would not have a Material Adverse Effect, subject to the following sentences of this Section 3.15, each Plan subject to ERISA or the Code, as applicable, is in compliance with ERISA and the Code; no Reportable Event has occurred with respect to a Plan, no Plan is insolvent or in reorganization; no Plan has an Unfunded Current Liability in excess of $40,000,000, and all Plans collectively do not have Unfunded Current Liabilities in excess of $91,000,000 in the aggregate, and no Plan subject to ERISA or the Code, as applicable, has an accumulated or waived funding deficiency, has

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permitted decreases in its funding standard account or has applied for an extension of any amortization period within the meaning of Section 412 of the Code; neither such Borrower nor any ERISA Affiliate has incurred any liability to or on account of a Plan pursuant to Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201 or 4204 of ERISA or Section 4975 of the Code or expects to incur any material liability under any of the foregoing Sections with respect to any such Plan; no condition exists which presents a risk to such Borrower or any ERISA Affiliate of incurring a liability to or on account of a Plan pursuant to the foregoing provisions of ERISA and the Code; no proceedings have been instituted to terminate any Plan; no lien imposed under the Code or ERISA on the assets of such Borrower or any ERISA Affiliate exists or is likely to arise on account of any Plan; such Borrower and its Subsidiaries do not maintain or contribute to any “welfare plan” (within the meaning of Section 3(1) of ERISA) which provides life insurance or health benefits to retirees (other than as required by Section 601 of ERISA) the obligations with respect to which could reasonably be expected to have a Material Adverse Effect.

          Section 3.16 Environmental Matters. Except as disclosed in Weyerhaeuser’s Report on Form 10-K for the fiscal year ended December 29, 2002, filed with the SEC, (a) neither Borrower nor any of its Subsidiaries has failed to comply with any Federal, state, local and other statutes, ordinances, orders, judgments, rulings and regulations relating to environmental pollution or to environmental regulation or control, where any such failure to comply, alone or together with any other such noncompliance, could result in a Material Adverse Effect; (b) neither Borrower nor any of its Subsidiaries has received notice of any failure so to comply which alone or together with any other such failure could result in a Material Adverse Effect; and (c) the Borrowers’ and their respective Subsidiaries’ plants have not managed any hazardous wastes, hazardous substances, hazardous materials, toxic substances or toxic pollutants, as those terms are used in the Resource Conservation and Recovery Act, the Comprehensive Environmental Response Compensation and Liability Act, the Hazardous Materials Transportation Act, the Toxic Substance Control Act, the Clean Air Act, the Clean Water Act or any other Environmental Law, in violation of any regulations promulgated pursuant thereto or in any other applicable law where such violation could reasonably result, individually or together with other violations, in a Material Adverse Effect.

          Section 3.17 Maintenance of Insurance. Such Borrower and each of its Restricted Subsidiaries maintains insurance (which may be self insurance) for all of its insurable properties: (a) by financially sound and reputable insurers to the extent of insurance obtained from third party insurers; (b) to such extent and against such risks, including fire and other risks insured against by extended coverage, as is customary with companies in the same or similar businesses, including public liability insurance against claims for personal injury or death or property damage occurring upon, in, about or in connection with the use of any properties owned, occupied or controlled by such Borrower or such Restricted Subsidiaries; and (c) as may be required by law.

ARTICLE IV

CONDITIONS OF LENDING

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          The obligations of the Lenders to make Loans hereunder are subject to the satisfaction of the following conditions:

          Section 4.01 All Borrowings and Issuances. On the date of each Borrowing:

       (a) Notice. The Administrative Agent shall have received from the applicable Borrower a notice of such Borrowing as required by Section 2.02 or 2.03, as applicable.
 
       (b) Representations. The representations and warranties of the Borrowers set forth in Sections 3.01, 3.02, 3.03, 3.04, 3.07, 3.10(b), 3.11 and 3.12 shall be true and correct in all material respects on and as of such date with the same effect as though made on and as of such date at the time of and immediately after such Borrowing.
 
       (c) Compliance, etc. The Borrowers shall be in compliance with all the terms and provisions set forth herein and in each other Loan Document on their part to be observed or performed, and, as applicable, at the time of and immediately after such Borrowing, no Event of Default or Default shall have occurred and be continuing.

          Each Borrowing shall be deemed to constitute a representation and warranty by the Borrowers on the date of such Borrowing as to the matters specified in paragraphs (b) and (c) of this Section 4.01.

          Section 4.02 Closing Date. In addition to all the conditions set forth in Section 4.01, on or before the Closing Date:

       (a) Opinions. The Administrative Agent shall have received a favorable written opinion of (i) Perkins Coie, special counsel for the Borrowers, dated the Closing Date and addressed to the Lenders, in form and substance reasonably satisfactory to the Administrative Agent and (ii) Lorrie Scott, Esq., Senior Legal Counsel to Weyerhaeuser, as counsel for Weyerhaeuser, dated the Closing Date and addressed to the Lenders, in form and substance reasonably satisfactory to the Administrative Agent.
 
       (b) Legal Matters. All legal matters (including any documentation) related to this Agreement and the Transactions shall be satisfactory to the Lenders and to Shearman & Sterling, special counsel for the Administrative Agent.
 
       (c) Articles, etc. The Administrative Agent shall have received (i) a copy of the certificate or articles of incorporation, including all amendments thereto, of each of the Borrowers, certified as of a recent date by the Secretary of State of their respective States of incorporation, and certificates as to the good standing of each of the Borrowers, as of a recent date, from each such Secretary of State; (ii) a certificate from each of the Borrowers of their respective Secretary or Assistant Secretary dated the Closing Date and certifying (A) that attached thereto is a true and complete copy of the by-laws of such Borrower as in effect on the Closing Date and at all times since a date prior to the date of the resolutions described in clause (B) below, (B) that attached thereto is a true and complete copy of resolutions duly adopted by the Board of Directors of such Borrower authorizing the execution, delivery and performance of such Borrower of any and all documents and agreements to be entered into with respect to the Loan Documents and the

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  borrowings to be made thereunder, and that such resolutions have not been modified, rescinded or amended and are in full force and effect, (C) that the certificate or articles of incorporation of such Borrower have not been amended since the date of the last amendment thereto shown on the certificates of good standing furnished pursuant to clause (i) above, and (D) as to the incumbency and specimen signature of each officer executing any Loan Document or any other document or agreement delivered in connection with the Transactions on behalf of such Borrower; (iii) a certification of another officer as to the incumbency and specimen signature of the Secretary or Assistant Secretary executing the certificate pursuant to (ii) above; and (iv) such other documents as the Lenders or Shearman & Sterling, special counsel for the Administrative Agent, may reasonably request.
 
       (d) Officers’ Certificates. The Administrative Agent shall have received a certificate from each Borrower, dated the Closing Date and signed by a Financial Officer of such Borrower, confirming (i) compliance with the condition precedent set forth in paragraph (c) of Section 4.01, and (ii) that the representations and warranties of such Borrower set forth herein are true and correct in all material respects on and as of the Closing Date (except for representations and warranties expressly stated to relate to a specific earlier date, in which case such representations and warranties are true and correct in all material respects as of such earlier date), immediately prior to, and after giving effect to, the initial Borrowing.
 
       (e) Fees. The Administrative Agent and the Lenders shall have received all Fees and other amounts due and payable on or prior to the Closing Date.
 
       (f) Loan Documents. The Administrative Agent shall have received a fully executed counterpart of this Agreement, and an executed copy of each Loan Document (other than this Agreement).

          Section 4.03 Term Loan Conversion Conditions. On the date any Term Loan Conversion is effective:

          (a) Representations. The representations and warranties of the Borrower electing such Term Loan Conversion shall be true and correct in all material respects on and as of such date with the same effect as though made on and as of such date (except for representations and warranties expressly stated to relate to a specific earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date).

          (b) Compliance, etc. The Borrower electing such Term Loan Conversion shall be in compliance with all the terms and provisions set forth herein and in each other Loan Document on its part to be observed or performed, and at the time of and immediately after the Term Loan Conversion, no Event of Default or Default shall have occurred and be continuing.

ARTICLE V

AFFIRMATIVE COVENANTS

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          Each Borrower covenants and agrees with each Lender and the Administrative Agent that, so long as this Agreement shall remain in effect or the principal of or interest on any Loan, any Fees or any other expenses or amounts payable under any Loan Document shall be unpaid, unless the Required Lenders (or, where indicated, the Lenders) shall otherwise consent in writing, each Borrower will, and will cause each of its Restricted Subsidiaries (except in the case of Sections 5.03 (which applies to Weyerhaeuser), 5.06 (which applies to Weyerhaeuser, WRECO and their respective ERISA Affiliates) and 5.09 (which applies to Weyerhaeuser, WRECO and all of their respective Subsidiaries)) to:

          Section 5.01 Existence; Businesses and Properties. (a) Do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence, except as otherwise expressly permitted under Section 6.01(c) (with respect to Weyerhaeuser) and Section 6.02(d) (with respect to WRECO) and, with respect to Restricted Subsidiaries, where the failure to do so could not reasonably be expected to have a Material Adverse Effect, provided, however, that such Borrower may liquidate or dissolve any of its Subsidiaries to the extent the assets of such Subsidiary are transferred to Weyerhaeuser or any of its Restricted Subsidiaries.

          (b) Except in each case where the failure to do so could not reasonably be expected to result in a Material Adverse Effect, (i) do or cause to be done all things necessary to obtain, preserve, renew, extend and keep in full force and effect the rights, licenses, permits, franchises, authorizations, patents, copyrights, trademarks and trade names necessary in the conduct of its business; (ii) maintain and operate such business in substantially the manner in which it is presently conducted and operated; (iii) comply with all applicable laws, rules, regulations and orders of any Governmental Authority, whether now in effect or hereafter enacted; and (iv) at all times maintain and preserve all property necessary in the conduct of such business and keep such property in good repair, working order and condition and from time to time make, or cause to be made, all necessary and proper repairs, renewals, additions, improvements and replacements thereto necessary in order that the business carried on in connection therewith may be properly conducted at all times.

          (c) Maintain compliance with each of its loans, contracts, leases and other obligations (other than Indebtedness) except such as are being contested in good faith by appropriate proceedings and for which appropriate reserves have been established, and except for such noncompliance as could not reasonably be expected to have, in any case or in the aggregate, a Material Adverse Effect.

          Section 5.02 Insurance. (a) Keep such of its insurable properties as are insured with third-party insurers insured at all times by financially sound and reputable insurers; and (b) maintain (i) insurance (which may include self insurance), to such extent and against such risks, including fire and other risks insured against by extended coverage, as is customary with companies in the same or similar businesses, including public liability insurance against claims for personal injury or death or property damage occurring upon, in, about or in connection with the use of any properties owned, occupied or controlled by it; and (ii) such insurance as may be required by law.

          Section 5.03 Obligations and Taxes. Pay its obligations (other than Indebtedness) promptly and in accordance with their terms and pay and discharge promptly

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when due all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or in respect of its property, before the same shall become delinquent or in default, as well as all lawful claims for labor, materials and supplies or otherwise which, if unpaid, might give rise to a Lien upon such properties or any part thereof; provided, however, that such payment and discharge shall not be required (i) with respect to any such tax, assessment, charge, levy or claim so long as the validity or amount thereof shall be contested in good faith by appropriate proceedings and such Borrower or such Subsidiary shall have set aside on its books appropriate reserves with respect thereto or (ii) if the failure to make such payments or to discharge such Liens is not, in any case or in the aggregate, reasonably likely to have a Material Adverse Effect.

          Section 5.04 Financial Statements, Reports, etc. In the case of each Borrower, furnish to the Administrative Agent (which shall promptly furnish to each Lender):

       (a) within 95 days after the end of each fiscal year, its consolidated balance sheets and related statements of earnings and statements of cash flows, together with the notes thereto, showing the financial position of such Borrower and its consolidated Subsidiaries as of the close of such fiscal year and the results of their operations and the operations of such subsidiaries during such year, all audited by KPMG LLP or other independent public accountants of recognized national standing acceptable to the Required Lenders and accompanied by an opinion of such accountants (which shall not be qualified in any material respect) to the effect that such consolidated financial statements fairly present the financial position and results of operations of each such Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, except as therein noted;
 
       (b) within 50 days after the end of each of the first three fiscal quarters of each fiscal year, its consolidated balance sheets and related statements of earnings and, with respect to Weyerhaeuser, statements of cash flows, showing the financial position of Weyerhaeuser and its consolidated Subsidiaries as of the close of such fiscal quarter and the results of its operations and the operations of such consolidated Subsidiaries during such fiscal quarter and the then elapsed portion of the fiscal year, all certified (in the form of Exhibits D-1 and D-2, with respect to Weyerhaeuser and WRECO, respectively) by one of its Financial Officers as fairly presenting the financial position and results of operations of each such Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, except as therein noted, subject to appropriate year-end audit adjustments;
 
       (c) concurrently with any delivery of financial statements under (a) or (b) above, a certificate (in the form of Exhibits D-3 and D-4, with respect to Weyerhaeuser and WRECO, respectively) of the accounting firm or Financial Officer of such Borrower opining on or certifying such statements (which certificate, when furnished by an accounting firm, may be limited to accounting matters and disclaim responsibility for legal interpretations) (i) certifying that no Event of Default or Default has occurred or, if such an Event of Default or Default has occurred, specifying the nature and extent thereof and any corrective action taken or proposed to be taken with respect thereto, (ii) in the case of Weyerhaeuser setting forth computations in reasonable detail satisfactory to the

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  Administrative Agent demonstrating compliance with the covenants contained in Sections 6.01(d) and 6.01(e) and (iii) including a reconciliation setting forth adjustments made to such financial statements in order to make the calculations set forth in clause (ii) above;
 
       (d) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by it or any of its Subsidiaries with the SEC, or with any national securities exchange, or distributed to its shareholders, as the case may be;
 
       (e) as soon as practicable, copies of such further financial statements and reports as such Borrower shall send to banks with which it has lines of credit, and all such financial statements and reports as such Borrower shall send to its shareholders (unless all of the outstanding shares of capital stock of such Borrower are held by one Person);
 
       (f) promptly, from time to time, such other information regarding the operations, business affairs and financial condition of such Borrower or any of its Subsidiaries, or compliance with the terms of any Loan Document, as the Administrative Agent or any Lender may reasonably request (it being understood that neither Borrower shall be required to provide any information or documents which are subject to confidentiality provisions the nature of which prohibit such disclosure);
 
       (g) promptly, and in any event within 2 days, upon becoming aware thereof, notice of any proposed or actual down-grade, suspension or withdrawal of the rating provided by S&P or Moody’s to Weyerhaeuser in respect of its Senior Unsecured Long-Term Debt; and
 
       (h) information required to be delivered pursuant to paragraphs (a), (b), (d) and (e) shall be deemed to have been delivered on the date on which Weyerhaeuser provides notice to the Administrative Agent that such information has been posted on Weyerhaeuser’s website on the internet at the website address listed on the signature pages thereof, at www.sec.gov or at another website identified in such notice and accessible by the Lenders without charge; provided that Weyerhaeuser shall deliver paper copies of the reports and financial statements referred to in paragraphs (a), (b), (d) and (e) of this Section 5.04 to the Administrative Agent or any Lender who requests Weyerhaeuser to deliver such paper copies until written notice to cease delivering paper copies is given by such Administrative Agent or Lender to Weyerhaeuser.

          Section 5.05 Litigation and Other Notices. Furnish to the Administrative Agent (which shall promptly furnish to each Lender) prompt written notice of the following:

       (a) any Event of Default or Default, specifying the nature and extent thereof and the corrective action (if any) proposed to be taken with respect thereto;
 
       (b) the filing or commencement of, or any threat or notice of intention of any person to file or commence, any action, suit or proceeding, whether at law or in equity or by or before any Governmental Authority, against Weyerhaeuser, WRECO or any of

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  their respective Affiliates which, if adversely determined, could reasonably be expected to result in a Material Adverse Effect;

       (c) any development that has resulted in a Material Adverse Effect; and
 
       (d) the issuance by any Governmental Authority of any injunction, order, decision or other restraint prohibiting, or having the effect of prohibiting, the making of the Loans or the initiation of any litigation or similar proceeding seeking any such injunction, order or other restraint;

provided that in each case (other than Subsection 5.05 (a)) no Borrower shall be required to provide separate notice of any event disclosed in any report promptly filed with the SEC.

          Section 5.06 ERISA. As soon as possible and, in any event, within 10 Business Days after Weyerhaeuser knows of the occurrence of any of the following events which individually or in the aggregate could reasonably be expected to have a Material Adverse Effect, Weyerhaeuser will deliver to the Administrative Agent a certificate of the Financial Officer of Weyerhaeuser setting forth details as to such occurrence and such action, if any, which Weyerhaeuser or an ERISA Affiliate is required or proposes to take, together with any notices required or proposed to be given to or filed with or by Weyerhaeuser or such ERISA Affiliate, the PBGC, a Plan participant or the Plan administrator with respect thereto: (a) that a Reportable Event has occurred, (b) that an accumulated funding deficiency has been incurred or an application has been made to the Secretary of the Treasury for a waiver or modification of the minimum funding standard (including any required installment payments) or an extension of any amortization period under Section 412 of the Code with respect to a Plan, (c) that a Plan has been or is in the process of being terminated, reorganized, partitioned or declared insolvent under Title IV of ERISA, (d) that a Plan has an Unfunded Current Liability, (e) that proceedings have been instituted to terminate a Plan, (f) that a proceeding has been instituted pursuant to Section 515 of ERISA to collect a delinquent contribution to a Plan, or (g) that Weyerhaeuser or any ERISA Affiliate will or is reasonably likely to incur any liability (including any contingent or secondary liability) to or on account of the termination of or withdrawal from a Plan under Section 4062, 4063, 4064, 4069, 4201 or 4204 of ERISA or with respect to a Plan under Section 4975 of the Code or Section 409, 502(i) or 502(l) of ERISA. Weyerhaeuser will, upon written request, deliver to the Administrative Agent a complete copy of the annual report (Form 5500) of each Plan required to be filed with the Internal Revenue Service. In addition to any certificates or notices delivered to the Administrative Agent pursuant to the first sentence hereof, copies of annual reports and any other notices received by Weyerhaeuser or any ERISA Affiliate required to be delivered to the Administrative Agent hereunder shall be delivered to the Administrative Agent no later than 10 Business Days after the later of the date such report or notice has been filed with the Internal Revenue Service or the PBGC, given to Plan participants, received by Weyerhaeuser or such ERISA Affiliate or requested in writing by the Administrative Agent.

          Section 5.07 Maintaining Records; Access to Properties and Inspections. Maintain appropriate, accurate and complete financial records and permit any representatives designated by the Administrative Agent or any Lender to visit and inspect the financial records and the properties of each such Borrower or any of its Restricted Subsidiaries at reasonable times

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and, with reasonable prior notice given to Weyerhaeuser, as often as requested and until a Default has occurred at the expense of the Administrative Agent or such Lender, and to make extracts from and copies of such financial records, and permit any representatives designated by any Lender or the Administrative Agent to discuss the affairs, finances and condition of Weyerhaeuser, WRECO or any such Restricted Subsidiary with the officers thereof and independent accountants (so long as a representative of Weyerhaeuser is present, or Weyerhaeuser has consented to the absence of such a representative) therefor (in each case subject to such Borrower’s obligations under applicable confidentiality provisions).

          Section 5.08 Use of Proceeds. Use the proceeds of the Loans only for the purposes set forth in the recitals to this Agreement.

          Section 5.09 Environmental Matters. (a) (i) Comply in all material respects with all Environmental Laws applicable to the ownership or use of any real property owned or leased by such Borrower or any of its Subsidiaries, except where such noncompliance is not, in any case or in the aggregate, reasonably likely to have a Material Adverse Effect, (ii) include in all material contracts with tenants and other persons occupying such real property provisions to ensure such tenants’ compliance in all material respects with all such Environmental Laws, and diligently enforce and prosecute its rights with respect to such provisions, (iii) pay or cause to be paid in the case of sole liability, or, in the case of joint liability, to seek contribution or compensation in respect of, all costs and expenses incurred in connection with such compliance, except in respect to costs and expenses that are being contested in good faith and for which such Borrower or such Subsidiary, as the case may be, shall have set aside on its books appropriate reserves, and except where failures to make such payments are not, in any case or in the aggregate, reasonably likely to have a Material Adverse Effect, and (iv) use its best efforts to keep or cause to be kept all such real property free and clear of any liens imposed pursuant to any Environmental Laws, except in respect to liens that are being contested in good faith, and except in respect to liens the existence of which is not, in any case or in the aggregate, reasonably likely to have a Material Adverse Effect.

          (b) Neither such Borrower, nor any of its Subsidiaries will generate, use, treat, store, Release, or permit the generation, use, treatment, storage or Release of Hazardous Materials on any real property owned or leased by such Borrower or any of its Subsidiaries, or transport or permit the transportation of Hazardous Materials to or from any such real property, except for quantities generated, used, treated, stored, or Released on, or transported to or from, such real property in the ordinary course of business in material compliance with all applicable Environmental Laws and, except for such generation, use, treatment or storage on, or transportation to or from, any such real property of Hazardous Materials as is not, in any case or in the aggregate, reasonably likely to have a Material Adverse Effect.

          (c) If the Administrative Agent receives any notice from such Borrower pursuant to subsection (d) of this Section 5.09 or if the Administrative Agent otherwise acquires knowledge of any Environmental Claim which in the sole determination of the Required Lenders would have a Material Adverse Effect with respect to such Borrower then upon the written request of the Required Lenders, such Borrower will provide, at its sole cost and expense, an environmental site assessment report concerning any real property owned or leased by such Borrower or an affected Subsidiary prepared by an environmental consulting firm approved by

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the Required Lenders, indicating the presence or absence of Hazardous Materials and the potential costs of any removal or remedial action in connection with any Hazardous Materials on any real property owned or leased by such Borrower or any of its Subsidiaries.

          (d) Such Borrower will immediately advise the Administrative Agent in writing of any of the following:

       (i) Any pending or threatened Environmental Claim against such Borrower or any of its Subsidiaries or any real property owned or leased by such Borrower or any of its Subsidiaries which if determined adversely to such Borrower or any of its Subsidiaries would be reasonably likely to have a Material Adverse Effect;
 
       (ii) Any condition or occurrence on any real property owned or leased by such Borrower or any of its Subsidiaries that (A) results in noncompliance by such Borrower or any of its Subsidiaries with any applicable Environmental Law which noncompliance is reasonably likely to have a Material Adverse Effect, or (B) could reasonably be anticipated to form the basis of an Environmental Claim against such Borrower or any of its Subsidiaries or any real property owned or leased by such Borrower or any of its Subsidiaries and which if determined adversely to such Borrower or any of its Subsidiaries would be reasonably likely to have a Material Adverse Effect;
 
       (iii) Any condition or occurrence on any real property owned or leased by such Borrower or any of its Subsidiaries or, to the actual knowledge of such Borrower or any of its Subsidiaries, any property adjoining or in the vicinity thereof that could reasonably be anticipated to cause such real property to be subject to any restrictions on the ownership, occupancy, use, or transferability thereof under any Environmental Law which restrictions, in any case or in the aggregate, are reasonably likely to have a Material Adverse Effect; and
 
       (iv) The taking of any removal or remedial action in response to the actual or alleged presence of any Hazardous Materials on any real property owned or leased by such Borrower or any of its Subsidiaries the taking of which, in any case or in the aggregate, is reasonably likely to have a Material Adverse Effect.

All such notices shall describe in reasonable detail the nature of the claim, investigation, condition, occurrence, or removal or remedial action and the action which such Borrower or any of its Subsidiaries proposes to take in response thereto.

          Section 5.10 OCBM Agreement. With respect to Weyerhaeuser, perform, observe and comply with each of its covenants and agreements in the OCBM Agreement, and do or cause to be done all things necessary to keep the OCBM Agreement in full force and effect.

          Section 5.11 Further Assurances. Promptly cause to be taken, executed, acknowledged or delivered, at the sole expense of such Borrower, all such further acts, documents and assurances as the Required Lenders may from time to time reasonably request in order for such Borrower to carry out its obligations hereunder and under the other Loan Documents.

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ARTICLE VI

NEGATIVE COVENANTS

          Section 6.01 Covenants of Weyerhaeuser. Weyerhaeuser covenants and agrees with each Lender and the Administrative Agent that, so long as this Agreement shall remain in effect or the principal of or interest on any Loan, any Fees or any other expenses or amounts payable under any Loan Document shall be unpaid, unless the Required Lenders shall otherwise consent in writing, it will not, either directly or indirectly:

       (a) Secured Indebtedness. (i) Issue, assume or guarantee, or permit any of its Restricted Subsidiaries to issue, assume or guarantee, any indebtedness for money borrowed (hereinafter in this Section 6.01(a) referred to as “debt”), if such debt is secured by a deed of trust, mortgage, pledge, security interest or other lien or encumbrance (any deed of trust, mortgage, pledge, security interest or other lien or encumbrance being hereinafter in this Section 6.01(a) referred to as a “mortgage” or collectively “mortgages”) upon or with respect to any timber or timberlands of Weyerhaeuser or such Restricted Subsidiary located in the States of Washington, Oregon, Arkansas, Oklahoma, Mississippi or North Carolina, or upon or with respect to any principal manufacturing plant of Weyerhaeuser or such Restricted Subsidiary located anywhere in the United States of America, in either case now owned or hereafter acquired, without in any such case effectively providing, concurrently with the issuance, assumption or guarantee of any such debt, that the Loans (together with, if Weyerhaeuser shall so determine, any other indebtedness of or guarantee by Weyerhaeuser or such Restricted Subsidiary ranking equally with the Loans and then existing or thereafter created) shall be secured equally and ratably with (or prior to) such debt; provided, however, that the foregoing restrictions shall not be applicable to:

       (1) mortgages upon or with respect to any property of any of its Restricted Subsidiaries securing debt of such Restricted Subsidiary to Weyerhaeuser or another Restricted Subsidiary of Weyerhaeuser;
 
       (2) mortgages upon or with respect to any property acquired, constructed or improved by Weyerhaeuser or any of its Restricted Subsidiaries after the date of this Agreement which are created, incurred or assumed contemporaneously with, or within 90 days after, such acquisition, construction or improvement, to secure or provide for the payment of any part of the purchase price of such property or the cost of such construction or improvement, or mortgages upon or with respect to any property existing at the time of acquisition thereof; provided, however, that in the case of any such construction or improvement the mortgage shall not apply to any property theretofore owned by Weyerhaeuser or any of its Restricted Subsidiaries other than any theretofore unimproved real property on which the property so constructed, or the improvement, is located;
 
       (3) any extension, renewal or replacement of any mortgage referred to in clause (2) above or clause (4) below; provided, however, that the principal

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  amount of indebtedness secured thereby shall not exceed the principal amount of indebtedness so secured at the time of such extension, renewal or replacement, and that such extension, renewal or replacement shall be limited to all or part of the same property which secured the mortgage so extended, renewed or replaced; and
 
       (4) any mortgage existing on any timber or timberlands of any Person or upon or with respect to any principal manufacturing plant of any Person at the time of acquisition by the Borrower or any of its Restricted Subsidiaries of such Person.

       (ii) Notwithstanding the provisions of paragraph (a)(i) of this Section 6.01, Weyerhaeuser or any of its Restricted Subsidiaries may issue, assume or guarantee secured debt which would otherwise be subject to the foregoing restrictions in an aggregate amount which, together with all other such debt of Weyerhaeuser and its Restricted Subsidiaries and the Attributable Debt in respect of Sale and Lease-Back Transactions (as defined in Section 6.01(b)) existing at such time (other than Sale and Lease-Back Transactions permitted because Weyerhaeuser would be entitled to incur debt secured by a mortgage on the property to be leased without equally and ratably securing the Loans pursuant to paragraph (a)(i) of this Section 6.01, and other than Sale and Lease-Back Transactions the proceeds of which have been applied in accordance with clause (ii) of Section 6.01(b)), does not at the time exceed five percent (5%) of Shareholders’ Interest in Weyerhaeuser and its Restricted Subsidiaries (as hereinafter defined). The term “Attributable Debt” as used in this paragraph shall mean, as of any particular time, the present value of the obligation of the lessee for rental payments during the remaining term of any lease (including any period for which such lease has been extended or may, at the option of the lessor, be extended).
 
       (iii) For purposes of this Section 6.01(a), (A) the term “principal manufacturing plant” shall not include any manufacturing plant which, in the reasonable opinion of the Board of Directors of Weyerhaeuser, is not a principal manufacturing plant of Weyerhaeuser and its Restricted Subsidiaries; (B) the following types of transactions shall not be deemed to create debt secured by a mortgage: (1) the sale, mortgage or other transfer of timber in connection with an arrangement under which Weyerhaeuser or any of its Restricted Subsidiaries is obligated to cut such timber or a portion thereof in order to provide the transferee with a specified amount of money however determined; (2) the mortgage of any property of Weyerhaeuser or any of its Restricted Subsidiaries in favor of the United States, or any State, or any department, agency or instrumentality of either, to secure partial, progress, advance or other payments to Weyerhaeuser or any of its Restricted Subsidiaries pursuant to the provisions of any contract or statute and (3) liens existing on property at the time of acquisition of such property; and (C) the term “Shareholders’ Interest in Weyerhaeuser and its Restricted Subsidiaries” shall mean the aggregate of capital and surplus, including surplus resulting from the March 1, 1913 revaluation of timber and timberlands, of Weyerhaeuser and its Restricted Subsidiaries, after deducting the cost of shares of Weyerhaeuser held in treasury.

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       (b) Sale and Lease-Back. Enter into any arrangement, or permit any Restricted Subsidiary to enter into any arrangement, with any Person providing for the leasing by Weyerhaeuser or any of its Restricted Subsidiaries of any real property in the United States (except for temporary leases for a term of not more than three years), which property has been or is to be sold or transferred by Weyerhaeuser or such Restricted Subsidiary to such Person (herein referred to as a “Sale and Lease-Back Transaction”), unless (i) Weyerhaeuser or such Restricted Subsidiary would be entitled to incur debt secured by a mortgage on the property to be leased without equally or ratably securing the Loans pursuant to Section 6.01(a), or (ii) Weyerhaeuser applies an amount equal to the fair value (as determined by the Board of Directors of Weyerhaeuser) of the property so leased to the retirement (other than any mandatory retirement), within 90 days of the effective date of any such Sale and Lease-Back Transaction, of indebtedness for borrowed money incurred or assumed by Weyerhaeuser which by its terms matures at, or is extendible or renewable at the option of the obligor to, a date more than 12 months after the date of the creation of such debt.
 
       (c) Merger, Consolidation, etc. Be a party to a merger or consolidation or sell, transfer or otherwise dispose of all or substantially all of its properties or assets in a single transaction or in a series of related transactions unless (i) such merger, consolidation, sale, transfer or disposition is made with respect to another corporation incorporated and doing business primarily within the United States of America which shall expressly assume, in form and substance reasonably satisfactory to the Required Lenders, the obligations of Weyerhaeuser under the Loan Documents and Weyerhaeuser’s Loans, and (ii) immediately after giving effect to such merger, consolidation, sale, transfer or disposition, no Default or Event of Default hereunder shall have occurred and be continuing.
 
       (d) Debt Ratio. Permit Total Funded Indebtedness to exceed (i) on or after the Closing Date, 72% of the sum of Weyerhaeuser’s Total Adjusted Shareholders’ Interest and Total Funded Indebtedness, (ii) on or after December 31, 2003, 69% of such sum, and (iii) on or after June 30, 2005, 65% of such sum.
 
       (e) Net Worth. At any time permit Weyerhaeuser’s Total Adjusted Shareholders’ Interest to be less than $4,955,000,000.
 
       (f) Change in Business. Engage in, or permit any Restricted Subsidiary to engage in, any material business activities or operations substantially different from, or unrelated to, the business activities and operations conducted by it as of the date hereof, except for reasonable extensions, developments and modifications thereof.

          Section 6.02 Covenants with respect to WRECO. WRECO covenants and agrees with each Lender and the Administrative Agent that, so long as this Agreement shall remain in effect or the principal of or interest on any Loan, any Fees or any other expenses or amounts payable under any Loan Document shall be unpaid, unless the Required Lenders shall otherwise consent in writing, it will not, either directly or indirectly:

       (a) Capital Base. Have a Capital Base less than $100,000,000.

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       (b) Limitation on Indebtedness. Create, issue, guarantee, assume or otherwise become liable, directly or indirectly, or permit any of its Restricted Subsidiaries to create, issue, guarantee, assume or otherwise become liable, directly or indirectly, in respect of any (i) Senior Debt of WRECO or Indebtedness of any of its Restricted Subsidiaries if, immediately after giving effect to the incurrence thereof and to the application of the proceeds thereof, the aggregate principal amount of all consolidated Senior Debt of WRECO and its Restricted Subsidiaries then outstanding would exceed 80% of the sum of (x) the Capital Base plus (y) the aggregate principal amount of Senior Debt of WRECO and its Restricted Subsidiaries then outstanding; or (ii) Subordinated Debt of WRECO if, immediately after giving effect to the incurrence thereof and to the application of the proceeds thereof, the aggregate principal amount of Subordinated Debt of WRECO then outstanding would exceed 100% of Adjusted Net Worth. For purposes of this Section and Section 6.02(c), Indebtedness of a Person which becomes a Restricted Subsidiary on any date shall be deemed to have been issued or incurred as of such date.
 
       (c) Limitation on Mortgages and Liens. Create, incur or permit to exist any mortgage, pledge, encumbrance, lien, security interest or charge of any kind (including liens or charges upon properties acquired or to be acquired under conditional sales agreements or other title retention devices) on its property or assets, whether now owned or hereafter acquired, or upon any income or profits thereof, or permit any of its Restricted Subsidiaries to do any of the foregoing, except:

       (i) liens, charges, encumbrances and priority claims incidental to the conduct of the business or the ownership of properties and assets (including warehousemen’s, attorneys’ and statutory landlords’ liens) and liens, pledges or deposits in connection with workmen’s compensation, unemployment insurance, old age benefit or social security obligations, taxes, assessments, statutory obligations or other similar charges, liens of contractors, mechanics and materialmen, good faith deposits in connection with tenders, contracts or leases to which WRECO or any of its Restricted Subsidiaries is a party or other deposits required to be made in the ordinary course of business and not in connection with the borrowing of money, easements, rights of way, restrictions and other similar encumbrances that, in the aggregate, are not substantial in amount and that do not in any case materially detract from the value of the property subject thereto or substantially interfere with the ordinary conduct of WRECO’s business; provided in each case the obligation secured is not overdue or, if overdue, is being contested in good faith by appropriate proceedings;
 
       (ii) provided that no Default or Event of Default has occurred and is continuing, the pledge of assets for the purpose of securing any appeal or stay or discharge in the course of any legal proceeding and liens on or resulting from judgments or awards in respect of which WRECO or any of its Restricted Subsidiaries shall in good faith be prosecuting an appeal or proceeding for review;
 
       (iii) mortgages, liens or security interests existing as of the date of this Agreement securing obligations of WRECO or any of its Restricted Subsidiaries outstanding on such date and all renewals, extensions or refundings thereof

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  (without increase in the principal amount remaining unpaid at the time of any such renewal, extension or refunding);
 
       (iv) mortgages, liens or security interests securing Indebtedness of a Restricted Subsidiary of WRECO to another Restricted Subsidiary of WRECO or to WRECO;
 
       (v) mortgages, conditional sale contracts, security interests or other arrangements for the retention of title (including financing leases), in addition to those permitted under subparagraphs (iii), (iv), (vi) and (vii) hereof, given to secure the payment of the purchase price incurred in connection with the acquisition of property useful and intended to be used in carrying on the business of WRECO or any of its Restricted Subsidiaries, and liens existing on such property at the time of acquisition thereof or at the time of acquisition by WRECO or a Restricted Subsidiary of any Person then owning such property whether or not such existing liens were given to secure the payment of the purchase price of the property to which they attach; provided that the lien or charge shall attach solely to the property acquired or purchased and any improvements then or thereafter placed thereon;
 
       (vi) mortgages, security interests and other encumbrances or liens on Real Estate Assets, incurred or created in the ordinary course of the business of WRECO and its Restricted Subsidiaries; provided that the aggregate principal amount of all Indebtedness so secured and at any one time outstanding shall not exceed 10% of the Capital Base at such time; and
 
       (vii) mortgages, conditional sale contracts, security interests or other arrangements for the retention of title (including financing leases), in addition to those specifically permitted by foregoing subparagraphs (i) through (vi) hereof, given to secure the payment of Senior Debt of WRECO or any of its Restricted Subsidiaries, and any renewal, extension or refunding of any such Senior Debt; provided that the aggregate principal amount of all Senior Debt of WRECO and its Restricted Subsidiaries so secured and at any one time outstanding shall not exceed 10% of the Capital Base at such time.

       In the event that any property is subjected to a lien or other encumbrance in violation of this Section 6.02(c), WRECO will make or cause to be made effective provision whereby the Loans shall be secured equally and ratably with all other obligations secured thereby (provided, however, that such violation shall constitute a default under this Agreement whether or not such provision is made) and, if such provision is not made, an equitable lien, so equally and ratably securing the Loans, shall (to the extent permitted by law) exist on such property.
 
       (d) Limitation on Mergers and Consolidations. Be a party to any merger or consolidation unless (i) WRECO or a Weyerhaeuser Subsidiary (as defined below) having substantially all of its assets and doing business primarily in the United States of America shall be the surviving or resulting corporation of any such merger or

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  consolidation and immediately after giving effect to any such merger or consolidation such successor corporation, whether or not WRECO, shall be entitled to incur at least $1 of additional Senior Debt under Section 6.02(b); (ii) if the surviving or resulting corporation is not WRECO, the surviving or resulting corporation shall be a Weyerhaeuser Subsidiary incorporated within the United States of America and shall expressly assume the obligations of WRECO under this Agreement and the other Loan Documents to which it is a party by supplemental agreement reasonably satisfactory to the Administrative Agent; (iii) immediately after giving effect to any such merger or consolidation, no Default or Event of Default shall have occurred and be continuing; and (d) WRECO shall have delivered to the Administrative Agent a certificate signed by two of WRECO’s officers stating that such merger or consolidation and, if a supplemental agreement is required in connection therewith as aforesaid, such supplemental agreement comply with the provisions described in this paragraph. Upon the consummation of any merger or consolidation in which the surviving or resulting corporation is not WRECO in accordance with the foregoing provisions, the surviving or resulting corporation shall succeed to and be substituted for, and may exercise every right and power of and shall be subject to all of the obligations of, WRECO under this Agreement and the other Loan Documents to which it is a party, with the same effect as if it had been named as WRECO therein. As used in this paragraph, the term “Weyerhaeuser Subsidiary” means a corporation at least 79% of whose issued and outstanding shares of capital stock at the time outstanding and having ordinary voting power for the election of a majority of the directors of such corporation shall be owned and controlled by Weyerhaeuser or a wholly owned Subsidiary of Weyerhaeuser.
 
       (e) Limitation on Sale of Assets. Sell, transfer or otherwise dispose of all or substantially all of its properties and assets in a single transaction or in a series of related transactions unless (i) the consideration received therefor shall consist of cash, securities or other properties having an aggregate fair value (as determined in good faith by the Board of Directors of WRECO) equal to not less than the aggregate fair value (as determined in good faith by the Board of Directors of WRECO) of the properties and assets so sold, transferred or otherwise disposed of; (ii) immediately after giving effect thereto WRECO shall be entitled to incur at least $1 of additional Senior Debt under Section 6.02(b); (iii) immediately after giving effect thereto, no Default or Event of Default shall have occurred and be continuing; and (iv) WRECO shall have delivered to the Administrative Agent a certificate signed by two of WRECO’s officers stating that such transaction complies with the provisions described in this paragraph.

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ARTICLE VII

EVENTS OF DEFAULT

            Section 7.01 Events of Default. In case of the happening of any of the events under Sections 7.01(a) through 7.01(l) below (an “Event of Default”):

       (a) default shall be made in the payment by a Borrower of any principal of any Loan, when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or by acceleration thereof or otherwise;

       (b) default shall be made in the payment by a Borrower of any interest on any Loan or any Fee or any other amount (other than an amount referred to in Section 7.01(a) above) due under any Loan Document, when and as the same shall become due and payable, and such default shall continue unremedied for a period of five days;

       (c) any representation or warranty made or deemed made by a Borrower in or in connection with any Loan Document or the Borrowings hereunder, or any representation, warranty, statement or information contained in any report, certificate, financial statement or other instrument furnished in connection with or pursuant to any Loan Document, shall prove to have been false or misleading in any material respect when so made, deemed made or furnished;

       (d) default shall be made in the due observance or performance by a Borrower or any of its Subsidiaries (or its respective Restricted Subsidiaries, if such covenant, condition or agreement applies only to Restricted Subsidiaries) of any covenant, condition or agreement contained in Section 5.01(a), 5.05(a), 5.08 or in Article VI;

       (e) default shall be made in the due observance or performance by a Borrower or any of its Subsidiaries (or its Restricted Subsidiaries, if such covenant, condition or agreement applies only to Restricted Subsidiaries) of any covenant, condition or agreement contained in any Loan Document (other than those specified in Section 7.01(a), 7.01(b), 7.01(c) or 7.01(d)) and such default shall continue unremedied for a period of thirty days after notice thereof from the Administrative Agent or any Lender to such Borrower;

       (f) a Borrower or any of its Restricted Subsidiaries shall (i) fail to pay, when and as the same shall become due and payable (and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument related to such Indebtedness) any principal or interest, regardless of amount, due in respect of Indebtedness in an aggregate principal amount in excess of $100,000,000, or (ii) fail to observe or perform any other terms, covenants, conditions or agreements contained in any agreements or instruments evidencing or governing Indebtedness in an aggregate principal amount in excess of $100,000,000 (and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument related to such Indebtedness), if the effect of any failure or failures referred to in this Section 7.01(f)(ii) is to cause or permit the holder or holders of such Indebtedness or a trustee on its or their

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  behalf (with or without the giving of notice) to cause, such Indebtedness to become due prior to its stated maturity;

       (g) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of a Borrower or any of its Restricted Subsidiaries, or of a substantial part of the property or assets of such Borrower or any of its Restricted Subsidiaries, under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal or state bankruptcy, insolvency, receivership or similar law, (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for such Borrower or any of its Restricted Subsidiaries or for a substantial part of the property or assets of such Borrower or any of its Restricted Subsidiaries or (iii) the winding-up or liquidation of such Borrower or any of its Restricted Subsidiaries; and such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered;

       (h) a Borrower or any of its Restricted Subsidiaries shall (i) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal or state bankruptcy, insolvency, receivership or similar law, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or the filing of any petition described in Section 7.01(g) above, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for such Borrower or any of its Restricted Subsidiaries or for a substantial part of the property or assets of such Borrower or any of its Restricted Subsidiaries, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, (vi) become unable, admit in writing its inability or fail generally to pay its debts as they become due or (vii) take any action for the purpose of effecting any of the foregoing;

       (i) one or more judgments for the payment of money in an aggregate amount in excess of $100,000,000 shall be rendered against a Borrower or any of its Restricted Subsidiaries or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to levy upon assets or properties of such Borrower or any of its Restricted Subsidiaries to enforce any such judgment;

       (j) any Plan shall fail to satisfy the minimum funding standard required for any plan year or a waiver of such standard or extension of any amortization period is sought or granted under Section 412 of the Code, any Plan is, shall have been or is likely to be terminated or the subject of termination proceedings under ERISA, any Plan shall have an Unfunded Current Liability, or Weyerhaeuser has incurred or is likely to incur a liability to or on account of a Plan under Sections 409, 502(i), 502(l), or 515 of ERISA or Section 4975 of the Code, or Weyerhaeuser or any ERISA Affiliate has incurred or is likely to incur a liability to or on account of a Plan under Sections 4062, 4063, 4064, 4069, 4201 or 4204 of ERISA; and there shall result from any such event or events referred to in this Section 7.01(j) the imposition of a lien upon the assets of Weyerhaeuser

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  or any ERISA Affiliate, the granting of a security interest, a liability or a material risk of incurring a liability to the PBGC or the Internal Revenue Service or a Plan or a trustee appointed under ERISA or a liability or a material risk of incurring a liability under Sections 409, 502(i) or 502(l) of ERISA or under Sections 4971 or 4975 of the Code; which, in the good faith determination of the Required Lenders, will have a Material Adverse Effect;

       (k) there shall have occurred a Change in Control of a Borrower; or

       (l) the OCBM Agreement shall cease, for any reason, to be in full force and effect, or Weyerhaeuser shall contest the validity or enforceability thereof or otherwise fail to comply with its obligations thereunder;

then, and in every such event (other than an event with respect to a Borrower described in Section 7.01(g) or 7.01(h) above), and at any time thereafter during the continuance of such event, the Administrative Agent, at the request of the Required Lenders, shall, by notice to the Borrowers, take any or all of the following actions, at the same or different times: (i) terminate forthwith the Commitments of the Lenders, (ii) declare the Loans then outstanding to the Borrowers to be forthwith due and payable in whole or in part, whereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and any unpaid accrued Fees and all other liabilities of the Borrowers accrued hereunder and under any other Loan Document, shall become forthwith due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Borrowers, anything contained herein or in any other Loan Document to the contrary notwithstanding; and in any event with respect to a Borrower described in Sections 7.01(g) or 7.01(h) above, the Commitments of the Lenders shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and any unpaid accrued Fees and all other liabilities of the Borrowers accrued hereunder and under any other Loan Document, shall automatically become due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Borrowers, anything contained herein or in any other Loan Document to the contrary notwithstanding.

ARTICLE VIII

THE ADMINISTRATIVE AGENT

          Section 8.01 The Administrative Agent. In order to expedite the transactions contemplated by this Agreement, JPMorgan Chase Bank is hereby appointed to act as Administrative Agent on behalf of the Lenders. Each of the Lenders, and each assignee thereof, hereby irrevocably authorizes the Administrative Agent to take such actions on behalf of such Lender and to exercise such powers as are specifically delegated to the Administrative Agent by the terms and provisions hereof, together with such actions and powers as are reasonably incidental thereto.

          The Administrative Agent is hereby expressly authorized by the Lenders, without hereby limiting any implied authority, (a) to receive on behalf of the Lenders, all payments of

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principal of and interest on the Loans and all other amounts due to the Lenders hereunder, and promptly to distribute to each Lender its proper share of each payment so received; (b) to give prompt notice on behalf of the Lenders to the Borrowers of any Event of Default specified in this Agreement of which the Administrative Agent has actual knowledge acquired in connection with its agency hereunder; and (c) to distribute promptly to each Lender copies of all notices, financial statements and other materials delivered by the Borrowers pursuant to this Agreement as received by the Administrative Agent.

          Neither the Administrative Agent nor any of its directors, officers, employees or agents shall be liable as such to any Lender for any action taken or omitted by any of them except for its or his own gross negligence or willful misconduct, or be responsible for any statement, warranty or representation herein or the contents of any document delivered in connection herewith, or be required to ascertain or to make any inquiry concerning the performance or observance by the Borrowers of any of the terms, conditions, covenants or agreements contained in any Loan Document. The Administrative Agent shall not be responsible to the Lenders for (i) the due execution, genuineness, validity, enforceability or effectiveness of this Agreement or any other Loan Documents or other instruments or agreements or (ii) the satisfaction of any condition set forth in any Loan Document, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent. The duties of the Administrative Agent shall be mechanical and administrative in nature; the Administrative Agent shall not have by reason of this Agreement or any other Loan Document a fiduciary relationship in respect of any Lender. The Administrative Agent shall in all cases be fully protected in acting, or refraining from acting, in accordance with written instructions signed by the Required Lenders or the Lenders, as the case may be, and, except as otherwise specifically provided herein, such instructions and any action or inaction pursuant thereto shall be binding on all of the Lenders. The Administrative Agent shall, in the absence of knowledge to the contrary, be entitled to rely on any instrument or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons. The Administrative Agent may also rely upon any statement made to it orally or by telephone and believed to be made by the proper Person, and shall not incur any liability for relying thereon.

          Neither the Administrative Agent nor any of its directors, officers, employees or agents shall have any responsibility to the Borrowers on account of the failure of or delay in performance or breach by any Lender of any of its obligations hereunder or to any Lender on account of the failure of or delay in performance or breach by any other Lender or the Borrowers of any of their respective obligations hereunder or under any other Loan Document or in connection herewith or therewith. The foregoing shall not limit the obligations of JPMorgan Chase Bank (or its successors and assigns) in its capacity as Lender hereunder. The Administrative Agent may execute any and all duties hereunder by or through agents or employees and shall be entitled to rely upon the advice of legal counsel (who may be counsel for a Borrower), independent accountants and other experts selected by it with respect to all matters arising hereunder and shall not be liable for any action taken or suffered in good faith by it in accordance with the advice of such counsel. The exculpatory provisions of this Article VIII shall apply to any such agent or employee, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent.

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          The Administrative Agent shall not have any duties or obligations except those expressly set forth herein. Without limiting the generality of the foregoing, the Lenders hereby acknowledge that (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default or Event of Default has occurred and is continuing, (b) the Administrative Agent shall be under no duty to take any discretionary action permitted to be taken by it pursuant to the provisions of this Agreement unless it shall be requested in writing to do so by the Required Lenders or the Lenders, as the case may be, and (c) except as expressly set forth herein, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrowers or any of their respective Subsidiaries that is communicated to or obtained by the Administrative Agent or any of its Affiliates in any capacity.

          Subject to the appointment and acceptance of a successor Administrative Agent as provided below, the Administrative Agent may resign at any time by notifying the Lenders and the Borrowers. Upon any such resignation, the Required Lenders shall have the right to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent which shall be a bank with an office in New York, New York, having a combined capital and surplus of at least $500,000,000 or an Affiliate of any such bank. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor bank, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. After the Administrative Agent’s resignation hereunder, the provisions of this Article and Section 9.05 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Administrative Agent.

          With respect to the Loans made by it hereunder, the Administrative Agent in its individual capacity and not as Administrative Agent shall have the same rights and powers as any other Lender and may exercise the same as though it were not the Administrative Agent, and the Administrative Agent and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrowers or any of their respective Subsidiaries or other Affiliate thereof as if it were not the Administrative Agent.

          Each of the Lenders agrees (i) to reimburse the Administrative Agent, on demand, in the amount of its pro rata share (based on its Commitment hereunder) of any expenses incurred for the benefit of the Lenders by the Administrative Agent, including counsel fees and compensation of agents and employees paid for services rendered on behalf of the Lenders, which shall not have been reimbursed by the Borrowers and (ii) to indemnify and hold harmless the Administrative Agent and any of its directors, officers, employees or agents, on demand, in the amount of such pro rata share, from and against any and all losses, claims, damages, liabilities and related expenses of any kind or nature whatsoever which may be imposed on, incurred by or asserted against it in its capacity as the Administrative Agent or any of them in any way relating to or arising out of this Agreement or any other Loan Document or any action taken or omitted by it or any of them under this Agreement or any other Loan Document, to the extent the same shall not have been reimbursed by the Borrowers; provided that no Lender shall

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be liable to the Administrative Agent for any portion of such losses, claims, damages, liabilities and related expenses resulting from the gross negligence or willful misconduct of the Administrative Agent or any of its directors, officers, employees, or agents.

          Each of the Lenders acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each of the Lenders also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement or any other Loan Document, any related agreement or any document furnished hereunder or thereunder.

          Section 8.02 Other Agents. Each of the Lenders and each of the Borrowers acknowledges (A) that each of the Lead Arrangers, the Joint Book Runners, the Syndication Agent and the Co-Documentation Agents, in their capacity as, respectively, Lead Arranger, Joint Book Runner, Syndication Agent and the Co-Documentation Agent, do not have any responsibility or liability hereunder, and (B) that the titles “Lead Arranger,” “Joint Book Runner,” “Syndication Agent” and “Co-Documentation Agent” are purely honorary in nature.

ARTICLE IX

MISCELLANEOUS

          Section 9.01 Notices. Notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed or sent by telecopy to the address specified below, or such other address as such party shall hereafter have specified by written notice to the Administrative Agent and the Borrowers:

     (a) if to a Borrower by hand or courier service, to such Borrower at 33663 Weyerhaeuser Way South, Federal Way, Washington, or by facsimile to (253) 924-3543, in each case to the Attention of Vice President and Treasurer with a copy to Secretary;

     (b) if to the Administrative Agent or a Lender, to it at its address (or telecopy number) set forth in Schedule 9.01 or in the Assignment and Acceptance pursuant to which such Lender became a party hereto.

          All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt if delivered by hand or overnight courier service or sent by telecopy or other telegraphic communications equipment of the sender, in each case delivered, sent or mailed (properly addressed) to such party as provided in this Section 9.01 or in accordance with the latest unrevoked direction from such party given in accordance with this Section 9.01.

          Section 9.02 Survival of Agreement. All covenants, agreements, representations and warranties made by the Borrowers herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any other Loan

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Document shall be considered to have been relied upon by the Lenders and shall survive the making of the Loans regardless of any investigation made by the Lenders or on their behalf, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any Fee or any other amount payable under this Agreement or any other Loan Document is outstanding and unpaid and so long as the Commitments hereunder have not been terminated.

          Section 9.03 Binding Effect. This Agreement shall become effective when it shall have been executed by the Borrowers and the Administrative Agent and when the Administrative Agent shall have received copies hereof which, when taken together, bear the signatures of each Lender and thereafter shall be binding upon and inure to the benefit of the Borrowers, the Administrative Agent, each Lender, and their respective successors and assigns, except that, other than as provided in Section 6.01(c) and Section 6.02(d), neither Borrower shall have the right to assign or delegate its rights or obligations hereunder or any interest herein without the prior consent of all the Lenders.

          Section 9.04 Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that, other than as provided in Section 6.01(c) and Section 6.02(d), neither Borrower may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by a Borrower without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.

          (b) Any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided that (i) except in the case of an assignment to a Lender or a Lender Affiliate, each of the Borrowers and the Administrative Agent must give their prior written consent to such assignment (which consent shall not be unreasonably withheld or delayed), (ii) except in the case of an assignment to a Lender or a Lender Affiliate or an assignment of the entire remaining amount of the assigning Lender’s Commitment, the amount of the Commitment of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 unless each of the Borrowers and the Administrative Agent otherwise consent, (iii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement, (iv) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500, and (v) the assignee, if it shall not be a Lender prior to such assignment, shall deliver to the Administrative Agent an Administrative Questionnaire; and provided further that any consent of a Borrower otherwise required under this paragraph shall not be required if a Default or Event of Default has occurred and is continuing. Subject to acceptance and recording thereof pursuant to paragraph (d) of this Section, from and after the effective date specified in each Assignment and Acceptance the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under

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this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.11, 2.13, 2.17 and 9.05). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (e) of this Section.

          (c) The Administrative Agent, acting for this purpose as an agent of the Borrowers, shall maintain at one of its offices in The City of New York a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive (absent manifest error), and the Borrowers, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrowers and any Lender, at any reasonable time and from time to time upon reasonable prior notice.

          (d) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, the assignee’s completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, if any, the Administrative Agent shall accept such Assignment and Acceptance and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph.

          (e) Any Lender may, without the consent of the Borrowers, sell participations to one or more banks or other entities (a “Participant”) in all or a portion of such Lender’s rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrowers, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 9.08(b) that affects such Participant. Subject to paragraph (f) of this Section, the Borrowers agree that each Participant shall be entitled to the benefits of Sections 2.11, 2.13 and 2.17 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 9.06 as though

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it were a Lender, provided such Participant agrees to be subject to Section 2.15 as though it were a Lender.

          (f) A Participant shall not be entitled to receive any greater payment under Section 2.11 or 2.17 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrowers’ prior written consent.

          (g) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement and the other Loan Documents (including, without limitation, any notes held by it pursuant to Section 2.05(e)) to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, without notice to, or consent of the Borrower or the Administrative Agent, and this Section 9.04 shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

          (h) Weyerhaeuser authorizes each Lender to disclose to any Participant or assignee and any prospective Participant or assignee any and all financial information in such Lender’s possession concerning Weyerhaeuser or any Subsidiary of Weyerhaeuser which has been delivered to such Lender by a Borrower in connection with such Lender’s credit evaluation of a Borrower prior to entering into this Agreement; provided that such Participant or assignee or prospective Participant or assignee agrees to treat any such information which is not public as confidential in accordance with the terms of the Agreement.

          Section 9.05 Expenses; Indemnity. (a) The Borrowers jointly and severally agree to pay all reasonable out-of-pocket expenses incurred by the Administrative Agent in connection with the preparation of this Agreement and the other Loan Documents or in connection with any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions hereby contemplated shall be consummated) or incurred by the Administrative Agent or any Lender in connection with the enforcement or protection of their rights in connection with this Agreement and the other Loan Documents or in connection with the Loans made, including the fees and disbursements of Shearman & Sterling, special counsel for the Administrative Agent, and, in connection with any such amendment, modification or waiver made in connection with any such enforcement or protection, the fees and disbursements of any other counsel for the Administrative Agent or any Lender. The Borrowers further agree jointly and severally that they shall indemnify the Lenders from and hold them harmless against any documentary taxes, assessments or charges made by any Governmental Authority by reason of the execution and delivery of this Agreement or any of the other Loan Documents.

          (b) Each Borrower will indemnify the Administrative Agent, each Lender, and its directors, officers, employees and agents (each such person being called an “Indemnitee”) against, and to hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including reasonable counsel fees and expenses, incurred by or asserted against any Indemnitee arising out of, in any way connected with, or as a result of (i) the execution or delivery by such Borrower of this Agreement or any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties thereto

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of their respective obligations thereunder or the consummation of the Transactions and the other transactions contemplated hereby and thereby, (ii) the use of the proceeds of the Loans by such Borrower or (iii) any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses have resulted from the gross negligence or willful misconduct of such Indemnitee.

          (c) It is understood and agreed that, to the extent not precluded by a conflict of interest, each Indemnitee shall endeavor to work cooperatively with Weyerhaeuser with a view toward minimizing the legal and other expenses associated with any defense and any potential settlement or judgment. To the extent reasonably practicable and not disadvantageous to any Indemnitee, it is anticipated that a single counsel selected by Weyerhaeuser may be used. Settlement of any claim or litigation involving any material indemnified amount will require the approval of Weyerhaeuser (not to be unreasonably withheld).

          (d) The provisions of this Section 9.05 shall remain operative and in full force and effect regardless of the expiration of the term of this Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Loans, the invalidity or unenforceability of any term or provision of this Agreement or any other Loan Document, or any investigation made by or on behalf of the Administrative Agent or any Lender. All amounts due under this Section 9.05 shall be payable on written demand therefor.

          Section 9.06 Right of Setoff. If any Event of Default shall have occurred and be continuing, each Lender is hereby authorized at any time and from time to time, without notice to such Borrower (any such notice being expressly waived by such Borrower), to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender or any of its respective Affiliates to or for the credit or the account of such Borrower against any of and all the obligations of such Borrower now or hereafter existing under this Agreement and any other Loan Documents held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement or such other Loan Document and although such obligations may be unmatured. The rights of each Lender under this Section 9.06 are in addition to other rights and remedies (including other rights of setoff) which such Lender may have.

          Section 9.07 Applicable Law. THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND OBLIGATIONS HEREUNDER AND THEREUNDER OF THE PARTIES HERETO AND THERETO SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.

          Section 9.08 Waivers; Amendment. (a) No failure or delay of the Administrative Agent or any Lender in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent and the Lenders hereunder and under the other Loan Documents are

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cumulative and are not exclusive of any rights or remedies which they would otherwise have. No waiver of any provision of this Agreement or any other Loan Document or consent to any departure by the Borrowers therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) below, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice or demand on the Borrowers in any case shall entitle the Borrowers to any other or further notice or demand in similar or other circumstances.

          (b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrowers and the Required Lenders; provided, however, that no such agreement shall (i) change the principal amount of, or extend or advance the maturity of or any date for the scheduled payment of any principal of or interest on, any Loan, or waive or excuse any such scheduled payment or any part thereof, or decrease the rate of interest on any Loan, without the prior written consent of each Lender affected thereby, (ii) change the Commitment or decrease or extend any date for the payment of the Facility Fees, Utilization Fees or Term-Out Premium of any Lender without the prior written consent of such Lender, or (iii) amend or modify the provisions of Section 2.14, the provisions of Section 2.19, the provisions of this Section 9.08 or the definition of “Termination Date” or “Required Lenders,” without prior written consent of each Lender; provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent hereunder without the prior written consent of the Administrative Agent. Each Lender shall be bound by any waiver, amendment or modification authorized by this Section 9.08, and any consent by any Lender pursuant to this Section 9.08 shall bind any person subsequently acquiring a Loan from it.

          Section 9.09 Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the applicable interest rate, together with all fees and charges which are treated as interest under applicable law (collectively the “Charges”), as provided for herein or in any other Loan Document, or otherwise contracted for, charged, received, taken or reserved by any Lender, shall exceed the maximum lawful rate (the “Maximum Rate”) which may be contracted for, charged, taken, received or reserved by such Lender in accordance with applicable law, the rate of interest payable with respect to each Loan owing to each Lender, together with all Charges payable to such Lender, shall be limited to the Maximum Rate.

          Section 9.10 Entire Agreement. This Agreement and the other Loan Documents and the letter agreements referred to in Section 2.04(b) (with respect to the payment of fees only) constitute the entire contract between the parties relative to the subject matter hereof. Any previous agreement among the parties with respect to the subject matter hereof is superseded by this Agreement and the other Loan Documents. Nothing in this Agreement or in the other Loan Documents, expressed or implied, is intended to confer upon any party other than the parties hereto and thereto any rights, remedies, obligations or liabilities under or by reason of this Agreement or the other Loan Documents.

          Section 9.11 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS

61


 

AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.11.

          Section 9.12 Severability. In the event any one or more of the provisions contained in this Agreement or in any other Loan Document should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

          Section 9.13 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute but one contract, and shall become effective as provided in Section 9.03.

          Section 9.14 Headings. The cover page, the Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement.

          Section 9.15 Jurisdiction; Consent to Service of Process. (a) Each of the Borrowers hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any Lender or the Administrative Agent may otherwise have to bring any action or proceeding relating to this Agreement or the other Loan Documents against either Borrower or its properties in the courts of any jurisdiction.

          (b) Each of the Borrowers hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Loan Documents in any New York State or Federal court located in New York City. Each of the parties hereto hereby irrevocably waives, to the fullest extent

62


 

permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

          (c) Each of the Borrowers hereby irrevocably designates, appoints and empowers CT Corporation System, Inc. presently located at 111 Eighth Avenue, New York, New York 10011, as its designee, appointee and attorney-in-fact to receive, accept and acknowledge for and on its behalf, and in respect of its property, service of any and all legal process, summons, notices and documents which may be served in any such action or proceeding. If for any reason such designee, appointee and attorney-in-fact shall cease to be available to act as such, each Borrower agrees to designate a new designee, appointee and attorney-in-fact in New York City on the terms and for purposes of this provision satisfactory to the Administrative Agent. Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law.

          Section 9.16 Domicile of Loans. Each Lender may transfer and carry its Loans at, to or for the account of any office, subsidiary or Affiliate of such Lender.

          Section 9.17 Restricted and Unrestricted Subsidiaries. (a) Set forth on Schedule 3.08 Part I is a list of all of the Restricted Subsidiaries and Unrestricted Subsidiaries of Weyerhaeuser as of the Closing Date.

          (b) Set forth on Schedule 3.08 Part II is a list of all of the Restricted Subsidiaries and Unrestricted Subsidiaries of WRECO as of the Closing Date.

          (c) After the Closing Date, a Financial Officer of Weyerhaeuser may, provided that no Default or Event of Default has occurred and is continuing, designate a Restricted Subsidiary as an Unrestricted Subsidiary by notice sent to all of the Lenders, provided that (i) no such designation shall be effective unless immediately after giving effect thereto there would exist no Default or Event of Default; (ii) any such designation shall be effective not less than five Business Days after written notice thereof shall have been provided to each Lender; and (iii) upon such designation, Schedule 3.08 Part I shall be deemed to be amended to reflect such designation. Any Person that becomes a Subsidiary (by formation, acquisition, merger or otherwise) after the Closing Date shall automatically be deemed to be a Restricted Subsidiary of Weyerhaeuser as of the date it becomes a Subsidiary unless designated as an Unrestricted Subsidiary pursuant to the terms hereof.

          (d) After the Closing Date, a Financial Officer of Weyerhaeuser may, provided that no Default or Event of Default has occurred and is continuing, designate an Unrestricted Subsidiary as a Restricted Subsidiary by notice sent to all of the Lenders, provided that (w) no such designation shall be effective unless immediately after giving effect thereto there would exist no Default or Event of Default; (x) no such designation shall be effective unless immediately after giving effect thereto Weyerhaeuser is in compliance with Sections 6.01(d) and 6.01(e); (y) any such designation shall be effective not less than five Business Days after written notice thereof shall have been provided to each Lender; and (z) upon

63


 

such designation, Schedule 3.08 Part I shall be deemed to be amended to reflect such designation.

          (e) After the Closing Date, any Subsidiary of WRECO (i) which is organized and existing under the laws of the United States or any state of the United States, Puerto Rico or the Dominion of Canada or any province thereof and (ii) of which substantially all of the physical properties are located, and substantially all of the business is carried on, in the United States of America, Puerto Rico or Canada may, provided that no Default or Event of Default has occurred and is continuing, be designated as a Restricted Subsidiary by WRECO, subject to the limitations described in Subsection 9.17(f) below. Any Person that becomes a Subsidiary of WRECO (by formation, acquisition, merger or otherwise) after the Closing Date shall automatically be deemed to be an Unrestricted Subsidiary of WRECO as of the date it becomes a Subsidiary unless designated as a Restricted Subsidiary pursuant to the terms hereof.

          (f) After the Closing Date, Weyerhaeuser may, provided that no Default or Event of Default has occurred and is continuing, cause a Financial Officer of WRECO to designate an Unrestricted Subsidiary as a Restricted Subsidiary by notice sent to all of the Lenders, provided that (v) such Subsidiary satisfies the requirements of Subsection 9.17(e) above; (w) no such designation shall be effective unless immediately after giving effect thereto there would exist no Default or Event of Default; (x) WRECO could incur at least $1 of additional Senior Debt under Subsection 6.02(b); (y) any such designation shall be effective not less than five Business Days after written notice thereof shall have been provided to each Lender; and (z) upon such designation, Schedule 3.08 Part II shall be deemed to be amended to reflect such designation.

          (g) After the Closing Date, Weyerhaeuser may, provided that no Default or Event of Default has occurred and is continuing, cause a Financial Officer of WRECO to designate a Restricted Subsidiary as an Unrestricted Subsidiary by notice sent to all of the Lenders, provided that (v) no such designation shall be effective unless immediately after giving effect thereto there would exist no Default or Event of Default; (w) WRECO could incur at least $1 of additional Senior Debt under Subsection 6.02(b); (x) the aggregate amount of Real Estate Assets owned by all Subsidiaries of WRECO, determined on a consolidated basis, which have been or are to be, as the case may be, designated as Unrestricted Subsidiaries during the 365 consecutive days ending on and including the effective date of such proposed designation, shall not exceed 15% of the aggregate amount of Real Estate Assets owned by WRECO and its Restricted Subsidiaries as of the beginning of such 365 day period; (y) any such designation shall be effective not less than five Business Days after written notice thereof shall have been provided to each Lender; and (z) upon such designation, Schedule 3.08 Part II shall be deemed to be amended to reflect such designation.

[Signatures follow.]

64


 

     IN WITNESS WHEREOF, the Borrowers, the Administrative Agent, the Syndication Agent, the Co-Documentation Agents and the Lenders have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

             
    WEYERHAEUSER COMPANY, as Borrower,
 
           
    By:   /s/ Jeffrey W. Nitta
       
 
      Name:   Jeffrey W. Nitta
      Title:   Vice President/Treasurer
 
           
    WEYERHAEUSER REAL ESTATE COMPANY,
    as Borrower,
 
           
    By:   /s/ Jeffrey W. Nitta
       
 
      Name:   Jeffrey W. Nitta
      Title:   Vice President/Treasurer

 


 

             
    JPMORGAN CHASE BANK,
    as Administrative Agent and as Lender,
 
           
    By:   /s/ William P. Rindfuss
       
 
      Name:   William P. Rindfuss
      Title:   Vice President

 


 

             
    MORGAN STANLEY SENIOR FUNDING, INC.,
    as Syndication Agent and as Lender,
 
           
    By:   /s/ Todd Vannucci
       
 
      Name:   Todd Vannucci
      Title:   Executive Director

 


 

             
    THE BANK OF TOKYO-MITSUBISHI, LTD., SEATTLE BRANCH,
    as Co-Documentation Agent and as Lender,
 
           
    By:   /s/ Junji Ban
       
 
      Name:   Junji Ban
      Title:   General Manager, Northwest Group

 


 

             
    DEUTSCHE BANK SECURITIES INC.,
    as Co-Documentation Agent,
 
           
    By:   /s/ Christian Dallwitz
       
 
      Name:   Christian Dallwitz
      Title:   Director
 
           
    By:   /s/ Oliver Schwarz
       
 
      Name:   Oliver Schwarz
      Title:   Vice President

 


 

             
    DEUTSCHE BANK AG NEW YORK BRANCH,
    as Lender
 
           
    By:   /s/ Christian Dallwitz
       
 
      Name:   Christian Dallwitz
      Title:   Director
 
           
    By:   /s/ Oliver Schwarz
       
 
      Name:   Oliver Schwarz
      Title:   Vice President

 


 

             
    CITICORP USA, INC.,
    as Lender
 
           
    By:   /s/ David L. Harris
       
 
      Name:   David L. Harris
      Title:   Vice President
 
           
  By:        
       
 
      Name:    
      Title:    

 


 

             
    CITICORP USA, INC.,
    as Lender
 
           
    By:   /s/ William Timmons
       
 
      Name:   William Timmons
      Title:   Vice President
 
           
  By:        
       
 
      Name:    
      Title:    

 


 

             
    ROYAL BANK OF CANADA,
    as Lender
 
           
    By:   /s/ Chris Abe
       
 
      Name:   Chris Abe
      Title:   Manager

 


 

             
    THE BANK OF NOVA SCOTIA,
    as Lender
 
           
    By:   /s/ Patrick G. Horne
       
 
      Name:   Patrick G. Horne
      Title:   Director

 


 

             
    BANK OF AMERICA, N.A.,
    as Lender
 
           
    By:   /s/ Thomas R. Sullivan
       
 
      Name:   Thomas R. Sullivan
      Title:   Vice President

 


 

             
    CIBC INC.,
    as Lender
 
           
    By:   /s/ Geraldine Kerr
       
 
      Name:   Geraldine Kerr
      Title:   Executive Director CIBC World Markets Corp. As Agent

 


 

             
    PNC BANK, NATIONAL ASSOCIATION,
    as Lender
 
           
    By:   /s/ Dorothy G.W. Brailer
       
 
      Name:   Dorothy G.W. Brailer
      Title:   Vice President

 


 

             
    WACHOVIA BANK N.A.,
    as Lender
 
           
    By:   /s/ Shawn Janko
       
 
      Name:   Shawn Janko
      Title:   Vice President

 


 

             
    NORTHWEST FARM CREDIT SERVICES, PCA,
    as Lender
 
           
    By:   /s/ Jim D. Allen
       
 
      Name:   Jim D. Allen
      Title:   Sr. Vice President

 


 

             
    SUMITOMO MITSUI BANKING
CORPORATION
    (formerly know as The
Sumitomo Bank, Limited),
as Lender
 
           
    By:   /s/ Al Galluzzo
       
 
      Name:   Al Galluzzo
      Title:   Senior Vice President

 


 

             
    CAJA MADRID,
as Lender
 
           
    By:   /s/ Jose Luis Garcia
       
 
      Name:   Jose Luis Garcia
      Title:   Global Head of Origination and Syndication
 
           
    By:   /s/ Pedro Lalanda
       
 
      Name:   Pedro Lalanda
      Title:   Corporate Director

 


 

             
    FARM CREDIT SERVICES OF AMERICA, PCA,
    as Lender
 
           
    By:   /s/ Steven L. Moore
       
 
      Name:   Steven L. Moore
      Title:   Vice President

 


 

             
    U.S. BANK NATIONAL ASSOCIATION,
    as Lender
 
           
    By:   /s/ James R. Farmer
       
 
      Name:   James R. Farmer
      Title:   Vice President

 


 

             
    THE NORTHERN TRUST COMPANY,
    as Lender
 
           
    By:   /s/ Melissa A. Whitson
       
 
      Name:   Melissa A. Whitson
      Title:   Vice President

 


 

             
    COBANK, ACB,
    as Lender
 
           
    By:   /s/ S. Richard Dill
       
 
      Name:   S. Richard Dill
      Title:   Vice President

 


 

             
    COOPERATIEVE CENTRALE RAIFFEISIN-BOERENLEENBANK B.A., “RABOBANK NEDERLAND” NEW YORK BRANCH
    as Lender
 
           
    By:   /s/ Edward J. Pevser
       
 
      Name:   Edward J. Pevser
      Title:   Managing Director
 
           
    By:   /s/ Jessalyn Peters
       
 
      Name:   Jessalyn Peters
      Title:   Executive Director

 


 

             
    KBC BANK, N.V.,
    as Lender
 
           
    By:   /s/ Robert Snauffer
       
 
      Name:   Robert Snauffer
      Title:   First Vice President
 
           
    By:   /s/ Eric Raskin
       
 
      Name:   Eric Raskin
      Title:   Vice President

 


 

             
    REGIONS BANK,
    as Lender
 
           
    By:   /s/ Mark Burr
       
 
      Name:   Mark Burr
      Title:   VP Corp. Banking

 


 

             
    WELLS FARGO BANK, N.A.,
    as Lender
 
           
    By:   /s/ Steven J. Anderson
       
 
      Name:   Steven J. Anderson
      Title:   Senior Vice President

 


 

             
    WESTPAC BANKING CORPORATION,
    as Lender
 
           
    By:   /s/ Anthony Matthews
       
 
      Name:   Anthony Matthews
      Title:   Vice President

 


 

             
    AGFIRST FARM CREDIT BANK,
    as Lender
 
           
    By:   /s/ John W. Burnside
       
 
      Name:   John W. Burnside
      Title:   Vice-President

 


 

             
    MELLON BANK, N.A.,
    as Lender
 
           
    By:   /s/ Lawrence C. Ivey
       
 
      Name:   Lawrence C. Ivey
      Title:   First Vice President

 


 

             
    AUSTRALIA AND NEW ZEALAND BANKING
GROUP LIMITED,
    as Lender
 
           
    By:   /s/ Damodar Menon
       
 
      Name:   Damodar Menon
      Title:   First Vice President

 


 

             
    FARM CREDIT SERVICES OF MINNESOTA
VALLEY, PCA dba FCS COMMERCIAL
FINANCE GROUP,
    as Lender
 
           
    By:   /s/ Warren Shoen
       
 
      Name:   Warren Shoen
      Title:   Vice President

 


 

             
    CHIAO TUNG BANK CO. LTD. NEW YORK AGENCY,
    as Lender
 
           
    By:   /s/ Chun-Kai Hu
       
 
      Name:   Chun-Kai Hu
      Title:   Deputy General Manager

 


 

EXHIBIT A

FORM OF REVOLVING BORROWING REQUEST

JPMorgan Chase Bank, as Administrative Agent for
the Lenders referred to below,
270 Park Avenue
New York, New York 10017

[Date]

Attention: [_________]

Ladies and Gentlemen:

          The undersigned, [Weyerhaeuser Company][Weyerhaeuser Real Estate Company] (the “Borrower”), refers to the Second Amended and Restated 364-Day Revolving Credit Facility Agreement dated as of March      , 2003 (as it may hereafter be amended, modified, extended or restated from time to time, the “Credit Agreement”), among the Borrowers, the lenders party thereto from time to time, JPMorgan Chase Bank, as Administrative Agent, Morgan Stanley Senior Funding, Inc., as Syndication Agent, and The Bank of Tokyo-Mitsubishi, Ltd. and Deutsche Bank Securities Inc., as Co-Documentation Agents. Capitalized terms used herein and not otherwise defined herein shall have the meanings given such terms in the Credit Agreement. The Borrower hereby gives you notice pursuant to Section 2.02(e) of the Credit Agreement that it requests a Revolving Borrowing under the Credit Agreement, and in that connection sets forth below the terms on which such Borrowing is requested to be made:

(A)   Date of Borrowing (which is a Business Day)
 
(B)   Principal Amount of Borrowing1
 
(C)   Interest rate basis2
 
(D)   Interest Period and the last day thereof3


1               Not less than $25,000,000 and in integral multiples of $1,000,000 in excess thereof (or an aggregate principal amount equal to the remaining balance of the available Commitments) or greater than the Total Commitment then available.
 
2   Eurodollar Loan or Base Rate Loan.
 
3   Which shall be subject to the definition of “Interest Period” and end not later than the then existing Termination Date.

A-1

 


 

Upon acceptance of any or all of the Revolving Loans offered by the Lenders in response to this request, the Borrower shall be deemed to have represented and warranted that the conditions to lending specified in Sections 4.01(b) and (c) of the Credit Agreement have been satisfied.

         
    Very truly yours,
         
    [WEYERHAEUSER COMPANY],
as Borrower,
         
    [WEYERHAEUSER REAL ESTATE
COMPANY],
as Borrower,
         
    By  
        Name:
        Title: [Responsible Officer]

A-2

 


 

EXHIBIT B

FORM OF ADMINISTRATIVE QUESTIONNAIRE

JPMorgan Chase Bank
1 Chase Manhattan Plaza - 8th Floor
New York, NY 10081
Tel: 212-552-7400
Fax: 212-552-5662

WEYERHAEUSER COMPANY

Please accurately complete the following information and return via FAX or e-mail to the attention of Maggie Swales at JPMorgan Chase Bank as soon as possible.

TEL Number: 212-552-7472    FAX Number: 212-552-5662    E-mail:maria.m.swales@jpmorgan.com

LEGAL NAME OF YOUR INSTITUTION TO APPEAR IN DOCUMENTATION:


NUMBER OF LINES NEEDED FOR SIGNATURE PAGE:


GENERAL INFORMATION - DOMESTIC LENDING OFFICE:

Institution Name:


Street Address:
City State, Zip Code

GENERAL INFORMATION - EURODOLLAR LENDING OFFICE:

Institution Name:


Street Address:
City, State, Zip Code:

CONTACTS/NOTIFICATION METHOD:

CREDIT CONTACTS:
Primary Contact:


Street Address:
City, State, Zip Code:
Phone Number:
FAX Number:
E-mail Address:

Backup Contact:


Street Address:
City, State, Zip Code:
Phone Number:
FAX Number:
E-mail Address:

B-1

 


 

TAX WITHHOLDING:

Non Resident Alien       Y        N
If yes:

  What is the country of incorporation or organization?
 
  Tax Form W-8BEN or W-8ECI should be enclosed as per the Tax Section of the referenced Credit Agreement. Failure to properly complete and return the applicable form will subject your institution to withholding tax.

If no:

  Please submit Tax Form W-9

Lender’s Tax Identification Number:


CONTACTS/NOTIFICATION METHOD:
ADMINISTRATIVE CONTACTS — BORROWINGS, PAYDOWNS, INTEREST, FEES, ETC.
Contact Name:


Street Address:
City, State, Zip Code:
Phone Number:
FAX Number:
E-mail Address:

BID LOAN NOTIFICATION: (if applicable)

Contact Name:


Street Address:
City, State, Zip Code:
Phone Number:
FAX Number:
E-mail Address:

PAYMENT INSTRUCTIONS:

Name of Bank where funds are to be transferred:


Routing Transit/ABA number of Bank where funds are to be transferred:
Name of Account: (if applicable)
Account Number:
Additional Information:

MAILINGS

Please specify who should receive financial information:
Contact Name:
Street Address:
City, State, Zip Code:

It is very important that all of the above information is accurately filled in and returned promptly. If you have any questions, please call Maggie Swales at Loan & Agency Services at 212-552-7472.

B-2

 


 

EXHIBIT C

[FORM OF]
ASSIGNMENT AND ACCEPTANCE

          Reference is made to the Second Amended and Restated 364-Day Revolving Credit Facility Agreement dated as of March      , 2003 (the “Credit Agreement”), among Weyerhaeuser Company, a Washington corporation (“Weyerhaeuser”), Weyerhaeuser Real Estate Company (“WRECO,” together with Weyerhaeuser, the “Borrowers” and each, individually, a “Borrower”), the lenders party thereto from time to time (the “Lenders”), JPMorgan Chase Bank, as administrative agent for the Lenders (in such capacity, the “Administrative Agent”), Morgan Stanley Senior Funding, Inc., as syndication agent, and The Bank of Tokyo-Mitsubishi, Ltd. and Deutsche Bank Securities Inc., as co-documentation agents. Terms defined in the Credit Agreement are used herein with the same meanings.

          1. The Assignor hereby sells and assigns, without recourse, to the Assignee, and the Assignee hereby purchases and assumes, without recourse, from the Assignor, effective as of the Effective Date set forth on the Schedule attached hereto, the interests set forth on the Schedule attached hereto (the “Assigned Interest”) in the Assignor’s rights and obligations under the Credit Agreement, including, without limitation, the interests set forth on the reverse hereof in the Commitment of the Assignor on the Effective Date and the Loans owing to the Assignor which are outstanding on the Effective Date, together with unpaid interest accrued on the assigned Loans to the Effective Date and the amount, if any, set forth on the reverse hereof of the Fees accrued to the Effective Date for the account of the Assignor. Each of the Assignor and the Assignee hereby agrees to be bound by Section 9.04 of the Credit Agreement, a copy of which has been received by each such party and the Assignor represents and warrants that it is the legal and beneficial owner of the interest being assigned and that such interest is free and clear of any lien or adverse claim. From and after the Effective Date, (i) the Assignee shall be a party to and be bound by the provisions of the Credit Agreement and, to the extent of the interest assigned by this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and under the Loan Documents and (ii) the Assignor shall, to the extent of the interests assigned by this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement.

          2. This Assignment and Acceptance is being delivered to the Administrative Agent together with (i) if the Assignee is organized under the laws of a jurisdiction outside the United States, the forms specified in Section 2.17(f) of the Credit Agreement, duly completed and executed by such Assignee, (ii) if the Assignee is not already a Lender under the Credit Agreement, an Administrative Questionnaire in the form of Exhibit B to the Credit Agreement and (iii) a processing and recordation fee of $3,500.

          3. This Assignment and Acceptance shall be governed by and construed in accordance with the laws of the State of New York.

Date of Assignment:


C-1

 


 

EXHIBIT C

             
The terms set forth above and on the reverse side hereof are hereby agreed to:   Accepted1
, as Assignor,
  JPMORGAN CHASE BANK, as
    Administrative Agent,
             
By:   By:
   
     
    Name:       Name:
    Title:       Title:
             
, as Assignee,
  [WEYERHAEUSER COMPANY], as
        Borrower,
             
By:   By:
   
     
    Name:       Name:
    Title:       Title:
             
        [WEYERHAEUSER REAL ESTATE
        COMPANY], as Borrower,
             
        By:    
           
            Name:
            Title:


1   To be completed only if consents are required under Section 9.04.

C-2

 


 

EXHIBIT C
Schedule to Assignment and Acceptance

     
Legal Name of Assignor:    
   
     
Legal Name of Assignee:    
   
     
Assignee’s Address for Notices:    
   
     
Effective Date of Assignment    
(may not be fewer than 5 Business    
Days after the Date of Assignment,    
unless waived by the Administrative Agent):    
   
                 
            Percentage Assigned of
            Commitment thereunder (set
            forth, to at least 8
            decimals) as
            a percentage of the aggregate
            Commitments of all Lenders
Facility   Principal Amount Assigned   thereunder

 
 
Loans:
  $         %  
Commitments:
  $         %  
Fees Assigned (if any):
  $         %  

C-3


 

EXHIBIT D-1

FORM OF CERTIFICATION OF FINANCIAL STATEMENTS FOR WEYERHAEUSER

          This is to certify that the consolidated statements attached hereto required by Section 5.04 of the Second Amended and Restated 364-Day Revolving Credit Facility Agreement dated as of March      , 2003 by and among Weyerhaeuser Company, Weyerhaeuser Real Estate Company, the Lenders party thereto from time to time, JPMorgan Chase Bank, as administrative agent for the Lenders, Morgan Stanley Senior Funding, Inc., as syndication agent, and The Bank of Tokyo-Mitsubishi, Ltd. and Deutsche Bank Securities Inc., as co-documentation agents (the “Credit Agreement”; capitalized terms used herein without definition shall have the meanings given them in the Credit Agreement), fairly present the financial position and results of operations of Weyerhaeuser Company and its consolidated Subsidiaries as of                          , 200     and for the period then ended on a consolidated basis in accordance with GAAP consistently applied except as noted therein.

Dated: ______________, 200_

         
    WEYERHAEUSER COMPANY,
         
    By    
       
        Name:
        Title:

D-1-1


 

EXHIBIT D-2

FORM OF CERTIFICATION OF FINANCIAL STATEMENTS FOR WRECO

          This is to certify that the consolidated statements attached hereto required by Section 5.04 of the Second Amended and Restated 364-Day Revolving Credit Facility Agreement dated as of March      , 2003 by and among Weyerhaeuser Company, Weyerhaeuser Real Estate Company, the Lenders party thereto from time to time, JPMorgan Chase Bank, as administrative agent for the Lenders, Morgan Stanley Senior Funding, Inc., as syndication agent, and The Bank of Tokyo-Mitsubishi, Ltd. and Deutsche Bank Securities Inc., as co-documentation agents (the “Credit Agreement”; capitalized terms used herein without definition shall have the meanings given them in the Credit Agreement), fairly present the financial position and results of operations of Weyerhaeuser Real Estate Company and its consolidated Subsidiaries as of                          , 200    and for the period then ended on a consolidated basis in accordance with GAAP consistently applied except as noted therein.

Dated: ______________, 200_

         
    WEYERHAEUSER REAL ESTATE COMPANY,
         
    By    
       
        Name:
        Title:

D-2-1


 

EXHIBIT D-3

FORM OF COMPLIANCE CERTIFICATE FOR WEYERHAEUSER

THE UNDERSIGNED HEREBY CERTIFY THAT:

       (i) We are the duly elected                and                of Weyerhaeuser Company, a Washington corporation (“Weyerhaeuser”);

       (ii) We have reviewed the terms of the Second Amended and Restated 364-Day Revolving Credit Facility Agreement dated as of March      , 2003, by and among Weyerhaeuser, WRECO, the Lenders party thereto from time to time, JPMorgan Chase Bank, as administrative agent for the Lenders, Morgan Stanley Senior Funding, Inc., as syndication agent, and The Bank of Tokyo-Mitsubishi, Ltd. and Deutsche Bank Securities Inc., as co-documentation agents (the “Credit Agreement”; capitalized terms used herein without definition shall have the meanings given them in the Credit Agreement), and we have made, or have caused to be made under our supervision, a detailed review of the transactions and conditions of Weyerhaeuser and its Subsidiaries during the accounting period covered by the attached financial statements; and

       (iii) [No Event of Default or Default has occurred.] [An Event of Default or Default has occurred. [If so, specify the nature and extent thereof and any corrective action taken or proposed to be taken with respect thereto.]]

          Describe below (or in a separate attachment to this Officers’ Certificate) the exceptions, if any, to paragraph (iii) by listing, in detail, the nature of the condition or event and the period during which it has existed:





          The foregoing certifications, together with the computations set forth in Attachment No. 1 hereto and the financial statements delivered with this Officers’ Certificate in support hereof, are made and delivered this      day of                    , 200     pursuant to Subsection 5.04(c) of the Credit Agreement.

         
Dated:______________, 200_   WEYERHAEUSER COMPANY,
         
    By    
       
        Name:
        Title:
         
    By    
       
        Name:
        Title:

D-3-1


 

ATTACHMENT NO. 1 TO
COMPLIANCE CERTIFICATE FOR WEYERHAEUSER

WEYERHAEUSER COMPANY AND RESTRICTED SUBSIDIARIES

COMPLIANCE WITH COVENANTS
AS OF                          , 200      
($000’s Omitted Except Ratio Amounts)

     Section 6.01(d) - - Debt Ratio as of                     , 200

1.   Total Funded Indebtedness:

  a.   Short Term Indebtedness (inclusive of Notes Payable and Commercial Paper)
 
  b.   Current Maturities of Long Term Indebtedness and Capital Lease Obligations
 
  c.   Long Term Indebtedness:

  (1)   Senior Long Term Indebtedness
 
  (2)   Capital Lease Obligations
 
  (3)   Subordinated Indebtedness

      Total Long Term Indebtedness (1+2+3)
 
  d.   Indebtedness of Unrestricted Subsidiaries
 
  e.   Indebtedness of WRECO and its consolidated Subsidiaries
 
      Total Funded Indebtedness (a+b+c-d-e)

2.   Total Adjusted Shareholders’ Interest:

  f.   Preferred, Preference and Common Shares
 
  g.   Other Capital and Retained Earnings (plus or minus)
 
  h.   Treasury Stock
 
  i.   Investments in Unrestricted Subsidiaries
 
  j.   Investments by Weyerhaeuser and its consolidated Subsidiaries in WRECO and its consolidated Subsidiaries

    Total Adjusted Shareholders’ Interest (f+g-h-i-j)
 
3.   Total Capitalization (1+2)
 
4.   Actual Debt Ratio (1/3)

     
  Required Debt Ratio [72, if on or after the Closing Date]
    [69, if on or after 12/31/03]%

Section 6.01(e) – Net Worth as of                      , 200   

D-3-2


 

Total Adjusted Shareholders’ Interest (See item 2 above)
Required Total Adjusted Shareholders’ Interest $[              ]

D-3-3


 

EXHIBIT D-4

FORM OF COMPLIANCE CERTIFICATE FOR WRECO

THE UNDERSIGNED HEREBY CERTIFY THAT:

       (i) We are the duly elected                    and                    of Weyerhaeuser Real Estate Company, a Washington corporation (“WRECO”);

       (i) We have reviewed the terms of the Second Amended and Restated 364-Day Revolving Credit Facility Agreement dated as of March      , 2003, by and among Weyerhaeuser, WRECO, the Lenders party thereto from time to time, JPMorgan Chase Bank, as administrative agent for the Lenders, Morgan Stanley Senior Funding, Inc., as syndication agent, and The Bank of Tokyo-Mitsubishi, Ltd. and Deutsche Bank Securities Inc., as co-documentation agents (the “Credit Agreement”; capitalized terms used herein without definition shall have the meanings given them in the Credit Agreement), and we have made, or have caused to be made under our supervision, a detailed review of the transactions and conditions of WRECO and its Subsidiaries during the accounting period covered by the attached financial statements; and

       (ii) [No Event of Default or Default has occurred.] [An Event of Default or Default has occurred. [If so, specify the nature and extent thereof and any corrective action taken or proposed to be taken with respect thereto.]]

          Describe below (or in a separate attachment to this Officers’ Certificate) the exceptions, if any, to paragraph (iii) by listing, in detail, the nature of the condition or event and the period during which it has existed:





D-4-1


 

          The foregoing certifications, together with the computations set forth in Attachment No. 1 hereto and the financial statements delivered with this Officers’ Certificate in support hereof, are made and delivered this       day of                    , 200    pursuant to Subsection 5.04(c) of the Credit Agreement.

         
Dated: _____________, 200_   WEYERHAEUSER REAL ESTATE COMPANY,
         
    By    
       
        Name:
        Title:
         
    By    
       
        Name:
        Title:

D-4-2


 

ATTACHMENT NO. 1 TO
COMPLIANCE CERTIFICATE FOR WEYERHAEUSER REAL ESTATE COMPANY

WEYERHAEUSER REAL ESTATE COMPANY AND RESTRICTED SUBSIDIARIES

COMPLIANCE WITH COVENANTS
AS OF                                   , 200
($000’s Omitted)

Section 6.02(a) - Capital Base as of

                     
1. Adjusted Net Worth:
               
 
               
 
a. Capital Stock (less treasury stock)
               
 
   
         
 
b. Surplus and Retained Earnings
               
 
   
         
 
c. Intangible Assets
               
 
   
         
 
d. Minority Interests
               
 
   
         
 
e. Investments in Unrestricted Subsidiaries
               
 
   
         
 
f. Investments in joint ventures, partnerships, etc.
               
 
   
         
 
               
   
Adjusted Net Worth (a+b-c-d-e-f)
               
 
               
2. WRECO/Weyerhaeuser Subordinated Debt:
               
 
               
 
a. Subordinated Promissory Notes issued to Weyerhaeuser Company
               
 
           
 
 
               
3. Capital Base (1 + the lesser of 1 and 2)
               
 
               
Required Capital Base
          $ 100,000  
 
           
 

D-4-3


 

EXHIBIT E

FORM OF SUBORDINATED DEBT

WEYERHAEUSER REAL ESTATE COMPANY

Subordinated Promissory Note

$                            ,        

          FOR VALUE RECEIVED, the undersigned, WEYERHAEUSER REAL ESTATE COMPANY, a Washington corporation (the “Company”), promises to pay to WEYERHAEUSER COMPANY, on                    ,             , at the office of the Company in Federal Way, Washington, the principal sum of                           ($            ) and to pay interest on the unpaid balance of such principal sum at said office at the rate of             percent (     %) per annum from the date hereof, payable monthly on the last day of each month in each year, until said principal sum is fully paid.

          This Note is one of a series of Subordinated Promissory Notes of the Company, all of which are identical except as to date, amount and maturity date, from time to time issued and sold by the Company to Weyerhaeuser Company; this Note and said subordinated Promissory Notes are hereinafter sometimes collectively referred to as “Subordinated Notes”.

          Subject to the following provisions hereof, this Note may be prepaid at any time by the Company without premium.

          Anything in this Note to the contrary notwithstanding, the indebtedness evidenced by this Note and all other Subordinated Notes shall be subordinate and junior in right of payment, to the extent and in the manner hereinafter set forth, to all other indebtedness of the Company for money borrowed (including, without limiting the generality of the foregoing, (i) its Medium-Term Notes, Series A (the “Series A Medium-Term Notes”), issued and to be issued from time to time under the Agency Agreement dated as of May 29, 1992 between the Company, Weyerhaeuser Company and Morgan Guaranty Trust Company of New York, (ii) its Medium-Term Notes, Series B (the “Series B Medium-Term Notes”), issued and to be issued from time to time under the Agency Agreement dated as of October 29, 1992 between the Company, Weyerhaeuser Company and Morgan Guaranty Trust Company of New York, (iii) its Medium-Term Notes, Series C (the “Series C Medium-Term Notes”), issued and to be issued from time to time under the Agency Agreement dated as of October 13, 1993 between the Company, Weyerhaeuser Company and Morgan Guaranty Trust Company of New York); (iv) its Medium-Term Notes, Series D (the Series D Medium-Term Notes) issued and to be issued from time to time under the Agency Agreement dated as of April 24, 2001, between the Company, Weyerhaeuser Company, and the Chase Manhattan Bank; (v) its Loan Agreement dated November 1, 1996 among the Company, the Banks named therein and the Sumitomo Bank, New York Branch as Agent (the “Loan Agreement”), and (vi) all indebtedness and other amounts owing pursuant to the Second Amended and Restated 364-Day Revolving Credit Facility Agreement dated as of March      , 2003, (as it may be amended, modified, extended or restated

E-1


 

from time to time, the “364-Day Credit Agreement”), among the Company, Weyerhaeuser Company, JPMorgan Chase Bank, and the lenders referred to therein, all such indebtedness to which this Note is subordinate and junior being hereinafter referred to as “Prior Debt” and the governing loan documents being hereinafter referred to as the “Prior Debt Instruments”), as follows:

       (i) In the event of any distribution, division or application, partial or complete, voluntary or involuntary, by operation of law or otherwise, of all or any part of the assets of the Company, or the proceeds thereof, to creditors of the Company or upon any indebtedness of the Company occurring by reason of liquidation, dissolution or other winding up of the Company or by reason of any execution, sale, receivership, insolvency or bankruptcy proceedings or other proceedings for the reorganization or readjustment of the Company or its debts or properties, then in any such event such Prior Debt shall be preferred in payment over the Subordinated Notes and such Prior Debt shall be first paid and satisfied in full, in accordance with the order of priority of payment established by any applicable provisions thereof and by any instruments whereunder any Prior Debt is issued, before any payment or distribution of any kind or character, whether in cash, property or securities (other than in securities the payment of which is subordinated to said Prior Debt to the same extent as herein provided), shall be made on or in respect of principal or interest of the Subordinated Notes; and in any such event any such payment, dividend or distribution (other than in securities the payment of which is also subordinated as aforesaid) which shall be made upon or in respect thereof shall be paid over to the holders of such Prior Debt, pro rata, for application on such Prior Debt in accordance with the order of priority of payment established by any applicable provisions thereof and by any instrument whereunder any Prior Debt is issued, until said Prior Debt has been fully paid.

       (ii) Without limiting the foregoing, during the continuance of any default in payment of principal, sinking fund, interest or premium, if any, on any Prior Debt, no payment of principal or interest shall be made on or with respect to the indebtedness evidenced by any Subordinated Note, or any renewals or extensions thereof, and the holder or holders of any Subordinated Notes shall not be entitled to receive or retain any such payment made during the continuance of any such default.

       (iii) Also without limiting the foregoing, the Company shall not make, and the holder or holders of any Subordinated Notes shall not be entitled to receive or retain, any payment of principal or interest on the Subordinated Notes (whether such payment is made directly or indirectly through the redemption, purchase or other acquisition of Subordinated Notes by or for the benefit of the Company), if at the time of any such payment and after giving effect thereto, an Event of Default (as that term is defined in any of the Prior Debt Instruments), is then continuing, or if any event has occurred which, with the lapse of time or the giving of notice, or both, will become such an Event of Default under any of the Prior Debt Instruments.

       (iv) No right of any present or future holder of any Prior Debt to enforce subordination as herein provided for shall at any time be breached or impaired by any failure to act on the part of the Company or by any noncompliance by the Company with the terms, provisions and covenants hereof or of said Prior Debt, regardless of any knowledge thereof that any holder of Prior Debt may have or be otherwise charged with.

E-2


 

  Without limiting the foregoing the holder or holders of said Prior Debt may receive and hold collateral for the payment of such Prior Debt, may make substitutions and releases of collateral or any part thereof, whether or not such holder or holders receive any consideration therefor; may grant renewals or extensions of time for the payment of installments of said Prior Debt or any part thereof, and take renewal notes or other instruments to evidence the same; and no action or non-action taken or omitted to be taken in respect of the foregoing matters or any of them by any holder or holders of Prior Debt at any time or from time to time shall invalidate or impair the subordination herein provided for.

         
    WEYERHAEUSER REAL ESTATE COMPANY,
         
    By    
       
        Its Treasurer

E-3


 

EXHIBIT F

FORM OF PROMISSORY NOTE

New York, New York

[                     ,       ]

          FOR VALUE RECEIVED, [WEYERHAEUSER COMPANY, a Washington corporation] [WEYERHAEUSER REAL ESTATE COMPANY, a Washington corporation] (the “Borrower”), hereby promises to pay to the order of [                             ] (the “Lender”), at the office of JPMorgan Chase Bank (the “Agent”), at 270 Park Avenue, New York, New York 10017 on the Termination Date as defined in the Second Amended and Restated 364-Day Revolving Credit Facility Agreement dated as of March      , 2003 (as it may hereafter be amended, modified, extended or restated from time to time, the “Credit Agreement”), among the Borrower, [Weyerhaeuser Company, a Washington corporation] [Weyerhaeuser Real Estate Company, a Washington corporation], the Lenders, the Swing Line Bank and Fronting Bank named therein, JPMorgan Chase Bank, as Administrative Agent, Morgan Stanley Senior Funding, Inc., as syndication agent and The Bank of Tokyo-Mitsubishi, Ltd. and Deutsche Bank Securities Inc., as co-documentation agents, the aggregate unpaid principal amount of all Loans made by the Lender to the Borrower pursuant to the Credit Agreement, in lawful money of the United States of America in same day funds, and to pay interest from the date hereof on the principal amount hereof from time to time outstanding, in like funds, at said office, at a rate or rates per annum and payable on such dates as determined pursuant to the Credit Agreement.

          The Borrower promises to pay interest, on demand, on any overdue principal of its borrowings and, to the extent permitted by law, overdue interest from their due dates at a rate or rates determined as set forth in the Credit Agreement.

          The Borrower hereby waives diligence, presentment, demand, protest and notice of any kind whatsoever. The nonexercise by the holder of any of its rights hereunder in any particular instance shall not constitute a waiver thereof in that or any subsequent instance.

          All borrowings evidenced by this Note and all payments and prepayments of the principal hereof and interest hereon and the respective dates thereof shall be endorsed by the holder hereof on the schedule attached hereto and made a part hereof, or on a continuation thereof which shall be attached hereto and made a part hereof, or otherwise recorded by such holder in its internal records; provided, however, that any failure of the holder hereof to make such a notation or any error in such notation shall not in any manner affect the obligation of the Borrower to make payments of principal and interest with respect to the Borrower’s borrowings in accordance with the terms of this Note and the Credit Agreement.

          This Note is one of the promissory notes referred to in the Credit Agreement which, among other things, contains provisions for the acceleration of the maturity hereof upon the happening of certain events, for mandatory and, in certain

F-1


 

circumstances, optional prepayment of the principal hereof prior to the maturity thereof and for the amendment or waiver of certain provisions of the Credit Agreement, all upon the terms and conditions therein specified.

          THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.

         
    [WEYERHAEUSER COMPANY,]
[WEYERHAEUSER REAL ESTATE COMPANY,]
         
    By    
       
        Name:
        Title:

F-2


 

Loans and Payments

                             
                      Name of      
Amount                     Principal   Person  
and Type   Interest           Unpaid     Balance   Making  
of Loan   Period     Principal     Interest     of Note   Notation  

 
   
   
   
 
 

F-3


 

Schedule 2.01

COMMITMENTS OF THE LENDERS

         
Institution   Commitment

 
JPMorgan Chase Bank
  $ 110,000,000  
Morgan Stanley Senior Funding, Inc.
    110,000,000  
Bank of Tokyo-Mitsubishi, Ltd., Seattle Branch
    100,000,000  
Deutsche Bank AG New York Branch
    100,000,000  
Citicorp USA, Inc.
    91,000,000  
Royal Bank of Canada
    91,000,000  
The Bank of Nova Scotia
    91,000,000  
Bank of America
    91,000,000  
CIBC Inc.
    50,000,000  
PNC Bank, National Association
    50,000,000  
Wachovia Bank N.A
    50,000,000  
Northwest Farm Credit Services, PCA
    31,000,000  
Sumitomo Mitsui Banking Corporation
    25,000,000  
Caja Madrid
    25,000,000  
Farm Credit Services of America, PCA
    20,000,000  
U.S. Bank National Association
    17,500,000  
The Northern Trust Company
    17,500,000  
CoBank, ACB
    17,500,000  
Rabobank Nederland
    17,500,000  
KBC Bank, N.V
    15,000,000  
Regions Bank
    15,000,000  
Wells Fargo Bank, N.A
    12,500,000  
Westpac Banking Corporation
    12,500,000  
AgFirst Farm Credit Bank
    12,500,000  
Mellon Bank, N.A
    10,000,000  
Australia and New Zealand Banking Group Limited
    7,500,000  
Farm Credit Services of Minnesota Valley, PCA
    5,000,000  
Chiao Tung Bank Co., Ltd. New York Agency
    5,000,000  
 
   
 
Total Commitments
  $ 1,200,000,000  

 


 

Schedule 3.08 Part I

WEYERHAEUSER COMPANY AND SUBSIDIARIES

                         
                    Percentage
            State or   Ownership of
            Country of   Immediate
Name   Incorporation   Parent

 
 
Columbia & Cowlitz Railway Company
  Washington     100  
DeQueen & Eastern Railroad Company
  Arkansas     100  
Fisher Lumber Company
  California     100  
Golden Triangle Railroad
  Mississippi     100  
Gryphon Asset Management, Inc.
  Delaware     100  
Gryphon Investments of Nevada, Inc.
  Nevada     100  
Mississippi & Skuna Valley Railroad Company
  Mississippi     100  
Norpac ResourcesLLC
  Delaware     100  
Oregon Timber Company
  Oregon     100  
 
Investment Company of Oregon
  Oregon     100  
Pacific Veneer, Ltd.
  Washington     100  
Texas, Oklahoma & Eastern Railroad Company
  Oklahoma     100  
United Structures, Inc.
  California     100  
Westwood Shipping Lines, Inc.
  Washington     100  
Weycomp Claims Management Services, Inc.
  Texas     100  
Weyerhaeuser Company of Nevada
  Nevada     100  
Weyerhaeuser Construction Company
  Washington     100  
Weyerhaeuser de Mexico, S.A. de C.V.
  Mexico     100  
Weyerhaeuser del Bajio, S.A. de C.V.
  Mexico     100  
Weyerhaeuser Europe Holdings
  Ireland     100  
 
Weyerhaeuser Sarasate Limited
  Ireland     100  
     
Weyerhaueser Holdings France SAS
  France     100  
       
Weyerhaeuser Mediland SAS
  France     100  
       
   Weyerhaeuser Darbo SAS
  France     100  

 


 

                         
                    Percentage
            State or   Ownership of
            Country of   Immediate
Name   Incorporation   Parent

 
 
Weyerhaeuser Financial Services, Inc.
  Delaware     100  
 
ver Bes’ Insurance Company
  Vermont     100  
     
de Bes’ Insurance Ltd.
  Bermuda     100  
 
Weyerhaeuser Financial Investments, Inc.
  Nevada     100  
       
Trimark Development Company
  California     100  
     
WFI Servicing Company
  Nevada     100  
 
Weyerhaeuser Venture Company
  Nevada     100  
     
Las Positas Land Co.
  California     100  
     
WAMCO, Inc.
  Nevada     100  
Weyerhaeuser Forestlands International, Inc.
  Washington     100  
Weyerhaeuser International, Inc.
  Washington     100  
     
Southern Cone Timber Investors Holding Company, LLC
  Delaware     100  
 
Trus Joist SPRL
  Belgium     100  
 
Weyerhaeuser Holdings Limited
  British Columbia     100  
     
Weyerhaeuser Company Limited
  Canada     100  
       
317298 Saskatchewan Ltd.
  Saskatchewan     100  
       
488205 British Columbia Ltd.
  British Columbia     90  
       
Forest License A49782 Holdings Ltd.
  British Columbia     99  
       
MacMillan Bloedel K.K
  Japan     100  
       
MacMillan Bloedel Pembroke Limited Partnership
  Ontario     100  
       
MacMillan Guadiana, S.A. de C.V.
  Mexico     100  
       
Mid-Island Reman Inc.
  British Columbia     100  
       
Weyerhaeuser (Annacis) Limited
  British Columbia     100  
       
Weyerhaeuser Australia Pty Ltd.
  Australia     100  
       
   Pine Solutions Australia Pty Limited
  Australia     100  
       
      K1 Holdings Pty Limited
  Australia     100  
       
      CCA Timbers (Vic) Pty Ltd.
  Australia     100  
       
      Hanaki Pty Ltd.
  Australia     100  
       
      Kaiyou Pty Ltd.
  Australia     100  
       
Weyerhaeuser (Barbados) SRL
  Barbados     100  

 


 

                         
                    Percentage
            State or   Ownership of
            Country of   Immediate
Name   Incorporation   Parent

 
 
       
   Marlborough Capital Corp. SRL
  Barbados     100  
       
Weyerhaeuser (BVI) Ltd.
  British Virgin Islands     100  
       
   Weyerhaeuser New Zealand Holdings Inc.
  New Zealand     100  
       
      Nelson Forest Products Company
  New Zealand     100  
       
      Weyerhaeuser New Zealand Inc.
  New Zealand     100  
       
Weyerhaeuser (Carlisle) Ltd.
  Barbados     100  
       
   Camarin Limited
  Barbados     100  
       
Weyerhaeuser (Delta) Limited
  British Columbia     100  
       
Weyerhaeuser (Imports) Pty Limited
  Australia     100  
       
Weyerhaeuser (Ottawa) Limited
  British Columbia     100  
       
Weyerhaeuser Saskatchewan Ltd.
  Saskatchewan     100  
       
Weyerhaeuser Services Limited
  British Columbia     100  
 
Weyerhaeuser China, Ltd.
  Washington     100  
 
Weyerhaeuser (Asia) Limited
  Hong Kong     100  
 
Weyerhaeuser Japan Ltd.
  Japan     100  
 
Weyerhaeuser Japan Ltd.
  Delaware     100  
 
Weyerhaeuser Korea Ltd.
  Korea     100  
 
Weyerhaeuser, S.A.
  Panama     100  
 
Weyerhaeuser Taiwan Ltd.
  Delaware     100  
Weyerhaeuser International Sales Corp.
  Guam     100  
Weyerhaeuser (Mexico) Inc.
  Washington     100  
Weyerhaeuser Overseas Finance Co.
  Delaware     100  
Weyerhaeuser Raw Materials, Inc.
  Delaware     100  
Weyerhaeuser Real Estate Company*
  Washington     100  
 
Midway Properties, Inc.*
  North Carolina     100  
 
Pardee Homes *
  California     100  
   
Marmont Realty Company*
  California     100  
   
Pardee Homes of Nevada*
  Nevada     100  
   
Pardee Investment Company *
  California     100  
 
The Quadrant Corporation *
  Washington     100  
 
South Jersey Assets, Inc.*
  New Jersey     100  

 


 

                         
                    Percentage
            State or   Ownership of
            Country of   Immediate
Name   Incorporation   Parent

 
 
 
Scarborough Constructors, Inc. *
  Florida     100  
 
TMI, Inc. *
  Texas     100  
 
Weyerhaeuser Real Estate Company of Nevada *
  Nevada     100  
 
Weyerhaeuser Realty Investors, Inc. *
  Washington     100  
 
Winchester Homes, Inc.*
  Delaware     100  
Weyerhaeuser Real Estate Development Company
  Washington     100  
Weyerhaeuser Sales Company
  Nevada     100  
Weyerhaeuser Servicios, S.A. de C.V.
  Mexico     100  
Weyerhaeuser USA LLC
  Delaware     100  
 
American Cemwood Corporation
  Oregon     100  
 
MB Administrative Services Inc.
  Delaware     100  
Willamette Mexican Holding Company
  Oregon     100  
Wilton Connor LLC
  North Carolina     100  
 
Wilton Connor Packaging International Limited
  Hong Kong     100  
The Wray Company
  Arizona     100  

* Unrestricted Subsidiary

 


 

Schedule 3.08 Part II

WEYERHAEUSER REAL ESTATE COMPANY AND SUBSIDIARIES

                     
                Percentage
        State or   Ownership of
        Country of   Immediate
Name   Incorporation   Parent

 
 
Weyerhaeuser Real Estate Company
  Washington     100  
Midway Properties, Inc.
  North Carolina     100  
Pardee Homes
  California     100  
 
Marmont Realty Company
  California     100  
 
Pardee Homes of Nevada
  Nevada     100  
 
Pardee Investment Company**
  California     100  
The Quadrant Corporation
  Washington     100  
   
South Jersey Assets, Inc.
  New Jersey     100  
Scarborough Constructors, Inc.
  Florida     100  
TMI, Inc.
  Texas     100  
Weyerhaeuser Real Estate Company of Nevada
  Nevada     100  
Weyerhaeuser Realty Investors, Inc.
  Washington     100  
Winchester Homes, Inc.
  Delaware     100  

** Unrestricted Subsidiaries of Weyerhaeuser Real Estate Company

 


 

Schedule 9.01

ADDRESSES FOR NOTICES TO THE BANK

     
Name of Bank   Domestic and Eurodollar Lending Offices

 
JPMorgan Chase Bank   JPMorgan Chase Bank
    Loan and Agency Services
    1111 Fannin, Floor 10,
    Houston TX 77002
    Attn: Mr. Vaughan Nguyen, Loan and
    Agency Services
    T: (713) 750-3550
    F: (713) 750-2932
     
    With copy to:
     
    JPMorgan Chase Bank
    560 Mission Street
    San Francisco, CA 94105
    Attn: Mr. William Rindfuss
    T: (415) 315-8232
    F: (415) 315-8586
     
Morgan Stanley Senior Funding, Inc.   Morgan Stanley Senior Funding, Inc.
    1633 Broadway
    New York, NY 10019
    Attn: James Morgan
    T: (212) 537-1470
    F: (212) 537-1867/1866
     
    With copy to:
     
    Morgan Stanley Senior Funding, Inc.
    750 7th Avenue
    New York, NY 10019
    Attn: David Morin
    T: (212) 762-2621
    F: (212) 507-3138
     
The Bank of Tokyo-Mitsubishi, Ltd.,   The Bank of Tokyo-Mitsubishi, Ltd.,
Seattle Branch   Seattle Branch
    777 South Figueroa Street, Suite 600
    Los Angeles, CA 90017
    Attn: Nina Jeon/Ellen Yuson
    T: (213) 488-3794/3796
    F: (213) 613-1136

 


 

     
Name of Bank   Domestic and Eurodollar Lending Offices

 
Deutsche Bank Securities Inc.   Deutsche Bank Securities Inc.
    31 West 52nd Street
    New York, NY 10019
    Attn: Mr. Oliver Schwarz
    T: (212) 469-8610
    F: (212) 469-2930
     
Deutsche Bank AG New York Branch   Deutsche Bank AG New York Branch
    31 West 52nd Street
    New York, NY 10019
    Attn: Mr. Oliver Schwarz
    T: (212) 469-8610
    F: (212) 469-2930
     
AgFirst Farm Credit Bank   AgFirst Farm Credit Bank
    1401 Hampton Street
    Columbia, SC 29202
    Attn: Michelle Robertson
    T: (800) 845-1745, ext. 371
    F: (800) 929-0224
     
Australia and New Zealand Banking Group   Australia and New Zealand Banking Group
Limited   Limited
    1177 Avenue of the Americas
    New York, NY 10036
    Attn: Damodar Menon
    T: (212) 801-9752
    F: (212) 556-4826
     
Bank of America, N.A   Bank of America, N.A.
    Mail Code CA5-705-12-12
    555 California Street, 12th Floor
    San Francisco, CA 94104-1503
    Attn: Michael Letson
    T: (415) 953-0604
    F: (415) 622-4585
     
The Bank of Nova Scotia   The Bank of Nova Scotia
    600 Peachtree St., N.E.
    Suite 2700
    Atlanta, GA 30308
    Attn: Lily Hsieh
    T: (404) 877-1523
    F: (404) 888-8998

 


 

     
Name of Bank   Domestic and Eurodollar Lending Offices

 
Caja Madrid   Caja Madrid
    Paseo De La Castellana 189
    28046 Madrid (Spain)
    Attn: Pedro Lalanda Marcos
    T: 34 91 423 0985
    F: 34 91 423 9718
     
Chiao Tung Bank Co., Ltd. New York Agency   Chiao Tung Bank Co., Ltd. New York Agency
    One World Financial Center, 30thFloor
    200 Liberty Street
    New York, NY 10281
    Attn: Ifen Lee
    T: (212) 285-2666, ext. 238
    F: (212) 285-2922
     
CIBC Inc.   CIBC Inc.
    425 Lexington Avenue
    New York, NY 10017
    Attn: Geraldine Kerr, Executive Director
    T: (212) 856-3684
    F: (212) 856-3761
     
Citicorp USA, Inc.   Citicorp USA, Inc. Global Loan Support
    Services
    Two Penns Way, Suite 200
    New Castle, DE 19720
    Attn: Ms. Lee Ocasio
    T: (302) 894-6065
    F: (302) 984-6120
     
CoBank, ACB   CoBank, ACB
    Global Financial Services Group
    5500 South Quebec St.
    Greenwood Village, CO 80111
    Attn: S. Richard Dill, Vice President
    T: (303) 740-4197
    F: (303) 740-4366

 


 

     
Name of Bank   Domestic and Eurodollar Lending Offices

 
Cooperatieve Centrale   Rabobank Nederland
Raiffeisin-Boerenleenbank B.A.,   245 Park Ave.
“Rabobank Nederland” New York Branch   36th Floor
    New York, NY 10167
    Attn: Ann McDonough
    T: (201) 499-5318
    F: (201) 499-5326
     
Farm Credit Services of America, PCA   Farm Credit Services of America, PCA
    5015 South 118th Street
    Omaha, NE 68137
    Attn: Becky Haas
    T: (402) 348-3241
    F: (402) 348-3324
     
Farm Credit Services of Minnesota   Farm Credit Services of Minnesota
Valley, PCA dba FCS Commercial Finance   Valley, PCA dba FCS Commercial Finance
Group   Group
    375 Jackson Street
    P.O. Box 64949
    St. Paul, MN 55164-0949
    Attn: Larry Dalton
    T: (651) 282-8743
    F: (651) 282-8777
     
KBC Bank, N.V   KBC Bank, N.V.
    125 West 55th Street, 10th Floor
    New York, NY 10019
    Attn: Rose Paga/Robert Pacifici
    T: (212) 541-0657/0671
    F: (212) 956-5580/5581
     
Mellon Bank, N.A   Mellon Bank, N.A.
    Three Mellon Bank Center, Room 1204
    Pittsburgh, PA 15259
    Attn: Damon Carr
    T: (412) 234-4749
    F: (412) 209-6129
     
The Northern Trust Company   The Northern Trust Company
    50 S. LaSalle, 11th Floor
    Chicago, IL 60675
    Attn: Melissa Whitson
    T: (312) 444-4473
    F: (312) 630-6062

 


 

     
Name of Bank   Domestic and Eurodollar Lending Offices

 
Northwest Farm Credits Services, PCA   Northwest Farm Credits Services, PCA
    1700 S. Assembly Street
    Spokane, WA 99224
    Attn: Jim Allen
    T: (509) 340-5555
    F: (509) 340-5503
     
PNC Bank, National Association   PNC Bank, National Association
    One PNC Plaza, 5th Floor
    249 Fifth Ave.
    Pittsburgh, PA 15222
    Attn: April Atwater
    T: (412) 768-6214
    F: (412) 768-4586
     
Regions Bank   Regions Bank – Corporate Banking
    Division
    417 North 20th Street
    Birmingham, Alabama 35203
    Attn: Kim Hassell
    T: (205) 326-7038
    F: (205) 326-7746
     
Royal Bank of Canada   Royal Bank of Canada
    New York Branch
    One Liberty Plaza, 3rd Floor
    New York, NY 10006-1404
    Attn: Manger Loans Administration
    T: (212) 428-6369
    F: (212) 428-2372
     
    With copy to:
     
    Royal Bank of Canada
    One Liberty Plaza, 3rd Floor
    New York, NY 10006-1404
    Attn: C. Abe
    T: (212) 428-6260
    F: (212) 428-2319
     
Sumitomo Mitsui Banking Corporation   Sumitomo Mitsui Banking Corporation
    277 Park Ave.
    New York, NY 10172
    Attn: Andrew Homola
    T: (212) 224-4320
    F: (212) 224-5197

 


 

     
Name of Bank   Domestic and Eurodollar Lending Offices

 
U.S. Bank National Association   U.S. Bank National Association
    1420 Fifth Avenue, 6th Floor
    Seattle, WA 98101
    Attn: Gail Fortun
    T: (206) 587-5212
    F: (206) 344-3741
     
Wachovia Bank N.A   Wachovia Bank N.A.
    191 Peachtree St. Mail Code GA 8050
    Atlanta, GA 30303
    Attn: Shawn Janko
    T: (404) 332-5884
    F: (404) 332-4136
     
Wells Fargo Bank, N.A   Wells Fargo Loan Operations
    201 Third Street, 8th Floor
    MAC A0187-081
    San Francisco, CA 94103
    Attn: Ginnie Padgett
    T: (415) 477-5374
    F: (415) 512-1943
     
Westpac Banking Corporation   Westpac Banking Corporation
    575 Fifth Ave. 39th Floor
    New York, NY 10017
    Attn: Tony Smith
    T: (212) 551-1814
    F: (212) 551-1995

 


 

TABLE OF CONTENTS

                   
              Page
             
         
ARTICLE I
DEFINITIONS
       
Section 1.01  
Defined Terms
    1  
Section 1.02  
Terms Generally
    14  
Section 1.03  
Accounting Terms; GAAP
    14  
         
ARTICLE II
THE CREDITS
       
Section 2.01  
Commitments
    15  
Section 2.02  
Loans
    15  
Section 2.03  
Conversion and Continuation of Loans
    17  
Section 2.04  
Fees
    18  
Section 2.05  
Repayment of Loans; Evidence of Debt
    19  
Section 2.06  
Interest on Loans
    20  
Section 2.07  
Default Interest
    21  
Section 2.08  
Alternate Rate of Interest
    22  
Section 2.09  
Termination and Reduction of Commitments
    22  
Section 2.10  
Prepayment
    23  
Section 2.11  
Reserve Requirements; Change in Circumstances
    24  
Section 2.12  
Change in Legality
    25  
Section 2.13  
Indemnity
    26  
Section 2.14  
Pro Rata Treatment
    27  
Section 2.15  
Sharing of Setoffs
    27  
Section 2.16  
Payments
    28  
Section 2.17  
Taxes
    28  
Section 2.18  
Mitigation Obligations; Replacement of Lenders
    31  
Section 2.19  
Term Loan Conversion
    32  
         
ARTICLE III
REPRESENTATIONS AND WARRANTIES
       
Section 3.01  
Organization; Powers
    32  
Section 3.02  
Authorization
    33  
Section 3.03  
Enforceability
    33  
Section 3.04  
Consents and Approvals
    33  
Section 3.05  
Financial Statements
    33  
Section 3.06  
No Material Adverse Change
    34  
Section 3.07  
Title to Properties; Possession Under Leases
    34  
Section 3.08  
Subsidiaries
    34  

i


 

                   
              Page
             
Section 3.09  
Litigation; Compliance with Laws
    34  
Section 3.10  
Agreements
    35  
Section 3.11  
Federal Reserve Regulations
    35  
Section 3.12  
Investment Company Act; Public Utility Holding Company Act
    35  
Section 3.13  
Tax Returns
    35  
Section 3.14  
No Material Misstatements
    35  
Section 3.15  
Compliance with ERISA
    35  
Section 3.16  
Environmental Matters
    36  
Section 3.17  
Maintenance of Insurance
    36  
         
ARTICLE IV
CONDITIONS OF LENDING
       
Section 4.01  
All Borrowings and Issuances
    37  
Section 4.02  
Closing Date
    37  
Section 4.03  
Term Loan Conversion Conditions
    38  
         
ARTICLE V
AFFIRMATIVE COVENANTS
       
Section 5.01  
Existence; Businesses and Properties
    39  
Section 5.02  
Insurance
    39  
Section 5.03  
Obligations and Taxes
    39  
Section 5.04  
Financial Statements, Reports, etc
    40  
Section 5.05  
Litigation and Other Notices
    41  
Section 5.06  
ERISA
    42  
Section 5.07  
Maintaining Records; Access to Properties and Inspections
    42  
Section 5.08  
Use of Proceeds
    43  
Section 5.09  
Environmental Matters
    43  
Section 5.10  
OCBM Agreement
    44  
Section 5.11  
Further Assurances
    44  
         
ARTICLE VI
NEGATIVE COVENANTS
       
Section 6.01  
Covenants of Weyerhaeuser
    45  
Section 6.02  
Covenants with respect to WRECO
    47  
         
ARTICLE VII
EVENTS OF DEFAULT
       
Section 7.01  
Events of Default
    51  

ii


 

                   
              Page
             
         
ARTICLE VIII
THE ADMINISTRATIVE AGENT
       
Section 8.01  
The Administrative Agent
    53  
Section 8.02  
Other Agents
    56  
         
ARTICLE IX
MISCELLANEOUS
       
Section 9.01  
Notices
    56  
Section 9.02  
Survival of Agreement
    56  
Section 9.03  
Binding Effect
    57  
Section 9.04  
Successors and Assigns
    57  
Section 9.05  
Expenses; Indemnity
    59  
Section 9.06  
Right of Setoff
    60  
Section 9.07  
Applicable Law
    60  
Section 9.08  
Waivers; Amendment
    60  
Section 9.09  
Interest Rate Limitation
    61  
Section 9.10  
Entire Agreement
    61  
Section 9.11  
WAIVER OF JURY TRIAL
    61  
Section 9.12  
Severability
    62  
Section 9.13  
Counterparts
    62  
Section 9.14  
Headings
    62  
Section 9.15  
Jurisdiction; Consent to Service of Process
    62  
Section 9.16  
Domicile of Loans
    63  
Section 9.17  
Restricted and Unrestricted Subsidiaries
    63  
         
EXHIBITS
       
Exhibit A  
Form of Revolving Borrowing Request
       
Exhibit B  
Form of Administrative Questionnaire
       
Exhibit C  
Form of Assignment and Acceptance
       
Exhibit D-1  
Form of Certification of Financial Statements for Weyerhaeuser
       
Exhibit D-2  
Form of Certification of Financial Statements for WRECO
       
Exhibit D-3  
Form of Compliance Certificate for Weyerhaeuser
       
Exhibit D-4  
Form of Compliance Certificate for WRECO
       
Exhibit E  
Form of Subordinated Debt
       
Exhibit F  
Form of Promissory Note
       

iii


 

                   
              Page
             
         
SCHEDULES
       
Schedule 2.01  
Commitments
       
Schedule 3.08  
Subsidiaries of Weyerhaeuser and WRECO
       
Schedule 9.01  
Notices
       

iv EX-10.(H) 4 v96705exv10wxhy.htm EXHIBIT 10.(H) exv10wxhy

 

Exhibit 10(h)

Execution Copy



$1,300,000,000

AMENDED AND RESTATED COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY AGREEMENT

Dated as of March 26, 2002

among

WEYERHAEUSER COMPANY, as Borrower,

THE LENDERS, SWING LINE BANK and FRONTING BANK NAMED HEREIN,

JPMORGAN CHASE BANK, as Administrative Agent,

MORGAN STANLEY SENIOR FUNDING, INC., as Syndication Agent,

and

THE BANK OF TOKYO-MITSUBISHI, LTD., and

DEUTSCHE BANC ALEX. BROWN INC.,

as Co-Documentation Agents



J.P. MORGAN SECURITIES INC. and MORGAN STANLEY SENIOR FUNDING, INC.,

as Lead Arrangers and Joint Book Runners

 


 

          AMENDED AND RESTATED COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY AGREEMENT dated as of March 26, 2002 among WEYERHAEUSER COMPANY, a Washington corporation (the “Borrower”), the lenders listed in Schedule 2.01 (together with each assignee that becomes a party hereto pursuant to Section 9.04, a “Lender”, and collectively, the “Lenders”), JPMORGAN CHASE BANK, a New York banking corporation, as swing line bank (in such capacity, the “Swing Line Bank”), JPMORGAN CHASE BANK, as fronting bank (in such capacity, the “Fronting Bank”), JPMORGAN CHASE BANK, as administrative agent for the Lenders (in such capacity, and its successors in such capacity, the “Administrative Agent”), MORGAN STANLEY SENIOR FUNDING, INC., as syndication agent (in such capacity, the “Syndication Agent”), and THE BANK OF TOKYO-MITSUBISHI, LTD. and DEUTSCHE BANC ALEX. BROWN INC., as co-documentation agents (each, individually, a “Co-Documentation Agent,” and collectively, the “Co-Documentation Agents”).

W I T N E S S E T H:

          WHEREAS, pursuant to that certain Competitive Advance and Revolving Credit Facility Agreement, dated as of February 8, 2002 (the “Existing Competitive Advance and Revolving Credit Agreement”) entered into by and among the Borrower, JPMorgan Chase Bank, as swing line bank, fronting bank and administrative agent, Morgan Stanley Senior Funding, Inc., as syndication agent, The Bank of Tokyo-Mitsubishi, Ltd. and Deutsche Banc. Alex Brown Inc. as co-documentation agents, and the lenders party thereto from time to time, the lenders, the swing line bank and the fronting bank party thereto have extended credit to the Borrower to enable it (a) to finance the acquisition (the “Acquisition”) by the Borrower of the outstanding shares of common stock, including the related preferred stock purchase rights, of Willamette Industries, Inc., an Oregon corporation (the “Company”), (b) to pay costs and expenses related to such Acquisition and the financing thereof, (c) to refinance certain existing indebtedness of the Borrower, the Company and their respective subsidiaries (as hereinafter defined), (d) to provide the Borrower and its Subsidiaries (as hereinafter defined) with financing for general corporate purposes and (e) to provide for the issuance of letters of credit for the account of the Borrower.

          WHEREAS, the Borrower has requested that the Lenders amend and restate the Existing Competitive Advance and Revolving Credit Agreement (a) to refinance the Existing Competitive Advance and Revolving Credit Agreement, (b) to pay costs and expenses related to such re-financing, (c) to provide the Borrower and its Subsidiaries with financing for general corporate purposes and (d) to provide for the issuance of Letters of Credit for the account of the Borrower.

          WHEREAS, the Lenders have indicated their willingness to amend and restate the Existing Competitive Advance and Revolving Credit Agreement on the terms and conditions of this Agreement.

          WHEREAS, Weyerhaeuser Real Estate Company, a Washington corporation and a wholly owned subsidiary of the Borrower will derive a substantial benefit from the credit extended to the Borrower.

1


 

          NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the parties hereto hereby agree to amend and restate the Existing Competitive Advance and Revolving Credit Agreement as follows:

ARTICLE I

DEFINITIONS

          Section 1.01 Defined Terms. As used in this Agreement, the following terms shall have the meanings specified below:

          “364-Day Revolving Credit Facility Agreement” shall mean the Amended and Restated 364-Day Revolving Credit Facility Agreement dated as of even date herewith, entered into by and among the Borrower, WRECO, the lenders party thereto from time to time, the Syndication Agent, the Administrative Agent and the Co-Documentation Agents, as such agreement may be amended, restated, supplemented or otherwise modified from time to time.

          “Acquisition” shall have the meaning given such term in the preliminary statements hereto.

          “Adjusted Net Worth” shall mean, as of the date of any computation thereof, the aggregate amount of capital stock (less treasury stock), surplus and retained earnings of WRECO and its Restricted Subsidiaries, after deducting (i) goodwill, patents, trade names, trademarks, unamortized debt discount and expense, deferred assets (other than prepaid taxes and insurance), experimental or organizational expense, any reappraisal, revaluation or write-up assets, and such other assets as are properly classified as “intangible assets” of WRECO and its Restricted Subsidiaries in accordance with GAAP, (ii) all minority interests in the capital stock and surplus of the Restricted Subsidiaries of WRECO, (iii) all Investments in Unrestricted Subsidiaries of WRECO, and (iv) all Investments of WRECO and its Restricted Subsidiaries in any joint venture, partnership or similar entity (not including any Investments in any Restricted Subsidiary of WRECO) entered into for the purpose of acquiring, developing, constructing, owning, operating, selling or leasing any Real Estate Assets.

          “Administrative Agent Fees” shall have the meaning given such term in Section 2.07(b).

          “Administrative Questionnaire” shall mean an Administrative Questionnaire in the form of Exhibit C hereto.

          “Affiliate” shall mean, when used with respect to a specified person, another person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the person specified.

          “Aggregate Credit Exposure” shall mean the aggregate amounts of the Lenders’ Credit Exposures.

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          “Agreement” shall mean this Amended and Restated Competitive Advance and Revolving Credit Facility Agreement, together with all amendments, supplements and modifications hereof.

          “Applicable Margin” shall have the meaning given such term in Section 2.09(d).

          “Applicable Percentage” of any Lender at any time shall mean the percentage of the Total Commitment represented by such Lender’s Commitment. In the event the Commitments shall have expired or been terminated, the Applicable Percentage shall be determined on the basis of the Commitments most recently in effect, but giving effect to assignments pursuant to Section 9.04.

          “Assignment and Acceptance” shall mean an assignment and acceptance entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.04), and accepted by the Administrative Agent, which acceptance shall be governed by the terms of Section 9.04, substantially in the form of Exhibit D.

          “Base Rate” shall mean, for any day, a rate per annum equal to the higher of (i) the Prime Rate and (ii) 1/2 of 1% plus the Federal Funds Rate, each as in effect from time to time. If for any reason the Administrative Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Federal Funds Rate, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms thereof, the Base Rate shall be determined without regard to clause (ii) of the first sentence of this definition, until the circumstances giving rise to such inability no longer exist. Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Rate shall be effective on the effective date of such change in the Prime Rate or the Federal Funds Rate, respectively.

          “Base Rate Borrowing” shall mean a Borrowing comprised of Base Rate Loans.

          “Base Rate Loan” shall mean any Loan bearing interest at a rate determined by reference to the Base Rate in accordance with the provisions of Article II.

          “Board” shall mean the Board of Governors of the Federal Reserve System of the United States.

          “Borrower” shall have the meaning given such term in the introductory paragraph hereto.

          “Borrowing” shall mean a group of Loans of a single Type made by the Lenders (or, in the case of a Competitive Borrowing, by the Lender or Lenders whose Competitive Bids have been accepted pursuant to Section 2.05) on a single date and as to which a single Interest Period is in effect.

          “Borrowing Request” shall mean a Revolving Borrowing Request and a Swing Line Borrowing Request.

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          “Business Day” shall mean any day (other than a day which is a Saturday, Sunday or legal holiday in the State of New York) on which banks are open for business in New York City; provided, however, that, when used in connection with a Eurodollar Loan, the term “Business Day” shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market.

          “Capital Base” shall mean, as of the date of any computation thereof, the sum of (i) Adjusted Net Worth plus (ii) the amount of WRECO/Weyerhaeuser Subordinated Debt then outstanding not to exceed Adjusted Net Worth.

          “Capital Lease Obligations” of any person shall mean the obligations of such person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such person under GAAP and, for purposes of this Agreement, the amount of such obligations at any time shall be the capitalized amount thereof at such time determined in accordance with GAAP.

          A “Change in Control” shall be deemed to have occurred with respect to (a) the Borrower if, (i) any person or group (within the meaning of Rule 13d-5 of the SEC as in effect on the date hereof) shall own directly or indirectly, beneficially or of record, shares representing more than 20% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of the Borrower; (ii) a majority of the seats (other than vacant seats) on the board of directors of the Borrower shall at any time have been occupied by persons who were neither (A) nominated by the management of the Borrower in accordance with its charter and by-laws, nor (B) appointed by directors so nominated; or (iii) any person or group shall otherwise directly or indirectly Control the Borrower, and (b) WRECO if the Borrower shall fail to own directly or indirectly, beneficially or of record, shares representing at least 79% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of WRECO.

          “Class”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, is a Revolving Loan or a Competitive Loan.

          “Closing Date” shall mean March 26, 2002.

          “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder. Section references to the Code are to the Code, as in effect at the date of this Agreement and any subsequent provisions of the Code, amendatory thereof, supplemental thereto or substituted therefor.

          “Commitment” shall mean, with respect to each Lender, the commitment of such Lender hereunder as set forth in Schedule 2.01 or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Commitment, as applicable, as such Lender’s Commitment may be permanently reduced, increased or terminated from time to time pursuant to Section 2.12, Section 2.21, Article VII or Section 9.04.

          “Company” shall have the meaning given such term in the preliminary statements hereto.

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          “Competitive Bid” shall mean an offer by a Lender to make a Competitive Loan in accordance with Section 2.05.

          “Competitive Bid Rate” shall mean, with respect to any Competitive Bid, the Margin or the Fixed Rate, as applicable, offered by the Lender making such Competitive Bid.

          “Competitive Bid Request” shall mean a request by the Borrower for Competitive Bids in accordance with Section 2.05.

          “Competitive Borrowing” shall mean a Borrowing consisting of Competitive Loans or concurrent Competitive Loans from the Lender or Lenders whose Competitive Bids for such Borrowing have been accepted by the Borrower under the bidding procedure described in Section 2.05.

          “Competitive Loan” shall mean a Loan made pursuant to Section 2.05.

          “Confidential Information Memorandum” shall mean, the confidential information memorandum dated February 2002 and used by the Administrative Agent and the Lead Arrangers in connection with the syndication of the Commitments.

          “Control” shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person, whether through the ownership of voting securities or by contract, and “Controlling” and “Controlled” shall have meanings correlative thereto.

          “Credit Exposure” shall mean, with respect to each Lender, at any time, the aggregate principal amount at such time of all outstanding Revolving Loans of such Lender to the Borrower, plus the aggregate amount at such time of such Lender’s L/C Exposure, plus the aggregate amount at such time of such Lender’s Swing Line Exposure.

          “Default” shall mean any event or condition which upon notice, lapse of time or both would constitute an Event of Default.

          “Disclosure Letter” shall mean the Company Disclosure Letter of the Company to the Borrower and Company Holdings, Inc. (“Holdings”), as contemplated by the Agreement and Plan of Merger Dated as of January 28, 2002, among the Borrower, Holdings and the Company.

          “Dollars”, “dollars” or “$” shall mean lawful money of the United States of America.

          “Domestic Subsidiary” shall mean any subsidiary organized under the laws of any State of the United States of America, substantially all of the assets of which are located, and substantially all of the business of which is conducted, in the United States of America.

          “Environmental Claims” shall mean any and all administrative, regulatory, or judicial actions, suits, demand letters, claims, liens, notices of noncompliance or violation, investigations, or proceedings relating in any way to any Environmental Law (hereinafter referred to as “claims”) or any permit issued under any such Environmental Law, including

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without limitation (a) any and all claims by Governmental Authorities for enforcement, cleanup, removal, response, remedial, or other actions or damages pursuant to any applicable Environmental Law, and (b) any and all claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation, or injunctive relief resulting from Hazardous Materials or arising from alleged injury or threat of injury to health, safety, or the environment.

          “Environmental Laws” shall mean any and all Federal, state, local and foreign statutes, laws, regulations, ordinances, codes, rules (including rules of common law), judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions now or hereafter in effect relating to the environment, health, safety, Hazardous Materials (including, without limitation, the manufacture, processing, distribution, use, treatment, storage, Release, and transportation thereof) or to industrial hygiene or the environmental conditions on, under or about real property, including, without limitation, soil, groundwater, and indoor and outdoor ambient air conditions.

          “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. Section references to ERISA are to ERISA, as in effect at the date of this Agreement and any subsequent provisions of ERISA, amendatory thereof, supplemental thereto or substituted therefor.

          “ERISA Affiliate” shall mean any trade or business (whether or not incorporated) that, together with the Borrower or WRECO, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414(b), (c), (m) or (o) of the Code.

          “Eurodollar Borrowing” shall mean a Borrowing comprised of Eurodollar Loans.

          “Eurodollar Loan” shall mean any Loan bearing interest at a rate determined by reference to the Eurodollar Rate in accordance with the provisions of Article II.

          “Eurodollar Rate” shall mean, with respect to any Eurodollar Borrowing for any Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the “Eurodollar Rate” with respect to such Eurodollar Borrowing for such Interest Period shall be the rate at which dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period.

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          “Event of Default” shall have the meaning given such term in Article VII.

          “Excluded Sales” shall mean (a) the sale by the Borrower or any of its Subsidiaries in the ordinary course of its business of inventory and timberlands, (b) sales of accounts, receivables or other payment intangibles as part of a securitization transaction and (c) sales to the Borrower or any of its subsidiaries.

          “Existing Competitive Advance and Revolving Credit Agreement” shall have the meaning given such term in the preliminary statements hereto.

          “Existing Senior Credit Facilities” shall mean material senior funded Indebtedness of the Borrower and its Subsidiaries outstanding immediately before the Closing Date. For purposes of this definition, no single loan shall be considered material unless the aggregate principal amount outstanding exceeds $15,000,000.

          “Facility Fees” shall have the meaning given such term in Section 2.07(a).

          “Federal Funds Rate” shall mean, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for the day of such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it.

          “Fees” shall mean the Facility Fees, the Fronting Fee, the L/C Participation Fee and the Administrative Agent Fees.

          “Financial Officer” of any corporation shall mean the chief financial officer, principal accounting officer, treasurer or controller of such corporation.

          “Fixed Rate” shall mean, with respect to any Competitive Loan (other than a Eurodollar Competitive Loan), the fixed rate of interest per annum specified by the Lender making such Competitive Loan in its related Competitive Bid.

          “Fixed Rate Borrowing” shall mean a Borrowing comprised of Fixed Rate Loans.

          “Fixed Rate Loan” shall mean a Competitive Loan bearing interest at a Fixed Rate.

          “Fronting Fee” shall have the meaning given such term in Section 2.07(c).

          “GAAP” shall mean generally accepted accounting principles, applied on a consistent basis.

          “Governmental Authority” shall mean the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any

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agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

          “Guarantee” of or by any person shall mean any obligation, contingent or otherwise, of such person guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of such person, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Indebtedness, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness of the payment of such Indebtedness, (c) to maintain working capital, equity capital or other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation; provided, however, that the term Guarantee shall not include endorsements for collection or deposit, in either case in the ordinary course of business.

          “Hazardous Materials” shall mean (a) any petroleum or petroleum products, flammable substances, explosives, radioactive materials, hazardous wastes, substances or contaminants, toxic wastes, substances or contaminants, or any other wastes, substances, contaminants or pollutants prohibited, limited or regulated by any Governmental Authority; (b) asbestos in any form that is or could become friable, urea formaldehyde foam insulation, transformers or other equipment that contains dielectric fluid containing levels of polychlorinated biphenyls or radon gas; (c) any chemicals, materials or substances defined as or included in the definition of “hazardous substances,” “hazardous wastes,” “hazardous materials,” “extremely hazardous wastes,” “restricted hazardous wastes,” “toxic substances,” “toxic pollutants,” “contaminants,” or “pollutants,” or words of similar import, under any applicable Environmental Law; and (d) any other chemical, material, or substance, exposure to which is prohibited, limited, or regulated by any Governmental Authority.

          “Indebtedness” of any person shall mean, without duplication, (a) all obligations of such person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such person upon which interest charges are customarily paid, (d) all obligations of such person under conditional sale or other title retention agreements relating to property or assets purchased by such person, (e) all obligations of such person issued or assumed as the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such person, whether or not the obligations secured thereby have been assumed, (g) all Guarantees by such person of Indebtedness of others, (h) all Capital Lease Obligations of such person, and (i) all obligations of such person as an account party in respect of letters of credit, letters of guaranty and bankers’ acceptances. The Indebtedness of any person shall include the Indebtedness of any partnership in which such person is a general partner.

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          “Interest Period” shall mean, (a) as to any Eurodollar Borrowing, the period commencing on the date of such Borrowing or on the date of conversion of a Borrowing of a different Type to a Eurodollar Borrowing or on the last day of the immediately preceding Interest Period applicable to such Borrowing or conversion thereof, as the case may be, and ending on the numerically corresponding day (or, if there is no numerically corresponding day, on the last day) in the calendar month that is 1, 2, 3 or 6 months thereafter, as the Borrower may elect and (b) with respect to any Fixed Rate Borrowing, the period (which shall not be less than seven days or more than 360 days) commencing on the date specified in the applicable Competitive Bid Request; provided, however, that if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of Eurodollar Loans, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day; provided, further, that no Interest Period for any Loan shall extend beyond the Termination Date. Interest shall accrue from and including the first day of an Interest Period to but excluding the last day of such Interest Period.

          “Investments” shall mean all investments in any Person, computed in accordance with GAAP, made by stock purchase, capital contribution, loan, advance, extension of credit, or creation or assumption of any other contingent liability or Guarantee in respect of any obligation of such Person, or otherwise; provided, however, that in computing any investment in any Person (i) all expenditures for such investment shall be taken into account at the actual amounts thereof in the case of expenditures of cash and at the fair value thereof (as determined in good faith by the Board of Directors of WRECO) or depreciated cost thereof (in accordance with GAAP), whichever is greater, in the case of expenditures of property, (ii) there shall not be included any Real Estate Assets, or any account or note receivable from such other Person arising from transactions in the ordinary course of business, and (iii) a Guarantee or other contingent liability of any kind in respect of any Indebtedness or other obligation of such Person shall be deemed an Investment equal to the amount of such Indebtedness or obligation.

          “L/C Disbursement” shall mean a payment or disbursement made by the Fronting Bank pursuant to a Letter of Credit.

          “L/C Exposure” shall mean, at any time, the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time (assuming compliance at such time with all conditions to drawing) plus (b) the aggregate principal amount of all L/C Disbursements that have not yet been reimbursed by the Borrower at such time. The L/C Exposure of any Lender at any time shall mean its Applicable Percentage of the aggregate L/C Exposure at such time.

          “L/C Participation Fee” shall have the meaning given such term in Section 2.07(c).

          “Lead Arrangers” shall mean, collectively, Morgan Stanley Senior Funding, Inc., and J.P. Morgan Securities Inc.

          “Lender” and “Lenders” shall have the respective meanings given to such terms in the introductory paragraph hereto.

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          “Lender Affiliate” shall mean, (a) with respect to any Lender, (i) an Affiliate of such Lender or (ii) any entity (whether a corporation, partnership, trust or otherwise) that is engaged in making, purchasing, holding or otherwise investing in bank loans and similar extensions of credit in the ordinary course of its business and is administered or managed by a Lender or an Affiliate of such Lender and (b) with respect to any Lender that is a fund which invests in bank loans and similar extensions of credit, any other fund that invests in bank loans and similar extensions of credit and is managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor.

          “Letter of Credit” shall mean any letter of credit issued pursuant to Section 2.04.

          “Lien” shall mean, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, encumbrance, charge or security interest in or on such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.

          “Loan” shall mean a Revolving Loan, a Swing Line Loan or a Competitive Loan.

          “Loan Documents” shall mean this Agreement, the OCBM Agreement, any notes issued in accordance with Section 2.08 and any Guarantee entered into by the Company in accordance with Section 5.13.

          “Mandatory Convertible Debt Securities” shall mean all obligations of the Borrower evidenced by bonds, notes, debentures, or other similar instruments, which by their terms convert mandatorily into equity interests of the Borrower no later than three years from the date of issuance of such bonds, notes, debentures, or other similar instruments; provided that at no time shall the aggregate outstanding principal amount of such obligations included in the definition of “Mandatory Convertible Debt Securities,” prior to their conversion, exceed $1,500,000,000.

          “Margin” means, with respect to any Competitive Loan bearing interest at a rate based on the Eurodollar Rate, the marginal rate of interest, if any, to be added to or subtracted from the Eurodollar Rate to determine the rate of interest applicable to such Loan, and specified by the Lender making such Loan in its related Competitive Bid.

          “Margin Stock” shall have the meaning given such term under Regulation U.

          “Material Adverse Effect” shall mean (a) a materially adverse effect on the business, financial condition, operations or properties of the Borrower and its Subsidiaries, taken as a whole, (b) a materially adverse effect on the ability of the Borrower or any of its Subsidiaries to perform its obligations under any Loan Documents to which it is or will be a party, (c) a materially adverse effect on the rights and remedies available to the Administrative Agent and the Lenders under the Loan Documents or (d) a materially adverse effect on the Transactions.

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          “Merger” shall mean the merger of the Purchaser, the Borrower or one of its wholly owned Restricted Subsidiaries with the Company, contemplated to occur as soon as practicable after the closing of the Tender Offer.

          “Moody’s” shall mean Moody’s Investors Service, Inc., a corporation organized and existing under the laws of the State of Delaware, and its successors and assigns, and if such corporation shall for any reason no longer perform the functions of a securities rating agency, “Moody’s” shall be deemed to refer to any other nationally recognized rating agency designated by the Borrower and the Required Lenders.

          “Net Cash Proceeds” shall mean, with respect to any sale, lease, transfer or other disposition of any asset by any Person, the aggregate amount of cash received from time to time (whether as initial consideration or through payment or disposition of deferred consideration) by or on behalf of such Person in connection with such transaction after deducting therefrom only (without duplication) (a) the costs associated with such transaction (including reasonable and customary brokerage fees and commissions, legal fees and other similar fees and commissions), (b) the amount of taxes payable in connection with or as a result of such transaction, (c) the amount of any Indebtedness secured by a Lien on such asset that, by the terms of the agreement or instrument governing such Indebtedness, is required to be repaid upon disposition and (d) reserves for purchase price adjustments and retained fixed liabilities that are payable by such Person in cash to the extent required under GAAP in connection with such sale, lease, transfer or disposition (it being understood that immediately upon expiration of the retention period for such reserves, amounts held as reserves must be paid as a mandatory prepayment pursuant to Section 2.13(b)), in each case to the extent, but only to the extent, that the amounts so deducted are (in the cases of (a) and (c) above, at the time of receipt of such cash), actually paid to a Person that is not an Affiliate of such Person or the Borrower or any of its Subsidiaries or any Affiliate of the Borrower or any of its Subsidiaries and are properly attributable to such transaction or to the asset that is the subject thereof; provided, however, that Net Cash Proceeds shall not include, (i) with respect to any sale, lease, transfer or other disposition of any asset by any Person, any cash receipts received from the sale of worn, damaged, or obsolete equipment, (ii) any cash receipts received from proceeds of insurance, condemnation awards (or payments in lieu thereof) or indemnity payments to the extent that such proceeds, awards or payments in respect of loss or damage to the assets are applied (or in respect of which expenditures were previously incurred) to replace or repair the assets in respect of which such proceeds were received, so long as such application is made within 180 days after the occurrence of such damage or loss and (iii) any rental payments received in connection with the lease of an asset in the ordinary course of business. In addition, no proceeds realized in a single transaction or series of related transactions shall constitute Net Cash Proceeds except for the portion (if any) of such proceeds in excess of $25,000,000.

          “Non-Material Loans” shall mean any senior obligations for borrowed money of any Person outstanding in an amount not in excess of $15,000,000.

          “OCBM Agreement” shall mean the Ownership and Capital Base Maintenance Agreement, dated as of February 12, 2002, and entered into by the Borrower.

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          “PBGC” shall mean the Pension Benefit Guaranty Corporation established pursuant to Section 4002 of ERISA, or any successor thereto.

          “Person” shall mean any natural person, corporation, business trust, joint venture, joint stock company, trust, unincorporated organization, association, company, partnership or government, or any agency or political subdivision thereof.

          “Plan” shall mean any multiemployer or single-employer plan as defined in Section 4001 of ERISA covered by Title IV of ERISA, which is maintained or contributed to by (or to which there is an obligation to contribute of), or at any time during the five calendar years preceding the date of this Agreement was maintained or contributed to by (or to which there was an obligation to contribute of), the Borrower or an ERISA Affiliate.

          “Prime Rate” shall mean the rate of interest per annum publicly announced from time to time by the Administrative Agent as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective on the date such change is publicly announced as effective. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer.

          “Purchaser” shall mean Company Holdings, Inc., a Washington corporation and a wholly owned subsidiary of the Borrower.

          “Rating” shall mean, as of any date, the rating by Moody’s and S&P in effect on such date, of the Senior Unsecured Long-Term Debt of the Borrower, provided that such ratings shall take into effect (a) the Tender Offer, (b) the Acquisition, (c) the Merger and (d) the incurrence by the Borrower and its Subsidiaries of the Indebtedness under the Senior Bank Financing, including, without limitation, any refinancing of existing Indebtedness of the Borrower, the Company, and their respective subsidiaries.

          “Real Estate Assets” shall mean all assets of WRECO and its Restricted Subsidiaries (determined, unless the context otherwise requires, on a consolidated basis for WRECO and its Restricted Subsidiaries) of the types described below, acquired and held for the purpose of, and arising out of, the development and/or sale or rental thereof in the ordinary course of business: (i) improved and unimproved land, buildings and other structures and improvements and fixtures located thereon, and (ii) contracts, mortgages, notes receivables and other choses in action.

          “Reduction Amount” shall have the meaning given such term in Section 2.12(c).

          “Register” shall have the meaning given such term in Section 9.04(c).

          “Regulation D” shall mean Regulation D of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.

          “Regulation T” shall mean Regulation T of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.

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          “Regulation U” shall mean Regulation U of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.

          “Regulation X” shall mean Regulation X of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.

          “Reinvestment Proceeds” shall have the meaning given such term in Section 2.13(b).

          “Related Parties” shall mean, with respect to any specified Person, such Person’s Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person’s Affiliates.

          “Release” shall mean disposing, discharging, injecting, spilling, leaking, dumping, emitting, escaping, emptying, seeping, placing, and the like, into or upon any land or water or air, or otherwise entering into the environment.

          “Reportable Event” shall mean an event described in Section 4043(c) of ERISA with respect to a Plan as to which the 30-day notice requirement has not been waived by statute, regulation or otherwise.

          “Required Lenders” shall mean, at any time, Lenders having Credit Exposures and unused Commitments representing more than 50% of the sum of the Aggregate Credit Exposure and unused Commitments at such time, provided that, for the purpose of declaring the Loans to be due and payable pursuant to Article VII, and for all purposes after the Loans become due and payable pursuant to Article VII or the Commitments expire or terminate, (i) the outstanding Competitive Loans of the Lenders shall be added to their respective Credit Exposures and to the Aggregate Credit Exposure and (ii) notwithstanding Section 2.17, the entire amount of Competitive Loans of each Lender shall reduce the unused Commitment of such Lender and shall not reduce the unused Commitment of any other Lender in determining the Required Lenders.

          “Restricted Subsidiary” shall mean, (i) with respect to the Borrower, each Subsidiary that has not been designated as an Unrestricted Subsidiary on Schedule 3.08 Part I and thereafter not designated by a Financial Officer of the Borrower as an Unrestricted Subsidiary after the Closing Date pursuant to Section 9.17 and (ii) with respect to WRECO, each Subsidiary that has not been designated as an Unrestricted Subsidiary on Schedule 3.08 Part II or thereafter designated by a Financial Officer of WRECO as an Unrestricted Subsidiary after the Closing Date pursuant to Section 9.17. On the Closing Date, the Company and its subsidiaries shall be deemed Restricted Subsidiaries unless a Financial Officer of the Borrower shall have designated any of such entities as an Unrestricted Subsidiary after the Closing Date.

          “Revolving Borrowing” shall mean a Borrowing consisting of Revolving Loans.

          “Revolving Borrowing Request” shall mean a request made pursuant to Section 2.02(f) in the form of Exhibit A.

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          “Revolving Loan” shall mean a Loan made by the Lenders to the Borrower pursuant to Section 2.01.

          “S&P” shall mean Standard & Poor’s Ratings Services, a division of the McGraw-Hill Companies, Inc., a corporation organized and existing under the laws of the State of New York, and its successors and assigns, and if such corporation shall for any reason no longer perform the functions of a securities rating agency, “S&P” shall be deemed to refer to any other nationally recognized rating agency designated by the Borrower and the Required Lenders.

          “SEC” shall mean the Securities and Exchange Commission or any successor.

          “Senior Bank Financing” shall mean the credit facilities contemplated by (a) this Agreement, and (b) the 364-Day Revolving Credit Facility Agreement.

          “Senior Debt” shall mean all Indebtedness of any Person (other than WRECO) which is not expressed to be subordinate and junior in right of payment to any other Indebtedness of such Person, and, with respect to WRECO, shall mean all Indebtedness of WRECO other than Subordinated Debt.

          “Senior Unsecured Long-Term Debt” shall mean the unsecured bonds, debentures, notes or other Indebtedness of the Borrower, designated on its financial statements as senior long-term indebtedness. In the event more than one issue of Senior Unsecured Long-Term Debt shall be outstanding at any relevant time and different credit ratings shall have been issued by S&P or Moody’s for such issues, Senior Unsecured Long-Term Debt shall be deemed to refer to the lowest rated issue.

          “Specified Indebtedness” shall mean the Indebtedness set forth in Schedule 7.01.

          “Statutory Reserves” shall mean a fraction (expressed as a decimal), the numerator of which is the number one, and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board and any other banking authority to which the Administrative Agent is subject with respect to the Eurodollar Rate, for eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserves shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.

          “Subordinated Debt” shall mean and include (i) Subordinated Promissory Notes of WRECO, in substantially the form annexed as Exhibit F hereto, and (ii) any other Indebtedness of WRECO now or hereafter created, issued or assumed which at all times is evidenced by a written instrument or instruments containing or having applicable thereto subordination provisions substantially the same as those in said Exhibit F hereto, providing for the subordination of such Indebtedness to such other Indebtedness of WRECO as shall be specified or characterized in such subordination provisions.

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          “subsidiary” shall mean, with respect to any Person (herein referred to as the “parent”), any corporation, partnership, association or other business entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power to elect a majority of the board of directors or more than 50% of the general partnership interests are, at the time any determination is being made, owned, controlled or held, or (b) which is, at the time any determination is made, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent.

          “Subsidiary” shall mean any subsidiary of the Borrower or WRECO, provided that there shall be excluded from this definition (i) Nelson Forests Joint Venture, a joint venture formed under the laws of New Zealand, (ii) Wapawekka Lumber Ltd., a limited partnership formed under the laws of Saskatchewan, and (iii) Monterra Lumber Mills Limited, a limited partnership formed under the laws of Ontario, for so long as such business entities shall not be Controlled by the Borrower or any of its subsidiaries.

          “Surviving Senior Credit Facilities” shall mean the Existing Senior Credit Facilities outstanding immediately before and after the Closing Date.

          “Swing Line Borrowing” shall mean a Borrowing consisting of Swing Line Loans.

          “Swing Line Borrowing Request” shall mean a request made pursuant to Section 2.03(b) in the form of Exhibit B.

          “Swing Line Exposure” shall mean, at any time, the aggregate principal amount of all Swing Line Loans outstanding at such time made by the Swing Line Bank. The Swing Line Exposure of any Lender at any time shall mean its Applicable Percentage of the aggregate Swing Line Exposure at such time.

          “Swing Line Loan” shall mean a Loan made by (i) the Swing Line Bank pursuant to Section 2.03(a), or (ii) any Lender pursuant to Section 2.03(c).

          “Tender Offer” shall mean the offer by Purchaser to acquire through a tender offer for cash all of the outstanding shares of common stock of the Company, including the related preferred stock purchase rights of the Company, as more specifically set forth in the Tender Offer Statement.

          “Tender Offer Statement” shall mean the offering memorandum dated November 29, 2000 setting forth the terms and conditions of the Tender Offer, as such offering memorandum may be amended, supplemented or otherwise modified from time to time.

          “Termination Date” shall mean March 26, 2007.

          “Total Adjusted Shareholders’ Interest” shall mean, at any time, the amount of the preferred, preference and common shares accounts plus (or minus in the case of a deficit) the amount of other capital and retained earnings, in accordance with GAAP, of the Borrower and its consolidated Subsidiaries, less treasury common shares and the aggregate net book value (after

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          deducting any reserves applicable thereto) of all items of the following character which are included in the consolidated assets of the Borrower and its consolidated Subsidiaries:

       (a) investments in Unrestricted Subsidiaries; and

       (b) without duplication, investments by the Borrower and its consolidated Subsidiaries in WRECO and its consolidated Subsidiaries.

No effect shall be given for any increases or decreases attributable to unrealized foreign exchange gains or losses resulting from the application of FASB Statement 52.

          “Total Commitment” shall mean at any time the aggregate amount of the Commitments as in effect at such time, and on the date hereof shall mean $1,300,000,000.

          “Total Funded Indebtedness” with respect to the Borrower shall mean, at any time, the aggregate principal amount of all Indebtedness (other than Guarantees by such Person of Indebtedness of others) for borrowed money or for the deferred purchase price of property and Capital Lease Obligations of the Borrower and its consolidated Subsidiaries, excluding (a) the Indebtedness of Unrestricted Subsidiaries, (b) without duplication, the Indebtedness of WRECO and its consolidated Subsidiaries, and (c) 80% of the aggregate principal amount of the Mandatory Convertible Debt Securities outstanding at such time.

          “Transaction-Related Event of Default” shall mean any default or event of default under any indentures, agreements or other documentation evidencing the Specified Indebtedness, provided that such default or event of default shall have occurred or be continuing solely by reason of the consummation by the Borrower or any of its Subsidiaries of any of the Transactions.

          “Transactions” shall have the meaning given such term in Section 3.02.

          “Transferee” shall have the meaning given such term in Section 2.20.

          “Type” when used in respect of any Loan or Borrowing, shall refer to the Rate by reference to which interest on such Loan or on the Loans comprising such Borrowing is determined. For purposes hereof, “Rate” shall include the Eurodollar Rate, the Base Rate and the Competitive Bid Rate.

          “Unfunded Current Liability” of any Plan shall mean the amount, if any, by which the present value of the accrued benefits under the Plan as of the close of its most recent plan year, determined in accordance with Statement of Financial Accounting Standards No. 35, based upon the actuarial assumptions used by the Plan’s actuary in the most recent annual valuation of the Plan, exceeds the fair market value of the assets allocable thereto, determined in accordance with Section 412 of the Code.

     “Unrestricted Subsidiary” shall mean, (i) with respect to the Borrower, each Subsidiary that has been designated as an Unrestricted Subsidiary on Schedule 3.08 Part I and any Subsidiary which has been designated by a Financial Officer of the Borrower as an Unrestricted Subsidiary after the Closing Date pursuant to Section 9.17, and (ii) with respect to

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WRECO, each Subsidiary that has been designated as an Unrestricted Subsidiary on Schedule 3.08 Part II and any Subsidiary which has been designated by a Financial Officer of WRECO as an Unrestricted Subsidiary after the Closing Date pursuant to Section 9.17.

          “Utilization Fee” shall have the meaning given such term in Section 2.09(e).

          “WRECO” shall mean Weyerhaeuser Real Estate Company, a Washington corporation.

          “WRECO/Weyerhaeuser Subordinated Debt” shall mean the Subordinated Promissory Notes issued by WRECO to Weyerhaeuser described in clause (i) of the definition of “Subordinated Debt.”

          Section 1.02 Terms Generally. The definitions in Section 1.01 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. All references herein to Articles, Sections, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Exhibits and Schedules to, this Agreement unless the context shall otherwise require.

          Section 1.03 Accounting Terms; GAAP. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that, if the Borrower notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith.

ARTICLE II

THE CREDITS

          Section 2.01 Commitments. Subject to the terms and conditions and relying upon the representations and warranties herein set forth, each Lender agrees, severally and not jointly, to make Revolving Loans to the Borrower upon request, at any time and from time to time on and after the date hereof and until the earlier of the Termination Date and the termination of the Commitment of such Lender, in an aggregate principal amount at any time outstanding not to exceed such Lender’s Commitment at such time, minus, in each case, the amount by which the Competitive Loans outstanding at such time shall be deemed pursuant to Section 2.17 to have utilized such Lender’s Commitment, subject, however, to the conditions that:

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       (a) at no time shall the outstanding aggregate principal amount of all Loans made by all Lenders and the Swing Line Bank plus the L/C Exposure of such Lenders at such time exceed the Total Commitment; and

       (b) at all times the outstanding aggregate principal amount of all Revolving Loans made by each Lender shall equal the product of (i) the Applicable Percentage times (ii) the outstanding aggregate principal amount of all Revolving Loans made pursuant to Section 2.02.

          Each Lender’s Commitment is set forth opposite its name in Schedule 2.01, or in the case of each assignee that becomes a party hereto pursuant to Section 9.04, on the Register maintained by the Administrative Agent pursuant to Section 9.04(c).

          Within the foregoing limits, the Borrower may borrow, pay or prepay and reborrow hereunder, on and after the Closing Date and prior to the Termination Date, subject to the terms, conditions and limitations set forth herein.

          Section 2.02 Loans. (a) Each Revolving Loan shall be made as part of a Revolving Borrowing consisting of Revolving Loans made by the Lenders ratably in accordance with their respective Commitments; provided, however, that the failure of any Lender to make any Revolving Loan shall not in and of itself relieve any other Lender of its obligation to lend hereunder (it being understood, however, that no Lender shall be responsible for the failure of any other Lender to make any Revolving Loan required to be made by such other Lender). Each Competitive Loan shall be made in accordance with the procedures set forth in Section 2.05. The Loans (other than Swing Line Loans) comprising any Borrowing (other than a Swing Line Borrowing) shall be in an aggregate principal amount which is an integral multiple of $1,000,000 and not less than $25,000,000 (or an aggregate principal amount equal to the remaining balance of the available Commitments).

          (b) Each Revolving Borrowing shall be comprised entirely of Eurodollar Loans or Base Rate Loans, as the Borrower may request pursuant to paragraph (f) hereof and each Competitive Borrowing shall be comprised entirely of Eurodollar Loans or Fixed Rate Loans as the Borrower may request in accordance with Section 2.05. Each Lender may at its option make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not (i) affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement and (ii) entitle such Lender to any amounts pursuant to Sections 2.14 or 2.15 to which amounts such Lender would not be entitled if such Lender had made such Loan itself through its domestic branch. Borrowings of more than one Type may be outstanding at the same time; provided, however, that the Borrower shall not be entitled to request any Revolving Borrowing which, if made, would result in an aggregate of more than twenty (20) separate Revolving Loans from any Lender being outstanding hereunder at any one time. For purposes of the foregoing, Revolving Loans (other than Base Rate Loans) having different Interest Periods, regardless of whether they commence on the same date, shall be considered separate Revolving Loans.

          (c) Each Lender shall make each Loan (other than a Swing Line Loan) to be made by it hereunder on the proposed date thereof by wire transfer of immediately available

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funds to the Administrative Agent in New York, New York, not later than 12:00 noon (or in the case of Base Rate Loans, 2:00 p.m.), New York City time, and the Administrative Agent shall by 3:00 p.m., New York City time, credit the amounts so received to the general deposit account of the Borrower maintained with the Administrative Agent or, if a Borrowing (other than a Swing Line Borrowing) shall not occur on such date because any condition precedent herein specified shall not have been met, return the amounts so received to the respective Lenders. Competitive Loans shall be made by the Lender or Lenders whose Competitive Bids therefor are accepted pursuant to Section 2.05 in the amount so accepted, and Revolving Loans shall be made by the Lenders pro rata in accordance with Section 2.17. Unless the Administrative Agent shall have received notice from a Lender prior to the date and time of any Revolving Borrowing that such Lender will not make available to the Administrative Agent such Lender’s portion of such Borrowing, the Administrative Agent may assume that such Lender has made such portion available to the Administrative Agent on the date of such Revolving Borrowing in accordance with this paragraph (c) and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have made such portion available to the Administrative Agent, such Lender and the Borrower agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent at (i) in the case of the Borrower, the interest rate applicable at the time to the Revolving Loans comprising such Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall repay to the Administrative Agent such corresponding amount, such amount shall constitute such Lender’s Revolving Loan as part of such Revolving Borrowing for purposes of this Agreement.

          (d) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request any Revolving Borrowing with an Interest Period ending after the Termination Date.

          (e) If the Fronting Bank shall not have received the payment required to be made by the Borrower pursuant to Section 2.04(e) within the time specified in such Section, the Fronting Bank will promptly notify the Administrative Agent of the L/C Disbursement and the Administrative Agent will promptly notify each Lender of such L/C Disbursement and its Applicable Percentage thereof. Not later than 2:00 p.m., New York City time, on such date (or, if such Lender shall have received such notice later than 12:00 noon, New York City time, on any day, no later than 10:00 a.m., New York City time, on the immediately following Business Day), each Lender will make available the amount of its Applicable Percentage of such L/C Disbursement (it being understood that such amount shall be deemed to constitute a Base Rate Loan of such Lender and such payment shall be deemed to have reduced the L/C Exposure) in immediately available funds, to the Administrative Agent in New York, New York, and the Administrative Agent will promptly pay to the Fronting Bank amounts so received by it from the Lenders. The Administrative Agent will promptly pay to the Fronting Bank any amounts received by it from such Borrower pursuant to Section 2.04(e) prior to the time that any Lender makes any payment pursuant to this paragraph (e), and any such amounts received by the Administrative Agent thereafter will be promptly remitted by the Administrative Agent to the Lenders that shall have made such payments and to the Fronting Bank, as their interests may appear. If any Lender shall not have made its Applicable Percentage of such L/C Disbursement

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available to the Administrative Agent as provided above, such Lender agrees to pay interest on such amount, for each day from and including the date such amount is required to be paid in accordance with this paragraph to but excluding the date such amount is paid, to the Administrative Agent for the account of the Fronting Bank at, the Federal Funds Rate.

          (f) In order to request a Revolving Borrowing, the Borrower shall hand deliver or telecopy to the Administrative Agent a Revolving Borrowing Request in the form of Exhibit A (a) in the case of a Eurodollar Borrowing, not later than 12:00 noon, New York City time, three Business Days before a proposed borrowing and (b) in the case of a Base Rate Borrowing, not later than 12:00 noon, New York City time, on the day of a proposed borrowing. Such notice shall be irrevocable and shall in each case specify (i) whether the Revolving Borrowing then being requested is to be a Eurodollar Borrowing or a Base Rate Borrowing; (ii) the date of such Revolving Borrowing (which shall be a Business Day) and the amount thereof; and (iii) if such Revolving Borrowing is to be a Eurodollar Borrowing, the Interest Period with respect thereto. If no election as to the Type of Revolving Borrowing is specified in any such notice, then the requested Revolving Borrowing shall be a Base Rate Borrowing. If no Interest Period with respect to any Eurodollar Borrowing is specified in any such notice, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration. The Administrative Agent shall promptly advise the Lenders of any notice given pursuant to this Section 2.02(f) and of each Lender’s portion of the requested Borrowing.

          Section 2.03 Swing Line Loans. (a) The Borrower may request the Swing Line Bank to make, and the Swing Line Bank shall make, on the terms and conditions hereinafter set forth, Swing Line Loans to the Borrower from time to time on any Business Day during the period from the date hereof until the Termination Date in an aggregate amount not to exceed at any time outstanding $20,000,000; subject, however, to the condition that at no time shall the outstanding aggregate principal amount of all Loans made by all Lenders and the Swing Line Bank plus the L/C Exposure of all Lenders at such time exceed the Total Commitment. No Swing Line Loan shall be used for the purpose of funding the payment of principal of any other Swing Line Loan. Each Swing Line Borrowing shall be in an amount of $1,000,000 or an integral multiple of $100,000 in excess thereof and shall be made as a Base Rate Loan.

          (b) In order to request a Swing Line Borrowing, the Borrower shall hand deliver or telecopy to the Swing Line Bank and the Administrative Agent a Swing Line Borrowing Request in the form of Exhibit B not later than 3:00 p.m., New York City time, on the day of a proposed borrowing. Such notice shall be irrevocable and shall in each case specify (i) the date of such Swing Line Borrowing (which shall be a Business Day) and the amount thereof; and (ii) the maturity of such Swing Line Borrowing (which maturity shall be no later than the seventh day after the requested date of such Swing Line Borrowing). The Swing Line Bank will make the amount thereof available to the Administrative Agent on the proposed date thereof by wire transfer of immediately available funds to the Administrative Agent in New York, New York, not later than 4:00 p.m., New York City time, and the Administrative Agent shall by 5:00 p.m., New York City time, credit the amount so received to the general deposit account of the Borrower maintained with the Administrative Agent or, if a Swing Line Borrowing shall not occur on such date because any condition precedent herein specified shall not have been met, return the amount so received to the Swing Line Bank.

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          (c) Upon written demand by the Swing Line Bank, with a copy of such demand to the Administrative Agent, each other Lender shall purchase from the Swing Line Bank, and the Swing Line Bank shall sell and assign to each such other Lender, such other Lender’s Applicable Percentage of such Swing Line Loan as of the date of such demand, by making available to the Administrative Agent in New York, New York for the account of the Swing Line Bank by wire transfer of immediately available funds, an amount equal to the portion of the outstanding principal amount of such Swing Line Loan to be purchased by such Lender. The Borrower hereby agrees to each such sale and assignment. Each Lender agrees to purchase its Applicable Percentage of an outstanding Swing Line Loan on (i) the Business Day on which demand therefor is made by the Swing Line Bank, provided that notice of such demand is given to such Lender not later than 12:00 noon, New York City time, on such Business Day or (ii) the first Business Day next succeeding such demand if notice of such demand is given after such time. If and to the extent that any Lender shall have received such notice of demand and shall not have so made the amount of such Swing Line Loan available to the Administrative Agent, such Lender agrees to pay to the Administrative Agent forthwith on demand such amount together with interest thereon, for each day from the date of demand by the Swing Line Bank until the date such amount is paid to the Administrative Agent, at the Federal Funds Rate. If such Lender shall pay to the Administrative Agent such amount for the account of the Swing Line Bank on any Business Day, such amount so paid in respect of principal shall constitute a Swing Line Loan made by such Lender on such Business Day for purposes of this Agreement, and the outstanding principal amount of the Swing Line Loan made by the Swing Line Bank shall be reduced by such amount on such Business Day.

          Section 2.04 Letters of Credit. (a) General. The Borrower may from time to time request the issuance of Letters of Credit for its own account (for obligations of such Borrower or any of its Subsidiaries), denominated in dollars, in form reasonably acceptable to the Administrative Agent and the Fronting Bank, at any time and from time to time while the Commitments remain in effect. This Section shall not be construed to impose an obligation upon the Fronting Bank to issue any Letter of Credit that is inconsistent with the terms and conditions of this Agreement.

          (b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions. In order to request the issuance of a Letter of Credit (or to amend, renew or extend an existing Letter of Credit), the Borrower shall hand deliver or telecopy to the Fronting Bank and the Administrative Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension) a notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, the date of issuance, amendment, renewal or extension, the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) below), the amount of such Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare such Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if, and upon issuance, amendment, renewal or extension of each Letter of Credit the Borrower shall be deemed to represent and warrant that, after giving effect to such issuance, amendment, renewal or extension (A) the L/C Exposure shall not exceed $200,000,000 and (B) the sum of (i) the Aggregate Credit Exposure and (ii) the aggregate principal amount of outstanding Competitive Loans shall not exceed the Total Commitment.

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          (c) Expiration Date. Each Letter of Credit shall expire at the close of business on the date that is five Business Days prior to the Termination Date, unless such Letter of Credit expires by its terms on an earlier date.

          (d) Participations. By the issuance of a Letter of Credit and without any further action on the part of the Fronting Bank or the Lenders, the Fronting Bank hereby grants to each Lender, and each such Lender hereby acquires from the Fronting Bank, a participation in such Letter of Credit equal to such Bank’s Applicable Percentage from time to time of the aggregate amount available to be drawn under such Letter of Credit, effective upon the issuance of such Letter of Credit. In consideration and in furtherance of the foregoing, each Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for the account of the Fronting Bank, such Lender’s proportionate share of each L/C Disbursement made by the Fronting Bank and not reimbursed by the Borrower forthwith on the date due as provided in Section 2.02(e). Each Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a Default or an Event of Default or the termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever.

          (e) Reimbursement. If the Fronting Bank shall make any L/C Disbursement in respect of a Letter of Credit, the Borrower shall pay to the Administrative Agent an amount equal to such L/C Disbursement not later than the Business Day after the Borrower shall have received notice from the Fronting Bank that payment of such draft has been made. Upon receipt thereof, the Administrative Agent shall promptly distribute such reimbursement payment to the Fronting Bank and, to the extent each Lender has funded its participation therein in accordance with paragraph (d), to such Lenders.

          (f) Obligations Absolute. The Borrower’s obligations to reimburse L/C Disbursements as provided in paragraph (e) above shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, under any and all circumstances whatsoever, and irrespective of:

       (i) any lack of validity or enforceability of any Letter of Credit or any Loan Document, or any term or provision therein;
 
       (ii) any amendment or waiver of or any consent to departure from all or any of the provisions of any Letter of Credit or any Loan Document;

       (iii) the existence of any claim, setoff, defense or other right that the Borrower, any other party guaranteeing, or otherwise obligated with, the Borrower or any subsidiary or other affiliate thereof or any other person may at any time have against the beneficiary under any Letter of Credit, the Fronting Bank, the Administrative Agent or any Lender or any other person, whether in connection with this Agreement, any other Loan Document or any other related or unrelated agreement or transaction;

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       (iv) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect;

       (v) payment by the Fronting Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit; and

       (vi) any other act or omission to act or delay of any kind of the Fronting Bank, the Lenders, the Administrative Agent or any other person or any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of the Borrower’s obligations hereunder.

provided, however, that the foregoing shall not be construed to excuse the Fronting Bank from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by the Fronting Bank’s gross negligence or willful misconduct in determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof.

          It is understood that the Fronting Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary and, in making any payment under any Letter of Credit (i) the Fronting Bank’s exclusive reliance on the documents presented to it under such Letter of Credit as to any and all matters set forth therein, including reliance on the amount of any draft presented under such Letter of Credit, whether or not the amount due to the beneficiary thereunder equals the amount of such draft and whether or not any document presented pursuant to such Letter of Credit proves to be insufficient in any respect, if such document on its face appears to be in order, and whether or not any other statement or any other document presented pursuant to such Letter of Credit proves to be forged or invalid or any statement therein proves to be inaccurate or untrue in any respect whatsoever and (ii) any noncompliance in any immaterial respect of the documents presented under such Letter of Credit with the terms thereof shall, in each case, be deemed not to constitute willful misconduct or gross negligence of the Fronting Bank.

          (g) Disbursement Procedures. The Fronting Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. The Fronting Bank shall as promptly as possible give telephonic notification, confirmed by telecopy, to the Administrative Agent and the Borrower of such demand for payment and whether the Fronting Bank has made or will make an L/C Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve the Borrower of its obligation to reimburse the Fronting Bank and the Lenders with respect to any such L/C Disbursement. The Administrative Agent shall promptly give each Lender notice thereof.

          (h) Interim Interest. If the Fronting Bank shall make any L/C Disbursement in respect of a Letter of Credit, then, unless the Borrower shall reimburse such L/C Disbursement

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in full on the date thereof, the unpaid amount thereof shall bear interest for the account of the Fronting Bank, for each day from and including the date of such L/C Disbursement, to but excluding the earlier of the date of payment by the Borrower or the date on which interest shall commence to accrue on the Base Rate Loans resulting from such L/C Disbursement as provided in Section 2.02(e), at the rate per annum that would apply to such amount if such amount were a Base Rate Loan.

          (i) Cash Collateralization. If any Event of Default shall occur and be continuing, the Borrower shall, on the Business Day it receives notice from the Administrative Agent or the Required Lenders thereof and from the Administrative Agent of the amount to be deposited, deposit in an account with the Administrative Agent, for the benefit of the Lenders, an amount in cash equal to the portion of the L/C Exposure attributable to Letters of Credit issued for the account of the Borrower and outstanding as of such date. Such deposit shall be held by the Administrative Agent as collateral for the payment and performance of the obligations under this Agreement. The Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal without notice to or consent of the Borrower, over such account. Such deposits shall not bear interest. Moneys in such account shall automatically be applied by the Administrative Agent to reimburse the Fronting Bank for L/C Disbursements attributable to Letters of Credit issued for the account of the Borrower depositing such moneys for which the Fronting Bank has not been reimbursed, and any remaining amounts will either (i) be held for the satisfaction of the reimbursement obligations of the Borrower for the L/C Exposure at such time or (ii) if the maturity of the Loans of the Borrower has been accelerated, be applied to satisfy the obligations of such Borrower under this Agreement. If the Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to the Borrower within three Business Days after all Events of Default have been cured or waived.

          Section 2.05 Competitive Bid Procedure. (a) Subject to the terms and conditions set forth herein, from time to time during the period from and including the Closing Date to but excluding the Termination Date, the Borrower may request Competitive Bids and may (but shall not have any obligation to) accept Competitive Bids and borrow Competitive Loans; provided that the sum of the Aggregate Credit Exposure and the aggregate principal amount of outstanding Competitive Loans at any time shall not exceed the Total Commitment. To request Competitive Bids, the Borrower shall notify the Administrative Agent of such request by telephone, in the case of a Eurodollar Borrowing, not later than 12:00 noon, New York City time, four Business Days before the date of the proposed Borrowing and, in the case of a Fixed Rate Borrowing, not later than 12:00 noon, New York City time, one Business Day before the date of the proposed Borrowing. Each such telephonic Competitive Bid Request shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Competitive Bid Request in a form approved by the Administrative Agent and signed by the Borrower. Each such telephonic and written Competitive Bid Request shall specify the following information in compliance with Section 2.02:

       (iii) the aggregate amount of the requested Borrowing;

       (iv) the date of such Borrowing, which shall be a Business Day;

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       (v) whether such Borrowing is to be a Eurodollar Borrowing or a Fixed Rate Borrowing;

       (vi) the Interest Period to be applicable to such Borrowing, which shall be a period contemplated by the definition of the term “Interest Period”; and

       (vii) the location and number of the Borrower’s account to which funds are to be disbursed.

Promptly following receipt of a Competitive Bid Request in accordance with this Section, the Administrative Agent shall notify the Lenders of the details thereof in writing (which may be by telecopy) inviting the Lenders to submit Competitive Bids.

          (b) Each Lender may (but shall not have any obligation to) make one or more Competitive Bids to the applicable Borrower in response to a Competitive Bid Request. Each Competitive Bid by a Lender must be substantially in a form to be provided by the Administrative Agent and must be received by the Administrative Agent by telecopy, in the case of a Eurodollar Competitive Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the proposed date of such Competitive Borrowing, and in the case of a Fixed Rate Borrowing, not later than 11:00 a.m., New York City time, on the proposed date of such Competitive Borrowing. Competitive Bids that do not conform substantially to the form provided by the Administrative Agent may be rejected by the Administrative Agent, and the Administrative Agent shall notify the applicable Lender as promptly as practicable. Each Competitive Bid shall specify (i) the principal amount (which shall be a minimum of $5,000,000 and an integral multiple of $1,000,000 and which may equal the entire principal amount of the Competitive Borrowing requested by the Borrower) of the Competitive Loan or Loans that the Lender is willing to make, (ii) the Competitive Bid Rate or Rates at which the Lender is prepared to make such Loan or Loans (expressed as a percentage rate per annum in the form of a decimal to no more than four decimal places) and (iii) the Interest Period applicable to each such Loan and the last day thereof.

          (c) The Administrative Agent shall promptly notify the Borrower in writing (which may be by telecopy) of the Competitive Bid Rate and the principal amount specified in each Competitive Bid and the identity of the Lender that shall have made such Competitive Bid.

          (d) Subject only to the provisions of this paragraph, the Borrower may accept or reject any Competitive Bid. The Borrower shall notify the Administrative Agent by telephone, confirmed by telecopy in a form approved by the Administrative Agent, whether and to what extent it has decided to accept or reject each Competitive Bid, in the case of a Eurodollar Competitive Borrowing, not later than 12:00 noon, New York City time, three Business Days before the date of the proposed Competitive Borrowing, and in the case of a Fixed Rate Borrowing, not later than 12:00 noon, New York City time, on the proposed date of the Competitive Borrowing; provided that (i) the failure of the Borrower to give such notice shall be deemed to be a rejection of each Competitive Bid, (ii) the Borrower shall not accept a Competitive Bid made at a particular Competitive Bid Rate if the Borrower rejects a Competitive Bid made at a lower Competitive Bid Rate, (iii) the aggregate amount of the Competitive Bids accepted by the Borrower shall not exceed the aggregate amount of the requested Competitive

25


 

Borrowing specified in the related Competitive Bid Request, (iv) to the extent necessary to comply with clause (iii) above, the Borrower may accept Competitive Bids at the same Competitive Bid Rate in part, which acceptance, in the case of multiple Competitive Bids at such Competitive Bid Rate, shall be made pro rata in accordance with the amount of each such Competitive Bid, and (v) except pursuant to clause (iv) above, no Competitive Bid shall be accepted for a Competitive Loan unless such Competitive Loan is in a minimum principal amount of $5,000,000 and an integral multiple of $1,000,000; provided further that if a Competitive Loan must be in an amount less than $5,000,000 because of the provisions of clause (iv) above, such Competitive Loan may be for a minimum of $1,000,000 or any integral multiple thereof, and in calculating the pro rata allocation of acceptances of portions of multiple Competitive Bids at a particular Competitive Bid Rate pursuant to clause (iv) the amounts shall be rounded to integral multiples of $1,000,000 in a manner determined by the Borrower. A notice given by the Borrower pursuant to this paragraph shall be irrevocable.

          (e) The Administrative Agent shall promptly notify each bidding Lender in writing (which may be by telecopy) whether or not its Competitive Bid has been accepted (and, if so, the amount and Competitive Bid Rate so accepted), and each successful bidder will upon receipt of such notice become bound, subject to the terms and conditions hereof, to make the Competitive Loan in respect of which its Competitive Bid has been accepted.

          (f) If the Administrative Agent shall elect to submit a Competitive Bid in its capacity as a Lender, it shall submit such Competitive Bid directly to the Borrower at least one quarter of an hour earlier than the time by which the other Lenders are required to submit their Competitive Bids to the Administrative Agent pursuant to paragraph (b) of this Section.

          (g) The Borrower shall pay, for each Competitive Bid Request submitted pursuant to Section 2.05(a), an auction fee to the Administrative Agent in an amount to be agreed by and between the Borrower and the Administrative Agent. Such auction fee shall be due and owing irrespective of whether any Lender submits a Competitive Bid pursuant to such Competitive Bid Request.

          Section 2.06 Conversion and Continuation of Revolving Loans. (a) The Borrower shall, with respect to its Revolving Borrowings, have the right at any time, upon prior irrevocable written notice to the Administrative Agent given in the manner and at the times specified in Section 2.02(f), with respect to the Type of Revolving Borrowing into which conversion or continuation is to be made, to convert any of its Revolving Borrowings into a Revolving Borrowing of a different Type and to continue any of its Eurodollar Borrowings into a subsequent Interest Period of any permissible duration, subject to the terms and conditions of this Agreement and to the following:

       (i) each conversion or continuation shall be made pro rata among the Lenders in accordance with the respective principal amounts of Revolving Loans comprising the converted or continued Revolving Borrowing;

       (ii) if less than all the outstanding principal amount of any Revolving Borrowing shall be converted or continued, the aggregate principal amount of such

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       Revolving Borrowing converted and/or continued shall in each case not be less than the minimum amount set forth in Section 2.02;

       (iii) if a Eurodollar Borrowing is converted at any time other than on the last day of the Interest Period applicable thereto, the Borrower shall pay any amount due pursuant to Section 2.16;

       (iv) with respect to a Revolving Borrowing, if such Revolving Borrowing is to be converted into a Eurodollar Borrowing or if a Eurodollar Borrowing is to be continued, no Interest Period selected shall extend beyond the Termination Date;

       (v) interest accrued to the day immediately preceding each date of conversion or continuation shall be payable on each Revolving Borrowing that is converted or continued concurrently with such conversion or continuation; and

       (vi) Competitive Borrowings may not be converted or continued.

          (b) Each notice given pursuant to Section 2.06(a) shall be irrevocable and shall refer to this Agreement and specify (i) the identity and the amount of the Revolving Borrowing that the Borrower requests to be converted or continued; (ii) whether such Borrowing (or any part thereof) is to be converted or continued as a Base Rate Borrowing or a Eurodollar Borrowing; (iii) if such notice requests a conversion, the date of such conversion (which shall be a Business Day); and (iv) if such Borrowing (or any part thereof) is to be converted to or continued as a Eurodollar Borrowing, the Interest Period with respect thereto. If no Interest Period is specified in any such notice with respect to any conversion to or continuation as a Eurodollar Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration, in the case of a Eurodollar Borrowing. The Administrative Agent shall advise the Lenders of any notice given pursuant to Section 2.06(a) and of each Lender’s portion of any converted or continued Borrowing.

          (c) If the Borrower shall not have given notice in accordance with this Section 2.06 to continue any Eurodollar Borrowing into a subsequent Interest Period (and shall not otherwise have given notice in accordance with this Section 2.06 to convert such Eurodollar Borrowing), such Eurodollar Borrowing shall automatically be converted into a Base Rate Borrowing. In the event of the occurrence and continuation of a Default or an Event of Default (i) all Eurodollar Borrowings of the Borrower shall be converted into Base Rate Borrowings on the last day of the Interest Period then in effect, and (ii) no Base Rate Borrowing may be converted into a Borrowing of another Type so long as a Default or Event of Default continues to exist.

          Section 2.07 Fees. (a) The Borrower agrees to pay to each Lender, through the Administrative Agent, on each March 31, June 30, September 30 and December 31 and on the date on which the Commitment of such Lender shall be terminated as provided herein, a facility fee (each, a “Facility Fee,” and collectively, the “Facility Fees”), calculated as specified below, on the amount of the Commitment of such Lender, whether used or unused, during the preceding quarter (or shorter period commencing with the Closing Date or ending with the Termination Date applicable to such Lender or any date on which the Commitment of such Lender shall be

27


 

terminated). All facility fees shall be computed on the basis of a year of 365 or 366 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The Facility Fee due to each Lender shall commence to accrue on the Closing Date and shall cease to accrue on the earlier of the Termination Date applicable to such Lender and the termination of the Commitment of such Lender as provided herein.

          The Facility Fee for each Lender shall be calculated as a per annum rate in an amount equal to the product of such Lender’s Commitment hereunder and the applicable percentage specified in the table below, to be determined based upon the Ratings received from S&P and Moody’s by the Borrower:

                                         
    Level 1   Level 2   Level 3   Level 4   Level 5
   
 
 
 
 
S&P:   A- or better   BBB+   BBB   BBB-   Below BBB-
Moody’s:   A3 or better   Baa1   Baa2   Baa3   Below Baa3
Facility Fee
    0.1000 %     0.1250 %     0.1500 %     0.2000 %     0.2500 %

          The Facility Fees shall change effective as of the date on which the applicable rating agency announces any change in its Ratings. In the event either S&P or Moody’s shall withdraw or suspend its Ratings, the remaining Rating announced by either S&P or Moody’s, as the case may be, shall apply. In the event neither agency shall provide a Rating, the Facility Fees shall be based on the lowest rating provided above. If the Ratings by S&P and Moody’s are split so that two consecutive Levels (as defined in the table above) apply, the higher of those Ratings shall determine the applicable percentage to calculate the Facility Fee. If the Ratings by S&P and Moody’s are split so that the applicable Levels in the table above are separated by only one intermediate Level, then such intermediate Level shall determine the applicable percentage to calculate the Facility Fee. If the Ratings by S&P and Moody’s are split so that the applicable Levels in the table above are separated by two intermediate Levels, then the intermediate Level representing the lowest Rating shall determine the applicable percentage to calculate the Facility Fee. The Facility Fees shall be calculated by the Administrative Agent, which calculation absent manifest error shall be final and binding on all parties.

          (b) The Borrower agrees to pay the Administrative Agent, for its own account, the administration fees (the “Administrative Agent Fees”) at the times and in the amounts agreed upon in the letter agreement dated as of December 13, 2001, among the Borrower, Morgan Stanley Senior Funding, Inc., J.P. Morgan Securities Inc. and the Administrative Agent.

          (c) The Borrower agrees to pay (i) to the Administrative Agent for pro rata distribution to each Lender a fee (an “L/C Participation Fee”), for the period from the Closing Date until the Termination Date (or such earlier date as all Letters of Credit shall be canceled or expire and the Total Commitment shall be terminated), on that portion of the average daily L/C Exposure attributable to Letters of Credit issued for the account of the Borrower (excluding the portion thereof attributable to unreimbursed L/C Disbursements), at the rate per annum equal to the Applicable Margin for Eurodollar Loans from time to time in effect for the Borrower and (ii) to the Fronting Bank a fronting fee (a “Fronting Fee”), which shall accrue at the rate of .125% per annum on the average daily amount of the L/C Exposure attributable to Letters of Credit

28


 

issued for the account of such Borrower (excluding any portion thereof attributable to unreimbursed L/C Disbursements) during the period from and including the Closing Date to but excluding the later of the date of termination of the Revolving Commitments and the date on which there ceases to be any L/C Exposure attributable to Letters of Credit issued for the account of such Borrower, as well as the Fronting Bank’s standard fees with respect to the issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder. L/C Participation Fees and Fronting Fees accrued under this paragraph are payable quarterly in arrears on the last day of each calendar quarter and on the date on which the Total Commitment shall be terminated as provided herein. All L/C Participation Fees and Fronting Fees payable under this paragraph shall be computed on the basis of the number of days actually elapsed over a year of 365 or 366 days.

          (d) All Fees shall be paid on the dates due, in immediately available funds, to the Administrative Agent for prompt distribution, if and as appropriate, among the Lenders. Once paid, none of the Fees shall be refundable under any circumstances.

          Section 2.08 Repayment of Loans; Evidence of Debt. (a) The outstanding principal balance of (i) each Revolving Loan shall be payable on the Termination Date, (ii) each Swing Line Loan shall be payable on the earlier of the maturity date specified in the applicable Swing Line Borrowing Request (which maturity shall be not later than the seventh day after the requested date of such Borrowing) and the Termination Date and (iii) each Competitive Loan shall be payable on the last day of the Interest Period applicable to such Competitive Loan and on the Termination Date. Each Loan shall bear interest from the date thereof on the outstanding principal balance thereof as set forth in Section 2.09.

          (b) Each Lender shall, and is hereby authorized by the Borrower to, maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.

          (c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Class and Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender’s share thereof.

          (d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay its Loans in accordance with the terms of this Agreement.

          (e) Any Lender may request that Loans made by it be evidenced by a promissory note, substantially in the form of Exhibit G attached hereto. In such event, the Borrower shall promptly, and in no event more than ten (10) Business Days after a request therefor, prepare, execute and deliver to such Lender a promissory note payable to the order of

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such Lender (or, if requested by such Lender, to such Lender and its registered assigns). Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 9.04) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns).

          Section 2.09 Interest on Loans. (a) Subject to the provisions of Section 2.10, the Loans comprising each (i) Eurodollar Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum equal to the Eurodollar Rate for the Interest Period in effect for such Borrowing plus the Applicable Margin, determined pursuant to paragraph (d) below, and (ii) Eurodollar Competitive Loan, at the Eurodollar Rate for the Interest Period in effect for such Borrowing plus (or minus, as applicable) the Margin applicable to such Loan.

          (b) Subject to the provisions of Section 2.10, the Loans comprising each Base Rate Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be) at a rate per annum equal to the Base Rate plus the Applicable Margin.

          (c) Interest on each Eurodollar Loan shall, except as otherwise provided in this Agreement, be payable on the last day of the Interest Period applicable thereto and, in case of a Eurodollar Loan with an Interest Period of more than three months’ duration, each day that would have been an interest payment date for such Loan had successive Interest Periods of three months’ duration been applicable to such Loan, and on the Termination Date or any earlier date on which this Agreement is, pursuant to its terms and conditions, terminated. Interest on each Base Rate Loan shall be payable quarterly in arrears on the last Business Day of each March, June, September and December, except as otherwise provided in this Agreement, and on the Termination Date or any earlier date on which this Agreement is, pursuant to its terms and conditions, terminated. The applicable Eurodollar Rate or Base Rate for each Interest Period or day within an Interest Period, as the case may be, shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error. Interest on each Fixed Rate Loan shall be payable on the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Fixed Rate Borrowing with an Interest Period of more than three months’ duration (unless otherwise specified in the applicable Competitive Bid Request), each day prior to the last day of such Interest Period that occurs at intervals of three months’ duration after the first day of such Interest Period, and any other dates that are specified in the applicable Competitive Bid Request as interest payment dates with respect to such Borrowing, and on the Termination Date or any earlier date on which this Agreement is, pursuant to its terms and conditions, terminated.

          (d) As used herein, “Applicable Margin” shall mean the sum of (i) the applicable percentage per annum specified in the table below, to be determined based upon the Ratings received from S&P and Moody’s by the Borrower, and (ii) the Utilization Fee. The applicable percentage referred to in clause (i) of the immediately preceding sentence shall be determined based upon the Ratings, as follows:

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    Level 1   Level 2   Level 3   Level 4   Level 5
   
 
 
 
 
S&P:   A- or better   BBB+   BBB   BBB-   Below BBB-
Moody’s:   A3 or better   Baa1   Baa2   Baa3   Below Baa3
Eurodollar Loan:
    0.5250 %     0.6250 %     0.8500 %     1.0500 %     1.5000 %
Base Rate Loan:
    0.0000 %     0.0000 %     0.0000 %     0.0500 %     0.5000 %

          The Applicable Margin shall change effective as of the date on which the applicable rating agency announces any change in its Ratings. In the event either S&P or Moody’s shall withdraw or suspend its Ratings, the remaining Rating announced by either S&P or Moody’s, as the case may be, shall apply. In the event neither agency shall provide a Rating, the Applicable Margin shall be based on the lowest rating provided above. If the Ratings by S&P and Moody’s are split so that two consecutive Levels (as defined in the table above) apply, the higher of those Ratings shall determine the Applicable Margin. If the Ratings by S&P and Moody’s are split so that the applicable Levels in the table above are separated by only one intermediate Level, then such intermediate Level shall determine the Applicable Margin. If the Ratings by S&P and Moody’s are split so that the applicable Levels in the table above are separated by two intermediate Levels, then the intermediate Level representing the lowest Rating shall determine the Applicable Margin. The Applicable Margin shall be calculated by the Administrative Agent, which calculation absent manifest error shall be final and binding on all parties.

          (e) As used herein, “Utilization Fee” shall mean (i) a percentage per annum equal to 0.250% for any date on which the sum of (A) the Aggregate Credit Exposure, plus (B) the aggregate principal amount of outstanding Competitive Loans, plus (C) the “Aggregate Credit Exposure” as defined under the 364-Day Revolving Credit Facility Agreement, is equal to or exceeds 33% of the sum of (X) the Total Commitment and (Y) the “Total Commitment” as defined under the 364-Day Revolving Credit Facility Agreement, and (ii) a percentage per annum equal to 0.000% for any other date.

          (f) Subject to the provisions of Section 2.10, the Loans comprising each Fixed Rate Borrowing shall bear interest at the Fixed Rate applicable to such Loans.

          Section 2.10 Default Interest. If the Borrower shall default in the payment of the principal of or interest on any of its Loans or any other amount becoming due hereunder (other than any L/C Disbursement that has been made by the Fronting Bank and not yet due pursuant to the terms of Section 2.04(e)), whether by scheduled maturity, notice of prepayment, acceleration or otherwise, the Borrower shall on demand from time to time by the Administrative Agent pay interest, to the extent permitted by law, on such defaulted amount up to (but not including) the date of actual payment (after as well as before judgment) at a rate per annum equal to the rate of interest applicable thereto at maturity or due date plus 2%.

          Section 2.11 Alternate Rate of Interest. In the event, and on each occasion, that on the day two Business Days prior to the commencement of any Interest Period for a Eurodollar Borrowing the Administrative Agent (or, in the case of a Eurodollar Competitive Loan, the Lender that is required to make such Loan) shall have determined in good faith that dollar

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deposits in the principal amounts of the Eurodollar Loans comprising such Borrowing are not generally available in the London interbank market, or that the rates at which such dollar deposits are being offered will not adequately and fairly reflect the cost to the Required Lenders of making or maintaining their Eurodollar Loans during such Interest Period, or that reasonable means do not exist for ascertaining the Eurodollar Rate, the Administrative Agent (or, in the case of a Eurodollar Competitive Loan, the Lender that is required to make such Loan) shall, as soon as practicable thereafter, give written notice of such determination to the Borrower and the Lenders. In the event of any such determination, until the Administrative Agent shall have advised the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any request by the Borrower for a Eurodollar Revolving Borrowing pursuant to Section 2.02 shall be deemed to be a request for a Base Rate Borrowing, (ii) any request by the Borrower for a conversion to, or a continuation of, a Eurodollar Revolving Borrowing pursuant to Section 2.06 shall be deemed to be a request for, respectively, a continuation as, or a conversion to, a Base Rate Borrowing and (iii) any request for a Eurodollar Competitive Borrowing shall be ineffective; provided that if the circumstances giving rise to such notice do not affect all the Lenders, then requests for Eurodollar Competitive Borrowings may be made to Lenders that are not affected thereby. Each determination by the Administrative Agent hereunder shall be conclusive absent manifest error.

          Section 2.12 Termination and Reduction of Commitments. (a) The unused Commitments of each Lender shall be automatically terminated on the Termination Date.

          (b) Subject to Section 2.13(b), upon at least three Business Days’ prior irrevocable written notice to the Administrative Agent, the Borrower may at any time in whole permanently terminate, or from time to time in part permanently reduce, the Total Commitment; provided, however, that (i) each partial reduction shall be in an integral multiple of $1,000,000 and in a minimum principal amount of $25,000,000 and (ii) no such termination or reduction shall be made which would reduce the Total Commitment to an amount less than the sum of the aggregate outstanding principal amount of Loans and the aggregate L/C Exposure.

          (c) The Total Commitment shall be automatically and permanently reduced on each date on which prepayment thereof is required to be made pursuant to Section 2.13(b)(i) in the amount of such prepayment. In addition, the Total Commitment shall be automatically and permanently reduced on each date on which prepayment thereof is required to be made pursuant to Section 2.13(b)(i) in an amount equal to the applicable Reduction Amount. “Reduction Amount” shall mean, with respect to any sale, lease, transfer or other disposition of any assets of the Borrower or any of its Subsidiaries (other than Excluded Sales), on any date, the Net Cash Proceeds received with respect thereto on such date less (i) any amounts applied with respect thereto to prepay any outstanding amounts under the Senior Bank Financing pursuant to Section 2.13(b) (including the amounts required to be cash collateralized pursuant to Section 2.04(i)), (ii) any amounts applied to reduce Commitments under the 364-Day Revolving Credit Facility Agreement, and (iii) the portion of such Net Cash Proceeds that constitutes Reinvestment Proceeds.

          (d) Subject to Section 2.21, each reduction in the Total Commitment hereunder shall be made ratably among the Lenders in accordance with their respective Commitments. The Borrower agrees to pay to the Administrative Agent for the account of the

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Lenders, on the date of each termination or reduction, the Facility Fees on the amount of the Commitments so terminated or reduced accrued through the date of such termination or reduction.

          Section 2.13 Prepayment. (a) Voluntary Prepayments. Except as provided in the next sentence below, the Borrower shall have the right at any time and from time to time to prepay any of its Borrowings, in whole or in part, upon giving written notice (or telephone notice promptly confirmed by written notice) to the Administrative Agent: (i) before 12:00 noon, New York City time, three Business Days prior to prepayment, in the case of Eurodollar Loans and (ii) before 12:00 noon, New York City time, one Business Day prior to prepayment, in the case of Base Rate Loans; provided, however, that each partial prepayment shall be in an amount which is an integral multiple of $1,000,000 and not less than $25,000,000. The Borrower shall not have the right to prepay any Competitive Loan without the prior consent of the Lender thereof.

          (b) Mandatory Prepayments. (i) The Borrower shall, within three Business Days of the date of receipt of the Net Cash Proceeds by the Borrower or any of its Domestic Subsidiaries from the sale, lease, transfer or other disposition of any assets of the Borrower or any of its Subsidiaries (other than any Excluded Sales), prepay any amounts outstanding under the Senior Bank Financing in an amount equal to the lesser of the amount of such Net Cash Proceeds and the amount so outstanding (including the amounts required to be cash collateralized pursuant to Section 2.04 hereof). Each such prepayment shall be applied first to any Loans, L/C Disbursements or cash collateralizations under this Agreement as set forth in clause (iii) below, and second to any principal amounts outstanding pursuant to the 364-Day Revolving Credit Facility Agreement in accordance with the terms and conditions for prepayment set forth therein; provided that the Borrower shall not be required to make any prepayments pursuant to this Section 2.13(b)(i) if the Borrower or any of its Subsidiaries shall apply any of the Net Cash Proceeds it received from the sale, lease, transfer or other disposition of its assets for reinvestment in its business within 180 days after receipt thereof by the Borrower or any of its Subsidiaries (any such Net Cash Proceeds so reinvested, the “Reinvestment Proceeds”); provided, further, that the Borrower shall have notified the Administrative Agent of its intent to so reinvest such Net Cash Proceeds.

          (ii) On the date of any termination or reduction of the Commitments pursuant to Section 2.12, the Borrower shall pay or prepay so much of its Borrowings as shall be necessary in order that the sum of the aggregate principal amount of Loans outstanding and the aggregate L/C Exposure not exceed the Total Commitment, after giving effect to such termination or reduction.

          (iii) Prepayments required to be made pursuant to clause (i) above to amounts due hereunder shall be first applied to prepay L/C Disbursements then outstanding until such L/C Disbursements are paid in full, second applied to prepay Swing Line Loans then outstanding until such Loans are paid in full, third, applied to prepay Revolving Loans then outstanding until such Loans are paid in full, fourth, applied to prepay ratably Competitive Loans then outstanding until such Loans are paid in full, and fifth, to the extent required, applied to cash collateralize any outstanding Letters of Credit in accordance with Section 2.04(i). The amount remaining (if any) after the prepayment in full of the L/C Disbursements and Loans, and the 100% cash

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collateralization of the Letters of Credit then outstanding pursuant to Section 2.04(i), may be retained by the Borrower to the extent not required to be applied in accordance with clause (i) above, and the Commitments shall be permanently reduced in accordance with Section 2.12(c).

          (c) Each notice of prepayment under paragraph (a) above shall specify the prepayment date and the principal amount of each Borrowing (or portion thereof) to be prepaid, shall be irrevocable and shall commit the Borrower to prepay such Borrowing (or portion thereof) by the amount stated therein on the date stated therein. All prepayments under this Section 2.13 shall be subject to Section 2.16 but otherwise without premium or penalty. All prepayments under this Section 2.13 shall be accompanied by accrued interest on the principal amount being prepaid to the date of payment.

          Section 2.14 Reserve Requirements; Change in Circumstances. (a) It is understood that the cost to each Lender (including the Administrative Agent, the Swing Line Bank and the Fronting Bank) of making or maintaining any of the Eurodollar Loans or Letters of Credit may fluctuate as a result of the applicability of reserve requirements imposed by the Board at the ratios provided for in Regulation D. The Borrower agrees to pay to each of such Lenders from time to time, as provided in paragraph (d) below, such amounts as shall be necessary to compensate such Lender for the portion of the cost of making or maintaining Eurodollar Loans to (or issuing Letters of Credit for the account of) the Borrower resulting from any such reserve requirements provided for in Regulation D as in effect on the date thereof, it being understood that the rates of interest applicable to Eurodollar Loans have been determined on the assumption that no such reserve requirements exist or will exist and that such rates do not reflect costs imposed on the Lenders in connection with such reserve requirements. It is agreed that for purposes of this paragraph (a) the Eurodollar Loans made hereunder shall be deemed to constitute Eurocurrency Liabilities as defined in Regulation D and to be subject to the reserve requirements of Regulation D without the benefit of or credit for proration, exemptions or offsets which might otherwise be available to the Lenders from time to time under Regulation D.

          (b) Notwithstanding any other provision herein, if after the date of this Agreement any change in applicable law or regulation or in the interpretation or administration thereof by any governmental authority charged with the interpretation or administration thereof (whether or not having the force of law) shall change the basis of taxation of any payments to any Lender (including the Administrative Agent, the Swing Line Bank and the Fronting Bank) of the principal of or interest on any Eurodollar Loan or Fixed Rate Loan made by such Lender, of any payments related to the Letters of Credit or any Fees or other amounts payable hereunder (other than changes in respect of taxes imposed on the overall net income of such Lender by the jurisdiction in which such Lender has its principal office or by any political subdivision or taxing authority therein), or shall impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of or credit extended by such Lender, or shall impose on such Lender or the London interbank market any other condition affecting this Agreement, any Eurodollar Loan or Fixed Rate Loan made by such Lender or any Letter of Credit hereunder, and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan or Fixed Rate Loan (or issuing any Letter of Credit) or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or otherwise) in respect thereof by an amount deemed by such Lender to be material, then the Borrower will pay to such Lender upon demand such

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additional amount or amounts as will compensate such Lender for such additional costs actually incurred or reduction actually suffered.

          (c) If after the date hereof any Lender (including the Administrative Agent, the Swing Line Bank and the Fronting Bank) shall have determined that the general applicability of any law, rule, regulation or guideline adopted pursuant to or arising out of the July 1988 report of the Basle Committee on Banking Regulations and Supervisory Practices entitled “International Convergence of Capital Measurement and Capital Standards”, or the adoption after the date hereof of any other generally applicable law, rule, regulation or guideline regarding capital adequacy, or any change in any of the foregoing or in the interpretation or administration of any of the foregoing by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or any lending office of such Lender) or any Lender’s holding company with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Lender’s capital or on the capital of such Lender’s holding company, if any, as a consequence of this Agreement, the Loans made by such Lender pursuant hereto (or the Letters of Credit issued hereunder) to a level below that which such Lender or such Lender’s holding company could have achieved but for such adoption, change or compliance (taking into consideration such Lender’s policies and the policies of such Lender’s holding company with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time, the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender or such Lender’s holding company for any such reduction suffered.

          (d) A certificate of a Lender (including the Administrative Agent, the Swing Line Bank and the Fronting Bank) setting forth a reasonably detailed explanation of such amount or amounts as shall be necessary to compensate such Lender (or participating banks or other entities pursuant to Section 9.04) as specified in paragraph (a), (b) or (c) above, as the case may be, shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay each Lender the amount shown as due on any such certificate delivered by it within 10 days after the receipt of the same.

          (e) Failure on the part of any Lender to demand compensation for any increased costs or reduction in amounts received or receivable or reduction in return on capital with respect to any period shall not constitute a waiver of such Lender’s right to demand compensation with respect to such period or any other period; provided that the Borrower shall not be required to compensate a Lender pursuant to this Section for any increased costs or reductions incurred more than 180 days prior to the date that such Lender notifies the Borrower of such increased costs or reductions in accordance with paragraph (d) above and of such Lender’s intention to claim compensation thereof; provided further that, if the circumstances giving rise to such increased costs or reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof.

          (f) Notwithstanding any other provision of this Section 2.14, no Lender shall demand compensation for any increased costs or reduction referred to above if it shall not be the general policy or practice of such Lender to demand such compensation in similar circumstances under comparable provisions of other credit agreements, if any (it being understood that this

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sentence shall not in any way limit the discretion of any Lender to waive the right to demand such compensation in any given case).

          Section 2.15 Change in Legality. (a) Notwithstanding any other provision herein contained, if any change in any law or regulation or in the interpretation thereof by any governmental authority charged with the administration or interpretation thereof shall make it unlawful for any Lender (including the Administrative Agent, the Swing Line Bank and the Fronting Bank) to make or maintain any Eurodollar Loan or to give effect to its obligations as contemplated hereby with respect to any Eurodollar Loan, then, by written notice to the Borrower and to the Administrative Agent, such Lender may:

       (i) declare that Eurodollar Loans will not thereafter be made by such Lender hereunder and any request by the Borrower for a Eurodollar Borrowing or a conversion to or continuation of a Eurodollar Borrowing shall, as to such Lender only, be deemed a request for a Base Rate Loan unless such declaration shall be subsequently withdrawn; and

       (ii) require that all outstanding Eurodollar Loans made by it be converted into Base Rate Loans, in which event all such Eurodollar Loans shall be automatically converted to Base Rate Loans as of the effective date of such notice as provided in paragraph (b) below.

In the event any Lender shall exercise its rights under (i) or (ii) above, all payments and prepayments of principal which would otherwise have been applied to repay the Eurodollar Loans that would have been made by such Lender or the converted Eurodollar Loans of such Lender shall instead be applied to repay the Base Rate Loans made by such Lender in lieu of, or resulting from the conversion of, such Eurodollar Loans.

          (b) For purposes of this Section 2.15, a notice to the Borrower by any Lender shall be effective as to each Eurodollar Loan, if lawful, on the last day of the Interest Period currently applicable to such Eurodollar Loan; in all other cases such notice shall be effective on the date of receipt by the Borrower.

          Section 2.16 Indemnity. The Borrower shall indemnify each Lender against any loss or expense which such Lender sustains or incurs as a consequence of (a) any failure by the Borrower to fulfill on the date of any borrowing or any issuance of Letters of Credit hereunder the applicable conditions set forth in Article IV, (b) any failure by the Borrower to borrow or continue any Loan hereunder or to proceed with the issuance of a Letter of Credit hereunder after irrevocable notice of such borrowing, continuation or issuance has been given pursuant to Section 2.02, 2.03, 2.04, 2.05 or 2.06, as applicable, (c) any payment, prepayment or conversion of a Eurodollar Loan or Fixed Rate Loan required by any other provision of this Agreement or otherwise made or deemed made to or by the Borrower on a date other than the last day of the Interest Period applicable thereto; provided that the Borrower shall not be required to indemnify a Lender pursuant to this clause (c) for any loss or expense to the extent any such loss or expense shall have been incurred pursuant to (i) Section 2.14, 2.15 or 2.20 or (ii) Section 2.13(a) more than six months prior to the date that the applicable Lender shall have notified the Borrower of its intention to claim compensation therefor, (d) any default in payment or prepayment of the

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principal amount of any Loan to the Borrower or any part thereof or interest accrued thereon, as and when due and payable (at the due date thereof, whether by scheduled maturity, acceleration, irrevocable notice of prepayment or otherwise), (e) the failure by the Borrower to borrow any Competitive Loan after accepting the Competitive Bid to make such Loan, or (f) the occurrence of any Event of Default, including, in each such case, any loss or reasonable expense sustained or incurred or to be sustained or incurred in liquidating or employing deposits from third parties acquired to effect or maintain such Loan or any part thereof as a Eurodollar Loan. Such loss or reasonable expense shall include an amount equal to the excess, if any, as reasonably determined by such Lender, of (i) its cost of obtaining the funds for the Loan being paid, prepaid, converted or not borrowed (based, in the case of a Eurodollar Loan, on the Eurodollar Rate) for the period from the date of such payment, prepayment or conversion or failure to borrow to the last day of the Interest Period for such Loan (or, in the case of a failure to borrow, the Interest Period for such Loan which would have commenced on the date of such failure) over (ii) the amount of interest (as reasonably determined by such Lender) that would be realized by such Lender in reemploying the funds so paid, prepaid or converted or not borrowed for such period or Interest Period, as the case may be. A certificate of any Lender setting forth a reasonably detailed explanation of any amount or amounts which such Lender is entitled to receive pursuant to this Section shall be delivered to the Borrower and shall be conclusive absent manifest error.

          Section 2.17 Pro Rata Treatment. Except in the case of any Competitive Borrowing or as required under Sections 2.15 or 2.21, each Borrowing, each payment or prepayment of principal of any Borrowing, each payment of interest on the Loans, each payment of the Facility Fees, each reduction of the Commitments and each conversion of any Borrowing to a Borrowing of any Type, shall be allocated pro rata among the Lenders in accordance with their respective Commitments (or, if such Commitments shall have expired or been terminated, in accordance with the respective principal amounts of their outstanding Loans). Each payment of interest on any Competitive Borrowing shall be allocated pro rata among the Lenders participating in such Borrowing in accordance with the respective amounts of accrued and unpaid interest on their outstanding Competitive Loans comprising such Borrowing. For the purpose of determining the available Commitments of the Lenders at any time, each outstanding Competitive Borrowing shall be deemed to have utilized the Commitments of the Lenders (including those Lenders that have not made Loans as part of such Competitive Borrowing) pro rata in accordance with such respective Commitments. Each Lender agrees that in computing such Lender’s portion of any Borrowing to be made hereunder, the Administrative Agent may, in its discretion, round each Lender’s percentage of such Borrowing to the next higher or lower whole dollar amount.

          Section 2.18 Sharing of Setoffs. Each Lender agrees that if it shall, through the exercise of a right of banker’s lien, setoff or counterclaim against the Borrower, or pursuant to a secured claim under Section 506 of Title 11 of the United States Code or other security or interest arising from, or in lieu of, such secured claim, received by such Lender under any applicable bankruptcy, insolvency or other similar law or otherwise, or by any other means, obtain payment (voluntary or involuntary) in respect of any Loans (other than pursuant to Sections 2.12, 2.14 and 2.15) as a result of which the unpaid principal portion of its Loans shall be proportionately less than the unpaid principal portion of the Loans of any other Lender, it shall be deemed simultaneously to have purchased from such other Lender at face value, and shall promptly pay to such other Lender the purchase price for, a participation in the Loans of

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such other Lender, so that the aggregate unpaid principal amount of the Loans and participations in the Loans held by each Lender shall be in the same proportion to the aggregate unpaid principal amount of all Loans then outstanding as the principal amount of its Loans prior to such exercise of banker’s lien, setoff or counterclaim or other event was to the principal amount of all Loans outstanding prior to such exercise of banker’s lien, setoff or counterclaim or other event; provided, however, that, if any such purchase or purchases or adjustments shall be made pursuant to this Section 2.18 and the payment giving rise thereto shall thereafter be recovered, such purchase or purchases or adjustments shall be rescinded to the extent of such recovery and the purchase price or prices or adjustment restored without interest. The Borrower expressly consents to the foregoing arrangements and agrees that any Lender holding a participation in a Loan deemed to have been so purchased may exercise any and all rights of banker’s lien, setoff or counterclaim with respect to any and all moneys owing by the Borrower to such Lender by reason thereof as fully as if such Lender had made a Loan directly to the Borrower in the amount of such participation.

          Section 2.19 Payments. (a) The Borrower shall make each payment (including principal of or interest on any Borrowing or any Fees or other amounts payable with respect to the Letters of Credit or otherwise) hereunder and under any other Loan Document without setoff, counterclaim or deduction of any kind not later than 12:00 noon, New York City time, on the date when due in dollars to the Administrative Agent at its offices at 270 Park Avenue, New York, New York, in immediately available funds.

          (b) Whenever any payment (including principal of or interest on any Borrowing or any Fees or other amounts with respect to the Letters of Credit or otherwise) hereunder or under any other Loan Document shall become due, or otherwise would occur, on a day that is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of interest or Fees, if applicable.

          Section 2.20 Taxes. (a) Any and all payments by the Borrower hereunder shall be made, in accordance with Section 2.19, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding any income, franchise, branch profits or similar tax imposed on or measured by the net income or net profits of the Administrative Agent, the Swing Line Bank, the Fronting Bank or any Lender (or any transferee or assignee that acquires a Loan (any such entity a “Transferee”)) by the United States or any jurisdiction under the laws of which it is organized or doing business or any political subdivision thereof (all such nonexcluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as “Taxes”). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to the Lenders (or any Transferee), the Swing Line Bank, the Fronting Bank or the Administrative Agent, (i) the sum payable shall be increased by the amount necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.20) such Lender (or Transferee), the Swing Line Bank, the Fronting Bank or the Administrative Agent (as the case may be) shall receive an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted

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to the relevant taxing authority or other Governmental Authority in accordance with applicable law.

          (b) In addition, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made by the Borrower hereunder or under any other Loan Document or from the execution, delivery or registration of or performance under this Agreement or any other Loan Document, or otherwise with respect to the Borrower’s role in this Agreement or any other Loan Document (hereinafter referred to as “Other Taxes”).

          (c) The Borrower will indemnify each Lender (or Transferee), the Swing Line Bank, the Fronting Bank and the Administrative Agent for the full amount of Taxes and Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable by the Borrower under this Section 2.20) paid by such Lender (or Transferee), the Swing Line Bank, the Fronting Bank or the Administrative Agent, as the case may be, and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted by the relevant taxing authority or other Governmental Authority. The Borrower shall also indemnify each Lender (or any Transferee), the Swing Line Bank, the Fronting Bank and the Administrative Agent for the full amount of taxes imposed on or measured by the net income or receipts of such Lender (or any Transferee), the Swing Line Bank, the Fronting Bank or the Administrative Agent as the case may be, as such Lender (or Transferee), the Swing Line Bank, the Fronting Bank or the Administrative Agent shall determine are payable in respect of amounts paid by the Borrower to or on behalf of such Lender (or any Transferee), the Swing Line Bank, the Fronting Bank or the Administrative Agent, as the case may be, pursuant to this Section 2.20. Such indemnification shall be made within 30 days after the date any Lender (or Transferee), the Swing Line Bank, the Fronting Bank or the Administrative Agent, as the case may be, makes written demand therefor. If any Lender (or Transferee), the Swing Line Bank, the Fronting Bank or the Administrative Agent becomes entitled to a refund of Taxes or Other Taxes for which such Lender (or Transferee), the Swingline Bank, the Fronting Bank or the Administrative Agent has received payment from the Borrower hereunder, such Lender (or Transferee), Swingline Bank, Fronting Bank or Administrative Agent, as the case may be, shall, at the expense of the Borrower, use its reasonable efforts (consistent with internal policy, and legal and regulatory restrictions) to obtain such refund. If a Lender (or Transferee), the Swingline Bank, the Fronting Bank or the Administrative Agent receives a refund or is entitled to claim a tax credit in respect of any Taxes or Other Taxes for which such Lender (or Transferee), the Swing Line Bank, the Fronting Bank or the Administrative Agent has received payment from the Borrower hereunder it shall promptly notify the Borrower of such refund or credit and shall, within 30 days after receipt of a request by the Borrower (or promptly upon receipt, if the Borrower has requested application for such refund or credit pursuant hereto), repay such refund or amount of credit to the Borrower, net of all out-of-pocket expenses of such Lender and without interest; provided that the Borrower, upon the request of such Lender (or Transferee), the Swing Line Bank, the Fronting Bank or the Administrative Agent, agrees to return such refund or amount of credit (plus penalties, interest or other charges) to such Lender (or Transferee), the Swing Line Bank, the Fronting Bank or the Administrative Agent in the event such Lender (or Transferee), the Swing Line Bank, the Fronting Bank or the Administrative Agent is required to repay such refund or such credit is denied or subsequently determined to be unavailable.

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          (d) Within 30 days after the date of any payment of Taxes or Other Taxes withheld by the Borrower in respect of any payment to any Lender (or Transferee), the Swing Line Bank, the Fronting Bank or the Administrative Agent, the Borrower will furnish to the Administrative Agent, at its address referred to in Section 9.01, the original or a certified copy of a receipt evidencing payment thereof to the proper Governmental Authority.

          (e) Without prejudice to the survival of any other agreement contained herein, the agreements and obligations contained in this Section 2.20 shall survive the payment in full of the principal of and interest on all Loans made hereunder.

          (f) Each Lender (or Transferee), the Swing Line Bank or the Fronting Bank which is organized under the laws of a jurisdiction outside the United States shall, on or prior to the date of its execution and delivery of this Agreement or, in the case of a Transferee, on the date on which it becomes a Lender, and in the case of any Lender, the Swing Line Bank or the Fronting Bank, on or prior to the date such Lender, the Swing Line Bank or the Fronting Bank changes its funding office, and from time to time thereafter as requested in writing by the Borrower (but only so long thereafter as such Lender, the Swing Line Bank or the Fronting Bank remains lawfully able to do so), shall deliver to the Borrower and the Administrative Agent such certificates, documents or other evidence, as required by the Code or Treasury Regulations issued pursuant thereto, including Internal Revenue Service Form W-8BEN or Form W-8ECI and any other certificate or statement of exemption required by Treasury Regulation Section 1.1441-4(a) or Section 1.1441-6(c) or any subsequent version thereof, properly completed and duly executed by such Lender (or Transferee), the Swing Line Bank or the Fronting Bank establishing that any payment under the Loan Documents is (i) not subject to withholding under the Code because such payment is effectively connected with the conduct by such Lender (or Transferee), the Swing Line Bank or the Fronting Bank of a trade or business in the United States, or (ii) fully or partially exempt from United States tax under a provision of an applicable tax treaty, or (iii) not subject to withholding under the portfolio interest exception under Section 881(c) of the Code (and, if such Lender (or Transferee), the Swing Line Bank or the Fronting Bank delivers a Form W-8BEN claiming the benefits of exemption from United States withholding tax under Section 881(c), a certificate representing that such Lender (or Transferee), the Swing Line Bank or the Fronting Bank is not a “bank” for purposes of Section 881(c) of the Code, is not a 10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of the Borrower and is not a controlled foreign corporation related to the Borrower (within the meaning of Section 864(d)(4) of the Code). Unless the Borrower and the Administrative Agent have received forms or other documents reasonably satisfactory to them indicating that payments hereunder are not subject to United States withholding tax or are subject to such tax at a rate reduced by an applicable tax treaty, the Borrower or the Administrative Agent shall withhold taxes from such payments at the applicable statutory rate in the case of payments to or for any Lender (or Transferee), the Swing Line Bank or the Fronting Bank organized under the laws of a jurisdiction outside the United States. If a Lender (or Transferee), the Swing Line Bank or the Fronting Bank is unable to deliver one of these forms or if the forms provided by a Lender (or Transferee), the Swing Line Bank or the Fronting Bank at the time such Lender (or Transferee), the Swing Line Bank or the Fronting Bank first becomes a party to this Agreement or at the time a Lender (or Transferee), the Swing Line Bank or the Fronting Bank changes its funding office (other than at the request of the Borrower) indicate a United States interest withholding tax rate in excess of zero, withholding

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tax at such rate shall be considered excluded from Taxes unless and until such Lender (or Transferee), the Swing Line Bank or the Fronting Bank provides the appropriate forms certifying that a lesser rate applies, whereupon withholding tax at such lesser rate only shall be considered excluded from Taxes for periods governed by such appropriate forms; provided, however, that if, at the effective date of a transfer pursuant to which a Lender (or Transferee), the Swing Line Bank or the Fronting Bank becomes a party to this Agreement, the Lender (or Transferee), the Swing Line Bank or the Fronting Bank assignor was entitled to payments under Section 2.20(a) in respect of United States withholding tax with respect to interest paid at such date, then, to such extent, the term Taxes shall include (in addition to withholding taxes that may be imposed in the future or other amounts otherwise includable in Taxes) United States withholding tax, if any, applicable with respect to the Lender (or Transferee), the Swing Line Bank or the Fronting Bank assignee on such date.

          (g) The Borrower shall not be required to pay any additional amounts to any Lender (or Transferee), the Swing Line Bank or the Fronting Bank in respect of United States withholding tax pursuant to paragraph (a) above for any period in respect of which the obligation to pay such additional amounts would not have arisen but for a failure by such Lender (or Transferee), the Swing Line Bank or the Fronting Bank to comply with the provisions of paragraph (f) above unless such failure results from (i) a change in applicable law, regulation or official interpretation thereof or (ii) an amendment, modification or revocation of any applicable tax treaty or a change in official position regarding the application or interpretation thereof, in each case after the Closing Date (and, in the case of a Transferee, after the date of assignment or transfer).

          (h) Any Lender (or Transferee), the Swing Line Bank or the Fronting Bank claiming any additional amounts payable pursuant to this Section 2.20 shall use reasonable efforts (consistent with internal policy, and legal and regulatory restrictions) to file any certificate or document requested by the Borrower or to change the jurisdiction of its applicable lending office if the making of such a filing or change would avoid the need for or reduce the amount of any such additional amounts which may thereafter accrue and would not, in the reasonable determination of such Lender (or Transferee), the Swing Line Bank or the Fronting Bank, as the case may be, be materially disadvantageous to such Lender (or Transferee), the Swing Line Bank or the Fronting Bank or require the disclosure of information that the Lender (or Transferee), the Swing Line Bank or the Fronting Bank, as the case may be, reasonably considers to be confidential.

          Section 2.21 Mitigation Obligations; Replacement of Lenders. (a) If any Lender (including the Administrative Agent, the Swing Line Bank and the Fronting Bank) requests compensation under Section 2.14, or if it becomes unlawful for any Lender (including the Administrative Agent, the Swing Line Bank and the Fronting Bank) to make or maintain Eurodollar Loans under Section 2.15, or if the Borrower is required to pay any additional amount to any Lender, the Administrative Agent, the Swing Line Bank or the Fronting Bank or any Governmental Authority for the account of any Lender, the Administrative Agent, the Swing Line Bank or the Fronting Bank pursuant to Section 2.20, then such Lender, the Administrative Agent, the Swing Line Bank or the Fronting Bank shall, at the request of the Borrower, use reasonable efforts to designate a different lending office for funding or booking its Loans or for the issuance of Letters of Credit hereunder or to assign its rights and obligations hereunder to

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another of its offices, branches or affiliates, if, in the judgment of such Lender, the Administrative Agent, the Swing Line Bank or the Fronting Bank, as the case may be, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.14 or 2.20 or no longer make it unlawful for such Lender, the Administrative Agent, the Swing Line Bank or the Fronting Bank to make or maintain Eurodollar Loans under Section 2.15, as the case may be, in the future and (ii) would not subject such Lender, the Administrative Agent, the Swing Line Bank or the Fronting Bank, as the case may be, to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender, the Administrative Agent, the Swing Line Bank or the Fronting Bank, as the case may be. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender, the Administrative Agent, the Swing Line Bank or the Fronting Bank in connection with any such designation or assignment.

          (b) If any Lender, the Swing Line Bank or the Fronting Bank requests compensation under Section 2.14, or if it becomes unlawful for any Lender, the Swing Line Bank or the Fronting Bank to make or maintain Eurodollar Loans under Section 2.15, or if the Borrower is required to pay any additional amount to any Lender, the Swing Line Bank or the Fronting Bank or any Governmental Authority for the account of any Lender, the Swing Line Bank or the Fronting Bank pursuant to Section 2.20, or if any Lender, the Swing Line Bank or the Fronting Bank defaults in its obligation to fund Loans or issue Letters of Credit hereunder, then the Borrower may, at its sole expense and effort, upon notice to such Lender, the Swing Line Bank or the Fronting Bank and the Administrative Agent, (i) require such Lender, the Swing Line Bank or the Fronting Bank to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 9.04), all its interests, rights and obligations under this Agreement (other than any outstanding Competitive Loans held by it) to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (x) the Borrower shall have received the prior written consent of the Administrative Agent, which consent shall not unreasonably be withheld, (y) such assigning Lender, the Swing Line Bank or the Fronting Bank shall have received payment of an amount equal to the outstanding principal of its Loans (other than Competitive Loans), accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts) and (z) in the case of any such assignment resulting from a claim for compensation under Section 2.14 or payments required to be made pursuant to Section 2.20, such assignment will result in a reduction in such compensation or payments or (ii) terminate the Commitment of such Lender upon notice given to such Lender within forty-five (45) days of receipt of the notice given by the Lender; provided that such notice shall be accompanied by prepayment in full of all Loans from such Lender, including accrued interest thereon and any breakage costs, accrued fees and all other amounts payable to such Lender, without extension, conversion or continuation. A Lender, the Swing Line Bank or the Fronting Bank shall not be required to make any such assignment and delegation under clause (i) above or terminate its Commitment under clause (ii) above if, prior thereto, as a result of a waiver by such Lender, the Swing Line Bank or the Fronting Bank or otherwise, the circumstances entitling the Borrower to require such assignment and delegation or termination of Commitment cease to apply.

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ARTICLE III

REPRESENTATIONS AND WARRANTIES

          The Borrower represents and warrants to each of the Lenders, the Swing Line Bank and the Fronting Bank that:

          Section 3.01 Organization; Powers. The Borrower and each of its Restricted Subsidiaries (a) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has all requisite power and authority to own its property and assets and to carry on its business as now conducted and as proposed to be conducted, (c) is qualified to do business in every jurisdiction where such qualification is required, except where the failure so to qualify would not result in a Material Adverse Effect, and (d) in the case of the Borrower, has the corporate power and authority to execute, deliver and perform its obligations under each of the Loan Documents and each other agreement or instrument contemplated thereby to which it is or will be a party and to borrow hereunder.

          Section 3.02 Authorization. The execution, delivery and performance by the Borrower of each of the Loan Documents and the borrowings and issuances of Letters of Credit hereunder, and the consummation of the Tender Offer, the Acquisition and the Merger and the other transactions contemplated hereby and thereby (collectively, the “Transactions”) (a) have been duly authorized by all requisite corporate and, if required, stockholder action and (b) (i) will not violate (A) any provision of law, statute, rule or regulation, (B) the certificate or articles of incorporation or other constitutive documents or by-laws of the Borrower or any of its Restricted Subsidiaries, (C) any order of any Governmental Authority or (D) any provision of any indenture, agreement or other instrument to which the Borrower or any of its Restricted Subsidiaries is a party or by which any of them or any of their property is or may be bound, (ii) will not be in conflict with, result in a breach of or constitute (alone or with notice or lapse of time or both) a default under any such indenture, agreement or other instrument or (iii) will not result in the creation or imposition of any Lien upon or with respect to any property or assets now owned or hereafter acquired by the Borrower or any of its Restricted Subsidiaries except, in each case other than (a) and (b)(i)(B), as could not reasonably be expected to have a Material Adverse Effect.

          Section 3.03 Enforceability. This Agreement has been duly executed and delivered by the Borrower and constitutes, and each other Loan Document when executed and delivered by the Borrower will constitute, a legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.

          Section 3.04 Consents and Approvals. No action, consent or approval of, registration or filing with, or any other action by any Governmental Authority or any other third party is or will be required in connection with the Transactions, except as have been made or obtained (without the imposition of any conditions that are not acceptable to the Lenders) and are in full force and effect (other than any action, consent, approval, registration or filing the absence

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of which could not reasonably be expected, either individually or in the aggregate with any such other consents, approvals, registrations or filings, to result in a Material Adverse Effect). All applicable waiting periods in connection with the Transactions have expired without any action having been taken by any competent authority, and no law or regulation shall be applicable, restraining, preventing or imposing materially adverse conditions upon the Transactions or the rights of the Borrower, the Company and their respective subsidiaries freely to transfer or otherwise dispose of, or to create any Lien on, any properties now owned or hereafter acquired by any of them except, in each case, as could not reasonably be expected to have a Material Adverse Effect.

          Section 3.05 Financial Statements. (a) The Borrower has heretofore furnished to the Lenders its consolidated balance sheets and statements of earnings and statements of cash flows, together with the notes thereto, as of and for the fiscal year ended December 30, 2001, audited by and accompanied by the opinion of Arthur Andersen LLP, independent public accountants.

          (b) The Borrower has heretofore furnished to the Lenders the consolidated pro forma balance sheet of the Borrower as of the Closing Date, certified by the chief financial officer of the Borrower, giving effect to the Transactions and such pro forma balance sheet fairly presents the consolidated pro forma financial condition of the Borrower and its Subsidiaries as at such date, giving effect to the Transactions.

          (c) WRECO has heretofore furnished to the Lenders its consolidated balance sheets and statements of earnings and statements of cash flows, together with the notes thereto, as of and for the fiscal year ended December 30, 2001, audited by and accompanied by the opinion of Arthur Andersen LLP, independent public accountants.

          (d) Such financial statements referred to in Section 3.05(a) and (c) present fairly in all material respects the financial position and results of operations of the Borrower, WRECO and their respective consolidated subsidiaries as of such dates and for such periods. Such balance sheets and the notes thereto disclose all material liabilities, direct or contingent, of the Borrower, WRECO and their respective consolidated subsidiaries as of the dates thereof. Such financial statements were prepared in accordance with GAAP applied on a consistent basis.

          Section 3.06 No Material Adverse Change. Other than changes in operating results arising in the ordinary course of business and except as otherwise disclosed publicly or to the Lenders prior to the date hereof, there has been no material adverse change in the business, financial condition, operations or properties of the Borrower and its subsidiaries (other than the Company and its subsidiaries), taken as a whole, since December 30, 2001.

          Section 3.07 Title to Properties; Possession Under Leases. (a) Each of the Borrower and its Restricted Subsidiaries has good and marketable title to, or valid leasehold interests in, all of its material properties and assets, except for defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties and assets for their intended purposes.

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          (b) Each of the Borrower and its Restricted Subsidiaries (i) has complied with all obligations under all leases to which it is a party, and (ii) enjoys peaceful and undisturbed possession under all such leases, except where such non-compliance or lack of peaceful and undisturbed possession would not result in a Material Adverse Effect. All leases to which the Borrower and its Restricted Subsidiaries is a party are in full force and effect, except where such lack of force and effect would not result in a Material Adverse Effect.

          Section 3.08 Subsidiaries. Schedule 3.08 Part I for the Borrower, Schedule 3.08 Part II for WRECO and Schedule 3.08 Part III for the Company (i) set forth as of the Closing Date a list of all subsidiaries of the Borrower, WRECO and the Company and the percentage ownership interest of the Borrower, WRECO or the Company therein, as applicable, and (ii) for the Borrower and WRECO, designate those Subsidiaries which are Unrestricted Subsidiaries.

          Section 3.09 Litigation. Compliance with Laws. (a) Except as otherwise disclosed publicly prior to December 13, 2001, there has been no action, suit, investigation, litigation or proceeding pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any of its Restricted Subsidiaries (other than the Company and its subsidiaries) in any court or before any arbitrator or Governmental Authority that could reasonably be expected to have a Material Adverse Effect.

          (b) Except as disclosed in the Borrower’s Report on Form 10-K for the fiscal year ended December 30, 2001, neither the Borrower nor any of its Restricted Subsidiaries (other than the Company and its subsidiaries) is in violation of any law, rule or regulation, or in default with respect to any judgment, writ, injunction or decree of any Governmental Authority, where such violation or default could reasonably be expected to result in a Material Adverse Effect.

          (c) Except as disclosed in the Company’s Report on Form 10-K for the fiscal year ended December 31, 2001, or in the Disclosure Letter, there are no actions, suits, investigations, litigations or proceedings pending or threatened against or affecting the Company or any of its subsidiaries in any court or before any arbitrator or Governmental Authority that could reasonably be expected to have a Material Adverse Effect.

          (d) Except as disclosed in the Company’s Report on Form 10-K for the fiscal year ended December 31, 2001, or in the Disclosure Letter, neither the Company nor any of its subsidiaries is in violation of any law, rule or regulation, or in default with respect to any judgment, writ, injunction or decree of any Governmental Authority, where such violation or default could reasonably be expected to result in a Material Adverse Effect.

          Section 3.10 Agreements. (a) Neither the Borrower nor any of its Restricted Subsidiaries is a party to any agreement or instrument or subject to any corporate restriction that has resulted in a Material Adverse Effect.

          (b) Neither the Borrower nor any of its Restricted Subsidiaries is in default in any manner under any material agreement or instrument (except for any indenture or other agreement or instrument evidencing Indebtedness) to which it is a party or by which it or any of its properties or assets are or may be bound, where such default could reasonably be expected to result in a Material Adverse Effect.

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          Section 3.11 Federal Reserve Regulations. (a) Neither the Borrower nor any of its Restricted Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying Margin Stock.

          (b) No part of the proceeds of any Loan will be used, whether directly or indirectly, whether immediately, incidentally or ultimately, for any purpose which entails a violation of, or which is inconsistent with, the provisions of the Regulations of the Board, including Regulation T, U or X.

          Section 3.12 Investment Company Act; Public Utility Holding Company Act. Neither the Borrower nor any of its Restricted Subsidiaries is (a) an “investment company” as defined in, or subject to regulation under, the Investment Company Act of 1940 or (b) a “holding company” as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935.

          Section 3.13 Tax Returns. Each of the Borrower and its Subsidiaries has filed or caused to be filed all material Federal, state and local tax returns required to have been filed by it and has paid or caused to be paid all material taxes shown to be due and payable on such returns or on any assessments received by it, except taxes that are being contested in good faith by appropriate proceedings and for which such Borrower or Subsidiary, as the case may be, shall have set aside on its books appropriate reserves.

          Section 3.14 No Material Misstatements. Neither the Confidential Information Memorandum, nor any information, report, financial statement, exhibit or schedule furnished by or on behalf of the Borrower to the Administrative Agent or any Lender in connection with the negotiation of any Loan Document or included therein or delivered pursuant thereto, when taken together with the reports and other filings with the SEC, contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.

          Section 3.15 Compliance with ERISA. Except as would not have a Material Adverse Effect, subject to the following sentences of this Section 3.15, each Plan subject to ERISA or the Code, as applicable, is in compliance with ERISA and the Code; no Reportable Event has occurred with respect to a Plan, no Plan is insolvent or in reorganization; no Plan has an Unfunded Current Liability in excess of $40,000,000, and all Plans collectively do not have Unfunded Current Liabilities in excess of $91,000,000 in the aggregate, and no Plan subject to ERISA or the Code, as applicable, has an accumulated or waived funding deficiency, has permitted decreases in its funding standard account or has applied for an extension of any amortization period within the meaning of Section 412 of the Code; neither the Borrower nor any ERISA Affiliate has incurred any liability to or on account of a Plan pursuant to Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201 or 4204 of ERISA or Section 4975 of the Code or expects to incur any material liability under any of the foregoing Sections with respect to any such Plan; no condition exists which presents a risk to the Borrower or any ERISA Affiliate of incurring a liability to or on account of a Plan pursuant to the foregoing provisions of ERISA and the Code; no proceedings have been instituted to terminate any Plan; no lien imposed under the Code or ERISA on the assets of the Borrower or any ERISA Affiliate exists or is likely to arise on account of any Plan; the Borrower and its Subsidiaries do not maintain or contribute to any

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“welfare plan” (within the meaning of Section 3(1) of ERISA) which provides life insurance or health benefits to retirees (other than as required by Section 601 of ERISA) the obligations with respect to which could reasonably be expected to have a Material Adverse Effect.

          Section 3.16 Environmental Matters. (a) Except as disclosed in the Borrower’s Report on Form 10-K for the fiscal year ended December 30, 2001, filed with the SEC, (a) neither the Borrower nor any of its Subsidiaries (other than the Company and its subsidiaries) has failed to comply with any Federal, state, local and other statutes, ordinances, orders, judgments, rulings and regulations relating to environmental pollution or to environmental regulation or control, where any such failure to comply, alone or together with any other such noncompliance, could result in a Material Adverse Effect; (b) neither the Borrower nor any of its Subsidiaries (other than the Company and its subsidiaries) has received notice of any failure so to comply which alone or together with any other such failure could result in a Material Adverse Effect; and (c) the Borrower’s and its Subsidiaries’ plants (other than the plants of the Company and its subsidiaries) have not managed any hazardous wastes, hazardous substances, hazardous materials, toxic substances or toxic pollutants, as those terms are used in the Resource Conservation and Recovery Act, the Comprehensive Environmental Response Compensation and Liability Act, the Hazardous Materials Transportation Act, the Toxic Substance Control Act, the Clean Air Act, the Clean Water Act or any other Environmental Law, in violation of any regulations promulgated pursuant thereto or in any other applicable law where such violation could reasonably result, individually or together with other violations, in a Material Adverse Effect.

          (b) Except as disclosed in the Company’s Report on Form 10-K for the fiscal year ended December 31, 2001, filed with the Securities and Exchange Commission, (a) neither the Company nor any of its subsidiaries has failed to comply with any Federal, state, local and other statutes, ordinances, orders, judgments, rulings and regulations relating to environmental pollution or to environmental regulation or control, where any such failure to comply, alone or together with any other such noncompliance, could result in a Material Adverse Effect; (b) neither the Company nor any of its subsidiaries has received notice of any failure so to comply which alone or together with any other such failure could result in a Material Adverse Effect; and (c) the Company’s and its subsidiaries’ plants have not managed any hazardous wastes, hazardous substances, hazardous materials, toxic substances or toxic pollutants, as those terms are used in the Resource Conservation and Recovery Act, the Comprehensive Environmental Response Compensation and Liability Act, the Hazardous Materials Transportation Act, the Toxic Substance Control Act, the Clean Air Act, the Clean Water Act or any other Environmental Law, in violation of any regulations promulgated pursuant thereto or in any other applicable law where such violation could reasonably be expected to result, individually or together with other violations, in a Material Adverse Effect.

          Section 3.17 Maintenance of Insurance. The Borrower and each of its Restricted Subsidiaries maintains insurance (which may be self insurance) for all of its insurable properties: (a) by financially sound and reputable insurers to the extent of insurance obtained from third party insurers; (b) to such extent and against such risks, including fire and other risks insured against by extended coverage, as is customary with companies in the same or similar businesses, including public liability insurance against claims for personal injury or death or property damage occurring upon, in, about or in connection with the use of any properties owned,

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occupied or controlled by the Borrower or such Restricted Subsidiaries; and (c) as may be required by law.

          Section 3.18 Existing Senior Credit Facilities. Schedule 3.18 sets forth, as of the Closing Date, a complete and accurate list of the Existing Senior Credit Facilities of the Borrower, the Company and their respective subsidiaries (other than the Surviving Senior Credit Facilities), showing as of the Closing Date the obligor and the principal amount outstanding thereunder.

          Section 3.19 Surviving Senior Credit Facilities. Schedule 3.19 sets forth, as of the Closing Date, a complete and accurate list of the Surviving Senior Credit Facilities of the Borrower, the Company and their respective subsidiaries, showing as of the Closing Date the obligor and the principal amount outstanding thereunder.

          Section 3.20 Non-Material Loans. Except as disclosed on Schedule 3.19, there shall not be more than $50,000,000 of Non-Material Loans of the Borrower and its Restricted Subsidiaries in the aggregate outstanding as of the Closing Date.

ARTICLE IV

CONDITIONS OF LENDING AND ISSUANCE
OF LETTERS OF CREDIT

          The obligations of the Lenders to make Loans hereunder and the obligation of the Fronting Bank to issue Letters of Credit hereunder (or to amend, renew or extend an existing Letter of Credit) are subject to the satisfaction of the following conditions:

          Section 4.01 All Borrowings and Issuances. On the date of each Borrowing and on the date of each issuance of a Letter of Credit (and each amendment, renewal or extension thereof):

       (a) Notice. The Administrative Agent and, as applicable, the Swing Line Bank or the Fronting Bank shall have received from the Borrower a notice of such Borrowing or a notice of such issuance, amendment, renewal or extension as required by Section 2.02, 2.03, 2.04, 2.05 or 2.06, as applicable.

       (b) Representations. The representations and warranties of the Borrower set forth in Sections 3.01, 3.02, 3.03, 3.04, 3.07, 3.10(b), 3.11 and 3.12 shall be true and correct in all material respects on and as of such date with the same effect as though made on and as of such date at the time of and immediately after such Borrowing or, at the time of and immediately after the issuance, amendment, renewal or extension of a Letter of Credit hereunder.

       (c) Compliance, etc. The Borrower shall be in compliance with all the terms and provisions set forth herein and in each other Loan Document on their part to be observed or performed, and, as applicable, at the time of and immediately after such Borrowing or, at the time of and immediately after such issuance, amendment, renewal or

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       extension of a Letter of Credit hereunder, no Event of Default or Default shall have occurred and be continuing.

          Each Borrowing and each issuance of a Letter of Credit hereunder (or an amendment, renewal or extension thereof) shall be deemed to constitute a representation and warranty by the Borrower on the date of such Borrowing, issuance, amendment, renewal or extension, as the case may be, as to the matters specified in paragraphs (b) and (c) of this Section 4.01.

          Section 4.02 Closing Date. In addition to all the conditions set forth in Section 4.01, on or before the Closing Date:

       (a) Opinions. The Administrative Agent shall have received a favorable written opinion of (i) Cravath, Swaine & Moore, special counsel for the Borrower, dated the Closing Date and addressed to the Lenders, in form and substance reasonably satisfactory to the Administrative Agent and (ii) Lorrie Scott, Esq., Senior Legal Counsel to the Borrower, as counsel for the Borrower, dated the Closing Date and addressed to the Lenders, in form and substance reasonably satisfactory to the Administrative Agent.

       (b) Legal Matters. All legal matters (including any documentation) related to this Agreement and the Transactions, shall be satisfactory to the Lenders and to Shearman & Sterling, special counsel for the Administrative Agent.

       (c) Articles, etc. The Administrative Agent shall have received (i) a copy of the certificate or articles of incorporation, including all amendments thereto, of the Borrower, certified as of a recent date by the Secretary of State of its State of incorporation, and a certificate as to the good standing of the Borrower, as of a recent date, from such Secretary of State; (ii) a certificate from the Borrower of its Secretary or Assistant Secretary dated the Closing Date and certifying (A) that attached thereto is a true and complete copy of the by-laws of the Borrower as in effect on the Closing Date and at all times since a date prior to the date of the resolutions described in clause (B) below, (B) that attached thereto is a true and complete copy of resolutions duly adopted by the Board of Directors of the Borrower authorizing the execution, delivery and performance of the Borrower of any and all documents and agreements to be entered into with respect to the Loan Documents and the borrowings to be made thereunder, and that such resolutions have not been modified, rescinded or amended and are in full force and effect, (C) that the certificate or articles of incorporation of the Borrower have not been amended since the date of the last amendment thereto shown on the certificate of good standing furnished pursuant to clause (i) above, and (D) as to the incumbency and specimen signature of each officer executing any Loan Document or any other document or agreement delivered in connection with the Transactions on behalf of the Borrower; (iii) certification of another officer as to the incumbency and specimen signature of the Secretary or Assistant Secretary executing the certificate pursuant to (ii) above; and (iv) such other documents as the Lenders or Shearman & Sterling, special counsel for the Administrative Agent, may reasonably request.

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       (d) Officers’ Certificates. The Administrative Agent shall have received a certificate from the Borrower, dated the Closing Date and signed by a Financial Officer of the Borrower, confirming (i) compliance with the condition precedent set forth in paragraph (c) of Section 4.01 and (ii) that the representations and warranties of the Borrower set forth herein are true and correct in all material respects on and as of the Closing Date (except for representations and warranties expressly stated to relate to a specific earlier date, in which case such representations and warranties are true and correct in all material respects as of such earlier date), immediately prior to, and after giving effect to, the initial Borrowing and/or the initial issuance of a Letter of Credit hereunder.
 
       (e) Fees. The Administrative Agent and the Lenders shall have received all Fees and other amounts due and payable on or prior to the Closing Date.
 
       (f) Loan Documents. The Administrative Agent shall have received a fully executed counterpart of this Agreement, and an executed copy of each Loan Document (other than this Agreement).
 
       (g) Termination of Existing Senior Credit Facilities. On the Closing Date the Administrative Agent shall have received written evidence reasonably satisfactory to it that either (i) all Existing Senior Credit Facilities, other than the Surviving Senior Credit Facilities, have been prepaid, redeemed or defeased in full or otherwise satisfied and extinguished or (ii) arrangements reasonably satisfactory to the Administrative Agent and the Lenders for such prepayment, redemption, defeasance, satisfaction or extinguishment have been made; and all Surviving Senior Credit Facilities shall be on terms and conditions reasonably satisfactory to the Administrative Agent and the Lenders.
 
       (h) Rating. The Rating of the Borrower’s Senior Unsecured Long-Term Debt, shall be at least Baa3 by Moody’s and at least BBB- by S&P and, if the Borrower is rated in the above referenced lowest categories by both Moody’s and S&P, shall not have been placed on credit watch by either Moody’s or S&P with negative implications, as of the Closing Date.
 
       (i) No Material Adverse Change. Other than changes in operating results arising in the ordinary course of business and except as otherwise disclosed publicly or to the Lenders prior to the date hereof, there has been no material adverse change in the business, financial condition, operations or properties of the Company and its subsidiaries, taken as a whole, since December 31, 2001.

ARTICLE V

AFFIRMATIVE COVENANTS

          The Borrower covenants and agrees with each Lender, the Swing Line Bank, the Fronting Bank and the Administrative Agent that, so long as this Agreement shall remain in effect or the principal of or interest on any Loan, any Fees or any other expenses or amounts payable under any Loan Document shall be unpaid, or any Letters of Credit shall remain

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outstanding, or any amounts drawn thereunder shall remain unpaid, unless the Required Lenders (or, where indicated, the Lenders) shall otherwise consent in writing, the Borrower will, and will cause each of its Restricted Subsidiaries and WRECO and each of the Restricted Subsidiaries of WRECO (except in the case of Sections 5.03 (which applies to the Borrower), 5.06 (which applies to the Borrower, WRECO and their respective ERISA Affiliates) and 5.09 (which applies to the Borrower, WRECO and all of their respective Subsidiaries)) to:

          Section 5.01 Existence; Businesses and Properties. (a) Do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence, except as otherwise expressly permitted under Section 6.01(c) (with respect to the Borrower) and Section 6.02(d) (with respect to WRECO) and, with respect to Restricted Subsidiaries, where the failure to do so could not reasonably be expected to have a Material Adverse Effect, provided, however, that the Borrower may liquidate or dissolve any of its Subsidiaries to the extent the assets of such Subsidiary are transferred to the Borrower or any of its Restricted Subsidiaries.

          (b) Except in each case where the failure to do so could not reasonably be expected to result in a Material Adverse Effect, (i) do or cause to be done all things necessary to obtain, preserve, renew, extend and keep in full force and effect the rights, licenses, permits, franchises, authorizations, patents, copyrights, trademarks and trade names necessary in the conduct of its business; (ii) maintain and operate such business in substantially the manner in which it is presently conducted and operated; (iii) comply with all applicable laws, rules, regulations and orders of any Governmental Authority, whether now in effect or hereafter enacted; and (iv) at all times maintain and preserve all property necessary in the conduct of such business and keep such property in good repair, working order and condition and from time to time make, or cause to be made, all necessary and proper repairs, renewals, additions, improvements and replacements thereto necessary in order that the business carried on in connection therewith may be properly conducted at all times.

          (c) Maintain compliance with each of its loans, contracts, leases and other obligations (other than Indebtedness) except such as are being contested in good faith by appropriate proceedings and for which appropriate reserves have been established, and except for such noncompliance as could not reasonably be expected to have, in any case or in the aggregate, a Material Adverse Effect.

          Section 5.02 Insurance. (a) Keep such of its insurable properties as are insured with third-party insurers insured at all times by financially sound and reputable insurers; and (b) maintain (i) insurance (which may include self insurance), to such extent and against such risks, including fire and other risks insured against by extended coverage, as is customary with companies in the same or similar businesses, including public liability insurance against claims for personal injury or death or property damage occurring upon, in, about or in connection with the use of any properties owned, occupied or controlled by it; and (ii) such insurance as may be required by law.

          Section 5.03 Obligations and Taxes. Pay its obligations (other than Indebtedness) promptly and in accordance with their terms and pay and discharge promptly when due all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or in respect of its property, before the same shall become delinquent or in

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default, as well as all lawful claims for labor, materials and supplies or otherwise which, if unpaid, might give rise to a Lien upon such properties or any part thereof; provided, however, that such payment and discharge shall not be required (i) with respect to any such tax, assessment, charge, levy or claim so long as the validity or amount thereof shall be contested in good faith by appropriate proceedings and the Borrower, WRECO or such Subsidiary shall have set aside on its books appropriate reserves with respect thereto or (ii) if the failure to make such payments or to discharge such Liens is not, in any case or in the aggregate, reasonably likely to have a Material Adverse Effect.

               Section 5.04 Financial Statements, Reports, etc. In the case of the Borrower or WRECO, furnish to the Administrative Agent (which shall promptly furnish to each Lender):

       (a) within 95 days after the end of each fiscal year, its consolidated balance sheets and related statements of earnings and statements of cash flows, together with the notes thereto, showing the financial position of the Borrower, WRECO and their respective consolidated Subsidiaries as of the close of such fiscal year and the results of their operations and the operations of such subsidiaries during such year, all audited by Arthur Andersen LLP or other independent public accountants of recognized national standing acceptable to the Required Lenders and accompanied by an opinion of such accountants (which shall not be qualified in any material respect) to the effect that such consolidated financial statements fairly present the financial position and results of operations of the Borrower, WRECO and their respective consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, except as therein noted;
 
       (b) within 50 days after the end of each of the first three fiscal quarters of each fiscal year, its consolidated balance sheets and related statements of earnings and, with respect to the Borrower, statements of cash flows, showing the financial position of the Borrower and its consolidated Subsidiaries as of the close of such fiscal quarter and the results of its operations and the operations of such consolidated Subsidiaries during such fiscal quarter and the then elapsed portion of the fiscal year, all certified (in the form of Exhibits E-1 and E-2, with respect to the Borrower and WRECO, respectively) by one of its Financial Officers as fairly presenting the financial position and results of operations of the Borrower, WRECO and their respective consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, except as therein noted, subject to appropriate year-end audit adjustments;
 
       (c) concurrently with any delivery of financial statements under (a) or (b) above, a certificate (in the form of Exhibits E-3 and E-4, with respect to the Borrower and WRECO, respectively) of the accounting firm or Financial Officer of the Borrower or WRECO opining on or certifying such statements (which certificate, when furnished by an accounting firm, may be limited to accounting matters and disclaim responsibility for legal interpretations) (i) certifying that no Event of Default or Default has occurred or, if such an Event of Default or Default has occurred, specifying the nature and extent thereof and any corrective action taken or proposed to be taken with respect thereto, (ii) in the case of the Borrower, setting forth computations in reasonable detail satisfactory to the Administrative Agent demonstrating compliance with the covenants contained in

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  Sections 6.01(d) and 6.01(e) and (iii) including a reconciliation setting forth adjustments made to such financial statements in order to make the calculations set forth in clause (ii) above;

       (d) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by it or any of its Subsidiaries with the SEC, or with any national securities exchange, or distributed to its shareholders, as the case may be;
 
       (e) as soon as practicable, copies of such further financial statements and reports as the Borrower or WRECO shall send to banks with which it has lines of credit, and all such financial statements and reports as the Borrower or WRECO shall send to its shareholders (unless all of the outstanding shares of capital stock of the Borrower or WRECO are held by one Person);
 
       (f) promptly, from time to time, such other information regarding the operations, business affairs and financial condition of the Borrower or WRECO or any of their respective Subsidiaries, or compliance with the terms of any Loan Document, as the Administrative Agent, the Swing Line Bank, the Fronting Bank or any Lender may reasonably request (it being understood that the Borrower shall not be required to provide any information or documents which are subject to confidentiality provisions the nature of which prohibit such disclosure);
 
       (g) promptly, and in any event within 2 days, upon becoming aware thereof, notice of any proposed or actual down-grade, suspension or withdrawal of the rating provided by S&P or Moody’s to the Borrower in respect of its Senior Unsecured Long-Term Debt; and
 
       (h) information required to be delivered pursuant to paragraphs (a), (b), (d) and (e) shall be deemed to have been delivered on the date on which the Borrower provides notice to the Administrative Agent that such information has been posted on the Borrower’s website on the internet at the website address listed on the signature pages thereof, at www.sec.gov or at another website identified in such notice and accessible by the Lenders without charge; provided that the Borrower shall deliver paper copies of the reports and financial statements referred to in paragraphs (a), (b), (d) and (e) of this Section 5.04 to the Administrative Agent, the Swingline Bank, the Fronting Bank or any Lender who requests the Borrower to deliver such paper copies until written notice to cease delivering paper copies is given by such Administrative Agent, Swingline Bank, Fronting Bank or Lender to the Borrower.

          Section 5.05 Litigation and Other Notices. Furnish to the Administrative Agent (which shall promptly furnish to each Lender) prompt written notice of the following:

       (a) any Event of Default or Default, specifying the nature and extent thereof and the corrective action (if any) proposed to be taken with respect thereto;
 
       (b) the filing or commencement of, or any threat or notice of intention of any person to file or commence, any action, suit or proceeding, whether at law or in equity or

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  by or before any Governmental Authority, against the Borrower, WRECO or any of their respective Affiliates which, if adversely determined, could reasonably be expected to result in a Material Adverse Effect;
 
       (c) any development that has resulted in a Material Adverse Effect; and
 
       (d) the issuance by any Governmental Authority of any injunction, order, decision or other restraint prohibiting, or having the effect of prohibiting, the making of the Loans or the initiation of any litigation or similar proceeding seeking any such injunction, order or other restraint;

provided, that in each case (other than Subsection 5.05(a)) the Borrower shall not be required to provide separate notice of any event disclosed in any report promptly filed with the SEC.

          Section 5.06 ERISA. As soon as possible and, in any event, within 10 Business Days after the Borrower knows of the occurrence of any of the following events which individually or in the aggregate could reasonably be expected to have a Material Adverse Effect, the Borrower will deliver to the Administrative Agent a certificate of the Financial Officer of the Borrower setting forth details as to such occurrence and such action, if any, which the Borrower or an ERISA Affiliate is required or proposes to take, together with any notices required or proposed to be given to or filed with or by the Borrower or such ERISA Affiliate, the PBGC, a Plan participant or the Plan administrator with respect thereto: (a) that a Reportable Event has occurred, (b) that an accumulated funding deficiency has been incurred or an application has been made to the Secretary of the Treasury for a waiver or modification of the minimum funding standard (including any required installment payments) or an extension of any amortization period under Section 412 of the Code with respect to a Plan, (c) that a Plan has been or is in the process of being terminated, reorganized, partitioned or declared insolvent under Title IV of ERISA, (d) that a Plan has an Unfunded Current Liability, (e) that proceedings have been instituted to terminate a Plan, (f) that a proceeding has been instituted pursuant to Section 515 of ERISA to collect a delinquent contribution to a Plan, or (g) that the Borrower or any ERISA Affiliate will or is reasonably likely to incur any liability (including any contingent or secondary liability) to or on account of the termination of or withdrawal from a Plan under Section 4062, 4063, 4064, 4069, 4201 or 4204 of ERISA or with respect to a Plan under Section 4975 of the Code or Section 409, 502(i) or 502(l) of ERISA. The Borrower will, upon written request, deliver to the Administrative Agent a complete copy of the annual report (Form 5500) of each Plan required to be filed with the Internal Revenue Service. In addition to any certificates or notices delivered to the Administrative Agent pursuant to the first sentence hereof, copies of annual reports and any other notices received by the Borrower or any ERISA Affiliate required to be delivered to the Administrative Agent hereunder shall be delivered to the Administrative Agent no later than 10 Business Days after the later of the date such report or notice has been filed with the Internal Revenue Service or the PBGC, given to Plan participants, received by the Borrower or such ERISA Affiliate or requested in writing by the Administrative Agent.

          Section 5.07 Maintaining Records; Access to Properties and Inspections. Maintain appropriate, accurate and complete financial records and permit any representatives designated by the Administrative Agent or any Lender to visit and inspect the financial records and the properties of the Borrower, WRECO or any of their Restricted Subsidiaries at reasonable

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times, with reasonable prior notice given to the Borrower, as often as requested and until a Default has occurred at the expense of the Administrative Agent or such Lender, and to make extracts from and copies of such financial records, and permit any representatives designated by any Lender, the Administrative Agent, the Swing Line Bank or the Fronting Bank to discuss the affairs, finances and condition of the Borrower, WRECO or any such Restricted Subsidiary with the officers thereof and independent accountants (so long as a representative of the Borrower is present, or the Borrower has consented to the absence of such a representative) therefor (in each case subject to the Borrower’s obligations under applicable confidentiality provisions).

          Section 5.08 Use of Proceeds. Use the credit extended pursuant to this Agreement only for the purposes set forth in the recitals to this Agreement.

          Section 5.09 Environmental Matters. (a) (i) Comply in all material respects with all Environmental Laws applicable to the ownership or use of any real property owned or leased by the Borrower, WRECO or any of their respective Subsidiaries, except where such noncompliance is not, in any case or in the aggregate, reasonably likely to have a Material Adverse Effect, (ii) include in all material contracts with tenants and other persons occupying such real property provisions to ensure such tenants’ compliance in all material respects with all such Environmental Laws, and diligently enforce and prosecute its rights with respect to such provisions, (iii) pay or cause to be paid in the case of sole liability, or, in the case of joint liability, to seek contribution or compensation in respect of, all costs and expenses incurred in connection with such compliance, except in respect to costs and expenses that are being contested in good faith and for which the Borrower, WRECO or such Subsidiary, as the case may be, shall have set aside on its books appropriate reserves, and except where failures to make such payments are not, in any case or in the aggregate, reasonably likely to have a Material Adverse Effect, and (iv) use its best efforts to keep or cause to be kept all such real property free and clear of any liens imposed pursuant to any Environmental Laws, except in respect to liens that are being contested in good faith, and except in respect to liens the existence of which is not, in any case or in the aggregate, reasonably likely to have a Material Adverse Effect.

          (b) None of the Borrower, WRECO or any of their respective Subsidiaries will generate, use, treat, store, Release, or permit the generation, use, treatment, storage or Release of Hazardous Materials on any real property owned or leased by the Borrower, WRECO or any of their respective Subsidiaries, or transport or permit the transportation of Hazardous Materials to or from any such real property, except for quantities generated, used, treated, stored, or Released on, or transported to or from, such real property in the ordinary course of business in material compliance with all applicable Environmental Laws and, except for such generation, use, treatment or storage on, or transportation to or from, any such real property of Hazardous Materials as is not, in any case or in the aggregate, reasonably likely to have a Material Adverse Effect.

          (c) If the Administrative Agent receives any notice from the Borrower or WRECO pursuant to subsection (d) of this Section 5.09 or if the Administrative Agent otherwise acquires knowledge of any Environmental Claim which in the sole determination of the Required Lenders would have a Material Adverse Effect with respect to the Borrower or WRECO, then upon the written request of the Required Lenders, the Borrower or WRECO, as applicable, will provide, at its sole cost and expense, an environmental site assessment report concerning any real

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property owned or leased by the Borrower, WRECO or an affected Subsidiary prepared by an environmental consulting firm approved by the Required Lenders, indicating the presence or absence of Hazardous Materials and the potential costs of any removal or remedial action in connection with any Hazardous Materials on any real property owned or leased by the Borrower, WRECO or any of their respective Subsidiaries.

          (d) The Borrower or WRECO, as applicable, will immediately advise the Administrative Agent in writing of any of the following:

       (i) Any pending or threatened Environmental Claim against the Borrower, WRECO or any of their respective Subsidiaries or any real property owned or leased by the Borrower, WRECO or any of their respective Subsidiaries which if determined adversely to the Borrower, WRECO or any of their respective Subsidiaries would be reasonably likely to have a Material Adverse Effect;
 
       (ii) Any condition or occurrence on any real property owned or leased by the Borrower, WRECO or any of their respective Subsidiaries that (A) results in noncompliance by the Borrower, WRECO or any of their respective Subsidiaries with any applicable Environmental Law which noncompliance is reasonably likely to have a Material Adverse Effect, or (B) could reasonably be anticipated to form the basis of an Environmental Claim against the Borrower, WRECO or any of their respective Subsidiaries or any real property owned or leased by the Borrower, WRECO or any of their respective Subsidiaries and which if determined adversely to the Borrower, WRECO or any of their respective Subsidiaries would be reasonably likely to have a Material Adverse Effect;
 
       (iii) Any condition or occurrence on any real property owned or leased by the Borrower, WRECO or any of their respective Subsidiaries or, to the actual knowledge of the Borrower, WRECO or any of their respective Subsidiaries, any property adjoining or in the vicinity thereof that could reasonably be anticipated to cause such real property to be subject to any restrictions on the ownership, occupancy, use, or transferability thereof under any Environmental Law which restrictions, in any case or in the aggregate, are reasonably likely to have a Material Adverse Effect; and
 
       (iv) The taking of any removal or remedial action in response to the actual or alleged presence of any Hazardous Materials on any real property owned or leased by the Borrower, WRECO or any of their respective Subsidiaries the taking of which, in any case or in the aggregate, is reasonably likely to have a Material Adverse Effect.

All such notices shall describe in reasonable detail the nature of the claim, investigation, condition, occurrence, or removal or remedial action and the action which the Borrower, WRECO or any of their respective Subsidiaries proposes to take in response thereto.

          Section 5.10 Performance of Transaction Agreements. Perform and observe all of the material terms and provisions of the agreements to be performed or observed by it with respect to the Transactions.

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          Section 5.11 OCBM Agreement. With respect to the Borrower, perform, observe and comply with each of its covenants and agreements in the OCBM Agreement, and do or cause to be done all things necessary to keep the OCBM Agreement in full force and effect.

          Section 5.12 Further Assurances. Promptly cause to be taken, executed, acknowledged or delivered, at the sole expense of the Borrower or WRECO, as applicable, all such further acts, documents and assurances as the Required Lenders may from time to time reasonably request in order for the Borrower or WRECO to carry out its obligations hereunder and under the other Loan Documents.

          Section 5.13 Guarantee. On or prior to March 31, 2003, cause the Company either (i) to merge with and into the Borrower (with the Borrower being the surviving corporation) or (ii) to execute for the benefit of the Administrative Agent, the Swing Line Bank, the Fronting Bank and the Lenders a Guarantee, in form and substance reasonably satisfactory to the Administrative Agent, pursuant to which the Company shall guarantee the obligations of the Borrower arising under this Agreement and the other Loan Documents; provided that the obligations of the Company under such Guarantee shall rank in right of payment at least pari passu with all other unsecured senior Indebtedness of the Company; and provided further that such Guarantee shall be limited to an amount that would not render the Company insolvent. In addition, to the extent the Company guarantees any obligations of the Borrower with respect to an issuance by the Borrower of Indebtedness pursuant to a public offering registered with the SEC, a Rule 144A or Regulation S private placement or any other similar offering on an underwritten or placement-agent basis, the Borrower shall cause the Company to execute, promptly but in any case no later than forty-five days after the date of such issuance, for the benefit of the Administrative Agent, the Swing Line Bank, the Fronting Bank and the Lenders, a Guarantee, in form and substance reasonably satisfactory to the Administrative Agent, pursuant to which the Company shall equally and ratably guarantee the obligations of the Borrower arising under this Agreement and the other Loan Documents; provided that such Guarantee shall not render the Company insolvent.

ARTICLE VI

NEGATIVE COVENANTS

          Section 6.01 Covenants of the Borrower. The Borrower covenants and agrees with each Lender, the Swing Line Bank, the Fronting Bank and the Administrative Agent that, so long as this Agreement shall remain in effect or the principal of or interest on any Loan, any Fees or any other expenses or amounts payable under any Loan Document shall be unpaid, or any Letter of Credit shall remain outstanding or any amounts drawn thereunder shall remain unpaid, unless the Required Lenders shall otherwise consent in writing, it will not, either directly or indirectly:

       (a) Secured Indebtedness. (i) Issue, assume or guarantee, or permit any of its Restricted Subsidiaries to issue, assume or guarantee, any indebtedness for money borrowed (hereinafter in this Section 6.01(a) referred to as “debt”), if such debt is secured by a deed of trust, mortgage, pledge, security interest or other lien or encumbrance (any

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  deed of trust, mortgage, pledge, security interest or other lien or encumbrance being hereinafter in this Section 6.01(a) referred to as a “mortgage” or collectively “mortgages”) upon or with respect to any timber or timberlands of the Borrower or such Restricted Subsidiary located in the States of Washington, Oregon, Arkansas, Oklahoma, Mississippi or North Carolina, or upon or with respect to any principal manufacturing plant of the Borrower or such Restricted Subsidiary located anywhere in the United States of America, in either case now owned or hereafter acquired, without in any such case effectively providing, concurrently with the issuance, assumption or guarantee of any such debt, that the Loans and Letters of Credit (together with, if the Borrower shall so determine, any other indebtedness of or guarantee by the Borrower or such Restricted Subsidiary ranking equally with the Loans or Letters of Credit and then existing or thereafter created) shall be secured equally and ratably with (or prior to) such debt; provided, however, that the foregoing restrictions shall not be applicable to:

       (1) mortgages upon or with respect to any property of any of its Restricted Subsidiaries securing debt of such Restricted Subsidiary to the Borrower or another Restricted Subsidiary of the Borrower;
 
       (2) mortgages upon or with respect to any property acquired, constructed or improved by the Borrower or any of its Restricted Subsidiaries after the date of this Agreement which are created, incurred or assumed contemporaneously with, or within 90 days after, such acquisition, construction or improvement, to secure or provide for the payment of any part of the purchase price of such property or the cost of such construction or improvement, or mortgages upon or with respect to any property existing at the time of acquisition thereof; provided, however, that in the case of any such construction or improvement the mortgage shall not apply to any property theretofore owned by the Borrower or any of its Restricted Subsidiaries other than any theretofore unimproved real property on which the property so constructed, or the improvement, is located;
 
       (3) any extension, renewal or replacement of any mortgage referred to in clause (2) above or clause (4) below; provided, however, that the principal amount of indebtedness secured thereby shall not exceed the principal amount of indebtedness so secured at the time of such extension, renewal or replacement, and that such extension, renewal or replacement shall be limited to all or part of the same property which secured the mortgage so extended, renewed or replaced; and
 
       (4) any mortgage existing on any timber or timberlands of any Person or upon or with respect to any principal manufacturing plant of any Person at the time of acquisition by the Borrower or any of its Restricted Subsidiaries of such Person.

       (ii) Notwithstanding the provisions of paragraph (a)(i) of this Section 6.01, the Borrower or any of its Restricted Subsidiaries may issue, assume or guarantee secured debt which would otherwise be subject to the foregoing restrictions in an aggregate

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  amount which, together with all other such debt of the Borrower and its Restricted Subsidiaries and the Attributable Debt in respect of Sale and Lease-Back Transactions (as defined in Section 6.01(b)) existing at such time (other than Sale and Lease-Back Transactions permitted because the Borrower would be entitled to incur debt secured by a mortgage on the property to be leased without equally and ratably securing the Loans pursuant to paragraph (a)(i) of this Section 6.01, and other than Sale and Lease-Back Transactions the proceeds of which have been applied in accordance with clause (ii) of Section 6.01(b)), does not at the time exceed five percent (5%) of Shareholders’ Interest in the Borrower and its Restricted Subsidiaries (as hereinafter defined). The term “Attributable Debt” as used in this paragraph shall mean, as of any particular time, the present value of the obligation of the lessee for rental payments during the remaining term of any lease (including any period for which such lease has been extended or may, at the option of the lessor, be extended).
 
       (iii) For purposes of this Section 6.01(a), (A) the term “principal manufacturing plant” shall not include any manufacturing plant which, in the reasonable opinion of the Board of Directors of the Borrower, is not a principal manufacturing plant of the Borrower and its Restricted Subsidiaries; (B) the following types of transactions shall not be deemed to create debt secured by a mortgage: (1) the sale, mortgage or other transfer of timber in connection with an arrangement under which the Borrower or any of its Restricted Subsidiaries is obligated to cut such timber or a portion thereof in order to provide the transferee with a specified amount of money however determined; (2) the mortgage of any property of the Borrower or any of its Restricted Subsidiaries in favor of the United States, or any State, or any department, agency or instrumentality of either, to secure partial, progress, advance or other payments to the Borrower or any of its Restricted Subsidiaries pursuant to the provisions of any contract or statute and (3) liens existing on property at the time of acquisition of such property; and (C) the term “Shareholders’ Interest in the Borrower and its Restricted Subsidiaries” shall mean the aggregate of capital and surplus, including surplus resulting from the March 1, 1913 revaluation of timber and timberlands, of the Borrower and its Restricted Subsidiaries, after deducting the cost of shares of the Borrower held in treasury.

       (b) Sale and Lease-Back. Enter into any arrangement, or permit any Restricted Subsidiary to enter into any arrangement, with any Person providing for the leasing by the Borrower or any of its Restricted Subsidiaries of any real property in the United States (except for temporary leases for a term of not more than three years), which property has been or is to be sold or transferred by the Borrower or such Restricted Subsidiary to such Person (herein referred to as a “Sale and Lease-Back Transaction”), unless (i) the Borrower or such Restricted Subsidiary would be entitled to incur debt secured by a mortgage on the property to be leased without equally or ratably securing the Loans pursuant to Section 6.01(a), or (ii) the Borrower applies an amount equal to the fair value (as determined by the Board of Directors of the Borrower) of the property so leased to the retirement (other than any mandatory retirement), within 90 days of the effective date of any such Sale and Lease-Back Transaction, of indebtedness for borrowed money incurred or assumed by the Borrower which by its terms matures at, or is extendible or renewable at the option of the obligor to, a date more than 12 months after the date of the creation of such debt.

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       (c) Merger, Consolidation, etc. Be a party to a merger or consolidation or sell, transfer or otherwise dispose of all or substantially all of its properties or assets in a single transaction or in a series of related transactions unless (i) such merger, consolidation, sale, transfer or disposition is made with respect to another corporation incorporated and doing business primarily within the United States of America which shall expressly assume, in form and substance reasonably satisfactory to the Required Lenders, the obligations of the Borrower under the Loan Documents and the Borrower’s Loans and Letters of Credit, and (ii) immediately after giving effect to such merger, consolidation, sale, transfer or disposition, no Default or Event of Default hereunder shall have occurred and be continuing.
 
       (d) Debt Ratio. Permit Total Funded Indebtedness to exceed (i) on or after the Closing Date, 72% of the sum of the Borrower’s Total Adjusted Shareholders’ Interest and Total Funded Indebtedness, (ii) on or after December 31, 2003, 69% of such sum and (iii) on or after June 30, 2005, 65% of such sum.

       (e) Net Worth. At any time permit the Borrower’s Total Adjusted Shareholders’ Interest to be less than $4,955,000,000.

       (f) Change in Business. Engage in, or permit any Restricted Subsidiary to engage in, any material business activities or operations substantially different from, or unrelated to, the business activities and operations conducted by it as of the date hereof, except for reasonable extensions, developments and modifications thereof.

          Section 6.02 Covenants with respect to WRECO. The Borrower covenants and agrees with each Lender, the Swing Line Bank, the Fronting Bank and the Administrative Agent that, so long as this Agreement shall remain in effect or the principal of or interest on any Loan, any Fees or any other expenses or amounts payable under any Loan Document shall be unpaid, or any Letter of Credit shall remain outstanding or any amounts drawn thereunder shall remain unpaid, unless the Required Lenders shall otherwise consent in writing, the Borrower will not, either directly or indirectly, permit WRECO to:

          (a) Capital Base. Have a Capital Base less than $100,000,000.

          (b) Limitation on Indebtedness. Create, issue, guarantee, assume or otherwise become liable, directly or indirectly, or permit any Restricted Subsidiary of WRECO to create, issue, guarantee, assume or otherwise become liable, directly or indirectly, in respect of any (i) Senior Debt of WRECO or Indebtedness of any Restricted Subsidiary of WRECO if, immediately after giving effect to the incurrence thereof and to the application of the proceeds thereof, the aggregate principal amount of all consolidated Senior Debt of WRECO and its Restricted Subsidiaries then outstanding would exceed 80% of the sum of (x) the Capital Base plus (y) the aggregate principal amount of Senior Debt of WRECO and its Restricted Subsidiaries then outstanding; or (ii) Subordinated Debt of WRECO if, immediately after giving effect to the incurrence thereof and to the application of the proceeds thereof, the aggregate principal amount of Subordinated Debt of WRECO then outstanding would exceed 100% of Adjusted Net Worth. For purposes

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of this Section and Section 6.02(c), Indebtedness of a Person which becomes a Restricted Subsidiary on any date shall be deemed to have been issued or incurred as of such date.

       (c) Limitation on Mortgages and Liens. Create, incur or permit to exist any mortgage, pledge, encumbrance, lien, security interest or charge of any kind (including liens or charges upon properties acquired or to be acquired under conditional sales agreements or other title retention devices) on its property or assets, whether now owned or hereafter acquired, or upon any income or profits thereof, or permit any of its Restricted Subsidiaries to do any of the foregoing, except:

       (i) liens, charges, encumbrances and priority claims incidental to the conduct of the business or the ownership of properties and assets (including warehousemen’s, attorneys’ and statutory landlords’ liens) and liens, pledges or deposits in connection with workmen’s compensation, unemployment insurance, old age benefit or social security obligations, taxes, assessments, statutory obligations or other similar charges, liens of contractors, mechanics and materialmen, good faith deposits in connection with tenders, contracts or leases to which WRECO or any of its Restricted Subsidiaries is a party or other deposits required to be made in the ordinary course of business and not in connection with the borrowing of money, easements, rights of way, restrictions and other similar encumbrances that, in the aggregate, are not substantial in amount and that do not in any case materially detract from the value of the property subject thereto or substantially interfere with the ordinary conduct of WRECO’s business; provided in each case the obligation secured is not overdue or, if overdue, is being contested in good faith by appropriate proceedings;
 
       (ii) provided that no Default or Event of Default has occurred and is continuing, the pledge of assets for the purpose of securing any appeal or stay or discharge in the course of any legal proceeding and liens on or resulting from judgments or awards in respect of which WRECO or any of its Restricted Subsidiaries shall in good faith be prosecuting an appeal or proceeding for review;
 
       (iii) mortgages, liens or security interests existing as of the date of this Agreement securing obligations of WRECO or any of its Restricted Subsidiaries outstanding on such date and all renewals, extensions or refundings thereof (without increase in the principal amount remaining unpaid at the time of any such renewal, extension or refunding);
 
       (iv) mortgages, liens or security interests securing Indebtedness of a Restricted Subsidiary of WRECO to another Restricted Subsidiary of WRECO or to WRECO;
 
       (v) mortgages, conditional sale contracts, security interests or other arrangements for the retention of title (including financing leases), in addition to those permitted under subparagraphs (iii), (iv), (vi) and (vii) hereof, given to secure the payment of the purchase price incurred in connection with the acquisition of property useful and intended to be used in carrying on the business

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  of WRECO or a Restricted Subsidiary of WRECO, and liens existing on such property at the time of acquisition thereof or at the time of acquisition by WRECO or a Restricted Subsidiary of any Person then owning such property whether or not such existing liens were given to secure the payment of the purchase price of the property to which they attach; provided that the lien or charge shall attach solely to the property acquired or purchased and any improvements then or thereafter placed thereon;
 
       (vi) mortgages, security interests and other encumbrances or liens on Real Estate Assets, incurred or created in the ordinary course of the business of WRECO and its Restricted Subsidiaries; provided that the aggregate principal amount of all Indebtedness so secured and at any one time outstanding shall not exceed 10% of the Capital Base at such time; and
 
       (vii) mortgages, conditional sale contracts, security interests or other arrangements for the retention of title (including financing leases), in addition to those specifically permitted by foregoing subparagraphs (i) through (vi) hereof, given to secure the payment of Senior Debt of WRECO or any of its Restricted Subsidiaries, and any renewal, extension or refunding of any such Senior Debt; provided that the aggregate principal amount of all Senior Debt of WRECO and its Restricted Subsidiaries so secured and at any one time outstanding shall not exceed 10% of the Capital Base at such time.

       In the event that any property is subjected to a lien or other encumbrance in violation of this Section 6.02(c), WRECO will make or cause to be made effective provision whereby the Loans shall be secured equally and ratably with all other obligations secured thereby (provided, however, that such violation shall constitute a default under this Agreement whether or not such provision is made) and, if such provision is not made, an equitable lien, so equally and ratably securing the Loans, shall (to the extent permitted by law) exist on such property.
 
       (d) Limitation on Mergers and Consolidations. Be a party to any merger or consolidation unless (i) WRECO or a Weyerhaeuser Subsidiary (as defined below) having substantially all of its assets and doing business primarily in the United States of America shall be the surviving or resulting corporation of any such merger or consolidation and immediately after giving effect to any such merger or consolidation such successor corporation, whether or not WRECO, shall be entitled to incur at least $1 of additional Senior Debt under Section 6.02(b); (ii) if the surviving or resulting corporation is not WRECO, the surviving or resulting corporation shall be a Weyerhaeuser Subsidiary incorporated within the United States of America and shall expressly assume the obligations of WRECO under this Agreement and the other Loan Documents to which it is a party by supplemental agreement reasonably satisfactory to the Administrative Agent; (iii) immediately after giving effect to any such merger or consolidation, no Default or Event of Default shall have occurred and be continuing; and (iv) WRECO shall have delivered to the Administrative Agent a certificate signed by two of WRECO’s officers stating that such merger or consolidation and, if a supplemental agreement is required in connection therewith as aforesaid, such supplemental agreement

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  comply with the provisions described in this paragraph. Upon the consummation of any merger or consolidation in which the surviving or resulting corporation is not WRECO in accordance with the foregoing provisions, the surviving or resulting corporation shall succeed to and be substituted for, and may exercise every right and power of and shall be subject to all of the obligations of, WRECO under this Agreement and the other Loan Documents to which it is a party, with the same effect as if it had been named as WRECO therein. As used in this paragraph, the term “Weyerhaeuser Subsidiary” means a corporation at least 79% of whose issued and outstanding shares of capital stock at the time outstanding and having ordinary voting power for the election of a majority of the directors of such corporation shall be owned and controlled by the Borrower or a wholly owned Subsidiary of the Borrower.
 
       (e) Limitation on Sale of Assets. Sell, transfer or otherwise dispose of all or substantially all of its properties and assets in a single transaction or in a series of related transactions unless (i) the consideration received therefor shall consist of cash, securities or other properties having an aggregate fair value (as determined in good faith by the Board of Directors of WRECO) equal to not less than the aggregate fair value (as determined in good faith by the Board of Directors of WRECO) of the properties and assets so sold, transferred or otherwise disposed of; (ii) immediately after giving effect thereto, WRECO shall be entitled to incur at least $1 of additional Senior Debt under Section 6.02(b); (iii) immediately after giving effect thereto, no Default or Event of Default shall have occurred and be continuing; and (iv) WRECO shall have delivered to the Administrative Agent a certificate signed by two of WRECO’s officers stating that such transaction complies with the provisions described in this paragraph.

ARTICLE VII

EVENTS OF DEFAULT

          Section 7.01 Events of Default. In case of the happening of any of the events under Sections 7.01(a) through 7.01(l) below (an “Event of Default”):

       (a) default shall be made in the payment by the Borrower of any principal of any Loan or any reimbursement of any L/C Disbursement, when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or by acceleration thereof or otherwise;
 
       (b) default shall be made in the payment by the Borrower of any interest on any Loan or any Fee or any other amount (other than an amount referred to in Section 7.01(a) above) due under any Loan Document, when and as the same shall become due and payable, and such default shall continue unremedied for a period of five days;
 
       (c) any representation or warranty made or deemed made by the Borrower in or in connection with any Loan Document or the borrowings or Letters of Credit hereunder, or any representation, warranty, statement or information contained in any report, certificate, financial statement or other instrument furnished in connection with or

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  pursuant to any Loan Document, shall prove to have been false or misleading in any material respect when so made, deemed made or furnished;
 
       (d) default shall be made in the due observance or performance by the Borrower, WRECO or any of their respective Subsidiaries (or their respective Restricted Subsidiaries, if such covenant, condition or agreement applies only to Restricted Subsidiaries) of any covenant, condition or agreement contained in Section 5.01(a), 5.05(a), 5.08 or 5.13 or in Article VI;
 
       (e) default shall be made in the due observance or performance by the Borrower, WRECO or any of their respective Subsidiaries (or their respective Restricted Subsidiaries, if such covenant, condition or agreement applies only to Restricted Subsidiaries) of any covenant, condition or agreement contained in any Loan Document (other than those specified in Section 7.01(a), 7.01(b), 7.01(c) or 7.01(d)) and such default shall continue unremedied for a period of thirty days after notice thereof from the Administrative Agent, the Swing Line Bank, the Fronting Bank or any Lender to the Borrower or WRECO;
 
       (f) the Borrower, WRECO or any of their respective Restricted Subsidiaries shall (i) fail to pay, when and as the same shall become due and payable (and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument related to such Indebtedness) any principal or interest, regardless of amount, due in respect of Indebtedness in an aggregate principal amount in excess of $100,000,000, or (ii) fail to observe or perform any other terms, covenants, conditions or agreements contained in any agreements or instruments evidencing or governing Indebtedness in an aggregate principal amount in excess of $100,000,000 (and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument related to such Indebtedness), if the effect of any failure or failures referred to in this Section 7.01(f)(ii) is to cause or permit the holder or holders of such Indebtedness or a trustee on its or their behalf (with or without the giving of notice) to cause such Indebtedness to become due prior to its stated maturity; provided that any Transaction-Related Event of Default that, but for this proviso, would be a Default or an Event of Default pursuant to this Section 7.01(f) prior to November 11, 2002, shall be deemed to be neither a Default nor an Event of Default;
 
       (g) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of the Borrower, WRECO or any of their respective Restricted Subsidiaries, or of a substantial part of the property or assets of the Borrower, WRECO or any of their respective Restricted Subsidiaries, under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal or state bankruptcy, insolvency, receivership or similar law, (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower, WRECO or any of their respective Restricted Subsidiaries or for a substantial part of the property or assets of the Borrower, WRECO or any of their respective Restricted Subsidiaries or (iii) the winding-up or liquidation of the Borrower, WRECO or any of their respective Restricted Subsidiaries;

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  and such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered;
 
       (h) the Borrower, WRECO or any of their respective Restricted Subsidiaries shall (i) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal or state bankruptcy, insolvency, receivership or similar law, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or the filing of any petition described in Section 7.01(g) above, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower, WRECO or any of their respective Restricted Subsidiaries or for a substantial part of the property or assets of the Borrower, WRECO or any of their respective Restricted Subsidiaries, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, (vi) become unable, admit in writing its inability or fail generally to pay its debts as they become due or (vii) take any action for the purpose of effecting any of the foregoing;
 
       (i) one or more judgments for the payment of money in an aggregate amount in excess of $100,000,000 shall be rendered against the Borrower, WRECO, any of their respective Restricted Subsidiaries or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to levy upon assets or properties of the Borrower, WRECO or any of their respective Restricted Subsidiaries to enforce any such judgment;
 
       (j) any Plan shall fail to satisfy the minimum funding standard required for any plan year or a waiver of such standard or extension of any amortization period is sought or granted under Section 412 of the Code, any Plan is, shall have been or is likely to be terminated or the subject of termination proceedings under ERISA, any Plan shall have an Unfunded Current Liability, or the Borrower has incurred or is likely to incur a liability to or on account of a Plan under Sections 409, 502(i), 502(l), or 515 of ERISA or Section 4975 of the Code, or the Borrower or any ERISA Affiliate has incurred or is likely to incur a liability to or on account of a Plan under Sections 4062, 4063, 4064, 4069, 4201 or 4204 of ERISA; and there shall result from any such event or events referred to in this Section 7.01(j) the imposition of a lien upon the assets of the Borrower or any ERISA Affiliate, the granting of a security interest, a liability or a material risk of incurring a liability to the PBGC or the Internal Revenue Service or a Plan or a trustee appointed under ERISA or a liability or a material risk of incurring a liability under Sections 409, 502(i) or 502(l) of ERISA or under Sections 4971 or 4975 of the Code; which, in the good faith determination of the Required Lenders, will have a Material Adverse Effect;
 
       (k) there shall have occurred a Change in Control of the Borrower or WRECO; or

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       (l) the OCBM Agreement shall cease, for any reason, to be in full force and effect, or the Borrower shall contest the validity or enforceability thereof or otherwise fail to comply with its obligations thereunder;

then, and in every such event (other than an event with respect to the Borrower or WRECO described in Section 7.01(g) or 7.01(h) above), and at any time thereafter during the continuance of such event, the Administrative Agent, at the request of the Required Lenders, shall, by notice to the Borrower, take any or all of the following actions: (i) terminate forthwith the Commitments of the Lenders and (ii) terminate forthwith the obligation of the Fronting Bank to issue Letters of Credit, and/or (iii) declare the Loans then outstanding to the Borrower to be forthwith due and payable in whole or in part, whereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and any unpaid accrued Fees and all other liabilities of the Borrower accrued hereunder and under any other Loan Document, shall become forthwith due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Borrower, anything contained herein or in any other Loan Document to the contrary notwithstanding; and in any event with respect to the Borrower described in Sections 7.01(g) or 7.01(h) above, the Commitments of the Lenders and the obligation of the Fronting Bank to issue Letters of Credit shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and any unpaid accrued Fees and all other liabilities of the Borrower accrued hereunder and under any other Loan Document, shall automatically become due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Borrower, anything contained herein or in any other Loan Document to the contrary notwithstanding.

ARTICLE VIII

THE ADMINISTRATIVE AGENT

          Section 8.01 The Administrative Agent. In order to expedite the transactions contemplated by this Agreement, JPMorgan Chase Bank is hereby appointed to act as Administrative Agent on behalf of the Lenders, the Swing Line Bank and the Fronting Bank. Each of the Lenders, the Swing Line Bank and the Fronting Bank, and each assignee thereof, hereby irrevocably authorizes the Administrative Agent to take such actions on behalf of such Lender, the Swing Line Bank and the Fronting Bank and to exercise such powers as are specifically delegated to the Administrative Agent by the terms and provisions hereof, together with such actions and powers as are reasonably incidental thereto.

          The Administrative Agent is hereby expressly authorized by the Lenders, the Swing Line Bank and the Fronting Bank, without hereby limiting any implied authority, (a) to receive on behalf of the Lenders, the Swing Line Bank and the Fronting Bank, all payments of principal of and interest on the Loans, all reimbursements made with respect to L/C Disbursements and all other amounts due to the Lenders, the Swing Line Bank and the Fronting Bank hereunder, and promptly to distribute to each Lender, the Swing Line Bank and the Fronting Bank its proper share of each payment so received; (b) to give prompt notice on behalf of the Lenders, the Swing Line Bank and the Fronting Bank to the Borrower of any Event of

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Default specified in this Agreement of which the Administrative Agent has actual knowledge acquired in connection with its agency hereunder; and (c) to distribute promptly to each Lender, the Swing Line Bank and the Fronting Bank copies of all notices, financial statements and other materials delivered by the Borrower and WRECO pursuant to this Agreement as received by the Administrative Agent.

          Neither the Administrative Agent nor any of its directors, officers, employees or agents shall be liable as such to any Lender, the Swing Line Bank or the Fronting Bank for any action taken or omitted by any of them except for its or his own gross negligence or willful misconduct, or be responsible for any statement, warranty or representation herein or the contents of any document delivered in connection herewith, or be required to ascertain or to make any inquiry concerning the performance or observance by the Borrower or WRECO of any of the terms, conditions, covenants or agreements contained in any Loan Document. The Administrative Agent shall not be responsible to the Lenders, the Swing Line Bank and the Fronting Bank for (i) the due execution, genuineness, validity, enforceability or effectiveness of this Agreement or any other Loan Documents or other instruments or agreements or (ii) the satisfaction of any condition set forth in any Loan Document, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent. The duties of the Administrative Agent shall be mechanical and administrative in nature; the Administrative Agent shall not have by reason of this Agreement or any other Loan Document a fiduciary relationship in respect of any Lender, the Swing Line Bank or the Fronting Bank. The Administrative Agent shall in all cases be fully protected in acting, or refraining from acting, in accordance with written instructions signed by the Required Lenders, the Lenders, the Swing Line Bank or the Fronting Bank, as the case may be, and, except as otherwise specifically provided herein, such instructions and any action or inaction pursuant thereto shall be binding on all of the Lenders, the Swing Line Bank and the Fronting Bank. The Administrative Agent shall, in the absence of knowledge to the contrary, be entitled to rely on any instrument or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons. The Administrative Agent may also rely upon any statement made to it orally or by telephone and believed to be made by the proper Person, and shall not incur any liability for relying thereon.

          Neither the Administrative Agent nor any of its directors, officers, employees or agents shall have any responsibility to the Borrower or WRECO on account of the failure of or delay in performance or breach by any Lender, the Swing Line Bank or the Fronting Bank of any of its obligations hereunder or to any Lender, the Swing Line Bank or the Fronting Bank on account of the failure of or delay in performance or breach by any other Lender, the Swing Line Bank or the Fronting Bank or the Borrower or WRECO of any of their respective obligations hereunder or under any other Loan Document or in connection herewith or therewith. The foregoing shall not limit the obligations of JPMorgan Chase Bank (or its successors and assigns) in its capacity as Lender hereunder. The Administrative Agent may execute any and all duties hereunder by or through agents or employees and shall be entitled to rely upon the advice of legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it with respect to all matters arising hereunder and shall not be liable for any action taken or suffered in good faith by it in accordance with the advice of such counsel. The exculpatory provisions of this Article VIII shall apply to any such agent or employee, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent.

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          The Administrative Agent shall not have any duties or obligations except those expressly set forth herein. Without limiting the generality of the foregoing, the Lenders, the Swing Line Bank and the Fronting Bank hereby acknowledge that (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default or Event of Default has occurred and is continuing, (b) the Administrative Agent shall be under no duty to take any discretionary action permitted to be taken by it pursuant to the provisions of this Agreement unless it shall be requested in writing to do so by the Required Lenders, the Lenders, the Swing Line Bank or the Fronting Bank, as the case may be and (c) except as expressly set forth herein, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower, WRECO or any of their respective Subsidiaries that is communicated to or obtained by the Administrative Agent or any of its Affiliates in any capacity.

          Subject to the appointment and acceptance of a successor Administrative Agent as provided below, the Administrative Agent may resign at any time by notifying the Lenders, the Swing Line Bank, the Fronting Bank and the Borrower. Upon any such resignation, the Required Lenders shall have the right to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may, on behalf of the Lenders, the Swing Line Bank and the Fronting Bank, appoint a successor Administrative Agent which shall be a bank with an office in New York, New York, having a combined capital and surplus of at least $500,000,000 or an Affiliate of any such bank. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor bank, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. After the Administrative Agent’s resignation hereunder, the provisions of this Article and Section 9.05 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Administrative Agent.

          With respect to the Loans made by it hereunder, the Administrative Agent in its individual capacity and not as Administrative Agent shall have the same rights and powers as any other Lender and may exercise the same as though it were not the Administrative Agent, and the Administrative Agent and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrower, WRECO or any of their respective Subsidiaries or other Affiliate thereof as if it were not the Administrative Agent.

          Each of the Lenders, the Swing Line Bank and the Fronting Bank agrees (i) to reimburse the Administrative Agent, on demand, in the amount of its pro rata share (based on its Commitment hereunder) of any expenses incurred for the benefit of the Lenders, the Swing Line Bank and the Fronting Bank by the Administrative Agent, including counsel fees and compensation of agents and employees paid for services rendered on behalf of the Lenders, the Swing Line Bank and the Fronting Bank, which shall not have been reimbursed by the Borrower and (ii) to indemnify and hold harmless the Administrative Agent and any of its directors, officers, employees or agents, on demand, in the amount of such pro rata share, from and against any and all losses, claims, damages, liabilities and related expenses of any kind or nature whatsoever which may be imposed on, incurred by or asserted against it in its capacity as the

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Administrative Agent or any of them in any way relating to or arising out of this Agreement or any other Loan Document or any action taken or omitted by it or any of them under this Agreement or any other Loan Document, to the extent the same shall not have been reimbursed by the Borrower; provided that no Lender, nor the Swing Line Bank nor the Fronting Bank, shall be liable to the Administrative Agent for any portion of such losses, claims, damages, liabilities and related expenses resulting from the gross negligence or willful misconduct of the Administrative Agent or any of its directors, officers, employees, or agents.

          Each of the Lenders, the Swing Line Bank and the Fronting Bank acknowledges that it has, independently and without reliance upon the Administrative Agent, any other Lender, the Swing Line Bank or the Fronting Bank and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each of the Lenders, the Swing Line Bank and the Fronting Bank also acknowledges that it will, independently and without reliance upon the Administrative Agent, any other Lender, the Swing Line Bank or the Fronting Bank and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement or any other Loan Document, any related agreement or any document furnished hereunder or thereunder.

          Section 8.02 Other Agents. Each of the Lenders, the Swing Line Bank, the Fronting Bank and the Borrower acknowledges that (A) each of the Lead Arrangers, the Joint Book Runners, the Syndication Agent and the Co-Documentation Agents, in their capacity as, respectively, Lead Arranger, Joint Book Runner, Syndication Agent and Co-Documentation Agent, do not have any responsibility or liability hereunder, and (B) the titles “Lead Arranger”, “Joint Book Runner”, “Syndication Agent” and “Co-Documentation Agent” are purely honorary in nature.

ARTICLE IX

MISCELLANEOUS

          Section 9.01 Notices. Notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed or sent by telecopy to the address specified below, or such other address as such party shall hereafter have specified by written notice to the Administrative Agent and the Borrower:

       (a) if to the Borrower by hand or courier service, to it at 33663 Weyerhaeuser Way South, Federal Way, Washington, or by facsimile to (253) 924-3543, in each case to the Attention of Vice President and Treasurer with a copy to Secretary;
 
       (b) if to the Administrative Agent or a Lender, to it at its address (or telecopy number) set forth in Schedule 9.01 or in the Assignment and Acceptance pursuant to which such Lender became a party hereto.

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          All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt if delivered by hand or overnight courier service or sent by telecopy or other telegraphic communications equipment of the sender, in each case delivered, sent or mailed (properly addressed) to such party as provided in this Section 9.01 or in accordance with the latest unrevoked direction from such party given in accordance with this Section 9.01.

          Section 9.02 Survival of Agreement. All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the Lenders, the Swing Line Bank and the Fronting Bank and shall survive the making of the Loans and the issuance of the Letters of Credit, regardless of any investigation made by the Lenders, the Swing Line Bank or the Fronting Bank or on their behalf, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any Fee or any L/C Disbursement or any other amount payable under this Agreement or any other Loan Document is outstanding and unpaid and so long as the Commitments and all Letters of Credit hereunder have not been terminated.

          Section 9.03 Binding Effect. This Agreement shall become effective when it shall have been executed by the Borrower and the Administrative Agent and when the Administrative Agent shall have received copies hereof which, when taken together, bear the signatures of each Lender, the Swing Line Bank and the Fronting Bank and thereafter shall be binding upon and inure to the benefit of the Borrower, the Administrative Agent, each Lender, the Swing Line Bank and the Fronting Bank and their respective successors and assigns, except that other than as provided in Section 6.01(c), the Borrower shall not have the right to assign or delegate its rights or obligations hereunder or any interest herein without the prior consent of all the Lenders, the Swing Line Bank and the Fronting Bank.

          Section 9.04 Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that, other than as provided in Section 6.01(c), the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.

          (b) Any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it and the Letters of Credit issued at such time); provided that (i) except in the case of an assignment to a Lender or a Lender Affiliate, the Borrower and the Administrative Agent must give their prior written consent to such assignment (which consent shall not be unreasonably withheld or delayed), (ii) except in the case of an assignment to a Lender or a Lender Affiliate or an assignment of the entire remaining amount of the assigning Lender’s Commitment, the amount of the Commitment of the assigning Lender subject to each

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such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 unless each of the Borrower and the Administrative Agent otherwise consent, (iii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement, except that this clause (iii) shall not apply to rights in respect of outstanding Competitive Loans, (iv) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500, and (v) the assignee, if it shall not be a Lender prior to such assignment, shall deliver to the Administrative Agent an Administrative Questionnaire; and provided further that any consent of the Borrower otherwise required under this paragraph shall not be required if a Default or Event of Default has occurred and is continuing. Subject to acceptance and recording thereof pursuant to paragraph (d) of this Section, from and after the effective date specified in each Assignment and Acceptance the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.14, 2.16, 2.20 and 9.05). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (e) of this Section.

          (c) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices in The City of New York a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive (absent manifest error), and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice.

          (d) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, the assignee’s completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section, if any, and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Acceptance and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph.

          (e) Any Lender may, without the consent of the Borrower, sell participations to one or more banks or other entities (a “Participant”) in all or a portion of such Lender’s rights and obligations under this Agreement (including all or a portion of its Commitment, the Loans

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owing to it and the Letters of Credit issued hereunder); provided that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 9.08(b) that affects such Participant. Subject to paragraph (f) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.14, 2.16 and 2.20 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 9.06 as though it were a Lender, provided such Participant agrees to be subject to Section 2.18 as though it were a Lender.

          (f) A Participant shall not be entitled to receive any greater payment under Section 2.14 or 2.20 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower’s prior written consent.

          (g) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement and the other Loan Documents (including, without limitation, any notes held by it pursuant to Section 2.08(e)) to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank without notice to, or consent of, the Borrower or the Administrative Agent, and this Section 9.04 shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

          (h) The Borrower authorizes each Lender to disclose to any Participant or assignee and any prospective Participant or assignee any and all financial information in such Lender’s possession concerning the Borrower or any Subsidiary of the Borrower which has been delivered to such Lender by the Borrower pursuant to this Agreement or which has been delivered to such Lender by the Borrower in connection with such Lender’s credit evaluation of the Borrower prior to entering into this Agreement; provided that such Participant or assignee or prospective Participant or assignee agrees to treat any such information which is not public as confidential in accordance with the terms of this Agreement.

          Section 9.05 Expenses; Indemnity. (a) The Borrower agrees to pay all reasonable out-of-pocket expenses incurred by the Administrative Agent in connection with the preparation of this Agreement and the other Loan Documents or in connection with any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions hereby contemplated shall be consummated) or incurred by the Administrative Agent, any Lender, the Swing Line Bank or the Fronting Bank in connection with the enforcement or protection of their rights in connection with this Agreement and the other Loan

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Documents or in connection with the Loans made and the Letters of Credit issued, including the fees and disbursements of Shearman & Sterling, special counsel for the Administrative Agent, and, in connection with any such amendment, modification or waiver made in connection with any such enforcement or protection, the fees and disbursements of any other counsel for the Administrative Agent, any Lender, the Swing Line Bank or the Fronting Bank. The Borrower further agrees that it shall indemnify the Lenders, the Swing Line Bank and the Fronting Bank from and hold them harmless against any documentary taxes, assessments or charges made by any Governmental Authority by reason of the execution and delivery of this Agreement, any of the other Loan Documents or any Letters of Credit.

          (b) The Borrower will indemnify the Administrative Agent, each Lender, the Swing Line Bank and the Fronting Bank and its directors, officers, employees and agents (each such person being called an “Indemnitee”) against, and to hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including reasonable counsel fees and expenses, incurred by or asserted against any Indemnitee arising out of, in any way connected with, or as a result of (i) the execution or delivery by the Borrower of this Agreement or any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties thereto of their respective obligations thereunder or the consummation of the Transactions and the other transactions contemplated hereby and thereby, (ii) the use of the proceeds of the Loans or of the Letters of Credit by the Borrower or (iii) any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses have resulted from the gross negligence or willful misconduct of such Indemnitee.

          (c) It is understood and agreed that, to the extent not precluded by a conflict of interest, each Indemnitee shall endeavor to work cooperatively with the Borrower with a view toward minimizing the legal and other expenses associated with any defense and any potential settlement or judgment. To the extent reasonably practicable and not disadvantageous to any Indemnitee, it is anticipated that a single counsel selected by the Borrower may be used. Settlement of any claim or litigation involving any material indemnified amount will require the approval of the Borrower (not to be unreasonably withheld).

          (d) The provisions of this Section 9.05 shall remain operative and in full force and effect regardless of the expiration of the term of this Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Loans or L/C Disbursements, the termination of any Letters of Credit, the invalidity or unenforceability of any term or provision of this Agreement or any other Loan Document, or any investigation made by or on behalf of the Administrative Agent, any Lender, the Swing Line Bank or the Fronting Bank. All amounts due under this Section 9.05 shall be payable on written demand therefor.

          Section 9.06 Right of Setoff. If any Event of Default shall have occurred and be continuing, each Lender, the Swing Line Bank and the Fronting Bank is hereby authorized at any time and from time to time, without notice to the Borrower (any such notice being expressly waived by the Borrower), to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender, the Swing Line Bank or the Fronting Bank or

73


 

any of their respective Affiliates to or for the credit or the account of the Borrower against any of and all the obligations of the Borrower now or hereafter existing under this Agreement and any other Loan Documents held by such Lender, the Swing Line Bank or the Fronting Bank, irrespective of whether or not such Lender, the Swing Line Bank or the Fronting Bank shall have made any demand under this Agreement or such other Loan Document and although such obligations may be unmatured. The rights of each Lender, the Swing Line Bank or the Fronting Bank, under this Section 9.06 are in addition to other rights and remedies (including other rights of setoff) which such Lender, the Swing Line Bank or any Fronting Bank, may have.

          Section 9.07 Applicable Law. THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND OBLIGATIONS HEREUNDER AND THEREUNDER OF THE PARTIES HERETO AND THERETO (OTHER THAN AS RELATED TO LETTERS OF CREDIT) SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. EACH LETTER OF CREDIT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OR RULES DESIGNATED IN SUCH LETTER OF CREDIT, OR IF NO SUCH LAWS OR RULES ARE DESIGNATED, THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF COMMERCE, PUBLICATION NO. 500 (THE “UNIFORM CUSTOMS”) AND, AS TO MATTERS NOT GOVERNED BY THE UNIFORM CUSTOMS, THE LAWS OF THE STATE OF NEW YORK.

          Section 9.08 Waivers; Amendment. (a) No failure or delay of the Administrative Agent, any Lender, the Swing Line Bank or the Fronting Bank in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent, the Lenders, the Swing Line Bank and the Fronting Bank hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies which they would otherwise have. No waiver of any provision of this Agreement or any other Loan Document or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) below, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances.

          (b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrower and the Required Lenders; provided, however, that no such agreement shall (i) change the principal amount of, or extend or advance the maturity of or any date for the scheduled payment of any principal of or interest on, any Loan, or extend the stated maturity of any Letter of Credit beyond the Termination Date (unless such Letter of Credit has been cash collateralized or the Lenders have been relieved of their participation obligations pursuant to Section 2.04(d) in respect of such Letter of Credit) or waive or excuse any such scheduled payment or any part thereof, or decrease the rate of interest on any Loan, without the prior written consent of each Lender affected thereby, (ii) change the Commitment or decrease or extend any date for the

74


 

payment of the Facility Fees, Utilization Fees or L/C Participation Fees of any Lender without the prior written consent of such Lender, or (iii) amend or modify the provisions of Section 2.17, the provisions of this Section 9.08 or the definition of “Termination Date” or “Required Lenders”, without the prior written consent of each Lender; provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent hereunder without the prior written consent of the Administrative Agent. Each Lender shall be bound by any waiver, amendment or modification authorized by this Section 9.08, and any consent by any Lender pursuant to this Section 9.08 shall bind any person subsequently acquiring a Loan from it.

          Section 9.09 Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the applicable interest rate, together with all fees and charges which are treated as interest under applicable law (collectively the “Charges”), as provided for herein or in any other Loan Document, or otherwise contracted for, charged, received, taken or reserved by any Lender, shall exceed the maximum lawful rate (the “Maximum Rate”) which may be contracted for, charged, taken, received or reserved by such Lender in accordance with applicable law, the rate of interest payable with respect to each Loan owing to each Lender, together with all Charges payable to such Lender, shall be limited to the Maximum Rate.

          Section 9.10 Entire Agreement. This Agreement and the other Loan Documents and the letter agreements referred to in Section 2.07(b) (with respect to the payment of fees only) constitute the entire contract between the parties relative to the subject matter hereof. Any previous agreement among the parties with respect to the subject matter hereof is superseded by this Agreement and the other Loan Documents. Nothing in this Agreement or in the other Loan Documents, expressed or implied, is intended to confer upon any party other than the parties hereto and thereto any rights, remedies, obligations or liabilities under or by reason of this Agreement or the other Loan Documents.

          Section 9.11 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.11.

          Section 9.12 Severability. In the event any one or more of the provisions contained in this Agreement or in any other Loan Document should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable

75


 

provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

          Section 9.13 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute but one contract, and shall become effective as provided in Section 9.03.

          Section 9.14 Headings. The cover page, the Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement.

          Section 9.15 Jurisdiction; Consent to Service of Process. (a) The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any Lender, the Administrative Agent, the Swing Line Bank or the Fronting Bank may otherwise have to bring any action or proceeding relating to this Agreement or the other Loan Documents against the Borrower or its properties in the courts of any jurisdiction.

          (b) The Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Loan Documents in any New York State or Federal court located in New York City. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

          (c) The Borrower hereby irrevocably designates, appoints and empowers CT Corporation System, Inc. presently located at 111 Eighth Avenue, New York, New York 10011, as its designee, appointee and attorney-in-fact to receive, accept and acknowledge for and on its behalf, and in respect of its property, service of any and all legal process, summons, notices and documents which may be served in any such action or proceeding. If for any reason such designee, appointee and attorney-in-fact shall cease to be available to act as such, the Borrower agrees to designate a new designee, appointee and attorney-in-fact in New York City on the terms and for purposes of this provision satisfactory to the Administrative Agent. Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law.

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          Section 9.16 Domicile of Loans. Each Lender may transfer and carry its Loans at, to or for the account of any office, subsidiary or Affiliate of such Lender.

          Section 9.17 Restricted and Unrestricted Subsidiaries. (a) Set forth on Schedule 3.08 Part I is a list of all of the Restricted Subsidiaries and Unrestricted Subsidiaries of the Borrower as of the Closing Date.

          (b) Set forth on Schedule 3.08 Part II is a list of all of the Restricted Subsidiaries and Unrestricted Subsidiaries of WRECO as of the Closing Date.

          (c) After the Closing Date, a Financial Officer of the Borrower may, provided that no Default or Event of Default has occurred and is continuing, designate a Restricted Subsidiary as an Unrestricted Subsidiary by notice sent to all of the Lenders, provided that (i) no such designation shall be effective unless immediately after giving effect thereto there would exist no Default or Event of Default; (ii) any such designation shall be effective not less than five Business Days after written notice thereof shall have been provided to each Lender; and (iii) upon such designation, Schedule 3.08 Part I shall be deemed to be amended to reflect such designation. Any Person that becomes a Subsidiary (by formation, acquisition, merger or otherwise) after the Closing Date shall automatically be deemed to be a Restricted Subsidiary of the Borrower as of the date it becomes a Subsidiary unless designated as an Unrestricted Subsidiary pursuant to the terms hereof.

          (d) After the Closing Date, a Financial Officer of the Borrower may, provided that no Default or Event of Default has occurred and is continuing, designate an Unrestricted Subsidiary as a Restricted Subsidiary by notice sent to all of the Lenders, provided that (w) no such designation shall be effective unless immediately after giving effect thereto there would exist no Default or Event of Default; (x) no such designation shall be effective unless immediately after giving effect thereto the Borrower is in compliance with Sections 6.01(d) and 6.01(e); (y) any such designation shall be effective not less than five Business Days after written notice thereof shall have been provided to each Lender; and (z) upon such designation, Schedule 3.08 Part I shall be deemed to be amended to reflect such designation.

          (e) After the Closing Date, any Subsidiary of WRECO (i) which is organized and existing under the laws of the United States or any state of the United States, Puerto Rico or the Dominion of Canada or any province thereof and (ii) of which substantially all of the physical properties are located, and substantially all of the business is carried on, in the United States of America, Puerto Rico or Canada may, provided that no Default or Event of Default has occurred and is continuing, be designated as a Restricted Subsidiary by WRECO, subject to the limitations described in Subsection 9.17(f) below. Any Person that becomes a Subsidiary of WRECO (by formation, acquisition, merger or otherwise) after the Closing Date shall automatically be deemed to be an Unrestricted Subsidiary of WRECO as of the date it becomes a Subsidiary unless designated as a Restricted Subsidiary pursuant to the terms hereof.

          (f) After the Closing Date, the Borrower may, provided that no Default or Event of Default has occurred and is continuing, cause a Financial Officer of WRECO to designate an Unrestricted Subsidiary as a Restricted Subsidiary by notice sent to all of the Lenders, provided that: (v) such Subsidiary satisfies the requirements of Subsection 9.17(e)

77


 

above; (w) no such designation shall be effective unless immediately after giving effect thereto there would exist no Default or Event of Default; (x) WRECO could incur at least $1 of additional Senior Debt under Subsection 6.02(b); (y) any such designation shall be effective not less than five Business Days after written notice thereof shall have been provided to each Lender; and (z) upon such designation, Schedule 3.08 Part II shall be deemed to be amended to reflect such designation.

          (g) After the Closing Date, the Borrower may, provided that no Default or Event of Default has occurred and is continuing, cause a Financial Officer of WRECO to designate a Restricted Subsidiary as an Unrestricted Subsidiary by notice sent to all of the Lenders, provided that: (v) no such designation shall be effective unless immediately after giving effect thereto there would exist no Default or Event of Default; (w) WRECO could incur at least $1 of additional Senior Debt under Subsection 6.02(b); (x) the aggregate amount of Real Estate Assets owned by all Subsidiaries of WRECO, determined on a consolidated basis, which have been or are to be, as the case may be, designated as Unrestricted Subsidiaries during the 365 consecutive days ending on and including the effective date of such proposed designation, shall not exceed 15% of the aggregate amount of Real Estate Assets owned by WRECO and its Restricted Subsidiaries as of the beginning of such 365 day period; (y) any such designation shall be effective not less than five Business Days after written notice thereof shall have been provided to each Lender; and (z) upon such designation, Schedule 3.08 Part II shall be deemed to be amended to reflect such designation.

[Remainder of page intentionally left blank.]

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          IN WITNESS WHEREOF, the Borrower, the Administrative Agent, the Swing Line Bank, the Fronting Bank, the Syndication Agent, the Co-Documentation Agents and the Lenders have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

         
    WEYERHAEUSER COMPANY, as Borrower
         
    By:    
       
        Name:
        Title:

 


 

         
    JPMORGAN CHASE BANK,
individually and as Swing Line Bank,
Fronting Bank and Administrative Agent
         
    By:    
       
        Name:
        Title:

 


 

         
    MORGAN STANLEY SENIOR FUNDING, INC.,
individually and as Syndication Agent
         
    By:    
       
        Name:
        Title:

 


 

         
    THE BANK OF TOKYO-MITSUBISHI, LTD.,
PORTLAND BRANCH
individually and as Co-Documentation Agent
         
    By:    
       
        Name:
        Title:

 


 

         
    DEUTSCHE BANC ALEX. BROWN INC.,
as Co-Documentation Agent
         
    By:    
       
        Name:
        Title:
         
    By:    
       
        Name:
        Title:

 


 

Lenders

         
    DEUTSCHE BANK AG NEW YORK BRANCH,
as Lender
         
    By:    
       
        Name:
        Title:
    By:    
       
        Name:
        Title:

 


 

         
    THE BANK OF NOVA SCOTIA,
as Lender
         
    By:    
       
        Name:
        Title:

 


 

         
    BANK OF AMERICA, N.A.,
as Lender
         
    By:    
       
        Name:
        Title:

 


 

         
    CITICORP USA, INC.,
as Lender
         
    By:    
       
        Name:
        Title:
         
    By:    
       
        Name:
        Title:

 


 

         
    ROYAL BANK OF CANADA,
as Lender
         
    By:    
       
        Name:
        Title:

 


 

         
    TORONTO DOMINION (TEXAS), INC.,
as Lender
         
    By:    
       
        Name:
        Title:

 


 

         
    CIBC INC.,
as Lender
         
    By:    
       
        Name:
        Title:

 


 

         
    PNC BANK, NATIONAL ASSOCIATION,
as Lender
         
    By:    
       
        Name:
        Title:

 


 

         
    WACHOVIA BANK N.A.,
as Lender
         
    By:    
       
        Name:
        Title:

 


 

         
    THE INDUSTRIAL BANK OF JAPAN, LIMITED,
as Lender
         
    By:    
       
        Name:
        Title:

 


 

         
    THE NORINCHUKIN BANK, NEW YORK BRANCH,
as Lender
         
    By:    
       
        Name:
        Title:

 


 

         
    SUMITOMO MITSUI BANKING
CORPORATION (formerly known as The
Sumitomo Bank, Limited),
as Lender
         
    By:    
       
        Name:
        Title:

 


 

         
    U.S. BANK NATIONAL ASSOCIATION
as Lender
         
    By:    
       
        Name:
        Title:

 


 

         
    CAJA MADRID,
as Lender
         
    By:    
       
        Name:
        Title:

 


 

         
    THE NORTHERN TRUST COMPANY,
as Lender
         
    By:    
       
        Name:
        Title:

 


 

         
    BANK HAPOALIM B.M.,
as Lender
         
    By:    
       
        Name:
        Title:

 


 

         
    PB CAPITAL CORPORATION,
as Lender
         
    By:    
       
        Name:
        Title:

 


 

         
    COOPERATIEVE CENTRALE
RAIFFEISIN-BOERENLEENBANK B.A., “RABOBANK
NEDERLAND” NEW YORK BRANCH
as Lender
         
    By:    
       
        Name:
        Title:
         
    By:    
       
        Name:
        Title:

 


 

         
    WESTPAC BANKING CORPORATION,
as Lender
         
    By:    
       
        Name:
        Title:

 


 

         
    WELLS FARGO BANK, N.A.,
as Lender
         
    By:    
       
        Name:
        Title:

 


 

         
    MELLON BANK, N.A.,
as Lender
         
    By:    
       
        Name:
        Title:

 


 

         
    AUSTRALIA AND NEW ZEALAND BANKING GROUP
LIMITED,
as Lender
         
    By    
       
        Name:
        Title:

 


 

EXHIBIT A

FORM OF REVOLVING BORROWING REQUEST

JPMorgan Chase Bank, as Administrative Agent for
the Lenders referred to below,
270 Park Avenue
New York, New York 10017

[Date]

Attention: [_________]

Ladies and Gentlemen:

          The undersigned, Weyerhaeuser Company (the “Borrower”), refers to the Amended and Restated Competitive Advance and Revolving Credit Facility Agreement dated as of March 26, 2002 (as it may hereafter be amended, modified, extended or restated from time to time, the “Credit Agreement”), among the Borrower, the lenders party thereto from time to time, JPMorgan Chase Bank, as swing line bank, JPMorgan Chase Bank, as fronting bank, JPMorgan Chase Bank, as Administrative Agent, Morgan Stanley Senior Funding, Inc., as syndication agent, and The Bank of Tokyo-Mitsubishi, Ltd. and Deutsche Banc Alex. Brown Inc., as co-documentation agents. Capitalized terms used herein and not otherwise defined herein shall have the meanings given such terms in the Credit Agreement. The Borrower hereby gives you notice pursuant to Section 2.02(f) of the Credit Agreement that it requests a Revolving Borrowing under the Credit Agreement, and in that connection sets forth below the terms on which such Borrowing is requested to be made:

         
(A)   Date of Borrowing    
    (which is a Business Day)  
         
(B)   Principal Amount of    
    Borrowing1  
(C)   Interest rate basis2  
         
(D)   Interest Period and the last day    
    thereof3  


1     Not less than $25,000,000 and in integral multiples of $1,000,000 in excess thereof (or an aggregate principal amount equal to the remaining balance of the available Commitments) or greater than the Total Commitment then available.

2     Eurodollar Loan or Base Rate Loan.

3     Which shall be subject to the definition of #Interest Period# and end not later than the then existing Termination Date.

 


 

Upon acceptance of any or all of the Revolving Loans offered by the Lenders in response to this request, the Borrower shall be deemed to have represented and warranted that the conditions to lending specified in Sections 4.01(b) and (c) of the Credit Agreement have been satisfied.

         
    Very truly yours,
         
    WEYERHAEUSER COMPANY,
as Borrower,
         
    By    
       
        Name:
        Title: [Responsible Officer]

A-2


 

EXHIBIT B

FORM OF SWING LINE BORROWING REQUEST

JPMorgan Chase Bank, as Administrative Agent for
the Lenders referred to below,
270 Park Avenue
New York, New York 10017

[Date]

Attention: [_________]

Ladies and Gentlemen:

          The undersigned, Weyerhaeuser Company (the “Borrower”), refers to the Amended and Restated Competitive Advance and Revolving Credit Facility Agreement dated as of March 26, 2002 (as it may hereafter be amended, modified, extended or restated from time to time, the “Credit Agreement”), among the Borrower, the lenders party thereto from time to time, JPMorgan Chase Bank, as swing line bank, JPMorgan Chase Bank, as fronting bank, JPMorgan Chase Bank, as administrative agent for the lenders, Morgan Stanley Senior Funding, Inc., as syndication agent, and The Bank of Tokyo-Mitsubishi, Ltd. and Deutsche Banc Alex. Brown Inc., as co-documentation agents. Capitalized terms used herein and not otherwise defined herein shall have the meanings given such terms in the Credit Agreement. The Borrower hereby gives you notice pursuant to Section 2.03(b) of the Credit Agreement that it requests a Swing Line Borrowing under the Credit Agreement, and in that connection sets forth below the terms on which such Borrowing is requested to be made:

         
(A)   Date of Borrowing    
    (which is a Business Day)  
         
(B)   Principal Amount of    
    Borrowing1  
         
(C)   Maturity date of Borrowing2  


1     Not less than $1,000,000 and in integral multiples of $100,000 in excess thereof (or an aggregate principal amount equal to the remaining balance of the available Commitments, but, in any case not to exceed, in the aggregate with any other Swing Line Loans outstanding, $20,000,000).

2     No later than the seventh day after the requested date of such Borrowing.

B-1


 

EXHIBIT B

Upon acceptance of any or all of the Swing Line Loans offered by the Swing Line Bank in response to this request, the Borrower shall be deemed to have represented and warranted that the conditions to lending specified in Sections 4.01(b) and (c) of the Credit Agreement have been satisfied.

         
    Very truly yours,
         
    WEYERHAEUSER COMPANY,
as Borrower,
         
    By  
        Name:
        Title: [Responsible Officer]

B-2


 

EXHIBIT C

FORM OF ADMINISTRATIVE QUESTIONNAIRE

JPMorgan Chase Bank
1 Chase Manhattan Plaza - 8th Floor
New York, NY 10081
Tel: 212-552-7400
Fax: 212-552-5662

WEYERHAEUSER COMPANY

Please accurately complete the following information and return via FAX or e-mail to the attention of Maggie Swales at JPMorgan Chase Bank as soon as possible.

TEL Number: 212-552-7472    FAX Number: 212-552-5662    E-mail:maria.m.swales@jpmorgan.com

LEGAL NAME OF YOUR INSTITUTION TO APPEAR IN DOCUMENTATION:


NUMBER OF LINES NEEDED FOR SIGNATURE PAGE:


GENERAL INFORMATION - DOMESTIC LENDING OFFICE:

Institution Name:


Street Address:
City State, Zip Code

GENERAL INFORMATION - EURODOLLAR LENDING OFFICE:

Institution Name:


Street Address:
City, State, Zip Code:

CONTACTS/NOTIFICATION METHOD:

CREDIT CONTACTS:
Primary Contact:


Street Address:
City, State, Zip Code:
Phone Number:
FAX Number:
E-mail Address:

Backup Contact:


C-1

 


 

EXHIBIT C

Street Address:


City, State, Zip Code:
Phone Number:
FAX Number:
E-mail Address:

TAX WITHHOLDING:

Non Resident Alien       Y        N
If yes:

  What is the country of incorporation or organization?
 
  Tax Form W-8BEN or W-8ECI should be enclosed as per the Tax Section of the referenced Credit Agreement. Failure to properly complete and return the applicable form will subject your institution to withholding tax.

If no:

  Please submit Tax Form W-9

Lender’s Tax Identification Number:


CONTACTS/NOTIFICATION METHOD:

ADMINISTRATIVE CONTACTS - BORROWINGS, PAYDOWNS, INTEREST, FEES, ETC.
Contact Name:


Street Address:
City, State, Zip Code:
Phone Number:
FAX Number:
E-mail Address:

BID LOAN NOTIFICATION: (if applicable)

Contact Name:


Street Address:
City, State, Zip Code:
Phone Number:
FAX Number:
E-mail Address:

PAYMENT INSTRUCTIONS:

Name of Bank where funds are to be transferred:


Routing Transit/ABA number of Bank where funds are to be transferred:
Name of Account: (if applicable)
Account Number:

C-2


 

EXHIBIT C

Additional Information:


MAILINGS

Please specify who should receive financial information:
Contact Name:
Street Address:
City, State, Zip Code:

It is very important that all of the above information is accurately filled in and returned promptly. If you have any questions, please call Maggie Swales at Loan & Agency Services at 212-552-7472.

C-3


 

EXHIBIT D

[FORM OF]

ASSIGNMENT AND ACCEPTANCE

          Reference is made to the Amended and Restated Competitive Advance and Revolving Credit Facility Agreement dated as of March 26, 2002 (the “Credit Agreement”), among Weyerhaeuser Company, a Washington corporation (the “Borrower”), the lenders party thereto from time to time (the “Lenders”), JPMorgan Chase Bank, as swing line bank, JPMorgan Chase Bank, as fronting bank, JPMorgan Chase Bank, as administrative agent for the Lenders (in such capacity, the “Administrative Agent”), Morgan Stanley Senior Funding, Inc., as syndication agent, and The Bank of Tokyo-Mitsubishi, Ltd. and Deutsche Banc Alex. Brown Inc., as co-documentation agents. Terms defined in the Credit Agreement are used herein with the same meanings.

          1. The Assignor hereby sells and assigns, without recourse, to the Assignee, and the Assignee hereby purchases and assumes, without recourse, from the Assignor, effective as of the Effective Date set forth on the reverse hereof, the interests set forth on the Schedule attached hereto (the “Assigned Interest”) in the Assignor’s rights and obligations under the Credit Agreement, including, without limitation, the interests set forth on the Schedule attached hereto in the Commitment of the Assignor on the Effective Date and the Loans owing to the Assignor which are outstanding on the Effective Date, together with unpaid interest accrued on the assigned Loans to the Effective Date and the amount, if any, set forth on the reverse hereof of the Fees accrued to the Effective Date for the account of the Assignor. Each of the Assignor and the Assignee hereby agrees to be bound by Section 9.04 of the Credit Agreement, a copy of which has been received by each such party, and the Assignor represents and warrants that it is the legal and beneficial owner of the interest being assigned and that such interest is free and clear of any lien or adverse claim. From and after the Effective Date, (i) the Assignee shall be a party to and be bound by the provisions of the Credit Agreement and, to the extent of the interest assigned by this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and under the Loan Documents and (ii) the Assignor shall, to the extent of the interests assigned by this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement.

          2. This Assignment and Acceptance is being delivered to the Administrative Agent together with (i) if the Assignee is organized under the laws of a jurisdiction outside the United States, the forms specified in Section 2.20(f) of the Credit Agreement, duly completed and executed by such Assignee, (ii) if the Assignee is not already a Lender under the Credit Agreement, an Administrative Questionnaire in the form of Exhibit C to the Credit Agreement and (iii) a processing and recordation fee of $3,500.

          3. This Assignment and Acceptance shall be governed by and construed in accordance with the laws of the State of New York.

D-1


 

EXHIBIT D

         
The terms set forth above and on the Schedule hereof are hereby agreed to:       Accepted1
         
  , as Assignor,   JPMORGAN CHASE BANK, as

      Administrative Agent,
             
By:       By:    
   
     
    Name:       Name:
    Title:       Title:
             
         
  , as Assignee,   WEYERHAEUSER COMPANY, as Borrower,

       
             
By:       By:    
   
     
    Name:       Name:
    Title:       Title:


1   To be completed only if consents are required under Section 9.04.

D-2


 

EXHIBIT D
Schedule to Assignment and Acceptance

Date of Assignment:

Legal Name of Assignor:

Legal Name of Assignee:

Assignee’s Address for Notices:

Effective Date of Assignment

(may not be fewer than 5 Business

Days after the Date of Assignment,

unless waived by the Administrative Agent):

                 
            Percentage Assigned of
            Commitment thereunder (set
            forth, to at least 8
            decimals) as a percentage of
            the aggregate Commitments of
                   Facility   Principal Amount Assigned   all Lenders thereunder

 
 
Loans:     $       %  
Commitments:     $       %  
Fees Assigned (if any):     $       %  

D-3


 

EXHIBIT E-1

FORM OF CERTIFICATION OF FINANCIAL STATEMENTS FOR WEYERHAEUSER

          This is to certify that the consolidated statements attached hereto required by Section 5.04 of the Amended and Restated Competitive Advance and Revolving Credit Facility Agreement dated as of March 26, 2002 by and among Weyerhaeuser Company, the Lenders party thereto from time to time, JPMorgan Chase Bank, as swing line bank, JPMorgan Chase Bank, as fronting bank, JPMorgan Chase Bank, as administrative agent for the Lenders, Morgan Stanley Senior Funding, Inc., as syndication agent, and The Bank of Tokyo-Mitsubishi, Ltd. and Deutsche Banc Alex. Brown Inc., as co-documentation agents (the “Credit Agreement”; capitalized terms used herein without definition shall have the meanings given them in the Credit Agreement), fairly present the financial position and results of operations of Weyerhaeuser Company and its consolidated Subsidiaries as of      , 200     and for the period then ended on a consolidated basis in accordance with GAAP consistently applied except as noted therein.

Dated: ______________, 200_

         
    WEYERHAEUSER COMPANY,
         
    By    
       
        Name:
        Title:

E-1-1


 

EXHIBIT E-2

FORM OF CERTIFICATION OF FINANCIAL STATEMENTS FOR WRECO

          This is to certify that the consolidated statements attached hereto required by Section 5.04 of the Amended and Restated Competitive Advance and Revolving Credit Facility Agreement dated as of March 26, 2002 by and among Weyerhaeuser Company, the Lenders party thereto from time to time, JPMorgan Chase Bank, as swing line bank, JPMorgan Chase Bank, as fronting bank, JPMorgan Chase Bank, as administrative agent for the Lenders, Morgan Stanley Senior Funding, Inc., as syndication agent, and The Bank of Tokyo-Mitsubishi, Ltd. and Deutsche Banc Alex. Brown Inc., as co-documentation agents (the “Credit Agreement”; capitalized terms used herein without definition shall have the meanings given them in the Credit Agreement), fairly present the financial position and results of operations of Weyerhaeuser Real Estate Company and its consolidated Subsidiaries as of      , 200     and for the period then ended on a consolidated basis in accordance with GAAP consistently applied except as noted therein.

Dated: ______________, 200_

         
    WEYERHAEUSER REAL ESTATE
COMPANY,
         
    By    
       
        Name:
        Title:

E-2-1


 

EXHIBIT E-3

FORM OF COMPLIANCE CERTIFICATE FOR WEYERHAEUSER

THE UNDERSIGNED HEREBY CERTIFY THAT:

       (i) We are the duly elected      and      of Weyerhaeuser Company, a Washington corporation (the “Borrower”);

       (ii) We have reviewed the terms of the Amended and Restated Competitive Advance and Revolving Credit Facility Agreement dated as of March 26, 2002, by and among the Borrower, the Lenders party thereto from time to time, JPMorgan Chase Bank, as swing line bank, JPMorgan Chase Bank, as fronting bank, JPMorgan Chase Bank, as administrative agent for the Lenders, Morgan Stanley Senior Funding, Inc., as syndication agent, and The Bank of Tokyo-Mitsubishi, Ltd. and Deutsche Banc Alex. Brown Inc., as co-documentation agents (the “Credit Agreement”; capitalized terms used herein without definition shall have the meanings given them in the Credit Agreement), and we have made, or have caused to be made under our supervision, a detailed review of the transactions and conditions of the Borrower and its Subsidiaries during the accounting period covered by the attached financial statements; and

       (iii) [No Event of Default or Default has occurred.] [An Event of Default or Default has occurred. [If so, specify the nature and extent thereof and any corrective action taken or proposed to be taken with respect thereto.]]

          Describe below (or in a separate attachment to this Officers’ Certificate) the exceptions, if any, to paragraph (iii) by listing, in detail, the nature of the condition or event and the period during which it has existed:

E-3-1


 

          The foregoing certifications, together with the computations set forth in Attachment No. 1 hereto and the financial statements delivered with this Officers’ Certificate in support hereof, are made and delivered this      day of                    , 200     pursuant to Subsection 5.04(c) of the Credit Agreement.

     
Dated: ____ , 200_ WEYERHAEUSER COMPANY,  
     
  By  
   
Name:
    Title:
     
  By  
   
Name:
    Title:

E-3-2


 

ATTACHMENT NO. 1 TO
COMPLIANCE CERTIFICATE FOR WEYERHAEUSER

WEYERHAEUSER COMPANY AND RESTRICTED SUBSIDIARIES

COMPLIANCE WITH COVENANTS
AS OF                         , 200    
($000’s Omitted Except Ratio Amounts)

Section 6.01(d) - Debt Ratio as of      , 200    

1.   Total Funded Indebtedness:

  a.   Short Term Indebtedness (inclusive of Notes Payable and Commercial Paper)
 
  b.   Current Maturities of Long Term Indebtedness and Capital Lease Obligations
 
  c.   Long Term Indebtedness:

  (1)   Senior Long Term Indebtedness
 
  (2)   Capital Lease Obligations
 
  (3)   Subordinated Indebtedness
 
  Total Long Term Indebtedness (1+2+3)    

  d.   Indebtedness of Unrestricted Subsidiaries
 
  e.   Indebtedness of WRECO and its consolidated Subsidiaries
 
      Total Funded Indebtedness (a+b+c-d-e)

2.   Total Adjusted Shareholders’ Interest:

  f.   Preferred, Preference and Common Shares
 
  g.   Other Capital and Retained Earnings (plus or minus)
 
  h.   Treasury Stock
 
  i.   Investments in Unrestricted Subsidiaries
 
  j.   Investments by the Borrower and its consolidated Subsidiaries in WRECO and its consolidated Subsidiaries
 
  Total Adjusted Shareholders’ Interest    
      (f+g-h-i-j)

3.   Total Capitalization (1+2)
 
4.   Actual Debt Ratio (1/3)

     
Required Debt Ratio   [72, if on or after the Closing Date]
     
    [69, if on or after 12/31/03][65, if on or after 6/30/05]%

E-3-3


 

Section 6.01(e) – Net Worth as of                     , 200

Total Adjusted Shareholders’ Interest (See item 2 above)

Required Total Adjusted Shareholders’ Interest           $[          ]

E-3-4


 

EXHIBIT E-4

FORM OF COMPLIANCE CERTIFICATE FOR WRECO

THE UNDERSIGNED HEREBY CERTIFY THAT:

       (i) We are the duly elected      and      of Weyerhaeuser Real Estate Company, a Washington corporation (“WRECO”);

       (ii) We have reviewed the terms of the Amended and Restated Competitive Advance and Revolving Credit Facility Agreement dated as of March 26, 2002, by and among Weyerhaeuser Company, a Washington corporation, the Lenders party thereto from time to time, JPMorgan Chase Bank, as fronting bank, Morgan Stanley Senior Funding, Inc., as syndication agent, JPMorgan Chase Bank, as administrative agent for the Lenders, and The Bank of Tokyo-Mitsubishi, Ltd. and Deutsche Banc Alex. Brown Inc., as co-documentation agents (the “Credit Agreement”; capitalized terms used herein without definition shall have the meanings given them in the Credit Agreement), and we have made, or have caused to be made under our supervision, a detailed review of the transactions and conditions of WRECO and its Subsidiaries during the accounting period covered by the attached financial statements; and

       (iii) [No Event of Default or Default has occurred.] [An Event of Default or Default has occurred. [If so, specify the nature and extent thereof and any corrective action taken or proposed to be taken with respect thereto.]]

          Describe below (or in a separate attachment to this Officers’ Certificate) the exceptions, if any, to paragraph (iii) by listing, in detail, the nature of the condition or event and the period during which it has existed:

E-4-1


 

          The foregoing certifications, together with the computations set forth in Attachment No. 1 hereto and the financial statements delivered with this Officers’ Certificate in support hereof, are made and delivered this                      day of      , 200     pursuant to Subsection 5.04(c) of the Credit Agreement.

     
Dated: ___, 200 WEYERHAEUSER REAL ESTATE
COMPANY,
 
     
  By  
   
Name:
    Title:
     
  By  
   
Name:
    Title:

E-4-2


 

ATTACHMENT NO. 1 TO
COMPLIANCE CERTIFICATE FOR WRECO

WEYERHAEUSER REAL ESTATE COMPANY AND RESTRICTED SUBSIDIARIES

COMPLIANCE WITH COVENANTS
AS OF
($000’s Omitted)

Section 6.02(a) - Capital Base as of

1.   Adjusted Net Worth:

  a.   Capital Stock (less treasury stock)      
 
  b.   Surplus and Retained Earnings      
 
  c.   Intangible Assets      
 
  d.   Minority Interests      
 
  e.   Investments in Unrestricted Subsidiaries      
 
  f.   Investments in joint ventures, partnerships, etc.      
 
      Adjusted Net Worth (a+b-c-d-e-f)

2.   WRECO/Weyerhaeuser Subordinated Debt:

  a.   Subordinated Promissory Notes issued to Weyerhaeuser Company

3.   Capital Base (1 + the lesser of 1 and 2)

         
Required Capital Base       $100,000
       

E-4-3


 

EXHIBIT F

FORM OF SUBORDINATED DEBT

WEYERHAEUSER REAL ESTATE COMPANY

Subordinated Promissory Note

$                              ,     

          FOR VALUE RECEIVED, the undersigned, WEYERHAEUSER REAL ESTATE COMPANY, a Washington corporation (the “Company”), promises to pay to WEYERHAEUSER COMPANY, on      ,      , at the office of the Company in Federal Way, Washington, the principal sum of      ($     ) and to pay interest on the unpaid balance of such principal sum at said office at the rate of      percent (     %) per annum from the date hereof, payable monthly on the last day of each month in each year, until said principal sum is fully paid.

          This Note is one of a series of Subordinated Promissory Notes of the Company, all of which are identical except as to date, amount and maturity date, from time to time issued and sold by the Company to Weyerhaeuser Company; this Note and said subordinated Promissory Notes are hereinafter sometimes collectively referred to as “Subordinated Notes”.

          Subject to the following provisions hereof, this Note may be prepaid at any time by the Company without premium.

          Anything in this Note to the contrary notwithstanding, the indebtedness evidenced by this Note and all other Subordinated Notes shall be subordinate and junior in right of payment, to the extent and in the manner hereinafter set forth, to all other indebtedness of the Company for money borrowed (including, without limiting the generality of the foregoing, (i) its Medium-Term Notes, Series A (the “Series A Medium-Term Notes”), issued and to be issued from time to time under the Agency Agreement dated as of May 29, 1992 between the Company, Weyerhaeuser Company and Morgan Guaranty Trust Company of New York, (ii) its Medium-Term Notes, Series B (the “Series B Medium-Term Notes”), issued and to be issued from time to time under the Agency Agreement dated as of October 29, 1992 between the Company, Weyerhaeuser Company and Morgan Guaranty Trust Company of New York, (iii) its Medium-Term Notes, Series C (the “Series C Medium-Term Notes”), issued and to be issued from time to time under the Agency Agreement dated as of October 13, 1993 between the Company, Weyerhaeuser Company and Morgan Guaranty Trust Company of New York); (iv) its Medium-Term Notes, Series D (the Series D Medium-Term Notes) issued and to be issued from time to time under the Agency Agreement dated as of April 24, 2001, between the Company, Weyerhaeuser Company, and the Chase Manhattan Bank; (v) its Loan Agreement dated November 1, 1996 among the Company, the Banks named therein and the Sumitomo Bank, New York Branch as Agent (the “Loan Agreement”), and (vi) all indebtedness and other amounts owing pursuant to the Amended and Restated 364-Day Revolving Credit Facility Agreement dated as of March 26, 2002, (as it may be amended, modified, extended or restated from time to time, the “364-Day Credit Agreement”), among the Company, Weyerhaeuser Company,

F-1


 

JPMorgan Chase Bank, and the lenders referred to therein, all such indebtedness to which this Note is subordinate and junior being hereinafter referred to as “Prior Debt” and the governing loan documents being hereinafter referred to as the “Prior Debt Instruments”), as follows:

       (i) In the event of any distribution, division or application, partial or complete, voluntary or involuntary, by operation of law or otherwise, of all or any part of the assets of the Company, or the proceeds thereof, to creditors of the Company or upon any indebtedness of the Company occurring by reason of liquidation, dissolution or other winding up of the Company or by reason of any execution, sale, receivership, insolvency or bankruptcy proceedings or other proceedings for the reorganization or readjustment of the Company or its debts or properties, then in any such event such Prior Debt shall be preferred in payment over the Subordinated Notes and such Prior Debt shall be first paid and satisfied in full, in accordance with the order of priority of payment established by any applicable provisions thereof and by any instruments whereunder any Prior Debt is issued, before any payment or distribution of any kind or character, whether in cash, property or securities (other than in securities the payment of which is subordinated to said Prior Debt to the same extent as herein provided), shall be made on or in respect of principal or interest of the Subordinated Notes; and in any such event any such payment, dividend or distribution (other than in securities the payment of which is also subordinated as aforesaid) which shall be made upon or in respect thereof shall be paid over to the holders of such Prior Debt, pro rata, for application on such Prior Debt in accordance with the order of priority of payment established by any applicable provisions thereof and by any instrument whereunder any Prior Debt is issued, until said Prior Debt has been fully paid.

       (ii) Without limiting the foregoing, during the continuance of any default in payment of principal, sinking fund, interest or premium, if any, on any Prior Debt, no payment of principal or interest shall be made on or with respect to the indebtedness evidenced by any Subordinated Note, or any renewals or extensions thereof, and the holder or holders of any Subordinated Notes shall not be entitled to receive or retain any such payment made during the continuance of any such default.

       (iii) Also without limiting the foregoing, the Company shall not make, and the holder or holders of any Subordinated Notes shall not be entitled to receive or retain, any payment of principal or interest on the Subordinated Notes (whether such payment is made directly or indirectly through the redemption, purchase or other acquisition of Subordinated Notes by or for the benefit of the Company), if at the time of any such payment and after giving effect thereto, an Event of Default (as that term is defined in any of the Prior Debt Instruments), is then continuing, or if any event has occurred which, with the lapse of time or the giving of notice, or both, will become such an Event of Default under any of the Prior Debt Instruments.

       (iv) No right of any present or future holder of any Prior Debt to enforce subordination as herein provided for shall at any time be breached or impaired by any failure to act on the part of the Company or by any noncompliance by the Company with the terms, provisions and covenants hereof or of said Prior Debt, regardless of any knowledge thereof that any holder of Prior Debt may have or be otherwise charged with. Without limiting the foregoing the holder or holders of said Prior Debt may receive and

F-2


 

  hold collateral for the payment of such Prior Debt, may make substitutions and releases of collateral or any part thereof, whether or not such holder or holders receive any consideration therefor; may grant renewals or extensions of time for the payment of installments of said Prior Debt or any part thereof, and take renewal notes or other instruments to evidence the same; and no action or non-action taken or omitted to be taken in respect of the foregoing matters or any of them by any holder or holders of Prior Debt at any time or from time to time shall invalidate or impair the subordination herein provided for.

     
  WEYERHAEUSER REAL ESTATE COMPANY,  
     
  By  
   
Its Treasurer

F-3


 

EXHIBIT G

FORM OF PROMISSORY NOTE

New York, New York

[                    ,           ]

          FOR VALUE RECEIVED, WEYERHAEUSER COMPANY, a Washington corporation (the “Borrower”), hereby promises to pay to the order of [                     ] (the “Lender”), at the office of JP Morgan Chase Bank (the “Agent”), at 270 Park Avenue, New York, New York 10017 on the Termination Date as defined in the Amended and Restated Competitive Advance and Revolving Credit Facility Agreement dated as of March 26, 2002 (as it may hereafter be amended, modified, extended or restated from time to time, the “Credit Agreement”), among the Borrower, the Lenders, the Swing Line Bank and Fronting Bank named therein, JPMorgan Chase Bank, as Administrative Agent, Morgan Stanley Senior Funding, Inc., as syndication agent and The Bank of Tokyo-Mitsubishi, Ltd. and Deutsche Banc Alex. Brown Inc., as co-documentation agents, the aggregate unpaid principal amount of all Loans made by the Lender to the Borrower pursuant to the Credit Agreement, in lawful money of the United States of America in same day funds, and to pay interest from the date hereof on the principal amount hereof from time to time outstanding, in like funds, at said office, at a rate or rates per annum and payable on such dates as determined pursuant to the Credit Agreement.

          The Borrower promises to pay interest, on demand, on any overdue principal of its borrowings and, to the extent permitted by law, overdue interest from their due dates at a rate or rates determined as set forth in the Credit Agreement.

          The Borrower hereby waives diligence, presentment, demand, protest and notice of any kind whatsoever. The nonexercise by the holder of any of its rights hereunder in any particular instance shall not constitute a waiver thereof in that or any subsequent instance.

          All borrowings evidenced by this Note and all payments and prepayments of the principal hereof and interest hereon and the respective dates thereof shall be endorsed by the holder hereof on the schedule attached hereto and made a part hereof, or on a continuation thereof which shall be attached hereto and made a part hereof, or otherwise recorded by such holder in its internal records; provided, however, that any failure of the holder hereof to make such a notation or any error in such notation shall not in any manner affect the obligation of the Borrower to make payments of principal and interest with respect to the Borrower’s borrowings in accordance with the terms of this Note and the Credit Agreement.

          This Note is one of the promissory notes referred to in the Credit Agreement which, among other things, contains provisions for the acceleration of the maturity hereof upon the happening of certain events, for mandatory and, in certain circumstances, optional prepayment of the principal hereof prior to the maturity thereof and for the amendment or waiver of certain provisions of the Credit Agreement, all upon the terms and conditions therein specified.

G-1


 

          THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.

     
  WEYERHAEUSER COMPANY,  
     
  By  
   
Name:
    Title:

G-2


 

Loans and Payments

                                         
                              Name of    
Amount                             Principal   Person
and Type     Interest           Unpaid   Balance   Making
of Loan     Period   Principal   Interest   of Note   Notation

   
 
 
 
 

G-3


 

Schedule 2.01

COMMITMENTS OF THE LENDERS

                   
              Percentage of Total
Name of Bank   Commitment   Commitment
JPMorgan Chase Bank
  $ 128,562,500       9.8894 %
Morgan Stanley Senior Funding, Inc.
  $ 128,562,500       9.8894 %
The Bank of Tokyo-Mitsubishi, Ltd.
  $ 105,187,500       8.0913 %
Deutsche Bank AG New York Branch
  $ 105,187,500       8.0913 %
The Bank of Nova Scotia
  $ 95,000,000       7.3077 %
Bank of America, N.A.
  $ 95,000,000       7.3077 %
Citicorp USA, Inc.
  $ 95,000,000       7.3077 %
Royal Bank of Canada
  $ 95,000,000       7.3077 %
Toronto Dominion (Texas), Inc.
  $ 87,500,000       6.7308 %
CIBC Inc.
  $ 50,000,000       3.8462 %
PNC Bank, National Association
  $ 50,000,000       3.8462 %
Wachovia Bank N.A.
  $ 50,000,000       3.8462 %
The Industrial Bank of Japan, Limited
  $ 25,000,000       1.9231 %
The Norinchukin Bank, New York Branch
  $ 25,000,000       1.9231 %
Sumitomo Mitsui Banking Corporation
  $ 25,000,000       1.9231 %
U.S. Bank National Association
  $ 25,000,000       1.9231 %
Caja Madrid
  $ 17,500,000       1.3462 %
The Northern Trust Company
  $ 17,500,000       1.3462 %
Bank Hapoalim B.M.
  $ 12,500,000       0.9615 %
PB Capital Corporation
  $ 12,500,000       0.9615 %
Cooperatieve Centrale Raiffeisin-Boerenleenbank B.A., “Rabobank Nederland” New York Branch
  $ 12,500,000       0.9615 %
Westpac Banking Corporation
  $ 12,500,000       0.9615 %

 


 

Schedule 2.01

                   
              Percentage of Total
Name of Bank   Commitment   Commitment
Wells Fargo Bank, N.A.
  $ 12,500,000       0.9615 %
Mellon Bank, N.A.
  $ 10,000,000       0.7692 %
Australia and New Zealand Banking Group Limited
  $ 7,500,000       0.5769 %
 
   
     
 
 
Total Commitment:
  $ 1,300,000,000       100.0000 %
 
   
     
 

 


 

Schedule 9.01

ADDRESSES FOR NOTICES TO THE BANK

     
Name of Bank   Domestic and Eurodollar Lending Offices
JPMorgan Chase Bank   JPMorgan Chase Bank
    One Chase Manhattan Plaza, 8th Floor
    Loan and Agency Services
    New York, NY 10081
    Attn: Ms. Maria Swales Loan and
    Agency Services
    T: (212) 552-7472
    F: (212) 552-5662
     
Morgan Stanley Senior Funding, Inc.   Morgan Stanley Senior Funding, Inc.
    1221 Avenue of the Americas – 35th Floor
    New York, NY 10020
    Attn: Stephen Hannan
    T: (212) 762-5814
    F: (212) 762-9181
     
The Bank of Tokyo-Mitsubishi, Ltd.   The Bank of Tokyo-Mitsubishi, Ltd.
    Portland Branch
    2300 Pacwest Center
    1211 S.W. 5th Ave.
    Portland, OR 97204
    Attn: Ms. Penny Crisman
    T: (503) 222-3750
    F: (503) 227-5372
     
Deutsche Banc Alex. Brown Inc.   Deutsche Banc Alex. Brown Inc.
    31 West 52nd Street
    New York, NY 10019
    Attn: Mr. Oliver Schwarz
    T: (212) 469-8610
    F: (212) 469-2930
     
Deutsche Bank AG New York Branch   Deutsche Banc Alex. Brown Inc.
    31 West 52nd Street
    New York, NY 10019
    Attn: Mr. Oliver Schwarz
    T: (212) 469-8610
    F: (212) 469-2930

 


 

Schedule 9.01

     
Name of Bank   Domestic and Eurodollar Lending Offices
The Bank of Nova Scotia   The Bank of Nova Scotia
    600 Peachtree St., N.E.
    Suite 2700
    Atlanta, GA 30308
    Attn: Arnetta Poindexter
    T: (404) 877-1574
    F: (404) 888-8998
     
Bank of America, N.A.   Bank of America, N.A.
    Mail Code CA5-705-
12-12
    555 California Street, 12th Floor
    San Francisco, CA 94104-1503
    Attn: Michael Letson
    T: (415) 953-0604
    F: (415) 622-4585
     
Citicorp USA, Inc.   Citicorp USA, Inc. Global Loan Support Services
    Two Penns Way, Suite 200
    New Castle, DE 19720
    Attn: Ms. Lee Ocasio
    T: (302) 894-6065
    F: (302) 984-6120
     
Royal Bank of Canada   Royal Bank of Canada
New York Branch
    One Liberty Plaza, 3rd Floor
    New York, NY 10006-1404
    Attn: Karim Amr
    T: (212) 428-6369
    F: (212) 428-2372
     
Toronto Dominion (Texas), Inc.   Toronto Dominion (Texas), Inc.
    909 Fannin St., 17th Floor
    Houston, TX 77010
    Attn: Jean Pettit
    T: (713) 653-8234
    F: (713) 951-9921

 


 

Schedule 9.01

     
Name of Bank   Domestic and Eurodollar Lending Offices
CIBC Inc.   CIBC Inc.
    Two Paces West, 2727
    Paces Ferry Rd. Suite 1200
    Atlanta, GA 30339
    Attn: Ava Cool
    T: (770) 319-4818
    F: (770) 319-4950
     
PNC Bank, National Association   PNC Bank, National Association
    One PNC Plaza, 5th Floor
    249 Fifth Ave.
    Pittsburgh, PA 15222
    Attn: Sharon Geffel
    T: (412) 762-9340
    F: (412) 705-0984
     
Wachovia Bank N.A.   Wachovia Bank N.A.
    191 Peachtree St. Mail Code GA 8050
    Atlanta, GA 30303
    Attn: Shawn Janko
    T: (404) 332-5884
    F: (404) 332-4136
     
The Industrial Bank of Japan, Limited   The Industrial Bank of Japan Limited
    1251 Avenue of the Americas
    New York, NY 10020
    Attn: Nelson Rojas
    T: (212) 282-4064
    F: (212) 282-4461
     
The Norinchukin Bank, New York Branch   The Norinchukin Bank, New York
Branch
    245 Park Ave. 29th Floor
    New York, NY 10167
    Attn: Nicholas Fiore
    T: (212) 697-1717
    F: (212) 697-5754
     
Sumitomo Mitsui Banking Corporation   Sumitomo Mitsui Banking Corporation
    277 Park Ave.
    New York, NY 10172
    Attn: Noel Swift
    T: (212) 224-4328
    F: (212) 224-5197

 


 

Schedule 9.01

     
Name of Bank   Domestic and Eurodollar Lending Offices
U.S. Bank National Association   U.S. Bank National Association
    1420 Fifth Avenue 10th Floor
    PD-WA-T11B
    Seattle, WA 98101
    Attn: Gail Fortun
    T: (206) 587-5212
    F: (206) 344-3741
     
Caja Madrid   Caja Madrid
Paseo De La Castellana 189
    28046 Madrid (Spain)
    Attn: Pedro Lalanda Marcos
    T: 34 91 423 0985
    F: 34 91 423 9718
     
The Northern Trust Company   The Northern Trust Company
    50 S. LaSalle, 11th Floor
    Chicago, IL 60675
    Attn: Charles Gerlach
    T: (312) 444-4715
    F: (312) 630-6015
     
Bank Hapoalim B.M.   Bank Hapoalim B.M.
    New York Branch
    1177 Avenue of the Americas
    New York, NY 10036
    Attn: Marc Bosc
    T: (212) 782-2179
    F: (212) 782-2187
     
PB Capital Corporation   PB Capital Corporation
    590 Madison Ave.
    New York, NY 10022
    Attn: Andrew Shipman
    T: (212) 756-5988
    F: (212) 756-5536
     
Cooperatieve Centrale   Rabobank International
Raiffeisin-Boerenleenbank B.A.,   245 Park Ave.
“Rabobank Nederland” New York Branch   36th Floor
    New York, NY 10167
    Attn: Brett Delfino
    T: (212) 916-3743
    F: (212) 916-7880

 


 

Schedule 9.01

     
Name of Bank   Domestic and Eurodollar Lending Offices
Westpac Banking Corporation   Westpac Banking Corporation
    575 Fifth Ave. 39th Floor
    New York, NY 10017
    Attn: Tony Smith
    T: (212) 551-1814
    F: (212) 551-1995
     
Wells Fargo Bank, N.A.   Wells Fargo Bank, N.A.
    999 Third Ave. 11th Floor
    Seattle, WA 98104
    Attn: Deborah Speer Watson
    T: (206) 292-3668
    F: (206) 292-3595
     
Mellon Bank, N.A.   Mellon Bank, N.A.
    Three Mellon Bank Center, Room 1204
    Pittsburgh, PA 15259
    Attn: Damon Carr
    T: (412) 234-4749
    F: (412) 209-6129
     
Australia and New Zealand Banking   Australia and New Zealand Banking
Group Limited   Group Limited
    1177 Avenue of the Americas
    New York, NY 10036
    Attn: Damodar Menon
    T: (212) 801-9752
    F: (212) 556-4826

 


 

TABLE OF CONTENTS

                 
            Page
       
ARTICLE I
       
       
DEFINITIONS
       
Section 1.01 Defined Terms
    2  
Section 1.02 Terms Generally
    17  
Section 1.03 Accounting Terms; GAAP
    17  
       
ARTICLE II
       
       
THE CREDITS
       
Section 2.01 Commitments
    17  
Section 2.02 Loans
    18  
Section 2.03 Swing Line Loans
    20  
Section 2.04 Letters of Credit
    21  
Section 2.05 Competitive Bid Procedure
    24  
Section 2.06 Conversion and Continuation of Revolving Loans
    26  
Section 2.07 Fees
    27  
Section 2.08 Repayment of Loans; Evidence of Debt
    29  
Section 2.09 Interest on Loans
    30  
Section 2.10 Default Interest
    31  
Section 2.11 Alternate Rate of Interest
    31  
Section 2.12 Termination and Reduction of Commitments
    32  
Section 2.13 Prepayment
    33  
Section 2.14 Reserve Requirements; Change in Circumstances
    34  
Section 2.15 Change in Legality
    36  
Section 2.16 Indemnity
    36  
Section 2.17 Pro Rata Treatment
    37  
Section 2.18 Sharing of Setoffs
    37  
Section 2.19 Payments
    38  
Section 2.20 Taxes
    38  
Section 2.21 Mitigation Obligations; Replacement of Lenders
    41  
       
ARTICLE III
       
   
REPRESENTATIONS AND WARRANTIES
       
Section 3.01 Organization; Powers
    43  
Section 3.02 Authorization
    43  
Section 3.03 Enforceability
    43  
Section 3.04 Consents and Approvals
    43  
Section 3.05 Financial Statements
    44  
Section 3.06 No Material Adverse Change
    44  

i


 

                 
            Page
Section 3.07 Title to Properties; Possession Under Leases
    44  
Section 3.08 Subsidiaries
    45  
Section 3.09 Litigation; Compliance with Laws
    45  
Section 3.10 Agreements
    45  
Section 3.11 Federal Reserve Regulations
    46  
Section 3.12 Investment Company Act; Public Utility Holding Company Act
    46  
Section 3.13 Tax Returns
    46  
Section 3.14 No Material Misstatements
    46  
Section 3.15 Compliance with ERISA
    46  
Section 3.16 Environmental Matters
    47  
Section 3.17 Maintenance of Insurance
    47  
Section 3.18 Existing Senior Credit Facilities
    48  
Section 3.19 Surviving Senior Credit Facilities
    48  
Section 3.20 Non-Material Loans
    48  
       
ARTICLE IV
       
 
CONDITIONS OF LENDING AND ISSUANCE OF LETTERS OF CREDIT
       
Section 4.01 All Borrowings and Issuances
    48  
Section 4.02 Closing Date
    49  
       
ARTICLE V
       
       
AFFIRMATIVE COVENANTS
       
Section 5.01 Existence; Businesses and Properties
    51  
Section 5.02 Insurance
    51  
Section 5.03 Obligations and Taxes
    51  
Section 5.04 Financial Statements, Reports, etc
    52  
Section 5.05 Litigation and Other Notices
    53  
Section 5.06 ERISA
    54  
Section 5.07 Maintaining Records; Access to Properties and Inspections
    54  
Section 5.08 Use of Proceeds
    55  
Section 5.09 Environmental Matters
    55  
Section 5.10 Performance of Transaction Agreements
    56  
Section 5.11 OCBM Agreement
    57  
Section 5.12 Further Assurances
    57  
Section 5.13 Guarantee
    57  
       
ARTICLE VI
       
       
NEGATIVE COVENANTS
       
Section 6.01 Covenants of the Borrower
    57  
Section 6.02 Covenants with respect to WRECO
    60  

ii


 

                 
            Page
       
ARTICLE VII
       
       
EVENTS OF DEFAULT
       
Section 7.01 Events of Default
    63  
       
ARTICLE VIII
       
     
THE ADMINISTRATIVE AGENT
       
Section 8.01 The Administrative Agent
    66  
Section 8.02 Other Agents
    69  
       
ARTICLE IX
       
       
MISCELLANEOUS
       
Section 9.01 Notices
    69  
Section 9.02 Survival of Agreement
    70  
Section 9.03 Binding Effect
    70  
Section 9.04 Successors and Assigns
    70  
Section 9.05 Expenses; Indemnity
    72  
Section 9.06 Right of Setoff
    73  
Section 9.07 Applicable Law
    74  
Section 9.08 Waivers; Amendment
    74  
Section 9.09 Interest Rate Limitation
    75  
Section 9.10 Entire Agreement
    75  
Section 9.11 WAIVER OF JURY TRIAL
    75  
Section 9.12 Severability
    75  
Section 9.13 Counterparts
    76  
Section 9.14 Headings
    76  
Section 9.15 Jurisdiction; Consent to Service of Process
    76  
Section 9.16 Domicile of Loans
    77  
Section 9.17 Restricted and Unrestricted Subsidiaries
    77  

EXHIBITS

     
Exhibit A   Form of Revolving Borrowing Request
Exhibit B   Form of Swing Line Borrowing Request
Exhibit C   Form of Administrative Questionnaire
Exhibit D   Form of Assignment and Acceptance
Exhibit E-1   Form of Certification of Financial Statements for Weyerhaeuser
Exhibit E-2   Form of Certification of Financial Statements for WRECO
Exhibit E-3   Form of Compliance Certificate for Weyerhaeuser
Exhibit E-4   Form of Compliance Certificate for WRECO
Exhibit F   Form of Subordinated Debt

iii


 

     
Exhibit G   Form of Promissory Note

SCHEDULES

     
Schedule 2.01   Commitments
Schedule 3.08   Subsidiaries of Weyerhaeuser, WRECO and the Company
Schedule 3.18   Existing Senior Credit Facilities
Schedule 3.19   Surviving Senior Credit Facilities
Schedule 7.01   Specified Indebtedness
Schedule 9.01   Notices

iv


 

Exhibit 10(h)

EXECUTION COPY

AMENDMENT NO. 1 TO
AMENDED AND RESTATED COMPETITIVE ADVANCE AND
REVOLVING CREDIT FACILITY AGREEMENT

Dated as of October 23, 2003

          AMENDMENT NO. 1 TO AMENDED AND RESTATED COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY AGREEMENT dated as of October 23, 2003, and entered into by and among WEYERHAEUSER COMPANY, a Washington corporation (the “Borrower”), the banks, financial institutions and other institutional lenders party to the Credit Agreement referred to below (collectively, the “Lenders”), JPMORGAN CHASE BANK, a New York banking corporation, as swing line bank (in such capacity, the “Swing Line Bank”), JPMORGAN CHASE BANK, as Fronting Bank under the Credit Agreement referred to below, JPMORGAN CHASE BANK, as administrative agent (in such capacity, the “Administrative Agent”) for the Lenders, MORGAN STANLEY SENIOR FUNDING, INC., as syndication agent (the “Syndication Agent”) and THE BANK OF TOKYO-MITSUBISHI, LTD. and DEUTSCHE BANK ALEX. BROWN INC., as co-documentation agents (the “Co-Documentation Agents”).

          PRELIMINARY STATEMENTS:

          (1) The Borrower, the Lenders, the Swing Line Bank, JPMorgan Chase Bank, as fronting bank, the Administrative Agent, the Syndication Agent and the Co-Documentation Agents have entered into an Amended and Restated Competitive Advance and Revolving Credit Facility Agreement dated as of March 26, 2002 (as amended, supplemented or otherwise modified through the date hereof, the “Credit Agreement”). Capitalized terms not otherwise defined in this Amendment have the same meanings as specified in the Credit Agreement.

          (2) The Borrower and the Required Lenders have agreed to amend the Credit Agreement in order to (i) make the full Commitments of the Lenders available for the issuance of Letters of Credit and (ii) allow the Borrower to designate from time to time additional issuing banks of Letters of Credit, in each case as hereinafter set forth.

          SECTION 1. Amendments to Credit Agreement. The Credit Agreement is, effective as of the date hereof and subject to the satisfaction of the conditions precedent set forth in Section 2, hereby amended as follows:

                    (a) The recital of parties to the Credit Agreement is hereby amended by deleting therein the parenthetical ‘(in such capacity, the “Fronting Bank”)’.

                    (b) Section 1.01 is hereby amended by adding therein the following new definitions in appropriate alphabetical order:

                    ’“Fronting Bank” shall mean, (i) with respect to any Letter of Credit, the Issuing Bank that has issued or is contemplated to issue such Letter or Credit, (ii) with respect to

Amendment No. 1 to the
Weyerhaeuser Company Credit Agreement

 


 

  2

any L/C Disbursement, the Issuing Bank that has made a payment or disbursement pursuant to a Letter of Credit, or (iii) otherwise, as the context may require, any or all of the Issuing Banks.’

                    ’“Issuing Bank” shall mean JPMorgan Chase Bank and any other Lender designated by the Borrower and approved by the Administrative Agent as an Issuing Bank to the extent such Lender has expressly agreed to perform all of the obligations that by the terms of this Agreement are required to be performed by it as an Issuing Bank, as such consent by such Lender may be evidenced from time to time by documentation reasonably acceptable to the Administrative Agent and the Lender.’

                    (c) Section 2.04(b) is hereby amended by deleting therein the phrase “(A) the L/C Exposure shall not exceed $200,000,000 and (B)” appearing in the second to last line thereof.

                    (d) The first sentence of Section 2.07(c) is hereby amended in full to read as follows:

                    “The Borrower agrees to pay (i) to the Administrative Agent for pro rata distribution to each Lender a fee (an “L/C Participation Fee”), for the period from the Closing Date until the Termination Date (or such earlier date as all Letters of Credit shall be canceled or expire and the Total Commitment shall be terminated), on that portion of the average daily L/C Exposure attributable to Letters of Credit issued for the account of the Borrower (excluding the portion thereof attributable to unreimbursed L/C Disbursements), at the rate per annum equal to the Applicable Margin for Eurodollar Loans from time to time in effect for the Borrower and (ii) to each Issuing Bank a fronting fee (a “Fronting Fee”), which shall accrue at the rate of .125% per annum (or at such other rate as agreed between the applicable Issuing Bank and the Borrower) on the average daily amount of the L/C Exposure attributable to Letters of Credit issued by such Issuing Bank for the account of the Borrower (excluding any portion thereof attributable to unreimbursed L/C Disbursements) during the period from and including the Closing Date to but excluding the later of the date of termination of the Commitments and the date on which there ceases to be any L/C Exposure attributable to Letters of Credit issued by such Issuing Bank for the account of the Borrower, as well as such Issuing Bank’s standard fees with respect to the issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder.”

          SECTION 2. Conditions of Effectiveness. This Amendment shall become effective as of the date first above written when, and only when, the Administrative Agent shall have received (i) counterparts of this Amendment executed by the Borrower and the Required Lenders or, as to any of the Lenders, advice satisfactory to the Administrative Agent that such Lender has executed this Amendment and (ii) all of the following documents, each such document (unless otherwise specified) dated the date of receipt thereof by the Administrative Agent, and in form and substance satisfactory to the Administrative Agent:

          (a) Certified copies of (i) the resolutions of the Board of Directors of the Borrower approving this Amendment and the matters contemplated hereby and thereby and (ii)

Amendment No. 1 to the
Weyerhaeuser Company Credit Agreement

 


 

  3

all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Amendment and the matters contemplated hereby and thereby.

          (b) A certificate of the Secretary or an Assistant Secretary of the Borrower certifying the names and true signatures of the officers of the Borrower authorized to sign this Amendment and the other documents to be delivered hereunder.

          SECTION 3. Representations and Warranties of the Borrower The Borrower represents and warrants as follows:

                    (a) The Borrower and each of its Restricted Subsidiaries (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (ii) has all requisite power and authority to own its property and assets and to carry on its business as now conducted and as proposed to be conducted, (iii) is qualified to do business in every jurisdiction where such qualification is required, except where the failure so to qualify would not result in a Material Adverse Effect, and (iv) in the case of the Borrower, has the corporate power and authority to execute, deliver and perform its obligations under this Amendment and each of the Loan Documents, as amended hereby, and each other agreement or instrument contemplated thereby to which it is or will be a party and to borrow thereunder.

                    (b) The execution, delivery and performance by the Borrower of this Amendment and each of the Loan Documents, as amended hereby, and the borrowings and issuances of Letters of Credit thereunder, (i) have been duly authorized by all requisite corporate and, if required, stockholder action and (ii) (A) will not violate (1) any provision of law, statute, rule or regulation, (2) the certificate or articles of incorporation or other constitutive documents or by-laws of the Borrower or any of its Restricted Subsidiaries, (3) any order of any Governmental Authority or (4) any provision of any indenture, agreement or other instrument to which the Borrower or any of its Restricted Subsidiaries is a party or by which any of them or any of their property is or may be bound, (B) will not be in conflict with, result in a breach of or constitute (alone or with notice or lapse of time or both) a default under any such indenture, agreement or other instrument or (C) will not result in the creation or imposition of any Lien upon or with respect to any property or assets now owned or hereafter acquired by the Borrower or any of its Restricted Subsidiaries except, in each case other than (i) and (ii)(A)(2) above, as could not reasonably be expected to have a Material Adverse Effect.

                    (c) This Amendment has been duly executed and delivered by the Borrower and constitutes, and each Loan Document, as amended hereby, to which the Borrower is a party, constitutes, a legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.

                    (d) No action, consent or approval of, registration or filing with, or any other action by any Governmental Authority or any other third party is or will be required

Amendment No. 1 to the
Weyerhaeuser Company Credit Agreement

 


 

  4

for the due execution, delivery or performance by the Borrower of this Amendment or any of the Loan Documents, as amended hereby, to which it is a party.

                    (e) Except as otherwise disclosed publicly prior to October 16, 2003, there has been no action, suit, investigation, litigation or proceeding pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any of its Restricted Subsidiaries in any court or before any arbitrator or Governmental Authority that could reasonably be expected to have a Material Adverse Effect.

                    (f) Except as disclosed in the Borrower’s Report on Form 10-K for the fiscal year ended December 30, 2002, neither the Borrower nor any of its Restricted Subsidiaries is in violation of any law, rule or regulation, or in default with respect to any judgment, writ, injunction or decree of any Governmental Authority, where such violation or default could reasonably be expected to result in a Material Adverse Effect.

          SECTION 4. Reference to and Effect on the Credit Agreement. (a) On and after the effectiveness of this Amendment, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof” or words of like import referring to the Credit Agreement, and each reference in the promissory notes issued pursuant to Section 2.08 of the Credit Agreement (the “Notes”) and each of the other Loan Documents to “the Credit Agreement”, “thereunder”, “thereof” or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement, as amended by this Amendment.

          (b) The Credit Agreement and, the Notes and each of the other Loan Documents, as specifically amended by this Amendment, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed.

          (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or the Administrative Agent under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents.

          SECTION 5. Costs, Expenses The Borrower agrees to pay on demand all costs and expenses of the Administrative Agent in connection with the preparation, execution, delivery and administration, modification and amendment of this Amendment and the other instruments and documents to be delivered hereunder (including, without limitation, the reasonable fees and expenses of counsel for the Administrative Agent) in accordance with the terms of Section 9.05 of the Credit Agreement.

          SECTION 6. Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment.

Amendment No. 1 to the
Weyerhaeuser Company Credit Agreement

 


 

  5

          SECTION 7. Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York.

[Remainder of page intentionally left blank.]

Amendment No. 1 to the
Weyerhaeuser Company Credit Agreement

 


 

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

         
    WEYERHAEUSER COMPANY, as Borrower
 
       
  By    
     
 
      Title:
Name:

Amendment No. 1 to the
Weyerhaeuser Company Credit Agreement

 


 

         
    JPMORGAN CHASE BANK,
individually and as Swing Line Bank,
Issuing Bank and Administrative Agent
 
       
  By    
     
 
      Title:
Name:

Amendment No. 1 to the
Weyerhaeuser Company Credit Agreement

 


 

         
    MORGAN STANLEY SENIOR FUNDING, INC.,
individually and as Syndication Agent
 
       
  By    
     
 
      Title:
Name:

Amendment No. 1 to the
Weyerhaeuser Company Credit Agreement

 


 

         
    THE BANK OF TOKYO-MITSUBISHI, LTD.,
individually and as Co-Documentation Agent
 
       
  By    
     
 
      Title:
Name:

Amendment No. 1 to the
Weyerhaeuser Company Credit Agreement

 


 

         
    DEUTSCHE BANC ALEX.BROWN INC.,
individually and as Co-Documentation Agent
 
       
  By    
     
 
      Title:
Name:

Amendment No. 1 to the
Weyerhaeuser Company Credit Agreement

 


 

     
  LENDERS
 
   
 
 
  [Print Name of Financial Institution]
         
 
  By    
     
 
      Title:
Name:

Amendment No. 1 to the
Weyerhaeuser Company Credit Agreement

 

EX-10.(I) 5 v96705exv10wxiy.htm EXHIBIT 10.(I) exv10wxiy
 

EXHIBIT 10(i)

Weyerhaeuser
Company
Long-Term Incentive Compensation Plan

     
    Approved by shareholders on April 16, 1992 and including all amendments through February 12, 1998

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Table of Contents

             
ARTICLE I. GENERAL
    1  
1. Name of Plan
    1  
2. Purposes
    1  
3. Effective Date
    1  
4. Number of Shares
    1  
 
4.1 Authorized Number of Shares
    1  
 
4.2 Reuse of Shares
    1  
 
4.3 Adjustment of Shares
    1  
5. Administration
    2  
 
5.1 Administration and Interpretation by the Committee
    2  
 
5.2 Interpretation; Change of Control Adjustments
    2  
ARTICLE II. DEFINITIONS
    3  
 
2. Definitions
    3  
ARTICLE III. STOCK OPTIONS; STOCK APPRECIATION RIGHTS
    5  
 
3.1 Types of Stock Options
    5  
   
3.1.1 Types of Options
    5  
   
3.1.2 Stock Appreciation Rights
    5  
   
3.1.3 Exercise/Sell Election
    5  
 
3.2 Option Price
    6  
 
3.3 Maximum Annual Award of Shares
    6  
 
3.4 Vesting; Exercise Upon Termination of Employment
    6  
   
3.4.1 Initial Vesting Period
    6  
   
3.4.2 Term of Options and Stock Appreciation Rights
    6  
   
3.4.3 Exercise by Personal Representative
    6  
   
3.4.4 Exercises of Options and Rights
    6  
   
3.4.5 Post-Termination Exercises
    7  
 
3.5 Payment for Shares
    7  
   
3.5.1 Form of Payment
    7  
 
3.6 Acquired Company Options
    7  
ARTICLE IV. STOCK AWARDS
    7  
4. Stock Awards
    7  
 
4.1 Committee Authority
    7  
 
4.2 Issuance of Shares
    8  
 
4.3 Waiver of Restrictions
    8  
 
4.4 Maximum Annual Stock Awards
    8  
ARTICLE V. PERFORMANCE SHARE AWARDS
    8  
5. Performance Share Awards
    8  
 
5.1 Performance Share Awards Authority
    8  
 
5.2 Payout Upon Termination
    9  
 
5.3 Maximum Amount of Performance Share Awards
    9  
ARTICLE VI. GENERAL
    9  
 
6.1 Amendment and Termination of Plan
    9  
 
6.2 Continued Employment; Rights in Options and Awards
    9  
 
6.3 Other Compensation Plans
    9  
 
6.4 Certificates for Shares; Registration
    9  

2


 

             
 
6.5 No Rights as Shareholder
    9  
 
6.6 No Assignment or Transfer of Interests
    10  
 
6.7 Compliance with Laws and Regulations
    10  
 
6.8 Withholding of Taxes
    10  
 
6.9 No Trust or Fund
    10  
 
6.10 Governing Law
    10  
 
6.11 Severability
    10  

3


 

Weyerhaeuser Company Long-Term Incentive Compensation Plan
ARTICLE I. GENERAL

1. Name of Plan

     The name of the plan set forth herein is the “Weyerhaeuser Company Long-Term Incentive Compensation Plan,” herein called the “Plan.”

2. Purposes

     The purposes of the Plan are to enhance the long-term profitability and shareholder value of Weyerhaeuser Company by offering stock based incentives to those employees of the Company and Subsidiaries who are key to the growth and success of Weyerhaeuser, to attract and retain executives with experience and ability on a basis competitive with industry practices and to encourage executives to acquire and maintain stock ownership in Weyerhaeuser Company.

3. Effective Date

The effective date of the Plan is the date on which it is approved by the shareholders of the Company, in accordance with the Washington Business Corporation Act, at the annual meeting of shareholders on April 16, 1992 or any adjournment thereof The Plan shall have no fixed expiration date.

4. Number of Shares

     4.1 Authorized Number of Shares. The number of Shares that may be issued under the Plan shall not exceed ten (10) million. Shares issued pursuant to the Plan will be authorized and unissued Shares which may includes Shares which from time to time have been reacquired by the Company.

     4.2 Reuse of Shares. To the extent that (a) any Stock Option or Stock Appreciation Right expires, or is terminated, canceled or surrendered, without being exercised (including, without limitation, in connection with the grant of a replacement option); (b) Shares are not issued upon exercise of any Stock Appreciation Right; (c) the underlying Shares are not issued because the Award is forfeited, terminated, surrendered or canceled; or (d) Shares are not issued pursuant to any Performance Share Award, shares underlying or subject to such Stock Option, Stock Appreciation Right or Award shall again be available for issuance in connection with future grants of Stock Options, Stock Appreciation Rights and Awards under the Plan.

     4.3 Adjustment of Shares. In the event that at any time or from time to time a stock dividend, stock split, recapitalization, merger, consolidation, or other change in capitalization of the Company, or a sale by the Company of all or part of its assets, or any distribution to shareholders other than a cash dividend, results in (a) the outstanding Shares, or any securities exchanged therefore or received in their place being exchanged for a different number or class of securities of the Company or of any other corporation, or (b) new, different or additional securities of the Company or of any other corporation being received by the holders of Shares of the Company, then:

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       (i) the limitation to 10,000,000 Shares set forth in Section 4.1 of Article I;
 
       (ii) the number and class of Shares that may be made subject to Stock Options, Stock Appreciation Rights and Awards;
 
       (iii) the Option Price of unexercised Stock Options and Stock appreciation Rights; and
 
       (iv) Share values or prices used for calculation purposes shall in each case be equitably adjusted as determined by the Committee in its sole discretion.

5. Administration

     5.1 Administration and Interpretation by the Committee. The Plan shall be administered by the Committee. Members of the Committee shall not be eligible to participate in the Plan, and no member of the Committee shall have been, during the period of one year prior to Committee service, granted or awarded equity securities of the Company pursuant to the Plan or pursuant to any other plan of the Company. Members of the committee must be “Outside Directors” for the purposes of Section 162(m) of the Internal Revenue Code of 1986, which section was adopted as part of the Omnibus Budget Reconciliation Act of 1993, or any successor provision. The Committee shall have exclusive authority to designate the employees of the Company and Subsidiaries who are eligible to participate in the Plan as Participants. The Committee shall also have exclusive authority to interpret the Plan and may from time to time adopt, and change, rules and regulations of general application for the administration of the Plan, including rules and regulations relating to the manner of exercise and settlement of Stock Options and Stock Appreciation Rights, issuance and custody of Restricted Stock and the manner of settlement of Performance Share Awards. The Committee’s interpretation of the Plan and its rules and regulations, and all actions taken and determinations made by the Committee pursuant to the Plan, shall be conclusive and binding on all parties involved or affected. The Committee may delegate administrative duties to such of the officers of the Company as it so determines.

     5.2 Interpretation; Change of Control Adjustments. Without limiting the preceding Section 5.1, and notwithstanding any other provisions of the Plan, the Committee is authorized to take such action as it determines to be necessary or advisable, and fair and equitable to Participants, with respect to Stock Options, Stock Appreciation Rights and Awards in the event of. a merger of the Company with, consolidation of the Company into, or the acquisition of the Company by, another corporation, or a sale or transfer of all or substantially all of the assets of the Company to another corporation or any other person or entity, a tender or exchange offer for Shares made by any corporation, person or entity (other than the Company), or other reorganization, as a result of which the Company is not likely to continue as an independent, publicly-owned corporation. Such authorized action may include (but shall not be limited to) establishing, amending or waiving the type, terms, conditions, or duration of, or restrictions on, Stock Options, Stock Appreciation Rights and Awards so as to provide for earlier, later, extended or additional times for exercise, payments or settlement or lifting of restrictions, differing methods for calculating payments or settlements and other modifications, and the Committee may take such actions by adopting rules and regulations applicable to all Participants, to certain categories of Participants or only to individual Participants. The Committee may take such actions before or after making the grants of Stock Options, Stock Appreciation Rights or

5


 

Stock Awards to which the action relates and before or after any public announcement with respect to such merger, consolidation, acquisition, sale or transfer of assets, tender or exchange offer or other reorganization that is the reason for such action.

ARTICLE II. DEFINITIONS

2. Definitions

     For purposes of the Plan, the following terms shall be defined as set forth below:

     2.1 “Award” means any award or grant of Shares under Section 4 of Article IV and any award or grant of Performance Shares under Section 5 of Article V.

     2.2 “Code” means the Internal Revenue Code as amended from time to time.

     2.3 “Committee” means the Compensation Committee of the Board of Directors of the Company.

     2.4 “Company” means Weyerhaeuser Company, a Washington corporation.

     2.5 “Disability” means “disability” as that term is defined for purposes of the Company’s Retirement Plan for Salaried Employees.

     2.6 “Early Retirement” means retirement pursuant to the Company’s Retirement Plan for Salaried Employees on a date prior to the individual’s normal retirement date..

     2.7 “Exercise/Sell Election” means the election set forth in Section 3.1.3 of Article

     2.8 “Fair Market Value” means the arithmetic average of the highest and lowest sales prices per Share on a day as reported on the consolidated transaction reporting system for New York Stock Exchange issues for the day.

     2.9 “Grant Date” means the date designated in a resolution of the Committee as the date the Stock Option, Stock Appreciation Right or Award is granted, which date shall not be earlier than the date the Committee completed the act of adoption of the resolution. If the Committee does not designate a Grant date in the resolution, the Grant Date shall be the date the Committee completed the act of adoption of the resolution.

     2.10 “Holder” means the Participant to whom is granted a Stock Option, Stock Appreciation Right or Award, or the personal representative of the Holder who has died.

     2.11 “Incentive Stock Option” means an option to purchase Shares granted under Article III of the Plan with the intention that it qualify as an “incentive stock option” as that term is defined in Section 422 of the Code.

     2.12 “Non-Qualified Stock Option” means an option to purchase Shares granted under Article III of the Plan other than an Incentive Stock Option.

     2.13 “Option Price” means the purchase price of Shares, as prescribed by the Committee, in respect to any Stock Option or Stock Appreciation Right.

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     2.14 “Participant” means an individual who is a Holder of Stock Options, Stock Appreciation Rights and/or Awards or, as the context may require, any employee of the Company or a Subsidiary who has been designated by the Committee as eligible to participate in the Plan.

     2.15 “Performance Measures” means objective criteria specifically defined by the Committee on a Company-specific basis, business-unit basis or in comparison with peer group performance, which may include or exclude specified items of an unusual or nonrecurring nature, and are based on one or more of the following: earnings before interest and taxes, net earnings, earnings per share, return on equity, return on assets, return on capital employed, cash flow, cost reduction, stock price appreciation, total shareholder return, economic value added, cash flow return on investment, and cash value added.

     2.16 “Performance Share” means a unit of value, equal on the Grant Date to the Fair Market Value of a Share on such Date or such greater value as the Committee shall prescribe, used to calculate the total value of a Performance Share Award.

     2.17 “Performance Share Award” means an award granted under Article V of the Plan the payout of which is subject to achievement through a performance period of performance goals prescribed by the Committee.

     2.18 “Restricted Stock Award” means an award of Shares granted under Article IV of the Plan the rights of ownership of which are subject to restrictions prescribed by the Committee.

     2.19 “Retirement” means retirement as of the individual’s normal retirement date under the Company’s Retirement Plan for Salaried Employees.

     2.20 “Shares” means the common shares (par value $1.25 per share) of the Company.

     2.21 “Stock Appreciation Right” means a right, granted under Section 3.1.2 of Article III, to surrender to the Company all or a portion of the related Stock Option, if any, and to receive an amount (in Shares or cash or any combination of Shares and cash, as the Committee shall determine) equal to the excess of the Window Period Fair Market Value per Share for the date the Stock Appreciation Right is exercised over the Option Price per Share, in the case of a Stock Appreciation Right exercised within a Window Period, or equal to the excess of the Fair Market Value per Share for the date the Stock Appreciation Right is exercised over the Option Price per Share in the case of a Stock Appreciation Right exercised on a date outside a Window Period.

     2.22 “Stock Option” or “Option” means the right to purchase Shares granted under Section 3.1.1 of Article III of the Plan.

     2.23 “Subsidiary” means a corporation the voting share ownership of which, by the Company or another Subsidiary, is sufficient for the election of a majority of the directors of the corporation.

     2.24 “Window Period” means a period of ten days on which there is trading in Shares on the New York Stock Exchange, beginning with the third trading day after disclosure by the

7


 

Company to the public of its earnings for the fiscal period just ended and ending with the twelfth such day.

     2.25 “Window Period Fair Market Value” means the highest daily mean price per Share during the Window Period, determined from sales prices as reported on the consolidated transaction reporting system for New York Stock Exchange issues for the Window Period.

ARTICLE III. STOCK OPTIONS; STOCK APPRECIATION RIGHTS

     3.1 Types of Stock Options

          3.1.1 Types of Options. The Committee is authorized to grant Stock Options to Participants either alone or wholly or partially in connection with Stock Appreciation Rights, for such number of Shares and at such Option Price, and exercisable in such installments over such periods of time and subject to such vesting provisions, as the Committee shall determine. The Committee shall designate each Option issued hereunder as an “Incentive Stock Option” or a “Non-Qualified Stock Option.” The aggregate Fair Market Value on the Grant Date of Share with respect to which Incentive Stock Options are exercisable by the Participant for the first time in any calendar year shall not exceed the amount provided for in Section 422 of the Code.

          3.1.2 Stock Appreciation Rights. The Committee is authorized to grant Stock Appreciation Rights, either alone or wholly or partly in conjunction with Stock Options, for such numbers of Shares and at such Option Prices as the Committee shall determine. Upon exercise of a Stock Appreciation Right, the Holder shall be entitled to receive Shares having value equivalent to 50% of the difference per Share between the Window Period Fair Market Value, or the Fair Market Value, whichever is applicable, and the Option Price, multiplied by the number of Shares as to which the Stock Appreciation Right is exercised, and cash equivalent to 50% of the difference per Share between the applicable Window Period Fair Market Value or Fair Market Value and the Option Price, multiplied by the number of Shares as to which the Stock Appreciation Right is exercised, provided that the Committee shall have the sole discretion to determine in any case or cases such other form in which payment will be made, i.e. all cash, all Shares, or any combination thereof If the Holder is to receive Shares upon exercise of a Stock Appreciation Right, the number of Shares so determined is not a whole number, such number shall be reduced to the next lower number and there shall be paid to the Holder in cash an amount equal to the product of multiplying the remaining fractional share by the applicable Fair Market Value of one share on the exercise date.

     3.1.3 Exercise/Sell Election. Holders of Stock Options not granted in conjunction with Stock Appreciation Rights shall have, at each time of exercise of such an Option, the right to elect to exercise such Option by causing a cash payment of the Option Price to be made to the Company and simultaneously having such number of such Shares, as is determined by the Secretary of the Company, sold through a Company-designated registered broker in an open market transaction without cost of sale to the Holder, such “exercise/sell election” to be effected in accordance with procedures and documentation established by the Secretary of the Company. The Holder of such Exercise/Sell election shall have the right to elect either to either: (A) have the number of Shares to be sold approximate the number of Shares that upon sale on the exercise date would be required to yield cash proceeds equivalent to the sum of (i) the total Option Price for the Shares as to which the option is exercised and (ii) 50% of the difference between (x) the

8


 

total Fair Market Value on the exercise date of the Shares as to which the option is exercised; and (y) the total Option Price for the Shares as to which the option is exercised; or (B) have the number of Shares sold be the number of shares as to which the option is exercised. The Holder of the Stock Option with the Exercise/Sell Election electing under (A) above shall be entitled to receive (i) the proceeds of sale of the Shares to be sold remaining after payment to the Company of the Option Price and the applicable tax withholding; and (ii) the number of Shares remaining after the sale of Shares as provided above. The Holder of the Stock Option with the Exercise/Sell Election electing under (B) above shall be entitled to receive the proceeds of the sale of the Shares to be sold remaining after payment to the Company of the Option Price and the applicable tax withholding.

     3.2 Option Price. The Option Price of the Shares subject to any Stock Option or Stock Appreciation Right shall be determined by the Committee, but shall in no instance be less than the Fair Market Value on the Grant Date.

     3.3 Maximum Annual Award of Shares. The maximum number of shares that may be awarded to any participant in any year as Stock Options or Stock Appreciation Rights is 200,000, except that in one year up to 400,000 shares may be awarded to a Participant after such Participant becomes Chief Executive Officer of the Company.

     3.4 Vesting; Exercise Upon Termination of Employment

          3.4.1 Initial Vesting Period. Each Stock Option and Stock Appreciation Right shall become initially exercisable only after one year (or such longer period as may be determined by the Committee) of continuous employment of the Holder by the Company and/or one or more Subsidiaries after the Grant Date, provided, that if the Holder shall die prior to completion of such year of continuous employment, each Stock Option and Stock Appreciation Right held by such Holder may nevertheless be exercised in accordance with this Section 3.

          3.4.2 Term of Options and Stock Appreciation Rights. Except as otherwise provided in this Section 3, each Stock Option and Stock Appreciation Right shall by its terms expire at such time as the Committee may determine in granting it, but not later than ten years from the date the Option or Right is granted.

          3.4.3 Exercise by Personal Representative. Any Stock Option or Stock Appreciation Right exercisable at the time of death of the Holder may be exercised by the personal representative of the Holder entitled thereto at any time or from time to time within two years after the date of death, but in no event later than ten years (or such shorter period as determined under Section 3.3.2) from the Grant Date.

          3.4.4 Exercises of Options and Rights. Each Stock Option and Stock Appreciation Right shall be exercisable by the Holder from time to time for the full amount or for any part thereof, but no such Option or Right shall be exercised in part more frequently than once in any period of ten business days.

          3.4.5 Post-Termination Exercises. In case of termination of employment of the Holder other than by reason of death, any Stock Option or Stock Appreciation Right of the Holder shall be exercisable only: (i) within three years if the termination of the Holder’s employment is coincident with Retirement or Early Retirement or is as a result of position

9


 

elimination, or (it) within three months after the date the Holder ceases to be an employee of the Company or a Subsidiary if termination of the Holder’s employment is for any reason other than Retirement, Early Retirement or position elimination, but in no event later than ten years (or such shorter period determined under Section 3.3.2) from the Grant Date. Neither transfer of employment between or among the Company and Subsidiaries, or a leave of absence approved in accordance with Company procedures, shall be considered termination of employment.

     3.5 Payment for Shares

          3.5.1 Form of Payment. Upon exercise of a Stock Option not involving exercise of a related Stock Appreciation Right, in whole or in part, the Option Price for Shares to which the exercise relates shall be paid in cash or, unless otherwise designated by the Committee at the time the Stock Option is granted, paid for with Shares (in the manner designated by the Secretary of the Company) valued at their Fair Market Value on the exercise date, and no Shares shall be issued until such payment in full has been made. The Holder shall have none of the rights of a shareholder with respect to Shares subject to a Stock Option or Stock Appreciation Right unless and until the Shares are issued to the Holder.

     3.6 Acquired Company Options. Notwithstanding anything in the Plan to the contrary, the Committee may grant Stock Options and/or Stock Appreciation Rights under this Plan in substitution for stock options and/or stock appreciation rights issued under other plans, or assume under this Plan stock options and/or stock appreciation rights issued under other plans, if the other plans are or were plans of other corporations (“acquired corporations”) (or the parent of the acquired corporation) and the new Option or Right is substituted, or the old option or right is assumed, by reason of a corporate merger, consolidation, acquisition of property or of stock, reorganization or liquidation (the “Acquisition Transaction”) within the meaning of Section 424(a) of the Code and provided that the requirements of Code Sections 424(a)(1) and (2) are complied with. In the event that a written agreement pursuant to which the Acquisition Transaction is completed is approved by the Board of Directors and said Agreement sets forth the terms and conditions of the substitution for or assumption of outstanding stock options of the acquired corporation, said terms and conditions shall be deemed to be the action of the Committee hereunder without any further action by the Committee and the persons holding such stock option or stock appreciation right shall be deemed to be Participants and Holders.

ARTICLE IV. STOCK AWARDS

4. Stock Awards

          4.1 Committee Authority. The Committee is authorized to make awards of Shares of the Company subject to Performance Measures established by the Committee, in writing, no later than the first 90 days of the period in which the performance Measure shall apply. Performance periods shall not be shorter than one year. Other terms, conditions and restrictions of such awards shall be set forth in an agreement or agreements between the Company and the recipient of the Award. The terms, conditions and restrictions which the Committee shall have the power to determine shall include the manner in which Shares subject to Restricted Stock Awards are held during the periods they are subject to restrictions and the circumstances under which forfeiture of Restricted Stock Share Awards and Shares subject to Restricted Stock Awards shall occur by reason of termination of employment of the Holder.

10


 

          4.2 Issuance of Shares. Upon the satisfaction of the terms, conditions and restrictions prescribed in respect to a Restricted Stock Award, or upon the Holder’s release from the terms, conditions and restrictions of a Restricted Stock Award, as determined by the Committee, the Company shall deliver, as soon as practicable, to the Holder, or in the case of the Holder’s death, to the personal representative of the Holder or as the appropriate court directs, a stock certificate for the appropriate number of Shares.

          4.3 Waiver of Restrictions. Notwithstanding any other provisions of the Plan, the Committee may, in its sole discretion, waive the forfeiture period and any other terms, conditions or restrictions of any Stock Award under circumstances (including the death, Disability, Retirement or Early Retirement of the Holder, or material change in the Holder’s circumstances arising after the date of the Award), and subject to such terms and conditions (including forfeiture of the Shares) as the Committee shall deem appropriate.

          4.4 Maximum Annual Stock Awards. The maximum number of shares that may be awarded to any participant each year as Stock Awards is 50,000, except that one award of up to 100,000 shares may be made to a Participant after such Participant becomes the Chief Executive Officer of the Company.

ARTICLE V. PERFORMANCE SHARE AWARDS

5. Performance Share Awards

     5.1 Performance Share Awards Authority. The Committee is authorized to grant performance Share Awards to Participants using Performance Measures established by the Committee, in writing, no later than the first 90 days of the period in which the Performance Measure shall apply. In addition, the Committee is authorized to determine: (a) the length of performance periods except that no performance period may be shorter than one year, (b) the amount and frequency of grants of Performance Share Awards, both independently and in relation to grants of Stock Options and other Awards, and (c) the form of payment of Awards, which may be in cash, shares, Options, Rights or Awards or any combination of cash, Shares, Options, Rights and Awards. The Committee may not adjust performance goals and performance periods established for any Award if such adjustment would increase the amount of the Award.

     5.2 Payout Upon Termination. In the event a Holder’s employment by the Company or a Subsidiary terminates during the performance period of a Performance Share Award, payout shall be as follows:

       (a) If the termination of employment is the result of discharge for cause or resignation, or Early Retirement prior to age 62 at the request of the Holder, the Award shall be forfeited in full.

       (b) If the termination is the result of Retirement, death, Disability, position elimination, or Early Retirement at the request of the Company, payout shall be made at the end of the applicable performance period and prorated for service during the performance period.

11


 

     5.3 Maximum Amount of Performance Share Awards. The maximum amount that may be paid to any Participant in any year with respect to Performance Share Awards is $2,000,000.

ARTICLE VI. GENERAL

     6.1 Amendment and Termination of Plan. The Board of Directors of the Company may from time to time amend, modify, or otherwise alter the Plan or any provision thereof, or discontinue or terminate the Plan; but no amendment or discontinuance of the Plan shall, without the written consent of the Holder, adversely affect the Holder’s Stock Option, Stock Appreciation Right or Award.

     6.2 Continued Employment; Rights in Options and Awards Neither the Plan, participation in the Plan as a Participant, or any action of the Committee taken under the Plan shall be construed as giving any Participant or employee of the Company or a Subsidiary any right to be retained in the employ of the Company or a Subsidiary or limit the right of the Company or a Subsidiary to terminate the employment of the Participant or employee.

     6.3 Other Compensation Plans. Neither the adoption of the Plan nor anything contained in the Plan shall prevent the Company or any Subsidiary from adopting or continuing other or additional compensation arrangements, or discontinuing or terminating such arrangements, and such other arrangements may be either generally applicable or applicable only in specific cases.

     6.4 Certificates for Shares; Registration. The Company shall be under no obligation to any Participant to register for offering or resale under the Securities Act of 1933, or register or qualify under state securities laws, any Shares, security or interest in a security paid or issued under, or created by the Plan. The Company may issue certificates for Shares with such legends and subject to such restrictions on transfer and stop transfer instructions as counsel for the Company deem necessary or desirable for compliance by the Company with federal and state securities laws.

     6.5 No Rights as Shareholder. No Stock Option, Stock Appreciation Right or Award shall entitle the Holder to any dividend, voting or other right of a shareholder unless and until the date of issuance under the Plan of the Shares that are the subject of the Option, Right or Award, free of all applicable restrictions.

     6.6 No Assignment or Transfer of Interests. No Stock Option, Stock Appreciation Right or Award shall be assignable or otherwise transferable by the Holder except as provided for herein in the case of death of the Holder. If a Holder makes an assignment or transfer in violation of this Section, any obligation of the Company with respect to such Option, Right or Award shall thereupon terminate.

     6.7 Compliance with Laws and Regulations. The Plan is intended to satisfy the conditions of Rule 16b-3, as amended from time to time, as promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended from time to time, and all interpretations of the Plan shall to the extent permitted by law, regulations and rulings, be made in a manner consistent with and so as to satisfy the conditions of Rule 166-3. Additionally, in interpreting and applying the provisions of the Plan, any Stock Option granted as

12


 

an Incentive Stock Option pursuant to the Plan shall to the extent permitted by law, be construed as an “incentive stock option” within the meaning of Section 422 of the Code.

     6.8 Withholding of Taxes. The Company may require the Holder to pay to the Company the amount of any withholding taxes which the Company is required to withhold with respect to the grant, exercise, payment or settlement of any Stock Option, Stock Appreciation Right or Award. In such instances, the Committee may, in its discretion and subject to the Plan and applicable law, permit the Holder to satisfy withholding obligations, in whole or in part, by paying cash or by electing to have the Company withhold Shares, or to transfer Shares to the Company, in such amounts as are equivalent to the Fair Market Value of the withholding obligation.

     6.9 No Trust or Fund. The Plan is intended to constitute an “unfunded” plan. Nothing contained herein shall require the Company to segregate any monies or other property, or Shares, or to create any trusts, or to make any special deposits for any immediate or deferred amounts payable to any Participant, and no Participant shall have any rights that are greater than those of a general unsecured creditor of the Company.

     6.10 Governing Law. The Plan and all interpretations of its provisions shall be governed by the laws of the State of Washington and applicable Federal laws.

     6.11 Severability. If any provision of the Plan or any Stock Option, Stock Appreciation Right or Award is determined to be invalid, illegal or unenforceable in any jurisdiction, or as to any person, or would disqualify the Plan or any Option, Right or Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or, if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Option, Right or Award, such provision shall be stricken as to such jurisdiction, person or Option, Right or Award, and the remainder of the Plan and any such Option, Right or award shall remain in full force and effect.

13 EX-10.(J) 6 v96705exv10wxjy.htm EXHIBIT 10.(J) exv10wxjy

 

EXHIBIT 10(j)

Amended and Restated
Weyerhaeuser
Company
1998 Long-Term
Incentive Compensation Plan

Approved by Shareholders
April 16, 2002
As amended June 5, 2002 and
October 8, 2002 and October 8, 2003

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Table of Contents

                     
ARTICLE I.   GENERAL     1  
  1.1     Name of Plan     1  
  1.2     Purposes     1  
  1.3     Effective Date     1  
  1.4     Number of Shares     1  
       
1.4.1
  Authorized Number of Shares     1  
       
1.4.2
  Reuse of Shares     1  
       
1.4.3
  Adjustment of Shares     1  
  1.5     Administration     2  
       
1.5.1
  Administration and Interpretation by the Committee     2  
       
1.5.2
  Delegation     2  
       
1.5.3
  Jurisdictions Outside the United States     2  
ARTICLE II.   DEFINITIONS     2  
ARTICLE III.   STOCK OPTIONS; STOCK APPRECIATION RIGHTS     6  
  3.1     Types of Stock Options     6  
       
3.1.1
  Types of Options     6  
       
3.1.2
  Stock Appreciation Rights     6  
       
3.1.3
  Exercise/Sell Election     6  
       
3.1.4
  Exercise/Hold Election     7  
  3.2     Option Price     7  
  3.3     Maximum Annual Award of Shares     7  
  3.4     Vesting; Exercise Upon Termination of Employment     7  
       
3.4.1
  Initial Vesting Period     7  
       
3.4.2
  Term of Options and Stock Appreciation Rights     7  
       
3.4.3
  Exercise by Personal Representative     7  
       
3.4.4
  Post-Termination Exercises     7  
  3.5     Payment for Shares     8  
       
3.5.1
  Form of Payment     8  
  3.6     Acquired Company Awards     8  
ARTICLE IV.   STOCK AWARDS     9  
  4.1     Committee Authority     9  
  4.2     Issuance of Shares     9  
  4.3     Waiver of Restrictions     9  
  4.4     Maximum Annual Stock Awards     9  
ARTICLE V.   PERFORMANCE SHARE AWARDS     9  
  5.1     Performance Share Awards Authority     9  
  5.2     Payout Upon Termination     10  
  5.3     Maximum Amount of Performance Share Awards     10  
ARTICLE VI.   GENERAL     10  
  6.1     Amendment and Termination of Plan     10  

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  6.2     Continued Employment; Rights in Options and Awards     10  
  6.3     Other Compensation Plans     11  
  6.4     Certificates for Shares; Registration     11  
  6.5     No Rights as Shareholder     11  
  6.6     No Assignment or Transfer of Interests     11  
  6.7     Compliance with Laws and Regulations     11  
  6.8     Withholding of Taxes     11  
  6.9     No Trust or Fund     11  
  6.10     Governing Law     12  
  6.11     Severability     12  
ARTICLE VII   CHANGE IN CONTROL     12  
  7.1     Treatment of Outstanding Awards     12  
  7.2     Termination, Amendment, and Modification of Change-in-Control Provisions     12  
  7.3     Pooling of Interests Accounting     13  

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Amended and Restated Weyerhaeuser Company
1998 Long-Term Incentive Compensation Plan

ARTICLE I. GENERAL

     1.1 Name of Plan. The name of the plan set forth herein is the “Weyerhaeuser Company 1998 Long-Term Incentive Compensation Plan,” herein called the “Plan.”

     1.2 Purposes. The purposes of the Plan are to enhance the long-term profitability and shareholder value of Weyerhaeuser Company by offering stock-based incentives to those employees of the Company and Subsidiaries who are key to the growth and success of Weyerhaeuser, to attract and retain executives with experience and ability on a basis competitive with industry practices, and to motivate executives to focus on strategies that will increase stock price over time.

     1.3 Effective Date. The effective date of the Plan is the date on which it is approved by the shareholders of the Company at the annual meeting of shareholders on April 21, 1998 or any adjournment thereof. The Plan shall have no fixed expiration date.

     1.4 Number of Shares

           1.4.1 Authorized Number of Shares. The number of Shares that may be issued under the Plan shall not exceed twenty million (20,000,000). Shares issued pursuant to the Plan will be authorized and unissued Shares which may include Shares which from time to time have been reacquired by the Company.

           1.4.2 Reuse of Shares. To the extent that (a) any Stock Option or Stock Appreciation Right expires, or is terminated, canceled or surrendered, without being exercised; (b) Shares are not issued upon exercise of any Stock Appreciation Right; (c) the underlying Shares are not issued because the Award is forfeited, terminated, surrendered or canceled; or (d) Shares are not issued pursuant to any Performance Share Award, then Shares underlying or subject to such Stock Option, Stock Appreciation Right or Award shall again be available for issuance in connection with future grants of Stock Options, Stock Appreciation Rights and Awards under the Plan.

           1.4.3 Adjustment of Shares. In the event that at any time or from time to time a stock dividend, stock split, recapitalization, merger, consolidation, or other change in capitalization of the Company, or a sale by the Company of all or part of its assets, or any distribution to shareholders other than a cash dividend, results in (a) the outstanding Shares, or any securities exchanged therefor or received in their place being exchanged for a different number or class of securities of the Company or of any other corporation, or (b) new, different or additional securities of the Company or of any other corporation being received by the holders of Shares of the Company, then:

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      (i)  the limitation to 20,000,000 Shares set forth in Section 1.4.1 of Article I;
 
      (ii)  the number and class of Shares that may be made subject to Stock Options, Stock Appreciation Rights and Awards;
 
      (iii)  the Option Price of unexercised Stock Options and Stock Appreciation Rights; and
 
    (iv)  Share values or prices used for calculation purposes

shall in each case be equitably adjusted as determined by the Committee in its sole discretion.

     1.5 Administration

           1.5.1 Administration and Interpretation by the Committee. The Plan shall be administered by the Committee. The Board shall consider in selecting members of the Committee, the provisions regarding (a) “outside directors” as contemplated by Section 162(m) of the Code and (b) “nonemployee directors” as contemplated by Rule 16b-3 under the Exchange Act. The Committee shall have exclusive authority to designate the employees of the Company and Subsidiaries who are eligible to participate in the Plan as Participants. The Committee shall also have exclusive authority to interpret the Plan and may from time to time adopt, and change, rules and regulations of general application for the administration of the Plan, including rules and regulations relating to the manner of exercise and settlement of Stock Options and Stock Appreciation Rights, issuance and custody of Restricted Stock and the manner of settlement of Performance Share Awards. The Committee’s interpretation of the Plan and its rules and regulations, and all actions taken and determinations made by the Committee pursuant to the Plan, shall be conclusive and binding on all parties involved or affected.

           1.5.2 Delegation. The Board or the Committee may delegate the responsibility for administering the Plan with respect to designated classes of eligible Participants to a different committee or committees appointed by the Board consisting of two or more members of the Board, subject to such limitations as the Board or the Committee deems appropriate. The Committee may delegate administrative duties to such of the officers of the Company as it so determines.

           1.5.3 Jurisdictions Outside the United States. The Committee shall have the authority and discretion to establish terms and conditions of awards as the Committee determines to be necessary or appropriate to conform to applicable requirements or practices of jurisdictions outside of the United States.

ARTICLE II. DEFINITIONS

     For purposes of the Plan, the following terms shall be defined as set forth below:

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     2.1 “Award” means any award or grant of Shares under Section 4 of Article IV and any award or grant of Performance Shares under Section 5 of Article V.

     2.2 “Beneficial Owner” shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act.

     2.3 “Board” means the Board of Directors of the Company.

     2.4 “Change in Control” or “CIC” of the Company shall be deemed to have occurred as of the first day that any one or more of the following conditions shall have been satisfied:

      (i)  Any Person, but excluding the Company and any subsidiary of the Company and any employee benefit plan sponsored or maintained by the Company or any subsidiary of the Company (including any trustee of such plan acting as trustee), directly or indirectly, becomes the Beneficial Owner of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company’s then outstanding securities with respect to the election of directors of the Company and such ownership continues for at least a period of thirty (30) days (with the end of such period being deemed the effective date of the CIC); or
 
      (ii)  During any twenty-four (24) consecutive month period, the individuals who, at the beginning of such period, constitute the Board (the “Incumbent Directors”) cease for any reason other than death to constitute at least a majority thereof, provided, however, that a director who was not a director at the beginning of such twenty-four (24) month period shall be deemed to have satisfied such twenty-four (24) month requirement (and be an Incumbent Director) if such director was elected by, or on the recommendation of or with the approval of, at least two-thirds (2/3) of the directors who then qualified as Incumbent Directors either actually (because they were directors at the beginning of such period) or by prior operation of the provisions of this Section 2(f); or
 
      (iii)  There is consummated: (a) a plan of complete liquidation of the Company; or (b) a sale or disposition of all or substantially all the Company’s assets in one or a series of related transactions; or (c) a merger, consolidation, or reorganization of the Company with or involving any other corporation, other than a merger, consolidation, or reorganization that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than sixty-five percent (65%) of the combined voting power of the voting securities of the Company (or such surviving entity) outstanding immediately after such merger, consolidation, or reorganization.”

     2.5 “Code” means the Internal Revenue Code as amended from time to time.

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     2.6 “Committee” means the Compensation Committee of the Board of Directors of the Company.

     2.7 “Company” means Weyerhaeuser Company, a Washington corporation.

     2.8 “Disability” means “disability” as that term is defined for purposes of the Company’s Retirement Plan for Salaried Employees.

     2.9 “Disability Retirement” means a termination that is due to Disability, but does not satisfy the conditions of an Early Retirement or Retirement, and the onset of Disability occurred on or after the date the Participant accrued 10 years of Vesting Service (as defined in the Weyerhaeuser Company Retirement Plan for Salaried Employees) and, in the U.S., the Participant is eligible to receive immediate or deferred Disability Retirement benefits pursuant to Section 4.8 of the Weyerhaeuser Company Retirement Plan for Salaried Employees.

     2.10 “Early Retirement” means retirement pursuant to the Company’s Retirement Plan for Salaried Employees on a date prior to the individual’s normal retirement date.

     2.11 “Exchange Act” means the Securities Act of 1934 as amended from time to time.

     2.12 “Exercise/Sell Election” means the election set forth in Section 3.1.3 of Article III.

     2.13 “Fair Market Value” means the arithmetic average of the highest and lowest sales prices per Share on a day as reported on the consolidated transaction reporting system for New York Stock Exchange issues or such other source the Committee deems reliable for the day.

     2.14 “Grant Date” means the date designated in a resolution of the Committee as the date the Stock Option, Stock Appreciation Right or Award is granted, which date shall not be earlier than the date the Committee completed the act of adoption of the resolution. If the Committee does not designate a Grant Date in the resolution, the Grant Date shall be the date the Committee completed the act of adoption of the resolution.

     2.15 “Holder” means the Participant to whom is granted a Stock Option, Stock Appreciation Right or Award, or the personal representative of the Holder who has died.

     2.16 “Incentive Stock Option” means an option to purchase Shares granted under Article III of the Plan with the intention that it qualify as an “incentive stock option” as that term is defined in Section 422 of the Code.

     2.17 “Non-Qualified Stock Option” means an option to purchase Shares granted under Article III of the Plan other than an Incentive Stock Option.

     2.18 “Option Price” means the purchase price of Shares, as prescribed by the Committee, in respect to any Stock Option or Stock Appreciation Right.

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     2.19 “Participant” means an individual who is a Holder of Stock Options, Stock Appreciation Rights and/or Awards or, as the context may require, any employee of the Company or a Subsidiary who has been designated by the Committee as eligible to participate in the Plan.

     2.20 “Performance Measures” means objective criteria specifically defined by the Committee on a Company-specific basis, business-unit basis or in comparison with peer group performance, which may include or exclude specified items of an unusual or nonrecurring nature, and are based on one or more of the following: earnings before interest and taxes, net earnings, earnings per share, return on equity, return on assets, return on capital employed, cash flow, cost reduction, stock price appreciation, total shareholder return, economic value added, cash flow return on investment, and cash value added.

     2.21 “Performance Share” means a unit of value, equal on the Grant Date to the Fair Market Value of a Share on such Date or such greater value as the Committee shall prescribe, used to calculate the total value of a Performance Share Award.

     2.22 “Performance Share Award” means an award granted under Article V of the Plan the payout of which is subject to achievement through a performance period of performance goals prescribed by the Committee.

     2.23 “Person” shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a ‘group’ as defined in Section 13(d).

     2.24 “Restricted Stock Award” means an Award of Shares granted under Article IV of the Plan the rights of ownership of which are subject to restrictions prescribed by the Committee.

     2.25 “Retirement” means retirement as of the individual’s normal retirement date under the Company’s Retirement Plan for Salaried Employees.

     2.26 “Shares” means the common shares (par value $1.25 per share) of the Company.

     2.27 “Stock Appreciation Right” means a right, granted under Section 3.1.2 of Article III, to surrender to the Company all or a portion of the related Stock Option, if any, and to receive an amount (in Shares or cash or any combination of Shares and cash, as the Committee shall determine) equal to the excess of the fair market value per Share, as determined in Section 3.1.2, for the date the Stock Appreciation Right is exercised over the Option Price per Share.

     2.28 “Stock Option” or “Option” means the right to purchase Shares granted under Section 3.1.1 of Article III of the Plan.

     2.29 “Subsidiary” means a corporation the voting share ownership of which, by the Company or another Subsidiary, is sufficient for the election of a majority of the directors of the corporation.

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ARTICLE III. STOCK OPTIONS; STOCK APPRECIATION RIGHTS

3.1 Types of Stock Options

           3.1.1 Types of Options. The Committee is authorized to grant Stock Options to Participants either alone or wholly or partially in connection with Stock Appreciation Rights, for such number of Shares and at such Option Price, and exercisable in such installments over such periods of time and subject to such vesting provisions, as the Committee shall determine. The Committee shall designate each Option issued hereunder as an “Incentive Stock Option” or a “Non-Qualified Stock Option.” To the extent the aggregate Fair Market Value (determined as of the Grant Date) of Common Stock with respect to which Incentive Stock Options are exercisable for the first time during any calendar year (under the Plan and all other stock option plans of the Company) exceeds $100,000, such portion in excess of $100,000 shall be treated as a Nonqualified Stock Option. In the event the participant holds two or more such Options that become exercisable for the first time in the same calendar year, such limitation shall be applied on the basis of the order in which such Options are granted.

           3.1.2 Stock Appreciation Rights. The Committee is authorized to grant Stock Appreciation Rights, either alone or wholly or partly in conjunction with Stock Options, for such numbers of Shares and at such Option Prices as the Committee shall determine. Upon exercise of a Stock Appreciation Right, the Holder shall be entitled to receive cash equivalent to the difference per Share between the fair market value and the Option Price, multiplied by the number of Shares as to which the Stock Appreciation Right is exercised; provided that for purposes of this Section 3.1.2, the fair market value per Share shall be the market price at which Shares are trading on the New York Stock Exchange as of the time the Stock Appreciation Right is exercised; and, provided further, that the Committee shall have the sole discretion to determine in any case or cases such other form in which payment will be made to the Holder, i.e. all cash, all Shares, or any combination thereof. If the Holder is to receive Shares upon exercise of a Stock Appreciation Right, the number of Shares so determined is not a whole number, such number shall be reduced to the next lower number and there shall be paid to the Holder in cash an amount equal to the product of multiplying the remaining fractional share by the fair market value, as determined pursuant to the prior sentence, of one share on the exercise date.

           3.1.3 Exercise/Sell Election. Holders of Stock Options not granted in conjunction with Stock Appreciation Rights shall have, at each time of exercise of such an Option, the right to elect to exercise such Option by causing a cash payment of the Option Price to be made to the Company and simultaneously having such number of such Shares sold through a Company-designated registered broker in an open market transaction , such “exercise/sell election” to be effected in accordance with procedures and documentation established by the Secretary of the Company. The Holder of such Exercise/Sell election shall have the right to elect either to: (A) have the number of Shares to be sold approximate the number of Shares that upon sale on the exercise date would be required to yield cash proceeds equivalent to the sum of (i) the total Option Price for the Shares as to which the option is exercised and (ii) the applicable tax withhholding due upon exercise of the Option; or (B) have the number of Shares sold be the

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number of shares as to which the option is exercised. The Holder of the Stock Option with the Exercise/Sell Election electing under (A) above shall be entitled to receive (i) the proceeds of sale of the Shares to be sold remaining after payment to the Company of the Option Price and the applicable tax withholding; and (ii) the number of Shares remaining after the sale of Shares as provided above. The Holder of the Stock Option with the Exercise/Sell Election electing under (B) above shall be entitled to receive the proceeds of the sale of the Shares to be sold remaining after payment to the Company of the Option Price and the applicable tax withholding.

           3.1.4 Exercise/Hold Election Holders of Stock Options not granted in conjunction with Stock Appreciation Rights shall have, at each time of exercise of such an Option, the right to elect to exercise such Option by causing a cash payment of the Option Price plus any applicable tax withholding due upon the exercise of the Option to be made to the Company. For purposes of determining the amount to be paid to the Company under this Section 3.1.4 for applicable tax withholding, the value of the Shares obtained upon exercise shall be deemed to be the Fair Market Value per Share on the trading day immediately prior to the exercise date.

     3.2 Option Price. The Option Price of the Shares subject to any Stock Option or Stock Appreciation Right shall be determined by the Committee, but shall in no instance be less than the Fair Market Value on the Grant Date.

     3.3 Maximum Annual Award of Shares. The maximum number of shares that may be awarded to any Participant in any year as Stock Options or Stock Appreciation Rights is 200,000, except that in one year up to 400,000 shares may be awarded to a Participant after such Participant becomes Chief Executive Officer of the Company.

     3.4 Vesting; Exercise Upon Termination of Employment

           3.4.1 Initial Vesting Period. Each Stock Option and Stock Appreciation Right shall become initially exercisable after such period as may be determined by the Committee.

           3.4.2 Term of Options and Stock Appreciation Rights. Except as otherwise provided in this Section 3, each Stock Option and Stock Appreciation Right shall by its terms expire at such time as the Committee may determine in granting it, but not later than ten years from the date the Option or Right is granted.

           3.4.3 Exercise by Personal Representative. Any Stock Option or Stock Appreciation Right exercisable at the time of death of the Holder may be exercised by the personal representative of the Holder entitled thereto at any time or from time to time within two years after the date of death, but in no event later than ten years (or such shorter period as determined under Section 3.4.2) from the Grant Date.

           3.4.4 Post-Termination Exercises. In case of termination of employment of the Holder other than by reason of death, any Stock Option or Stock Appreciation Right of the Holder shall be exercisable after the date the Holder ceases to be an employee of the Company or

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a Subsidiary only: (i) within three years if the termination of the Holder’s employment is as a result of position elimination or Disability, or (ii) within five years if the termination of the Holder’s employment is coincident with Early Retirement or Disability Retirement, or (iii) within the remaining term established by the Committee in granting the Stock Option or Stock Appreciation Right if the termination of the Holder’s employment is coincident with Retirement, or (iv) within three months if termination of the Holder’s employment is for any reason other than position elimination, Disability, Early Retirement or Retirement, but in no event shall the Stock Option or Stock Appreciation Right be exercisable under this Section 3.4.4 later than ten years (or such shorter period determined under Section 3.4.2) from the Grant Date. Neither transfer of employment between or among the Company and Subsidiaries, or a leave of absence approved in accordance with Company procedures, shall be considered termination of employment.

     3.5 Payment for Shares

           3.5.1 Form of Payment. Upon exercise of a Stock Option not involving exercise of a related Stock Appreciation Right, in whole or in part, the Option Price for Shares to which the exercise relates shall be paid in cash (including payment in accordance with Section 3.1.3 and 3.1.4) or, unless otherwise designated by the Committee at the time the Stock Option is granted, paid for with Shares already owned by the Holder for at least six months (or any shorter period necessary to avoid a charge to the Company’s earnings for financial reporting purposes) in the manner designated by the Secretary of the Company, valued at their Fair Market Value on the trading day immediately preceding the exercise date. Such payment may be made by tendering by attestation Shares already owned by the Holder that on the day immediately prior to the exercise date have a Fair Market Value equal to the aggregate exercise price of the Shares being purchased under the Option. No Shares shall be issued until such payment in full of cash or previously owned Shares has been made. The Holder shall have none of the rights of a shareholder with respect to Shares subject to a Stock Option or Stock Appreciation Right unless and until the Shares are issued to the Holder.

     3.6 Acquired Company Awards. Notwithstanding anything in the Plan to the contrary, the Committee may grant Stock Options, Stock Appreciation Rights and/or Awards under this Plan in substitution for equity or equity-based awards issued under other plans, or assume under this Plan equity or equity-based awards issued under other plans, if the other plans are or were plans of other corporations (“acquired corporations”) (or the parent of the acquired corporation) and the new Option, Right or Award is substituted, or the old award is assumed, by reason of a corporate merger, consolidation, acquisition of property or of stock, reorganization or liquidation (the “Acquisition Transaction”) within the meaning of Section 424(a) of the Code and provided that the requirements of Code Sections 424(a)(1) and (2) are complied with in connection with options designated as incentive stock options intended to qualify under Section 422 of the Code. In the event that a written agreement pursuant to which the Acquisition Transaction is completed is approved by the Board of Directors and said Agreement sets forth the terms and conditions of the substitution for or assumption of outstanding equity or equity-based awards of the acquired corporation, said terms and conditions shall be deemed to be the action of the Committee hereunder without any further action by the Committee and the persons holding

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such awards shall be deemed to be Participants and Holders; provided that the Committee may take any further action with respect to such awards as may be necessary in connection with Section 162(m) of the Code or Rule 16b-3 under the Exchange Act.

ARTICLE IV. STOCK AWARDS

     4.1 Committee Authority. The Committee is authorized to make awards of Shares of the Company subject to Performance Measures established by the Committee, in writing, no later than the first 90 days of the period in which the Performance Measure shall apply; provided, however, that the maximum number of shares that may be awarded as stock awards is 1,000,000 shares. Performance periods shall not be shorter than one year. Other terms, conditions and restrictions of such awards shall be set forth in an agreement or agreements between the Company and the recipient of the Award. The terms, conditions and restrictions which the Committee shall have the power to determine shall include the manner in which Shares subject to Restricted Stock Awards are held during the periods they are subject to restrictions and the circumstances under which forfeiture of Restricted Stock Share Awards and Shares subject to Restricted Stock Awards shall occur by reason of termination of employment of the Holder.

     4.2 Issuance of Shares. Upon the satisfaction of the terms, conditions and restrictions prescribed in respect to a Restricted Stock Award, or upon the Holder’s release from the terms, conditions and restrictions of a Restricted Stock Award, as determined by the Committee, the Company shall deliver, as soon as practicable, to the Holder, or in the case of the Holder’s death, to the personal representative of the Holder or as the appropriate court directs, a stock certificate for the appropriate number of Shares.

     4.3 Waiver of Restrictions. Notwithstanding any other provisions of the Plan, the Committee may, in its sole discretion, waive the forfeiture period and any other terms, conditions or restrictions of any Stock Award under circumstances (including the death, Disability, Retirement or Early Retirement of the Holder, or material change in the Holder’s circumstances arising after the date of the Award), and subject to such terms and conditions (including forfeiture of the Shares) as the Committee shall deem appropriate.

     4.4 Maximum Annual Stock Awards. The maximum number of shares that may be awarded to any participant each year as Stock Awards is 50,000, except that one award of up to 100,000 shares may be made to a Participant after such Participant becomes the Chief Executive Officer of the Company.

ARTICLE V. PERFORMANCE SHARE AWARDS

     5.1 Performance Share Awards Authority. The Committee is authorized to grant Performance Share Awards to Participants using Performance Measures established by the Committee, in writing, no later than the first 90 days of the period in which the Performance Measure shall apply. In addition, the Committee is authorized to determine: (a) the length of

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performance periods except that no performance period may be shorter than one year, (b) the amount and frequency of grants of Performance Share Awards, both independently and in relation to grants of Stock Options and other Awards, and (c) the form of payment of Awards, which may be in cash, shares, Options, Rights or Awards or any combination of cash, Shares, Options, Rights and Awards. The Committee may not adjust performance goals and performance periods established for any Award if such adjustment would increase the amount of the Award.

     5.2 Payout Upon Termination. In the event a Holder’s employment by the Company or a Subsidiary terminates during the performance period of a Performance Share Award, payout shall be as follows:

      (a)  If the termination of employment is the result of discharge for cause or resignation, or Early Retirement prior to age 62 at the request of the Holder, the Award shall be forfeited in full.
 
      (b)  If the termination is the result of Retirement, death, Disability, position elimination, or Early Retirement at the request of the Company, payout shall be made at the end of the applicable performance period and prorated for service during the performance period.

     5.3 Maximum Amount of Performance Share Awards. The maximum amount that may be paid to any Participant in any year with respect to Performance Share Awards is $2,000,000.

ARTICLE VI. GENERAL

     6.1 Amendment and Termination of Plan. The Board or the Committee may from time to time discontinue or terminate the Plan and may from time to time amend, modify, or otherwise alter the Plan or any provision thereof without shareholder approval, except as may be required to comply with the federal securities laws, the listing requirements of a national securities exchange or the Internal Revenue Code; provided, however, that no amendment may be made without shareholder approval if such amendment would decrease the Option Price set by the Committee upon grant of the Option, except for adjustments made pursuant to Section 1.4.3. No amendment or discontinuance of the Plan shall, without the written consent of the Holder adversely affect the Holder’s Stock Option, Stock Appreciation Right or Award.

     6.2 Continued Employment; Rights in Options and Awards. Neither the Plan, participation in the Plan as a Participant, or any action of the Committee taken under the Plan shall be construed as giving any Participant or employee of the Company or a Subsidiary any right to be retained in the employ of the Company or a Subsidiary or limit the right of the Company or a Subsidiary to terminate the employment of the Participant or employee. In addition, neither the Plan, participation in the Plan as a Participant, or any action of the Committee taken under the Plan shall be construed as giving the Participant or employee of the Company or a Subsidiary any right to continued rights to options or awards under the plan.

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     6.3 Other Compensation Plans. Neither the adoption of the Plan nor anything contained in the Plan shall prevent the Company or any Subsidiary from adopting or continuing other or additional compensation arrangements, or discontinuing or terminating such arrangements, and such other arrangements may be either generally applicable or applicable only in specific cases.

     6.4 Certificates for Shares; Registration. The Company shall be under no obligation to any Participant to register for offering or resale under the Securities Act of 1933, or register or qualify under state securities laws, any Shares, security or interest in a security paid or issued under, or created by the Plan. The Company may issue certificates for Shares with such legends and subject to such restrictions on transfer and stop transfer instructions as counsel for the Company deem necessary or desirable for compliance by the Company with federal and state securities laws.

     6.5 No Rights as Shareholder. No Stock Option, Stock Appreciation Right or Award shall entitle the Holder to any dividend, voting or other right of a shareholder unless and until the date of issuance under the Plan of the Shares that are the subject of the Option, Right or Award, free of all applicable restrictions.

     6.6 No Assignment or Transfer of Interests. No Stock Option, Stock Appreciation Right or Award shall be assignable or otherwise transferable by the Holder except as provided for herein in the case of death of the Holder. If a Holder makes an assignment or transfer in violation of this Section, any obligation of the Company with respect to such Option, Right or Award shall thereupon terminate.

     6.7 Compliance with Laws and Regulations. In interpreting and applying the provisions of the Plan, any Stock Option granted as an Incentive Stock Option pursuant to the Plan shall to the extent permitted by law, be construed as an “incentive stock option” within the meaning of Section 422 of the Code.

     6.8 Withholding of Taxes. The Company may require the Holder to pay to the Company the amount of any withholding taxes which the Company is required to withhold with respect to the grant, exercise, payment or settlement of any Stock Option, Stock Appreciation Right or Award. In such instances, the Committee may, in its discretion and subject to the Plan and applicable law, permit the Holder to satisfy withholding obligations, in whole or in part, by paying cash or by electing to have the Company withhold Shares, or to transfer Shares to the Company, in such amounts as are equivalent to the Fair Market Value of the withholding obligation.

     6.9 No Trust or Fund. The Plan is intended to constitute an “unfunded” plan. Nothing contained herein shall require the Company to segregate any monies or other property, or Shares, or to create any trusts, or to make any special deposits for any immediate or deferred amounts payable to any Participant, and no Participant shall have any rights that are greater than those of a general unsecured creditor of the Company.

11


 

     6.10 Governing Law. The Plan and all interpretations of its provisions shall be governed by the laws of the State of Washington and applicable Federal laws.

     6.11 Severability. If any provision of the Plan or any Stock Option, Stock Appreciation Right or Award is determined to be invalid, illegal or unenforceable in any jurisdiction, or as to any person, or would disqualify the Plan or any Option, Right or Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or, if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Option, Right or Award, such provision shall be stricken as to such jurisdiction, person or Option, Right or Award, and the remainder of the Plan and any such Option, Right or award shall remain in full force and effect.

ARTICLE VII      CHANGE IN CONTROL

     7.1 Treatment of Outstanding Awards. Upon the occurrence of a Change in Control, unless otherwise specifically prohibited under the applicable laws, or by the rules and regulations of any governing governmental agencies or national securities exchanges:

      (i)  Any and all Options and Stock Appreciation Rights shall become immediately exercisable, and shall remain exercisable throughout their entire term;
 
      (ii)  Any restriction periods and restrictions imposed on Restricted Stock Awards which are not performance-based shall lapse;
 
      (iii)  The target payout opportunities attainable under all outstanding Awards shall be deemed to have been fully earned for the entire performance period(s) as of the effective date of the Change in Control. The vesting of all Awards denominated in Shares shall be accelerated as of the effective date of the Change in Control, and there shall be paid out in cash to Participants within thirty (30) days following the effective date of the Change in Control a pro rata number of shares based upon an assumed achievement of all relevant targeted performance goals and upon the length of time within the performance period which has elapsed prior to the Change in Control; provided, however, that there shall not be an accelerated cash payout with respect to Awards which qualify as “derivative securities” under Section 16 of the Exchange Act which were granted less than six (6) months prior to the effective date of the Change in Control.

     7.2 Termination, Amendment, and Modification of Change-in-Control Provisions. Notwithstanding any other provision of this Plan (but subject to the limitations of Section 6.1 hereof) or any award agreement provision, the provisions of this Article 7 may not be terminated, amended, or modified on or after the date of a Change in Control to affect adversely any Award theretofore granted under the Plan without the prior written consent of the Participant with respect to said Participant’s outstanding Awards; provided, however, the Committee, may

12


 

terminate, amend, or modify this Article 7 at any time and from time to time prior to the date of a Change in Control.

7.3 Pooling of Interests Accounting. Notwithstanding any other provision of the Plan to the contrary, in the event that the consummation of a Change in Control is contingent on using pooling of interests accounting methodology, the Committee may take any action necessary to preserve the use of pooling of interests accounting.

13

EX-12 7 v96705exv12.htm EXHIBIT 12 exv12
 

EXHIBIT 12

Weyerhaeuser Company and Subsidiaries
Computation of Ratios of Earnings to Fixed Charges

(Dollar amounts in thousands)

                                         
    2003
  2002
  2001
  2000
  1999
Available earnings:
                                       
Earnings before interest expense, amortization of debt expense, income taxes and cumulative effect of a change in accounting principle
  $ 1,313,199     $ 1,216,174     $ 925,886     $ 1,748,044     $ 1,310,445  
Add interest portion of rental expense
    59,455       54,218       45,655       42,063       27,515  
Deduct undistributed earnings of equity affiliates
    9,356       (20,689 )     81,083       (70,467 )     (33,540 )
 
   
 
     
 
     
 
     
 
     
 
 
Available earnings before cumulative effect of a change in accounting principle
  $ 1,382,010     $ 1,249,703     $ 1,052,624     $ 1,719,640     $ 1,304,420  
 
   
 
     
 
     
 
     
 
     
 
 
Fixed charges:
                                       
Interest expense incurred:
                                       
Weyerhaeuser Company and subsidiaries excluding Weyerhaeuser Real Estate Company and other related subsidiaries
  $ 800,751     $ 797,071     $ 353,365     $ 352,341     $ 274,599  
Weyerhaeuser Real Estate Company and other related subsidiaries
    53,215       52,926       68,887       83,556       74,436  
 
   
 
     
 
     
 
     
 
     
 
 
Subtotal
    853,966       849,997       422,252       435,897       349,035  
Less intercompany interest
    103       (800 )     (924 )     (568 )     (2,230 )
 
   
 
     
 
     
 
     
 
     
 
 
Total interest expense incurred
    854,069       849,197       421,328       435,329       346,805  
Amortization of debt expense
    14,488       24,124       4,642       3,331       3,957  
Interest portion of rental expense
    59,455       54,218       45,655       42,063       27,515  
 
   
 
     
 
     
 
     
 
     
 
 
Total fixed charges
  $ 928,012     $ 927,539     $ 471,625     $ 480,723     $ 378,277  
 
   
 
     
 
     
 
     
 
     
 
 
Ratio of earnings to fixed charges
    1.49x       1.35x       2.23x       3.58x       3.45x  
 
   
 
     
 
     
 
     
 
     
 
 

 


 

Weyerhaeuser Company with its Weyerhaeuser Real Estate Company and Other Related Subsidiaries Accounted for on the Equity Method, but Excluding the Undistributed Earnings of Those Subsidiaries Computation of Ratios of Earnings to Fixed Charges
(Dollar amounts in thousands)

                                         
    2003
  2002
  2001
  2000
  1999
Available earnings:
                                       
Earnings before interest expense, amortization of debt expense, income taxes and cumulative effect of a change in accounting principle
  $ 1,232,651     $ 1,141,706     $ 854,436     $ 1,658,343     $ 1,232,822  
Add interest portion of rental expense
    55,209       50,748       42,694       39,102       24,973  
Deduct undistributed earnings of equity affiliates
    2,340       (4,517 )     (29,781 )     (24,021 )     (20,456 )
Deduct undistributed earnings before income taxes of Weyerhaeuser Real Estate Company and related subsidiaries
    (276,665 )     (165,911 )     (234,648 )     (259,449 )     (89,885 )
 
   
 
     
 
     
 
     
 
     
 
 
Available earnings before cumulative effect of a change in an accounting principle
  $ 1,013,535     $ 1,022,026     $ 632,701     $ 1,413,975     $ 1,147,454  
 
   
 
     
 
     
 
     
 
     
 
 
Fixed charges:
                                       
Interest expense incurred
  $ 800,751     $ 797,071     $ 353,365     $ 352,341     $ 274,599  
Amortization of debt expense
    14,488       24,124       4,642       3,331       3,957  
Interest portion of rental expense
    55,209       50,748       42,694       39,102       24,973  
 
   
 
     
 
     
 
     
 
     
 
 
Total fixed charges
  $ 870,448     $ 871,943     $ 400,701     $ 394,774     $ 303,529  
 
   
 
     
 
     
 
     
 
     
 
 
Ratio of earnings to fixed charges
    1.16x       1.17x       1.58x       3.58x       3.78x  
 
   
 
     
 
     
 
     
 
     
 
 

 

EX-13 8 v96705exv13.htm EXHIBIT 13 exv13
 

(TIMBERLANDS LOGO)

2003 WEYERHAEUSER ANNUAL REPORT

LOCATIONS

Weyerhaeuser is one of the world’s largest timberland owners.

  In the United States, the company owns 6.0 million acres and leases approximately 800,000 acres of timberland in 10 states.
 
  In Canada, the company holds long-term licenses on 29.9 million acres (12.1 million hectares) of publicly owned timberland in five provinces and owns 663,000 acres (269,000 hectares) in British Columbia.

SUSTAINABILITY

We make sure that trees grow back on all areas we harvest so this valuable resource will be sustained for future generations. We accomplish this using several methods, including planting more than 100 million seedlings every year.

CERTIFICATION

Weyerhaeuser is obtaining independent certification of our forest practices and environmental systems. At the end of 2003:

  100 percent of our forests in the United States were certified as meeting the standards of the Sustainable Forestry Initiative®.
 
  71 percent of the Canadian forests managed by Weyerhaeuser were certified as meeting the Canadian Standards Association’s Sustainable Forest Management Standard. Remaining forests should be CSA-certified by the end of 2004.
 
  92 percent of our forests worldwide were registered to the ISO 14001 standard for environmental management systems. Remaining forests will be registered to ISO 14001 by the end of 2004.

14


 

                                         
NET SALES   2003   2002   2001   2000   1999

 
 
 
 
 
In millions of dollars
                                       
To unaffiliated customers:
                                       
Raw materials (logs, chips & timber)
  $ 835     $ 773     $ 607     $ 737     $ 637  
Other products
    89       97       78       36       30  
 
   
     
     
     
     
 
 
  $ 924     $ 870     $ 685     $ 773     $ 667  
 
   
     
     
     
     
 
Intersegment sales
  $ 1,290     $ 1,291     $ 1,044     $ 1,116     $ 803  
 
SALES VOLUMES
                                       

                   
In millions
                                       
Raw materials (cubic feet)
    413       370       286       310       287  
 
ANNUAL PRODUCTION
                                       

                   
In millions
                                       
Logs (cubic feet)
    629       663       517       606       521  
Fee depletion (cubic feet)
    943       936       748       700       634  

“Weyerhaeuser has a long history of carefully managing forests so they will
grow and thrive for generations to come. Today, we have a strong, diversified timberlands
portfolio that is unique and sustainable in its ability to generate shareholder value.
We’re dedicated to taking good care of this important resource.”

JACK P. TAYLOR, SENIOR VICE PRESIDENT, TIMBERLANDS

     
  (THIRD-PARTY SALES GRAPH & CONTRIBUTION TO EARNINGS GRAPH)  

15


 

(WOOD PRODUCTS LOGO)

2003 WEYERHAEUSER ANNUAL REPORT

SOFTWOOD LUMBER

Across North America, Weyerhaeuser produces softwood lumber from a variety of species for structural and industrial uses around the world.

HARDWOOD LUMBER

Weyerhaeuser produces and sells branded hardwood lumber, proprietary quality boards and other specialty items to retailers, manufacturers and distributors throughout the world.

ENGINEERED PANEL PRODUCTS

Weyerhaeuser manufactures oriented strand board and plywood for residential and commercial construction. These structural panels are sold throughout North America, primarily to stocking dealers. Composite panels used for cabinets and furniture are sold to home improvement warehouses, retailers and industrial users in North America.

“We’re working aggressively to be successful under any market condition. Our strategy moving
forward remains focused on converting timber efficiently, building on our strong market
position, using technology to our advantage and closing or selling underperforming assets.”

WILLIAM R. CORBIN, EXECUTIVE VICE PRESIDENT WOOD PRODUCTS

ENGINEERED LUMBER PRODUCTS

Trus Joist manufactures a variety of engineered lumber products for structural framing and industrial uses. These branded and proprietary products are used worldwide for residential housing construction, industrial applications and light commercial construction.

WEYERHAEUSER BUILDING MATERIALS

With customer service centers across North America, Weyerhaeuser Building Materials provides branded products and sales, marketing, logistical and technical services to lumber dealers, home improvement warehouses, industrial manufacturers, and the manufactured housing and recreational vehicle industries.

16


 

                                         
NET SALES   2003   2002   2001   2000   1999

 
 
 
 
 
In millions of dollars
                                       
Softwood lumber
  $ 3,281     $ 3,186     $ 2,751     $ 2,996     $ 2,415  
Plywood and veneer
    823       734       540       625       633  
Oriented strand board and composite panels
    1,502       1,028       741       892       839  
Hardwood lumber
    320       306       292       315       298  
Engineered lumber products
    1,179       1,148       1,070       966       409  
Raw materials (logs, chips & timber)
    321       472       433       492       211  
Other products
    818       718       666       776       715  
 
   
     
     
     
     
 
 
  $ 8,244     $ 7,592     $ 6,493     $ 7,062     $ 5,520  
 
   
     
     
     
     
 
 
SALES VOLUMES
                                       

                   
In millions
                                       
Softwood lumber (board feet)
    8,981       8,623       7,203       7,442       5,734  
Plywood and veneer (square feet – 3/8”)
    2,904       2,903       2,042       2,297       2,048  
Composite panels (square feet – 3/4 ”)
    1,210       1,147       253       379       410  
Oriented strand board (square feet – 3/8”)
    4,361       4,205       3,738       3,634       2,716  
Hardwood lumber (board feet)
    427       427       413       423       397  
Raw materials (cubic feet)
    488       595       549       692       305  
                                                 
ANNUAL PRODUCTION   CAPACITY   2003   2002   2001   2000   1999

 
 
 
 
 
 
In millions
                                               
Softwood lumber (board feet)
    7,722       7,113       6,831       5,335       5,645       4,532  
Plywood and veneer (square feet – 3/8”)
    2,659       2,411       2,278       1,099       1,340       1,065  
Composite panels (square feet – 3/4”)
    1,095       988       864       93       206       281  
Oriented strand board (square feet – 3/8”)
    4,350       4,170       4,020       3,443       3,438       2,452  
Hardwood lumber (board feet)
    434       441       406       410       397       376  
                                         
PRINCIPAL MANUFACTURING FACILITIES

 
Hardwood lumber     12     Composite panels     6     Engineered lumber products     19          
                                         
Oriented strand board     10     Softwood lumber, plywood and veneer      56
     
  (THIRD-PARTY SALES & CONTRIBUTION TO EARNINGS GRAPH)  

17


 

(PULP AND PAPER LOGO)

2003 WEYERHAEUSER ANNUAL REPORT

PULP

Weyerhaeuser is one of the largest softwood pulp producers in the world, with facilities distributed across North America.

Our focus is predominantly softwood pulp and our primary markets are paper grade and fluff pulp.

We manufacture paper grade, absorbent, dissolving and specialty pulp grades for use in products such as fine writing, office and publication papers; diapers and absorbent personal care products; pharmaceuticals; and photographic-based papers.

FINE PAPER

Weyerhaeuser produces uncoated free sheet in eight mills distributed broadly across North America. Our machines are among the most modern in the industry, helping to position us as a low-cost producer.

The Printing and Publishing Papers group markets and sells opaque and offset printing papers along with a line of papers for book, catalog and magazine publishing.

The Business and Converting group markets and sells xerographic paper, envelope rolls, engineering rolls (used for architectural drawings), and letter and legal cut-size papers for electronic imaging applications.

The Enterprise Group distributes stock computer and other preprinted forms, digital papers and business papers. The organization is supported by a network of distribution centers in the United States.

LIQUID PACKAGING BOARD

Weyerhaeuser has one facility that manufactures liquid packaging board, used primarily for the production of liquid containers.

NEWSPRINT

Our newsprint business, NORPAC, is a joint venture with Nippon Paper Industries that makes high-quality newsprint used in the United States and Japan.

18


 

                                         
NET SALES   2003   2002   2001   2000   1999

 
 
 
 
 
In millions of dollars
                                       
Pulp
  $ 1,305     $ 1,196     $ 1,134     $ 1,416     $ 1,192  
Paper
    2,182       2,163       1,037       1,115       937  
Coated groundwood
    140       126       148       169       160  
Liquid packaging board
    198       179       198       198       186  
Other products
    37       34       42       62       137  
 
   
     
     
     
     
 
 
  $ 3,862     $ 3,698     $ 2,559     $ 2,960     $ 2,612  
 
   
     
     
     
     
 
 
SALES VOLUMES
                                       

                   
In thousands
                                       
Pulp (air-dry metric tons)
    2,479       2,378       2,113       2,129       2,273  
Paper (tons)1
    2,822       2,742       1,301       1,375       1,240  
Coated groundwood (tons)
    234       210       206       214       220  
Liquid packaging board (tons)
    256       229       243       255       248  
Paper converting (tons)
    1,882       1,859       831       829       788  
                                                 
ANNUAL PRODUCTION   CAPACITY   2003   2002   2001   2000   1999

 
 
 
 
 
 
In thousands
                                       
Pulp (air-dry metric tons)
    2,840       2,522       2,281       2,140       2,282       2,219  
Paper (tons)1
    3,045       2,833       2,611       1,244       1,388       1,292
Coated groundwood (tons)
    240       239       210       211       215       219  
Liquid packaging board (tons)
    260       261       227       240       261       251
Paper converting (tons)
    2,175       1,882       1,844       777       850       779  
                                 
PRINCIPAL MANUFACTURING FACILITIES

 
Pulp     12     Liquid packaging board     1     Paper     8  
                                 
Paper converting     16     Coated groundwood     1              

“Through acquisitions and internal improvements, we’ve created a strong, streamlined,
customer-focused organization. We believe our product range, market access and commitment
to excellent service and quality give us a unique competitive advantage.”

MICHAEL R. ONUSTOCK, SENIOR VICE PRESIDENT, PULP & WHITE PAPER

     
(THIRD-PARTY SALES GRAPH)   (CONTRIBUTION TO EARNINGS GRAPH)

1Includes unprocessed rolls and converted paper volumes.

19


 

(CONTAINERBOARD PACKAGING AND RECYCLING LOGO)

2003 WEYERHAEUSER ANNUAL REPORT

CONTAINERBOARD

Weyerhaeuser manufactures a full range of corrugating medium and linerboard grades at 10 facilities in the United States and Mexico.

Linerboard is used for the inside and outside facing of a corrugated box.

Medium is used in forming the fluted, or wavy, portion of corrugated boxes to provide strength and product protection.

PACKAGING

Weyerhaeuser operates a network of 97 packaging plants that make corrugated boxes for a range of industrial, agricultural and consumer products in the United States and Mexico.

SPECIALTY PACKAGING

Weyerhaeuser operates a range of specialty packaging facilities that produce inks and plates, graphics, single-face and preprint products, and retail packaging displays.

The Kraft Bags division has four plants that manufacture paper bags used by grocery, department, drug and hardware stores, as well as fast-food restaurants.

RECYCLING

Weyerhaeuser Recycling collects and sorts more than 50 grades of recovered paper at 19 plants across the United States.

We are one of the world’s largest paper recyclers, with more than 6 million tons of recycled materials consumed or sold globally each year.

The business comprises three main areas: recovered-paper collection, recovered-paper purchase from outside sources (for use by Weyerhaeuser containerboard mills) and recovered-paper sales to outside manufacturers.

This business also provides document-destruction services and includes a large national brokerage system.

20


 

                                         
NET SALES   2003   2002   2001   2000   1999

 
 
 
 
 
In millions of dollars
                                       
Containerboard
  $ 304     $ 350     $ 346     $ 450     $ 185  
Packaging
    3,544       3,466       2,471       2,670       2,083  
Recycling
    247       229       212       370       255  
Bags
    80       75                    
Other products
    147       92       67       69       40  
 
   
     
     
     
     
 
 
  $ 4,322     $ 4,212     $ 3,096     $ 3,559     $ 2,563  
 
   
     
     
     
     
 
 
SALES VOLUMES
                                       

                   
In thousands
                                       
Containerboard (tons)
    890       983       883       1,055       576  
Packaging (MSF)
    72,741       70,330       48,870       52,886       45,203  
Recycling (tons)
    2,290       2,292       2,837       3,177       2,785  
Kraft bags and sacks (tons)
    100       93                    
                                                 
ANNUAL PRODUCTION   CAPACITY   2003   2002   2001   2000   1999

 
 
 
 
 
 
In thousands
                                               
Containerboard (tons)
    6,300       6,003       6,004       3,699       3,578       2,622  
Packaging (MSF)
    106,000       77,830       75,100       51,646       55,932       47,404  
Recycling (tons)
          6,216       6,092       4,726       4,448       4,287  
Kraft bags and sacks (tons)
    155       98       93                    
                     
PRINCIPAL MANUFACTURING FACILITIES

Containerboard     10     Recycling     19  
                     
Packaging     97     Kraft bags and sacks     4  

“Our business is fully integrated with a diverse product mix and modern machines.
We continue to improve efficiency and productivity throughout our system while relentlessly
driving out cost. We’re responding to rapid changes in the marketplace by focusing
on helping our customers meet the needs of their customers.”

JAMES R. KELLER, SENIOR VICE PRESIDENT, CONTAINERBOARD PACKAGING & RECYCLING

     
(THIRD-PARTY SALES GRAPH)   (CONTRIBUTION TO EARNINGS GRAPH)

21


 

(REAL ESTATEE AND RELATED ASSETS LOGO)

2003 WEYERHAEUSER ANNUAL REPORT

PARDEE HOMES

As a developer of master-planned communities, Pardee’s broad product line ranges from homes built for the first-time home buyer through luxurious move-up homes. Pardee is the largest homebuilder in the Weyerhaeuser Real Estate Company portfolio, serving the Los Angeles, San Diego and Las Vegas markets.

QUADRANT HOMES

Quadrant’s homes are priced to be below most new-home construction and to directly compete with area resale activity. Quadrant is the largest homebuilder in the Puget Sound region of Washington state.

TRENDMAKER HOMES

In its target segment of luxurious production homes, Trendmaker has a significant share of the market and has an excellent reputation in the Houston area.

WINCHESTER HOMES

Winchester’s unique product offering allows home buyers to customize their luxury homes in a production building environment. It serves the Maryland and Virginia suburbs of the Washington, D.C., metropolitan area.

WEYERHAEUSER REALTY INVESTORS

WRI is an investment manager of, and investor in, development financing for midsized homebuilders. It has active investments in major metropolitan areas throughout the West as well as in Maryland and Virginia.

22


 

                                         
REVENUE   2003   2002   2001   2000   1999

 
 
 
 
 
In millions of dollars
                                       
 
  $ 2,029     $ 1,750     $ 1,461     $ 1,377     $ 1,236  
 
UNIT STATISTICS
                                       

                   
Single-family homes sold
    5,005       4,374       3,868       3,833       3,431  
Single-family homes closed
    4,626       4,280       3,651       3,369       3,431  
Single-family homes sold but not closed
    2,261       1,882       1,788       1,571       1,107  
Single-family gross margin (%)
    25.7 %     24.2 %     23.1 %     22.1 %     20.7 %
 
TOTAL ASSETS
                                       

                   
In millions of dollars
                                       
 
  $ 2,004     $ 1,970     $ 2,017     $ 2,035     $ 1,939  

“Weyerhaeuser Real Estate Company is diversified across six geographic markets.
Each of our companies is locally managed, with a powerful regional brand focused on the single-family
housing market. Our desirable land pipeline, market-driven approach and
performance-oriented culture position us well to continue generating strong returns.”

DANIEL S. FULTON, PRESIDENT, WEYERHAEUSER REAL ESTATE COMPANY

         
(REVENUE GRAPH)   (CONTRIBUTION TO EARNINGS GRAPH)   (SINGLE-FAMILY REVENUE GRAPH)

1 Defined as all southern California counties except San Diego.

2 Defined as San Diego County.

23


 

Description of the Business of the Company

FOR THE FISCAL YEAR 2003


Weyerhaeuser Company was incorporated in the state of Washington in January 1900 as Weyerhaeuser Timber Company. It is principally engaged in the growing and harvesting of timber; the manufacture, distribution and sale of forest products; and real estate development and construction.

     Weyerhaeuser Company, including all of its majority-owned domestic and foreign subsidiaries (the company), has approximately 55,200 employees, of whom 53,800 are employed in its timber-based businesses, and of this number, approximately 23,000 are covered by collective bargaining agreements, which generally are negotiated on a multi-year basis.

     Approximately 1,400 of the company’s employees are involved in the activities of its Real Estate and Related Assets segment.

     The major markets, both domestic and foreign, in which the company sells its products are highly competitive, with numerous strong sellers competing in each. Many of the company’s products also compete with substitutes for wood and wood fiber products. The company’s subsidiaries in the Real Estate and Related Assets segment operate in highly competitive markets, competing with numerous regional and national firms in real estate development and construction and other real estate related activities. The company competes in its markets primarily through price, product quality and service levels.

     In recent years, the company has grown substantially through acquisitions with the purchases of MacMillan Bloedel in 1999, Trus Joist International (Trus Joist) in 2000, and Willamette Industries, Inc. (Willamette) in 2002.

     In 2003, the company’s sales to customers outside the United States totaled $3.6 billion (including exports of $1.6 billion from the United States, $1.5 billion of Canadian export and domestic sales and $0.5 billion of other foreign sales), or 18 percent of total consolidated sales and revenues, consistent with 18 percent in 2002. All sales to customers outside the United States are subject to risks related to international trade and to political, economic and other factors that vary from country to country.

     Throughout this document, the term “company” refers to Weyerhaeuser Company and all of its majority-owned domestic and foreign subsidiaries. The term “Weyerhaeuser” refers to the forest products-based operations and excludes the Real Estate and Related Assets operations.

BUSINESS SEGMENTS


Timberlands Weyerhaeuser is engaged in the management of 6.7 million acres of company-owned and .8 million acres of leased commercial forestland in North America (4.5 million acres in the southern United States and 3.0 million acres in the Pacific Northwest and Canada), most of it highly productive and located extremely well to serve both domestic and international markets. Weyerhaeuser also has renewable, long-term licenses on 29.9 million acres of forestland located in five provinces throughout Canada that are managed by our Canadian operations. The standing timber inventory on these lands is approximately 493 million cunits (a cunit is 100 cubic feet of solid wood). The relationship between cubic measurement and the quantity of end products that may be produced from timber varies according to the species, size and quality of timber, and will change through time as the mix of these variables changes. The end products are generally measured in board feet for lumber and square feet for panel products. To sustain the timber supply from its fee timberlands, Weyerhaeuser is engaged in extensive planting, suppression of nonmerchantable species, precommercial and commercial thinning, fertilization, and operational pruning, all of which increase the yield from its fee timberland acreage.

     Weyerhaeuser accounts for the revenues and expenses associated with the management of company-owned and leased forestland in its Timberlands segment. Revenues and expenses associated with the management of licensed forestlands are included with the results of the operations they support, generally in the Wood Products segment.

     The company also manages forestlands in the Southern Hemisphere. The results of these international operations are included in the Corporate and Other segment.

Wood Products Weyerhaeuser’s wood products businesses produce and sell softwood lumber, plywood and veneer, oriented strand board and composite panels, hardwood lumber, and engineered lumber products. These products are sold primarily through the company’s own sales organizations and building materials distribution business. The raw materials required to produce these products are purchased from third parties, transferred at market price from Weyerhaeuser’s Timberlands segment, or obtained from long-term licensing arrangements. Building materials, including products not produced by Weyerhaeuser, such as treated products, are sold to wholesalers, retailers and industrial users.

Pulp and Paper Weyerhaeuser’s pulp and paper businesses include: Pulp, which manufactures chemical wood pulp for world markets, and Paper, which manufactures a range of both coated and uncoated papers and business forms marketed

Financial Report    PAGE 26


 

through our own sales force and through paper merchants and printers. In addition, through its investment in North Pacific Paper Corporation, Weyerhaeuser has a 50 percent interest in NORPAC, a joint venture that owns a newsprint manufacturing facility in Washington state.

Containerboard, Packaging and Recycling Weyerhaeuser’s containerboard, packaging and recycling businesses include: Containerboard, which manufactures linerboard, corrugating medium and kraft paper, primarily used to produce corrugated boxes at Weyerhaeuser’s packaging facilities and also marketed to domestic and foreign customers through our sales force and agents; Packaging, which manufactures industrial and agricultural packaging marketed through our own sales force; and Recycling, which operates an extensive wastepaper collection system and markets it to company mills and worldwide customers. The segment also operates facilities that manufacture paper bags, preprint linerboard, inks and printing plates.

Real Estate and Related Assets The Real Estate and Related Assets segment includes Weyerhaeuser Real Estate Company (WRECO), a wholly-owned subsidiary, and the company’s other real estate related activities. WRECO is primarily engaged in developing single-family housing and residential lots for sale, including development of master-planned communities. Operations are concentrated mainly in selected metropolitan areas in southern California, Nevada, Washington, Texas, Maryland and Virginia.

Corporate and Other Corporate and Other includes marine transportation (Westwood Shipping Lines, a wholly-owned subsidiary), distribution and converting facilities located outside North America, and general corporate support activities.

     The following international operations are included in Corporate and Other:

  Weyerhaeuser, through its wholly-owned subsidiary Weyerhaeuser New Zealand Inc., owns a 51 percent financial interest and has a 50 percent voting interest in Nelson Forests Joint Venture, a New Zealand joint venture located on the northern end of the South Island. The joint venture assets consist of 148,000 acres of Crown Forest License cutting rights, 39,000 acres of freehold land and the Kaituna sawmill, with a capacity of 19 million board feet. Weyerhaeuser is responsible for the management and marketing activities of this joint venture.
 
  Weyerhaeuser, through its wholly-owned subsidiary Weyerhaeuser Australia Pty. Ltd., owns a 70 percent interest in Pine Solutions, Australia’s largest softwood timber distributor; two sawmills with a combined production capacity of 158 million board feet of lumber; and 2,400 acres of cutting rights.
 
  Weyerhaeuser, through its wholly-owned subsidiary Weyerhaeuser Forestlands International, is a 50 percent owner and managing general partner in RII Weyerhaeuser World Timberfund, L.P. (WTF), a limited partnership, which makes investments outside the United States. In Australia, WTF owns 50,500 acres of freehold land; leases 8,200 acres of radiata pine plantations; and owns two softwood lumber mills with a capacity of 115 million board feet, a lumber treating operation, a pine moulding plant, a remanufacturing plant, a chip export business and a 30 percent interest in Pine Solutions. This partnership also owns a Uruguayan venture, Colonvade, S.A., which has acquired over 246,000 acres of private grazing land that is currently being converted into plantation forests.
 
  Weyerhaeuser, through its wholly-owned subsidiary Southern Cone Timber Investors Holding Company, LLC, owns a 50 percent interest in Southern Cone Timber Investors Limited, a joint venture that focuses on plantation forests in the Southern Hemisphere. This joint venture holds as its principal assets 69,000 acres of intensively managed eucalyptus and pine tree plantings in Uruguay.
 
  Weyerhaeuser owns three composite panel facilities in Europe with production capacity of 240 million square feet (3/4” basis) of particleboard and 311 million square feet (3/4” basis) of medium density fiberboard.

NATURAL RESOURCE AND ENVIRONMENTAL MATTERS


Growing and harvesting timber are subject to numerous laws and government policies to protect the environment, nontimber resources such as wildlife and water, and other social values. Changes in those laws and policies can significantly affect local or regional timber harvest levels and market values of timber-based raw materials.

     In the United States, a number of fish and wildlife species that inhabit geographic areas near or within company timberlands have been listed as threatened or endangered under the federal Endangered Species Act (ESA) or similar state laws. Federal ESA listings include the northern spotted owl, marbled murrelet, a number of salmon species, bull trout and steelhead trout in the Pacific Northwest and the red-cockaded woodpecker, gopher tortoise and American burying beetle in the Southeast. Listings of additional species or populations may result from pending or future citizen petitions or be initiated by federal or state agencies. Federal and state requirements to protect habitat for threatened and endangered species have resulted in restric-

Financial Report    PAGE 27


 

tions on timber harvest on some timberlands, including some timberlands of the company. Additional listings of fish and wildlife species as endangered, threatened or sensitive under the ESA and similar state laws as well as regulatory actions taken by federal or state agencies to protect habitat for these species may, in the future, result in additional restrictions on timber harvests and other forest management practices, could increase operating costs, and could affect timber supply and prices.

     In the United States, federal, state and local regulations protecting water quality and wetlands also could affect future harvest and forest management practices on some of the company’s timberlands. Forest practice acts in some states in the United States increasingly affect present or future harvest and forest management activities. For example, in some states, these acts limit the size of clearcuts, require some timber to be left unharvested to protect water quality and fish and wildlife habitat, regulate construction and maintenance of forest roads, require reforestation following timber harvest, and contain procedures for state agencies to review and approve proposed forest practice activities. Some states and some local governments regulate certain forest practices through various permit programs. Each state in which the company owns timberlands has developed “best management practices” (BMPs) to reduce the effects of forest practices on water quality and aquatic habitats. Additional and more stringent regulations may be adopted by various state and local governments to achieve water-quality standards under the federal Clean Water Act, protect fish and wildlife habitats, or achieve other public policy objectives.

     The company operates under the Sustainable Forestry Initiative®, a certification standard designed to supplement government regulatory programs with voluntary landowner initiatives to further protect certain public resources and values. The Sustainable Forestry Initiative® is an independent standard, overseen by a governing board consisting of conservation organizations, academia, the forest industry, and large and small forest landowners. Compliance with the Sustainable Forestry Initiative® may result in some increases in operating costs and curtailment of timber harvests in some areas.

     The regulatory and nonregulatory forest management programs described above have increased operating costs, resulted in changes in the value of timber and logs from the company’s timberlands, and contributed to increases in the prices paid for wood products and wood chips during periods of high demand. These kinds of programs also can make it more difficult to respond to rapid changes in markets, extreme weather or other unexpected circumstances. One additional effect may be further reductions in usage of, and some substitution of other products for, lumber and plywood. The company does not believe that these kinds of programs have had, or in 2004 will have, a significant effect on the company’s total harvest of timber in the United States or any major U.S. region, although they may have such an effect in the future. Further, the company does not expect to be disproportionately affected by these programs as compared with typical owners of comparable timberlands. Likewise, management does not expect that these programs will significantly disrupt its planned operations over large areas or for extended periods.

     Weyerhaeuser’s forest operations in Canada are primarily carried out on public forestlands under forest licenses, although the company also owns substantial amounts of timberland in western British Columbia (B.C.). All forest operations are subject to forest practices and environmental regulations, and operations under licenses also are subject to contractual requirements between the company and the relevant province designed to protect environmental and other social values. In Canada, the federal Species at Risk Act (SARA) was enacted late in 2002 and began coming into force in phases beginning in June 2003. SARA enacts protective measures for species identified as being at risk and for critical habitat. A number of SARA provisions will come into force in 2004. It is anticipated that SARA will result in some additional restrictions on timber harvests and other forest management practices and will increase some operating costs for operators of forestlands in Canada beginning in 2004. SARA is also expected to affect timber supply and prices in the future.

     The company participates in the Canadian Standards Association Sustainable Forest Management System standard, a voluntary certification system that further protects certain public resources and values. Compliance with this standard will result in some increases in operating costs and curtailment of timber harvests in some areas in Canada.

     Many of these Canadian forestlands also are subject to the constitutionally protected treaty or common-law rights of the aboriginal peoples of Canada. Most of B.C. is not covered by treaties and, as a result, the claims of B.C.’s aboriginal peoples relating to forest resources are largely unresolved, although many aboriginal groups are actively engaged in treaty discussions with the governments of B.C. and Canada. Final or interim resolution of aboriginal claims may be expected to result in a negotiated decrease in the lands or timber available for forest operations under license in B.C., including the company’s licenses. In a case brought by the Council of Haida Nations against B.C., a court of general jurisdiction in B.C. ruled in 2002 that both the province of B.C. and the company have legally enforceable duties to the Haida to consult with and accommodate them with respect to forestry activities on the Queen Charlotte Islands. The ruling is currently being appealed to the Supreme Court of Canada, and a decision is expected in 2004. The negotiation and resolution of aboriginal land claims and any claim such as that brought by the Haida are expected to result in additional restrictions on the sale or harvest of timber and may increase operating costs and affect timber supply and prices in Canada. The company believes that such claims will not have a significant effect on the company’s total harvest of timber or production of forest products in 2004, although they may have such an effect in the future.

     The company is also subject to federal, state and provincial, and local pollution controls with regard to air, water and land; solid and hazardous waste management, disposal and reme-

Financial Report    PAGE 28


 

diation laws and regulations in all areas in which it has operations; as well as market demands with respect to chemical content of some products and use of recycled fiber. Compliance with these laws, regulations and demands usually involves capital expenditures as well as additional operating costs. The company cannot easily quantify future amounts of capital expenditures required to comply with these laws, regulations and demands, or the effects on operating costs, because in some instances, compliance standards have not been developed or have not become final or definitive. In addition, compliance with standards frequently serves other purposes such as extension of facility life, increase in capacity, changes in raw material requirements, or increase in economic value of assets or products. While it is difficult to isolate the environmental component of most manufacturing capital projects, the company estimates that capital expenditures for environmental compliance were approximately $159 million (25 percent of total capital expenditures, excluding acquisitions and Real Estate and Related Assets) in 2003. Based on its understanding of current regulatory requirements in the United States and Canada, the company expects that expenditures will be approximately $50 million in 2004 (7 percent of expected total capital expenditures, excluding acquisitions and Real Estate and Related Assets).

     The company is involved in the environmental investigation or remediation of numerous sites. Some of the sites are on property presently or formerly owned by the company where the company has the sole obligation to remediate the site or shares that obligation with one or more parties, others are third-party sites involving several parties who have a joint and several obligation to remediate the site, and some are superfund sites where the company has been named as a potentially responsible party. The company’s liability with respect to these sites ranges from insignificant at some sites to substantial at others, depending on the quantity, toxicity and nature of materials deposited by the company at the site and, with respect to some sites, the number and economic viability of the other responsible parties.

     The company spent approximately $8 million in 2003 and expects to spend approximately $12 million in 2004 on environmental remediation of these sites. It is the company’s policy to accrue for environmental remediation costs when it is determined that it is probable that such an obligation exists and the amount of the obligation can be reasonably estimated. Based on currently available information, the company believes that it is reasonably possible that costs associated with all identified sites may exceed current accruals of $51 million by amounts that may prove insignificant or that could range, in the aggregate, up to approximately $70 million over several years. This estimate of the upper end of the range of reasonably possible additional costs is much less certain than the estimates upon which accruals are currently based and utilizes assumptions less favorable to the company among the range of reasonably possible outcomes.

     The United States Environmental Protection Agency (U.S. EPA) has promulgated regulations dealing with air emissions from pulp and paper manufacturing facilities, including regulations on hazardous air pollutants that require use of maximum achievable control technology (MACT) and controls for pollutants that contribute to smog and haze. In addition, the U.S. EPA is developing MACT standards for air emissions from wood products facilities. Depending on the content of the final rules, the company anticipates that it might spend between $64 million and $140 million over the next several years to comply with the MACT standards. The final Cluster Rule package of regulations affecting the Pulp and Paper segment of the industry went into effect in 1998. The company expects to spend approximately $30 million over the next few years to achieve compliance with the Cluster Rules. The company cannot quantify future capital requirements needed to comply with the new regulations being developed by the U.S. EPA or Canadian environmental agencies because final rules have not been promulgated. However, the company does not anticipate at this time that compliance with the new regulations will result in capital expenditures in any year that are material in relation to the company’s annual capital expenditures.

     The American Forest & Paper Association has made a commitment on behalf of all members of the association to reduce greenhouse gas intensity by 2012. The company also is actively participating in negotiations between the Forest Products Association of Canada and Natural Resources Canada to define industry obligations for complying with Canada’s national plan for reducing greenhouse gas emissions over the next several years. The company cannot estimate what expenditures may ultimately be required to contribute to these commitments but does not expect significant expenditures in 2004. During 2003, Weyerhaeuser worked with international, national and regional policy makers in their efforts to develop technically sound and economically viable policies, practices and procedures for measuring, reporting and managing greenhouse gas emissions.

     The U.S. EPA has repealed the regulations promulgated in 2000 that would have required states to develop total maximum daily load (TMDL) allocations for pollutants in water bodies determined to be water-quality-impaired. However, states continue to promulgate TMDL requirements. The state TMDL requirements may set limits on pollutants that may be discharged to a body of water or set additional requirements, such as best management practices for nonpoint sources, including timberland operations, to reduce the amounts of pollutants. It is not possible to estimate the capital expenditures that may be required for the company to meet pollution allocations across the various proposed state TMDL programs until a specific TMDL is promulgated.

Financial Report    PAGE 29


 

Financial Review

FOR THE FISCAL YEAR 2003


ECONOMIC AND INDUSTRY FACTORS AFFECTING OPERATIONS


Historically, the company’s operating results have been affected by a variety of market conditions that influence demand and pricing for the company’s products. Certain factors, such as the health of the economy and the strength of the U.S. dollar, are cyclical in nature. The recent global recession, which decreased demand for a number of the company’s products, began to improve in 2003. In addition, the U.S. dollar weakened in 2003, making the company’s exports more competitive in offshore markets and imports into the United States less competitive. Other factors, such as the countervailing duties (CVD) on softwood lumber exported to the United States from Canada, the surge in containerboard capacity in Asia, and a trend toward electronic substitution for paper, may represent fundamental changes in the marketplace for the company’s products. The company’s results have also been affected by recent acquisitions, which have added substantial production capacity and significantly strengthened the company’s position in key market segments.

     Market pulp and uncoated free sheet demand was weak in 2001 and 2002 due largely to a global economic recession. The global economy improved, and Asia experienced faster economic growth in 2003, which contributed to increased demand for market pulp. In addition, the U.S. dollar weakened relative to the euro, which improved the competitive position of North American market pulp producers by making North American market pulp less costly relative to European market pulp. Demand and prices for market pulp were higher in 2003, primarily due to these two factors. However, demand and prices for uncoated free sheet were negatively affected by high unemployment, a lower level of advertising and, to an unknown degree, electronic technologies that are believed to be displacing paper in various end uses. The company continued to rationalize capacity for uncoated free sheet production and took market-related downtime in 2003.

     Despite the recovery of the U.S. economy in 2003, industrial production of nondurable goods fell for the third year in a row. As a result, demand for boxes also declined in 2003. To balance production and orders, the company permanently closed manufacturing facilities in 2002 and 2003 and took market-related downtime in 2003 for the fourth year in a row. The weakening of the U.S. dollar in 2003 aided the recovery of some manufacturing sectors in 2003.

     Low interest rates contributed to continued strength in the housing market and strong housing starts in the United States in 2003. As of the end of 2003, U.S. single-family housing starts were approximately 17 percent above year-ago levels on an annual basis. As a result, the Real Estate and Related Assets segment produced strong earnings in 2003. In addition, the oriented strand board (OSB) business benefited from strong demand for single-family construction in 2003. The strong demand for structural panels, combined with limited capacity growth, led to a tight OSB market, resulting in substantial increases in OSB prices from June 2003 to the end of the third quarter of 2003.

     Demand for lumber remained strong in 2003 due to the high level of housing starts, growing remodeling activity and a decline in lumber imports from Europe, South America and New Zealand in 2003. The weakening of the U.S. dollar in 2003 has also helped North American lumber producers regain market share in Japan. Lumber prices improved in 2003 after the difficult years of 2001 and 2002. The expiration of the Softwood Lumber Agreement in May 2001, and the resulting uncertainty about the imposition of CVD and anti-dumping penalties by the U.S. government, contributed to price volatility in 2001 and 2002. The trade restrictions also forced Canadian producers to lower production costs wherever possible. By late 2002, lumber prices, net of the trade duties, fell below the production costs of an average producer in interior British Columbia (as estimated by mill survey data taken by Resource Information Systems, Inc. — RISI). In 2003, the market finally reflected the full cost of the CVD and anti-dumping penalties that Canadian producers incurred when shipping lumber to the United States. The strengthening of the Canadian dollar relative to the U.S. dollar has also caused production costs of Canadian mills to increase in U.S. dollar terms.

     The timberlands business is influenced by several factors: demand for wood products, both domestic and international; weather and weather-related factors such as fires, which affect the company’s ability to harvest timber; and changes in foreign exchange rates. U.S. timber prices have remained relatively stable over the last few years despite the volatility in lumber and plywood prices. Western timber values have benefited from strong demand for Douglas Fir lumber in California and improving log export prices on shipments to Japan, while Southern timber prices have benefited from tight supply conditions brought on by weather and market-related factors.

Financial Report    PAGE 30


 

     RESULTS OF OPERATIONS


                                         
Consolidated Results                           Amount of Change
                         
Dollar amounts in millions, except per-share figures   2003   2002   2001   2003 vs. 2002   2002 vs. 2001

 
 
 
 
 
Net sales and revenues
  $ 19,873     $ 18,521     $ 14,545     $ 1,352     $ 3,976  
Operating income
    1,168       1,063       757       105       306  
Net earnings
    277       241       354       36       (113 )
Net earnings per share, basic and diluted
    1.25       1.09       1.61       0.16       (0.52 )

Net sales and revenues increased $1.4 billion, or 7 percent, in 2003 as compared with 2002. Third-party sales were up in all of the company’s segments in 2003. The largest contributors to the increase consisted of a $474 million increase in OSB and composite panel sales, due primarily to exceptionally strong demand and prices in the second half of 2003, and a $275 million increase in single-family home sales, due to both strong demand and higher average sales prices realized in 2003.

     Net sales and revenues increased $4.0 billion, or 27 percent, in 2002 as compared with 2001. The increase is primarily due to the inclusion of sales from the former Willamette operations beginning February 11, 2002.

A summary of some significant items that are included in operating income and net earnings follows:

                                                   
      Operating income   Net earnings
     
 
Dollar amounts in millions   2003   2002   2001   2003   2002   2001

 
 
 
 
 
 
(Charge) benefit:
                                               
 
Gains on sales of nonstrategic timberlands
  $ 331     $ 247     $ 110     $ 218     $ 161     $ 76  
 
Integration and restructuring
    (103 )     (72 )     (14 )     (68 )     (47 )     (10 )
 
Facility closures or sales
    (143 )     (95 )     (71 )     (94 )     (62 )     (49 )
 
Pension and other postretirement benefits
    (140 )     28       194       (92 )     18       133  
 
Countervailing and anti-dumping charges
    (97 )     (64 )     (50 )     (64 )     (42 )     (34 )
 
Countervailing duty reversal
          47                   31        
 
Net litigation charges
    (84 )                 (65 )            
 
Change in accounting principle
                      (11 )            
 
Write-off of debt costs
                            (23 )      

These and other factors that affected the comparison of net sales and revenues, operating income and net earnings are discussed below in the segment analyses. See Item 7 in the company’s Annual Report on Form 10-K for the year ended December 28, 2003, for a discussion of the company’s expectations of segment performance in the first quarter of 2004.


Timberlands

Timberlands sales volume and annual production data is located on page 15 of this report. Following is a comparison of Timberlands net sales and revenues and contribution to earnings from year to year:

                                           
                              Amount of Change
                             
Dollar amounts in millions   2003   2002   2001   2003 vs. 2002   2002 vs. 2001

 
 
 
 
 
Net sales and revenues:
                                       
 
Raw materials (logs, chips and timber)
  $ 835     $ 773     $ 607     $ 62     $ 166  
 
Other products
    89       97       78       (8 )     19  
 
 
   
     
     
     
     
 
 
  $ 924     $ 870     $ 685     $ 54     $ 185  
 
 
   
     
     
     
     
 
Contribution to earnings
  $ 777     $ 702     $ 473     $ 75     $ 229  
 
 
   
     
     
     
     
 

2003 COMPARED WITH 2002

  Net sales and revenues increased $54 million, or 6 percent, in 2003. The increase is primarily due to the inclusion of sales of raw materials from the former Willamette timberlands beginning February 11, 2002, while 2003 sales include a full period of sales from the former Willamette timberlands. The volume of raw materials sold increased approximately 43 million cubic feet, or 12 percent, in 2003. The impact of the increase in volumes was partially offset by a slight decrease in average prices realized for the sale of raw materials.
 
  Gains on sales of nonstrategic timberlands increased $84 million, or 34 percent, in 2003. See Note 18 of Notes to Financial Statements for information about the largest nonstrategic timberlands sales that were closed in 2003 and 2002.

Financial Report    PAGE 31


 

2002 COMPARED WITH 2001

  Net sales and revenues increased $185 million, or 27 percent, in 2002. The increase is primarily due to the fact that the segment’s results include raw material sales from the former Willamette timberlands beginning February 11, 2002. The segment’s sales of logs, timber and chips increased 27 percent in 2002 on a 29 percent increase in sales volume. Declines in log prices partially offset the increases in sales volume.
 
  Gains on sales of nonstrategic timberlands increased $137 million in 2002. See Note 18 of Notes to Financial Statements for information about the largest nonstrategic timberlands sale that was closed in 2002.
 
  A higher 2002 harvest volume resulting from the acquisition of Willamette, net of higher depletion and other costs, contributed approximately $110 million to the segment’s earnings.


Wood Products

Wood Products sales volume and annual production data is located on page 17 of this report. Following is a comparison of Wood Products net sales and revenues and contribution (charge) to earnings from year to year:

                                           
                              Amount of Change
                             
Dollar amounts in millions   2003   2002   2001   2003 vs. 2002   2002 vs. 2001

 
 
 
 
 
Net sales and revenues:
                                       
 
Softwood lumber
  $ 3,281     $ 3,186     $ 2,751     $ 95     $ 435  
 
Plywood and veneer
    823       734       540       89       194  
 
Oriented strand board and composite panels
    1,502       1,028       741       474       287  
 
Hardwood lumber
    320       306       292       14       14  
 
Engineered lumber products
    1,179       1,148       1,070       31       78  
 
Raw materials (logs, chips and timber)
    321       472       433       (151 )     39  
 
Other products
    818       718       666       100       52  
 
 
   
     
     
     
     
 
 
  $ 8,244     $ 7,592     $ 6,493     $ 652     $ 1,099  
 
 
   
     
     
     
     
 
Contribution (charge) to earnings
  $ 59     $ (20 )   $ 16     $ 79     $ (36 )
 
 
   
     
     
     
     
 

2003 COMPARED WITH 2002

  Net sales and revenues increased $652 million, or 9 percent, in 2003 compared with 2002. The increase is primarily due to higher average sales prices realized for OSB and plywood, offset somewhat by lower sales prices realized for structural and appearance grades of softwood lumber. Partially offsetting this increase was a $151 million decrease in net raw materials sales and revenues compared with 2002. Most of this decrease was in the segment’s coastal British Columbia operations, which experienced a strike in the latter part of 2003. 2002 results for Wood Products include sales made by former Willamette facilities beginning February 11, 2002, while results for 2003 include sales made by former Willamette facilities for the full year.
 
  Contribution to earnings in 2003 was favorably impacted by price increases in structural panels due to strong demand and restricted supply. Low dealer inventories early in the year, coupled with no major new capacity added by the industry in 2003, served to create significant upward pressure on OSB and plywood prices in the second half of 2003. The Random Lengths 7/16” North Central indicator for OSB peaked at $465 per thousand square feet and remained at that level for eight weeks until it dropped sharply at the end of November and ultimately hit $220 per thousand square feet in early December. Plywood experienced a similar pricing trend. The increase in average realizations for OSB, plywood and veneer, net of the effect of increased OSB, plywood and veneer costs, contributed approximately $430 million to earnings in 2003.
 
  Softwood lumber unit shipments increased 358 million board feet, or 4 percent, in 2003, which was partially offset by a decline in average sales prices realized of $4 per thousand board feet. Most of the decline in the average lumber prices realized is due to the CVD and anti-dumping duties incurred by the segment for the full year of 2003, compared with the partial period from May 22 to December 29 in 2002. This combination of price/mix and volume effects for softwood lumber had an unfavorable effect of approximately $100 million on the segment’s contribution to earnings.
 
  OSB and veneer comprise a significant portion of the raw material base for engineered wood products. Consequently, the rise in OSB and veneer prices had a negative effect on this portion of the segment’s business, and gross margins for engineered wood products declined approximately $50 million in 2003 when compared with 2002. This decline occurred despite very robust demand. A price increase was announced for engineered wood in the fourth quarter of 2003, but the segment does not expect to fully realize the effect of the price increase until the first quarter of 2004.
 
  The company recognized a charge of $79 million against first quarter 2003 earnings as a result of an adverse verdict in an alder log antitrust case. See Note 14 of Notes to Financial Statements.

Financial Report    PAGE 32


 

  Net pension expense was $22 million in 2003 compared with pension income of $55 million in 2002. This change in pension cost negatively affected the segment’s contribution to earnings by $77 million in 2003 as compared with 2002.
 
  Wood Products recognized charges for integration, restructuring and closure or sale of facilities of $101 million in 2003 compared with charges of $55 million in 2002.

2002 COMPARED WITH 2001

  Net sales and revenues increased $1.1 billion, or 17 percent, in 2002, compared with the same period in 2001, primarily as a result of additional unit shipments due to the inclusion of the Willamette operations beginning in February 2002.
 
  Contribution to earnings was unfavorably affected by lower sales prices realized for softwood lumber, as the lumber producers and the marketplace adjusted to the effects of the CVD and anti-dumping duties on imports of Canadian softwood lumber. OSB prices were stable from 2001 to 2002, and plywood prices declined.
 
  Pension income decreased $34 million from 2001 to 2002.
 
  Charges for CVD and anti-dumping duties increased $14 million from 2001 to 2002, a result of the timing of the preliminary duty determinations which started in June 2001 for CVD and November 2001 for anti-dumping duties, compared with May 22, 2002, which was the effective date for the existing set of duties. In 2002, the segment reversed $47 million of duties accrued in 2001, when it was ruled that critical circumstances did not apply.
 
  Charges for integration, restructuring, facility closures and sales totaled $55 million in 2002 and $51 million in 2001.


Pulp and Paper

Pulp and Paper sales volume and annual production data is located on page 19 of this report. Following is a comparison of Pulp and Paper net sales and revenues and contribution (charge) to earnings from year to year:

                                           
                              Amount of Change
                             
Dollar amounts in millions   2003   2002   2001   2003 vs. 2002   2002 vs. 2001

 
 
 
 
 
Net sales and revenues:
                                       
 
Pulp
  $ 1,305     $ 1,196     $ 1,134     $ 109     $ 62  
 
Paper
    2,182       2,163       1,037       19       1,126  
 
Coated groundwood
    140       126       148       14       (22 )
 
Liquid packaging board
    198       179       198       19       (19 )
 
Other products
    37       34       42       3       (8 )
 
 
   
     
     
     
     
 
 
  $ 3,862     $ 3,698     $ 2,559     $ 164     $ 1,139  
 
 
   
     
     
     
     
 
Contribution (charge) to earnings
  $ (82 )   $ 82     $ 69     $ (164 )   $ 13  
 
 
   
     
     
     
     
 

2003 COMPARED WITH 2002

  Net sales and revenues increased $164 million, or 4 percent, in 2003 due primarily to an increase in pulp unit shipments of 101,000 tons and a 5 percent increase in the prices realized for pulp sales. The price increase was largely driven by improved demand and pricing for paper grade pulp in North America, Europe and Asia. Fine paper unit shipments increased 80,000 tons, and sales prices realized for fine paper declined 2 percent in 2003 as compared with 2002. The 2003 results include sales made by former Willamette facilities for the full period, while 2002 results include sales made by the former Willamette facilities beginning February 11, 2002.
 
  Market-related downtime at the fine paper mills increased by 176,000 tons in 2003 compared with 2002 in spite of the permanent closure of two paper machines during 2003 as productivity continues to increase.
 
  The strengthening of the Canadian dollar against the U.S. dollar in 2003 had a negative impact on the segment’s net manufacturing costs, primarily due to the size of its presence in Canada.
 
  Integration, restructuring and facility closure charges were $68 million higher in 2003.
 
  Depreciation expense increased approximately $64 million in 2003, mostly due to inclusion of depreciation on the assets acquired from Willamette for the full year in 2003 and capital additions completed in 2002 and 2003.
 
  An increase in net pension expense negatively affected the segment’s contribution to earnings $31 million in 2003 as compared with 2002.

2002 COMPARED WITH 2001

  Net sales and revenues increased $1.1 billion, or 45 percent, in 2002. The increase is primarily due to the fact that 2002 results include sales made by former Willamette facilities beginning February 11, 2002. Fine paper unit shipments were approximately 1.4 million tons, or 111 percent, higher in 2002 than in 2001.
 
  Costs of goods manufactured benefited from the integration of low-cost Willamette facilities, optimization of delivery costs, and improvement in productivity at the legacy Weyerhaeuser fine paper facilities.

Financial Report    PAGE 33


 

Containerboard, Packaging and Recycling

Containerboard, Packaging and Recycling sales volume and annual production data is located on page 21 of this report. Following is a comparison of Containerboard, Packaging and Recycling net sales and revenues and contribution to earnings from year to year:

                                           
                              Amount of Change
                             
Dollar amounts in millions   2003   2002   2001   2003 vs. 2002   2002 vs. 2001

 
 
 
 
 
Net sales and revenues:
                                       
 
Containerboard
  $ 304     $ 350     $ 346     $ (46 )   $ 4  
 
Packaging
    3,544       3,466       2,471       78       995  
 
Recycling
    247       229       212       18       17  
 
Kraft bags and sacks
    80       75             5       75  
 
Other products
    147       92       67       55       25  
 
 
   
     
     
     
     
 
 
  $ 4,322     $ 4,212     $ 3,096     $ 110     $ 1,116  
 
 
   
     
     
     
     
 
Contribution to earnings
  $ 262     $ 335     $ 290     $ (73 )   $ 45  
 
 
   
     
     
     
     
 

2003 COMPARED WITH 2002

  Net sales and revenues increased $110 million, or 3 percent, in 2003. The increase is primarily due to the inclusion of sales made by former Willamette facilities for the full year in 2003, while 2002 results include sales made by the former Willamette facilities beginning February 11, 2002. This increase was primarily evident in packaging, where unit shipments increased approximately 2.4 billion square feet, or 3 percent, in 2003. Conversely, containerboard unit shipments declined 93,000 tons, or 9 percent, due primarily to a higher degree of integration within the company facilitated by the Willamette acquisition. Prices realized for containerboard and packaging were down 4 percent and 1 percent, respectively, in 2003, due largely to sluggish economic conditions.
 
  Contribution to earnings was negatively impacted by higher manufacturing costs. Energy and chip costs increased significantly in 2003, primarily due to an increase in purchase prices for these items. These increases were mostly offset by lower maintenance and other manufacturing costs, coupled with a decrease in the delivered cost for old corrugated containers (OCC).
 
  Market-related downtime at the containerboard mills increased by approximately 108,000 tons in 2003 compared with 2002 in spite of the permanent closure of three machines in 2002 and one machine in 2003.
 
  Integration, restructuring and facility closure costs were $18 million in 2003, or $42 million less than the amount that was recognized in 2002.
 
  A charge of $23 million was recognized in the third quarter of 2003 for the settlement of the class action linerboard antitrust lawsuit. See Note 14 of Notes to Financial Statements.
 
  Net pension expense was $2 million in 2003 compared with pension income of $47 million in 2002, resulting in a negative impact on contribution to earnings of $49 million.

2002 COMPARED WITH 2001

  Net sales and revenues increased $1.1 billion, or 36 percent, in 2002. The increase is primarily due to the fact that the segment’s results include sales made by former Willamette facilities beginning February 11, 2002. Packaging unit shipments increased 21.5 billion square feet, or 44 percent, and containerboard unit shipments increased 100,000 tons, or 11 percent. The impact of these increases was partially offset by a 3 percent decline in box prices realized and a 9 percent decline in containerboard prices realized.
 
  Contribution to earnings was positively impacted in 2002 by the net effect of increases in sales volumes, due primarily to the Willamette acquisition.


Real Estate and Related Assets

                                         
                            Amount of Change
                           
Dollar amounts in millions   2003   2002   2001   2003 vs. 2002   2002 vs. 2001

 
 
 
 
 
Net sales and revenues
  $ 2,029     $ 1,750     $ 1,461     $ 279     $ 289  
 
   
     
     
     
     
 
Contribution to earnings
  $ 392     $ 336     $ 264     $ 56     $ 72  
 
   
     
     
     
     
 

Financial Report    PAGE 34


 

Single-family unit statistics for Real Estate and Related Assets are located on page 23 of this report. Following are the key items that affected the comparison of net sales and revenues and contribution to earnings for Real Estate and Related Assets from year to year:

                                         
                            Amount of Change
                           
Dollar amounts in millions, except average sales price   2003   2002   2001   2003 vs. 2002   2002 vs. 2001

 
 
 
 
 
Single-family operations:
                                       
Net sales and revenues
  $ 1,730     $ 1,455     $ 1,218     $ 275     $ 237  
Units closed
    4,626       4,280       3,651       346       629  
Average sales price
  $ 374,000     $ 340,000     $ 334,000     $ 34,000     $ 6,000  

The increases in net sales and revenues and contribution to earnings from 2001 to 2002 and from 2002 to 2003 were due primarily to increases in the quantity and prices for single-family home sales closed in the respective years. In addition, all of the geographic markets in which Real Estate and Related Assets’ homebuilding businesses operate have been strong over the last few years due largely to low mortgage interest rates. Real Estate and Related Assets has a backlog of approximately six months of homes sold, but not closed. Gross profit margin for the homebuilding businesses (net sales less cost of goods sold and period costs) was 25.7 percent, 24.2 percent and 23.1 percent for 2003, 2002 and 2001, respectively.


Corporate and Other

                                         
                            Amount of Change
                           
Dollar amounts in millions   2003   2002   2001   2003 vs. 2002   2002 vs. 2001

 
 
 
 
 
Net sales and revenues
  $ 492     $ 399     $ 251     $ 93     $ 148  
 
   
     
     
     
     
 
Contribution (charge) to earnings
  $ (176 )   $ (293 )   $ (258 )   $ 117     $ (35 )
 
   
     
     
     
     
 

Corporate and Other includes marine transportation (Westwood Shipping Lines, a wholly owned subsidiary); distribution and converting facilities located outside North America; and general corporate support activities. Following are the key items that affected the comparison of Corporate and Other’s contribution to earnings from year to year:

                                         
                            Amount of Change
                           
Dollar amounts in millions   2003   2002   2001   2003 vs. 2002   2002 vs. 2001

 
 
 
 
 
Foreign exchange transaction gains (losses)
  $ 108     $ 33     $ (12 )   $ 75     $ 45  
Gain for settlement of Cemwood insurance claim
    25                   25        
Variable compensation expense
    (44 )     (10 )     (34 )     (34 )     24  
Charges for termination of MacMillan Bloedel pension plan for U.S. employees
    (6 )     (35 )           29       (35 )

Foreign exchange transaction gains and losses result from changes in exchange rates primarily related to the company’s Canadian and New Zealand operations.

     The increase in net sales and revenues from 2001 to 2002 was largely due to the inclusion of results of former Willamette operations beginning February 11, 2002. Corporate and Other expenses increased in 2002, relative to 2001, due primarily to the inclusion of former Willamette activities beginning February 11, 2002.

Financial Report    PAGE 35


 

Interest Expense

Interest expense incurred by Weyerhaeuser was $815 million, $821 million and $358 million in 2003, 2002 and 2001, respectively. The 2002 interest expense includes a pretax charge of $35 million that was recognized in the first quarter of 2002 related to the write-off of debt issuance costs when bridge loans for the acquisition of Willamette were replaced with permanent financing. Excluding this write-off, 2003 interest expense increased over the prior year. This increase, along with the increase from 2001 to 2002, is principally due to the debt issued during the first quarter of 2002 to finance the Willamette acquisition. Weyerhaeuser expects to repay additional debt and to return to historic debt ratios within five years from the time of the Willamette acquisition.

Income Taxes

The company’s effective income tax rate was 34.0 percent, 35.0 percent and 31.3 percent for 2003, 2002 and 2001, respectively. The company’s effective income tax rate is affected by state income taxes and the benefits of tax credits and the export sales incentive.

Cumulative Effect of a Change in Accounting Principle

The company adopted the provisions of Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations, as of the beginning of 2003. The cumulative effect of adopting the accounting principle was $11 million, or 5 cents per share, after taxes. The effect on results reported for 2002 and 2001 would not have been material had the provisions of Statement 143 been in place during the comparable periods.

LIQUIDITY AND CAPITAL RESOURCES


General The company is committed to the maintenance of a sound capital structure. This commitment is based upon two considerations: the obligation to protect the underlying interests of its shareholders and lenders and the desire to have access, at all times, to all major financial markets.

     The important elements of the policy governing the company’s capital structure are as follows:

  To view separately the capital structures of Weyerhaeuser and Weyerhaeuser Real Estate Company (WRECO) and related assets, given the very different nature of their assets and business activities. The amount of debt and equity associated with the capital structure of each will reflect the basic earnings capacity, real value, and unique liquidity characteristics of the assets dedicated to that business.
 
  The combination of maturing short-term debt and the structure of long-term debt will be managed judiciously to minimize liquidity risk.

Operations Consolidated net cash provided by operations was $1.8 billion in 2003, an increase of $304 million from $1.5 billion in 2002. The primary components of that change are as follows:

  Cash received by the company from customers was up approximately $1.4 billion in 2003 as compared with 2002. The primary two factors that drove this increase include an increase in cash received from the sale of oriented strand board and composite panels and the inclusion of activity of the former Willamette operations for a full year in 2003 and only after February 11 in 2002.
 
  Net cash paid to employees, suppliers and others by the company increased approximately $900 million in 2003, as compared with 2002. The increase is largely attributable to an increase in manufacturing costs and unit shipments in certain of the company’s product lines, due in part to inclusion of activity of the former Willamette operations for a full year in 2003 and only after February 11 in 2002. See the segment discussions in “Results of Operations.”
 
  Cash paid for interest, net of the amount capitalized, was $188 million higher in 2003 than in 2002. The increase is due to a higher average level of debt outstanding during 2003, primarily as a result of the Willamette acquisition.
 
  Net cash paid (received) for income taxes was ($21) million in 2003, which represents a net increase of $67 million over cash paid of $46 million in 2002.

Consolidated net cash provided by operations was $1.5 billion in 2002 and $1.1 billion in 2001. The primary components of that change are as follows:

  Cash received by the company from customers, net of cash paid to employees, suppliers and others, increased approximately $600 million in 2002 as compared with 2001. The primary factors contributing to this increase were the addition of the results of the former Willamette operations after February 11, 2002, and higher sales of commercial properties, apartment buildings and single-family homes in 2002.
 
  Cash paid for interest, net of the amount capitalized, was $278 million higher in 2002 than in 2001. The increase is due to a higher level of debt outstanding during the 2002 period, primarily as a result of the Willamette acquisition.

Financial Report    PAGE 36


 

Investing Capital spending by segment, excluding acquisitions and Real Estate and Related Assets, were as follows:

                         
Dollar amounts in millions   2003   2002   2001

 
 
 
Timberlands
  $ 58     $ 63     $ 46  
Wood Products
    145       219       198  
Pulp and Paper
    290       424       234  
Containerboard, Packaging and Recycling
    86       167       165  
Corporate and Other
    47       87       40  
 
   
     
     
 
 
  $ 626     $ 960     $ 683  
 
   
     
     
 

Weyerhaeuser currently anticipates capital expenditures, excluding acquisitions and Real Estate and Related Assets, to approximate $750 million for 2004; however, this expenditure level could increase or decrease as a consequence of future economic conditions.

     Weyerhaeuser received net cash proceeds of $358 million associated with the significant sales of nonstrategic timberlands in western Washington, Tennessee and the Carolinas in 2003. Weyerhaeuser received net cash proceeds of $155 million from the sale of western Washington timberlands in the fourth quarter of 2002. See Note 18 of Notes to Financial Statements.

     The company spent $6.1 billion, net of cash acquired, during the first quarter of 2002 to purchase the outstanding shares of Willamette stock. During 2001, the company spent $261 million, net of cash acquired, to purchase the remaining interest in Cedar River Paper Company from its joint venture partner and pay down the outstanding debt of the partnership.

     Internally generated cash flows provided the cash needed to meet the company’s capital expenditure, investment and other requirements in 2003.

Financing Weyerhaeuser’s interest-bearing debt at December 28, 2003, was $11.6 billion, or approximately $1.1 billion less than the outstanding balance at December 29, 2002. Available cash generated by operations and the significant sales of nonstrategic timberlands in western Washington, Tennessee and the Carolinas was used to pay down debt in 2003.

     Weyerhaeuser’s debt-to-total-capital ratio, excluding Real Estate and Related Assets, was 52.0 percent as of December 28, 2003, compared with 55.6 percent at the end of 2002 and 37.7 percent at the end of 2001. Debt reduction is the company’s highest priority, and Weyerhaeuser expects to return to historic debt ratios within five years from the time of the Willamette acquisition. For purposes of computing this ratio, debt includes Weyerhaeuser’s interest-bearing debt and capital lease obligations and total capital consists of debt, shareholders’ interest, deferred taxes and minority interest in subsidiaries, net of Weyerhaeuser’s investments in Real Estate and Related Assets subsidiaries.

     The company is currently a defendant in four lawsuits that have gone, or will go, to trial in the first and second quarters of 2004. Findings of fact and conclusions of law on the damages phase in the Paragon Trade Brands litigation were due February 9, 2004. Trial in the Westwood alder litigation is scheduled to occur in March 2004, trial in the Coast Mountain alder litigation is scheduled to occur in June 2004, and trial in the Washington Alder litigation is scheduled to occur in May 2004. These cases are described in Note 14 of Notes to Financial Statements. The company has not recorded a reserve related to these four lawsuits and is unable to estimate at this time the amount of the damages, if any, that may be awarded in these lawsuits. The company disagrees with the assertions in these four lawsuits and plans to appeal any judgments of liability and damage awards that may be issued in these lawsuits. In the event of any such appeal, the company will be required to post cash or bonds in the amount of the damage award being appealed. The company believes that even if judgments in all four of these lawsuits are entered against the company and damages are awarded in the amounts claimed by the plaintiffs, the company has sufficient liquidity to enable the company to post the required appeal bonds.

     The company paid dividends of $355 million in 2003, $353 million in 2002 and $351 million in 2001. Common share dividends have exceeded the company’s target ratio in recent years. The intent, over time, is to pay dividends to common shareholders in the range of 35 to 45 percent of common share earnings. Weyerhaeuser received payments of $157 million, $170 million and $30 million in 2003, 2002 and 2001, respectively, from its Real Estate and Related Assets subsidiaries in the form of intercompany dividends and returns of capital. These intercompany payments are eliminated on a consolidated basis.

     Weyerhaeuser Company and WRECO have established 364-day and multi-year revolving lines of credit in the maximum aggregate amount of $2.5 billion as of December 28, 2003. The multi-year revolving line of credit expires in March 2007. WRECO can borrow up to $600 million under the 364-day facility. Neither of the entities is a guarantor of the borrowing of the other under either of these credit facilities. As of December 28, 2003, the full $2.5 billion was available under these bank facilities for incremental borrowings.

Financial Report    PAGE 37


 

Off-Balance Sheet Arrangements The company utilized four qualifying special purpose entities (SPEs) in 2002 and 2003 to monetize buyer notes received as consideration for sales of nonstrategic timberlands. The company received cash of $91 million in 2002 and $358 million in 2003 from the SPEs, which was used to pay down the company’s debt. The company’s investment in the four SPEs was $57 million as of December 28, 2003. See Notes 3 and 18 of Notes to Financial Statements.

     The company’s other off-balance sheet arrangements have not had, and are not reasonably likely to have, a current or future effect on the company’s financial condition, results of operations or cash flows that is material. See Notes 1, 11 and 14 of Notes to Financial Statements for disclosures of the company’s accounts receivable sales, surety bonds, letters of credit and guarantees.

Contractual Obligations and Commercial Commitments The following table summarizes the company’s significant contractual obligations as of December 28, 2003. See Notes 6, 12 and 14 of Notes to Financial Statements.

                                           
      Payments Due by Period
     
              LESS THAN                   MORE THAN
Dollar amounts in millions   TOTAL   1 YEAR   1–3 YEARS   3–5 YEARS   5 YEARS

 
 
 
 
 
Long-term debt obligations:
                                       
 
Weyerhaeuser
  $ 11,603     $ 90     $ 2,193     $ 1,953     $ 7,367  
 
Real Estate and Related Assets
    893       23       264       142       464  
Operating lease obligations:
                                       
 
Weyerhaeuser
    597       125       154       80       238  
 
Real Estate and Related Assets
    62       12       18       11       21  
Purchase obligations(1)
    2,020       580       525       410       505  
Estimated minimum pension funding requirement
    43       43                    
 
 
   
     
     
     
     
 
Total
  $ 15,218     $ 873     $ 3,154     $ 2,596     $ 8,595  
 
 
   
     
     
     
     
 

(1)Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding on the company and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Purchase obligations exclude arrangements that the company can cancel without penalty.

Market Risk of Financial Instruments The fair value of the company’s fixed-rate debt is affected by changes in market rates of interest. A summary of the company’s long-term debt obligations, including scheduled principal repayments and weighted average interest rates, as of December 28, 2003, follows:

                                                                     
Dollar amounts in millions   2004   2005   2006   2007   2008   THEREAFTER   TOTAL   FAIR VALUE

 
 
 
 
 
 
 
 
Weyerhaeuser:
                                                               
 
Fixed-rate debt
  $ 81     $ 1,181     $ 1,000     $ 1,166     $ 773     $ 7,115     $ 11,316     $ 12,291  
   
Average interest rate
    7.73 %     5.63 %     6.10 %     6.43 %     5.98 %     7.08 %     6.70 %        
 
Variable-rate debt
  $ 9     $ 6     $ 6     $ 4     $ 10     $ 252     $ 287     $ 287  
   
Average interest rate
    2.10 %     2.23 %     2.23 %     2.23 %     5.78 %     2.05 %     2.19 %        
Real Estate and Related Assets:
                                                               
 
Fixed-rate debt
  $ 23     $ 14     $ 250     $ 3     $ 139     $ 439     $ 868     $ 928  
   
Average interest rate
    6.32 %     6.54 %     6.94 %     5.89 %     6.59 %     6.12 %     6.44 %        
 
Variable-rate debt
  $     $     $     $     $     $ 25     $ 25     $ 25  
   
Average interest rate
                                  1.70 %     1.70 %        

Occasionally, the company utilizes derivative instruments to achieve a desired mix of fixed versus floating-rate debt in its capital structure, to hedge commitments for short or long positions in commodities the company produces or purchases, to manage exposure to foreign exchange rate fluctuations, and to eliminate or create other exposures to investments or liability commitments that are less efficiently managed in the cash or physical markets. The fair value of derivative contracts may vary due to the volatility of the expected underlying forward prices or index rates associated with such contracts.

     As of December 28, 2003, the company had commodity swaps with an annual notional value of $93 million, an aggregate notional value of $194 million and fair value of $7 million. All of these commodity swaps were designated as cash flow hedges. A 10 percent change in the forward price levels would result in a change in the fair value of the commodity swaps of approximately $19 million. This sensitivity excludes the offsetting impact of the price changes on underlying physical product purchases or sales.

Financial Report    PAGE 38


 

     The company had an interest rate swap with a notional value of $50 million and a fair value approximating zero at December 28, 2003. This swap expired on January 1, 2004.

     The company had an investment swap with a notional value of $179 million and a fair value of $1 million at December 28, 2003. The value at risk for this derivative is $8 million, calculated by applying conservative probabilities of changes in the expected return based on historical results.

     As of December 28, 2003, the company had no foreign exchange contracts in place.

ENVIRONMENTAL MATTERS, LEGAL PROCEEDINGS AND OTHER CONTINGENCIES


Hardboard Siding Claims The company announced in June 2000 it had entered into a proposed nationwide settlement of its hardboard siding class action cases and, as a result, took a pretax charge of $130 million to cover the estimated cost of the settlement and related claims. The court approved the settlement in December 2000. An appeal of the settlement was denied in March 2002, and the settlement is now binding on all parties.

     The company reassessed the adequacy of these reserves and increased its reserves by an additional $43 million during 2001. Claims and related costs in the amount of $11 million in 2003, $11 million in 2002 and $37 million in 2001 were paid against the reserve.

     The company has negotiated settlements with its insurance carriers for recovery of certain costs related to these claims. As of the end of 2003, the company had received recoveries from insurance carriers in the amount of $52 million. See further discussion regarding this matter, including claims data, in Note 14 of Notes to Financial Statements.

Other See additional discussion of environmental matters, legal proceedings and other contingencies in Note 14 of Notes to Financial Statements.

ACCOUNTING MATTERS



Prospective Pronouncements

See Note 1 of Notes to Financial Statements.

Critical Accounting Policies

The company’s significant accounting policies are described in Note 1 of Notes to Financial Statements. The company’s critical accounting policies are those that may involve a higher degree of judgment, estimates and complexity. The company believes its most critical accounting policies include those related to the company’s pension and postretirement benefit plans, potential impairments of long-lived assets and goodwill, reserves for matters such as legal and environmental issues and product liability reserves, and depletion accounting. While the company bases its judgments and estimates on historical experience and other assumptions that management believes are appropriate and reasonable under current circumstances, actual resolution of these matters may differ from recorded estimated amounts.

Pension And Post Retirement Benefit Plans The company sponsors several pension and postretirement benefit plans for its employees. Key assumptions used to determine the amounts recorded in the company’s financial statements include the discount rate, the expected return on plan assets, anticipated trends in health care costs, assumed increases in salaries, mortality rates, and other factors. These assumptions are reviewed with external advisors at the end of each fiscal year and are updated as appropriate. Actual experience that differs from the assumptions could have a significant effect on the company’s financial position, results from operations or cash flows. Other factors that affect the level of net periodic benefit income or expense that is recognized in a given year include actual pension fund performance, plan changes, and changes in plan participation or coverage.

     The company’s expected rate of return on plan assets reflects the assumption that its plan assets will continue to outperform a benchmark rate of return, assuming a portfolio of investments comprised of 60 percent equities, 35 percent bonds and 5 percent cash. As of December 1, 2003, the equity target was reduced to 55 percent and the bond target was increased to 40 percent. Over the last 19 years, actual returns on the company’s plan assets have exceeded the benchmark rate of return of 11.0 percent by 6.4 percentage points. As of December 28, 2003, the company is using an expected rate of return on pension plan assets assumption of 9.5 percent, reflecting the assumptions that the long-term benchmark return will be 6.5 percent and that the company’s pension plan assets will outperform the benchmark by 3.0 percent. This assumption, which will be used in the determination of the 2004 net periodic benefits costs, is the same assumption that was used for 2003. Each 0.5 percent reduction in the expected return on plan assets would increase the 2004 pension plan expense by approximately $17 million for the company’s U.S. qualified pension plans and by approximately $3 million for the company’s Canadian registered pension plans.

     The discount rate is based on rates of interest on long-term corporate bonds. As of December 28, 2003, the company reduced the discount rate from 6.75 percent to 6.25 percent for U.S. plans and from 6.5 percent to 6.25 percent for Canadian plans to reflect decreases in the benchmark rates of interest. Pension and postretirement benefit expenses for 2004 will be based on the 6.25 percent assumed discount rate for U.S. and Canadian plans. Future discount rates may differ. Each 0.5

Financial Report    PAGE 39


 

percent reduction in the assumed discount rate is expected to increase pension expense by approximately $33 million for the company’s U.S. qualified pension plans and by approximately $6 million for the company’s Canadian registered pension plans.

     The company doesn’t expect to make or be required to make any contributions to its U.S. plans during 2004. The company expects to contribute approximately $43 million to its Canadian pension plans in 2004, which includes $3 million for the terminations of the pension plans at its Sturgeon Falls and Grande Cache operations. In 2003, the company made contributions of $12 million to its U.S. plans, primarily to fund the termination of the MacMillan Bloedel salaried pension plan for U.S. employees and $11 million to the Canadian plans.

Long - Lived Assets and Goodwill The company reviews the carrying value of its long-lived assets and goodwill when events and changes in circumstances indicate that the carrying value of an asset group may not be recoverable through future operations. To determine whether the carrying value of an asset group is impaired, the company estimates the cash flows that could be generated after considering the range and likelihood of possible outcomes. If the carrying value of an asset group is not recoverable through the weighted average cash flows under the possible outcomes, it is considered impaired. When necessary, an impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its estimated fair value. Estimated fair value is based on market comparisons, when available, or discounted cash flows under the possible outcomes.

     The valuation of goodwill is assessed annually. If goodwill is considered impaired, the company is required to estimate the fair values of the assets and liabilities of the reporting unit carrying the goodwill, similar to the fair-value allocation under the purchase method of accounting for a business combination. The excess of the fair value of the reporting unit over the fair value of the assets and liabilities of the reporting unit equals the implied value of goodwill. When necessary, an impairment charge is recognized to the extent the carrying value of goodwill of the reporting unit exceeds its implied fair value.

     The company has grown substantially through acquisitions in recent years. A large portion of the net book value of the company’s property and equipment and timber and timberlands represent amounts allocated to those assets as part of the allocation of the purchase price of recent acquisitions. Due to these allocations, a large portion of the company’s long-term assets are valued at relatively current amounts. In addition, the company had goodwill of $3.2 billion as of December 28, 2003, which represented approximately 12 percent of the company’s consolidated assets.

     In order to determine the amount and timing of impairment charges for these assets, the company is required to estimate future cash flows, residual values and fair values of the related assets, and the probability of alternative outcomes. In addition, the company must make assumptions regarding product pricing, raw material costs, volumes of product sold, and discount rates to analyze the future cash flows for goodwill impairment assessments. Management believes that the estimates of future cash flows and fair values are reasonable; however, changes in estimates of such cash flows, changes in the likelihood of alternative outcomes, and changes in estimates of fair value could affect the evaluations.

Legal, Environmental and Product Liability Reserves Contingent liabilities, principally for legal, environmental and product liability matters, are recorded when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Liabilities accrued for legal matters require judgments regarding projected outcomes and range of loss based on historical experience and recommendations of legal counsel. However, litigation is inherently unpredictable, and excessive verdicts do occur. As disclosed in Note 14 of Notes to Financial Statements, the company’s legal exposures are significant and the ultimate outcome of these legal proceedings could be material to operating results or cash flows in any given quarter or year.

     Liabilities for environmental matters require evaluations of relevant environmental regulations and estimates of future remediation alternatives and costs. The company determines these estimates after a detailed evaluation of each site. In establishing its accruals for environmental remediation, the company has assumed that it will not bear the entire cost of remediation of every site to the exclusion of other known potentially responsible parties who may be jointly and severally liable. The ability of other potentially responsible parties to participate has been taken into account, based generally on each party’s financial condition and probable contribution on a per-site basis. The company does not record amounts for recoveries from insurance carriers until a binding agreement has been reached between the company and the carrier.

     Additionally, as discussed in Note 14 of the Notes to Financial Statements, reserves for future claims settlements relating to hardboard siding cases require judgments regarding projections of future claims rates and amounts.

Depletion Depletion, or costs attributed to timber harvested, is recorded as trees are harvested. Depletion rates are adjusted annually. Depletion rates are computed by dividing the original cost of the timber less previously recorded depletion by the total timber volume that is estimated to be harvested over the harvest cycle. The length of the harvest cycle varies by geographic region and species of timber. The depletion rate calculations do not include an estimate for future silviculture costs associated with existing stands, future reforestation costs associated with a stand’s final harvest, or future volume in connection with the replanting of a stand subsequent to its final harvest.

Financial Report    PAGE 40


 

     Significant estimates and judgments are required to determine the volume of timber available for harvest over the harvest cycle. Some of the factors affecting the estimates are changes in weather patterns, the effect of fertilizer and pesticide applications, changes in environmental regulations and restrictions that may limit the company’s ability to harvest certain timberlands, changes in harvest plans, the scientific advancement in seedling and growing technology, and changes in harvest cycles.

Audit Committee

The Audit Committee is comprised of four independent directors (as defined by the New York Stock Exchange listing rules) and is responsible for appointing the independent public auditors, overseeing the audit work, and establishing procedures for receiving and processing complaints regarding accounting, internal controls or auditing matters. The Audit Committee reviewed with the company’s management and with its independent public auditors the scope and results of the company’s internal and external audit activities and the adequacy of the company’s internal controls over financial reporting. The committee also reviewed current and emerging accounting and reporting requirements and practices affecting the company.

Certifications

The company has filed certifications under Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended, as exhibits to its Annual Report on Form 10-K, filed March 5, 2004. In addition, the company has submitted to the New York Stock Exchange a certification that it is in compliance with the listing standards of the New York Stock Exchange.

Financial Report    PAGE 41


 

INDEPENDENT AUDITORS’ REPORT


To the Board of Directors and Shareholders of Weyerhaeuser Company:

We have audited the accompanying consolidated balance sheets of Weyerhaeuser Company and subsidiaries as of December 28, 2003, and December 29, 2002, and the related consolidated statements of earnings, cash flows and shareholders’ interest for each of the years in the two-year period then ended. These consolidated financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. The consolidated financial statements of Weyerhaeuser Company and subsidiaries as of December 30, 2001, and for the year then ended were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those consolidated financial statements, before the revisions described in Notes 4 and 22 to the financial statements, in their report dated February 11, 2002.

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

     In our opinion, the 2003 and 2002 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Weyerhaeuser Company and subsidiaries as of December 28, 2003, and December 29, 2002, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

     As discussed above, the consolidated financial statements of Weyerhaeuser Company and subsidiaries as of December 30, 2001, and for the year then ended were audited by other auditors who have ceased operations. As described in Note 4 to the consolidated financial statements, those financial statements have been revised to include the transitional disclosures required by Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, which was adopted by the company as of December 31, 2001. Further, as described in Note 22 to the consolidated financial statements, the company changed the composition of its reportable segments in 2003 and 2002, and the amounts in the 2001 financial statements relating to reportable segments have been restated to conform to the 2003 composition of reportable segments. We audited the 2001 adjustments to Note 4 and the adjustments that were applied to restate the disclosures for reportable segments reflected in the 2001 financial statements. In our opinion, the 2001 disclosure in Note 22 is appropriate and the 2001 adjustments to Note 4 are appropriate and have been properly applied. However, we were not engaged to audit, review or apply any procedures to the 2001 financial statements of the company other than with respect to such disclosures and adjustments, and accordingly, we do not express an opinion or any other form of assurance on the 2001 financial statements taken as a whole.

     As discussed in Note 1 to the consolidated financial statements, Weyerhaeuser Company and subsidiaries adopted the provisions of Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations, in 2003.

Seattle, Washington
February 11, 2004

KPMG LLP

Financial Report    PAGE 42


 

CONSOLIDATED STATEMENT OF EARNINGS (Dollar amounts in millions except per-share figures)

                             
For the Three-Year Period Ended December 28, 2003   2003   2002   2001

 
 
 
Net sales and revenues:
                       
 
Weyerhaeuser
  $ 17,844     $ 16,771     $ 13,084  
 
Real Estate and Related Assets
    2,029       1,750       1,461  
 
 
   
     
     
 
Total net sales and revenues
    19,873       18,521       14,545  
 
 
   
     
     
 
Costs and expenses:
                       
 
Weyerhaeuser:
                       
   
Costs of products sold
    14,078       13,211       10,283  
   
Depreciation, amortization and fee stumpage
    1,307       1,214       869  
   
Selling expenses
    457       450       380  
   
General and administrative expenses
    950       847       663  
   
Research and development expenses
    51       52       55  
   
Taxes other than payroll and income taxes
    185       178       148  
   
Charges for integration and restructuring (Note 16)
    103       72       14  
   
Charges for closure of facilities (Note 17)
    127       95       71  
   
Other operating costs, net (Note 15)
    (244 )     (139 )     68  
 
 
   
     
     
 
 
    17,014       15,980       12,551  
 
 
   
     
     
 
 
Real Estate and Related Assets:
                       
   
Costs and operating expenses
    1,516       1,326       1,108  
   
Depreciation and amortization
    11       11       7  
   
Selling expenses
    107       90       81  
   
General and administrative expenses
    63       48       42  
   
Taxes other than payroll and income taxes
    3       4       5  
   
Other operating costs, net
    (9 )     (1 )     (6 )
 
 
   
     
     
 
 
    1,691       1,478       1,237  
 
 
   
     
     
 
Total costs and expenses
    18,705       17,458       13,788  
 
 
   
     
     
 
Operating income
    1,168       1,063       757  
Interest expense and other:
                       
 
Weyerhaeuser:
                       
   
Interest expense incurred
    (815 )     (821 )     (358 )
   
Less interest capitalized
    19       50       19  
   
Interest income and other
    17       28       23  
   
Equity in income (loss) of affiliates (Note 3)
    (6 )     (13 )     33  
 
Real Estate and Related Assets:
                       
   
Interest expense incurred
    (53 )     (53 )     (68 )
   
Less interest capitalized
    53       53       63  
   
Interest income and other
    33       33       20  
   
Equity in income of unconsolidated entities (Note 3)
    20       31       27  
 
 
   
     
     
 
Earnings before income taxes and cumulative effect of a change in accounting principle
    436       371       516  
Income taxes (Note 5)
    (148 )     (130 )     (162 )
 
 
   
     
     
 
Earnings before cumulative effect of a change in accounting principle
    288       241       354  
Cumulative effect of a change in accounting principle, net (Note 1)
    (11 )            
 
 
   
     
     
 
Net earnings
  $ 277     $ 241     $ 354  
 
 
   
     
     
 
Basic and diluted net earnings per share (Note 2):
                       
 
Before cumulative effect of a change in accounting principle
  $ 1.30     $ 1.09     $ 1.61  
 
Cumulative effect of a change in accounting principle, net
    (0.05 )            
 
 
   
     
     
 
 
Net earnings
  $ 1.25     $ 1.09     $ 1.61  
 
 
   
     
     
 
Dividends paid per share
  $ 1.60     $ 1.60     $ 1.60  
 
 
   
     
     
 

See notes on pages 49 through 81.

Financial Report    PAGE 43


 

CONSOLIDATED BALANCE SHEET (Dollar amounts in millions)

                       
Assets   DECEMBER 28, 2003   DECEMBER 29, 2002

 
 
Weyerhaeuser
               
 
Current assets:
               
   
Cash and cash equivalents
  $ 171     $ 115  
   
Receivables, less allowances of $16 and $13
    1,484       1,413  
   
Inventories (Note 7)
    1,911       1,941  
   
Prepaid expenses
    455       419  
   
 
   
     
 
     
Total current assets
    4,021       3,888  
 
Property and equipment, net (Note 8)
    12,243       12,278  
 
Construction in progress
    403       687  
 
Timber and timberlands at cost, less fee stumpage charged to disposals
    4,287       4,402  
 
Investments in and advances to equity affiliates (Note 3)
    603       578  
 
Goodwill (Note 4)
    3,237       3,131  
 
Deferred pension and other assets (Note 6)
    1,311       1,285  
   
 
   
     
 
 
    26,105       26,249  
   
 
   
     
 
Real Estate and Related Assets
               
 
Cash and cash equivalents
    31       7  
 
Receivables, less discounts and allowances of $6 and $6
    64       70  
 
Real estate in process of development and for sale (Note 9)
    723       696  
 
Land being processed for development
    922       962  
 
Investments in unconsolidated entities, less reserves of $3 and $3 (Note 3)
    38       28  
 
Other assets
    226       207  
   
 
   
     
 
 
    2,004       1,970  
   
 
   
     
 
     
Total assets
  $ 28,109     $ 28,219  
   
 
   
     
 

See notes on pages 49 through 81.

Financial Report    PAGE 44


 

CONSOLIDATED BALANCE SHEET (Continued)

                       
Liabilities and Shareholders’ Interest   DECEMBER 28, 2003   DECEMBER 29, 2002

 
 
Weyerhaeuser
               
 
Current liabilities:
               
   
Notes payable and commercial paper (Note 11)
  $ 4     $ 2  
   
Current maturities of long-term debt (Notes 12 and 13)
    90       786  
   
Accounts payable
    1,041       983  
   
Accrued liabilities (Note 10)
    1,390       1,223  
   
 
   
     
 
     
Total current liabilities
    2,525       2,994  
 
Long-term debt (Notes 12 and 13)
    11,503       11,907  
 
Deferred income taxes (Note 5)
    4,294       4,056  
 
Deferred pension, other postretirement benefits and other liabilities (Note 6)
    1,377       1,290  
 
Commitments and contingencies (Note 14)
               
   
 
   
     
 
 
    19,699       20,247  
   
 
   
     
 
Real Estate and Related Assets
               
 
Notes payable and commercial paper (Note 11)
    1       63  
 
Long-term debt (Notes 12 and 13)
    893       814  
 
Other liabilities
    407       472  
 
Commitments and contingencies (Note 14)
               
   
 
   
     
 
 
    1,301       1,349  
   
 
   
     
 
     
Total liabilities
    21,000       21,596  
   
 
   
     
 
Shareholders’ interest (Note 19):
               
 
Common shares: $1.25 par value; authorized 400,000,000 shares; issued and outstanding: 220,200,564 and 218,950,302 shares
    275       274  
 
Exchangeable shares: no par value; unlimited shares authorized; issued and held by nonaffiliates: 2,292,825 and 2,302,873 shares
    156       156  
 
Other capital
    2,940       2,875  
 
Retained earnings
    3,662       3,740  
 
Cumulative other comprehensive income (loss)
    76       (422 )
   
 
   
     
 
     
Total shareholders’ interest
    7,109       6,623  
   
 
   
     
 
     
Total liabilities and shareholders’ interest
  $ 28,109     $ 28,219  
   
 
   
     
 

Financial Report    PAGE 45


 

CONSOLIDATED STATEMENT OF CASH FLOWS (Dollar amounts in millions)

                             
        Consolidated
       
For the Three-Year Period Ended December 28, 2003   2003   2002   2001

 
 
 
Cash flows from operations:
                       
 
Net earnings
  $ 277     $ 241     $ 354  
 
Noncash charges (credits) to income:
                       
   
Depreciation, amortization and fee stumpage
    1,318       1,225       876  
   
Deferred income taxes, net (Note 5)
    18       57       58  
   
Pension and other postretirement benefits expense (income) (Note 6)
    140       (28 )     (194 )
   
Equity in (income) loss of affiliates and unconsolidated entities
    (14 )     (18 )     (60 )
   
Countervailing duties and anti-dumping penalties (Note 14)
          (47 )     50  
   
Charges for litigation (Note 14)
    109             43  
   
Credit for Cemwood settlement (Note 15)
    (25 )            
   
Charges for impairment of long-lived assets (Notes 15 and 17)
    103       64       62  
   
Loss on early extinguishment of debt
          35        
   
Cumulative effect of a change in an accounting principle (Note 1)
    17              
 
Decrease (increase) in working capital, net of acquisitions:
                       
   
Receivables
    (9 )     31       234  
   
Inventories, real estate and land
    199       17       32  
   
Prepaid expenses
    7       18       9  
   
Mortgage-related financial instruments
    1       29       2  
   
Accounts payable and accrued liabilities
    129       (88 )     (265 )
 
Gain on significant sales of nonstrategic timberlands (Note 18)
    (205 )     (117 )      
 
(Gain) loss on disposition of other assets
    (5 )     7       2  
 
Foreign exchange transaction (gains) losses
    (108 )     (33 )     12  
 
Other
    (138 )     117       (97 )
 
 
   
     
     
 
Net cash from operations
    1,814       1,510       1,118  
 
 
   
     
     
 
Cash flows from investing activities:
                       
 
Property and equipment
    (608 )     (930 )     (660 )
 
Timberlands reforestation
    (34 )     (36 )     (25 )
 
Acquisition of timberlands
    (129 )     (89 )     (131 )
 
Acquisition of businesses and facilities, net of cash acquired (Note 21)
    (8 )     (6,119 )     (261 )
 
Net distributions from (investments in) equity affiliates
    (10 )     33       132  
 
Proceeds from sale of:
                       
   
Property, equipment and other assets
    119       75       74  
   
Significant nonstrategic timberlands (Note 18)
    358       155        
   
Mortgage-related financial instruments
    1       35       12  
 
Intercompany advances
                 
 
Other
    (42 )     (8 )     (23 )
 
 
   
     
     
 
Net cash from investing activities
    (353 )     (6,884 )     (882 )
 
 
   
     
     
 
Cash flows from financing activities:
                       
 
Issuances of debt
    194       14,432       1,977  
 
Notes, commercial paper borrowings and revolving credit facility, net
    (380 )     (523 )     (1,460 )
 
Cash dividends
    (355 )     (353 )     (351 )
 
Intercompany return of capital and cash dividends
                 
 
Payments on debt
    (898 )     (8,322 )     (280 )
 
Exercise of stock options
    60       67       30  
 
Other
    (2 )     (9 )     (71 )
 
 
   
     
     
 
Net cash from financing activities
    (1,381 )     5,292       (155 )
 
 
   
     
     
 
Net change in cash and cash equivalents
    80       (82 )     81  
Cash and cash equivalents at beginning of year
    122       204       123  
 
 
   
     
     
 
Cash and cash equivalents at end of year
  $ 202     $ 122     $ 204  
 
 
   
     
     
 
Cash paid (received) during the year for:
                       
 
Interest, net of amount capitalized
  $ 789     $ 601     $ 323  
 
 
   
     
     
 
 
Income taxes
  $ (21 )   $ 46     $ 119  
 
 
   
     
     
 

See notes on pages 49 through 81.

Financial Report    PAGE 46


 


CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
                                                     
        Weyerhaeuser   Real Estate and Related Assets
       
 
For the Three-Year Period Ended December 28, 2003   2003   2002   2001   2003   2002   2001

 
 
 
 
 
 
Cash flows from operations:
                                               
 
Net earnings
  $ 32     $ 30     $ 180     $ 245     $ 211     $ 174  
 
Noncash charges (credits) to income:
                                               
   
Depreciation, amortization and fee stumpage
    1,307       1,214       869       11       11       7  
   
Deferred income taxes, net (Note 5)
    41       56       60       (23 )     1       (2 )
   
Pension and other postretirement benefits expense (income) (Note 6)
    137       (28 )     (189 )     3             (5 )
   
Equity in (income) loss of affiliates and unconsolidated entities
    6       13       (33 )     (20 )     (31 )     (27 )
   
Countervailing duties and anti-dumping penalties (Note 14)
          (47 )     50                    
   
Charges for litigation (Note 14)
    109             43                    
   
Credit for Cemwood settlement (Note 15)
    (25 )                              
   
Charges for impairment of long-lived assets (Notes 15 and 17)
    102       63       62       1       1        
   
Loss on early extinguishment of debt
          35                          
   
Cumulative effect of a change in an accounting principle (Note 1)
    17                                
 
Decrease (increase) in working capital, net of acquisitions:
                                               
   
Receivables
    (16 )     30       229       7       1       5  
   
Inventories, real estate and land
    133       14       114       66       3       (82 )
   
Prepaid expenses
    10       32       5       (3 )     (14 )     4  
   
Mortgage-related financial instruments
                      1       29       2  
   
Accounts payable and accrued liabilities
    188       (168 )     (265 )     (59 )     80        
 
Gain on significant sales of nonstrategic timberlands (Note 18)
    (205 )     (117 )                        
 
(Gain) loss on disposition of other assets
    3       8       5       (8 )     (1 )     (3 )
 
Foreign exchange transaction (gains) losses
    (108 )     (33 )     12                    
 
Other
    (82 )     156       (27 )     (56 )     (39 )     (70 )
 
 
   
     
     
     
     
     
 
Net cash from operations
    1,649       1,258       1,115       165       252       3  
 
 
   
     
     
     
     
     
 
Cash flows from investing activities:
                                               
 
Property and equipment
    (592 )     (924 )     (658 )     (16 )     (6 )     (2 )
 
Timberlands reforestation
    (34 )     (36 )     (25 )                  
 
Acquisition of timberlands
    (129 )     (89 )     (131 )                  
 
Acquisition of businesses and facilities, net of cash acquired (Note 21)
    (8 )     (6,119 )     (261 )                  
 
Net distributions from (investments in) equity affiliates
    5       (17 )     (38 )     (15 )     50       170  
 
Proceeds from sale of:
                                               
   
Property, equipment and other assets
    78       75       61       41             13  
   
Significant nonstrategic timberlands (Note 18)
    358       155                          
   
Mortgage-related financial instruments
                      1       35       12  
 
Intercompany advances
    7       51       (16 )     (7 )     (51 )     16  
 
Other
    (40 )     (6 )     (17 )     (2 )     (2 )     (6 )
 
 
   
     
     
     
     
     
 
Net cash from investing activities
    (355 )     (6,910 )     (1,085 )     2       26       203  
 
 
   
     
     
     
     
     
 
Cash flows from financing activities:
                                               
 
Issuances of debt
    44       14,142       1,577       150       290       400  
 
Notes, commercial paper borrowings and revolving credit facility, net
    (318 )     (228 )     (1,041 )     (62 )     (295 )     (419 )
 
Cash dividends
    (355 )     (353 )     (351 )                  
 
Intercompany return of capital and cash dividends
    157       170       30       (157 )     (170 )     (30 )
 
Payments on debt
    (824 )     (8,224 )     (117 )     (74 )     (98 )     (163 )
 
Exercise of stock options
    60       67       30                    
 
Other
    (2 )     (9 )     (71 )                  
 
 
   
     
     
     
     
     
 
Net cash from financing activities
    (1,238 )     5,565       57       (143 )     (273 )     (212 )
 
 
   
     
     
     
     
     
 
Net change in cash and cash equivalents
    56       (87 )     87       24       5       (6 )
Cash and cash equivalents at beginning of year
    115       202       115       7       2       8  
 
 
   
     
     
     
     
     
 
Cash and cash equivalents at end of year
  $ 171     $ 115     $ 202     $ 31     $ 7     $ 2  
 
 
   
     
     
     
     
     
 
Cash paid (received) during the year for:
                                               
 
Interest, net of amount capitalized
  $ 789     $ 600     $ 315     $     $ 1     $ 8  
 
 
   
     
     
     
     
     
 
 
Income taxes
  $ (265 )   $ (39 )   $ 23     $ 244     $ 85     $ 96  
 
 
   
     
     
     
     
     
 

See notes on pages 49 through 81.

Financial Report    PAGE 47


 

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ INTEREST (Dollar amounts in millions)

                           
For the Three-Year Period Ended December 28, 2003   2003   2002   2001

 
 
 
Common shares:
                       
 
Balance at beginning of year
  $ 274     $ 271     $ 268  
 
Issued for exercise of stock options
    1       2       1  
 
Issued in retraction of exchangeable shares
          1       2  
 
 
   
     
     
 
 
Balance at end of year
  $ 275     $ 274     $ 271  
 
 
   
     
     
 
 
Exchangeable shares:
                       
 
Balance at beginning of year
  $ 156     $ 224     $ 361  
 
Retraction
          (68 )     (137 )
 
 
   
     
     
 
 
Balance at end of year
  $ 156     $ 156     $ 224  
 
 
   
     
     
 
 
Other capital — common and exchangeable:
                       
 
Balance at beginning of year
  $ 2,875     $ 2,693     $ 2,532  
 
Stock options exercised
    59       65       29  
 
Retraction of exchangeable shares
    1       67       135  
 
Other transactions, net
    5       50       (3 )
 
 
   
     
     
 
 
Balance at end of year
  $ 2,940     $ 2,875     $ 2,693  
 
 
   
     
     
 
 
Retained earnings:
                       
 
Balance at beginning of year
  $ 3,740     $ 3,852     $ 3,849  
 
Net earnings
    277       241       354  
 
Cash dividends on common shares
    (355 )     (353 )     (351 )
 
 
   
     
     
 
 
Balance at end of year
  $ 3,662     $ 3,740     $ 3,852  
 
 
   
     
     
 
 
Cumulative other comprehensive income (loss):
                       
 
Balance at beginning of year
  $ (422 )   $ (345 )   $ (178 )
 
Annual changes — net of tax:
                       
 
Foreign currency translation adjustments
    434       36       (136 )
 
Additional minimum pension liability adjustments
    60       (111 )     (35 )
 
Cash flow hedge fair value adjustments
    2       (2 )     4  
 
Unrealized gain on available-for-sale securities
    2              
 
 
   
     
     
 
 
Balance at end of year
  $ 76     $ (422 )   $ (345 )
 
 
   
     
     
 
 
Total shareholders’ interest:
                       
 
Balance at end of year
  $ 7,109     $ 6,623     $ 6,695  
 
 
   
     
     
 
 
Comprehensive income:
                       
 
Net earnings
  $ 277     $ 241     $ 354  
 
Other comprehensive income:
                       
 
Foreign currency translation adjustments
    434       36       (136 )
 
Additional minimum pension liability adjustments, net of tax expense (benefit) of $32 in 2003, $(59) in 2002 and ($21) in 2001
    60       (111 )     (35 )
 
Cash flow hedges:
                       
 
Net derivative gains (losses), net of tax expense (benefit) of ($1) in 2003, ($2) in 2002 and $1 in 2001
    (1 )     (2 )     3  
 
Reclassification of losses, net of tax benefit of $3 in 2003 and $1 in 2001
    3             1  
 
Unrealized gain on available-for-sale securities
    2              
 
 
   
     
     
 
 
Total comprehensive income
  $ 775     $ 164     $ 187  
 
 
   
     
     
 

See notes on pages 49 through 81.

Financial Report    PAGE 48


 

Notes to Financial Statements

FOR THE THREE-YEAR PERIOD ENDED DECEMBER 28, 2003

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Consolidation The consolidated financial statements include the accounts of Weyerhaeuser Company and all of its majority-owned domestic and foreign subsidiaries (the company). As discussed in Note 21: Acquisitions, the accounts of Willamette Industries, Inc. (Willamette), are included beginning February 11, 2002. Intercompany transactions and accounts are eliminated. Investments in and advances to equity affiliates that are not majority owned or controlled are accounted for using the equity method with taxes provided on undistributed earnings.

     Certain of the consolidated financial statements and notes to financial statements are presented in two groupings: (1) Weyerhaeuser, principally engaged in the growing and harvesting of timber and the manufacture, distribution and sale of forest products, and (2) Real Estate and Related Assets, principally engaged in real estate development and construction and other real estate related activities. The term “company” refers to Weyerhaeuser Company and all of its majority-owned domestic and foreign subsidiaries. The term “Weyerhaeuser” excludes the Real Estate and Related Assets operations.

Nature of Operations The company’s business segments are:

  Timberlands, which manages 6.7 million acres of company-owned and .8 million acres of leased commercial forestlands in North America (4.5 million acres in the southern United States and 3.0 million acres in the Pacific Northwest and Canada).
 
  Wood Products, which produces a full line of wood products that are sold primarily through Weyerhaeuser’s own sales organizations to wholesalers, retailers and industrial users in North America, the Pacific Rim and Europe.
 
  Pulp and Paper, which manufactures and sells pulp, coated and uncoated paper, and liquid packaging board in North American, Pacific Rim and European markets.
 
  Containerboard, Packaging and Recycling, which manufactures and sells containerboard in North American, Pacific Rim and European markets and packaging products for domestic and Mexican markets, and which operates an extensive wastepaper recycling system that serves Weyerhaeuser mills and worldwide markets.
 
  Real Estate and Related Assets, which is primarily engaged in developing single-family housing and residential lots for sale, including master planned communities, mainly in selected metropolitan areas in southern California, Nevada, Washington, Texas, Maryland and Virginia.

Weyerhaeuser also has renewable long-term licenses on 29.9 million acres of forestland located in five provinces throughout Canada that are managed by Weyerhaeuser’s Canadian operations. Revenues and expenses associated with these licenses are included in the results of operations of the manufacturing operations they support. The terms of the licenses are described under “Timber and Timberlands” below.

Fiscal Year End The company’s fiscal year ends on the last Sunday of the calendar year. Fiscal years 2003, 2002 and 2001 all had 52 weeks.

Accounting Pronouncements Implemented The company adopted the provisions of Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations, as of the beginning of 2003. Statement 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The cumulative effect of adopting the accounting principle, after a tax benefit of $6 million, was a charge of $11 million, or 5 cents per share. The effect on results reported for the years ended December 29, 2002, and December 30, 2001, would not have been material had the provisions of Statement 143 been in place during those years.

     The company adopted the provisions of Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities, as of January 1, 2003. Statement 146 requires companies to recognize certain costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Adoption of Statement 146 did not have a material effect on the company’s financial position, results of operations, or cash flows.

     Statement of Financial Accounting Standards No. 132 (revised 2003), Employers’ Disclosures about Pensions and Other Postretirement Benefits, an amendment of FASB Statements No. 87, 88, and 106, pertains to the company’s annual financial statements as of December 28, 2003. The expanded disclosure requirements of Statement 132 (revised) are included in Note 6: Pension and Other Postretirement Benefit Plans. Statement 132 (revised) added requirements to describe the type of plan assets, investment strategy, measurement dates, plan obligations and cash flows in annual financial statements. The disclosure of the timing of expected future benefit payments will be included in the footnotes to the company’s 2004 financial

Financial Report    PAGE 49


 

statements in accordance with the transition provisions of Statement 132 (revised).

     On December 8, 2003, President Bush signed the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) into law. The company has elected to defer recognizing the effects of the Act in the accounting for its plans under Statement of Financial Accounting Standards No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions, and in providing disclosures related to the plans under Statement 132 (revised) as permitted by Financial Accounting Standards Board (FASB) Staff Position No. FAS 106-1. The measure of net periodic benefit cost in these financial statements and accompanying notes does not reflect the effects of the Act on the plans. Specific authoritative guidance on the accounting for the federal subsidy is pending and that guidance, when issued, could require the company to change previously reported information.

     The company adopted the disclosure requirements of FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, as of December 29, 2002. Interpretation 45 requires companies to make expanded disclosures of guarantees and to recognize a liability for obligations to stand ready to perform under guarantees made or modified after December 31, 2002. Interpretation 45 did not have a material effect on the company’s financial position, results of operations or cash flows.

     The company adopted the provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, as of the beginning of 2002. In accordance with Statement 142, the company no longer amortizes goodwill. Rather, the company assesses goodwill for impairment by applying a fair-value-based test at least annually. See Note 4: Goodwill for the impact that the cessation of goodwill amortization had on the comparability of the company’s net earnings and basic and diluted earnings per share.

     The company adopted the provisions of Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, as of the beginning of 2002. Statement 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and eliminates the exception to consolidation of a subsidiary for which control is likely to be temporary. Statement 144 supersedes Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of and supersedes the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business. Implementation of Statement 144 did not have a material effect on the company’s financial position, results of operations or cash flows.

     The company adopted the disclosure requirements of Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure, as of December 29, 2002. Statement 148 amended the disclosure requirements of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, and provided alternative methods of transition for a voluntary change to the fair-value-based method of accounting for stock-based employee compensation. The company continues to apply the intrinsic-value method for stock-based compensation to employees prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees.

     In April 2002, the FASB issued Statement of Financial Accounting Standards No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. Statement 145 rescinds the requirements to present a gain or loss on the extinguishment of debt as an extraordinary item, eliminates an inconsistency between the accounting required for sale-leaseback transactions and for certain lease modifications that have similar economic effects, and amends other existing pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. As a result of the rescission of Statement 4, the extraordinary loss from early extinguishment of debt presented in the company’s interim financial reports during 2002 was reclassified into interest expense in the company’s 2002 financial statements. The provisions amending Statement 13 and all other provisions are effective for transactions occurring or financial statements issued on or after May 15, 2002. Compliance with these provisions had no effect on the company’s financial position, results of operations or cash flows.

     In June 2001, the FASB issued Statement of Financial Accounting Standards No. 141, Business Combinations. Statement 141 requires the use of the purchase method of accounting for all business combinations initiated after June 30, 2001, and eliminates the pooling-of-interests method. The company’s recent acquisitions, including the acquisition of Willamette in 2002, have been accounted for using the purchase method of accounting.

     Effective January 1, 2001, the company adopted the provisions of Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by Statement of Financial Accounting Standards No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FASB Statement No. 133. Statement 133, as amended, establishes accounting and reporting standards that require derivative instruments to be recorded in the balance sheet as either assets or liabilities

Financial Report    PAGE 50


 

measured at their fair value. Statement 133 requires changes in the fair values of derivatives to be recognized currently in earnings unless specific hedge accounting criteria are met. Statement 133 also requires a company to formally document, designate and assess the effectiveness of transactions that receive hedge accounting. Implementation of Statement 133, as amended, as of January 1, 2001, increased assets by approximately $37 million and increased liabilities by approximately $24 million, with a net offsetting amount of $13 million recorded in cumulative other comprehensive income (loss).

Prospective Accounting Pronouncements The FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, in January 2003. The consolidation provisions of the Interpretation were originally to apply immediately to variable interest entities created, and to variable interest entities in which the company obtained an interest, after January 31, 2003. FASB Staff Position No. 46-6 delayed the required adoption date of the consolidation provisions of Interpretation No. 46 to the end of 2003 for variable interest entities in which the company acquired its interest prior to February 1, 2003. The FASB issued a revised version of Interpretation 46 in December 2003 to include technical corrections and to clarify the application of Interpretation 46. Interpretation 46 (revised) also delayed the effective date for variable interests in non-special-purpose entities to the end of the first quarter of 2004 if the provisions of the original Interpretation 46 have not yet been applied.

     The Interpretation addresses consolidation of certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The company’s analysis is not complete, and the company has not fully adopted the provisions of the Interpretation. Implementation to date of the Interpretation has not had a material effect on the company’s financial position, results of operations, or cash flows. The company is not able to estimate at this time the effect that the Interpretation will have on its financial position, results of operations, or cash flows when the Interpretation is fully adopted. The company’s remaining analysis includes approximately 50 individual transactions in which the company’s real estate development subsidiaries have made deposits of approximately $53 million to acquire lots and/or land from potential variable interest entities. The total amount that would be paid under these purchase contracts, if fully exercised, is approximately $570 million.

Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Financial Instruments The company has, where appropriate, estimated the fair value of financial instruments. These fair value amounts may be significantly affected by the assumptions used, including the discount rate and estimates of cash flows. Accordingly, the estimates presented are not necessarily indicative of the amounts that could be realized in a current market exchange. Where these estimates approximate carrying value, no separate disclosure of fair value is shown.

Derivatives The company utilizes well-defined financial contracts in the normal course of its operations as a means to manage its foreign exchange, interest rate and commodity price risks. The company also utilizes other contracts that either do not provide for net settlement or are fixed-price contracts for future purchases and sales of various commodities that meet the definition of “normal purchases or normal sales” and, therefore, are not considered derivative instruments for accounting purposes. The company’s current accounting treatment for the limited number of contracts considered derivative instruments follows.

     For derivatives designated as cash flow hedges, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income and are recognized in earnings when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings. Changes in the fair value of all other derivative instruments not designated as hedges are also recognized in earnings in the period in which the changes occur.

     Commodity contracts, the objective of which is to hedge the variability of future cash flows associated with certain commodity transactions, have been formally designated as cash flow hedges. Gains or losses related to the cash flow hedges that have been recorded in other comprehensive income are reclassified into earnings at the contracts’ respective settlement dates.

     In addition, the company has the following contracts that have not been designated as hedges:

  Variable rate swap agreement entered into with a major financial institution in which the company pays a floating rate based on LIBOR and receives a floating return based on an investment fund index, with payments calculated on a notional amount. The swap is an overlay to investments and provides diversification benefits. The swap is settled quarterly and marked to market at each reporting date. All unrealized gains and losses are recognized in earnings currently.
 
  Variable-to-fixed interest rate swap agreement entered into with a major financial institution in which the company pays a fixed rate and receives a floating rate with the interest

Financial Report    PAGE 51


 

    payments calculated on a notional amount. The swap, which was acquired as part of the Cedar River Paper Company acquisition (see Note 21: Acquisitions), cannot be designated as a hedge for accounting purposes; however, it fixes $50 million of the company’s variable rate tax-exempt bond exposure. The swap is marked to market quarterly, and any unrealized gains and losses are recognized in earnings currently. This swap expired on January 1, 2004.
 
  Lumber and other commodity futures designed to manage the consolidated exposure to changes in inventory values due to fluctuations in market prices for selected business units. The company’s commodity futures positions are marked to market at each reporting date and all unrealized gains and losses are recognized in earnings currently. These contract positions have not had a material effect on the company’s financial position, results of operations or cash flows. These futures contracts settle daily, and as a result, the company’s net open position as of December 28, 2003, was immaterial.

The company is exposed to credit-related gains or losses in the event of nonperformance by counterparties to financial instruments but does not expect any counterparties to fail to meet their obligations. The annual notional amounts of the company’s derivative financial instruments were $322 million and $230 million at December 28, 2003, and December 29, 2002, respectively. The aggregate notional amounts of these derivative financial instruments were $425 million and $264 million at December 28, 2003, and December 29, 2002, respectively. These notional amounts do not represent amounts exchanged by the parties and, thus, are not a measure of exposure to the company through its use of derivatives. The exposure in a derivative contract is the net difference between what each party is required to pay based on contractual terms. The company’s use of the derivative instruments discussed above resulted in gains of $8 million in 2003, $11 million in 2002 and $5 million in 2001.

Cash and Cash Equivalents Short-term investments with original maturities of 90 days or less are considered cash equivalents. Short-term investments are stated at cost, which approximates market.

Inventories Inventories are stated at the lower of cost or market. Cost includes labor, materials and production overhead. The last-in, first-out (LIFO) method is used to cost more than half of domestic raw materials, in process and finished goods inventories. LIFO inventories were $669 million and $743 million at December 28, 2003, and December 29, 2002, respectively. The balance of domestic raw material and product inventories, all materials and supplies inventories, and all foreign inventories is costed at either the first-in, first-out (FIFO) or moving average cost methods. Had the FIFO method been used to cost all inventories, the amounts at which product inventories are stated would have been $194 million and $199 million greater at December 28, 2003, and December 29, 2002, respectively.

Property and Equipment The company’s property accounts are maintained on an individual asset basis. Improvements to and replacements of major units are capitalized. Maintenance, repairs and minor replacements are expensed. Depreciation is provided generally on the straight-line or unit-of-production method at rates based on estimated service lives. Amortization of logging railroads and truck roads is provided generally as timber is harvested and is based upon rates determined with reference to the volume of timber estimated to be removed over such facilities.

     The cost and accumulated depreciation of property sold or retired is removed from the accounts and the gain or loss is included in earnings.

Timber and Timberlands Timber and timberlands are carried at cost less fee stumpage charged to disposals. Fee stumpage is the cost of standing timber and is charged to fee timber disposals as fee timber is harvested, lost as a result of casualty, or sold. Generally, all initial site preparation and planting costs are capitalized as reforestation. Reforestation is transferred to a merchantable (harvestable) timber classification after 15 years in the South and 30 years in the West. Generally, costs incurred after the first planting, such as fertilization, vegetation and insect control, pruning and precommercial thinning, property taxes and interest, are considered to be maintenance of the forest and are expensed as incurred. Accounting practices for these costs do not change when timber becomes merchantable and harvesting commences.

     Fee stumpage depletion rates used to relieve timber inventory are determined with reference to the net carrying value of timber and the related volume of timber estimated to be available over the growth cycle. The growth cycle volume considers regulatory and environmental constraints affecting operable acres, management strategies to be applied, inventory data improvements, growth rate revisions and recalibrations, and the exclusion of known dispositions and inoperable acreage. The cost of timber harvested is included in the carrying values of raw material and product inventories and in the cost of products sold as these inventories are sold to third parties.

     Weyerhaeuser also holds forest management licenses in various Canadian provinces. The provincial governments grant these licenses for initial periods of 15–25 years, and the licenses are renewable every five years, provided Weyerhaeuser meets normal reforestation, operating and management guidelines. Calculation of fees payable on harvested volumes varies from province to province, but is tied to product market pricing and the allocation of land management responsibilities agreed to in the license.

Financial Report    PAGE 52


 

Goodwill As of the beginning of fiscal year 2002, the company accounts for goodwill in accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. Goodwill represents the excess of purchase price over fair value of net assets acquired. Goodwill is assessed for impairment at least annually using a fair-value-based approach. As described above in “Accounting Pronouncements Implemented,” the company’s accounting for goodwill changed upon implementation of Statement 142 at the beginning of fiscal 2002. Prior to the adoption of Statement 142, goodwill was amortized on a straight-line basis over 40 years, which was the expected period to be benefited. For a reconciliation of 2001 earnings excluding goodwill amortization, see Note 4: Goodwill.

Accounts Receivable The company periodically sells Canadian trade accounts receivable with limited recourse to an independently capitalized trust that, in turn, sells an undivided interest in the pool of receivables to a major international financial institution. The facility provides a competitive source of funding and is limited to $200 million (Canadian) at any one point in time, of which a maximum of $60 million can be denominated in U.S. dollars. The U.S. dollar equivalent of the sold receivables portfolio was $87 million as of December 28, 2003, and $77 million as of December 29, 2002.

Accounts Payable The company’s banking system provides for the daily replenishment of major bank accounts as checks are presented for payment. Accordingly, there were negative book cash balances of $200 million and $192 million at December 28, 2003, and December 29, 2002, respectively. Such balances result from outstanding checks that had not yet been paid by the bank and are reflected in accounts payable in the consolidated balance sheets.

Income Taxes Deferred income taxes are provided to reflect temporary differences between the financial and tax bases of assets and liabilities using presently enacted tax rates and laws.

Pension Plans The company has pension plans covering most of its employees. Both the U.S. and Canadian plans covering salaried employees provide pension benefits based on the employee’s highest monthly earnings for five consecutive years during the final 10 years before retirement. Plans covering hourly employees generally provide benefits of stated amounts for each year of service. The benefit levels for these plans are typically set through collective bargaining agreements with the unions representing the employees participating in the plans. Contributions to U.S. plans are based on funding standards established by the Employee Retirement Income Security Act of 1974 (ERISA). Contributions to Canadian plans are based on funding standards established by the applicable Provincial Pension Benefits Act and by the Income Tax Act.

Postretirement Benefits Other Than Pensions In addition to providing pension benefits, the company provides certain health care and life insurance benefits for some retired employees and accrues the expected future cost of these benefits for its current eligible retirees and some employees. All of the company’s salaried employees and some hourly employees may become eligible for these benefits when they retire.

Revenue Recognition The company’s forest products operations generally recognize revenue from product sales upon shipment to their customers, except for export sales where revenue is recognized when title transfers at the foreign port.

     The company’s Real Estate and Related Assets operations are primarily engaged in the development, construction and sale of residential homes. Real estate revenues are recognized when closings have occurred, required down payments have been received, and title and possession have been transferred to the buyer.

Impairment of Long-lived Assets The company accounts for long-lived assets in accordance with FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This statement requires management to review long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Assets to be disposed of are reported at the lower of the carrying value or fair value less cost to sell. As described in “Accounting Pronouncements Implemented,” the company accounted for long-lived assets in accordance with Statement No. 121, Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of, prior to fiscal 2002.

Stock-Based Employee Compensation The company’s stock-based compensation plans are described in Note 20: Stock-Based Compensation Plans. The company continues to apply the intrinsic-value method for stock-based compensation to employees prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations.

Financial Report    PAGE 53


 

The following table illustrates the effect on net earnings and net earnings per share as if the company had applied the fair-value-recognition provisions of Statement 123, Accounting for Stock-Based Compensation, to stock-based employee compensation. The company has consistently defined the past year as the service period for purposes of applying the fair value recognition provisions of Statement 123. As a result, stock-based employee compensation expense is reflected as of the option grant dates in the following table.

                           
Dollar amounts in millions except per-share figures   2003   2002   2001

 
 
 
Net earnings, as reported
  $ 277     $ 241     $ 354  
Less incremental stock-based employee compensation expense determined under fair-value-based method for all awards, net of related tax effects
    (25 )     (31 )     (18 )
 
   
     
     
 
Pro forma net earnings
  $ 252     $ 210     $ 336  
 
   
     
     
 
Net earnings per share:
                       
 
Basic — as reported
  $ 1.25     $ 1.09     $ 1.61  
 
Basic — pro forma
  $ 1.14     $ .95     $ 1.53  
 
Diluted — as reported
  $ 1.25     $ 1.09     $ 1.61  
 
Diluted — pro forma
  $ 1.13     $ .95     $ 1.52  

Foreign Currency Translation Local currencies are considered the functional currencies for most of the company’s operations outside the United States. Assets and liabilities are translated into U.S. dollars at the rate of exchange in effect at the balance sheet date. Revenues and expenses are translated into U.S. dollars at average monthly exchange rates prevailing during the year.

Reclassifications Certain reclassifications have been made to conform prior years’ data to the current format.

Real Estate and Related Assets Real estate held for sale is stated at the lower of cost or fair value, less costs to sell. The determination of fair value is based on appraisals and market pricing of comparable assets, when available, or the discounted value of estimated future cash flows from these assets. Real estate held for development is stated at cost to the extent it does not exceed the estimated undiscounted future net cash flows, in which case it is carried at fair value.

NOTE 2. NET EARNINGS PER SHARE


Basic net earnings per share are based on the weighted average number of common and exchangeable shares outstanding during the respective periods. Diluted net earnings per share is based on the weighted average number of common and exchangeable shares and stock options outstanding at the beginning of or granted during the respective periods.

     Options to purchase 4,377,743 shares in 2003, 4,514,884 shares in 2002 and 2,324,314 shares in 2001 were not included in the computation of diluted earnings per share because the option exercise prices were greater than the average market prices of common shares during those periods.

The dilutive effect of outstanding stock options on net earnings per share is presented in the following table:

                           
              WEIGHTED AVERAGE        
Dollar amounts in millions except per-share figures   NET EARNINGS   SHARES (000)   NET EARNINGS PER SHARE

 
 
 
2003:
                       
 
Basic
  $ 277       221,595     $ 1.25  
 
Effect of dilutive stock options
          405          
 
 
   
     
       
 
Diluted
  $ 277       222,000     $ 1.25  
 
 
   
     
     
 
2002:
                       
 
Basic
  $ 241       220,927     $ 1.09  
 
Effect of dilutive stock options
          529          
 
 
   
     
       
 
Diluted
  $ 241       221,456     $ 1.09  
 
 
   
     
     
 
2001:
                       
 
Basic
  $ 354       219,644     $ 1.61  
 
Effect of dilutive stock options
          313          
 
 
   
     
       
 
Diluted
  $ 354       219,957     $ 1.61  
 
 
   
     
     
 

Financial Report    PAGE 54


 

NOTE 3. EQUITY AFFILIATES


Weyerhaeuser Weyerhaeuser’s investments in affiliated companies that are not majority owned or controlled are accounted for using the equity method. Weyerhaeuser’s significant equity affiliates as of December 28, 2003, are:

  ForestExpress, LLC — A 34 percent owned joint venture formed to develop and operate a global, web-enabled, business-to-business marketplace for the forest products industry. Other equity members include Boise Cascade Corporation, Georgia-Pacific Corp., International Paper, MeadWestvaco Corporation and Morgan Stanley.
 
  Jasmine Forests, LLC — A qualifying special purpose entity formed to monetize the note received as part of the consideration for the sale of 115,000 acres of timberlands in western Washington. (See Note 18: Significant Sales of Nonstrategic Timberlands.)
 
  Jewel Forests, LLC — A qualifying special-purpose entity formed in 2003 to monetize the note received as part of the consideration for the sale of 104,000 acres of timberlands in western Washington. (See Note 18: Significant Sales of Nonstrategic Timberlands.)
 
  MAS Capital Management Partners, L.P. — A 50 percent owned limited partnership formed for the purpose of providing specialized investment management services to institutional and individual investors.
 
  Nelson Forests Joint Venture — An investment in which Weyerhaeuser owns a 51 percent financial interest and has a 50 percent voting interest, which holds Crown Forest License cutting rights and freehold land on the South Island of New Zealand.
 
  North Pacific Paper Corporation — A 50 percent owned joint venture that has a newsprint manufacturing facility in Longview, Washington.
 
  OptiFrame Software LLC — A 50 percent owned joint venture that develops whole-house design and optimization software for the building industry.
 
  RII Weyerhaeuser World Timberfund, L.P. — A 50 percent owned limited partnership that invests in timberlands and related assets outside the United States. This partnership’s primary focus is in pine forests in the Southern Hemisphere.
 
  SCA Weyerhaeuser Packaging Holding Company Asia Ltd. — A 50 percent owned joint venture formed to build or buy containerboard packaging facilities to serve manufacturers of consumer and industrial products in Asia. Two facilities are in operation in China.
 
  Southern Cone Timber Investors Limited — A 50 percent owned joint venture that has invested in timberlands in Uruguay. The entity’s primary focus is on plantation forests in the Southern Hemisphere.
 
  Wapawekka Lumber LP — A 51 percent owned limited partnership in Saskatchewan, Canada, that operates a sawmill. Substantive participating rights by the minority partner preclude consolidation of this partnership by Weyerhaeuser.
 
  WY Carolina Holdings, LLC — A qualifying special-purpose entity formed in 2003 to monetize the note received as part of the consideration for the sale of 160,000 acres of timberlands in the Carolinas. (See Note 18: Significant Sales of Nonstrategic Timberlands.)
 
  WY Tennessee Holdings, LLC — A qualifying special-purpose entity formed in 2003 to monetize the note received as part of the consideration for the sale of 168,000 acres of timberlands in Tennessee. (See Note 18: Significant Sales of Nonstrategic Timberlands.)

Unconsolidated financial information for affiliated companies, which are accounted for by the equity method, follows. Unconsolidated net sales and revenues and income (loss) include the results of Cedar River Paper Company for the periods prior to July 2001 and of Wilton Connor LLC for the periods prior to January 2003, the respective dates on which each became a wholly-owned subsidiary of Weyerhaeuser. (See Note 4: Goodwill and Note 21: Acquisitions.)

                 
Dollar amounts in millions   DECEMBER 28, 2003   DECEMBER 29, 2002

 
 
Current assets
  $ 180     $ 186  
Noncurrent assets
    1,682       1,309  
Current liabilities
    148       125  
Noncurrent liabilities
    788       424  
                         
Dollar amounts in millions   2003   2002   2001

 
 
 
Net sales and revenues
  $ 600     $ 600     $ 757  
Operating income (loss)
    8       (29 )     60  
Net income (loss)
    6       (34 )     40  

Financial Report    PAGE 55


 

Weyerhaeuser provides goods and services to these affiliates, which vary by entity, in the form of raw materials, management and marketing services, support services and shipping services. Additionally, Weyerhaeuser purchases finished product from certain of these entities. The aggregate total of these transactions is not material to Weyerhaeuser’s results of operations.

Real Estate and Related Assets Investments in unconsolidated entities that are not majority owned or controlled are accounted for using the equity method with taxes provided on undistributed earnings as appropriate. Net sales and revenues and income for 2001 include the results of certain non-real estate partnership investments that were liquidated during the first quarter of 2001.

Unconsolidated financial information for unconsolidated entities that are accounted for by the equity method is as follows:

                 
Dollar amounts in millions   DECEMBER 28, 2003   DECEMBER 29, 2002

 
 
Current assets
  $ 14     $ 8  
Noncurrent assets
    208       257  
Current liabilities
    21       11  
Noncurrent liabilities
    130       186  
                         
Dollar amounts in millions   2003   2002   2001

 
 
 
Net sales and revenues
  $ 87     $ 58     $ 48  
Operating income
    47       37       29  
Net income
    34       13       17  

NOTE 4. GOODWILL


The company implemented Statement 142 at the beginning of fiscal 2002 and no longer amortizes goodwill. The following table illustrates the effect of goodwill amortization on 2001 net earnings and net earnings per share:

                           
Dollar amounts in millions, except per-share figures   2003   2002   2001

 
 
 
Net earnings
  $ 277     $ 241     $ 354  
Add back goodwill amortization
                35  
 
   
     
     
 
Adjusted net earnings
  $ 277     $ 241     $ 389  
 
   
     
     
 
Basic and diluted earnings per share:
                       
 
Reported net earnings per share
  $ 1.25     $ 1.09     $ 1.61  
 
Add back goodwill amortization
                .16  
 
   
     
     
 
 
Adjusted net earnings per share
  $ 1.25     $ 1.09     $ 1.77  
 
   
     
     
 

The changes in the carrying amount of goodwill for 2003 are as follows:

                                                   
                              CONTAINERBOARD,                
              WOOD   PULP   PACKAGING   CORPORATE        
Dollar amounts in millions   TIMBERLANDS   PRODUCTS   AND PAPER   AND RECYCLING   AND OTHER   TOTAL

 
 
 
 
 
 
Balance as of December 29, 2002
  $ 230     $ 799     $ 860     $ 1,242     $     $ 3,131  
Goodwill transferred from Timberlands to Corporate and Other (Note 22)
    (12 )                       12        
Goodwill transferred from investments in and advances to equity affiliates
                      34             34  
Impairment of goodwill
          (3 )                       (3 )
Effect of foreign currency translation and other adjustments
    22       45       (1 )     4       5       75  
 
   
     
     
     
     
     
 
Balance as of December 28, 2003
  $ 240     $ 841     $ 859     $ 1,280     $ 17     $ 3,237  
 
   
     
     
     
     
     
 

Financial Report    PAGE 56


 

The company acquired the remaining 50 percent interest in Wilton Connor LLC at the beginning of 2003 for cash paid of $4 million and the payment of Wilton Connor debt of $4 million. Goodwill of $34 million associated with the company’s purchase of its initial 50 percent interest in 1998 was reclassified from investments in and advances to equity affiliates to goodwill.

NOTE 5. INCOME TAXES


Earnings before income taxes and the cumulative effect of a change in accounting principle are comprised of the following:

                         
Dollar amounts in millions   2003   2002   2001

 
 
 
Domestic earnings
  $ 514     $ 379     $ 685  
Foreign earnings (loss)
    (78 )     (8 )     (169 )
 
   
     
     
 
 
  $ 436     $ 371     $ 516  
 
   
     
     
 

Provisions for income taxes include the following:

                           
Dollar amounts in millions   2003   2002   2001

 
 
 
Federal:
                       
 
Current
  $ 71     $ 23     $ 70  
 
Deferred
    58       71       142  
 
 
   
     
     
 
 
    129       94       212  
 
 
   
     
     
 
State:
                       
 
Current
    29       27       16  
 
Deferred
    (7 )     6       5  
 
 
   
     
     
 
 
    22       33       21  
 
 
   
     
     
 
Foreign:
                       
 
Current
    25       23       18  
 
Deferred
    (28 )     (20 )     (89 )
 
 
   
     
     
 
 
    (3 )     3       (71 )
 
 
   
     
     
 
 
  $ 148     $ 130     $ 162  
 
 
   
     
     
 

A reconciliation between the federal statutory tax rate and the company’s effective tax rate is as follows:

                           
      2003   2002   2001
     
 
 
U.S. federal statutory income tax rate
    35.0 %     35.0 %     35.0 %
State income taxes, net of federal tax benefit
    3.4       6.8       3.0  
Foreign income tax
    4.2       0.4       1.8  
Reduction in Canadian tax rates
                (5.6 )
Tax credits
    (5.8 )     (4.7 )     (0.5 )
Export sales incentive
    (1.7 )     (2.0 )     (1.6 )
All other, net
    (1.1 )     (0.5 )     (0.8 )
 
     
     
     
 
 
Effective income tax rate
    34.0 %     35.0 %     31.3 %
 
     
     
     
 

During the second quarter of 2001, a phased-in reduction in Canadian income taxes was enacted. During the third quarter of 2001, a one-time reduction in the British Columbia provincial corporate income tax rate was also enacted. These changes in tax law produced one-time benefits by reducing foreign deferred income taxes by $15 million in the second quarter and by $14 million in the third quarter due to the effect of the lower tax rates on the accumulated temporary differences of the company’s Canadian subsidiaries. The effect on foreign current income taxes was not significant.

Financial Report    PAGE 57


 

The net deferred income tax assets (liabilities) include the following components:

                   
Dollar amounts in millions   DECEMBER 28, 2003   DECEMBER 29, 2002

 
 
Current (included in prepaid expenses)
  $ 272     $ 229  
Noncurrent
    (4,294 )     (4,056 )
Real Estate and Related Assets (included in other liabilities)
    10       (15 )
 
   
     
 
 
 Total
  $ (4,012 )   $ (3,842 )
 
   
     
 

The deferred tax assets (liabilities) are comprised of the following:

                   
Dollar amounts in millions   DECEMBER 28, 2003   DECEMBER 29, 2002

 
 
Postretirement benefits
  $ 206     $ 187  
Net operating loss carryforwards
    162       102  
Other
    692       613  
 
   
     
 
 
Gross deferred tax assets
    1,060       902  
Valuation allowance
    (61 )     (33 )
 
   
     
 
 
Net deferred tax assets
    999       869  
 
   
     
 
Depreciation
    (3,058 )     (2,932 )
Depletion
    (1,369 )     (1,193 )
Pension
    (278 )     (242 )
Other
    (306 )     (344 )
 
   
     
 
 
Deferred tax liabilities
    (5,011 )     (4,711 )
 
   
     
 
 
  $ (4,012 )   $ (3,842 )
 
   
     
 

As of December 28, 2003, the company and its subsidiaries have $28 million of U.S. net operating loss carryforwards, which expire in 2018; foreign net operating loss carryforwards of $465 million, which expire from 2007 through 2010; and $39 million of Canadian investment tax credits, which expire from 2003 through 2010. In addition, the company has $17 million of alternative minimum tax credit carryforwards which do not expire.

     The company intends to reinvest undistributed earnings of certain foreign subsidiaries; therefore, no U.S. taxes have been provided. These earnings totaled approximately $1.3 billion at the end of 2003. Determination of the income tax liability that would result from repatriation is not practicable.

     As of December 28, 2003, $14 million of the valuation allowance would be allocated to reduce goodwill for subsequently recognized tax benefits. The $28 million increase in the valuation allowance from December 29, 2002, to December 28, 2003, is primarily due to uncertainties of realizing certain state and investment tax credit carryforwards.

NOTE 6. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS


The company sponsors several retirement programs for its employees. In the United States, this includes pension plans that are qualified under the Internal Revenue Code (qualified) as well as a plan that provides benefits in addition to those provided under the qualified plans for a select group of employees, which is not qualified under the Internal Revenue Code (nonqualified). In Canada, plans are registered under the Income Tax Act and under their respective provincial pension acts (registered), or plans may provide additional benefits to a select group of employees, and not be registered under the Income Tax Act or provincial pension acts (nonregistered). Retiree medical and life plans are offered in both countries. These plans are typically not prefunded. The company uses a December 31 measurement date for its plans.

Financial Report    PAGE 58


 

The following table provides a reconciliation of the changes in the plans’ benefit obligations and fair value of plan assets over the two-year period ended December 28, 2003:

                                   
      Pension   Other Postretirement Benefits
     
 
Dollar amounts in millions   2003   2002   2003   2002

 
 
 
 
Reconciliation of benefit obligation:
                               
 
Benefit obligation as of prior year-end
  $ 3,871     $ 2,869     $ 753     $ 432  
 
Service cost
    115       97       26       19  
 
Interest cost
    252       240       51       46  
 
Plan participants’ contributions
    2       2       6       6  
 
Actuarial loss
    209       323       138       187  
 
Foreign currency exchange rate changes
    147       11       30       2  
 
Benefits paid
    (324 )     (253 )     (58 )     (53 )
 
Plan amendments
    22       161       (159 )     36  
 
Acquisitions
          483             78  
 
Curtailments
          3              
 
Settlements
    (12 )     (65 )            
 
Special termination benefits
    3                    
 
 
   
     
     
     
 
 
Benefit obligation at end of year
  $ 4,285     $ 3,871     $ 787     $ 753  
 
 
   
     
     
     
 
Reconciliation of fair value of plan assets:
                               
 
Fair value of plan assets at beginning of year (actual)
  $ 3,455     $ 3,703     $ 8     $  
 
Actual return on plan assets
    1,029       (517 )           5  
 
Foreign currency exchange rate changes
    123       8              
 
Employer contributions
    36       40       48       37  
 
Plan participants’ contributions
    2       2       6       6  
 
Benefits paid
    (324 )     (253 )     (58 )     (48 )
 
Acquisitions
          576             8  
 
Settlements
    (12 )     (65 )            
 
Transfer to 401(h) account
          (20 )            
 
 
   
     
     
     
 
 
Fair value of plan assets at end of year (estimated)
  $ 4,309     $ 3,474     $ 4     $ 8  
 
 
   
     
     
     
 

The company funds its qualified and registered pension plans and a portion of its nonregistered plans. The company accrues for nonqualified pension benefits and health and life postretirement benefits. The company expects to contribute approximately $43 million to its Canadian pension plans in 2004. The funded status of these plans at December 28, 2003, and December 29, 2002, is as follows:

                                   
      Pension   Other Postretirement Benefits
     
 
Dollar amounts in millions   DECEMBER 28, 2003   DECEMBER 29, 2002   DECEMBER 28, 2003   DECEMBER 29, 2002

 
 
 
 
Funded status
  $ 24     $ (397 )   $ (783 )   $ (745 )
Unrecognized prior service cost
    288       296       (114 )     42  
Unrecognized net loss
    504       920       347       215  
 
   
     
     
     
 
Prepaid (accrued) benefit cost
  $ 816     $ 819     $ (550 )   $ (488 )
 
 
   
     
     
     
 
Amounts recognized in balance sheet consist of:
                               
 
Prepaid benefit cost
  $ 864     $ 840                  
 
Accrued liability
    (219 )     (285 )                
 
Intangible asset
    23       24                  
 
Cumulative other comprehensive loss
    148       240                  
 
   
     
                 
 
Net amount recognized
  $ 816     $ 819                  
 
   
     
                 

Financial Report    PAGE 59


 

The accumulated benefit obligation for all of the company’s defined benefit pension plans was $3.9 billion and $3.6 billion at December 28, 2003, and December 29, 2002, respectively.

     The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were $862 million, $776 million and $562 million, respectively, as of December 28, 2003, and $817 million, $803 million and $524 million, respectively, as of December 29, 2002.

     The following plans have assets held in separate trusts: the U.S. qualified plans, the Canadian registered plans, the Canadian nonregistered plans, and the U.S. retiree life insurance plan for salaried employees. The U.S. qualified plans and Canadian registered plans are combined for disclosure purposes along with the U.S. nonqualified plans and the Canadian nonregistered plans. However, the asset information for the Canadian nonregistered plans is shown separately since it currently has a different investment strategy.

Allocation of Assets by Category

                 
Qualified and registered pension plans   DECEMBER 28, 2003   DECEMBER 29, 2002

 
 
Private equity and related funds
    29.2 %     32.2 %
Real estate and related funds
    13.0       16.9  
Common stock and S&P 500 total return index exposure
    5.1       (10.1 )
Bonds, Lehman government/credit and T-bills
    0.3       0.4  
Short-term investments, cash and cash equivalents
    21.2       18.0  
Hedge funds
    31.2       43.3  
Net receivables
    0.5       0.6  
Accrued liabilities
    (0.5 )     (1.3 )
 
   
     
 
Total
    100.0 %     100.0 %
 
   
     
 
                 
Nonregistered plans   DECEMBER 28, 2003   DECEMBER 29, 2002

 
 
Equities
    37.7 %     38.2 %
Cash and cash equivalents
    62.3       61.8  
 
   
     
 
Total
    100.0 %     100.0 %
 
   
     
 
                 
Retiree life insurance   DECEMBER 28, 2003   DECEMBER 29, 2002

 
 
Bonds
    84.4 %     80.0 %
Commercial mortgages
    9.0       9.6  
Hedge funds
    2.8       1.0  
Short-term investments, cash and cash equivalents
    2.7       8.7  
Real estate
    0.7       0.3  
Equities
    0.2       0.2  
Other
    0.2       0.2  
 
   
     
 
 
    100.0 %     100.0 %
 
   
     
 

Description of Investment Policies and Strategies

Qualified And Registered Plans The strategy of the U.S. pension trust is to invest directly and via total return partnership swaps in a diversified mix of nontraditional strategies, including hedge funds, private equity, opportunistic real estate and other externally managed alternative investment funds. Various financial instruments, such as S&P 500 swaps and fixed income futures, are used to supplement the market exposures embedded in such investments so the total effective exposures are maintained close to a target benchmark of 60 percent equity, 35 percent bonds and 5 percent cash on the trust’s net asset value. As of December 1, 2003, the equity target was changed to 55 percent and the bond target was changed to 40 percent. The Canadian pension trust has a similar benchmark exposure strategy and expected long-term average minimum return over the benchmark. However, it concentrates direct investments into cash and cash equivalents while gaining return exposures through financial instruments, such as total return and index swaps, to the benchmark and to a similarly diversified mix of nontraditional strategies, primarily hedge funds.

Nonregistered Plans The Canadian nonregistered plans are funded using Retirement Compensation Arrangements (RCAs). Under Canadian tax rules, 50 percent of any contribution to an RCA goes to a non-interest-bearing refundable tax account held by the government. This means that on average over time, it is expected that approximately 50 percent of the plans’ assets are not invested. The invested portion of the plans’ assets consists of a portfolio of equities.

     Beginning in 2004, the company intends to mirror the investment strategy used for the qualified and registered plans for the RCAs.

Financial Report    PAGE 60


 

Retiree Life Insurance The plan is funded by a Premium Deposit Fund (PDF) held by the insurance carrier. The fund is used to pay premiums for current retirees covered under the U.S. retiree life insurance plan for salaried employees. The company’s intent is to pay these premiums from the fund and to make no future contributions to the fund. It is expected that the fund will be fully drawn down in the next fiscal year or shortly thereafter.

The assumptions used in the measurement of the company’s benefit obligations are as follows:

                                     
        Pension   Other Postretirement Benefits
       
 
        DECEMBER 28, 2003   DECEMBER 29, 2002   DECEMBER 28, 2003   DECEMBER 29, 2002
       
 
 
 
Discount rate:
                               
 
United States
    6.25 %     6.75 %     6.25 %     6.75 %
 
Canada
    6.25 %     6.50 %     6.25 %     6.50 %
Rate of compensation increase:
                             
 
Salaried (United States and Canada)
    3.50 %     3.50 %     3.50 %     3.50 %
 
Hourly:
                               
   
United States
    3.00 %     3.00 %     3.00 %     3.00 %
   
Canada
    3.50 %     3.50 %     N/A       N/A  

The components of net periodic benefit costs (income) are:

                                                 
                            Other Post-
            Pension           Retirement Benefits
   
 
Dollar amounts in millions   2003   2002   2001   2003   2002   2001

 
 
 
 
 
 
Service cost
  $ 115     $ 97     $ 70     $ 26     $ 19     $ 9  
Interest cost
    251       240       198       50       46       30  
Expected return on plan assets
    (379 )     (465 )     (437 )                  
Amortization of loss (gain)
    20       (39 )     (68 )     18       8       (1 )
Amortization of prior service cost
    32       22       15       (3 )     5       2  
Amortization of unrecognized transition asset
          (1 )     (5 )                  
Loss (gain) due to closure, sale, plan termination and other
    10       40       (7 )                  
 
   
     
     
     
     
     
 
 
  $ 49     $ (106 )   $ (234 )   $ 91     $ 78     $ 40  
 
   
     
     
     
     
     
 

The assumptions used in the measurement of the company’s net periodic benefit costs (income) are as follows:

                                                     
                                Other Post-
                Pension           Retirement Benefits
       
 
        2003   2002   2001   2003   2002   2001
       
 
 
 
 
 
Discount rate:
                                               
 
United States
    6.75 %     7.25 %     7.75 %     6.75 %     7.25 %     7.75 %
 
Canada
    6.50 %     7.00 %     7.00 %     6.50 %     7.00 %     7.00 %
Expected return on plan assets:
                                               
 
Qualified/registered plans
    9.50 %     10.50 %     11.00 %                        
 
Nonregistered plans
    4.75 %     5.25 %     5.50 %                        
 
Retiree life insurance
                            4.59 %           5.75 %
Rate of compensation increase:
                                               
 
Salaried (United States and Canada)
    3.50 %     3.50 %     3.50 %     3.50 %     3.50 %     3.50 %
 
Hourly:
                                               
   
United States
    3.00 %     3.00 %     3.00 %     3.00 %     3.00 %     3.00 %
   
Canada
    3.50 %     3.50 %     3.50 %     N/A       N/A       N/A  

Financial Report    PAGE 61


 

Determination of Expected Return on Plan Assets Assumption

Qualified And Registered Plans The expected return on plan assets assumption is based on the long-term expected return on the U.S. portfolio. The portfolio return is comprised of a return on a benchmark plus the expected excess return over the benchmark, termed “alpha.” The expectation of alpha is the result of experience with the underlying investment strategy. The expected return assumption is based on historical fund returns using this strategy and information from our investment advisors. The Canadian fund’s investment strategy has mirrored that of the U.S. plan since 1998. The expected return assumption of 9.5 percent used for 2003 assumes a benchmark return of 6.5 percent and an assumption of alpha of 3 percent. Over the period of 19 years during which this strategy has been in place, the U.S. fund has achieved a net compound annual return of 17.4 percent, or 6.4 percentage points in excess of the benchmark return of 11.0 percent.

Nonregistered Plans The expected rate of return on the assets supporting the nonregistered plans is 4.75 percent per year. This includes an expected long-term rate of return on the equity portion of this portfolio of 9.5 percent per year based on a combination of historical experience and future return expectations.

Retiree Life Insurance The expected long-term rate of return on this fund is 4.59 percent. This is based on historical interest credited on the fund.

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. For measurement purposes, the following assumptions were used for the annual rate of increase in the per capita cost of covered health care benefits:

                                 
    2003   2002
   
 
    UNITED STATES   CANADA   UNITED STATES   CANADA
   
 
 
 
Health care cost trend rate assumed for next year
    9.0 %     11.0 %     8.0 %     11.0 %
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
    5.0 %     5.0 %     4.5 %     5.0 %
Year that the rate reaches the ultimate trend rate
    2010       2010       2008       2009  

In the company-sponsored plan where the company’s cost is tied to participants’ years of service, the company’s net periodic postretirement benefit cost for 2002 assumed a trend of 6 percent for 2002 and 2003, 5 percent for 2004 and 2005, and 4.5 percent thereafter. For 2003, the assumptions used for this plan were the same as those presented in the table above. A one percent change in assumed health care cost trend rates would have the following effects:

                 
As of December 28, 2003 (Dollar amounts in millions)   1% INCREASE   (1% DECREASE)

 
 
Effect on total of service and interest cost components
  $ 11     $ (9 )
Effect on accumulated postretirement benefit obligation
    94       (78 )

In addition to the company-sponsored pension and postretirement plans discussed above, approximately 7,150 employees are covered by union-administered multi-employer pension plans to which the company makes negotiated contributions based generally on fixed amounts per hour per employee. Contributions to these plans were $16 million in 2003, $10 million in 2002 and $11 million in 2001.

     The company also sponsors multiple defined benefit postretirement plans for its U.S. employees. Medical plans have various levels of coverage and plan participant contributions. Life insurance plans are noncontributory. Canadian employees are covered under multiple defined benefit postretirement plans that provide medical and life insurance benefits.

     The company sponsors various defined contribution plans for U.S. salaried and hourly employees. The basis for determining plan contributions varies by plan. The amounts contributed to the plans for participating employees were $50 million, $64 million and $42 million in 2003, 2002 and 2001, respectively.

Financial Report    PAGE 62


 

NOTE 7. INVENTORIES


                 
Dollar amounts in millions   DECEMBER 28, 2003   DECEMBER 29, 2002

 
 
Logs and chips
  $ 169     $ 177  
Lumber, plywood, panels and engineered lumber
    413       456  
Pulp and paper
    376       351  
Containerboard and packaging
    248       282  
Other products
    190       202  
Materials and supplies
    515       473  
 
   
     
 
 
  $ 1,911     $ 1,941  
 
   
     
 

NOTE 8. PROPERTY AND EQUIPMENT


                   
Dollar amounts in millions   DECEMBER 28, 2003   DECEMBER 29, 2002

 
 
Property and equipment, at cost:
               
 
Land
  $ 318     $ 309  
 
Buildings and improvements
    2,989       2,954  
 
Machinery and equipment
    17,290       16,133  
 
Rail and truck roads
    550       624  
 
Other
    361       221  
 
 
   
     
 
 
    21,508       20,241  
Less allowance for depreciation and amortization
    (9,265 )     (7,963 )
 
 
   
     
 
 
  $ 12,243     $ 12,278  
 
 
   
     
 

NOTE 9. REAL ESTATE IN PROCESS OF DEVELOPMENT AND FOR SALE


Properties held by the company’s Real Estate and Related Assets segment include:

                 
Dollar amounts in millions   DECEMBER 28, 2003   DECEMBER 29, 2002

 
 
Dwelling units
  $ 382     $ 350  
Residential lots
    304       288  
Commercial lots
    34       49  
Commercial projects
          4  
Acreage
    2       4  
Other inventories
    1       1  
 
   
     
 
 
  $ 723     $ 696  
 
   
     
 

NOTE 10. ACCRUED LIABILITIES


                 
Dollar amounts in millions   DECEMBER 28, 2003   DECEMBER 29, 2002

 
 
Payroll — wages and salaries, incentive awards, retirement and vacation pay
  $ 542     $ 505  
Income taxes
    160       11  
Taxes — Social Security and real and personal property
    72       70  
Current portion of product liability reserves
    21       25  
Interest
    236       229  
Other
    359       383  
 
   
     
 
 
  $ 1,390     $ 1,223  
 
   
     
 

Financial Report    PAGE 63


 

NOTE 11. SHORT-TERM BORROWINGS AND LINES OF CREDIT


Borrowings At December 28, 2003, Weyerhaeuser had $4 million in short-term borrowings outstanding. At December 29, 2002, Weyerhaeuser had $2 million in short-term borrowings outstanding.

     The Real Estate and Related Assets segment’s short-term borrowings were $1 million with a weighted average interest rate of 3.4 percent at December 28, 2003, and $63 million with a weighted average interest rate of 1.6 percent at December 29, 2002. Weyerhaeuser Company guarantees commercial paper borrowings of Weyerhaeuser Real Estate Company (WRECO) in return for a fee equal to one-quarter of 1 percent of the outstanding commercial paper balance. To keep the guarantee, WRECO has agreed to maintain unused nonguaranteed credit arrangements that are equal to or greater than the outstanding commercial paper. Fees paid by WRECO to Weyerhaeuser Company were less than $1 million in 2003 and $1 million in each of 2002 and 2001.

Lines of Credit Weyerhaeuser Company had short-term bank credit lines of $1.2 billion at December 28, 2003, and $1.3 billion at December 29, 2002. Both Weyerhaeuser Company and WRECO can borrow against this facility. WRECO has access to $600 million of the $1.2 billion facility. Neither Weyerhaeuser nor WRECO had any outstanding borrowings against this facility as of December 28, 2003, or December 29, 2002. Neither Weyerhaeuser Company nor WRECO is a guarantor of the borrowings of the other under this facility.

     In addition, Weyerhaeuser Company has a five-year revolving credit facility agreement entered into with a group of banks that provides for borrowings up to a total amount of $1.3 billion, all of which is available to Weyerhaeuser Company. This credit facility expires March 2007. Borrowings are at LIBOR plus a spread or other such interest rates mutually agreed to between the borrower and lending banks. At the end of 2003, Weyerhaeuser Company had $1.3 billion available under this facility. See also Note 12: Long-Term Debt.

Other Weyerhaeuser has entered into letters of credit in the amount of $118 million and surety bonds with an estimated amount of $229 million as of December 28, 2003. As of December 29, 2002, Weyerhaeuser had entered into letters of credit in the amount of $31 million and surety bonds with an estimated amount of $124 million.

     The Real Estate and Related Assets segment has entered into letters of credit in the amount of $43 million and $39 million and surety bonds with an estimated amount of $542 million and $544 million as of December 28, 2003, and December 29, 2002, respectively.

     The company’s compensating balance requirements were not significant.

Financial Report    PAGE 64


 

NOTE 12. LONG-TERM DEBT


Weyerhaeuser long-term debt, including the current portion, is as follows:

                 
Dollar amounts in millions   December 28, 2003   December 29, 2002

 
 
9.05% notes due 2003
  $     $ 200  
Variable rate notes due 2003
          500  
9.125% debentures due 2003
          50  
8.50% debentures due 2004
    55       55  
5.50% notes due 2005
    1,000       1,000  
6.45% debentures due 2005
    100       100  
6.75% notes due 2006
    150       150  
6.00% notes due 2006
    840       840  
8.375% debentures due 2007
    150       150  
6.125% notes due 2007
    1,000       1,000  
5.95% debentures due 2008
    750       750  
5.25% notes due 2009
    325       325  
6.75% notes due 2012
    1,745       1,750  
7.50% debentures due 2013
    250       250  
7.25% debentures due 2013
    250       250  
6.95% debentures due 2017
    300       300  
7.00% debentures due 2018
    100       100  
9.00% debentures due 2021
    150       150  
7.125% debentures due 2023
    250       250  
8.50% debentures due 2025
    300       300  
7.95% debentures due 2025
    250       250  
7.70% debentures due 2026
    150       150  
7.35% debentures due 2026(1)
    200       200  
7.85% debentures due 2026
    200       200  
6.95% debentures due 2027
    300       300  
7.375% notes due 2032
    1,250       1,250  
6.875% notes due 2033
    275       275  
Industrial revenue bonds, rates from 1.1% (variable) to 9.0% (fixed), due 2004–2029
    970       984  
Medium-term notes, rates from 6.43% to 7.30%, due 2005–2013
    233       246  
Borrowings under five-year revolving credit facility
          320  
Other
    60       60  
 
   
     
 
 
    11,603       12,705  
Less unamortized discounts
    (10 )     (12 )
 
   
     
 
 
  $ 11,593     $ 12,693  
 
   
     
 
Portion due within one year
  $ 90     $ 786  
 
   
     
 

(1)Holders have the option to demand repayment in 2006.

Real Estate and Related Assets segment long-term debt, including the current portion, is as follows:

                 
Dollar amounts in millions   December 28, 2003   December 29, 2002

 
 
Notes payable, unsecured; weighted average interest rates are approximately 6.3% and 6.4%
  $ 892     $ 812  
Notes payable, secured; weighted average interest rates are approximately 8.5% and 8.7%
    1       2  
 
   
     
 
 
  $ 893     $ 814  
 
   
     
 
Portion due within one year
  $ 23     $ 69  
 
   
     
 

Financial Report    PAGE 65


 

                   
      December 28, 2003
     
Dollar amounts in millions   WEYERHAEUSER   REAL ESTATE AND RELATED ASSETS

 
 
Long-term debt maturities:
               
 
2004
  $ 90     $ 23  
 
2005
    1,187       14  
 
2006
    1,006       250  
 
2007
    1,170       3  
 
2008
    783       139  
 
Thereafter
    7,367       464  
 
 
   
     
 

NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS


                                     
        December 28, 2003   December 29, 2002
       
 
Dollar amounts in millions   CARRYING VALUE   FAIR VALUE   CARRYING VALUE   FAIR VALUE

 
 
 
 
Weyerhaeuser:
                               
 
Financial liabilities:
                               
   
Long-term debt (including current maturities)
  $ 11,593     $ 12,578     $ 12,693     $ 13,670  
   
 
   
     
     
     
 
Real Estate and Related Assets:
                               
 
Financial liabilities:
                               
   
Long-term debt (including current maturities)
  $ 893     $ 953     $ 814     $ 858  
   
 
   
     
     
     
 

The fair value of long-term debt, including the Real Estate and Related Assets segment, is estimated based on quoted market prices for the same issues or on the discounted value of the future cash flows expected to be paid using incremental rates of borrowing for similar liabilities.

NOTE 14. LEGAL PROCEEDINGS, COMMITMENTS AND CONTINGENCIES


Legal Proceedings

Hardboard Siding Claims The company announced in June 2000 it had entered into a proposed nationwide settlement of its hardboard siding class action cases and, as a result, took a charge of $130 million before taxes to cover the estimated cost of the settlement and related claims. The court approved the settlement in December 2000. An appeal from the settlement was denied in March 2002, and the settlement is now binding on all parties. In the third quarter of 2001, the company reassessed the adequacy of the reserve and increased the reserve by an additional $43 million. The company incurred claims and related costs in the amount of $11 million in 2003, $11 million in 2002 and $37 million in 2001 and charged these costs against the reserve. As of December 28, 2003, the company had approximately $83 million in reserves remaining for hardboard siding claims. While the company believes that the reserve balances established for these matters are adequate, the company is unable to estimate at this time the amount of additional charges, if any, that may be required for these matters in the future.

     The settlement class consists of all persons who own or owned structures in the United States on which the company’s hardboard siding had been installed from January 1, 1981, through December 31, 1999. This is a claims-based settlement, which means that the claims will be paid as submitted over a nine-year period. An independent adjuster will review each claim submitted and determine whether it qualifies for payment under the terms of the settlement agreement.

The following table presents an analysis of the claims activity related to the hardboard siding class action cases:

                         
    2003   2002   2001
   
 
 
Number of claims filed during the period
    3,830       2,995       6,480  
Number of claims resolved
    4,245       4,690       2,580  
Number of claims unresolved at end of period
    1,830       2,245       3,940  
Number of damage awards paid
    1,770       1,830       400  
Average damage award paid
  $ 3,400     $ 1,900     $ 1,700  

Financial Report    PAGE 66


 

The increase in the average damage award paid in 2003 was due primarily to the existence of more awards for multi-family structures and fewer awards for single-family residences in 2003 than in 2002 or 2001.

     The company negotiated settlements with its insurance carriers for recovery of $52 million of costs related to these claims. The company has received the full $52 million in recoveries from its insurance carriers.

     The company is a defendant in state trial court in three cases that are outside of the settlement involving primarily multi-family structures and residential developments. One of those cases was settled in January 2004, and the impact was not significant. The company anticipates that other individuals and entities that have opted out of the settlement may file lawsuits against the company. In January 2002, a jury returned a verdict in favor of the company in a lawsuit involving hardboard siding manufactured by the company and installed by a developer in a residential development located in Modesto, California. The verdict has been appealed and is not included in the three cases mentioned at the state court level.

Antitrust Litigation In May 1999, two civil antitrust lawsuits were filed against the company in U.S. District Court, Eastern District of Pennsylvania. Both suits name as defendants several other major containerboard and packaging producers. The complaint in the first case alleges the defendants conspired to fix the price of linerboard and that the alleged conspiracy had the effect of increasing the price of corrugated containers. The suit requested class certification for purchasers of corrugated containers during the period from October 1993 through November 1995. The complaint in the second case alleges that the company conspired to manipulate the price of linerboard and thereby the price of corrugated sheets. The suit requested class certification for purchasers of corrugated sheets during the period October 1993 through November 1995. Both suits seek damages, including treble damages, under the antitrust laws. No specific damage amounts have been claimed. In September 2001, the district court certified both classes. Class certification was upheld on appeal and class members were given until June 9, 2003, to opt out of the class. Approximately 165 members of the classes have opted out and filed lawsuits against the company in federal and state courts. In September 2003, the company, Georgia-Pacific and International Paper filed a motion with the court requesting preliminary approval of a $68 million settlement of the class action litigation. Weyerhaeuser’s portion was approximately $23 million before taxes. The company recognized an after-tax charge of $15 million, or 7 cents per share, in the third quarter of 2003. The court granted final approval of the settlement in December 2003. Since no objections were filed, the settlement is final and binding on the companies and class members. The company has not recorded a reserve for the opt-out cases and is unable to estimate at this time the amount of charges, if any, that may be required for this matter in the future.

     In December 2000, a lawsuit was filed against the company in U.S. District Court in Oregon alleging that from 1996 to present, the company had monopoly power or attempted to gain monopoly power in the Pacific Northwest market for alder logs and finished alder lumber. In August 2001, the complaint was amended to add an additional plaintiff. Prior to trial, one of the plaintiffs withdrew from the litigation. In April 2003, the jury returned a verdict in favor of one of the plaintiffs in the amount of $26 million, which was automatically trebled to $79 million under the antitrust laws. The company took a pretax charge of $79 million in its first quarter 2003 results. The company’s motion for a judgment notwithstanding the verdict was denied in July 2003. The company has appealed the matter to the U.S. Court of Appeals for the Ninth Circuit. While the company believes that the reserve balance established for this matter is adequate, the company is unable to estimate at this time the amount of additional charges, if any, which may be required for this matter in the future.

     In April 2003, two separate lawsuits were filed in U.S. District Court in Oregon alleging that the company violated antitrust laws by monopolizing the markets for alder sawlogs and finished alder lumber. In June 2003, amended complaints were filed in both matters. The first suit (the Westwood case) was brought by four separate corporations located in Oregon and Washington that allege that between 1999 and the present, they suffered damages and asked the court to award damages, after trebling, of $101 million. Plaintiffs’ request for a temporary restraining order prohibiting the company from certain alder log-buying practices was denied by the court. The complaint also requests divestiture of a number of alder sawmills in Oregon, Washington and British Columbia. In July 2003, the company filed a motion to dismiss based on the insufficiencies in the pleadings. The judge directed the plaintiffs to correct deficiencies in the pleadings but refused to dismiss the case. The company renewed its motion to dismiss after review of the amended complaint. In November 2003, the court granted the company’s motion to dismiss the amended complaint because it failed to state a claim under the federal antitrust laws. The judge gave the plaintiffs five business days to file a new complaint to correct the deficiencies in the amended complaint. In November 2003 the court allowed a third amended complaint to be filed. The court also ruled that Weyerhaeuser would be precluded from litigating whether it attempted to and did willfully acquire and maintain monopoly power over alder sawlogs in the Pacific Northwest through anti-competitive conduct between 1996 and 2001. The court also precluded Weyerhaeuser from contesting that its conduct did not cause the prevailing plaintiff in the alder case that is on appeal material antitrust injury. We believe the court’s rulings are wrong as a matter of law and filed a

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motion to certify the matter for immediate appellate review by the Court of Appeals for the Ninth Circuit or, in the alternative, for reconsideration by the trial court. The trial court denied both motions in December 2003. The case is scheduled to go to trial on March 9, 2004. We have recently received information from plaintiffs seeking a range of damages, after trebling, of between $81 million and $118 million. The second suit was brought by Coast Mountain Hardwoods, Inc., a Canadian company that sold its assets to the company in 2000. In its proposed third amended complaint, the plaintiff alleges two causes of action, one for attempted monopolization of alder saw log and finished lumber markets, and a second cause of action for fraud and breach of fiduciary duty. On the antitrust cause of action, the plaintiff seeks damages, after trebling, in the amount of $90 million (plus attorney’s fees, costs and disbursements). On the fraud and breach of fiduciary cause of action, plaintiff seeks compensatory damages in the amount of $30 million and punitive damages of $300 million. There is no trebling associated with the second cause of action. Request for divestiture of the company’s Northwest Hardwoods Division; a portion of its alder sawmills in British Columbia, Oregon and Washington; and certain forest licenses acquired in Canada have been dropped from the complaint. The company filed a motion to dismiss on the basis that the case should be heard in Canada rather than the United States because it involves an acquisition approved by Canadian regulatory bodies. The motion to dismiss was denied in October 2003. The company filed a motion for summary judgment on all antitrust claims. The court denied this motion in February 2004. Trial of this case is scheduled to begin on June 1, 2004. In June 2003, an alder antitrust complaint was filed in U.S. District Court in Oregon by Washington Alder, an alder sawmill located in Washington. The complaint alleges monopolization of the alder log and lumber markets from 1998 to present and seeks damages, after trebling, of $32 million. The company filed a motion to dismiss based on insufficiencies in the pleadings. In November 2003, the court granted the company’s motion to dismiss the amended complaint because it failed to state a claim under the federal antitrust laws. The judge gave the plaintiff five business days to file a new complaint to correct the deficiencies in the amended complaint. In November 2003, a second amended complaint was filed. In December 2003, the court denied our motion to consolidate this matter with the Westwood case and trial is scheduled to begin on May 11, 2004. Although the company denies liability and is vigorously defending these follow-on cases, all of the follow-on cases will be decided by the same judge who presided in the case that is on appeal and the judge has issued a number of ruling adverse to the company, inluding a ruling in the Westwood case precluding the company from contesting key issues that were decided against the company in the alder lawsuit on appeal. Accordingly, the company recognizes that the company is not likely to prevail at the trial court level in these cases and intends to appeal any adverse judgements in these cases. The company has not recorded reserves related to these lawsuits and is unable to estimate at this time the amount of charges, if any, that may be required for these lawsuits in the future.

Paragon Trade Brands, Inc., Litigation In May 1999, the Equity Committee (Committee) in the Paragon Trade Brands, Inc. (Paragon), bankruptcy proceeding filed a motion in U.S. Bankruptcy Court for the Northern District of Georgia for authority to prosecute claims against the company in the name of the debtor’s estate. Specifically, the Committee asserted that the company breached certain warranties in agreements entered into between Paragon and the company in connection with Paragon’s public offering of common stock in January 1993. The Committee seeks to recover damages sustained by Paragon as a result of two patent infringement cases, one brought by Procter & Gamble and the other by Kimberly-Clark. In September 1999, the court authorized the Committee to commence an adversary proceeding against the company. The Committee commenced this proceeding in October 1999. Pursuant to a reorganization of Paragon, the litigation claims representative for the bankruptcy estate became the plaintiff in the proceeding. In June 2002, the Bankruptcy Court issued an oral opinion granting the plaintiff’s motion for partial summary judgment, holding the company liable to plaintiff for breaches of warranty and denying the company’s motion for summary judgment. In October 2002, the Bankruptcy Court issued a written order confirming the June oral opinion. In November 2002, the company filed a motion for reconsideration with the Bankruptcy Court. In June 2003, the judge issued an oral ruling denying the motion for reconsideration and set an October 30, 2003, trial date for determination of the damages. In September 2003, the U.S. District Court declined to grant discretionary review of the bankruptcy court’s partial summary judgment decision on liability. The damages phase of the case began on October 30, 2003, and was concluded on December 16, 2003. The bankruptcy court initially asked both parties to present findings of fact and conclusions of law by the end of January 2004 but then extended the date to February 9, 2004. The damages requested by the plaintiff have changed. In October 1999, the plaintiff was seeking damages in excess of $420 million. In its proposed findings of fact and conclusions of law, the plaintiff requested damages in the range of $675 million to $832 million, primarily as a result of a new request for prejudgment interest. The company believes the plaintiff is not entitled to prejudgment interest under applicable law. The amount of damages, if any, the company may ultimately be exposed to is dependent on many unknown factors such as how the damages issues

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remaining to be decided by the bankruptcy court are resolved; whether an appeal to the U.S. District Court and/or Court of Appeals for the 11th Circuit is successful; the outcome of any retrial ordered by an appellate court; and whether a summary judgment in favor of the company on liability is ordered by an appellate court. The company has not established a reserve for this matter and is unable to estimate at this time the amount of charges, if any, that may be required in the future. The company plans to appeal the partial summary judgment decision on liability and any damages award on completion of the damages phase of the trial.

Other Litigation The company is a party to other matters generally incidental to its business in addition to the matters described above.

Summary Although the final outcome of any legal proceeding is subject to a great many variables and cannot be predicted with any degree of certainty, management currently believes that adequate reserves have been established for probable losses from litigation when the amount could be reasonably determined. Management further believes that the ultimate outcome of these legal proceedings could be material to operating results or cash flows in any given quarter or year but will not have a material adverse effect on the company’s long-term results of operations, liquidity or financial position.

Countervailing and Anti-Dumping Duties

In April of 2001, the Coalition for Fair Lumber Imports (Coalition) filed two petitions with the U.S. Department of Commerce (Department) and the International Trade Commission (ITC), claiming that production of softwood lumber in Canada was being subsidized by Canada and that imports from Canada were being “dumped” into the U.S. market (sold at less than fair value). The Coalition asked that countervailing duty (CVD) and anti-dumping tariffs be imposed on softwood lumber imported from Canada.

     In March 2002, the Department confirmed its preliminary finding that certain Canadian provinces were subsidizing logs by failing to collect full market price for stumpage. The Department established a final CVD rate of 18.79 percent. In the anti-dumping proceedings, the Department found that the six Canadian manufacturers examined, including the company, were engaged in sales at less than fair value and set cash deposit rates ranging from 2.18 percent to 12.44 percent. The company’s deposit rate was set at 12.39 percent. Because of statutory limitations that affected timing, the bonds covering duties following the preliminary determinations were released by the United States. The resulting reversal of accrued expenses was included in earnings during 2002.

In May 2002, the ITC confirmed its earlier ruling that U.S. industry is threatened by subsidized and dumped imports. As a result, the company has made cash deposits relating to the CVD and anti-dumping actions at the rate of approximately $25 million to $30 million a quarter. Following is a summary of the CVD and anti-dumping amounts recorded in the company’s statement of earnings:

                         
Dollar amounts in millions   2003   2002   2001

 
 
 
Charges for CVD and anti-dumping duties
  $ 97     $ 64     $ 50  
Reversals of 2001 charges for estimated CVD and anti-dumping duties
          (47 )      
 
   
     
     
 
 
  $ 97     $ 17     $ 50  
 
   
     
     
 

In June 2003, the Department began the process of an annual review to determine whether the company had engaged in dumping and whether Canada continued to subsidize softwood logs and, if so, the dumping duty and CVD to impose. It is expected that final verification and determination should be complete in late 2004. The determination will be subject to further review if appealed. The annual review process will be conducted for a period of five years. In 2007, both the countervailing duty and anti-dumping orders will be automatically reviewed in a “sunset” proceeding to determine whether dumping will continue or a countervailing subsidy is likely to recur.

     The Canadian Government, the company and other Canadian companies appealed the Department’s (anti-dumping and CVD) and the ITC’s (injury) 2002 determinations in separate appeals under the North American Free Trade Agreement (NAFTA). The panel convened to review the Department’s findings on anti-dumping ruled that the Department must change its methodology for computing differences in merchandise when there is no product sold domestically that is similar to the exported product and, as a result, “comparable” products are used to calculate whether dumping is occurring. The panel convened to review the CVD decision ruled that cross-border comparisons are an invalid method to determine and measure subsidies. Finally, the panel convened to review the ITC finding of a threat of injury found that the ITC’s findings were not supported by the record and ordered the ITC to reconsider the findings. If the ITC fails to support its findings of threat of injury, the deposits collected to date would be refunded.

     With the support of provincial governments, the federal government of Canada also moved for review by dispute settlement panels under the World Trade Organization (WTO) and those reviews are currently in process. One WTO panel has

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also issued an opinion finding that cross-border comparisons to determine and measure subsidies are not proper. In addition, the WTO appeals body has affirmed a panel ruling against the United States that the so-called “Byrd Amendment,” which gives U.S. firms cash from anti-dumping and countervailing duties applied on foreign imports, is inconsistent with U.S. international obligations. The U.S. administration has recommended that the law be changed to comply with that ruling, but whether or when Congress will implement that recommendation is uncertain.

     In December 2003, the Department issued a decision on the remand from the NAFTA Panel in the CVD investigation. If the decision on remand is not further appealed or altered, it would have the effect of reducing the applicable CVD deposit rate to 13.3 percent. In addition, the WTO appellate body recently issued a decision in the CVD case, and a WTO panel is expected to issue a decision shortly in the anti-dumping case. It is not possible to predict whether these decisions will be appealed or their impact on Weyerhaeuser’s business at this time.

     It is difficult to predict the net effect final duties will have on the company. In the event that final rates differ from the depository rates, ultimate charges may be higher or lower than those recorded to date. The company is unable to estimate at this time the amount of additional charges or reversals that may be necessary for this matter in the future. The U.S. and Canadian governments continue to discuss ways to settle the softwood lumber dispute, but there can be no assurance that they will be able to reach an agreement or the terms and conditions of any agreement.

Environmental

It is the company’s policy to accrue for environmental remediation costs when it is determined that it is probable that such an obligation exists and the amount of the obligation can be reasonably estimated. The company has established reserves for remediation costs on all of the approximately 73 active sites across the company’s operations as of the end of 2003 in the aggregate amount of $51 million, down from $54 million at the end of 2002. This decrease reflects the incorporation of new information on all sites concerning remediation alternatives, updates on prior cost estimates and new sites, less the costs incurred to remediate these sites during this period. The company accrued remediation costs of $14 million in 2003 and $18 million in 2002. In 2001, the company reduced the accruals by $8 million. The company incurred remediation costs of $8 million in 2003, $9 million in 2002 and $14 million in 2001 and charged these costs against the reserve. Additionally, as discussed in Note 1, the company adopted the provisions of Statement 143 as of the beginning of 2003. Because the asset retirement obligations associated with landfills are accounted for separately, the company reduced its remediation cost accrual by $9 million as of the date it adopted the provisions of Statement 143. Based on currently available information and analysis, the company believes that it is reasonably possible that costs associated with all identified sites may exceed current accruals by amounts that may prove insignificant or that could range, in the aggregate, up to approximately $70 million over several years. This estimate of the upper end of the range of reasonably possible additional costs is much less certain than the estimates upon which accruals are currently based, and utilizes assumptions less favorable to the company among the range of reasonably possible outcomes. In estimating both its current accruals for environmental remediation and the possible range of additional future costs, the company has assumed that it will not bear the entire cost of remediation of every site to the exclusion of other known potentially responsible parties who may be jointly and severally liable. The ability of other potentially responsible parties to participate has been taken into account, based generally on each party’s financial condition and probable contribution on a per-site basis.

Guarantees

Weyerhaeuser Company has guaranteed approximately $65 million of debt of unconsolidated entities and other parties, which includes the guarantee of $25 million of debt that has been legally defeased. In connection with the defeasance, Weyerhaeuser Company would be required to pay under the guarantee if the U.S. government securities set aside in an escrow account are insufficient to pay off the debt in 2005. The value of the assets in the escrow account as of December 2003 is approximately $29 million. With respect to the other guarantees, approximately $35 million expire in 2004, $2 million expire in 2005, $2 million expire in 2006, and the remaining guarantees expire in 2007. As of December 28, 2003, Weyerhaeuser accrued liabilities include obligations of approximately $8 million recorded in connection with these guarantees.

     As of December 28, 2003, the Real Estate and Related Assets segment has guaranteed performance under two operating leases with future lease payments of approximately $28 million and $27 million of mortgages sold with recourse. In each case, the Real Estate and Related Assets segment would be required to perform if the obligor were to default. The mortgage guarantees expire as the underlying loans mature through 2019.

Warranties

WRECO provides warranties on homes closed that vary depending on state and local laws. The reserves for these warranties are determined by applying the provisions of Statement of Financial Accounting Standards No. 5, Accounting for Contingencies. The liability was approximately $10 million and $7 million at December 28, 2003, and December 29, 2002, respectively.

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Operating Leases

The company leases various equipment, office and wholesale space, and model homes under operating leases. The equipment leases cover items including aircraft, vessels, rail and logging equipment, lift trucks, automobiles and office equipment. The company recognized rent expense of approximately $179 million, $162 million and $130 million in 2003, 2002 and 2001, respectively.

The company’s future commitments under operating leases are as follows:

                                                 
Dollar amounts in millions   2004   2005   2006   2007   2008   THEREAFTER

 
 
 
 
 
 
Weyerhaeuser
  $ 125     $ 90     $ 64     $ 45     $ 35     $ 238  
Real Estate and Related Assets
    12       10       8       6       5       21  
 
   
     
     
     
     
     
 
 
  $ 137     $ 100     $ 72     $ 51     $ 40     $ 259  
 
   
     
     
     
     
     
 

NOTE 15. OTHER OPERATING COSTS, NET


Other operating costs, net, is an aggregation of both recurring and occasional income and expense items and, as a result, can fluctuate from year to year. Weyerhaeuser’s other operating costs, net, include the following (income) and expenses:

                         
Dollar amounts in millions   2003   2002   2001

 
 
 
Gain on significant sales of nonstrategic timberlands (Note 18)
  $ (205 )   $ (117 )   $  
Asset impairment charge on facility sale
    16              
Charge for alder antitrust case (Note 14)
    79              
Charge for linerboard antitrust settlement (Note 14)
    23              
Charge for settlement of workers compensation claims
    7              
Cemwood insurance settlement recovery
    (25 )            
Adjustment to reserve for hardboard siding claims
                (8 )
Foreign exchange transaction (gains) losses
    (108 )     (33 )     12  
Costs associated with support alignment initiatives
          4       62  
Cost associated with the transition to Westwood Shipping Lines’ new fleet
                10  
Other, net
    (31 )     7       (8 )
 
   
     
     
 
 
  $ (244 )   $ (139 )   $ 68  
 
   
     
     
 

In 1999, American Cemwood Corporation (Cemwood), a subsidiary of MacMillan Bloedel Limited, which had been acquired by the company, settled a class action suit involving claims alleging the failure of its cement fiber roofing products. The settlement provided an opportunity for the company to recover a portion of the settlement amount, depending on the outcome of a lawsuit filed by the class against Cemwood’s insurance companies. As a result of a settlement with the insurance companies, Weyerhaeuser recognized a net pretax benefit of $25 million in the second quarter of 2003. The company has an unresolved claim outstanding against a reinsurer.

     Foreign exchange transaction gains and losses result from changes in exchange rates, primarily related to Weyerhaeuser’s Canadian and New Zealand operations.

     Support alignment costs include costs associated with Weyerhaeuser’s initiative to streamline and improve delivery of internal support services. Weyerhaeuser began implementation of these plans during 2000.

     In 2001, Weyerhaeuser incurred $62 million of pretax charges related to the support alignment initiative. These costs include $41 million recognized in conjunction with Weyerhaeuser’s decision to outsource certain information technology services, $20 million of which relates to the impairment of information technology assets sold for $10 million to the outsourcer and $21 million of additional costs such as retention bonuses, severance and other transition costs. Also included in the total 2001 spending are $21 million of costs representing severance, relocation and outplacement costs as new regional centers that deliver support services were created.

     During 2002, Weyerhaeuser incurred $4 million of severance, relocation and other costs in connection with the support alignment initiative. Severance costs associated with the support alignment initiative were generally paid as incurred.

     Weyerhaeuser ceased tracking support alignment costs concurrent with the acquisition of Willamette (see Note 21: Acquisitions). Beginning in the second quarter of 2002, costs incurred in connection with Weyerhaeuser’s integration and cost-reduction efforts are included in charges for integration and restructuring. (See Note 16: Charges for Integration and Restructuring.)

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NOTE 16. CHARGES FOR INTEGRATION AND RESTRUCTURING


As Weyerhaeuser has acquired businesses and consolidated them into its existing operations, Weyerhaeuser has incurred charges associated with the transition and integration of those activities. In 2003 and 2002, charges for integration of acquisitions include costs associated with the integration of Willamette and Weyerhaeuser’s overall cost-reduction efforts. In 2001, the charges include costs associated with transition and integration activities related to the MacMillan Bloedel and Trus Joist acquisitions.

     In connection with the Willamette acquisition, Weyerhaeuser entered into change-in-control agreements with several key Willamette employees. Under these agreements, Weyerhaeuser is obligated to make payments of approximately $113 million through January 2004. Approximately $23 million of these payments represent severance and other benefits paid to terminated Willamette employees. These costs have been included in the total purchase price of the Willamette acquisition (see Note 21: Acquisitions). Approximately $48 million represents other payments to terminated Willamette employees, primarily under consulting and noncompete agreements that extend through the third quarter of 2004. Approximately $42 million represents payments to retained Willamette employees under retention and incentive agreements extending through the first quarter of 2004 and noncompete agreements extending through the third quarter of 2005. Costs associated with future services are being recognized over the periods benefited.

Costs incurred consist of the following:

                         
Dollar amounts in millions   2003   2002   2001

 
 
 
Change in control agreements
  $ 38     $ 37     $ 6  
Severance and outplacement costs
    49       12       4  
Relocation costs
    3       5        
Professional services
    6       10        
Other
    7       8       4  
 
   
     
     
 
 
  $ 103     $ 72     $ 14  
 
   
     
     
 

As of December 28, 2003, Weyerhaeuser accrued liabilities include $18 million of severance accruals related to integration and restructuring charges recognized from 2001 through 2003. These accruals are associated with approximately 240 employee terminations expected to occur during 2004.

NOTE 17. CHARGES FOR CLOSURE OF FACILITIES


Changing market conditions, increasing productivity at many of the company’s operating facilities and increased scale as a result of the Willamette, MacMillan Bloedel and Trus Joist acquisitions have provided the company with opportunities to rationalize its production capacity while retaining its ability to fulfill customer needs. Facilities that do not represent a long-term strategic fit, or that cannot achieve top-quartile performance without significant capital investments, are assessed for closure or sale.

     Weyerhaeuser closed a number of facilities during 2003, 2002 and 2001. Closures of acquired facilities identified in the integration planning process were accounted for as exit activities in connection with the acquisitions, and no charges to earnings were recognized. Charges for all other closures have been recognized in the consolidated statement of earnings. During 2003, Weyerhaeuser recognized closure costs in connection with the announced closures of eight wood products facilities, two fine paper machines, one containerboard mill and one packaging plant. Activities associated with the 2003 closures are expected to be completed by December 2004, and Weyerhaeuser does not expect to incur any additional material charges related to these closures. In 2002, Weyerhaeuser recognized charges related to the closure of four wood products facilities; six containerboard, packaging and recycling facilities; a containerboard paper machine; and a decision to outsource certain logging operations in Canada. In 2001, Weyerhaeuser announced the closure of four wood products facilities and two paper machines.

These charges include:

                         
Dollar amounts in millions   2003   2002   2001

 
 
 
Impairments of long-lived assets
  $ 86     $ 63     $ 42  
Severance and outplacement costs
    32       25       24  
Other closure costs
    13       15       5  
Reversals of closure charges recorded in prior periods
    (4 )     (8 )      
 
   
     
     
 
 
  $ 127     $ 95     $ 71  
 
   
     
     
 

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Changes in accrued severance during the year ended December 28, 2003, were as follows:

         
Dollar amounts in millions        

       
Accrued severance as of December 29, 2002
  $ 23  
Cost incurred and charged to expense
    32  
Payments
    (31 )
Other adjustments
    (1 )
     
 
Accrued severance as of December 28, 2003
  $ 23  
     
 

NOTE 18. SIGNIFICANT SALES OF NONSTRATEGIC TIMBERLANDS


During 2003 and 2002, the company closed the following significant sales of nonstrategic timberlands:

                                 
Dollar amounts in millions   WHITE RIVER   SNOQUALMIE   TENNESSEE   CAROLINAS

 
 
 
 
Sale closing   December 2002   May 2003   December 2003   December 2003
Acres
    115,000       104,000       168,000       160,000  
Pretax gain
  $ 140 (1)   $ 121     $ 1     $ 60  
Note monetization proceeds
  $ 91     $ 151     $ 68     $ 139  

(1)$117 million of the pretax gain on the sale of the White River Tree Farm was recognized in the fourth quarter of 2002. The remaining $23 million was recognized in the second quarter of 2003 when a contingency lapsed on a portion of the timberlands sale.

     The buyer notes in the White River and Snoqualmie transactions are each backed by irrevocable standby letters of credit from a bank. The buyer notes in the Tennessee and Carolinas transactions are each backed by bank guarantees. Weyerhaeuser is exposed to credit-related gains or losses in the event of nonperformance by the banks, but does not expect the banks to fail to meet their obligations.

     Weyerhaeuser transferred the buyer notes to qualifying special purpose entities (SPEs) in each of the transactions in a manner that qualifies as a sale for accounting purposes. The gain or loss on the sale of the buyer notes was immaterial in each case. Because the SPEs are separate and distinct legal entities from Weyerhaeuser, the assets of the SPEs are not available to satisfy the liabilities and obligations of the company. The company does not consolidate the SPEs. The company estimated the fair value of its beneficial interest in the SPEs using a discounted cash flow model. The key assumption used to estimate fair value was discount rates based on U.S. Treasury rates as of the date each note was sold, adjusted for the appropriate interest rate spread.

NOTE 19. SHAREHOLDERS’ INTEREST


Preferred and Preference Shares The company is authorized to issue:

  7,000,000 preferred shares having a par value of $1.00 per share, of which none were issued and outstanding at December 28, 2003, and December 29, 2002; and
 
  40,000,000 preference shares having a par value of $1.00 per share, of which none were issued and outstanding at December 28, 2003, and December 29, 2002.

The preferred and preference shares may be issued in one or more series with varying rights and preferences including dividend rates, redemption rights, conversion terms, sinking fund provisions, values in liquidation and voting rights. When issued, the outstanding preferred and preference shares rank senior to outstanding common shares as to dividends and assets available on liquidation.

Common Shares The company issued common shares to holders of exchangeable shares (described below) who exercised their rights to exchange the shares. The number of common shares issued for exchangeable shares during the past three years is detailed in the reconciliation of common share activity below.

A reconciliation of common share activity for the three years ended December 28, 2003, is as follows:

                         
In thousands   2003   2002   2001

 
 
 
Shares outstanding at beginning of year
    218,950       216,574       213,898  
Retraction of exchangeable shares
    10       986       2,026  
Stock options exercised
    1,241       1,390       650  
 
   
     
     
 
Shares outstanding at end of year
    220,201       218,950       216,574  
 
   
     
     
 

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Exchangeable Shares In connection with the acquisition of MacMillan Bloedel in 1999, Weyerhaeuser Company Ltd., a wholly-owned Canadian subsidiary of the company, issued 13,565,802 exchangeable shares to common shareholders of MacMillan Bloedel as part of the purchase price of that company. No additional shares have been issued. These exchangeable shares are, as nearly as practicable, the economic equivalent of the company’s common shares; i.e., they have the following rights:

  The right to exchange such shares for common shares of the company on a one-to-one basis.
 
  The right to receive dividends, on a per-share basis, in amounts that are the same as, and are payable at the same time as, dividends declared on the company’s common shares.
 
  The right to vote at all shareholder meetings at which the company’s shareholders are entitled to vote on the basis of one vote per exchangeable share.
 
  The right to participate upon a liquidation event on a pro-rata basis with the holders of the company’s common shares in the distribution of assets of the company.

A reconciliation of exchangeable share activity for the three years ended December 28, 2003, is as follows:

                         
In thousands   2003   2002   2001

 
 
 
Shares outstanding at beginning of year
    2,303       3,289       5,315  
Retraction
    (10 )     (986 )     (2,026 )
     
     
     
 
Shares outstanding at end of year
    2,293       2,303       3,289  
     
     
     
 

Cumulative Other Comprehensive Income (Loss) The company’s cumulative other comprehensive income (loss) includes:

                 
Dollar amounts in millions   DECEMBER 28, 2003   DECEMBER 29, 2002

 
 
Foreign currency translation adjustments
  $ 164     $ (270 )
Additional minimum pension liability adjustments
    (94 )     (154 )
Cash flow hedge fair value adjustments
    4       2  
Unrealized gains on available-for-sale securities
    2        
     
     
 
 
  $ 76     $ (422 )
     
     
 

NOTE 20. STOCK-BASED COMPENSATION PLANS


The company’s Long-Term Incentive Compensation Plan (the “Long-Term Incentive Plan”) was approved at the 1998 Annual Meeting of Shareholders, and amendments to the Long-Term Incentive Plan were approved at the 2001 Annual Meeting of Shareholders. The Plan provides for the purchase of the company’s common stock at its market price on the date of grant by certain key officers and other employees of the company and its subsidiaries who are selected from time to time by the Compensation Committee of the Board of Directors. No more than 20 million shares may be issued under the Plan. If all options outstanding at December 28, 2003, including some options that were granted under a previous plan, and all remaining options that could be granted under the Plan were exercised, the company’s common shares would increase by approximately 21 million shares. The term of options granted under the Plan may not exceed 10 years from the grant date. Grantees are 25 percent vested after one year, 50 percent after two years, 75 percent after three years, and 100 percent after four years.

     During 2001, the Weyerhaeuser Company Board of Directors approved a program for a limited number of company employees who had been prohibited for more than two years from exercising options previously granted to them under company option plans as a result of prohibitions on trading put in place by the company in connection with material transactions. The program, which was open to the company’s executive officers, allowed participants to exercise options granted to them under the company’s Long-Term Incentive Plan and prior company option plans and sell to the company the shares acquired upon exercise. The company purchased the shares at their market price on the date of exercise. The remaining terms of the options were governed by the plans under which the options were granted. The program terminated at the end of 2002. The options that were subject to the company repurchase program are subject to variable stock compensation accounting.

     The company accounts for all options under APB Opinion No. 25 and related interpretations, under which no compensation expense had been recognized prior to 2001. A reconciliation in Note 1: Summary of Significant Accounting Policies illustrates the effect on net earnings and earnings per share had the company applied the fair-value recognition provisions of Statement 123 to stock-based compensation.

     Stock appreciation rights were issued to former MacMillan Bloedel employees in connection with the company’s acquisition of MacMillan Bloedel in 1999. In addition, stock appreciation rights are granted to certain Canadian employees from time to time. As of December 28, 2003, 932,680 stock appreciation rights were outstanding, with strike prices ranging from $39.41 per right to $65.56 per right. These stock

Financial Report    PAGE 74


 

appreciation rights are included in the stock option information presented below.

     The company allows certain employees to defer all or a portion of their bonus into company share equivalents, with a 15 percent premium applied if payment is delayed for at least five years. The deferred account increases or decreases based on the performance of the company’s stock plus dividends.

     The compensation benefit (expense) recognized for all of the incentive plans was ($7) million in 2003, $4 million in 2002 and ($6) million in 2001.

Changes in the number of shares subject to option are summarized as follows:

                           
      2003   2002   2001
     
 
 
Shares (in thousands):
                       
 
Outstanding, beginning of year
    13,853       10,070       8,721  
 
Granted
    3,416       3,034       2,289  
 
Exercised
    (1,402 )     (1,781 )     (822 )
 
Forfeited
    (172 )     (86 )     (111 )
 
Expired
    (3 )     (1 )     (7 )
 
Acquired
          2,617        
 
 
   
     
     
 
 
Outstanding, end of year
    15,692       13,853       10,070  
 
 
   
     
     
 
 
Exercisable, end of year
    7,463       7,242       4,798  
 
 
   
     
     
 
Weighted average exercise price:
                       
 
Outstanding, beginning of year
  $ 54.26     $ 51.35     $ 50.51  
 
Granted
    49.57       60.86       52.69  
 
Exercised
    48.61       47.45       46.02  
 
Forfeited
    54.70       54.92       45.94  
 
Expired
    42.31       36.63       25.25  
 
Acquired
          53.20        
 
Outstanding, end of year
    53.75       54.26       51.35  
Weighted average grant date fair value of options
    12.57       16.43       13.09  

The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants:

                         
    2003   2002   2001
   
 
 
Risk-free interest rate
    2.85 %     4.87 %     5.10 %
Expected life
  5.3 years   5.2 years   4.7 years
Expected volatility
    34.37 %     29.92 %     29.34 %
Expected dividend yield
    3.23 %     2.62 %     3.04 %

The following table summarizes information about stock options outstanding at December 28, 2003 (shares in thousands):

                                         
            WEIGHTED           WEIGHTED   WEIGHTED AVERAGE
            AVERAGE EXERCISE           AVERAGE EXERCISE   REMAINING
    OPTIONS   PRICE OPTIONS   OPTIONS   PRICE OPTIONS   CONTRACTUAL
PRICE RANGE   OUTSTANDING   OUTSTANDING   EXERCISABLE   EXERCISABLE   LIFE (YEARS)

 
 
 
 
 
$25–$39
    226     $ 34.30       221     $ 34.17       2.53  
$40–$49
    4,305       48.59       883       44.65       7.95  
$50–$69
    11,161       56.13       6,359       55.77       6.76  
 
   
             
                 
 
    15,692               7,463                  
 
   
             
                 

Financial Report    PAGE 75


 

NOTE 21. ACQUISITIONS


Willamette On February 11, 2002, the company acquired 97 percent of the outstanding shares of common stock of Willamette through a tender offer. The results of Willamette’s operations have been included in the consolidated financial statements since that date. Upon the consummation of the merger between Willamette and a wholly-owned subsidiary of the company on March 14, 2002, all remaining outstanding Willamette shares were converted into the right to receive $55.50 in cash.

     Willamette was an integrated forest products company that produced building materials, composite wood panels, fine paper, office paper products, corrugated packaging and grocery bags in over 100 plants located in the United States, Europe and Mexico and owned 1.7 million acres of forestlands in the United States.

     The company believes the Willamette assets fit well with the company’s and enhance the company’s capabilities in a number of its core product markets. The acquisition creates a larger company that is a leading producer in its major product lines and is better able to meet the needs of its customers. The company also expects to reduce combined general and administrative costs through economies of scale. The company believes the acquisition has positioned the company to increase shareholder value. These factors contributed to the $2.0 billion of goodwill that was recognized on the acquisition.

The total purchase price, including assumed debt of $1.8 billion, was $8.1 billion. The following table summarizes the estimated fair value of the assets and liabilities assumed as of February 11, 2002.

           
Dollar amounts in millions        

       
Current assets
  $ 1,050  
Property and equipment
    4,504  
Timber and timberlands
    2,692  
Other assets
    125  
Goodwill
    2,039  
 
   
 
 
Total assets acquired
    10,410  
 
   
 
Current liabilities
    562  
Long-term debt
    1,826  
Deferred taxes
    1,664  
Other liabilities
    97  
 
   
 
 
Total liabilities assumed
    4,149  
 
   
 
 
Net assets acquired
  $ 6,261  
 
   
 

Goodwill was assigned to the following reporting units:

           
Dollar amounts in millions        

       
Containerboard, Packaging and Recycling
  $ 1,092  
Paper
    752  
Pulp
    105  
Wood Products
    90  
 
   
 
 
Total goodwill
  $ 2,039  
 
   
 

Goodwill is not expected to be deductible for tax purposes.

The following table summarizes unaudited pro forma information assuming this acquisition occurred at the beginning of the years presented.

Pro Forma Information (unaudited)

                   
Dollar amounts in millions                
except per-share figures   2002   2001

 
 
Net sales and revenues
  $ 18,974     $ 18,861  
Net earnings
    201       281  
Earnings per share:
               
 
Basic and diluted
    .91       1.28  

Cedar River Paper Company On July 2, 2001, the company acquired the remaining 50 percent interest in Cedar River Paper Company (CRPC), a joint venture in Cedar Rapids, Iowa, that manufactures liner and medium containerboard from recycled fiber. Prior to July 2, 2001, the company held a 50 percent interest in CRPC, which was reported as an investment in equity affiliates.

     The company accounted for the transaction using the purchase method of accounting. Accordingly, the assets and liabilities of the acquired company were included in the Consolidated Balance Sheet, and the operating results were included in the Consolidated Statement of Earnings beginning July 2, 2001. Weyerhaeuser paid $261 million, net of cash acquired, to purchase the remaining interest in CRPC and pay down all outstanding CRPC debt.

Financial Report    PAGE 76


 

NOTE 22. BUSINESS SEGMENTS


The company is principally engaged in the growing and harvesting of timber; the manufacture, distribution and sale of forest products; and real estate development and construction. The company’s principal business segments are:

  Timberlands, which includes logs, chips and timber.
 
  Wood Products, which includes softwood lumber, plywood and veneer, composite panels, oriented strand board, hardwood lumber, engineered lumber, raw materials and building materials distribution.
 
  Pulp and Paper, which includes pulp, paper and liquid packaging board.
 
  Containerboard, Packaging and Recycling.
 
  Real Estate and Related Assets.

During the first quarter of 2003, the company changed the structure of its internal organization. As a result, the company’s distribution and converting facilities located outside North America, which were formerly reported in Timberlands, are now reported in Corporate and Other. During the fourth quarter of 2003, the company changed the structure of its raw materials sourcing operations in Canada. As a result, raw materials that used to be purchased by the Wood Products and Pulp and Paper segments are now managed by and reported as intersegment sales of the Timberlands segment. Comparative information has been restated to conform to the new presentation.

     Prior to the second quarter of 2002, the company reported its paper-related businesses in a single Pulp, Paper and Packaging segment. During the second quarter of 2002, the company changed the structure of its internal organization. As a result, the paper-related businesses are now reported as two segments, entitled: (1) Pulp and Paper, and (2) Containerboard, Packaging and Recycling. In addition, the company reclassified certain licensed forestland operations from the Timberlands segment to the Wood Products segment. Comparative information has been restated to conform to the new presentation.

     The timber-based businesses involve a high degree of integration among timber operations; building materials conversion facilities; and pulp, paper, containerboard and liquid packaging board primary manufacturing and secondary conversion facilities. This integration includes extensive transfers of raw materials, semi-finished materials and end products between and among these groups. The company’s accounting policies for segments are the same as those described in Note 1: Summary of Significant Accounting Policies.

     Management evaluates segment performance based on the contributions to earnings of the respective segments. Accounting for segment profitability in integrated manufacturing sites involves allocation of joint conversion and common facility costs based upon the extent of usage by the respective product lines at that facility. Transfer of products between segments is accounted for at current market values.

Financial Report    PAGE 77


 

An analysis and reconciliation of the company’s business segment information to the respective information in the consolidated financial statements is as follows:

                           
For the three-year period ended December 28, 2003 (Dollar amounts in millions)   2003   2002   2001

 
 
 
Sales to and revenues from unaffiliated customers:
                       
 
Timberlands
  $ 924     $ 870     $ 685  
 
Wood Products
    8,244       7,592       6,493  
 
Pulp and Paper
    3,862       3,698       2,559  
 
Containerboard, Packaging and Recycling
    4,322       4,212       3,096  
 
Real Estate and Related Assets
    2,029       1,750       1,461  
 
Corporate and Other
    492       399       251  
 
 
   
     
     
 
 
  $ 19,873     $ 18,521     $ 14,545  
 
 
   
     
     
 
Intersegment sales:
                       
 
Timberlands
  $ 1,290     $ 1,291     $ 1,044  
 
Wood Products
    302       221       204  
 
Pulp and Paper
    147       155       151  
 
Containerboard, Packaging and Recycling
    49       70       11  
 
Corporate and Other
    13       10       13  
 
 
   
     
     
 
 
    1,801       1,747       1,423  
 
 
   
     
     
 
Total sales and revenues
    21,674       20,268       15,968  
 
Intersegment eliminations
    (1,801 )     (1,747 )     (1,423 )
 
 
   
     
     
 
 
  $ 19,873     $ 18,521     $ 14,545  
 
 
   
     
     
 
Contribution (charge) to earnings:
                       
 
Timberlands
  $ 777     $ 702     $ 473  
 
Wood Products
    59       (20 )     16  
 
Pulp and Paper
    (82 )     82       69  
 
Containerboard, Packaging and Recycling
    262       335       290  
 
Real Estate and Related Assets(1)
    392       336       264  
 
Corporate and Other
    (176 )     (293 )     (258 )
 
 
   
     
     
 
 
    1,232       1,142       854  
Interest expense(1)
    (868 )     (874 )     (420 )
Less capitalized interest
    72       103       82  
 
 
   
     
     
 
Earnings before income taxes and cumulative effect of a change in accounting principle
    436       371       516  
Income taxes
    (148 )     (130 )     (162 )
 
 
   
     
     
 
Earnings before cumulative effect of a change in accounting principle
    288       241       354  
Cumulative effect of a change in accounting principle
    (11 )            
 
 
   
     
     
 
 
  $ 277     $ 241     $ 354  
 
 
   
     
     
 
Depreciation, amortization and fee stumpage:
                       
 
Timberlands
  $ 123     $ 123     $ 66  
 
Wood Products
    344       334       271  
 
Pulp and Paper
    449       378       252  
 
Containerboard, Packaging and Recycling
    326       330       223  
 
Real Estate and Related Assets
    11       11       7  
 
Corporate and Other
    65       49       57  
 
 
   
     
     
 
 
  $ 1,318     $ 1,225     $ 876  
 
 
   
     
     
 
Charges for integration and restructuring:
                       
 
Timberlands
  $ 2     $     $  
 
Wood Products
    7       4       12  
 
Pulp and Paper
    30       2        
 
Containerboard, Packaging and Recycling
    1       8        
 
Corporate and Other
    63       58       2  
 
 
   
     
     
 
 
  $ 103     $ 72     $ 14  
 
 
   
     
     
 
Charges for closure of facilities:
                       
 
Wood Products
  $ 78     $ 51     $ 39  
 
Pulp and Paper
    32       (8 )     19  
 
Containerboard, Packaging and Recycling
    17       52       13  
 
 
   
     
     
 
 
  $ 127     $ 95     $ 71  
 
 
   
     
     
 
Equity in income (loss) of equity affiliates and unconsolidated entities:
                       
 
Wood Products
  $ (3 )   $ (3 )   $  
 
Pulp and Paper
    (6 )     (11 )     8  
 
Containerboard, Packaging and Recycling
    (1 )     (1 )     27  
 
Real Estate and Related Assets
    20       31       27  
 
Corporate and Other
    4       2       (2 )
 
 
   
     
     
 
 
  $ 14     $ 18     $ 60  
 
 
   
     
     
 
Capital expenditures:
                       
 
Timberlands
  $ 58     $ 63     $ 46  
 
Wood Products
    145       219       198  
 
Pulp and Paper
    290       424       234  
 
Containerboard, Packaging and Recycling
    86       167       165  
 
Real Estate and Related Assets
    16       6       2  
 
Corporate and Other
    47       87       40  
 
 
   
     
     
 
 
  $ 642     $ 966     $ 685  
 
 
   
     
     
 
Investments in and advances to equity affiliates and unconsolidated entities:
                       
 
Wood Products
  $ 7     $ 7     $  
 
Pulp and Paper
    165       167       173  
 
Containerboard, Packaging and Recycling
    7       48       50  
 
Real Estate and Related Assets (less reserves)
    38       28       60  
 
Corporate and Other
    424       356       318  
 
 
   
     
     
 
 
  $ 641     $ 606     $ 601  
 
 
   
     
     
 
Assets:
                       
 
Timberlands
  $ 4,994     $ 5,069     $ 2,304  
 
Wood Products
    4,863       4,988       4,209  
 
Pulp and Paper
    7,604       7,525       4,086  
 
Containerboard, Packaging and Recycling
    5,834       6,149       2,985  
 
Real Estate and Related Assets
    2,004       1,970       2,017  
 
Corporate and Other
    3,513       3,138       3,148  
 
 
   
     
     
 
 
    28,812       28,839       18,749  
 
Less: Intersegment eliminations
    (703 )     (620 )     (456 )
 
 
   
     
     
 
 
  $ 28,109     $ 28,219     $ 18,293  
 
 
   
     
     
 

(1)Interest expense of $6 million in 2001 is included in the determination of “contribution to earnings” and excluded from “interest expense” for financial services businesses.

Financial Report    PAGE 78


 

NOTE 23. GEOGRAPHICAL AREAS


The company attributes sales to and revenues from unaffiliated customers in different geographical areas on the basis of the location of the customer.

     Export sales from the United States consist principally of pulp, liquid packaging board, logs, lumber and wood chips to Japan; containerboard, pulp, lumber and recycling material to other Pacific Rim countries; and pulp and hardwood lumber to Europe.

     Long-lived assets consist of goodwill, timber and timberlands and property and equipment used in the generation of revenues in the different geographical areas.

Selected information related to the company’s operations by geographical area is as follows:

                           
For the three-year period ended December 28, 2003 (Dollar amounts in millions)   2003   2002   2001

 
 
 
Sales to and revenues from unaffiliated customers:
                       
 
United States
  $ 16,235     $ 15,253     $ 11,794  
 
Japan
    761       753       695  
 
Canada
    1,388       1,025       1,100  
 
Europe
    665       565       417  
 
Other foreign countries
    824       925       539  
 
 
   
     
     
 
 
  $ 19,873     $ 18,521     $ 14,545  
 
 
   
     
     
 
Export sales from the United States:
                       
 
Japan
  $ 575     $ 548     $ 493  
 
Other
    983       929       758  
 
 
   
     
     
 
 
  $ 1,558     $ 1,477     $ 1,251  
 
 
   
     
     
 
Earnings before income taxes and cumulative effect of a change in accounting principle:
                       
 
United States
  $ 514     $ 379     $ 685  
 
Foreign entities
    (78 )     (8 )     (169 )
 
 
   
     
     
 
 
  $ 436     $ 371     $ 516  
 
 
   
     
     
 
Long-lived assets:
                       
 
United States
  $ 16,216     $ 17,034     $ 8,349  
 
Canada
    3,733       3,258       3,205  
 
Other foreign countries
    221       206       67  
 
 
   
     
     
 
 
  $ 20,170     $ 20,498     $ 11,621  
 
 
   
     
     
 

NOTE 24. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)


                                           
      FIRST   SECOND   THIRD   FOURTH        
Dollar amounts in millions except per-share figures   QUARTER   QUARTER   QUARTER   QUARTER   YEAR

 
 
 
 
 
Net sales and revenues:
                                       
 
2003
  $ 4,614     $ 4,930     $ 5,184     $ 5,145     $ 19,873  
 
2002
    3,991       4,922       4,890       4,718       18,521  
Operating income:
                                       
 
2003
    121       413       304       330       1,168  
 
2002
    207       299       194       363       1,063  
Earnings before income taxes and a cumulative effect of a change in accounting principle:
                                       
 
2003
    (65 )     238       124       139       436  
 
2002
    46       111       20       194       371  
Net earnings:
                                       
 
2003
    (54 )     157       82       92       277  
 
2002
    30       72       13       126       241  
Basic and diluted net earnings per share:
                                       
 
2003
    (.24 )     .71       .37       .41       1.25  
 
2002
    .14       .32       .06       .57       1.09  
Dividends per share:
                                       
 
2003
    .40       .40       .40       .40       1.60  
 
2002
    .40       .40       .40       .40       1.60  
Market prices — high/low:
                                       
 
2003
    53.58–45.80       53.76–47.83       62.00–52.50       63.01–56.01       63.01–45.80  
 
2002
    65.52–50.93       67.83–57.85       62.88–43.77       52.60–38.04       67.83–38.04  

Financial Report    PAGE 79


 

NOTE 25. HISTORICAL SUMMARY (Dollar amounts in millions except per-share figures)


                                         
Per Share   2003   2002   2001   2000   1999

 
 
 
 
 
Basic net earnings before effect of accounting changes
  $ 1.30       1.09       1.61       3.72       2.99  
Effect of accounting changes
    (.05) (1)                       (.43 )(5)
 
   
     
     
     
     
 
Basic net earnings
  $ 1.25       1.09       1.61       3.72       2.56  
 
   
     
     
     
     
 
Diluted net earnings before effect of accounting changes
  $ 1.30       1.09       1.61       3.72       2.98  
Effect of accounting changes
    (.05) (1)                       (.43 )(5)
 
   
     
     
     
     
 
Diluted net earnings
  $ 1.25       1.09       1.61       3.72       2.55  
 
   
     
     
     
     
 
Dividends paid
  $ 1.60       1.60       1.60       1.60       1.60  
Shareholders’ interest (end of year)
  $ 31.95       29.93       30.45       31.17       30.54  

                                             
Financial Position   2003   2002   2001   2000   1999

 
 
 
 
 
Total assets:
                                       
 
Weyerhaeuser
  $ 26,105       26,249       16,276       16,139       16,400  
 
Real Estate and Related Assets
    2,004       1,970       2,017       2,035       1,939  
 
 
   
     
     
     
     
 
 
  $ 28,109       28,219       18,293       18,174       18,339  
 
 
   
     
     
     
     
 
Long-term debt (net of current portion):
                                       
 
Weyerhaeuser:
                                       
   
Long-term debt
  $ 11,503       11,907       5,095       3,953       3,945  
   
Capital lease obligations
    3       1             2       1  
 
 
   
     
     
     
     
 
 
  $ 11,506       11,908       5,095       3,955       3,946  
 
 
   
     
     
     
     
 
 
Real Estate and Related Assets:
                                       
   
Long-term debt
  $ 870       745       522       200       357  
 
 
   
     
     
     
     
 
Shareholders’ interest
  $ 7,109       6,623       6,695       6,832       7,173  
Percent earned on shareholders’ interest
    4.0 %     3.6 %     5.2 %     12.0 %     9.0 %

                                           
Operating Results   2003   2002   2001   2000   1999

 
 
 
 
 
Net sales and revenues:
                                       
 
Weyerhaeuser
  $ 17,844       16,771       13,084       14,603       11,544  
 
Real Estate and Related Assets
    2,029       1,750       1,461       1,377       1,236  
 
 
   
     
     
     
     
 
 
  $ 19,873       18,521       14,545       15,980       12,780  
 
 
   
     
     
     
     
 
Net earnings before effect of accounting changes:
                                       
 
Weyerhaeuser
  $ 43 (1)     30 (2)     180 (3)     676 (4)     495 (5)
 
Real Estate and Related Assets
    245       211       174       164       121  
 
 
   
     
     
     
     
 
 
    288       241       354       840       616  
Effect of accounting changes
    (11 )(1)                       (89 )(5)
 
 
   
     
     
     
     
 
Net earnings
  $ 277       241       354       840       527  
 
 
   
     
     
     
     
 

                                           
Statistics (Unaudited)   2003   2002   2001   2000   1999

 
 
 
 
 
Number of employees
    55,162       56,787       44,843       47,244       44,770  
Salaries and wages
  $ 3,043       2,928       2,296       2,260       1,895  
Employee benefits
  $ 801       689       483       500       392  
Total taxes
  $ 579       528       486       826       579  
Timberlands (thousands of acres):
                                       
 
U.S. and Canadian fee ownership
    6,677       7,159       5,935       5,938       5,914  
 
U.S. and Canadian long-term leases
    788       802       514       521       495  
 
Long-term license arrangements in Canada
    29,862       34,715       32,605       31,648       32,786  
Number of shareholder accounts at year-end:
                                       
 
Common
    13,726       14,551       16,127       17,437       18,732  
 
Exchangeable
    1,388       1,450       1,573       1,736       1,590  
Weighted average shares outstanding (thousands)
    221,595       220,927       219,644       225,419       205,599  

Financial Report    PAGE 80


 

NOTE 25. HISTORICAL SUMMARY (Dollar amounts in millions except per-share figures)


                                                 
Per Share   1998   1997   1996   1995   1994   1993

 
 
 
 
 
 
Basic net earnings before effect of accounting changes
  $ 1.48       1.72       2.34       3.93       2.86       2.83  
Effect of accounting changes
                                   
 
   
     
     
     
     
     
 
Basic net earnings
  $ 1.48       1.72       2.34       3.93       2.86       2.83  
 
   
     
     
     
     
     
 
Diluted net earnings before effect of accounting changes
  $ 1.47       1.72       2.33       3.92       2.86       2.81  
Effect of accounting changes
                                   
 
   
     
     
     
     
     
 
Diluted net earnings
  $ 1.47       1.72       2.33       3.92       2.86       2.81  
 
   
     
     
     
     
     
 
Dividends paid
  $ 1.60       1.60       1.60       1.50       1.20       1.20  
Shareholders’ interest (end of year)
    22.74       23.30       23.21       22.57       20.86       19.34  

                                                     
Financial Position   1998   1997   1996   1995   1994   1993

 
 
 
 
 
 
Total assets:
                                               
 
Weyerhaeuser
  $ 10,934       11,071       10,968       10,359       9,750       9,087  
 
Real Estate and Related Assets
    1,900       2,004       2,628       2,894       3,408       3,670  
 
 
   
     
     
     
     
     
 
 
  $ 12,834       13,075       13,596       13,253       13,158       12,757  
 
 
   
     
     
     
     
     
 
Long-term debt (net of current portion):
                                               
 
Weyerhaeuser:
                                               
   
Long-term debt
  $ 3,397       3,483       3,546       2,983       2,713       2,998  
   
Capital lease obligations
    2       2       2       2              
 
 
   
     
     
     
     
     
 
 
  $ 3,399       3,485       3,548       2,985       2,713       2,998  
 
 
   
     
     
     
     
     
 
 
Real Estate and Related Assets:
                                               
   
Long-term debt
  $ 580       682       814       1,608       1,873       2,086  
 
 
   
     
     
     
     
     
 
Shareholders’ interest
  $ 4,526       4,649       4,604       4,486       4,290       3,966  
Percent earned on shareholders’ interest
    6.4 %     7.4 %     10.2 %     18.2 %     14.3 %     15.2 %

                                                   
Operating Results   1998   1997   1996   1995   1994   1993

 
 
 
 
 
 
Net sales and revenues:
                                               
 
Weyerhaeuser
  $ 10,050       10,611       10,568       11,318       9,714       8,726  
 
Real Estate and Related Assets
    1,192       1,093       1,009       919       1,117       1,230  
 
 
   
     
     
     
     
     
 
 
  $ 11,242       11,704       11,577       12,237       10,831       9,956  
 
 
   
     
     
     
     
     
 
Net earnings before effect of accounting changes:
                                               
 
Weyerhaeuser
  $ 214 (5)     271 (7)     434       981       576       511  
 
Real Estate and Related Assets
    80       71       29       (182 )(8)     13       68  
 
 
   
     
     
     
     
     
 
 
  $ 294       342       463       799       589       579  
Effect of accounting changes
                                   
 
 
   
     
     
     
     
     
 
Net earnings
    294       342       463       799       589       579  
 
 
   
     
     
     
     
     
 

                                                   
Statistics (Unaudited)   1998   1997   1996   1995   1994   1993

 
 
 
 
 
 
Number of employees
    36,309       35,778       39,020       39,558       36,665       36,748  
Salaries and wages
  $ 1,695       1,706       1,781       1,779       1,610       1,585  
Employee benefits
  $ 351       355       370       408       357       347  
Total taxes
  $ 437       478       557       736       618       577  
Timberlands (thousands of acres):
                                               
 
U.S. and Canadian fee ownership
    5,099       5,171       5,326       5,302       5,587       5,512  
 
U.S. and Canadian long-term leases
    241       237       229       171       156       158  
 
Long-term license arrangements in Canada
    27,002       23,715       22,863       22,866       17,849       17,845  
Number of shareholder accounts at year-end:
                                               
 
Common
    19,559       20,981       22,528       23,446       24,131       25,282  
 
Exchangeable
                                   
Weighted average shares outstanding (thousands)
    198,914       198,967       198,318       203,525       205,543       204,866  

(1)2003 results reflect charges of $379 million less related tax effect of $130 million, or $249 million, for the sale or closure of facilities, integration and restructuring, terminating the MacMillan Bloedel pension plan for salaried employees in the United States, litigation charges, and the cumulative effect of a change in an accounting principle. 2003 results also reflect benefits of $230 million less related tax effects of $88 million, or $142 million, for the significant sales of nonstrategic timberlands in western Washington, Tennessee and the Carolinas and a gain on the settlement of an insurance claim.

(2)2002 results reflect charges of $249 million less related tax effect of $86 million, or $163 million, for the closure of facilities, integration of acquisitions, terminating the MacMillan Bloedel pension plan for salaried employees in the United States, business interruption costs, and the write-off of debt issuance costs. 2002 results also reflect benefits of $164 million less related tax effects of $57 million, or $107 million, for the reversal of countervailing and anti-dumping accruals and a sale of western Washington timberlands.

(3)2001 results reflect charges of $157 million less related tax effect of $59 million, or $98 million, for the closure of facilities and integration of acquisitions, costs associated with streamlining internal support services, and costs of transitioning to a new shipping fleet. 2001 results also reflect tax benefits of $29 million.

(4)2000 results reflect charges of $205 million less related tax effect of $76 million, or $129 million, for settlement of hardboard siding claims, closure of facilities, integration of acquisitions, and costs associated with streamlining internal support services.

(5)1999 results reflect charges of $276 million less related tax effect of $102 million, or $174 million, for the cumulative effect of a change in an accounting principle, impairment of long-lived assets to be disposed of, closure costs related to acquisitions and Year 2000 remediation.

(6)1998 results reflect charges of $67 million less related tax effect of $25 million, or $42 million for closure of facilities.

(7)1997 results reflect net charges of $13 million less related tax effect of $4 million, or $9 million, for closure and restructuring charges, net of gains on the sale of businesses.

(8)1995 results reflect a charge for disposal of certain real estate assets of $290 million less related tax effect of $106 million, or $184 million.

Financial Report    PAGE 81 EX-14 9 v96705exv14.htm EXHIBIT 14 exv14

 

EXHIBIT 14

(COVER PAGE PHOTO)

 


 

     
(OUR VISION PHOTO)   Our Values

Customers and Suppliers

We listen to our customers and suppliers to improve our products and services to meet their present and future needs.

People

We are an employer of choice with high-performing people working together in a safe and healthy workplace where diversity, development and teamwork are valued and recognized.

Accountability

We expect superior performance and are accountable for our actions and results. Our leaders set clear goals and expectations, are supportive, and provide and seek frequent feedback.

Citizenship

We support the communities where we do business, hold ourselves to the highest standards of ethical conduct and environmental responsibility, and communicate openly with Weyerhaeuser people and the public.

Financial Responsibility

We are prudent and effective in the use of the resources entrusted to us to create shareholder value.

 


 

     
(PHOTO)   In pursuing our vision of becoming the best forest products company in the world, we are guided by our core values. Their common thread is integrity: doing what is right.

Integrity has always been a major part of Weyerhaeuser’s culture. Company leaders and employees at Weyerhaeuser have nurtured our commitment to integrity over the years. As a result, Weyerhaeuser is a highly respected company.

Our commitment to integrity is demonstrated by our focus on working safely, conducting business ethically, exhibiting a strong sense of corporate citizenship, and maintaining high environmental standards.

Every one of us is responsible for protecting and maintaining our company’s integrity. We must conduct business fairly and honestly and in a manner that is consistent with the guidelines in this code of ethics as well as comply with all applicable laws.

If you are not sure how to handle a work situation, turn to this code of ethics for help. You can also contact Ethics and Business Conduct at 1-800-716-3488 or at ethics@weyerhaeuser.com.

And always, if the right path is unclear, think and ask before you act. By working fairly and honestly and in a manner consistent with the guidelines in this code of ethics, we can achieve our vision.

(-s- Steven R. Rogel)

Steven R. Rogel

Chairman, President and CEO

 


 

Contents

         
Ethics and Business Conduct Overview
    3  
Business Ethics Core Policy
    4  
Resolving Business Ethics Concerns
    6  
Issue Resolution Process
    8  
Antitrust and Competition Laws
    9  
Company Assets
    10  
Conflict of Interest and Corporate Opportunities
    12  
Employment Practices and Expectations
    14  
Environmental Responsibility
    16  
Full and Fair Disclosure
    17  
Gifts and Entertainment
    18  
Government Affairs and Reports
    20  
Inside Information and Insider Trading Laws
    21  
Intellectual Property and Confidentiality
    22  
International Business Conduct
    23  
Privacy
    24  
Safety and Health
    25  
Suppliers, Contractors and Customers
    26  
Waiver
    27  
Index
    28  

2


 

Ethics and Business Conduct Overview

Weyerhaeuser has a reputation for conducting business honestly and with integrity. Compliance with all laws and policies is expected of every employee, including officers and our directors, but the company is committed to going farther – to holding ourselves to high standards of ethical conduct.

Our commitment to ethical conduct goes back more than 100 years, and a formal ethics and business conduct program was started in 1976. Now Ethics and Business Conduct is managed by trained professionals and is available to employees, customers, contractors, suppliers and the public.

To ensure employees understand the company’s expectations, all employees are expected to be familiar with our code of ethics, Our Reputation: A Shared Responsibility; to participate in ethics training on a regular basis; and to model and promote ethical behavior.

Our vision

Ethics at the core of every Weyerhaeuser decision

Our mission

n   Provide leadership on standards of business conduct
 
n   Educate on ethical decision making
 
n   Monitor adherence to laws, company policies and guidelines

Ethics and Business Conduct

Ethics and Business Conduct is staffed by professionals experienced in applying the company’s ethics and business conduct expectations. They are available to assist employees in ethical decision making and to address allegations of unethical or illegal conduct.

Ethics and Business Conduct is also responsible for the management and administration of the company’s ethics and business conduct program. This includes development and distribution of the company’s code of ethics and provision of ethics training.

Ethics and Business Conduct can be contacted at: 1-800-716-3488 (toll-free) or (253) 924-4955 or by e-mail at ethics@weyerhaeuser.com

Ethics and Business Conduct 1-800-716-3488

3


 

Business Ethics Core Policy

Core policy

It is Weyerhaeuser’s core policy to maintain the highest standards of ethical business conduct.

Anyone who does business in the name of the company is expected to read the guidelines for ethical business conduct in the company’s code of ethics, Our Reputation: A Shared Responsibility.

Employees are personally responsible for behaving in a highly ethical manner as they conduct business. In addition, employees are required to participate in company educational programs to learn about business ethics expectations.

Employees must not knowingly help another person conduct business unethically.

Employees shall honestly answer all questions in the business conduct compliance certificates and cooperate in the company’s investigation of illegal or unethical activity when called upon.

Alignment with our values

This core policy aligns with all the company’s values: Customers and Suppliers, People, Accountability, Citizenship and Financial Responsibility.

Expectations

Weyerhaeuser will be recognized by all, both inside and outside the company, as an organization whose management and leaders will not tolerate unethical business conduct at any level.

Employee responsibilities

Employees will follow appropriate ethical behaviors and will seek guidance in resolving ethics issues by:

n   Following the company’s issue resolution processes, or
 
n   Contacting any of the following:

    Their supervisor
 
    Their human resource manager
 
    Ethics and Business Conduct
 
    The Law Department if a violation of law is involved
 
    Any executive vice president or senior vice president
 
    The president of the company

4


 

Additional responsibilities of leaders

Leaders’ responsibilities include:

n   Monitoring and ensuring compliance with this core policy by employees and others who do business on behalf of the company
 
n   Ensuring that every new or transferred employee receives the code of ethics and the 1-800 telephone number for Ethics and Business Conduct (1-800-716-3488)
 
n   Providing appropriate training for employees on business ethics issues
 
n   Taking a leadership role in modeling exemplary behavior in ethical business conduct and being open and available to discuss ethics concerns
 
n   Dealing effectively with business ethics concerns that arise in their business units
 
n   Supporting protection from retaliation for any employee who reports, supplies information about, or assists in an investigation into a business ethics concern

Consequences

Failure to comply with this core policy could result in disciplinary action, up to termination of employment.

Ethics and Business Conduct 1-800-716-3488

5


 

Resolving Business Ethics Concerns

Business ethics is about integrity – conducting business in a way that protects and maintains Weyerhaeuser’s reputation for fairness and honesty. At times, the right decision may not be clear. If you are not sure if an action will be ethical, stop and ask for advice first.

Sources for guidance

Some issues that may concern you may not be a business ethics issue. Such concerns should be addressed through standard unit, business or company processes, including the Employment Issue Resolution Process for human resources issues.

In addition, Weyerhaeuser’s core policies detail specific rules to be followed when conducting company business.

Some of our businesses, regions, departments, joint ventures and subsidiaries have policies and guidelines specific to their operations or activities. They should support our company’s vision and values and help ensure we maintain our reputation and comply with the law.

Our consultants, agents and contractors also represent Weyerhaeuser and are expected to support the company’s business ethics standards.

Business ethics issue resolution process

If you are faced with a situation you believe may not comply with our business ethics guidelines or may be unethical, inappropriate or illegal, you should promptly:

1.   First, try to resolve the concern through standard management channels or your human resource representative.
 
2.   If you are an employee covered by a labor agreement and a local grievance process covers the issue you are concerned about, you should follow that process.
 
3.   If resolution through standard management channels is not appropriate or you have already taken these steps and the issue was not adequately resolved, you may contact any of the following:

    Ethics and Business Conduct at 1-800-716-3488 or (253) 924-4955 (the caller’s name and phone number are not displayed on these phones)
 
    The Law Department, any executive or senior vice president, or the president and CEO

6


 

Making ethical business decisions

Before making a business decision, ask yourself:

n   Would this action endanger anyone’s life, health or safety?
 
n   Would the action be legal?
 
n   Would it comply with company processes?
 
n   Would I feel uncomfortable doing this?
 
n   Should I ask my team leader or supervisor before I do this?
 
n   Could I defend this action before my team leader, manager, peers, customers or community?
 
n   How would I feel if this decision were reported in the news?

If you are still not sure how to proceed after considering these questions, talk with your team leader or contact Ethics and Business Conduct at 1-800-716-3488 or (253) 924-4955 or by e-mail at ethics@weyerhaeuser.com.

Confidentiality

Ethics and Business Conduct makes every effort to protect the confidentiality of individuals who report violations of the law, company policies or perceived unethical conduct.

No retaliation

It is company policy to ensure that no retaliation occurs as a result of any employee raising a business conduct issue or reporting a perceived violation of company policy or the law. Retaliation against employees reporting a perceived violation of the law may result in felony criminal charges, exposing the company to substantial fines and individuals to fines and imprisonment.

Ethics and Business Conduct 1-800-716-3488

7


 

Issue Resolution Process

(ISSUE RESOLUTION PROCESS CHART)

If your concern is not resolved after following these steps,
or if your issue is an ethics and business conduct matter, contact

Ethics and Business Conduct

1-800-716-3488 or (253) 924-4955 • E-mail: ethics@weyerhaeuser.com

* You may also submit your concerns regarding accounting and audit matters and
internal controls directly to the Chairman of the Board of Directors’ Audit
Committee by contacting the office of the company’s Corporate Secretary at (253) 924-5272.

8


 

Antitrust and Competition Laws

The antitrust laws of the United States and the competition laws of other countries are designed to preserve and protect competition in goods and services.

Some violations can result in felony criminal charges, exposing the company to substantial fines and individuals to fines and imprisonment. Violations can also lead to lawsuits, exposing the company to large damages and orders restricting our operations. Individuals who violate these laws are also subject to company discipline, including dismissal.

Our responsibilities

Every employee must comply with antitrust and competition laws. These laws can be complex and can differ from country to country. Here are some important steps that will significantly reduce the possibility of antitrust violations:

1.   Do not communicate with competitors about sensitive competitive topics, including:

  -   Prices
 
  -   Terms of sale
 
  -   Pricing plans
 
  -   Marketing strategies or plans
 
  -   Expansion plans
 
  -   Facility closures
 
  -   Contraction or downtime plans
 
  -   Specific costs

2.   Be careful how you communicate in memos, studies, reports, e-mail and voice mail, since poorly worded documents or messages can give the impression that improper activity took place when in fact it did not.

Potential antitrust involvement

If you are involved in or observe an activity that could raise an antitrust or competition law issue, immediately contact the Law Department or Ethics and Business Conduct for advice.

For more information

The Law Department has prepared antitrust and competition compliance program materials and training. Employees should obtain and be familiar with the contents of these materials.

For additional resources for your business, see the For More Information insert inside the back cover.

Ethics and Business Conduct 1-800-716-3488

9


 

Company Assets

We are all responsible for the appropriate use and protection of company assets under our control — such as electronic media, funds, property, information and records.

Electronic media

The company’s electronic media — including computers, intranet, Internet and e-mail — are to be used for business purposes.

With your supervising manager’s approval, limited personal use of these resources may be permitted. This use must not increase costs, harm productivity, reduce network performance, damage the company’s reputation, or interfere with your work duties.

Unacceptable use of electronic media includes visiting inappropriate Internet sites and storing, sending or forwarding inappropriate e-mails. This includes obscene, racist, hateful, harassing, pornographic or offensive material of any kind.

Company resources must not be used for personal financial benefit, to conduct business for anyone other then Weyerhaeuser, to violate copyright or software licensing rules, or to bypass company security measures.

Data or information created or stored using the company’s electronic media is not private and may be monitored and audited by Weyerhaeuser at any time without notice.

Use of company funds

Every employee is responsible for the prudent and effective use of all company funds, including those for travel and entertainment. We must not, on behalf of or in connection with the company, transfer any funds through market channels prohibited by U.S. or local laws.

Use of company property

Employees may use company property or services only if the property and services have been properly approved for general or public use. The use of company-owned land, materials and equipment under any other circumstances must be approved in advance. Any such use should not reduce the value of the property, be for personal profit, or have any other negative effect. Only with appropriate authorization may company property be sold, loaned, given away or otherwise disposed of, regardless of condition or value.

10


 

Removing company property

Company records should not be removed from the premises except for business purposes.

If you are transferred, terminated or granted leave, you may remove materials or information designated as company property only if you have received appropriate authorization.

Keeping company records

All company records must be kept in such a way that an accurate, auditable record is maintained. This includes safety statistics, workers’ compensation claims and environmental regulatory documents. Financial records must be maintained in accordance with generally accepted accounting principles. No one should make or omit an entry on the company’s books or records if the result would intentionally misrepresent the true nature of any transaction.

Records management

Employees should be aware of and comply with Weyerhaeuser’s companywide Records Management Program to ensure appropriate retention, protection, maintenance and disposition of all records, regardless of format or media.

No one should destroy any records with the intent to impede or obstruct any governmental investigation.

For additional resources for your business, see the For More Information insert inside the back cover.

Ethics and Business Conduct 1-800-716-3488

11


 

Conflict of Interest and Corporate Opportunities

A conflict of interest is a situation in which our personal interests or responsibilities do not align with our obligations as employees. For example, potential personal financial benefits may prevent us from using good judgment in performing our jobs. The actions of our family or friends can also place us in a conflict of interest.

All Weyerhaeuser people are expected to avoid conflicts of interest and the appearance of such conflicts. All business decisions will be considered on their merits. Guidelines for some of the more common conflicts are listed below.

Outside financial interests

As a general rule, you and members of your immediate family may not have any financial interest or ownership in a Weyerhaeuser supplier, contractor, customer or competitor with whom you deal in your job. Before entering into any such arrangement, fully disclose the details of the arrangement to the responsible unit manager and general counsel and obtain their written clearance.

A financial interest does not include ownership of securities in a publicly traded company if the fair market value of such ownership is less than your personal Weyerhaeuser annual income at year-end or 5 percent of your personal gross assets at year-end, whichever is greater.

Family and friends

It is possible for the actions of family or friends to create a conflict of interest for us as employees. For example, any gift or other benefit offered to a family member by a supplier or potential supplier is considered a business gift. For further information, see the Gifts and Entertainment guidelines in this code of ethics.

You may not engage in any business transaction on behalf of the company with a relative — or with a firm where such a relative is a principal, officer or representative — without prior full disclosure to, and written clearance from, both your responsible team leader and unit manager or appropriate vice president.

Using company suppliers

Employees who use company suppliers or contractors for personal business are expected to pay market value for services rendered and materials provided. In addition, you must disclose in writing to your unit manager your intention to enter into this type of relationship.

Outside jobs and activities

As Weyerhaeuser employees, we are expected to render our full-time best efforts to the company. You should not engage in outside business activities that divert time or attention away from Weyerhaeuser duties and responsibilities, compete with the company, or would otherwise be detrimental to the company.

12


 

Should you or your team leader feel it is necessary, your team leader should provide written clearance that an outside job or activity is acceptable within the bounds of expected job performance and that no apparent conflict of interest exists.

It remains each employee’s responsibility to ensure a second job or outside business does not conflict with Weyerhaeuser’s interests. You may work for a Weyerhaeuser supplier, contractor, customer or competitor only with prior full disclosure to and written approval from your unit manager.

If you have or are considering outside employment in addition to your Weyerhaeuser position, follow the guidelines below:

n   Work for your personal business may not be done on Weyerhaeuser time.
 
n   Customers and colleagues from the outside business should not contact you at Weyerhaeuser.
 
n   You may not use Weyerhaeuser equipment, or the time of any Weyerhaeuser personnel who are on company time, for your outside business.
 
n   You may use Weyerhaeuser’s information only with the written approval of your supervisor and the Law Department.
 
n   You may not use company time or resources to sell or promote products or services from your outside business. This includes using company mail, bulletin boards, telephones, faxes, e-mail, the intranet or the Internet.

Outside investment opportunities and corporate opportunities

Weyerhaeuser may be interested in business or investment opportunities that are made known to you as a result of your position with the company. You are expected to disclose information about such opportunities to the company before acting on them.

If you are unclear about when to disclose a business or investment opportunity, ask yourself:

n   Does this business or investment opportunity have anything to do with my job responsibilities?
 
n   Is the size or nature of this business or investment opportunity such that Weyerhaeuser could be interested in it?

If the answer to either of these questions is “yes,” you must disclose the business or investment opportunity to the company before taking action.

Some operating units of the company have specific policies that prohibit certain investments or activities. It is your responsibility to know your unit’s policies.

For additional resources for your business, see the For More Information insert inside the back cover.

Ethics and Business Conduct 1-800-716-3488

13


 

Employment Practices and Expectations

Weyerhaeuser’s commitment to maintaining and improving ethical business conduct has its roots in the day-to-day relationships that exist between Weyerhaeuser employees and people who have relationships with our company.

The following guidelines underscore our commitment to exemplary workplace relationships.

Overall philosophy

We treat all employees with dignity and respect.

Compensation

We provide pay and benefits competitive within our industry and recognize performance as appropriate.

Diversity

A diversity of people and ideas in the workplace is essential to our business success. All employees are expected to respect and value the contributions that people of different characteristics, experiences and backgrounds offer.

Weyerhaeuser employees are expected to work with suppliers, customers and other employees without any bias or discrimination. This includes but is not limited to bias or discrimination based on age, race, color, religion, gender, marital status, national origin, sexual orientation, veteran status and disability.

Employment practices

Employment decisions are made based on the following criteria:

n   Qualifications of candidates with respect to job requirements
 
n   Development needs of individuals and the company’s succession requirements
 
n   Equal opportunity and achieving work-force diversity
 
n   Legal and contractual requirements, including union contracts

Employing relatives

When relatives of current employees are being considered for employment, the above criteria apply. Relatives should, if possible, be employed in separate organizations or units. If relatives work in the same unit, employment decisions concerning one relative (such as pay or promotion) cannot be influenced by another. Relatives should not have any reporting relationship with each other unless the appropriate business vice president or Senior Management Team member has approved an exception. The same general considerations apply to employees who have close personal relationships with each other. The underlying principle is avoiding the potential for, or perception of, favoritism.

14


 

Harassment/ violence

We do not tolerate harassment in any form, including, but not limited to, sexual harassment, verbal abuse, intimidating behavior, threats or assault. If you experience harassment, report it to your team leader, supervisor, unit manager, human resource representative, senior manager, Weyerhaeuser’s Diversity/Equal Employment Opportunity (EEO) office, or Ethics and Business Conduct.

Privacy

We protect information about employees in company records from unauthorized use or disclosure.

Resolution process

When a problem arises, the resolution process should begin with your team leader, human resource representative or other appropriate person within your organization. If you are covered by a collective bargaining agreement or labor contract, matters covered by the agreement should be discussed with appropriate union representatives. Nonunion employees may make use of the Employment Issue Resolution Process. Your human resource representative can assist you with this process. For ethics and business conduct issues, contact Ethics and Business Conduct for assistance.

For additional resources for your business, see the For More Information insert inside the back cover.

Ethics and Business Conduct 1-800-716-3488

15


 

Environmental Responsibility

Environmental responsibility is a core company value. We work to meet or exceed applicable environmental laws and regulations and are recognized for superior environmental management systems and risk management. Failure to meet these environmental commitments could result in damage to the environment and our company’s reputation. It could also lead to criminal charges, fines and liabilities and could, in the extreme, imperil human health and safety.

Our responsibilities

We comply with all environmental laws, regulations and policies; identify and respond to public health concerns; and are responsible stewards of natural resources. Employees who are responsible for, or are engaged in, activities or operations that might affect the environment should be familiar with the laws, regulations and policies that relate to these activities and comply with them.

Resolution process

If you become aware of a situation or practice you know or suspect does not comply with environmental laws, regulations or company environmental policies and you are unable to address it personally, you should contact local management; an area regulatory manager; corporate Environment, Health and Safety; the Law Department; or Ethics and Business Conduct.

For additional resources for your business, see the For More Information insert inside the back cover.

16


 

Full and Fair Disclosure

Weyerhaeuser is committed to compliance with the securities laws and to communicating with its shareholders and investors in a candid and forthright manner and to providing disclosures that are full, fair, accurate, timely and understandable.

Our responsibilities

We comply with the securities laws and company policies and procedures relating to accounting, record keeping, document retention and auditing, and communications and disclosure.

Additionally, the chief executive officer, chief financial officer and chief accounting officer are responsible for ensuring that all documents the company files with the U.S. Securities and Exchange Commission and all public communications by the company contain full, fair, accurate, timely and understandable disclosures about the company.

Resolution process

If you become aware of a situation or practice that you know or suspect involves questionable accounting, record keeping, auditing or disclosure and you are unable to address it personally, you should promptly contact your supervisor, Internal Audit, the Law Department or Ethics and Business Conduct.

You may also submit your concerns regarding accounting and audit matters and internal controls directly to the Chairman of the Board of Directors’ Audit Committee by contacting the office of the company’s Corporate Secretary at (253) 924-5272.

For additional resources for your business, see the For More Information insert inside the back cover.

Ethics and Business Conduct 1-800-716-3488

17


 

Gifts and Entertainment

Whenever the exchange of gifts or entertainment accompanies business activity, Weyerhaeuser runs the risk of compromising, or appearing to compromise, our business ethics standards.

Weyerhaeuser discourages the exchange of gifts or entertainment to or from any of the company’s suppliers, contractors, customers or competitors. This rule covers gifts, entertainment and any other preferential treatment, including loans and guarantees, and also applies to members of your immediate family. If you decide to accept or give any gift or entertainment, follow these guidelines.

Gifts

n   In general, any gifts or entertainment exchanged should not exceed nominal value.
 
n   Items of nominal value are appropriate, unexceptional, relatively inexpensive and unlikely to be perceived as influencing the recipient.
 
n   Money should never be exchanged as a gift. Loans must be on a commercial basis from a lending institution.
 
n   In most cases, gifts should be offered only to an organization or department as a whole rather than to an individual.
 
n   No one should conceal or attempt to conceal any fact concerning any exchange of a gift or entertainment.
 
n   If you believe special circumstances justify offering a gift or entertainment on Weyerhaeuser’s behalf, you must take two further steps:

    First, consider whether the recipient’s business ethics policies will limit that person’s ability to accept.
 
    Second, if you select a gift or entertainment that has greater than nominal value, you must obtain written approval from a Weyerhaeuser unit or business management — whichever is appropriate for your situation.

Entertainment

Participation in any entertainment on Weyerhaeuser’s behalf is subject to these additional guidelines:

n   Entertainment should be conducted only if a business purpose is clearly identified.
 
n   Both parties are expected to be present for the purpose of advancing business opportunities.
 
n   Weyerhaeuser-sponsored entertainment requires advance authorization, including budgetary approval, from unit or business management.

18


 

n   Entertainment should not be extravagant.
 
n   Management approval is not required for meals that are part of normal business activity.

International

Conducting business internationally requires an understanding of, and sensitivity toward, different cultures and customs; however, the same standards of ethical business conduct apply. The exchange of gifts or entertainment should never compromise our business ethics standards.

Making a decision
 
You may be able to determine whether offering or accepting a gift or entertainment is appropriate by asking yourself:
 
n   Am I being asked to do something out of the ordinary?
 
n   Would I be uncomfortable doing this?
 
n   Would this exchange be a violation of the other party’s code of ethics?
 
n   How would accepting or giving the gift or entertainment appear to others at Weyerhaeuser, my peers or the general public?
 
n   Is the gift a personal benefit, or is it something that can be used on the job or shared with co-workers?
 
n   Would I be comfortable receiving a similar gift?
 
n   Is this gift being offered because my position enables me to influence a Weyerhaeuser decision in favor of a customer or supplier?
 
n   Is any effort being made to conceal the gift or offer?

Ask for help

Talk with your team leader or human resource representative or contact Ethics and Business Conduct if you have questions about giving or receiving gifts or entertainment.

For additional resources for your business, see the For More Information insert inside the back cover.

Ethics and Business Conduct 1-800-716-3488

19


 

Government Affairs and Reports

Because Weyerhaeuser’s success and profitability can be affected, either positively or negatively, by legislation and government policy, we ethically and responsibly participate in the political decision making process. Weyerhaeuser has a reputation for ethical business conduct and is committed to maintaining and enhancing strong relationships with government officials.

Our responsibilities

We make political contributions on behalf of the company only if such contributions have been approved in advance by the responsible vice president of Government Affairs and the general counsel.

Information provided to government officials to guide decision making is accurate and timely, and we ensure reports filed with any government body are accurate and complete.

We follow all laws and regulations regarding in-kind contributions, use of corporate facilities and resources, independent expenditures, and gifts and ethics laws. We never offer, promise or give anything of value to any government official, employee, agent or other intermediary (either domestically or internationally) in order to influence the exercise of government duties. For further information, see the Gifts and Entertainment guidelines in this code of ethics.

Only authorized employees and contract lobbyists may engage in lobbying activities on behalf of the company. Such individuals must comply with all applicable legal requirements.

We do not use company stationery, name, title or resources to express our personal opinions to government officials. Reimbursement of personal political contributions is prohibited.

For additional resources for your business, see the For More Information insert inside the back cover.

20


 

Inside Information and Insider Trading Laws

Inside information is any nonpublic information relating to Weyerhaeuser or another company that could be used improperly for personal advantage. For example, if you have knowledge of the company’s earnings or a planned acquisition or divestiture before that information has been publicly disclosed, you have inside information.

Our responsibilities

The possession of material nonpublic information can raise personal and corporate concerns. If you possess inside information, the following policies apply.

Disclosing inside information

You must not disclose material nonpublic information to anyone either inside or outside the company unless properly authorized to do so in advance.

Trading in securities

You must not trade in Weyerhaeuser securities when you possess material nonpublic information until the end of the second trading day following the date the company publicly discloses the information. A trading day is a day when the New York Stock Exchange is open for business.

You must not trade in the securities of another corporation if the value of that company’s stock is likely to be affected by an action you know Weyerhaeuser intends to take and the action has not yet been publicly disclosed.

Using inside information

You must not use inside information in any business transaction in a way that disadvantages the company or gives you an unfair personal advantage over others who do not have the information.

Special Instructions

From time to time in connection with certain company transactions, the Law Department may instruct officers and employees of the company not to trade in Weyerhaeuser securities and/or securities of other companies. If you have received such an instruction, you may only trade in Weyerhaeuser securities or securities of such other companies if you have been informed by the Law Department that such instruction is no longer in effect.

Directors and company officers

Directors and executive officers of the company may trade in Weyerhaeuser securities only with prior approval from the corporate secretary or general counsel. This restriction applies to officers of the company who are required by law to report their trading activities in Weyerhaeuser securities to the Securities and Exchange Commission. Directors and officers of the company may not trade in puts and calls in company stock or engage in short sales of company stock.

Ethics and Business Conduct 1-800-716-3488

21


 

Intellectual Property and Confidentiality

In our work, we may learn about or create valuable proprietary information, often referred to as intellectual property. Intellectual property helps our company maintain a competitive advantage.

Intellectual property is all or part of any business information such as plans, costs, price studies, market studies, customer and personnel data, or technical information such as inventions, formulas, designs and scientific data. Some intellectual property may be legally protected by patents, copyrights or trademarks.

Disclosure of confidential information

All company intellectual property will be preserved as confidential information until the appropriate team leader authorizes its release. We do not disclose or use confidential information except for its intended purpose, whether during or after our employment with Weyerhaeuser, unless we obtain proper authorization.

Entry interview

Team leaders will conduct entry interviews with new employees and contractors to provide direction for identifying and managing the confidential information in their work areas.

Exit interview

Team leaders will conduct exit interviews when employees and contractors transfer or leave the company or project. Intellectual property that was made known to the employee or contractor should be identified, and any documents or other items of intellectual property should be collected.

Competitive intelligence

Gathering information on our competitors and our marketplace is an important activity that allows us to make better decisions and enhances our competitiveness. We use only ethical and legal means to gather such information.

Use of others’ confidential information

Employees who have access to the confidential or proprietary information of another company must not disclose it or permit it to be used by Weyerhaeuser unless the owner grants permission in writing.

For additional resources for your business, see the For More Information insert inside the back cover.

22


 

International Business Conduct

We do business with all of our customers and suppliers and with government agencies in a straightforward and transparent manner. Employees in our international operations will comply with the laws of the host country and, except in the case of conflict with local laws, with applicable U.S. laws and regulations.

International practices

We comply with the U.S. Foreign Corrupt Practices Act and similar laws in place in other countries where we operate. In general, it is unlawful to bribe foreign officials to influence or keep business. Compliance with these laws requires strict observance of the following standards:

  Use of company funds
 
    We do not use funds for any purpose that would be in violation of the laws or regulations of any applicable country.
 
  Payments to government officials
 
    We do not exchange anything of value, directly or indirectly, with foreign government officials.
 
  Political contributions
 
    Advance approval from the Law Department is required before making any foreign political contributions.
 
  Company records
 
    All books, records and accounts accurately and fairly reflect transactions and disposition of assets.
 
  Agents and consultants
 
    We do not make payments prohibited by these standards through any other party retained, directly or indirectly, by Weyerhaeuser.
 
  Investments
 
    Where another company or person is the controlling owner or operator of an entity, we make an investment only when there is a written commitment to these standards from that company or person.

The only exceptions to these standards are for expediting payments and for promotional activities where permitted by law. In both instances, approval from the Law Department must be obtained in advance.

For additional resources for your business, see the For More Information insert inside the back cover.

Ethics and Business Conduct 1-800-716-3488

23


 

Privacy

Privacy of employee information

During the hiring process and during the course of employment, employees disclose a variety of personal information necessary for Weyerhaeuser to maintain accurate business and employment records. We respect the privacy of personal information and protect this information from inappropriate or unauthorized disclosure or use. Access to such information is restricted to the employee and those with a legitimate business or legal need.

Privacy of third-party information

In the course of doing business, we may collect information on customers, suppliers, contractors, competitors or other third parties. We protect this information and use it only for legitimate Weyerhaeuser business purposes. If we have access to the confidential information of another party, we must not allow unauthorized disclosure or use.

For additional resources for your business, see the For More Information insert inside the back cover.

24


 

Safety and Health

Providing safe and healthy places of employment is a core company value. We believe all safety incidents are preventable. All of us can and should finish each day safely and in good health. It is everyone’s responsibility to comply with the company’s expectations relating to workplace safety and health.

Any unsafe act, at-risk behavior, near miss or undesirable exposure that threatens the safety or health of any person should be brought to the attention of a team leader.

We treat injured employees with dignity and respect and provide the highest standard of care when addressing workplace injury and illness. The following guidelines summarize our basic responsibilities.

If there is an injury

All injuries must be promptly and accurately reported. Prompt and accurate reports help us take action to prevent recurrences. Failure to report injuries increases the risk of recurrence, could delay appropriate medical treatment, and could subject the company to substantial penalties.

If you believe you are not being treated appropriately following an injury, you should contact your local manager. If you believe your concern is not adequately addressed, you can contact Environment, Health and Safety; Disability Management; or Ethics and Business Conduct.

Fitness for work

It is unacceptable for Weyerhaeuser people to work when their ability to function safely is diminished for any reason. While at work or on company business, we must not have in our systems any illegal drugs or legal drugs that could cause impairment, including alcohol.

The possession, sale, purchase, delivery, use or transfer of illegal substances on company premises or at company functions is prohibited.

Violence

We are committed to maintaining a safe work environment for our employees. Threats, intimidation, harassment, assault and acts of violence are unacceptable.

For additional resources for your business, see the For More Information insert inside the back cover.

Ethics and Business Conduct 1-800-716-3488

25


 

Suppliers, Contractors and Customers

Supplier, contractor and customer relationships can involve issues of law and business ethics.

The following summary supplements, but does not replace, specific guidelines affecting purchasing or sales policies such as those developed in general for the company or in particular by individual business units or departments.

Our expectations

We treat our suppliers, contractors and customers fairly and honestly at all times. We expect our suppliers, contractors and customers to adhere to the same standards of fair and ethical business conduct to which we hold ourselves.

Criteria for company sales or purchases

We base our sales and purchases on product quality; service level, including consistency and dependability; and total cost of ownership.

The products we produce, market and distribute will meet our customers’ needs and conform to the standards for these products as established by independent industry associations, grading bureaus, government regulations, customary trade practices, and any prearranged customer specifications.

Payments, gifts and entertainment

We will not exchange payments with purchasing agents or other employees of any supplier, contractor or customer to obtain or retain business or to realize higher or lower prices for Weyerhaeuser.

Whenever the exchange of gifts or entertainment accompanies business activity with suppliers, contractors and customers, we comply with the gifts and entertainment guidelines in this code of ethics.

Confidential information

We respect the confidentiality of proprietary information given to us by suppliers, contractors, customers, associations and other outside bodies. Because certain restrictions relating to such information may place an unfair burden on Weyerhaeuser’s future business, an agreement stating the terms of the disclosure of any confidential information must be signed by both parties. Such agreements must be approved by the Weyerhaeuser employee who is accountable for the information and by the Law Department.

Purchase or sale reciprocity

We will not suggest or imply to suppliers, contractors or customers that purchases or sales by Weyerhaeuser are dependent upon buying from or selling to Weyerhaeuser.

26


 

Remarks about others

We will not make false or misleading remarks to suppliers, contractors or customers about other suppliers, contractors, customers or company competitors or their products or services.

For additional resources for your business, see the For More Information insert inside the back cover.

Waiver

No waiver of a material provision of this code of ethics may be made for executive officers and directors except with the prior approval of the Board of Directors or a board committee and with timely disclosure to shareholders.

Ethics and Business Conduct 1-800-716-3488

27


 

         
Index
       
 
       
Alcohol
    25  
 
       
Antitrust
    8, 9  
 
       
Business Ethics Core Policy
    4, 5  
 
       
Company assets
    10-11  
 
       
Company funds
    10, 23  
 
       
Company property
    10, 11  
 
       
Company records
    11,15, 17, 23  
 
       
Compensation
    14  
 
       
Competition laws
    9  
 
       
Competitive intelligence
    22  
 
       
Competitors
    9, 12, 22, 24, 27  
 
       
Computers
    10  
 
       
Confidentiality/confidential information
    7, 22, 26  
 
       
Conflict of interest
    12-13  
 
       
Consultants
    6, 23  
 
       
Contractors
    3, 6, 12, 13, 18, 22, 24, 26-27  
 
       
Copyright
    10, 22  
 
       
Customers
    3, 7, 12-14, 18, 22-24, 26, 27  
 
       
Decision making
    3, 7, 19, 20  
 
       
Directors
    3, 8, 17, 21, 27  
 
       
Disclosures
    17  
 
       
Discrimination
    14  
 
       
Diversity
    14  
 
       
Drugs
    25  
 
       
Electronic media
    10  
 
       
E-mail
    9, 10, 13  
 
       
Employment Issue Resolution Process
    6, 15  
 
       
Employee relations
    4, 6, 14, 15  
 
       
Entertainment
    10, 12, 18-20, 26  
 
       
Environment, Health and Safety
    8, 16, 25  
 
       
Environment
    8, 16  
 
       
Equal opportunity
    14-15  
 
       
Ethics and Business Conduct
    3-9, 15-17, 19, 25  
 
       
Family
    12, 14, 18  
 
       
Favoritism
    14  
 
       
Foreign Corrupt Practices Act
    23  
 
       
Financial interests
    10, 12, 17  
 
       
Friends
    12  
 
       
Gifts
    12, 18-20, 26  
 
       
Government Affairs
    20  
 
       
Grievance process
    6  
 
       
Harassment
    10, 15, 25  
 
       
Health
    7, 16, 25  
 
       
Hiring
    24  
 
       
Human Resources
    4, 6, 8, 15, 19  
 
       
Injury
    25  
 
       
Inside information
    21  
 
       
Insider trading
    21  
 
       
Intellectual property
    22  
 
       
International
    19, 20, 23  
 
       
Internal Audit
    8, 17  
 
       
Internet
    10, 13  
 
       
Intranet
    10, 13  
 
       
Investments
    13, 23  
 
       
Issue resolution process
    4, 6, 8, 15  
 
       
Labor agreement
    6, 15  
 
       
Law Department
    4, 6, 8, 9, 13, 16, 17, 21, 23, 26  
 
       
Loans
    18  
 
       
Lobbying
    20  
 
       
Material information
    21  
 
       
Nominal value
    18  
 
       
Officers
    3, 17, 21, 27  
 
       
Outside employment/ business
    10, 12, 13  
 
       
Payments
    23, 26  
 
       
Personal profit/benefit
    10, 12, 13, 19  
 
       
Political contributions
    20, 23  
 
       
Pornography
    10  
 
       
Privacy
    15, 24  
 
       
Purchases
    26  
 
       
Racism
    10, 14  
 
       
Reciprocity
    26  
 
       
Records management
    11, 17, 23  
 
       
Regulations
    16, 20, 23, 26  
 
       
Relatives
    14, 18  
 
       
Reporting
    7  
 
       
Resolution process
    4, 6, 8, 15  
 
       
Retaliation
    5, 7  
 
       
Safety
    7, 8, 11, 16, 25  
 
       
Sales
    21, 26  
 
       
Securities
    12, 17, 21  
 
       
Sexual harassment
    15  
 
       
Substance abuse
    25  
 
       
Suppliers
    3, 12, 14, 18, 23, 24, 26-27  
 
       
Travel and entertainment
    10  
 
       
Violence
    8, 15, 25  
 
       
Unions
    6, 8, 14, 15  
 
       
Waiver
    27  

28


 

If the For More Information insert for your business is missing, please see www.weyer.com/conduct/code.

 


 

Ethics and Business Conduct

1-800-716-3488 (toll-free)
or (253) 924-4955

ethics@weyerhaeuser.com

(WEYERHAEUSER LOGO)

JGD 184/5-03
Cover Printed on 100 lb. Endeavour Recycled Velvet Cover/Text printed on 70 lb. Weyerhaeuser Cougar Opaque Text
EX-21 10 v96705exv21.htm EXHIBIT 21 exv21

 

EXHIBIT 21 – Subsidiaries of the Registrant

                         
                    Percentage
            State or   Ownership of
            Country of   Immediate
Name   Incorporation   Parent

 
 
Columbia & Cowlitz Railway Company
  Washington     100  
DeQueen & Eastern Railroad Company
  Arkansas     100  
Fisher Lumber Company
  California     100  
Golden Triangle Railroad
  Mississippi     100  
Gryphon Asset Management, Inc.
  Delaware     100  
Gryphon Investments of Nevada, Inc.
  Nevada     100  
Jasmine Forests, LLC
  Delaware     100  
Mississippi & Skuna Valley Railroad Company
  Mississippi     100  
Mountain Tree Farm Company
  Washington     50  
North Pacific Paper Corporation
  Delaware     50  
Norpac Resources LLC
  Delaware     100  
Oregon Timber Company
  Oregon     100  
 
Weyerhaeuser Global Finance Company
  Oregon     100  
SCA Weyerhaeuser Packaging Holding Company Asia Limited
  British Virgin Islands     50  
Texas, Oklahoma & Eastern Railroad Company
  Oklahoma     100  
ver Bes’ Insurance Company
  Vermont     100  
Westwood Shipping Lines, Inc.
  Washington     100  
Weyerhaeuser de Mexico, S.A. de C.V.
  Mexico     100  
Weyerhaeuser Forestlands International, Inc.
  Washington     100  
Weyerhaeuser International, Inc.
  Washington     100  
 
Southern Cone Timber Investors Holding Company, LLC
  Delaware     100  
 
Trus Joist SPRL
  Belgium     100  
 
Weyerhaeuser Europe Holdings
  Ireland     100  

1


 

                         
                    Percentage
            State or   Ownership of
            Country of   Immediate
Name   Incorporation   Parent

 
 
   
Weyerhaeuser Europe Limited
  Ireland     100  
   
Weyerhaeuser Sarasate Limited
  Ireland     100  
     
Weyerhaeuser Holdings France SAS
  France     100  
       
Weyerhaeuser Mediland SAS
  France     100  
       
   Weyerhaeuser Darbo SAS
  France     100  
 
Weyerhaeuser Holdings Limited
  British Columbia     100  
   
Weyerhaeuser Company Limited
  Canada     100  
     
317298 Saskatchewan Ltd.
  Saskatchewan     100  
     
486286 British Columbia Ltd
  British Columbia     50  
     
Boom Chain Transportation Company Limited
  British Columbia     40  
     
Forest License A49782 Holdings Ltd.
  British Columbia     99  
     
Iisaak Forest Resource Ltd.
  British Columbia     49  
     
MacMillan Bloedel K.K.
  Japan     100  
     
MacMillan Bloedel Pembroke Limited Partnership
  Ontario     100  
     
MacMillan Guadiana, S.A. de C.V.
  Mexico     100  
     
Mid-Island Reman Inc.
  British Columbia     100  
     
Sturgeon Falls Repulping Limited
  Ontario     50  
     
Sturgeon Falls Limited Partnership
  Ontario     50  
     
Wapawekka Lumber Ltd.
  Saskatchewan     51  
     
Weyerhaeuser (Annacis) Limited
  British Columbia     100  
     
Weyerhaeuser Australia Pty Ltd.
  Australia     100  
     
   Pine Solutions Australia Pty Limited
  Australia     100  
       
K1 Holdings Pty Limited
  Australia     100  
       
CCA Timbers (Vic) Pty Ltd.
  Australia     100  
       
Hanaki Pty Ltd.
  Australia     100  
       
Kaiyou Pty Ltd.
  Australia     100  
     
Weyerhaeuser (Barbados) SRL
  Barbados     100  
     
   Marlborough Capital Corp. SRL
  Barbados     100  
     
Weyerhaeuser (BVI) Ltd.
  British Virgin Islands     100  

2


 

                         
                    Percentage
            State or   Ownership of
            Country of   Immediate
Name   Incorporation   Parent

 
 
       
Weyerhaeuser New Zealand Holdings Inc.
  New Zealand     100  
       
   Nelson Forest Products Company
  New Zealand     100  
       
      Nelson Forest Joint Venture
  New Zealand     51  
       
   Weyerhaeuser New Zealand Inc.
  New Zealand     100  
     
Weyerhaeuser (Carlisle) Ltd.
  Barbados     100  
       
Camarin Limited
  Barbados     100  
     
Weyerhaeuser (Delta) Limited
  British Columbia     100  
     
Weyerhaeuser (Imports) Pty Limited
  Australia     100  
     
Weyerhaeuser (Ottawa) Limited
  British Columbia     100  
     
Weyerhaeuser Saskatchewan Ltd.
  Saskatchewan     100  
       
Wapawekka Lumber Limited Partnership
  Saskatchewan     50  
     
Weyerhaeuser Services Limited
  British Columbia     100  
 
Weyerhaeuser China, Ltd.
  Washington     100  
 
Weyerhaeuser (Asia) Limited
  Hong Kong     100  
 
Weyerhaeuser Japan Ltd.
  Japan     100  
 
Weyerhaeuser Japan Ltd.
  Delaware     100  
 
Weyerhaeuser Korea Ltd.
  Korea     100  
 
Weyerhaeuser Products Limited
  United Kingdom     100  
 
Weyerhaeuser Taiwan Ltd.
  Delaware     100  
Weyerhaeuser (Mexico) Inc.
  Washington     100  
Weyerhaeuser Raw Materials, Inc.
  Delaware     100  
Weyerhaeuser Real Estate Company
  Washington     100  
 
Midway Properties, Inc.
  North Carolina     100  
 
Pardee Homes
  California     100  
   
Marmont Realty Company
  California     100  
   
Pardee Homes of Nevada
  Nevada     100  
 
The Quadrant Corporation
  Washington     100  
 
South Jersey Assets, Inc.
  New Jersey     100  
 
Scarborough Constructors, Inc.
  Florida     100  
 
TMI, Inc.
  Texas     100  

3


 

                         
                    Percentage
            State or   Ownership of
            Country of   Immediate
Name   Incorporation   Parent

 
 
 
Weyerhaeuser Real Estate Company of Nevada
  Nevada     100  
 
Weyerhaeuser Realty Investors, Inc.
  Washington     100  
 
Winchester Homes, Inc.
  Delaware     100  
Weyerhaeuser Real Estate Development Company
  Washington     100  
Weyerhaeuser Sales Company
  Nevada     100  
Weyerhaeuser USA LLC
  Delaware     100  
 
American Cemwood Corporation
  Oregon     100  
 
MB Administrative Services Inc.
  Delaware     100  
WFS II LLC
  Delaware     100  
 
Weyerhaeuser Financial Investments, Inc.
  Nevada     100  
   
WFI Servicing Company
  Nevada     100  
 
Weyerhaeuser Venture Company
  Nevada     100  
   
Las Positas Land Co.
  California     100  
   
WAMCO, Inc.
  Nevada     100  
Willamette Mexican Holding Company
  Oregon     100  
Wilton Connor LLC
  North Carolina     100  
 
Wilton Connor Packaging International Limited
  Hong Kong     100  

4 EX-23 11 v96705exv23.htm EXHIBIT 23 exv23

 

Weyerhaeuser Company and Subsidiaries

EXHIBIT 23 – Independent Auditors’ Consent

Independent Auditors’ Consent

To the Board of Directors and Shareholders of Weyerhaeuser Company:

We consent to the incorporation by reference in the registration statements (Nos. 333-84127, 333-66412, 333-72356 and 333-104752 on Form S-3; Nos. 333-82376 and 333-86232 on Form S-4 and Nos. 333-74311, 333-89925, 333-53010 and 333-86114 on Form S-8) of Weyerhaeuser Company and subsidiaries of our reports dated February 11, 2004, with respect to the consolidated balance sheets of Weyerhaeuser Company and subsidiaries as of December 28, 2003, and December 29, 2002, and the related consolidated statements of earnings, cash flows and shareholders’ interest for each of the years in the two year periods then ended, incorporated by reference in this annual report on Form 10-K of Weyerhaeuser Company, and the related financial statement schedules which report appears in the December 28, 2003 annual report on Form 10-K of Weyerhaeuser Company.

Our reports refer to the revisions to the 2001 consolidated financial statements to include the transitional disclosures required by Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, which was adopted by Weyerhaeuser Company as of December 31, 2001, as described in Note 4 to the consolidated financial statements, as well as restatement adjustments that were applied to the disclosures of reportable segments reflected in the 2001 consolidated financial statements to reflect a change in the composition of Weyerhaeuser Company’s reportable segments in 2003 and 2002, as discussed in Note 22 to the consolidated financial statements. However, we were not engaged to audit, review, or apply any procedures to the 2001 consolidated financial statements other than with respect to such revisions and adjustments.

Our reports refer to the adoption by Weyerhaeuser Company and subsidiaries of the provisions of Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations, in 2003.

     
    /s/ KPMG LLP
Seattle, Washington    
March 5, 2004    

  EX-31 12 v96705exv31.htm EXHIBIT 31 exv31

 

EXHIBIT 31

Certification Pursuant to Rule 13a-14(a)
Under the Securities Exchange Act of 1934

I, Steven R. Rogel, certify that:

1.   I have reviewed this annual report on Form 10-K of Weyerhaeuser Company;
 
2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.   The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a – 15(e) and 15d – 15(e)) for the registrant and have:

  a)   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
  b)   evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
  c)   disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

  a)   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
  b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

     
    Date: March 5, 2004
     
    /s/ Steven R. Rogel
   
    Steven R. Rogel
    Chairman, President and Chief Executive Officer

 


 

I, Richard J. Taggart, certify that:

1.   I have reviewed this annual report on Form 10-K of Weyerhaeuser Company;
 
2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.   The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a – 15(e) and 15d – 15(e)) for the registrant and have:

  a)   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
  b)   evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
  c)   disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

  a)   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
  b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

     
    Date: March 5, 2004
     
    /s/ Richard J. Taggart
   
    Richard J. Taggart
    Executive Vice President and Chief Financial Officer

  EX-32 13 v96705exv32.htm EXHIBIT 32 exv32

 

 

EXHIBIT 32

Certification Pursuant to Rule 13a-14(b)
Under the Securities Exchange Act of 1934 and
Section 1350, Chapter 63 of Title 18, United States Code

Pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and section 1350, chapter 63 of title 18, United States Code, each of the undersigned officers of Weyerhaeuser Company, a Washington corporation (the “Company”), hereby certifies that:

The Company’s Annual Report on Form 10-K dated March 5, 2004 (the “Form 10-K”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

         
/s/ Steven R. Rogel        

       
Steven R. Rogel        
Chairman, President and Chief Executive Officer        
Dated: March 5, 2004        
 
/s/ Richard J. Taggart        

       
Richard J. Taggart        
Executive Vice President and Chief Financial Officer        
Dated: March 5, 2004        

The foregoing certification is being furnished solely pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and section 1350, chapter 63 of title 18, United States Code and is not being filed as part of the Form 10-K or as a separate disclosure document.

  EX-99 14 v96705exv99.htm EXHIBIT 99 exv99

 

EXHIBIT 99 – 2001 Report of Independent Public Accountants

This report is a copy of the audit report previously issued by Arthur Andersen LLP in connection with Weyerhaeuser Company’s filing on Form 10-K for the year ended December 30, 2001. This audit report has not been reissued by Arthur Andersen LLP in connection with this filing. The 2001 consolidated financial statements have been revised to include the transitional disclosures required by Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, and restatement adjustments that were applied to the disclosure of reportable segments to reflect a change in the composition of Weyerhaeuser Company’s reportable segments in 2003 and 2002. The consolidated balance sheets as of December 30, 2001, and December 31, 2000, and the consolidated statements of earnings, cash flows and shareholders’ interest for the years ended December 31, 2000, and December 26, 1999, referred to in this audit report have not been included in the accompanying financial statements.

To the shareholders of Weyerhaeuser Company:

We have audited the accompanying consolidated balance sheets of Weyerhaeuser Company (a Washington corporation) and subsidiaries as of December 30, 2001, and December 31, 2000, and the related consolidated statements of earnings, cash flows and shareholders’ interest for each of the three years in the period ended December 30, 2001. These financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Weyerhaeuser Company and subsidiaries as of December 30, 2001, and December 31, 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 30, 2001, in conformity with accounting principles generally accepted in the United States.

As explained in Note 1 of Notes to Financial Statements, effective at the beginning of fiscal year 1999, the company changed its method of accounting for start-up activities.

     
    ARTHUR ANDERSEN LLP
 
Seattle, Washington,    
February 11, 2002    

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