-----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, SwAKoz5MX/JlGczEVGBamwHB9l0dBbksC3d29pkOnBM7S2uz3oSj4c7fWX1vb+ob wrn/o5S2IqWxy9tl9sWAFg== 0000950130-98-001501.txt : 19980330 0000950130-98-001501.hdr.sgml : 19980330 ACCESSION NUMBER: 0000950130-98-001501 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980327 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHAMPION INTERNATIONAL CORP CENTRAL INDEX KEY: 0000019150 STANDARD INDUSTRIAL CLASSIFICATION: PAPER MILLS [2621] IRS NUMBER: 131427390 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-03053 FILM NUMBER: 98575983 BUSINESS ADDRESS: STREET 1: ONE CHAMPION PLAZA CITY: STAMFORD STATE: CT ZIP: 06921 BUSINESS PHONE: 2033587000 FORMER COMPANY: FORMER CONFORMED NAME: UNITED STATES PLYWOOD CHAMPION PAPERS IN DATE OF NAME CHANGE: 19720821 10-K405 1 FORM 10-K405 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 COMMISSION FILE NUMBER 1-3053 CHAMPION INTERNATIONAL CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) NEW YORK 13-1427390 (STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER) ONE CHAMPION PLAZA STAMFORD, CONNECTICUT 06921 (203) 358-7000 (ADDRESS INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ---------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- ----------------------- COMMON STOCK, $.50 PAR VALUE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE 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 . 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. [X] THE AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT AS OF FEBRUARY 27, 1998 WAS APPROXIMATELY $4,905,000,000. AS OF FEBRUARY 27, 1998, 96,134,330 SHARES OF COMMON STOCK OF THE REGISTRANT WERE OUTSTANDING. PORTIONS OF THE REGISTRANT'S ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 ARE INCORPORATED BY REFERENCE IN PARTS I, II AND IV HEREOF. PORTIONS OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS SCHEDULED TO BE HELD ON MAY 21, 1998 ARE INCORPORATED BY REFERENCE IN PART III HEREOF. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS GENERAL Champion International Corporation was incorporated under the laws of the State of New York on April 28, 1937. References to the "Company" include Champion International Corporation and its subsidiaries at December 31, 1997, unless the context otherwise requires. The Company is one of the leading domestic manufacturers of paper for business communications, commercial printing and publications. In addition, the Company has significant market pulp, plywood, lumber and wood chip manufacturing operations and owns or controls approximately 5,086,000 acres of timberlands in the United States (excluding the 325,000 acres of timberlands offered for sale by the Company, as discussed below). The Company's Canadian and Brazilian subsidiaries also own or control significant timber resources supporting their operations. The Company's business segments are paper and wood products. See Note 13 of "Notes to Financial Statements" on pages 42 to 44 of the Company's Annual Report to Shareholders for the fiscal year ended December 31, 1997 (the "Company's 1997 Annual Report"), which Note is incorporated by reference herein, for information concerning the Company's business segments and operations in different geographic areas for 1995, 1996 and 1997. On October 7, 1997, the Company approved a plan to divest several non- strategic product segments. As part of the divestiture, the Company has offered for sale the Canton, North Carolina free sheet papers and bleached paperboard mill, the newsprint mills at Lufkin and Sheldon, Texas, and the specialty papers mills at Deferiet, New York and Hamilton, Ohio. Also offered for sale are the liquid packaging operation (the DairyPak unit) consisting of the Waynesville, North Carolina plant and six paperboard converting plants, the recycling business and 325,000 acres of timberlands. The operations and assets to be divested are not included in the discussion under "Paper" and "Timber Properties" below except as set forth under "Paper - Operations to Be Divested" and "Timber Properties - Timberlands to Be Divested". PAPER See the "Paper Net Sales" table on page 24 of the Company's 1997 Annual Report, which table is incorporated by reference herein, for information concerning the net sales to unaffiliated customers of the various products of the paper business for 1995, 1996 and 1997. FREE SHEET PAPERS The free sheet papers business manufactures and sells coated and uncoated free sheet papers and pulp. The principal manufacturing properties of this operation consist of integrated pulp and paper mills at Courtland, Alabama; Pensacola, Florida; and Quinnesec, Michigan. As of December 31, 1997, these mills had an annual capacity of approximately 1,869,000 tons of pulp and 1,753,000 tons of free sheet papers. A significant portion of the fiber requirements of the free sheet papers business is supplied by its own mills. In addition, a portion of the fiber requirements of this business is supplied by other Company pulp mills, and approximately 6% of its fiber requirements in 1997 was purchased from third- party suppliers. The Company manufactures pulp for sale in the open market at the Quinnesec mill. In 1997, approximately 60% of the pulp production of this mill, or 244,000 tons, was sold in the open market. The balance was used in the production of paper at the Quinnesec mill and at other Company paper mills. In addition, approximately 11% of the pulp produced at the Courtland and Pensacola mills was sold in the open market in 1997. 1 Uncoated papers produced by the free sheet papers business are used for computer forms, desktop printers, copier paper, envelope papers and a variety of commercially printed products. Coated papers are used in catalogs, magazines, textbooks, labels, annual reports and many other commercially printed products. The Company leases substantial portions of the Courtland mill under 16 long- term net leases which expire between 2007 and 2029. Each of these leases provides for rental payments over its term sufficient to pay interest on and to retire the industrial development or pollution control revenue bonds issued in connection with the financing of the property subject to such lease. The Company is required to purchase, or has the option to purchase, the property subject to each such lease for a nominal sum at the time the related bonds are retired. GROUNDWOOD PAPERS The groundwood papers business manufactures pulp and manufactures and sells coated and uncoated groundwood papers. The manufacturing properties of this operation consist of integrated pulp and paper mills at Bucksport, Maine and Sartell, Minnesota. As of December 31, 1997, these mills had an annual capacity of approximately 378,000 tons of pulp and 803,000 tons of groundwood papers. Most of the pulp produced by the groundwood papers business is used in its own paper mills. In addition, a portion of the fiber requirements of this business is supplied by other Company pulp mills, and approximately 28% of its fiber requirements in 1997 was purchased from third-party suppliers. The Company's coated and uncoated groundwood grades are used primarily for consumer magazines, direct mail catalogs, directories, textbooks and coupons. The Company leases the building which houses one of the paper machines at the Sartell mill until 2008. Thereafter, the Company has options to renew the lease for five terms of five years each. The Company also has the option to purchase the building at its then-current market value at the end of the initial term in 2008 or at the end of each five-year renewal term. KRAFT The Company produces unbleached linerboard, kraft paper and pulp at its integrated pulp and paper mill at Roanoke Rapids, North Carolina. As of December 31, 1997, this mill had an annual capacity of approximately 500,000 tons of pulp, 375,000 tons of linerboard and 134,000 tons of kraft paper. All of this mill's pulp production is used at the mill. In addition, a portion of the fiber requirements of this mill is supplied by other Company pulp mills, and approximately 7% of its fiber requirements in 1997 was purchased from third-party suppliers. Unbleached linerboard is used for corrugated boxes, and kraft paper is used for multiwall and grocery bags. PULP For information concerning market pulp produced at the Courtland, Pensacola and Quinnesec mills, see the section captioned "Free Sheet Papers" above. Weldwood of Canada Limited ("Weldwood"), a wholly owned Canadian subsidiary, manufactures bleached softwood kraft pulp at its mill in Hinton, Alberta, Canada. As of December 31, 1997, this mill had an annual capacity of approximately 463,000 tons. In 1997, approximately 28% of the mill's pulp production was used in the Company's own free sheet papers and groundwood papers mills (including 1% in the operations to be divested). The balance was sold in the open market through the Company's headquarters in Stamford, Connecticut and a Company sales office in Appleton, Wisconsin. 2 Cariboo Pulp & Paper Company, a joint venture owned equally by Weldwood and Daishowa-Marubeni International Limited, operates a bleached softwood kraft pulp mill in Quesnel, British Columbia, Canada. As of December 31, 1997, this mill had an annual capacity of approximately 370,000 tons. In 1997, approximately 19% of Weldwood's 50% share of the mill's pulp production was used in the Company's Canton, North Carolina and Hamilton, Ohio mills, both of which are to be divested. The balance of Weldwood's share was sold in the open market through the Company's headquarters in Stamford, Connecticut and a Company sales office in Appleton, Wisconsin. While certain of the Company's mills purchase pulp in the open market, the Company and Weldwood overall are net sellers of pulp. Excluding the operations to be divested, in 1997, the Company and Weldwood in the aggregate produced approximately 859,000 tons of pulp for sale to unaffiliated purchasers, while the Company used approximately 162,000 tons of pulp purchased from third-party suppliers, resulting in net market pulp of approximately 697,000 tons. BRAZIL Champion Papel e Celulose Ltda. ("Champion Papel"), a wholly owned subsidiary, is a major integrated manufacturer of pulp and free sheet papers in Brazil. As of December 31, 1997, its mill had an annual capacity of approximately 347,000 tons of pulp and 393,000 tons of paper. In addition to being a leading supplier of free sheet papers in Brazil, Champion Papel exports a substantial portion of its paper production. In addition, on January 26, 1998, Champion Papel acquired Industria de Papel Arapoti S.A. ("Inpacel"), a Brazilian company, which owns a pulp and coated groundwood papers mill with an annual capacity of approximately 160,000 tons of pulp and 178,000 tons of coated groundwood papers. SALES The Company's domestic sales organization is responsible for the sale of products produced by the Company's domestic free sheet papers business and groundwood papers business, as well as the sale of linerboard and kraft paper. The sales organization maintains 12 regional sales offices throughout the United States and an order services office in Hamilton, Ohio, serving the free sheet papers business (excluding pulp) and groundwood papers business. Generally, sales are made to direct purchasers and through paper merchants and brokers. Pulp produced at the Company's domestic and Canadian mills for sale in the open market is sold through the Company's headquarters in Stamford, Connecticut, as well as a sales office in Appleton, Wisconsin. Linerboard and kraft paper are sold to converters through three regional sales offices and an order services office located in Roanoke Rapids, North Carolina. In addition, the Company's international sales organization handles the export sale of all of the Company's domestic and Canadian pulp and paper products. This organization is located at the Stamford, Connecticut headquarters. PAPER DISTRIBUTION OPERATION Nationwide Papers, a unit of the Company, is a distributor of paper, paper products and industrial products. Its marketing operations are carried out through 35 sales offices and 28 distribution centers in 20 states. At three of the centers, Nationwide Papers converts rolls of bleached paperboard and coated and uncoated papers into sheets. In 1997, approximately 79% of its sales were attributable to merchandise purchased from numerous manufacturers 3 other than the Company. However, Nationwide Papers is not dependent on any single supplier for such merchandise. OPERATIONS TO BE DIVESTED The following is a description of the paper segment operations which have been offered for sale by the Company. The Canton, North Carolina integrated pulp and paper mill manufactures pulp and manufactures and sells uncoated free sheet papers and bleached paperboard. As of December 31, 1997, this mill had an annual capacity of approximately 504,000 tons of pulp and 531,000 tons of free sheet papers and bleached paperboard. In 1997, 61% of this operation's bleached paperboard production was used by the Company's DairyPak unit, which converts polyethylene-coated paperboard into milk and juice cartons and ovenable packaging. The balance either was sold to independent purchasers, primarily for conversion to cups, or was exported. The Company leases a printing facility at the Athens, Georgia DairyPak plant. The lease, which expires in 2015, provides for rental payments over its term sufficient to pay interest on and to retire the industrial development revenue bonds issued to finance the acquisition of that facility. The lessee under the lease has the option to purchase the facility for a nominal sum at the time the bonds are retired. The Lufkin and Sheldon, Texas integrated pulp and newsprint mills manufacture and sell newsprint, groundwood papers and pulp. As of December 31, 1997, these mills had an annual capacity of approximately 1,136,000 tons of pulp (which includes 173,000 tons of recycled pulp) and 973,000 tons of groundwood papers and newsprint. In 1997, approximately 10% of the pulp production at the Sheldon mill, or 61,000 tons, was sold in the open market. On March 23, 1998, the Company announced that it has entered into an agreement to sell the mills to Donohue Inc. for $450 million. The Deferiet, New York integrated pulp and paper mill manufactures pulp and manufactures and sells specialty groundwood papers. The Hamilton, Ohio paper mill manufactures and sells premium free sheet papers. As of December 31, 1997, these mills had an annual capacity of approximately 109,000 tons of pulp and 369,000 tons of free sheet and groundwood papers. WOOD PRODUCTS The Company is a major producer of plywood and lumber and also produces wood chips. The Company's wood products business is conducted through its domestic wood products operations and through the wood products operations of Weldwood and Champion Papel. The principal wood products manufacturing facilities operated by the Company are summarized under Item 2 of this Report. As of December 31, 1997, the Company's domestic wood products operations had approximate annual capacities of 922 million square feet (3/8" basis) of softwood plywood and 475 million board feet of softwood lumber. As of December 31, 1997, Weldwood had approximate annual capacities of 333 million square feet (3/8" basis) of softwood plywood and 834 million board feet of softwood lumber. The Company sells lumber and plywood through one sales office to wholesalers, dealers, industrial users and retailers. Weldwood exports a significant amount of lumber and plywood and also sells such products through one sales office to wholesalers (including a 50%-owned building materials distribution company), industrial users and retailers throughout North America. Champion Papel operates a wood chip mill in Brazil with an approximate annual capacity of 1,010,000 tons of softwood chips. Most of the chips are exported to Europe and Japan. In addition, with the January 1998 purchase of Inpacel, Champion Papel acquired a Brazilian lumber mill with an approximate annual capacity of 6 million board feet of softwood lumber. 4 See the "Wood Products Net Sales" table on page 26 of the Company's 1997 Annual Report, which table is incorporated by reference herein, for information concerning the net sales to unaffiliated customers of the various products of the wood products business for 1995, 1996 and 1997. TIMBER PROPERTIES The Company owns 4,572,819 acres and controls 513,319 acres of timberlands in the United States. The Company's owned and controlled timberlands contain in the aggregate approximately 18,615,000 cunits (one cunit equals one hundred cubic feet of solid wood) of merchantable sawtimber and approximately 39,770,000 cunits of pulpwood. In 1997, the Company harvested approximately 36% of its domestic fiber requirements from its owned and controlled timberlands. A portion of the fiber harvested by the Company is sold in the domestic open market and in the export market. Broken down by region, the Company's domestic timber acreage and volume are as follows: In the State of Washington, the Company owns 293,499 acres and controls 476 acres of timberlands. These timberlands contain in the aggregate approximately 7,451,000 cunits of merchantable sawtimber and approximately 1,274,000 cunits of pulpwood. In the South, primarily in Texas, North Carolina, South Carolina, Alabama, Georgia, Florida, Tennessee and Virginia, the Company owns 2,601,227 acres and controls 483,237 acres of timberlands containing in the aggregate approximately 5,242,000 cunits of merchantable sawtimber and approximately 22,815,000 cunits of pulpwood. The Company owns 1,678,096 acres and controls 29,606 acres of timberlands in the North, primarily in Maine, Michigan, New Hampshire and Wisconsin. These timberlands contain in the aggregate approximately 5,922,000 cunits of merchantable sawtimber and approximately 15,681,000 cunits of pulpwood. The Company's domestic log and pulpwood requirements are procured from its owned and controlled lands, as described above, as well as from open market purchases, short-term timber purchase contracts with independent timber owners and agencies of the United States and various state governments, and supply agreements with other companies. In the opinion of management, these sources will provide an adequate supply of logs and pulpwood to meet the Company's principal raw materials requirements for the foreseeable future. It is expected that the proportion of the Company's domestic fiber requirements derived from the Company's owned and controlled lands will remain approximately one-third for the next several years and will increase thereafter as more of the Company's plantations, primarily in the South, reach maturity. Supplementing the Company's domestic timberlands are its several seed orchards and nursery operations. These facilities will enable the Company to produce most of the trees which it plans to plant in the United States in the future, including the approximately 70 million trees planned for planting in 1998. Weldwood obtains raw materials for its wood products manufacturing operations primarily from sustained-yield, long-term licenses which grant cutting rights on government-owned timberlands and from long-term agreements with other companies based on their harvesting licenses. Weldwood believes that these sources will provide a substantial portion of the raw materials required by its wood products manufacturing operations for the foreseeable future, with the balance to be obtained from other third-party suppliers. In British Columbia, Canada, Weldwood has rights to harvest approximately 547,000 cunits of merchantable sawtimber annually from long-term licenses and, during the balance of the current terms of such licenses, has rights to harvest an aggregate of approximately 6,383,000 cunits. In Alberta, Canada, Weldwood has cutting rights through June 15, 2008 with respect to approximately 2,461,000 acres of timberlands pursuant to an agreement with the Provincial Government of Alberta. This agreement is renewable at Weldwood's option, subject to Provincial Government approval, for successive 20- year periods as long as the Hinton, Alberta pulp mill remains in operation. Weldwood has the right to harvest approximately 671,000 cunits of merchantable sawtimber and pulpwood annually under this agreement. Cariboo Pulp & Paper Company holds certain rights to harvest up to 533,000 cunits of pulpwood annually from approximately 3,900,000 acres of government- owned timberlands in British Columbia pursuant to a long-term 5 license. Weldwood believes that this source of pulpwood, as well as supplies of wood chips from sawmills and plywood plants in the area, will satisfy the raw materials requirements of Cariboo's pulp mill for the foreseeable future. Babine Forest Products Company, a joint venture in which Weldwood has an indirect 58% interest, operates a sawmill in British Columbia and is beneficially entitled to harvest approximately 230,000 cunits of merchantable sawtimber annually pursuant to long-term licenses. Houston Forest Products Company, a joint venture in which Weldwood and West Fraser Mills Ltd. are equal participants, operates a sawmill in British Columbia and is beneficially entitled to cut approximately 229,000 cunits of merchantable sawtimber annually pursuant to a long-term license. Champion Papel owns or controls 1,502,543 acres of timberlands and savannah in Brazil. The owned or controlled acreage includes 1,051,454 acres in the State of Amapa, of which 185,483 acres are pine and eucalyptus plantations, and 124,000 acres in the State of Parana acquired in January 1998 in connection with the purchase of Inpacel. Champion Papel expects to plant additional eucalyptus and pine trees on its land in Amapa until approximately 36% of such land is planted, with 50% legally required to be left undisturbed, leaving the balance for natural features and improvements. Twenty percent of the 124,000 acres in Parana is legally required to be left undisturbed and an additional 17% will be left for natural features and improvements. Certain of the Company's land holdings have a value substantially in excess of that of land primarily used for fiber supply purposes. The Company has sold or contributed to its wholly owned real estate subsidiaries, net of land repurchased by the Company, an aggregate of approximately 282,000 acres of such land. These subsidiaries have sold approximately 243,000 acres, of which approximately 15,000 acres were sold during 1997, for residential, recreational, commercial or industrial purposes. The balance is being held for similar sale or long-term appreciation. A substantial portion of the land held by the Company's real estate subsidiaries is located in Texas, Florida, Michigan and Minnesota. TIMBERLANDS TO BE DIVESTED The Company has offered for sale approximately 325,000 acres of timberlands located in New York, Vermont and New Hampshire. These timberlands contain in the aggregate approximately 1,149,000 cunits of merchantable sawtimber and approximately 3,274,000 cunits of pulpwood. MINERAL, OIL AND GAS RESOURCES The Company owns or controls various mineral, oil and gas rights with respect to approximately half of the timberlands owned or controlled by the Company in the United States. The Company has conducted a general review of its domestic mineral, oil and gas rights and presently is not aware of any significant reserves or deposits except as discussed below. The Company has oil and gas interests in fields located in Florida, Alabama, Texas, Louisiana and Mississippi. Drilling operations are conducted by others pursuant to leases and other agreements with the Company. The Company estimates that proved reserves attributable to the Company's interests in such fields aggregated approximately 1,200,000 barrels of oil and 3,300,000 Mcf (thousand cubic feet) of natural gas as of December 31, 1997. The Company's share of production from such fields was approximately 316,000 barrels of oil, 1,404,000 Mcf of natural gas and 3,100,000 gallons of gas products in 1997. Proved oil and gas reserves attributable to the Company's non-operating royalty interests and/or operating interests in the oil and gas fields described above are based primarily upon estimates furnished by the operators of those fields. The Company's share of production from such fields during each calendar year is based on monthly production information received from the operators, showing the application of such interests of the Company to actual production volumes for such month. The Company owns the surface rights and full or partial mineral rights to considerable timberlands in Texas which overlay lignite deposits. The Company estimates that it owns approximately 350,000,000 tons of lignite 6 reserves in Texas, of which 80% is estimated to be recoverable. These lignite reserves presently are not being mined due to current market conditions. CAPITAL PROGRAM The Company presently anticipates that capital spending, including contract timber, reforestation and capitalized interest, will be approximately $500 million in 1998, a significant portion of which will be devoted to incremental improvements, routine capital replacements and environmental compliance. In 1997, the Company canceled the $127 million recycling project at the Courtland, Alabama mill. In 1997, Weldwood completed construction of a lumber mill and modernization of the plywood plant in Quesnel, British Columbia. The new lumber mill replaced the existing lumber mill and has an annual capacity of approximately 135 million board feet of lumber, an increase in capacity of approximately 42%. The modernization of the plywood plant, which reduces production costs and permits the manufacture of additional products, decreased capacity by approximately 7%. The lumber mill and plywood plant project were completed at a cost of approximately (U.S.) $83 million. In 1997, the Company began a project to modernize the No. 5 paper machine at the Bucksport, Maine mill. The project is expected to be completed in 1998 at a cost of approximately $40 million, of which approximately $18 million had been expended as of December 31, 1997. In 1997, the Company began an alkaline-conversion project and various environmental improvement projects at the Courtland, Alabama mill. These projects are expected to be completed in 2000 at a total cost of approximately $121 million, of which approximately $76 million will be spent in 1998. In addition to the pine plantations and chip mill acquired through the purchase of Amapa Florestal e Celulose in 1996, the Company plans to establish eucalyptus and pine plantations and a new chipping operation in the State of Amapa, Brazil in the next few years. The Company also has under consideration the possible construction of a pulp and paper mill at Tres Lagoas, State of Mato Grosso do Sul, Brazil in the next several years. Approximately $250 million had been expended as of December 31, 1997 in connection with these projects, including land acquisition and reforestation. Approximately $27 million of the anticipated capital spending in 1998 will be devoted to these projects. COMPETITION See the first paragraph of Note 13 of "Notes to Financial Statements" on page 42 of the Company's 1997 Annual Report, which paragraph is incorporated by reference herein, for information concerning competitive conditions. FOREIGN OPERATIONS For information concerning sales and income of the Company's foreign subsidiaries and the risks associated with the Company's foreign operations, see "Management's Discussion and Analysis of Financial Condition and Results of Operations", incorporated by reference in Item 7 of this Report from the Company's 1997 Annual Report. 7 EMPLOYEES The Company had 23,969 employees at December 31, 1997. Of these, 17,728 were domestic employees, 55% of whom were covered by contracts with labor unions. Overall, 63% of the Company's employees were covered by contracts with labor unions. Union contracts relating to the Deferiet, New York specialty papers mill and the Canton, North Carolina free sheet papers and bleached paperboard mill, which are among the facilities to be divested by the Company, will expire on April 1, 1998 and August 31, 1998, respectively. Union contracts covering other domestic operations will expire as follows: 1999 - the Roanoke Rapids, North Carolina kraft mill, the Lufkin and Sheldon, Texas newsprint mills and a Maine wood products operation; 2000 - the Bucksport, Maine and Sartell, Minnesota groundwood papers mills and the Florida and Georgia wood products operations; 2001 - the Pensacola, Florida free sheet papers mill and the Hamilton, Ohio specialty papers mill; 2002 - the Courtland, Alabama free sheet papers mill and a Maine wood products operation. The Quinnesec, Michigan mill is a non-union facility. New three-year labor contracts are in effect at most of Weldwood's wood products plants. Efforts to reach new labor agreements continue at the Hinton, Alberta pulp mill and wood products plant and the joint venture pulp mill at Quesnel, British Columbia, which presently are operating under the terms of their expired contracts. The union contract which covers the paper industry in Brazil, including Champion Papel, is renegotiated each year. THE ENVIRONMENT For information regarding environmental capital expenditures, hazardous substance cleanup and other envi-ronmental matters affecting the Company, see "Management's Discussion and Analysis of Financial Condition and Results of Operations", incorporated by reference in Item 7 of this Report from the Company's 1997 Annual Report. ENERGY REQUIREMENTS The Company believes that it will be able to meet its energy needs for the foreseeable future. Wood wastes and pulping liquors, which are by-products from the manufacture of wood products and pulp, provide a reliable and relatively low-cost source of energy for the Company's primary manufacturing facilities. The Company's domestic wood products manufacturing facilities and domestic pulp, paper and kraft mills satisfy approximately half of their energy requirements from such wood wastes and pulping liquors. The Company's foreseeable needs for purchased energy have been anticipated, and the Company believes that it has arranged for adequate sources of supply. ITEM 2. PROPERTIES In 1997, the Company's domestic and foreign manufacturing facilities operated at near-full capacity in both the paper segment and the wood products segment. Reference is made to Item 1 of this Report for information concerning the general character, adequacy and capacity of the principal plants, timber properties and other materially important physical properties of the Company. The following lists show the location, nature and ownership of the Company's principal plants. None of these plants is subject to a mortgage and, except as indicated, all are owned in fee. 8 PAPER FREE SHEET PAPERS (a) Integrated pulp and free sheet papers mills: (i) Courtland, Alabama (1); (ii) Canton, North Carolina (which the Company has offered for sale as discussed above in the section captioned "Paper"); (iii) Pensacola, Florida; and (iv) Quinnesec, Michigan. (b) The Company operates a plant in Waynesville, North Carolina (which the Company has offered for sale as discussed above in the section captioned "Paper") which applies polyethylene coating to bleached paperboard produced at the Canton, North Carolina mill and which also converts roll stock into cut-size paper. (c) The Company operates five plants which convert polyethylene-coated paperboard into milk and juice cartons and one plant which converts polyethylene-coated paperboard into ovenable packaging (all of which the Company has offered for sale as discussed above in the section captioned "Paper"). All of these plants are located in the United States (2). GROUNDWOOD PAPERS (d) Integrated pulp and groundwood papers mills: (i) Bucksport, Maine; and (ii) Sartell, Minnesota (3). (e) Integrated pulp and newsprint mills (which the Company has offered for sale as discussed above in the section captioned "Paper"): (i) Lufkin, Texas; and (ii) Sheldon, Texas. SPECIALTY PAPERS (f) Integrated pulp and specialty papers mills: (i) Deferiet, New York (which the Company has offered for sale as discussed above in the section captioned "Paper"); and (ii) Roanoke Rapids, North Carolina. (g) The Company operates a specialty papers mill in Hamilton, Ohio (which the Company has offered for sale as discussed above in the section captioned "Paper"). _______________________ (1) For Courtland, Alabama mill lease information, see Item 1 - "Paper" of this Report. (2) For lease information regarding one of these plants, located in Athens, Georgia, see Item 1 - "Paper" of this Report. (3) For Sartell, Minnesota mill lease information, see Item 1 - "Paper" of this Report. 9 PULP (h) Market pulp is produced at the Company's free sheet papers mills in Pensacola, Florida, Courtland, Alabama and Quinnesec, Michigan and at the newsprint mill in Sheldon, Texas (which the Company has offered for sale as discussed above in the section captioned "Paper"). (i) Weldwood operates a pulp mill in Hinton, Alberta, Canada and owns 50% of a joint venture which operates a pulp mill in Quesnel, British Columbia, Canada. BRAZIL (j) Champion Papel operates an integrated pulp and free sheet papers mill at Mogi Guacu, Brazil. (k) Inpacel, a wholly owned subsidiary of Champion Papel, operates an integrated pulp and groundwood papers mill in Arapoti, Brazil. WOOD PRODUCTS (a) The Company operates three softwood plywood plants in the United States. (b) Weldwood operates two softwood plywood plants in Canada. One of these plants is located on leased land. (c) The Company operates six softwood lumber mills in the United States. (d) Weldwood operates three softwood lumber mills in Canada. One of these mills is located on leased land. (e) Decker Lake Forest Products Limited, a subsidiary in which Weldwood has an indirect 58% interest, operates a softwood lumber mill in Canada. (f) Each of Babine Forest Products Company and Houston Forest Products Company, joint ventures in which Weldwood has an interest, operates a mill for the production of softwood lumber in Canada. One of these mills is located on leased land. (g) Champion Papel, through a wholly owned subsidiary, operates a softwood lumber mill in Brazil. Item 3. LEGAL PROCEEDINGS The Company is involved in legal and administrative proceedings and claims of various types. While any litigation contains an element of uncertainty, management, based upon the opinion of the Company's General Counsel, presently believes that the outcome of each such proceeding or claim which is pending or known to be threatened, or all of them combined, will not have a material adverse effect on the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 10 EXECUTIVE OFFICERS OF THE REGISTRANT(1) L. Scott Barnard (age 55) is an Executive Vice President of the Company, a position which he has held since August 1992. He has responsibility for the Company's pulp and paper sales. From February 1989 to September 1996, he had responsibility for sales and marketing for the printing and writing papers and publication papers businesses. Stephen B. Brown (age 58) is Senior Vice President and General Counsel of the Company, a position which he has held since January 1, 1997. From April 1983 to December 1996, he was Vice President-Senior Counsel. Mark V. Childers (age 45) is Senior Vice President-Organizational Development and Human Resources of the Company, a position which he has held since August 1992. Michael P. Corey (age 54) is a Senior Vice President of the Company, a position which he has held since February 1997. He has responsibility for corporate analysis, acquisitions and divestitures, mineral resources and the Company's real estate subsidiaries. From December 1984 to February 1997, he was Vice President-Corporate Analysis. Richard J. Diforio, Jr. (age 62) is a Senior Vice President of the Company, a position which he has held since November 1992. He has responsibility for environmental, health and safety affairs. Joe K. Donald (age 55) is an Executive Vice President of the Company, a position which he has held since August 1989. He has responsibility for the Company's domestic pulp and paper manufacturing operations. From August 1989 to September 1996, he headed the publication papers business. Frank Kneisel (age 60) is Senior Vice President-Finance of the Company, a position which he has held since January 1995. From November 1975 to December 1994, he was Treasurer of the Company. From May 1981 to December 1994, he was a Vice President. Burton G. MacArthur, Jr. (age 51) is an Executive Vice President of the Company, a position which he has held since January 1990. He has responsibility for the Company's marketing program, as well as for order services, purchasing, transportation and logistics. From January 1990 to September 1996, he headed the newsprint and kraft business. Kenwood C. Nichols (age 58) is Vice Chairman and Executive Officer and a director of the Company. He was elected Executive Officer in 1996. Since August 1989, he has served as Vice Chairman and a director. Richard E. Olson (age 60) is Chairman of the Board of Directors and Chief Executive Officer of the Company, positions which he has held since 1996. From December 1987 to 1996, he was an Executive Vice President of the Company, with responsibility for engineering, technology, manufacturing support and major projects. Richard L. Porterfield (age 51) is an Executive Vice President of the Company, a position which he has held since August 1992. He heads the forest products unit, which consists of domestic timberlands operations and the domestic wood products business. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company had 17,683 record holders of its Common Stock as of February 27, 1998. ___________________________ (1) The term of office for each executive officer expires at the Annual Meeting of the Board of Directors of the Company scheduled to be held on May 21, 1998. 11 The Company's Common Stock is traded on the New York Stock Exchange. Restrictions on the ability of the Company to pay cash dividends are included in several of the Company's debt instruments and the Company's Restated Certificate of Incorporation. At December 31, 1997, the most restrictive of these limitations required the Company to maintain tangible net worth (as defined below) of at least $2.61 billion. As a result of this requirement, such amount is unavailable for the payment of dividends. Approximately $571 million of tangible net worth at December 31, 1997 was free of such restrictions. Tangible net worth is defined as shareholders' equity minus goodwill, unamortized debt discount and other like intangibles, all determined on a consolidated basis for the Company. For information concerning the high and low sales prices of the Company's Common Stock for each quarterly period during the last two years and the amount of dividends paid on the Company's Common Stock in each quarterly period during the last two years, see the section on the inside back cover of the Company's 1997 Annual Report captioned "Common Stock Prices and Dividends Paid". Said section is incorporated by reference herein. ITEM 6. SELECTED FINANCIAL DATA There is incorporated by reference herein the table on pages 56 and 57 of the Company's 1997 Annual Report captioned "Eleven-Year Selected Financial Data". ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS There is incorporated by reference herein the section on pages 48 to 55 of the Company's 1997 Annual Report captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations". There is incorporated by reference herein the fourth sentence of the fourth paragraph of "Paper - Operations to Be Divested" under Part I of this Report. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA There is incorporated by reference herein the sections of the Company's 1997 Annual Report captioned "Consolidated Statement of Income", "Consolidated Balance Sheet", "Consolidated Cash Flows", "Consolidated Retained Earnings", "Notes to Financial Statements" and "Report of Independent Public Accountants", which sections are on pages 29, 30, 31, 32, 33 to 46 and 47, respectively, of the Company's 1997 Annual Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT See the section captioned "Executive Officers of the Registrant" under Part I of this Report for information concerning the Company's executive officers. For information concerning the directors of the Company, see the sections captioned "The Board of Directors-The Nominees", "Information on the Nominees and Directors", and "Committees" in the Company's definitive Proxy Statement for the Annual Meeting of Shareholders scheduled to be held on May 21, 1998 (the "Company's 1998 Proxy Statement"). Said sections are incorporated by reference herein. 12 Item 11. EXECUTIVE COMPENSATION There is incorporated by reference herein from the Company's 1998 Proxy Statement the sections therein captioned "The Board of Directors-Directors' Compensation"; and "Executive Compensation-Summary Compensation Table", "Option/SAR Grant Table", "Option/SAR Exercise and Year-End Values Table", "Long-Term Incentive Plan Awards Table", "Pension Plan Table", "Compensation Committee Interlocks and Insider Participation" and "Employment and Severance Agreements". Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT There is incorporated by reference herein from the Company's 1998 Proxy Statement the sections therein captioned "Principal Shareholders" and "Stock Ownership by Nominees, Directors and Named Executive Officers". ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS There is incorporated by reference herein from the Company's 1998 Proxy Statement the section therein captioned "Transactions". PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) FINANCIAL STATEMENTS. The following Consolidated Financial Statements of Champion International Corporation and Subsidiaries, Notes to Financial Statements and Report of Independent Public Accountants are incorporated by reference herein from the Company's 1997 Annual Report:
CAPTION IN COMPANY'S DESCRIPTION 1997 ANNUAL REPORT (PAGE NUMBER) ----------- -------------------------------- Consolidated Statements of Income for each of the three years in the period ended December 31, 1997.............Consolidated Statement of Income (page 29) Consolidated Balance Sheets at December 31, 1997 and 1996...........Consolidated Balance Sheet (page 30) Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1997..................Consolidated Cash Flows (page 31) Consolidated Statements of Retained Earnings for each of the three years in the period ended December 31, 1997...........Consolidated Retained Earnings (page 32) Notes to Financial Statements.............................Notes to Financial Statements (pages 33 to 46) Report of Independent Public Accountants with respect to the financial statements listed above......Report of Independent Public Accountants (page 47)
(b) FINANCIAL STATEMENT SCHEDULES. All Financial Statement Schedules have been omitted since the information is not applicable, is not required or is included in the Consolidated Financial Statements or Notes to Financial Statements listed under section (a) of this Item 14. (c) EXHIBITS. Each Exhibit is listed according to the number assigned to it in the Exhibit Table of Item 601 of Regulation S-K. The Exhibit numbers preceded by an asterisk (*) indicate Exhibits physically filed with this Annual Report on Form 10-K. All other Exhibit numbers indicate Exhibits filed by incorporation by reference 13 herein. Exhibit numbers 10.1 through 10.35, which are preceded by a plus sign (+), are management contracts or compensatory plans or arrangements. EXHIBIT NUMBER DESCRIPTION - -------------- ----------- 3.1 Restated Certificate of Incorporation of the Company, filed in the State of New York on October 20, 1986 (filed by incorporation by reference to Exhibit 3.1 to the Company's Form 10-K for the fiscal year ended December 31, 1986, Commission File No. 1-3053). 3.2 Certificate of Amendment of Restated Certificate of Incorporation of the Company, filed in the State of New York on July 18, 1988 (filed by incorporation by reference to Exhibit 4.1 to the Company's Form 10-Q for the quarter ended June 30, 1988, Commission File No. 1-3053). 3.3 Certificate of Amendment of Restated Certificate of Incorporation of the Company, filed in the State of New York on December 6, 1989 (filed by incorporation by reference to Exhibit 4.1 to the Company's Form 8-K dated December 14, 1989, Commission File No. 1-3053). 3.4 Certificate of Amendment of Restated Certificate of Incorporation of the Company, filed in the State of New York on December 21, 1989 (filed by incorporation by reference to Exhibit 3.4 to the Company's Form 10-K for the fiscal year ended December 31, 1989, Commission File No. 1-3053). 3.5 By-Laws of the Company (filed by incorporation by reference to Exhibit 3.1 to the Company's Form 10-Q for the quarter ended September 30, 1996, Commission File No. 1-3053). 4 Letter agreement dated March 29, 1991 of the Company to furnish to the Commission upon request copies of certain instruments with respect to long-term debt (filed by incorporation by reference to Exhibit 4 to the Company's Form 10-K for the fiscal year ended December 31, 1990, Commission File No. 1-3053). +10.1 Champion International Corporation 1986 Management Incentive Program, consisting of the 1986 Stock Option Plan and the 1986 Contingent Compensation Plan (filed by incorporation by reference to Exhibit 19.1 to the Company's Form 10-Q for the quarter ended June 30, 1986, Commission File No. 1-3053). +10.2 Amendment to Champion International Corporation 1986 Management Incentive Program (filed by incorporation by reference to Exhibit 10.1 to the Company's Form 10-Q for the quarter ended March 31, 1993, Commission File No. 1-3053). +10.3 Amendment to Champion International Corporation 1986 Management Incentive Program (filed by incorporation by reference to the appendix to the Company's Proxy Statement for the 1997 Annual Meeting of Shareholders). +10.4 Champion International Corporation Supplemental Retirement Income Plan (filed by incorporation by reference to Exhibit 10.7 to the Company's Form 10-K for the fiscal year ended December 31, 1989, Commission File No. 1-3053). +10.5 Amendment dated as of January 1, 1994 to Champion International Corporation Supplemental Retirement Income Plan (filed by incorporation by reference to Exhibit 10.6 to the Company's Form 10-K for the fiscal year ended December 31, 1994, Commission File No. 1-3053). 14 EXHIBIT NUMBER DESCRIPTION - -------------- ----------- +10.6 Champion International Corporation Nonqualified Supplemental Savings Plan (filed by incorporation by reference to Exhibit 10.5 to the Company's Form 10-K for the fiscal year ended December 31, 1996, Commission File No. 1-3053). *+10.7 Champion International Corporation Management Incentive Deferral Plan. +10.8 Form of Restricted Stock Unit Grant Letter dated February 18, 1997 (filed by incorporation by reference to Exhibit 10.1 to the Company's Form 10-Q for the quarter ended March 31, 1997, Commission File No. 1-3053). +10.9 Champion International Corporation 1997 Incentive Compensation Plan (filed by incorporation by reference to Exhibit 10.2 to the Company's Form 10-Q for the quarter ended March 31, 1997, Commission File No. 1-3053). +10.10 Champion International Corporation 1997 Performance Share Plan (filed by incorporation by reference to Exhibit 10.3 to the Company's Form 10-Q for the quarter ended March 31, 1997, Commission File No. 1-3053). *+10.11 Agreement dated as of September 18, 1997 between the Company and Mr. Olson providing certain employment, severance and retirement arrangements. *+10.12 Agreement Relating to Legal Expenses dated September 18, 1997 between the Company and Mr. Olson providing reimbursement of certain legal expenses following a change in control of the Company. +10.13 Agreement dated as of October 18, 1990 between the Company and Mr. Nichols providing certain employment, severance and retirement arrangements (filed by incorporation by reference to Exhibit 10.16 to the Company's Form 10-K for the fiscal year ended December 31, 1990, Commission File No. 1-3053). +10.14 Agreement Relating to Legal Expenses dated October 18, 1990 between the Company and Mr. Nichols providing reimbursement of certain legal expenses following a change in control of the Company (filed by incorporation by reference to Exhibit 10.17 to the Company's Form 10-K for the fiscal year ended December 31, 1990, Commission File No. 1-3053). +10.15 Amendment dated as of September 19, 1991 to Agreement dated as of October 18, 1990 between the Company and Mr. Nichols (filed by incorporation by reference to Exhibit 10.18 to the Company's Form 10-K for the fiscal year ended December 31, 1991, Commission File No. 1-3053). +10.16 Agreement dated as of October 18, 1990 between the Company and Mr. Donald providing certain severance arrangements (filed by incorporation by reference to Exhibit 10.27 to the Company's Form 10-K for the fiscal year ended December 31, 1996, Commission File No. 1-3053). +10.17 Agreement Relating to Legal Expenses dated October 18, 1990 between the Company and Mr. Donald providing reimbursement of certain legal expenses following a change in control of the Company (filed by incorporation by reference to Exhibit 10.28 to the Company's Form 10-K for the fiscal year ended December 31, 1996, Commission File No. 1-3053). 15 EXHIBIT NUMBER DESCRIPTION - -------------- ----------- +10.18 Amendment dated as of September 19, 1991 to Agreement dated as of October 18, 1990 between the Company and Mr. Donald (filed by incorporation by reference to Exhibit 10.29 to the Company's Form 10-K for the fiscal year ended December 31, 1996, Commission File No. 1-3053). +10.19 Amendment dated as of November 21, 1996 to Agreement dated as of October 18, 1990 between the Company and Mr. Donald (filed by incorporation by reference to Exhibit 10.30 to the Company's Form 10-K for the fiscal year ended December 31, 1996, Commission File No. 1-3053). +10.20 Agreement dated as of October 18, 1990 between the Company and Mr. Barnard providing certain severance arrangements (filed by incorporation by reference to Exhibit 10.31 to the Company's Form 10-K for the fiscal year ended December 31, 1996, Commission File No. 1-3053). +10.21 Agreement Relating to Legal Expenses dated October 18, 1990 between the Company and Mr. Barnard providing reimbursement of certain legal expenses following a change in control of the Company (filed by incorporation by reference to Exhibit 10.32 to the Company's Form 10-K for the fiscal year ended December 31, 1996, Commission File No. 1-3053). +10.22 Amendment dated as of September 19, 1991 to Agreement dated as of October 18, 1990 between the Company and Mr. Barnard (filed by incorporation by reference to Exhibit 10.33 to the Company's Form 10-K for the fiscal year ended December 31, 1996, Commission File No. 1-3053). *+10.23 Agreement dated as of October 18, 1990 between the Company and Mr. MacArthur providing certain severance arrangements. *+10.24 Agreement Relating to Legal Expenses dated October 18, 1990 between the Company and Mr. MacArthur providing reimbursement of certain legal expenses following a change in control of the Company. *+10.25 Amendment dated as of September 19, 1991 to Agreement dated as of October 18, 1990 between the Company and Mr. MacArthur. +10.26 Agreement dated as of October 18, 1990 between the Company and Mr. Porterfield providing certain severance arrangements (filed by incorporation by reference to Exhibit 10.34 to the Company's Form 10-K for the fiscal year ended December 31, 1996, Commission File No. 1-3053). +10.27 Agreement Relating to Legal Expenses dated October 18, 1990 between the Company and Mr. Porterfield providing reimbursement of certain legal expenses following a change in control of the Company (filed by incorporation by reference to Exhibit 10.35 to the Company's Form 10-K for the fiscal year ended December 31, 1996, Commission File No. 1-3053). +10.28 Amendment dated as of September 19, 1991 to Agreement dated as of October 18, 1990 between the Company and Mr. Porterfield (filed by incorporation by reference to Exhibit 10.36 to the Company's Form 10-K for the fiscal year ended December 31, 1996, Commission File No. 1-3053). 16 EXHIBIT NUMBER DESCRIPTION - -------------- ----------- +10.29 Trust Agreement dated as of February 19, 1987 between the Company and Fleet National Bank of Connecticut securing certain payments under the contracts listed as Exhibit numbers 10.11 through 10.28, among others, following a change in control of the Company (filed by incorporation by reference to Exhibit 19.11 to the Company's Form 10-Q for the quarter ended June 30, 1987, Commission File No. 1-3053). +10.30 Amendment dated as of August 18, 1988 to Trust Agreement dated as of February 19, 1987 between the Company and Fleet National Bank of Connecticut (filed by incorporation by reference to Exhibit 10.29 to the Company's Form 10-K for the fiscal year ended December 31, 1988, Commission File No. 1-3053). +10.31 Champion International Corporation Executive Life Insurance Plan (filed by incorpor-ation by reference to Exhibit 10.27 to the Company's Form 10-K for the fiscal year ended December 31, 1990, Commission File No. 1-3053). +10.32 Amendment dated as of January 1, 1994 to Champion International Corporation Executive Life Insurance Plan (filed by incorporation by reference to Exhibit 10.33 to the Company's Form 10-K for the fiscal year ended December 31, 1994, Commission File No. 1-3053). +10.33 Second amendment dated as of July 17, 1996 to Champion International Corporation Executive Life Insurance Plan (filed by incorporation by reference to Exhibit 10.2 to the Company's Form 10-Q for the quarter ended June 30, 1996, Commission File No. 1- 3053). +10.34 Extract from the minutes of the meeting of the Board of Directors of the Company held on October 18, 1979 relating to the $50,000 of group term life insurance provided by the Company for non- employee directors (filed by incorporation by reference to Exhibit 10.28 to the Company's Form 10-K for the fiscal year ended December 31, 1990, Commission File No. 1-3053). +10.35 Compensation Plan for Non-Employee Directors (filed by incorporation by reference to Exhibit 10.4 to the Company's Form 10-Q for the quarter ended March 31, 1997, Commission File No. 1- 3053). *11 Schedule showing calculation of basic earnings per common share and diluted earnings per common share. *13 Portions of the Company's 1997 Annual Report which are specifically incorporated by reference herein. *21 List of significant subsidiaries of the Company. *23.1 Opinion and Consent of the Senior Vice President and General Counsel of the Company. *23.2 Consent of Arthur Andersen LLP. *24 Power of Attorney relating to the execution and filing of this Annual Report on Form 10-K and all amendments hereto. *27 Financial Data Schedule. 17 (d) REPORTS ON FORM 8-K. The Company filed a Current Report on Form 8-K dated October 8, 1997 reporting the issuance of a press release announcing the Company's plan to maximize shareholder value. The Company filed a Current Report on Form 8-K dated December 16, 1997 reporting the sale of $100,000,000 principal amount of the Company's 7.15% Debentures due December 15, 2027 and $100,000,000 principal amount of the Company's 6.65% Notes due December 15, 2037, pursuant to the Company's shelf registration statement (No. 333-19929). * * * FORWARD-LOOKING STATEMENTS Certain statements in this Report (including statements incorporated by reference herein) that are neither reported financial results nor other historical information are forward-looking statements. Such forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results and Company plans and objectives to differ materially from those expressed in the forward-looking statements. Such risks and uncertainties include, but are not limited to, changes in the United States and international economies; changes in worldwide demand for the Company's products; changes in worldwide production and production capacity in the forest products industry; competitive pricing pressures for the Company's products; currency fluctuations; and changes in raw material, energy and other costs. 18 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 THE 27TH DAY OF MARCH, 1998. CHAMPION INTERNATIONAL CORPORATION (Registrant) By /s/ Lawrence A. Fox ------------------------------ (Lawrence A. Fox) VICE PRESIDENT AND SECRETARY 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 AND IN THE CAPACITIES AND ON THE DATE INDICATED.
Signature TITLE DATE --------- ----- ---- Chairman of the Board, Chief Executive Officer and Director (Principal Richard E. Olson* Executive Officer) March 27, 1998 - ------------------------- (RICHARD E. OLSON) Vice Chairman and Executive Officer and Director (Principal Kenwood C. Nichols* Accounting Officer) March 27, 1998 - ------------------------- (KENWOOD C. NICHOLS) Senior Vice President- Finance (Principal Frank Kneisel* Financial Officer) March 27, 1998 - ------------------------- (FRANK KNEISEL) Lawrence A. Bossidy* - ------------------------- Director March 27, 1998 (LAWRENCE A. BOSSIDY) Robert A. Charpie* Director March 27, 1998 - ------------------------- (ROBERT A. CHARPIE) H. Corbin Day* Director March 27, 1998 - ------------------------- (H. CORBIN DAY) Alice F. Emerson* Director March 27, 1998 - ------------------------- (ALICE F. EMERSON) Allan E. Gotlieb* Director March 27, 1998 - ------------------------- (ALLAN E. GOTLIEB)
19
Signature TITLE DATE --------- ----- ---- Sybil C. Mobley* Director March 27, 1998 - -------------------------- (SYBIL C. MOBLEY) Walter V. Shipley* Director March 27, 1998 - -------------------------- (WALTER V. SHIPLEY) Richard E. Walton* Director March 27, 1998 - -------------------------- (RICHARD E. WALTON) John L. Weinberg* Director March 27, 1998 - -------------------------- (JOHN L. WEINBERG) *By /s/ Lawrence A. Fox March 27, 1998 ---------------------- (LAWRENCE A. FOX)
A POWER OF ATTORNEY AUTHORIZING STEPHEN B. BROWN, LAWRENCE A. FOX AND RICHARD E. OLSON AND EACH OF THEM TO SIGN THIS REPORT AND ALL AMENDMENTS HERETO AS ATTORNEYS-IN-FACT FOR OFFICERS AND DIRECTORS OF THE REGISTRANT IS FILED AS EXHIBIT 24 HERETO. 20 EX-10.7 2 MANAGEMENT INCENTIVE DEFERRAL PLAN EXHIBIT 10.7 CHAMPION INTERNATIONAL CORPORATION ---------------------------------- MANAGEMENT INCENTIVE DEFERRAL PLAN ---------------------------------- (Effective as of January 1, 1998) INTRODUCTION ------------ Champion International Corporation hereby adopts the Champion International ---------------------- Corporation Management Incentive Deferral Plan, effective as of January 1, 1998. - ---------------------------------------------- Prior to the establishment of this Plan, certain employees of Champion International Corporation were permitted to defer receipt of awards granted under the Champion International Corporation Management Incentive Program --------------------------------------------------------------- pursuant to the provisions of the Champion International Corporation ---------------------------------- Nonqualified Supplemental Savings Plan. Effective as of January 1, 1998, such - -------------------------------------- awards are deferrable under the provisions of this Plan. This Plan is an unfunded deferred compensation arrangement maintained by Champion International Corporation for the purpose of providing supplemental retirement savings primarily for a select group of management or highly compensated employees. ARTICLE I - DEFINITIONS ----------------------- 1.1 "Beneficiary" means the person or persons entitled to receive the ----------- distributions, if any, payable under the Plan upon or after a Participant's death. Each Participant may designate a Beneficiary by filing the proper form with the Committee. A Participant may designate one or more contingent Beneficiaries to receive any distributions after the death of a prior Beneficiary. A designation shall be effective upon said filing, provided that it is so filed during such Participant's lifetime, and may be changed from time to time by the Participant. 1.2 "Code" means the Internal Revenue Code of 1986, as amended from time to ---- time, and regulations relating thereto. 1.3 "Committee" means the Champion International Corporation Pension and --------- Employee Benefits Committee (or its delegate(s)) which is responsible for the administration of this Plan in accordance with the provisions of the Plan as set forth in this document. 1.4 "Company" means Champion International Corporation, a New York corporation, ------- or any successor thereto, including any successor to substantially all of its assets which adopts and assumes the Plan at the time of transfer. 1.5 "Deferral Election" means the form described in Section 2.2 of the Plan. ----------------- 1.6 "Deferred Compensation Account" means the account to be established by the ----------------------------- Company as a book reserve to reflect the amounts deferred by a Participant, as adjusted by earnings (or losses) under Article III. 1.7 "Effective Date" means January 1, 1998. -------------- 1 1.8 "Employer" means the Company and any affiliate of the Company which, with -------- the authorization of the Company, has adopted the Plan, and any successor or assignee of any of them. 1.9 "Executive" means any employee of an Employer who is: (a) classified as --------- Grade 20 or higher and designated by the Committee as a member of the select group of management or highly compensated employees eligible for participation in the Plan; (b) a Vice President; (c) a Listed Executive; and (d) any other employee designated by the Committee as a member of the select group of management or highly compensated employees eligible for participation in the Plan. 1.10 "Listed Executive" means any employee of an Employer whose name appears ---------------- on the list attached hereto as Schedule A. 1.11 "Management Incentive Award" means any bonus awarded under the Champion -------------------------- -------- International Corporation Management Incentive Program or under any other ------------------------------------------------------ management incentive program maintained by an Employer that may be designated by the Committee as deferrable under Section 2.2 of the Plan. 1.12 "Participant" means any Executive who elects to participate in the Plan ----------- in accordance with Article II or a person who was such at the time of his death or termination of service and who retains, or whose Beneficiary retains, a benefit under the Plan which has not been distributed. 1.13 "Plan" means the Champion International Corporation Management Incentive ---- ------------------------------------------------------- Deferral Plan as set forth in this instrument, and as it may be amended ------------- thereafter. 1.14 "Plan Year" means the calendar year. --------- 1.15 "Savings Plan" means the Champion International Corporation Savings Plan ------------ ----------------------------------------------- #077 as in effect on the Effective Date and as subsequently amended, and ---- any successor or replacement plan for such plan. ARTICLE II - DEFERRAL ELECTIONS ------------------------------- 2.1 General. Each Executive may elect in accordance with this Article II to ------- defer a part (or all) of any Management Incentive Award earned for a Plan Year and thereby become a Participant under the Plan. 2.2 Deferral Election. A Participant desiring to exercise an election under ----------------- Section 2.1 shall file with the Employer a Deferral Election in such form as the Committee may prescribe. Such election shall be irrevocable, provided however, in the event a Participant is faced with an unforeseeable emergency (as defined in Section 4.3) during the Plan Year, such Participant, with the approval of the Committee, may revoke his election for the remainder of such Plan Year. A Deferral Election of a Participant shall be authorization to the Employer to defer all or any part of any Management Incentive Award and provide that the Management Incentive Award be reduced by the amount of such deferral. A Participant who elects to defer any part of a Management Incentive Award shall be required, with respect to the Plan Year in which the Management Incentive Award would otherwise be paid, to make before-tax contributions to the Savings Plan in an amount equal to the maximum before-tax contribution permitted under the Savings Plan. A violation of the Savings Plan contribution requirement of the preceding sentence shall not be deemed to have occurred if the Participant elects to make such required contribution under the 2 Savings Plan, but the amount the Participant may contribute to the Savings Plan is reduced (or there is a refund from the Savings Plan) by reason of the actual deferral percentage test of section 401(k) (3) of the Code, by reason of section 415 of the Code, or by reason of any other provision of law that limits the amount that a Participant is permitted to contribute to the Savings Plan. 2.3 Time of Election. A Participant's Deferral Election must be delivered to ---------------- the Employer by such date as the Committee shall specify, which date shall be prior to the beginning of the Plan Year in which the Management Incentive Award subject to such election is earned. With respect to an employee of an Employer who becomes an Executive during a Plan Year and who wishes to make a deferral election under this Article II for such Plan Year, he must deliver his Deferral Election to the Employer within the 30- day period following the day he becomes an Executive but only with respect to any Management Incentive Award earned after the date such Deferral Election is delivered to the Employer. 2.4 Commencement of Deferrals. A Deferral Election shall be effective for the ------------------------- entire Plan Year to which it relates but only with respect to any Management Incentive Award earned for services rendered after the election is made in accordance with Sections 2.2 and 2.3. The deferral of a Management Incentive Award shall occur when the Management Incentive Award would otherwise be paid to the Participant. 2.5 Crediting of Accounts. A Management Incentive Award otherwise payable to --------------------- the Participant during the applicable Plan Year but deferred in accordance with Section 2.2 shall be credited to the Participant's Deferred Compensation Account as soon as administratively feasible after such Management Incentive Award is so reduced. ARTICLE III - CREDITING OF EARNINGS ----------------------------------- 3.1 General. Subject to Section 3.3, there shall be credited to Participants' ------- Deferred Compensation Accounts earnings (or losses) as if such Deferred Compensation Accounts were actually invested in the investment funds (including the Company Stock Fund) available under the Savings Plan as determined under this Article III. 3.2 Investment of Participant Deferrals. With respect to his Deferred ----------------------------------- Compensation Account, each Participant shall elect to have earnings (or losses) credited to his Deferred Compensation Account from among the investment funds made available under the Savings Plan with respect to participant before-tax elective deferrals under said plan. Such an election shall be made in writing, on a form provided by the Committee, and delivered to the Employer prior to the beginning of each Plan Year by such date as the Committee shall determine. An investment election shall be effective for the entire Plan Year to which it relates unless modified by the Participant during the Plan Year. Such modifications may be made periodically on the same basis as participant investment elections under the Savings Plan may be modified. If a Participant fails to make and deliver an election for the following Plan Year by the date as determined by the Committee, then his Deferred Compensation Account shall be credited with the earnings (losses) under the investment election most recently in effect. Notwithstanding the foregoing, the Committee, through Plan administrative procedures, may require that Participants not modify the investment of their Deferred Compensation Accounts to the extent such Accounts are attributable to Participants investment of all or any part of Management Incentive Awards which Participants initially elect to invest in the Company Stock Fund in connection with any program offered by the Company to encourage Participants to invest such awards in the 3 Company Stock Fund. 3.3 Crediting of Earnings. The rates of return throughout each Plan Year for --------------------- the investment funds and Company Stock Fund referenced under Sections 3.2 shall be the same as the actual rates of return for said funds as under the Savings Plan. For each Plan Year, each Participant's Deferred Compensation Account shall be increased or decreased as if it had earned such rates of return. Such increase or decrease shall be based on the varying balances of the Deferred Compensation Accounts throughout the Plan Year and shall be credited to said accounts on the same periodic basis as investment earnings (losses) are credited to participants' accounts under the Savings Plan. ARTICLE IV - PLAN BENEFITS -------------------------- 4.1 Vesting. Subject to Section 8.1, a Participant's rights to his Deferred ------- Compensation Account shall be nonforfeitable at all times. 4.2 Distributions. Subject to Section 4.3, the amount represented by a ------------- Participant's Deferred Compensation Account shall become distributable upon the Participant's separation from service with all Employers due to his retirement, death, disability (in accordance with the definition of "Disability" under the Savings Plan), or other termination of employment. At the time a Participant makes his yearly Deferral Election under Article II of the Plan, he also shall elect whether the amount represented by his Deferred Compensation Account shall commence to be paid to him as soon as administratively feasible upon his separation from service with all Employers or as of a later date specified by the Participant. Such an election also shall specify whether such amount shall be paid in a single sum cash distribution, or in up to ten (10) annual cash installments (as well as the amounts of such installments) payable to the Participant while living with any remaining amount in his Deferred Compensation Account payable after his death to his Beneficiary in a single sum in accordance with Article V. 4.3 Withdrawal for Unforeseeable Emergency. Notwithstanding the provisions of -------------------------------------- Section 4.2 to the contrary, in the event that a Participant is faced with an unforeseeable emergency (as defined below), the Participant may request a withdrawal from his Deferred Compensation Account in an amount sufficient to meet such emergency. Any such withdrawal shall be paid in a single sum distribution. For purposes of this Section 4.3, an unforeseeable emergency is a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependent (as defined in section 152(a) of the Code) of the Participant, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. The Committee shall determine whether the circumstances presented by the Participant constitute an unforeseeable emergency. Such circumstances and the Committee's determination will depend upon the facts of each case, but, in any case, payment may not be made to the extent that such hardship is or may be relieved: (a) through reimbursement or compensation by insurance or otherwise, (b) by liquidation of the Participant's assets, to the extent the liquidation of such assets would not itself cause severe financial hardship, or (c) by cessation of his elective deferrals under this Plan. 4.4 Commencement of Payment. At the time for payment designated by the ----------------------- Participant in accordance with Section 4.2, the amount represented by the Participant's Deferred Compensation Account, increased by any amounts due to be credited but not yet credited under Section 2.5, and 4 decreased by any withdrawals under Section 4.3, shall commence to be paid in a single sum distribution or in installments as elected by the Participant in accordance with Section 4.2. If installment payments are elected, the first annual installment shall be payable as of the commencement date elected by the Participant under Section 4.2 and the remaining installments shall be payable on the annual anniversary of that commencement date. The installment payments shall be in such amounts as elected by the Participant on his most recent yearly election form completed prior to his separation from service or other termination of employment. If a Participant's Deferred Compensation Account is paid in installments, such account shall continue to be credited with earnings (or losses) under Article III until payment of the final installment. ARTICLE V - DEATH BENEFIT ------------------------- 5.1 Terms. Upon the death of a Participant, any unpaid amount represented by ----- the Participant's Deferred Compensation Account, increased by any amounts due to be credited but not yet credited under Section 2.5, shall be payable to the Participant's Beneficiary in a single sum distribution as soon as administratively feasible after the Participant's death. ARTICLE VI - ADMINISTRATION OF PLAN ----------------------------------- 6.1 General Administration. The Committee shall be responsible for the general ---------------------- administration of the Plan and for carrying out its provisions. The Committee shall have full power and authority to interpret, construe and administer the Plan. 6.2 General Powers. All provisions set forth in the Savings Plan with respect -------------- to the administrative powers and duties of the Committee and the procedures for filing claims shall also be applicable with respect to the Plan. The Committee shall be entitled to rely conclusively upon all calculations, certificates, opinions and reports furnished by any actuary, accountant, controller, counsel or other person employed or engaged by the Committee with respect to the Plan. ARTICLE VII - AMENDMENT OR TERMINATION -------------------------------------- 7.1 Amendment or Termination. The Plan may be amended in whole or in part from ------------------------ time to time, or terminated, by action of the Committee. Such termination and any such amendment shall be binding on each Employer, Executive and Beneficiary. Notice of such termination or amendment shall be given in writing to each Employer, Participant and Beneficiary of a deceased Participant. 7.2 Effect of Amendment or Termination. No amendment or termination of the ---------------------------------- Plan shall directly or indirectly deprive any current or former Participant or Beneficiary of all or any portion of any benefit under this Plan, payment of which has not been made prior to the effective date of such amendment or termination. ARTICLE VIII - GENERAL PROVISIONS --------------------------------- 8.1 No Funding or Interest in Assets. The Plan shall at all times be entirely -------------------------------- unfunded and no provision shall at any time be made with respect to segregating any assets of an Employer for payment of any benefits hereunder. No Participant or his designated Beneficiary shall acquire any property interest in his Deferred Compensation Account or any other assets of the Employer, their rights being limited to receiving from the Employer deferred payments as set forth in this Plan and these rights are conditioned upon continued compliance with the terms and conditions 5 of this Plan. To the extent that any Participant or Beneficiary acquires a right to receive benefits under this Plan, such right shall be no greater than the right of any unsecured general creditor of the Employer. 8.2 Assignment or Alienation. Except as required by law, no right of a ------------------------ Participant or designated Beneficiary to receive payments under this Plan shall be subject to transfer, anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or to execution, attachment, levy or similar process or assignment by operation of law and any attempt, voluntary or involuntary, to effect any such action shall be null and void and of no effect. 8.3 General Conditions. Any retirement benefit or any other benefit payable ------------------ under the Savings Plan shall be paid solely in accordance with the terms and conditions of the Savings Plan and nothing in this Plan shall operate or be construed in any way to modify, amend or affect the terms and provisions of the Savings Plan. 8.4 No Guaranty of Benefits. Nothing contained in the Plan shall constitute a ----------------------- guaranty by any person that the assets of an Employer will be sufficient to pay any benefit hereunder. 8.5 No Enlargement of Rights. No Participant or Beneficiary shall have any ------------------------ right to a benefit under the Plan except in accordance with the terms of the Plan. Establishment of the Plan shall not be construed to give any Participant the right to be retained in the service of an Employer. 8.6 Construction. This Plan shall be construed under the laws of the State of ------------ Connecticut. Article headings are for convenience only and shall not be considered as part of the terms and provisions of the Plan. Words in the masculine gender shall include the feminine, and the singular shall include the plural, and vice versa, unless qualified by the context. 8.7 Withholding of Taxes. The Company shall withhold from any amounts payable -------------------- under the Plan, all federal, state, and local taxes that the Company determines is legally required. 8.8 Binding on Successors, Purchasers, Transferees and Assignees. The Plan ------------------------------------------------------------ shall be binding upon any successor or successors of the Company and of any other Employer whether by merger, consolidation, or otherwise. In the event of the sale or transfer of substantially all of the assets of the Company or of any other Employer to any successor, purchaser, transferee or assignee, the Company and such other Employer each agrees that as a condition of such sale or transfer, the successor, purchaser, transferee or assignee shall adopt and assume the Plan at the time of the sale, transfer or assignment including, without limitation, all obligations which have accrued or may accrue in the future, and shall be bound by all the terms and provisions of the Plan, and the Company and such other Employer shall remain fully liable under the Plan. If the Company or any other Employer assigns or otherwise transfers or attempts to delegate its duties or responsibilities pursuant to the Plan to any party, the Company and such other Employer each agrees that it shall remain obligated hereunder in addition to the obligation hereunder of such party. If a merger, consolidation, sale, or transfer is made as provided in this Section, the provisions of this Section shall continue in full force and effect, and thereafter for all purposes of this Section and the application thereof, the immediate successor, purchaser, transferee or assignee and all subsequent successors, purchasers, transferees and assignees shall be deemed to be and shall be considered as the Company or as any other Employer hereunder, as the case may be. No other such merger, consolidation, sale, or transfer shall be made except in compliance with the provisions of this Section. 6 IN WITNESS WHEREOF, the undersigned, as duly authorized by the Pension and Employee Benefits Committee of Champion International Corporation, on behalf of said Committee, has executed this Plan as evidence of its adoption effective as of January 1, 1998. /s/ William C. Foster -------------------------- William C. Foster Senior Associate Counsel - Human Resources 7 SCHEDULE A ---------- CHAMPION INTERNATIONAL CORPORATION MANAGEMENT INCENTIVE DEFERRAL PLAN (EFFECTIVE AS OF JANUARY 1, 1998) --------------------------------- Listed Executives ----------------- Name SSN - ---- --- Carraway, James W. ###-##-#### Danielsson, Lars G. ###-##-#### Green, Charles E. ###-##-#### Green, Mary E. ###-##-#### MacBrayne III, John M. ###-##-#### O Brien, Edward D. ###-##-#### Steltenkamp, Michael S. ###-##-#### Suh, Samuel ###-##-#### Van Horn, James L. ###-##-#### 8 EX-10.11 3 AGREEMENT BTW CHAMPION & RICHARD E. OLSON EXHIBIT 10.11 AGREEMENT between CHAMPION INTERNATIONAL CORPORATION and RICHARD E. OLSON Effective September 18, 1997 Table of Contents -----------------
Paragraph Number Title Page - --------- ----- ---- 1 Employment 1 2 Position and Responsibilities 1 3 (a) Period of Employment 1 (b) Duties 2 4 Compensation 2 5 Participation in Benefit Plans 2 6 Disability 3 (a) Disability Benefits 3 (b) Services During Disability 4 (c) (i) Retirement Credit During Disability 4 (ii) Death Benefits While Disabled 5 (d) No Duplication of Benefits 5 (e) Definition of Disability 5 7 Termination During Month 5 8 Termination 6 (a) Termination Payments 6 (i) Monthly Payments 6 (ii) Lump Sum Payment Upon Termination Following a Change in Control 6 (iii) Cash-Out of Options and Contingently Credited Shares 7 (iv) Payment of Final Value of Retirement Benefits 7 8 (b) Definition of Termination 8 (c) Definition of Cause 9 (d) Definition of Change in Control 10 9 (a) [Intentionally left Blank] 10 (b) Retirement 10 (i) Executive's Basic Retirement Allowance Increase 10 (ii) Spouse's Basic Survivor Retirement Allowance Increase 12 (iii) Retirement Allowance Offsets 13 (iv) Alternative Forms of Payment of Retirement Allowances; #001 Plan Calculation Methods 14 (c) [Intentionally left Blank] 15 (d) Election of Lump Sum Payment of Retirement Allowances Upon or Following Retirement 15
i
Paragraph Number Title Page - --------- ----- ---- 10 Post-termination Obligations of Executive; Default by Company 16 (a) Assistance In Litigation 17 (b) Detrimental Conduct 17 (c) Discoveries and Inventions 17 (d) Reimbursement of Expenses 17 (e) Competition 17 (f) Failure to Comply 18 (g) Post-termination Default in Payments or Benefits 18 11 Determination of Benefits 19 12 (a) Time of Payment 19 (b) Withholding of Taxes 20 13 Decisions by Company 20 14 Prior Agreements 20 15 Consolidation or Merger 20 16 (a) Non-assignability 20 (b) No Attachment 20 (c) Binding Agreement 21 (d) Unfunded Obligations; Trust Agreement 21 17 (a) Amendment of Agreement 22 (b) No Waiver 22 18 Severability 23 19 Headings 23 20 Governing Law 23 21 Parachute Tax 23 22 Notices 24 23 Arbitration 25
ii EXHIBITS --------
Page Exhibit Reference - ------- --------- A Summary of Retirement Plan for Salaried Employees as in effect on the Effective Date 3 B Summary of Disability Plan as in effect on the Effective Date 4 C Certain benefits to be provided after a termination following a change in control 6 D Payments and benefits subject to acceleration in event of default in payments or benefits by Company after cessation of employment 18 E [Intentionally left Blank] F Form of Trust Agreement 21 G Amounts to be deposited in trust upon a 21 potential change in control DEFINED TERMS ------------- Defined Term Paragraph Page - ------------ --------- ---- Agreement Introduction 1 Alternative Benefit 9(b)(iv) 14 Average Annual Compensation 9(b)(i) 11 Cause 8(c) 9 Change in Control 8(d) 10 Code 8(a)(iii) 7 Company Introduction 1 Disability 6(e) 5 Effective Date 3(a) 1 Executive Introduction 1 Fair Market Value 8(a)(iii) 7 Legal Expense Agreement 8(b)(ii) 8 Normal Benefit 9(b)(iv) 14 #001 Plan 8(a)(iv) 7 Period of Employment 3(a) 1 Potential Change in Control 9(d)(iv) 16 Retirement Plan 5 3 Termination 8(b) 8
___________________________ Words and terms relating to 9(b)(iv) 15 retirement allowances and (last sentence) related matters iii THIS AGREEMENT between CHAMPION INTERNATIONAL CORPORATION, a New York corporation (the "Company"), and RICHARD E. OLSON (the "Executive"), effective September 18, 1997 (the "Agreement"). W I T N E S S E T H: WHEREAS, the Company and the Executive executed an agreement effective August 18, 1988, as amended September 19, 1991, providing for termination payments under the circumstances set forth therein; and WHEREAS, the Executive was elected Chief Executive Officer of the Company on August 15, 1996 and Chairman of the Board of Directors of the Company effective October 1, 1996; and WHEREAS, the Company and the Executive wish to terminate the aforesaid agreement and to replace it with this agreement; and WHEREAS, the Company wishes to provide additional incentive for the Executive to continue in the employ of the Company; NOW, THEREFORE, it is hereby agreed by and between the parties as follows: 1. Employment ---------- The Company will continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company, for the period stated in subparagraph 3(a) below and upon the other terms and conditions hereinafter stated. 2. Position and Responsibilities ----------------------------- During the period of his employment under this Agreement, the Executive agrees to serve as the Chief Executive Officer of the Company subject to the supervision of, and reporting directly to, the Board of Directors of the Company. During the period of his employment under this Agreement, the Executive also agrees to serve, for the period for which he is and shall from time to time be elected, as Chairman of the Board of Directors of the Company and as an officer and director of any subsidiary or affiliate of the Company. 3. (a) Period of Employment -------------------- The period of the Executive's employment under this Agreement shall be deemed to have commenced as of September 1, 1997 (the "Effective Date") and shall continue for the period from the Effective Date to the date on which he shall attain the age of 62 (such period being herein referred to as the "period of employment"). Such period of employment, and each one-year extension of the period of employment pursuant to the following provisions of this sentence, shall, without further action by the parties, be extended one additional year unless either party hereto shall have given written notice to the other party hereto, more than six months prior to the expiration of the period of employment or one-year extension thereof then in effect, that the period of employment or one-year extension thereof then in effect is not to be so extended. In the event that the Executive shall continue in the full-time employment of the Company after the period from the Effective Date to the date on which he shall attain the age of 62, as such period may have been extended, such continued employment shall be subject to the terms and conditions 1 of this Agreement. In such event, the Executive's period of employment shall include the period during which he in fact continues in the Company's employ. (b) Duties ------ Throughout the period of his employment hereunder and except for illness, reasonable vacation periods and reasonable leaves of absence, the Executive shall devote all his business time, attention, skill and efforts to the faithful performance of his duties hereunder; provided, however, that the Executive may, with the approval of the Board of Directors of the Company, from time to time serve or continue to serve on the boards of directors of, and hold any other offices or positions in, companies or organizations which present no conflict of interest with the Company and which will not materially affect the performance of his obligations under this Agreement. 4. Compensation ------------ For all services rendered by the Executive in any capacity during the period of his employment under this Agreement, including, without limitation, services as an employee, officer, director or member of any committee of the Company or of any subsidiary, affiliate or division thereof, the Executive shall be paid as compensation, (a) a salary at a monthly rate which is the higher of (A) $66,667, and (B) such higher amount as may from time to time be fixed by the Board of Directors of the Company, or by a Committee designated by the Board of Directors; and (b) such bonus, if any, as may from time to time be awarded to the Executive by the Board of Directors of the Company, or by a Committee designated by the Board of Directors. Such salary shall be payable on the last day of each month, and any such bonus shall be payable in the manner specified at the time any such bonus is awarded. 5. Participation in Benefit Plans ------------------------------ Except as otherwise specifically provided herein, the payments provided under this Agreement for the Executive are in addition to any benefits to which the Executive (or his beneficiaries or estate) may be or become entitled under any hospitalization, health care, dental care or sick leave plan, life or other insurance or death benefit plan, travel and accident insurance, executive or contingent compensation plan, restricted stock or stock purchase plan, retirement income or pension plan, vacation plan, or other present or future employee benefit plans or programs of the Company for which key executives are eligible, and the Executive shall be eligible to receive, during the period of his employment under this Agreement and during any subsequent period that he shall be entitled to receive payments from the Company under subparagraph 6(a) or subparagraph 8(a)(i) below (whether or not any such period shall have been accelerated) as if the Executive had continued to be employed by the Company during such subsequent period, any benefits and emoluments for which key executives are eligible under any such benefit plan or program of the Company in accordance with the 2 provisions of any such plan or program, provided, however, that during the period that the Executive is so entitled to receive payments under subparagraph 6(a) (during any period of long-term disability) or 8(a)(i) below, he shall not be eligible to participate in the Company's Savings Plan for Salaried Employees or Nonqualified Supplemental Savings Plan or to receive option grants under any stock option plan of the Company. To the extent that such benefits or service credits for benefits shall not be payable or provided under such plans or programs by reason of the Executive no longer being an employee of the Company, the Company shall itself pay or provide for payment of such benefits and service credit for benefits. Nothing in this Agreement shall preclude the Company from terminating or amending any such employee benefit plan or program so as to eliminate, reduce or otherwise change any benefit payable thereunder subject, in the case of the Company's disability plan, to the provisions of subparagraph 6(a) below, and provided that, if the retirement allowances payable to the Executive on his retirement under the pension plans, including related supplemental and excess benefit plans, of the Company and any subsidiary or affiliate of the Company, when combined with any additional retirement allowance provided under subparagraph 9(b) below, shall be less than the retirement allowance which the Executive would have received under the Retirement Plan for Salaried Employees of Champion International Corporation as in effect on the Effective Date, exclusive of any limitations on the amount of benefits or contributions for an individual participant imposed by the Employee Retirement Income Security Act of 1974, as amended, and the Internal Revenue Code of 1986, as amended, (the "Retirement Plan"), a summary of which is attached hereto as Exhibit A, had he been credited in full, for purposes of vesting and benefits, - --------- with all of his years and full months of service with the Company and any subsidiary or affiliate thereof and with any subsequent period that he was entitled to receive payments from the Company under subparagraph 8(a)(i) below (regardless of whether or not any such period shall have been accelerated) and credited, for purpose of benefits, with such portion of his annual bonus awards as on such retirement would have been credited for such purpose if all such bonus awards had been paid in cash when awarded, then the difference shall be paid by the Company. 6. Disability ---------- In the event of the disability, as defined in subparagraph 6(e) below, of the Executive, the following provisions of this paragraph 6 shall apply. (a) Disability Benefits ------------------- The Company shall pay the Executive, subject to compliance with the applicable provisions of paragraph 10 and to the reduction provided in subparagraph 6(d) below, a disability benefit equal to the greater of (i) the benefit which the Executive would receive upon such disability under the disability plan of the Company as in effect on the Effective Date, a summary 3 of which is attached hereto as Exhibit B, regardless of whether such plan --------- remains in effect at the commencement of, or during, the Executive's disability; and (ii) the benefit which the Executive would receive upon such disability under the disability plan of the Company as in effect at the commencement of, and (if and to the extent that increased benefits under the disability plan are extended generally to employees who were disabled prior to the adoption of such increased benefits) during, the Executive's disability. Payment of such disability benefit shall commence on the last day of the month next following the commencement of the Executive's disability and cease with the earlier of (i) the payment for the month in which the Executive dies and (ii) the payment for the month preceding the month in which occurs the Executive's normal retirement date under the Company's pension plan. (b) Services During Disability -------------------------- During the period that the Executive shall be receiving payments under subparagraph 6(a) above, he shall, to the extent that he shall be physically and mentally able to do so, furnish information and assistance and refrain from detrimental conduct and otherwise act in accordance with paragraph 10 below, and, in addition, upon reasonable request in writing on behalf of the Board of Directors, from time to time make himself available to the Company to undertake reasonable assignments, consistent with his place of residence from time to time, the dignity, importance and scope of his prior position and his physical and mental health. During such period of service, he shall be responsible and report to, and shall be subject to the supervision of, the Board of Directors of the Company or an executive officer designated by the Board, both as to the method and manner in which he shall perform such assignments, subject in each case to the preceding provisions of this subparagraph 6(b), and shall keep the Board of Directors, when it is in session, or such executive officer, appropriately informed from time to time of his progress in any such assignment. The Company shall continue to pay all reasonable expenses incident to the performance of the Executive's duties hereunder including, without limitation, expenses of travel to and from his place of residence and the headquarters of the Company or such other place or places as may be required in each case for the performance of his assignments and reports. (c)(i) Retirement Credit During Disability ----------------------------------- The Company shall pay the Executive, subject to compliance with the applicable provisions of paragraph 10 and to the reduction provided in subparagraph 6(d) below, a retirement allowance which shall be no less than the retirement allowance which the Executive would have received under the Retirement Plan had he remained in full-time employment with the Company until the earliest of termination of his disability or his normal retirement date or early retirement date at his annual rate of compensation, in accordance with paragraph 4 above, at the 4 commencement of his disability, and had he been credited in full, for purposes of vesting and benefits, with all of his years and full months of service with the Company and any subsidiary or affiliate thereof and credited, for purpose of benefits, with such portion of his annual bonus awards as on his normal retirement date would have been credited for such purpose if all such bonus awards had been paid in cash when awarded; provided, however, that nothing in this Agreement shall preclude the Company from providing a larger benefit for the Executive under any pension plan or otherwise. Such retirement allowance shall be paid monthly, commencing with the first day of the month coincident with or next following the Executive's normal retirement date under the Company's pension plan or early retirement if he elects early retirement instead of disability payments, and shall continue to be paid in accordance with the method of payment selected by the Executive under such pension plan. (ii) Death Benefits While Disabled ----------------------------- In the event that the death of the Executive should occur after his disability but before his normal retirement date and before any early retirement, the Company shall pay the Executive's beneficiary or beneficiaries under the Company's pension plan, subject to the reduction provided in subparagraph 6(d) below, a benefit which shall be based upon an amount no less than the retirement allowance which the Executive would have received under the Retirement Plan had the Executive remained in full-time employment with the Company at his annual rate of compensation, in accordance with paragraph 4 above, at the commencement of his disability, and been credited with service and bonuses as provided in subparagraph (c)(i) above, and then retired on the date of his death. Such benefit shall be paid monthly, commencing with the first day of the month next following the date of the Executive's death, and shall continue to be paid in accordance with the method of payment selected by the Executive under the Company's pension plan. (d) No Duplication of Benefits -------------------------- Notwithstanding anything to the contrary contained herein, in order to prevent duplication of benefits, the amount of any disability benefit, retirement allowance or other benefit payable under this paragraph 6 shall be reduced by the amount of any benefits actually paid to the Executive or his beneficiary or beneficiaries, as the case may be, with respect to the same period under the disability plan or pension plans, including related supplemental and excess benefit plans, of the Company and any subsidiary or affiliate thereof. (e) Definition of Disability ------------------------ The term "disability" for purposes of this Agreement shall have the same meaning as under the disability plan of the Company as in effect on the Effective Date as summarized in Exhibit B. ---------- 7. Termination During Month ------------------------ 5 In the event that the employment of the Executive shall terminate prior to the end of a calendar month as a result of his death or disability or a termination described in paragraph 8 below, the Company shall pay the Executive or his legal representatives, as the case may be, in addition to any other amounts payable by the Company hereunder, a lump cash sum which shall in no event be less than the salary plus any bonus to which the Executive would have been entitled had he remained in full-time employment until the end of the month in which his employment shall so terminate. 8. Termination ----------- In the event of a termination, as defined in subparagraph 8(b) below, during the period of employment under this Agreement, the following provisions of this paragraph 8 shall apply. (a) Termination Payments -------------------- (i) Monthly Payments. Subject to compliance with the applicable ---------------- provisions of paragraph 10 below, the Company shall pay the Executive or, in the event of his subsequent death, his beneficiary or beneficiaries or his estate, as the case may be, as severance pay or liquidated damages, or both, a monthly sum equal to the highest total monthly compensation (highest total of annual salary plus annual bonus for any calendar year of employment, divided by twelve) paid to the Executive. Such payments shall commence on the last day of the month next following the termination of employment of the Executive and shall continue until the last day of the twenty-fourth full calendar month following the termination of employment of the Executive, provided, however, that such payments shall not continue beyond the earlier of (A) the last day of the month next preceding his normal retirement date under the Company's pension plan, and (B) the last day of the month next preceding the month in which he shall, with his written consent, commence receiving his retirement allowance under the Company's pension plan. (ii) Lump Sum Payment upon Termination following a Change in ------------------------------------------------------- Control. Anything in subparagraph 8(a)(i) above or elsewhere in this Agreement to the contrary notwithstanding, if termination of the Executive occurs within three years following a Change in Control: (x) the total of the monthly payments provided for in subparagraph 8(a)(i) above shall be accelerated and paid in a lump sum as soon as practicable after such termination if termination occurs before the last day of the month next preceding the Executive's normal retirement date under the Company's pension plan; if termination occurs on or after such last day, no payment pursuant to subparagraph 8(a)(i) or (ii) shall be made to the Executive; (y) the benefits required to be provided thereafter to the Executive, his spouse and family, set forth in attached Exhibit C, shall be --------- valued at the cost of acquiring insurance policies which would provide such benefit coverage over the period of time involved in subparagraph 8(a)(i) above, and such cost shall be paid in a lump sum as soon as practicable after termination; and (z) the Executive shall be 6 paid the amount payable, if any, pursuant to subparagraph 8(a)(iii) and the amount payable pursuant to subparagraph 8(a)(iv). (iii) Cash-Out of Options and Contingently Credited Shares. In ---------------------------------------------------- the event that the Executive shall, at the time of termination of his employment within three years following a Change in Control, (A) hold an outstanding and unexercised (whether or not exercisable at the time) option or options theretofore granted by the Company to him prior to the Change in Control, (B) have shares contingently credited to him prior to the Change in Control under the Company's Contingent Compensation Plan or 1986 Contingent Compensation Plan or a successor plan, or both hold such option and have such shares contingently credited to him, unless the Executive shall have given the Company written notice to the contrary within thirty (30) days following such termination of employment, the Company shall pay him, in a lump sum, an amount equal to the excess above the option price, of each such option that is not an Incentive Stock Option as defined in Section 422 of the Internal Revenue Code of 1986 as amended (the "Code"), of the Fair Market Value of Common Shares of the Company at the time of termination, and the Fair Market Value at the time of termination of the shares, if any, so contingently credited. Solely for the purpose of this subparagraph 8(a)(iii), Fair Market Value at the time of termination shall mean the higher of (i) the average of the reported closing prices of the Common Shares of the Company, as reported in "New York Stock Exchange Composite Transactions" of the Eastern Edition of The Wall Street Journal, for the last ----------------------- trading day prior to the termination and for each trading day of the preceding sixty calendar days, and (ii) in the event that a Change in Control of the Company, as defined in subparagraph 8(d) below, shall have taken place prior to termination as the result of a tender or exchange offer, and such Change in Control was consummated within three years of termination, an amount equal to the highest consideration paid for Common Shares of the Company in the course of such tender or exchange offer. (iv) Payment of Final Value of Retirement Benefits. Anything in --------------------------------------------- this Agreement to the contrary notwithstanding, in the event of a termination of the Executive's employment within three years following a Change in Control, the Executive and his spouse shall be entitled to the monthly retirement allowance, and the monthly survivor retirement allowance, if any, respectively, under subparagraph 9(b)(i) and (ii) below without regard to the offsets set forth in subparagraph 9(b)(iii) below, in the amounts that he and she would have received pursuant to such subparagraph 9(b)(i) and (ii) without regard to the offsets set forth in subparagraph 9(b)(iii) below, had he continued in the employ of the Company until age 62, to the extent that each such monthly allowance exceeds the benefits under the Champion International Corporation Salaried Retirement Plan #001 (the "#001 Plan") payable to the Executive and his spouse for the applicable month. 7 If the Executive does not have a spouse at the time of such termination of his employment, then the calculation provided for in the next preceding sentence shall be made on the assumption that he had a spouse, his own age, at such time. Such retirement allowance and survivor retirement allowance, as well as the specified benefits under the #001 Plan, shall be valued and discounted in the manner set forth in subparagraph 10(g) below relating to default in payments or benefits, and such retirement allowance and survivor retirement allowance in excess of the specified benefits under the #001 Plan shall be paid in a lump sum as soon as practicable after such termination. By accepting such lump sum, either from the Company or the trust contemplated by subparagraph 16(d) below, the Executive and his spouse or other Beneficiary release the Company from all obligations under all excess benefit, supplemental retirement and other retirement plans and agreements of the Company, its subsidiaries and affiliates applicable to the Executive and his spouse or other Beneficiary, including this Agreement as amended from time to time but excluding the #001 Plan. (b) Definition of Termination ------------------------- The term "termination" for purposes of this Agreement shall mean: (i) The termination by the Company of the Executive's full-time employment with the Company for any reason other than Cause; or (ii) Any (A) failure to elect or re-elect the Executive to the office of Chairman of the Board of Directors of the Company or as a director of the Company or to designate or re-designate the Executive as Chief Executive Officer of the Company, (B) material change by the Company of the Executive's functions, duties or responsibilities without his express written consent as a result of which change the Executive's position with the Company shall be or become of less dignity, responsibility, importance or scope than the position described in paragraph 2 above, and any such material change shall be deemed a continuing breach of this Agreement, (C) liquidation, dissolution, consolidation or merger of the Company, or transfer of all or substantially all of its assets, other than in compliance with the provisions of paragraph 15 below, (D) other breach of this Agreement by the Company, or breach of the Agreement Relating to Legal Expenses between the Company and the Executive dated September 18, 1997 (the "Legal Expense Agreement"), or (E) determination in good faith by the Executive that, as a result of a Change in Control of the Company within the prior three years, and a change in circumstances thereafter significantly affecting his position, he is unable to carry out the authorities, powers, functions or duties attached to his position and contemplated by paragraph 2 above, and the situation is not remedied within 30 days after receipt by the Company of written notice from the Executive of such determination; provided that in any such event the Executive elects to terminate his employment under this 8 Agreement upon not less than sixty days' advance written notice given within a reasonable period of time not to exceed, except in case of a continuing breach, four calendar months after the event giving rise to the election. (c) Definition of Cause ------------------- For the purpose of any provision of this Agreement, the termination of the Executive's employment shall be deemed to have been for Cause only (i) if termination of his employment shall have been the result of an act or acts of dishonesty on the part of the Executive constituting a felony and resulting or intended to result directly or indirectly in gain or personal enrichment at the expense of the Company, or (ii) if there has been a breach by the Executive during the period of employment of this Agreement, and such breach results in demonstrably material injury to the Company, and, with respect to any alleged breach of subparagraph 3(b) hereof, the Executive shall have either failed to remedy such alleged breach within thirty days from his receipt of written notice from the Secretary of the Company pursuant to a resolution duly adopted by the Board of Directors of the Company after notice to the Executive and an opportunity to be heard demanding that he remedy such alleged breach, or shall have failed to take all reasonable steps to that end during such thirty-day period and thereafter; provided that there shall have been delivered to the Executive a certified copy of a resolution of the Board of Directors of the Company adopted by the affirmative vote of not less than three-fourths of the entire membership of the Board of Directors at a meeting called and held for that purpose and at which the Executive was given an opportunity to be heard, finding that the Executive was guilty of conduct set forth in subparagraph (i) or (ii) above, specifying the particulars thereof in detail. Anything in this subparagraph 8(c) or elsewhere in this Agreement to the contrary notwithstanding, the employment of the Executive shall in no event be considered to have been terminated by the Company for Cause if termination of his employment took place (A) as the result of bad judgment or negligence on the part of the Executive, or (B) as the result of an act or omission without intent of gaining therefrom directly or indirectly a profit to which the Executive was not legally entitled, or (C) because of an act or omission believed by the Executive in good faith to have been in or not opposed to the interests of the Company, or (D) for any act or omission in respect of which a determination could properly be made that the Executive met the applicable standard of conduct prescribed for indemnifica-tion or reimbursement or payment of expenses under (I) the Restated Certificate of Incorporation or By-Laws of the 9 Company, or (II) the laws of the State of New York, or (III) the directors' and officer's liability insurance of the Company, in each case either as in effect at the time of this Agreement or in effect at the time of such act or omission, or (E) as the result of an act or omission which occurred more than twelve calendar months prior to the Executive having been given notice of the termination of his employment for such act or omission unless the commission of such act or such omission could not at the time of such commission or omission have been known to a member of the Board of Directors of the Company (other than the Executive, if he is then a member of the Board of Directors), in which case more than twelve calendar months from the date that the commission of such act or such omission was or could reasonably have been so known, or (F) as the result of a continuing course of action which commenced and was or could reasonably have been known to a member of the Board of Directors of the Company (other than the Executive, if he is then a member of the Board of Directors) more than twelve calendar months prior to notice having been given to the Executive of the termination of his employment. (d) Definition of Change in Control ------------------------------- For the purpose of this Agreement, a Change in Control of the Company shall be deemed to have occurred if (i) any "person" (as defined in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the combined voting power of the Company's then outstanding securities; (ii) during any period within two (2) consecutive years there shall cease to be a majority of the Board of Directors comprised as follows: individuals who at the beginning of such period constitute the Board of Directors and any new director(s) whose election by the Board of Directors or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved; or (iii) the shareholders of the Company approve (A) a plan of complete liquidation of the Company or (B) the sale or other disposition of all or substantially all the Company's assets. 9. (a) [Intentionally left Blank] ------------------------ (b) Retirement ---------- (i) Executive's Basic Retirement Allowance Increase. ----------------------------------------------- Effective on the date hereof, the Executive is indefeasibly vested, subject to paragraph 9(b)(iv) and paragraph 10 10, in a monthly retirement allowance, subject to any reduction required by subparagraph 9(b)(iii), equal to one-twelfth (1/12) of sixty percent (60%) of the Executive's Average Annual Compensation, as hereafter defined, less one- twelfth (1/12) of fifty percent (50%) of the Executive's annual Social Security Benefits. Subject to subparagraph 9(b)(iv) and paragraph 10, if the Executive should continue in the employ of the Company (A) until the date on which he shall attain the age of 62, or (B) until his earlier (I) disability, as "disability" is defined in the Company's Temporary Disability Plan described in Exhibit B herein, which has continued for a period of six consecutive months, or (II) termination, as "termination" is defined in subparagraph 8(b) above, the Executive will be indefeasibly vested in a monthly retirement allowance, subject to any reduction required by subparagraph 9(b)(iii), equal to one- twelfth (1/12) of sixty-five percent (65%) of his Average Annual Compensation, as hereafter defined, less one-twelfth (1/12) of fifty percent (50%) of the Executive's annual Social Security Benefits. Any such sixty-five percent (65%) retirement allowance shall be in lieu of the sixty percent (60%) retirement allowance provided for immediately above. The Company will pay the Executive the applicable retirement allowance, subject to any reduction required by subparagraph 9(b)(iii), on or about the first day of each month during the Executive's lifetime, commencing with the month following the month in which the Executive's employment with the Company terminates by his election to retire any time after six months of disability, or in which the Executive's employment with the Company otherwise terminates, unless the Company will be making a payment in such month under subparagraph 8(a)(i) above, by reason of a "termination" as defined in subparagraph 8(b) above, in which event, commencing with the first month thereafter in which the Company will not be making such a payment. Notwithstanding the foregoing, payments under this subparagraph 9(b)(i) will not commence to be made until the first day of the calendar month for which the Executive receives payment under the #001 Plan. For purposes of this subparagraph 9(b), Average Annual Compensation means the annual average of the Executive's total compensation consisting of base salary (before any deductions or reductions including, without limitation, any deduction or reduction pursuant to Section 401(k) of the Code) and annual bonus awards for the three consecutive years of highest total compensation occurring within the ten consecutive years immediately preceding termination of his employment (determined in accordance with the definitions and methods of calculation used in the #001 Plan). It is understood and agreed that in no event shall the retirement allowance provided by this 11 subparagraph (b)(i) or by subparagraph 9(b)(iv) below be payable prior to termination of the Executive's employment with the Company, and that for purposes of this subparagraph (b)(i) and subparagraph 9(b)(iv) below, the Executive shall be considered to continue in the employ of the Company during any period for which he receives disability payments under the Company's Temporary Disability Plan or Long Term Disability Plan described in Exhibit B herein, or any successor or substitute disability plan. (ii) Spouse's Basic Survivor Retirement Allowance Increase. Subject to subparagraph 9(b)(iv), if the Executive should die either (A) following termination of his employment, (I) after a retirement allowance had commenced to be payable to him under subparagraph (b)(i) immediately above, or (II) before a retirement allowance had commenced to be payable to the Executive under subparagraph (b)(i) immediately above solely because the Company had been making payments to him, under paragraph 8(a)(i) above, by reason of a "termination" as defined in subparagraph 8(b) above, or (B) while employed by the Company (including the period during which the Executive is disabled and considered to be employed by the Company), and if, in either case, the Executive should be survived by a spouse (in the case of clause 9(b)(ii)(A) above, only a spouse who is eligible to receive a retirement allowance under the #001 Plan; in the case of clause 9(b)(ii)(B) above, only if the spouse meets the definition of an Eligible Spouse as defined in subparagraph 9.2(e)(l) of the #001 Plan), then the Company will pay her a retirement allowance, subject to any reduction applicable to her required by subparagraph 9(b)(iii) below, on or about the first day of each month during her lifetime following the Executive's death, commencing with the month following the month in which the Executive's death shall occur (unless the Company will be making a payment in such month under subparagraph 8(a)(i) above, in which event, commencing with the first month thereafter in which the Company will not be making such a payment), equal to (I) in the case of clause 9(b)(ii)(A) above, sixty percent (60%) of the monthly retirement allowance (aa) that was payable to the Executive under subparagraph 9(b)(i) above (prior to any reduction required by subparagraph 9(b)(iii) below) immediately prior to the Executive's death, or (bb) that would have been payable to the Executive under subparagraph 9(b)(i) above (prior to any such reduction) after completion of payments to the Executive under subparagraph 8(a)(i) above, had the Executive lived, or (II) in the case of clause 9(b)(ii)(B) above, sixty percent (60%) of the monthly retirement allowance that would have been payable to the Executive under subparagraph 9(b)(i) above 12 (prior to any reduction required by subparagraph 9(b)(iii) below) had the Executive retired on the day before his death. (iii) Retirement Allowance Offsets. ---------------------------- (A) The monthly retirement allowance provided for the Executive under subparagraph 9(b)(i) above or 9(b)(iv) below shall be reduced by the aggregate of (I) an amount equal to the retirement benefits paid to the Executive for the applicable month (but only to the extent attributable to contributions other than his own), under (aa) the Company's retirement program, including the #001 Plan and related excess benefit and supplemental retirement plans, and (bb) any other retirement plan or agreement of the Company, its subsidiaries or affiliates applicable to the Executive including this Agreement as amended from time to time, and (II) any disability benefits paid to the Executive during the applicable month (but only to the extent attributable to contributions other than his own) under the Company's disability plan or any other disability plan or agreement of the Company, its subsidiaries or affiliates applicable to him, including this Agreement as amended from time to time. (B) The monthly retirement allowance provided for the Executive's spouse under subparagraph 9(b)(ii) above or for his spouse or other Beneficiary under subparagraph 9(b)(iv) below, if any, shall be reduced by the following amount: (I) If the Executive's retirement benefits under the program, plans and agreements referred to in clauses (aa) and (bb) of subparagraph 9(b)(iii)(A) above had commenced to be paid to him prior to his death, the monthly retirement allowance provided for his spouse or other Beneficiary shall be reduced by an amount equal to the retirement benefits (to the extent attributable to contributions other than his own) paid to such spouse or other Beneficiary under the program, plans or agreements referred to in clauses (aa) and (bb) of subparagraph 9(b)(iii)(A) above for the applicable month. (II) If the Executive's retirement benefits under the program, plans and agreements referred to in clauses (aa) and (bb) of subparagraph 9(b)(iii)(A) above had not commenced to be paid to him prior to his death, the monthly retirement allowance provided for his spouse or other Beneficiary shall be reduced by an amount equal to the retirement benefits (to the extent attributable to contributions other than his own) paid to such spouse or other Beneficiary thereunder for the applicable month, and by the amount, if any, paid for the applicable month to his Beneficiary or Beneficiaries under subparagraph 6(c)(ii) above. 13 (iv) Alternative Forms of Payment of Retirement Allowances; ------------------------------------------------------ #001 Plan Calculation Methods. ----------------------------- (A) The Company will pay the retirement allowance set forth above in subparagraph 9(b)(i) and the spouse's survivor retirement allowance set forth above in subparagraph 9(b)(ii) (together, the "Normal Benefit") provided that on the benefit commencement date there is in effect for the Executive, under the #001 Plan, a valid election to receive his benefit in the form of a 50% joint and surviving spouse annuity. (B) If on the benefit commencement date there is in effect for the Executive under the #001 Plan a valid election to receive his benefit under a form of payment other than a 50% joint and surviving spouse annuity, then, in lieu of the retirement allowance described above in subparagraph 9(b)(i) and the spouse's survivor retirement allowance described above in subparagraph 9(b)(ii), in each case without regard to the offsets described in subparagraph 9(b)(iii) above, the Executive and his spouse or other Beneficiary, if any, shall receive an actuarially equivalent benefit under such other form of payment (as a result of which he will be entitled to receive a larger or smaller retirement allowance than under subparagraph 9(b)(i) above and his spouse will be entitled to receive an actuarially corresponding smaller or larger survivor retirement allowance than under subparagraph 9(b)(ii) above or no such allowance at all) subject to any reduction required by subparagraph 9(b)(iii) above (the "Alternative Benefit"). In such event, the actuarially equivalent benefit will be paid to the Executive, and to his spouse or other Beneficiary, if any, following the death of the Executive, in accordance with such other form of payment, less any reduction required by subparagraph 9(b)(iii) above. Such Alternative Benefit shall commence to be paid at the time the Normal Benefit under subparagraphs 9(b)(i) and (ii) would otherwise have commenced to be paid. (C) Anything in paragraph 11 below to the contrary notwithstanding, in making calculations necessary to convert the Normal Benefit to an actuarially equivalent Alternative Benefit, and in determining retirement benefit entitlements under this Agreement generally, the party making such calculations shall be generally guided (except, for example, where otherwise expressly provided in this Agreement, or with respect to limitations and restrictions required by the Code for a tax-qualified plan as, e.g., Articles 11, 12 and 16 of the #001 Plan relating to limitation on benefits, contingent restrictions on benefits, and top-heavy rules, respectively) by the definitions, methods of calculation, discounts, terms, conditions and restrictions applicable to determining benefits and making calculations with respect to benefits under the #001 Plan, it being the principal intent of this subparagraph 9(b) merely to enhance the benefits payable under the #001 Plan and related excess benefit and supplemental retirement plans while retaining the methodology and concepts, to the extent feasible, of those plans. Words and 14 terms used in this Agreement and referring to retirement allowances and related matters, where applicable and unless otherwise expressly stated, shall have the meanings ascribed to them in the #001 Plan. (c) [Intentionally left Blank] -------------------------- (d) Election of Lump Sum Payment of Retirement ------------------------------------------ Allowances Upon or Following Retirement --------------------------------------- Anything in this Agreement to the contrary notwithstanding: (i) Upon the retirement of the Executive pursuant to subparagraph 9(b) above, the Executive may elect, if the Board of Directors in its discretion expressly so authorizes, to have his excess retirement allowance (and any related excess survivor retirement allowance) paid in a lump sum. In such case, such excess retirement allowances shall be valued and discounted in the manner set forth in subparagraph 10(g) relating to default in payments or benefits. (ii) In the event of a Potential Change in Control after the retirement of the Executive pursuant to subparagraph 9(b) above, if the Executive shall not have received a lump sum payment pursuant to the immediately preceding clause (i), the Executive may elect, if the Board of Directors in its discretion expressly so authorizes, to have his remaining excess retirement payments (and any related excess survivor retirement payments) paid upon the occurrence of a Change in Control, if any, in a lump sum determined in the manner set forth in the immediately preceding clause (i). If the Executive shall have died after retirement pursuant to subparagraph 9(b) above and prior to such Potential Change in Control, then in the event of a Potential Change in Control his spouse or other Beneficiary may elect, if the Board of Directors in its discretion expressly so authorizes, to have the spouse's or other Beneficiary's remaining excess survivor retirement payments, if any, paid upon the occurrence of a Change in Control, if any, in a lump sum determined in the manner set forth in the immediately preceding clause (i). A lump sum elected pursuant to this clause (ii) shall not be paid unless and until a Change in Control occurs. If a Change in Control does not occur within six (6) months after a Potential Change in Control, no such lump sum shall be paid by the Company, provided that the provisions of this clause (ii) shall again be applicable in the event of one or more subsequent Potential Changes in Control. (iii) The excess retirement allowance and payments and excess survivor retirement allowance and payments referred to in clauses (i) and (ii) above of this subparagraph 9(d) shall consist of the following: In the case of an election by the Executive pursuant to subparagraph 9(d)(i) above, all allowances under subparagraph 9(b)(i) and (ii) above, without regard to the offsets set forth in subparagraph 9(b)(iii) above, in excess of the respective benefits payable to the Executive and his spouse under the #001 Plan. If the Executive does not have a spouse at 15 the time at which the calculation is being made, then the calculation provided for in the next preceding sentence shall be made on the assumption that he had a spouse, his own age, at such time. In the case of an election by the Executive pursuant to subparagraph 9(d)(ii) above, all allowances under subparagraph 9(b)(i) and (ii) or (iv) above, whichever in fact is applicable to the Executive, (or the unpaid balance thereof) without regard to the offsets set forth in subparagraph 9(b)(iii) above, in excess of the respective benefits payable to the Executive and his spouse or other Beneficiary under the #001 Plan. In the case of an election by the spouse or other Beneficiary of the Executive pursuant to subparagraph 9(d)(ii) above, all allowances under subparagraph 9(b)(ii) or (iv) above, whichever in fact is applicable to such spouse or Beneficiary, (or the unpaid balance thereof) without regard to the offsets set forth in subparagraph 9(b)(iii) above, in excess of the respective benefits payable to the spouse or other Beneficiary under the #001 Plan. By accepting the lump sum provided for in clause (i) or (ii) above of this subparagraph 9(d), either from the Company or the trust contemplated by subparagraph 16(d) below, the Executive and his spouse or other Beneficiary release the Company from all obligations under all excess benefit, supplemental retirement and other retirement plans and agreements of the Company, its subsidiaries and affiliates applicable to the Executive and his spouse or other Beneficiary including this Agreement as amended from time to time but excluding the #001 Plan. (iv) For purposes of this Agreement, a "Potential Change in Control" shall be deemed to have occurred if (A) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control of the Company; (B) any person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change in Control of the Company; (C) any person, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing ten percent (10%) or more of the combined voting power of the Company's then outstanding securities; or (D) the Board of Directors adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control of the Company has occurred. 10. Post-termination Obligations of Executive; Default by Company ------------------------------------------------------------- All payments and benefits to the Executive under this Agreement after his full-time employment with the Company shall have terminated shall be subject to compliance with the following provisions, which compliance shall be subject to the proviso in 16 subparagraph 10(f) below. Anything in this paragraph 10 or elsewhere in this Agreement to the contrary notwithstanding, the Executive may continue to serve as a director, after his full-time employment with the Company shall have terminated, of any corporation which he has served as a director for the last six months of his full-time employment with the Company. (a) Assistance In Litigation ------------------------ The Executive shall, upon reasonable notice, furnish such information and proper assistance to the Company as may reasonably be required by the Company in connection with any litigation in which it or any of its subsidiaries or affiliates is or may become a party. (b) Detrimental Conduct ------------------- The Executive shall not to the material detriment of the Company knowingly disclose or reveal to any unauthorized person any manufacturing or trade secret or other confidential information relating to the Company, its subsidiaries or affiliates, or to any of the businesses operated by them, and confirms that such information constitutes the exclusive property of the Company. The Executive shall not otherwise knowingly act or conduct himself to the material detriment of the Company, its subsidiaries or affiliates, or in a manner which is materially inimical or contrary to their interests. The Executive recognizes that the restrictions on his activities contained in this Agreement are required for the reasonable protection of the Company and its investments. (c) Discoveries and Inventions -------------------------- If, while employed by the Company or during a period of one year after termination of such employment, the Executive shall have made, either solely or jointly with others, any discovery, improvement or invention which would pertain or relate in any way to the business, products, publications or processes of the Company, its subsidiaries or affiliates at the time of termination of his employment, such discovery, improvement or invention (whether or not of a patentable nature) shall be the exclusive property of the Company. The Executive shall execute and deliver to the Company without further compensation any documents which the Company may deem necessary or appropriate to prepare or prosecute applications for patents upon such discovery, improvement or invention, to assign and transfer to the Company his entire right, title and interest in and to such discovery, improvement or invention, and patents therefor, or otherwise more fully and perfectly to evidence the Company's ownership thereof. (d) Reimbursement of Expenses ------------------------- The Company shall pay or reimburse the Executive for all reasonable travel and other expenses incurred by the Executive in performing his obligations under this paragraph 10. (e) Competition ----------- The Executive shall not engage in competition with any of the businesses in which the Company, its subsidiaries or affiliates 17 may be engaged at the time of termination of his employment if such competition should be materially detrimental to the Company, its subsidiaries or affiliates. (f) Failure to Comply ----------------- If the Executive, for any reason other than death or disability, shall, without the written consent of the Company, fail to comply with any provision of this paragraph 10 or subparagraph 6(b) above, his rights to any future payments or other benefits hereunder shall terminate, and the Company's obligations to make such payments and provide such benefits shall cease; provided, however, that no failure to comply with any provision of this paragraph 10 or subparagraph 6(b) above shall be deemed to have occurred unless and until the Executive shall have received written notice on behalf of the Board of Directors of the Company, specifying the conduct alleged to constitute such failure, and has thereafter continued to engage in such conduct after a reasonable opportunity and a reasonable period, but in no event more than sixty days after receipt of such notice, to refrain from such conduct. In no event shall the Executive be under any obligation to repay to the Company any amounts theretofore paid to him. (g) Post-termination Default in Payments or Benefits ------------------------------------------------ If, after the Executive ceases to be an employee of the Company, the Company should (i) default in payment of all or any part of the payments required to be made hereunder or under the Legal Expense Agreement, or (ii) fail to pay for or provide any benefits required to be provided hereunder, and if the Company should not remedy such default or failure within thirty (30) days after having received notice of such default or failure from the Executive, his spouse, or such other person or entity who or which is entitled thereto, the applicable payments or benefits set forth in Exhibit D shall, at the sole --------- election of the Executive, his spouse, or such other person or entity then entitled thereto, exercised in writing signed by the Executive, his spouse or such other person or entity, and delivered to the Company within 90 days after the expiration of such thirty-day period, be accelerated and become immediately due and payable in a lump sum equal to the total of (x) the severance payment set forth in Exhibit D, if applicable, (y) the cost of acquiring insurance --------- policies which would provide the disability, medical and dental coverages set forth in Exhibit D, if applicable, and (z) the retirement payments set forth in --------- Exhibit D in an actuarially equivalent lump sum calculated by utilizing the 1983 - --------- GAM Table (or such other pensioner annuity mortality table as the Company with the Executive's written consent or, following his death, his spouse's or other Beneficiary's consent, shall determine) and discounted to a present value amount by applying a discount rate, equal to the arithmetic average of (i.e., one- twelfth of the sum of) the single employer interest rates for immediate annuities promulgated by the Pension Benefit Guaranty Corporation each month during the calendar year immediately 18 preceding the date of payment as set forth in Appendix B to Part 4044 of 29 Code of Federal Regulations or such successor to such Appendix B as may be in effect during such calendar year, to all such retirement payments which otherwise would become due thereafter. In the event the election referred to in the preceding sentence has been made, then the total amount due and payable from the Company pursuant to this subparagraph shall be the sum of all accelerated amounts, together with any expenses incurred in enforcing payment thereof (including all reasonable legal fees). In making the foregoing retirement payment calculations, the intent is to compute a lump sum amount which will provide the Executive and his spouse or other Beneficiary, as the case may be, with the same amount, after deduction of all federal, state and municipal income taxes, as he and his spouse or other Beneficiary, as the case may be, would have retained, after all such income taxes, had payments and benefits been made and provided as originally scheduled and without acceleration. By accepting such lump sum, the Executive and his spouse or other Beneficiary, as the case may be, release the Company from all obligations under all excess benefit, supplemental retirement and other retirement plans and agreements of the Company, its subsidiaries and affiliates applicable to the Executive and his spouse or other Beneficiary, as the case may be, including this Agreement as amended from time to time but excluding the #001 Plan. It is understood and agreed that this subparagraph 10(g) shall not apply to any default or failure to pay, as described in the first sentence of this subparagraph 10(g), which occurs during the Executive's period of employment; upon any such default or failure to pay, the Executive shall be entitled to such payments as may be applicable pursuant to subparagraph 8(a). 11. Determination of Benefits ------------------------- Whenever under this Agreement it is necessary to determine whether one benefit is less than, equal to or larger than another, whether or not such benefits are provided under this Agreement, such determination shall be made by the Company's independent consulting actuary, using mortality, interest and any other assumptions normally used at the time by such actuary in determining actuarial equivalents for the purpose of employee benefit plans of the Company. 12. (a) Time of Payment --------------- Anything in this Agreement to the contrary notwithstanding, the Company may, for its own administrative convenience or for any other reason deemed by it sufficient, accelerate payment to the Executive of any sums due under this Agreement following termination of his employment; provided, however, that payments by the Company under this Agreement in any one calendar year shall not, as a result of such acceleration, together with any payments required to be made under the pension plan of the Company, exceed an amount equal to (i) 80 percent of his monthly rate of salary paid in accordance with paragraph 4 for the last 19 full calendar month of his employment, multiplied by (ii) the number 12. (b) Withholding of Taxes -------------------- The Company may withhold from any benefits payable under this Agreement all federal, state, city or other taxes as shall be required pursuant to any law or governmental regulation or ruling. 13. Decisions by Company -------------------- Except as otherwise expressly provided in this Agreement, any decision or action by the Company relating to this Agreement, its operation or its termination, shall be made by the Board of Directors. Any decision or action of such Board shall, to the extent permitted by law, be by the affirmative vote of not less than three-fourths of the members of the Board of Directors then in office; provided, however, that in the event of any dispute as to any benefit payable under this Agreement, the Executive shall have the same rights as a Participant under the Company's pension plan in effect at the time with respect to the method of determining such dispute and enforcing his rights with respect thereto. 14. Prior Agreements ---------------- This Agreement shall supersede any prior employment or severance agreement between the Company or any predecessor of the Company and the Executive but this Agreement shall not affect or operate to reduce any benefit or compensation of a kind not expressly provided for in this Agreement, including, without limitation, any employee stock option or stock appreciation right, any grant of restricted shares or share units and any grant of performance shares or share units. 15. Consolidation or Merger ----------------------- Nothing in this Agreement shall preclude the Company from consolidating or merging into or with, or transferring all or substantially all of its assets to, another corporation which assumes this Agreement and all obligations of the Company hereunder. Upon such a consolidation, merger or transfer of assets and assumption, the term, "Company", shall refer to such other corporation and this Agreement shall continue in full force and effect. 16. (a) Non-assignability ----------------- Neither this Agreement nor any right or interest hereunder shall be assignable by the Executive or the beneficiaries of the Executive or by his legal representatives without the Company's prior written consent; provided, however, that nothing in this subparagraph 16(a) shall preclude (i) the Executive from designating a beneficiary to receive any benefit payable on his death, and (ii) the legal representatives of the estate of the Executive from assigning any rights hereunder to the person or persons entitled thereto under his will or, in the case of intestacy, to the person or persons entitled thereto under the laws of intestacy applicable to his estate. (b) No Attachment ------------- 20 Except as otherwise required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge or hypothecation or to execution, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. (c) Binding Agreement ----------------- This Agreement shall be binding upon and inure to the benefit of the Company, its successors and assigns. (d) Unfunded Obligations; Trust Agreement ------------------------------------- (i) All payments to be made hereunder shall be made from the general funds of the Company. To the extent that any person or entity acquires a right to receive any payment hereunder, such right shall be no greater than the right of an unsecured general creditor of the Company except to the extent otherwise provided by law. No person who is entitled to payments hereunder shall have any right, title or interest in or to any assets or investments which may be acquired or made by the Company to aid it in meeting its obligations hereunder. (ii) Anything in this subparagraph 16(d) or elsewhere in this Agreement to the contrary notwithstanding, the Company may provide the Executive with collateral security, in the form of a bank letter of credit, an interest in a trust or otherwise, to secure a portion of any or all of the Company's obligations to the Executive under this Agreement and any other agreement. In this connection, the Company has entered into a Trust Agreement substantially in the form attached hereto as Exhibit F and, under the circumstances and upon the --------- terms and conditions set forth therein, the Executive is a beneficiary under the Trust therein established, this Agreement and the Legal Expense Agreement (and its related memorandum) will be listed on Exhibit I of such Trust Agreement, the amounts to be deposited with the trustee under the Trust Agreement shall be those set forth on the Schedule of Amounts to be Deposited in Trust Upon a Potential Change in Control, a copy of which is attached hereto as Exhibit G, --------- and any other benefits which the Company, in its sole discretion, shall agree to secure by the Trust Agreement. (iii) If a Potential Change in Control should take place while the Executive is in the employ of the Company, the value of the benefits set forth in Exhibit G to be delivered by the Company to the trustee under such --------- Trust Agreement shall be equal to the total of (x) the severance, options, contingently credited shares and legal expenses payments set forth in Exhibit G, --------- (y) the cost of acquiring insurance policies which would provide the disability, medical and dental coverages set forth in Exhibit G, and (z) the retirement --------- payments for active employees set forth in Exhibit G; if a Potential Change in --------- Control should take place after the Executive shall have retired and if the Executive should not have received a lump sum payment pursuant to subparagraph 9(d)(i) above, the value of the benefits to be 21 delivered by the Company to the trustee under such Trust Agreement shall be the retirement payments for retired employees set forth in Exhibit G. --------- (iv) The value of the retirement payments shall be an actuarially equivalent amount calculated by utilizing the 1983 GAM Table (or such other pensioner annuity mortality table as the Company with the Executive's written consent or, following his death, his spouse's or other Beneficiary's consent, shall determine) and discounted to a present value amount by applying a discount rate, equal to the arithmetic average of (i.e., one-twelfth of the sum of) the single employer interest rates for immediate annuities promulgated by the Pension Benefit Guaranty Corporation each month during the calendar year immediately preceding the date of payment as set forth in Appendix B to Part 4044 of 29 Code of Federal Regulations or such successor to such Appendix B as may be in effect during such calendar year, to all such retirement benefits which otherwise would become due thereafter. In making the foregoing retirement payment calculations, the intent is to compute a lump sum payment which will provide the Executive and his spouse or other Beneficiary with the same amount of benefit, after deduction of all federal, state and municipal income taxes, as he and his spouse or other Beneficiary would have retained, after all such income taxes, had payments been made as originally scheduled and without acceleration. (v) Anything in this subparagraph 16(d) or elsewhere in this Agreement to the contrary notwithstanding, the amount to be paid by the Company to the trustee pursuant to the preceding provisions of this subparagraph 16(d) shall be reduced by the amount, if any, that the Board of Directors of the Company expressly determines, in its sole discretion on the advice of the Company's independent public accountants or its tax counsel or other experts selected by the Board of Directors, as a result of the application of the provisions of paragraph 21 below, is not expected to be paid by the trustee to the Executive and his beneficiary or beneficiaries. (vi) The Company shall continue to be liable to make all payments and provide all benefits required to be made and provided hereunder to the extent such payments have not been made or such benefits have not been provided through the above-mentioned trust. 17. (a) Amendment of Agreement ---------------------- No amendment or modification of this Agreement shall be deemed effective unless and until executed in writing. (b) No Waiver --------- No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel to enforce any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel. Any written waiver shall not be deemed a continuing waiver unless specifically stated, shall operate only to the specific term or condition 22 waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived. 18. Severability ------------ If for any reason any provision of this Agreement shall be held invalid, such invalidity shall not affect any other provision of this Agreement not so held invalid, and all other such provisions shall to the full extent consistent with law continue in full force and effect. If any such provision shall be held invalid in part, such invalidity shall in no way affect the rest of such provision not so held invalid, and the rest of such provision, together with all other provisions of this Agreement, shall likewise to the full extent consistent with law continue in full force and effect. 19. Headings -------- The headings of paragraphs are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 20. Governing Law ------------- The validity, interpretation, construction, performance and enforcement of this Agreement shall be governed by the laws of the State of New York without giving effect to the principles of conflict of laws thereof. 21. Parachute Tax ------------- (a) Except in the specific circumstance hereinafter described in this paragraph 21, the Company shall pay to the Executive the full amount to which he is entitled under this Agreement. (b) (i) If any payments or benefits received or to be received by the Executive under this Agreement, or any other payments or benefits received or to be received by the Executive from the Company or any other person, constitute "parachute payments" within the meaning of Section 280G(b)(2) or any successor provision of the Code (such payments or benefits being hereinafter referred to as the "Parachute Payments"), and (ii) if the aggregate present value of the Parachute Payments from all sources, minus (A) any excise tax imposed under Section 4999 of the Code (or any similar tax that may hereafter be imposed) (the "Excise Tax") and (B) the net amount of federal, state and local income tax on such aggregate present value, would be less than the maximum amount of Parachute Payments from all sources that can be paid without triggering the Excise Tax, after deduction of the net amount of federal, state and local income tax on such maximum amount, then (iii) the Parachute Payments to be paid by the Company to the Executive under this Agreement shall be reduced to a lump sum amount (if any) such that the aggregate present value of the Parachute Payments from all sources is equal to the maximum amount of Parachute Payments that can be paid without triggering the Excise Tax. 23 Anything in this subparagraph 21(b) to the contrary notwithstanding, it is understood and agreed that the amount to be paid by the Company to the Executive pursuant to this subparagraph 21(b) in the specific circumstance described herein may be less, but never more, than the amount to which he would otherwise be entitled under this Agreement. (c) All matters to be determined pursuant to subparagraph 21(b) including, without limitation, the existence or absence of any Parachute Payments, the aggregate present value of any Parachute Payments, the amount of the Excise Tax (if any), the net amount of federal, state and local income tax (assuming the highest applicable marginal rate in each case), the maximum amount of Parachute Payments that can be paid without triggering the Excise Tax, the amount of any reduction in the Parachute Payments to be paid by the Company to the Executive under this Agreement and the item or items (if any) to be reduced, shall be determined by the Executive or, following his death, his beneficiary or beneficiaries. The specifics of such determination shall be delivered in writing to the Company and to the trustee of the Trust referred to in subparagraph 16(d)(ii) above at the time of the Executive's termination within three years after a Change in Control, or as soon as practicable thereafter, (or, in the case of a lump sum payment pursuant to subparagraph 9(d)(ii) after the retirement of the Executive, at the time of a Change in Control or as soon as practicable thereafter) by the Executive or, following his death, his beneficiary or beneficiaries. The reasonable fees and expenses of such tax counsel and financial advisor as may reasonably be called upon to assist the Executive or his beneficiary or beneficiaries in the foregoing determinations shall be paid by the Company. Without limiting the generality of the immediately preceding sentence, the Executive or his beneficiary or beneficiaries may select as such financial advisor Hewitt Associates or such other person or firm as may be serving at the time as the Company's independent consulting actuary. 22. Notices ------- All notices, requests, demands and other communications provided for by this Agreement shall be in writing and shall be sufficiently given if and when mailed in the continental United States by registered or certified mail, return receipt requested, or personally delivered to the party entitled thereto at the address stated below, which address shall be such address as the addressee may have given most recently by a similar notice. Any such notice shall be deemed to have been received on the date of delivery. To the Company: Champion International Corporation One Champion Plaza Stamford, Connecticut 06921 Attention: Corporate Secretary 24 To the Executive: Mr. Richard E. Olson One Champion Plaza Stamford, CT 06921 23. Arbitration ----------- Any dispute between the Executive and the Company as to the interpretation or application of any of the provisions of this Agreement may, at the Executive's election, be determined by binding arbitration within the greater New York City metropolitan area or the State of Connecticut in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court of competent jurisdiction. All fees and expenses of such arbitration shall be paid by the Company subject to repayment by the Executive if and to the extent that a judgment should be rendered against him beyond appeal and such fees and expenses were not incurred by him while acting in good faith. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed and its seal to be affixed hereto, and the Executive has signed this Agreement, all as of September 18, 1997. CHAMPION INTERNATIONAL CORPORATION By /s/ Lawrence A. Bossidy ----------------------------------- Chairman of the Compensation and Stock Option Committee Attest: /s/ Lawrence A. Fox - ------------------------ Secretary /s/Richard E. Olson ------------------------------------ Richard E. Olson 25 Exhibit A to Agreement between Champion International Corporation and Richard E. Olson dated as of September 18, 1997 --------------------------------------------------------------- Exhibit A --------- [Paragraph 5] RETIREMENT PLAN FOR SALARIED EMPLOYEES ELIGIBILITY AND COST - -------------------------------------------------------------------------------- PLAN PARTICIPATION You are eligible to participate in the Salaried Retirement Plan if: . You are an active, non-represented, salaried employee or commissioned salesperson employed by Champion International Corporation (or by any of its subsidiaries or affiliated corporations which have adopted the plan); and . You have received credit for one year of eligibility service. Eligibility service is counted in the same way as vesting service (see page A-2). You become a participant on the first day of the month after you meet both of these requirements. There are no enrollment forms to complete; your participation begins automatically. PLAN COST Champion pays the full cost of your retirement plan by making contributions to a special retirement fund. The amount of Champion's contributions is determined with the help of an actuary. An actuary is an independent expert who determines how much money Champion must put into the fund to cover benefits provided by the plan. The actuary uses personnel data and the plan itself to calculate the amount of Champion's contributions. The assets of the retirement fund are held in trust. The money in the trust can only be used to pay benefits and administrative costs of the plan. It cannot be returned to Champion until all benefit commitments have been satisfied. All benefit payments are made from the assets of the plan. WHAT "SERVICE" MEANS - -------------------------------------------------------------------------------- In general, "service" means the length of time you work for Champion. But there are different "types" of service under the retirement plan, used in the following way: "vesting service" determines when you are entitled to your benefit; "credited service" determines the amount of your benefit. VESTING SERVICE Vesting service determines when you're entitled to receive plan benefits. It's counted in full years from your first day of work to the date you retire or leave Champion for another reason. For the plan, 365 days equals a year of vesting service. Any vesting service you earn while working for an affiliate of Champion may count under this plan, too. A-1 On or after January 1, 1976, the following provisions determine how you receive credit for vesting service: . You receive vesting service for any period you work for Champion International Corporation or its subsidiaries. . If you are absent from work for reasons other than termination, retirement, discharge, or death, you can receive up to 12 months of vesting service for: - periods for which you are paid (excluding periods for which you receive only unemployment compensation); - an approved leave of absence without pay, provided you return to work at or before the end of the leave. . You receive vesting service for any absence from work -- even if because of termination or layoff -- if you return within one year. . You receive vesting service during a military leave. . You receive vesting service during any period for which you receive payments for workers' compensation, short-term disability, or long-term disability; however, if it is determined that you deceptively or fraudulently received disability payments, vesting service will not be credited for that period. . You receive vesting service for any time required to be credited by federal law. . Vesting service is not credited during a layoff, unless you return to work within one year. . If you participated in the pension plan of a company that is now part of Champion, your vesting service under that plan will be counted along with your service under the Champion plan. CREDITED SERVICE Credited service is used to calculate the amount of your benefit. In general, you receive a full year of credited service for each calendar year (January 1 to December 31) you work for Champion. Your years of credited service are divided into different classifications, as shown below. You may also receive credit for years during which you are not actively at work, for example paid leaves of absence, military leaves, and periods for which you receive payments for workers' compensation, short-term disability, or long term disability. However, if it is determined that you deceptively or fraudulently received disability payments, credited service will not be credited for that period. Before January 1, 1976 - ---------------------- Generally speaking, if your employment has been uninterrupted, you will have credited service for the number of full years and months from your date of hire through January 1, 1976. If your service was interrupted by a termination of A-2 employment, your service before the termination may be counted. If you need more information, you can write to Benefits Administration in Hamilton, Ohio. On or After January 1, 1976 - --------------------------- Beginning January 1, 1976, you receive a full year of credited service for each full calendar year of employment as an eligible employee. If you are not an eligible employee for the entire year, you receive a partial year of credited service. The part of the year for which you receive credit is equal your actual compensation divided by your adjusted compensation for that year. (See pages A- 5 to A-6 for a definitions of actual and adjusted compensation.) Transfer from hourly to salaried - -------------------------------- If you were an hourly employee who transferred to salaried employee status, all your years of credited service -- both as an hourly employee and as a salaried employee -- will be counted once you have remained a salaried employee for two consecutive years following the transfer. Service in prior plans - ---------------------- If you participated in the pension plan of a company that is now a part of Champion, your credited service may be recognized along with your service under the Champion plan. Contact Benefits Administration in Hamilton, Ohio to see how this provision applies to your specific situation. BREAK IN SERVICE A break in service is an interruption of your employment that lasts longer than 12 consecutive months. The plan has special provisions that may allow you to retain some or all of your credited and vesting service if you have a break in service. Vested employees - ---------------- If you are vested in your retirement benefit when your break in service begins, when you return to Champion you will keep the vesting and credited service you earned before you left. Your participation in the retirement plan will continue as of your rehire date. You will not receive credited service for the years during which you were not employed by the Company. Non-vested employees - -------------------- If you are not vested when your break in service begins, your vesting and credited service depend on when you leave and how soon you return. These provisions are outlined below: . Before January 1, 1976: if you had a break in service before January 1, 1976, and you were not vested at that time, you should contact Benefits Administration in Hamilton, Ohio to see whether any of your prior service will be counted as vesting or credited service. . From January 1, 1976 through December 31, 1984: if you had a break in service during the period from January 1, 1976 A-3 through December 31, 1984, and the length of time you were away was less than your years of service prior to the break, then you retain your previous years of vesting and credited service. . On or after January 1, 1985: if you had a break in service on or after January 1, 1985, and the length of time you were away was less than five years or less than the period of your prior service, you retain your previous years of vesting and credited service. In addition, you won't have a break in service if you're on maternity or paternity leave, as long as you return to work within two years. Maternity or paternity leave means you're away from work because of: . your pregnancy; . the birth of your child; . your adoption of a child; or . caring for your child immediately after birth or adoption. You will receive vesting service during this period up to a maximum of 12 months. If you have any questions about the way maternity or paternity leave affects your service, see your local Benefits Representative. WHAT DETERMINES YOUR BENEFITS - -------------------------------------------------------------------------------- Your retirement benefit is based on your credited service, your final average earnings, and your primary Social Security amount. FINAL AVERAGE EARNINGS Your final average earnings are your average earnings during whichever of the following periods produces the highest average: . Five consecutive calendar years out of the nine calendar years before the year you leave Champion. (For example, if you leave Champion during 1995, the nine calendar years would include 1986 through 1994.) If you leave as of December 31, that calendar year will also be included so that a total of ten years will be included. (For example, if you leave on December 31, 1995, the years included would be 1986 through 1995.) . The last five consecutive years you work for Champion. Your compensation - ----------------- In calculating your final average earnings, the plan uses your actual compensation, which is your total pay received as an employee during a calendar year. It includes your contributions to the savings plan, your before-tax contributions for benefits, payments of deferred compensation, and bonuses (except Special Bonus Awards). For commissioned salespersons, actual A-4 compensation is gross commission for the plan year minus expenses for that year. The following payments are excluded: - - Company contributions to any benefit plan, for example, Champion's matching contribution to the savings plan; - - any relocation reimbursement; - - severance pay; - - commissions instead of expense reimbursement; - - tuition reimbursement; - - safety awards; - - special bonus awards; - - unused or accrued vacation pay; and - - cash payments of flexible benefits dollars not used to buy benefits. The maximum earnings that can be used for any year are determined by federal law. This amount is $150,000 in 1995 and 1996, $160,000 in 1997 and 1998 and is indexed to increase periodically. Partial years - ------------- If you are not an eligible employee for the entire calendar year, the plan uses your adjusted compensation for that year. This is your actual compensation converted to an annual amount. For example, if you only worked for six months during the year, and your actual compensation for that period was $18,000, your adjusted compensation would be $36,000. However, if your final year is a partial calendar year, your adjusted compensation for the last five consecutive years you worked for Champion will include: . your compensation for the four consecutive calendar years prior to your final partial year; plus . your actual compensation during the final partial year (including any incentive award); plus . a pro-rated amount for the remainder of the partial year, based on your actual compensation in the fifth previous year (excluding any incentive award). If you have less than five years of service - ------------------------------------------- If you receive actual compensation for less than five consecutive years, then your final average earnings will be the average for the years you receive actual compensation. If your final year is a partial year, it will be calculated as explained above, using your year of hire in place of the fifth previous year. PRIMARY SOCIAL SECURITY AMOUNT Your primary Social Security amount is an estimate of the amount of Social Security benefits you have earned during your working career. It does not include any benefits for which your spouse or family may be eligible. A-5 To calculate your Social Security amount, the plan estimates your earnings in the years before you were employed by Champion. Instead of using this estimate, you can supply Benefits Administration with your actual earnings history -- obtained from the Social Security Administration -- and have your primary Social Security benefits recomputed using your actual earnings history. However, the use of actual earnings could result in a greater or lesser net retirement plan benefit. HOW YOUR BENEFITS ARE CALCULATED Your retirement benefit is calculated using a formula based on your years of credited service at Champion (page A-3), your final average earnings (page A- 4), and your primary Social Security amount (page A-5). PLAN FORMULA The plan formula calculates your benefit as a Single-Life Annuity -- an annual benefit paid to you on a monthly basis beginning at your normal retirement date (or your termination date, if later) and continuing for your lifetime. The annual benefit is calculated in this way: 1.667% of your final average earnings, times your years of credited service up to a maximum of 30. MINUS 1.667% of your primary Social Security benefit, times your years of credited service up to a maximum of 30. PLUS If you have more than 30 years of service, .5% of your final average earnings, times your years of credited service beyond 30 years. "How You Receive Plan Payments" beginning on page A-11 has more information on methods of payment. EXAMPLE John Gilbert has worked for Champion for 35 years. His final average earnings are $35,000, or $2,916 per month. He is 65 years old, which is his Social Security retirement age. $2,916.00 (final average monthly earnings) X .01667 = $48.610 X 30 years of service = $1,458.30 --------- MINUS ----- $1001.00 (monthly primary age 65 Social Security benefit) X .01667 = $16.683 X 30 years of service $500.50 ------- PLUS ---- $2,916.00 (final average monthly earnings) X .005 = $ 14.58 A-6 x 5 years of service with Champion in excess of 30 = $ 72.90 ------- ($1,458.30 - $500.50 = $957.80; $957.80 + $72.90 = $1030.70) Total = $ 1030.70 monthly retirement income from the retirement plan - ----- + 1001.00 primary monthly Social Security benefit --------- $2,031.70 Total Monthly Retirement Income ========= WHEN YOU CAN RETIRE - -------------------------------------------------------------------------------- There are three types of retirement under this plan: normal retirement, postponed retirement, and early retirement. NORMAL RETIREMENT Eligibility - ----------- You are eligible for normal retirement under the plan when you reach "normal retirement age," which is age 65. If you were hired on or after January 1, 1988, your normal retirement age is the later of age 65 or the fifth anniversary of your plan participation. Determining your benefit - ------------------------ Your normal retirement benefit is calculated by using the plan formula (see explanation beginning on page A-6 and example on page A-6), which uses your years of credited service, final average earnings, and estimated primary Social Security amount at normal retirement age. You can start receiving your benefits on the first day of the month coinciding with or following your normal retirement age. POSTPONED RETIREMENT Eligibility - ----------- You may choose to work past your normal retirement age, and postpone your retirement. Determining your benefit - ------------------------ Your postponed retirement benefit is calculated by using the same formula as for normal retirement, using your years of credited service, final average earnings, and estimated primary Social Security at the date of your retirement (instead of normal retirement age). You can start receiving your benefits on the first day of the month coinciding with or following your date of retirement. However, retirement benefits must begin by April 1 of the year after you reach age 70 1/2, even if you are still actively at work. EARLY RETIREMENT Eligibility - ----------- . Age 55 and Ten-year rule: If you became a plan participant on or after January 1, 1986, or if you are a former St. Regis employee who became a participant when the St. Regis plan became part of this plan on October 1, 1985, you are eligible A-7 for an early retirement benefit once you reach age 55 and have ten years of vesting service. . Age 55 : If you were a plan participant before January 1, 1986, you are eligible for an early retirement benefit once you reach age 55. This rule does not apply to former St. Regis employees. Determining your benefit - ------------------------ Your early retirement benefit is calculated by using the same formula as for normal retirement, using your years of credited service, final average earnings, and estimated primary Social Security amount at your early retirement date (instead of normal retirement date). You can start receiving your benefits on the first day of the month coinciding with or following your date of retirement from Champion (or if you continued employment with a purchaser of any Champion operation after the sale, then following your date of retirement from a purchaser or age 65, if sooner). =============================================================================== If benefits start before you reach age 62, your monthly payment will be reduced, to take into account that your benefit may be paid over a longer period. =============================================================================== The percentage of the formula benefit that is paid depends on your age when benefits begin. The reduction is 4/10ths of 1% for each month that your benefits are paid before your 62nd birthday. If your benefits start on or after your 62nd birthday, your benefits will not be reduced. The chart below shows the appropriate percentage paid at each age.
========================================================= EARLY RETIREMENT BENEFIT REDUCTION SCHEDULE --------------------------------------------------------- Age When Benefits Begin Percent of Benefit Paid ----------------------- ----------------------- --------------------------------------------------------- 55 66.4% 56 71.2% 57 76.0% 58 80.8% 59 85.6% 60 90.4% 61 95.2% 62 and older 100% =========================================================
IF YOU RETURN TO WORK If you return to work for Champion after you retire, payments from the plan may change. If you were receiving early retirement benefits, your benefits will stop. When you retire A-8 again, your new benefit will be recalculated to take into account any additional credited service you've earned and the benefits you already received. If you return to work after normal retirement, benefit payments will continue while you're working, as long as you work fewer than eight days each month. If you start working eight or more days each month, you'll receive a notice from Champion, and benefits will stop. When you leave Champion again, your benefit will be recalculated, as described earlier. IF YOU LEAVE CHAMPION - -------------------------------------------------------------------------------- VESTING Vesting is the process by which you earn a non-forfeitable right to a benefit through your service with Champion. You are vested in your normal retirement benefit once you have five years of vesting service. If you leave before you are vested -- before you complete five years of service with Champion - -- you are not entitled to a benefit under the plan. BEFORE YOU ARE ELIGIBLE FOR EARLY RETIREMENT If you terminate employment with Champion before being eligible for early retirement, but after you are vested, you will be considered a terminated vested participant. As a terminated vested participant, you're eligible to receive retirement benefits beginning at age 65, or as early as age 55 if you meet the requirements for the "Age 55 and Ten-Year Rule" or "Age 55 Rule" on page A-10. However, if you continued employment with a purchaser of any Champion operation after the sale, your terminated vested benefits commence after the date you leave employment with a purchaser or age 65, if sooner. Terminated vested benefits paid prior to age 65 will be reduced for each month benefits start before age 65 to take into account that your benefit may be paid over a longer period. The percentage of your benefit that is paid depends on your age when benefits begin. The following chart indicates the percent of your benefit that is paid each year beginning at age 55 through age 65. A-9
=============================================================== TERMINATED VESTED BENEFIT REDUCTION SCHEDULE --------------------------------------------------------------- Age When Benefits Begin Percent of Benefit Paid ----------------------- ----------------------- --------------------------------------------------------------- 55 50.0% 56 53.3% 57 56.7% 58 60.0% 59 63.3% 60 66.7% 61 73.3% 62 80.0% 63 86.7% 64 93.3% 65 100% ===============================================================
Terminated vested participants are not eligible for the post-retirement death benefit, or any post-retirement medical plan coverage. However, your spouse may be entitled to the Pre-Retirement Surviving Spouse Benefit (described on page A-13). AFTER YOU ARE ELIGIBLE FOR EARLY RETIREMENT If you leave Champion after becoming vested and you are eligible for early retirement, you will be considered an early retired participant and you may choose to receive retirement benefits beginning on the first day of any calendar month following your termination, or application for benefits, if later. Benefits received prior to age 62 will be subject to the reductions described on page A-8). IF YOU BECOME DISABLED - -------------------------------------------------------------------------------- If you become disabled, you may continue to earn credited service and vesting service, if you meet certain qualifications. If you become disabled and qualify for temporary disability benefits or long term disability benefits from Champion, you continue to earn years of credited service and vesting service for as long as you qualify. However, if it is determined that you deceptively or fraudulently received disability payments, service will not be credited for the period. Also, service will not be credited for any period during which your disability benefits cease due to ineligibility during a period of incarceration. IF YOU RECOVER FROM YOUR DISABILITY If you recover from your disability and return to work, the plan will count your credited service before, during, and after the disability. If you recover and do not return to work with Champion and you are vested in your pension benefit, your benefits will be A-10 calculated as if you left Champion on the date your disability ends. You may then be eligible for deferred vested or early retirement benefits, depending on your age and vesting service. HOW YOU RECEIVE PLAN PAYMENTS - -------------------------------------------------------------------------------- The way your benefits are paid can be just as important to you as the --- amount that's paid. Because people's needs are different, the plan lets you - ------ choose how your benefits will be paid. You have your choice of several payment options. Unless you choose differently, your benefits will be paid by a standard payment form. . If you're single, your standard payment form is the Single-Life Annuity ---------------- Option. . If you're married when payments start, your standard payment form is the ------------------------------------- Joint and 50% Surviving Spouse Annuity Option. You also have your choice of optional payment forms under the plan. However, if you're married and choose any payment option other than the standard form, your spouse must agree to your choice by signing your election form in front of your local Benefits Representative or a notary public. If you decide to take a payment option other than your standard form, you must make your election within 90 days before your retirement. YOUR PAYMENT OPTIONS 1. Single-Life Annuity Option This payment form provides a monthly payment to you only for your lifetime. It will pay you the largest monthly amount because the income isn't continued to someone else after your death. If you're single, this is your standard form of payment. 2. Joint and 50% Surviving Spouse Annuity Option This payment form provides a monthly income to you, with an amount equal to half of your monthly payments paid to your spouse after your death. If you're married, this is your standard payment form unless you and your spouse waive this payment form in writing. Under this payment form, your payments are reduced because they are expected to be made over two lifetimes instead of one. The amount of the reduction is based on your age and your spouse's age when you retire. After your death, 50% of your benefit will be paid each month for the lifetime of your spouse. If your spouse dies before you do, your benefit payments continue in the same amount as before, and no payments are made after your death. 3. Contingent Annuitant Option Under this payment option, you may continue all or part of your monthly benefit to any survivor you name. This method pays a reduced benefit to you during your lifetime, A-11 with 50%, 75%, or 100% of that benefit continuing to the survivor you named. The benefit is reduced because payments are expected to be made over two lifetimes instead of one. The amount of the reduction is based on the percentage of your benefit you choose to continue to your survivor, your age, and your survivor's age. If the survivor you name is not your spouse, the law restricts the percentage your survivor can receive. 4. Life-Period Certain Option Under this payment option, plan benefits are paid monthly for your lifetime, with payments guaranteed for 5, 10, 15, or 20 years. If you die before the guaranteed number of payments are made, payments in the same amount are made to your designated survivor for the rest of the guaranteed period. For example, if you choose to have payments guaranteed for 15 years and die after receiving payments for nine years, your survivor would continue to collect the same benefit for six years -- the remainder of the guaranteed period. If you die after receiving all payments for the guaranteed period, no payments are made to your survivor. Monthly benefits under this method are reduced because they are guaranteed for a certain period. 5. Full Cash Refund Annuity Option This payment option provides you with a monthly benefit for your life with a guarantee that the total annuity value (determined at time of retirement) will be paid. If you die before receiving monthly payments equal to the annuity value, the difference between what has been paid to you and the actual annuity value will be paid to your beneficiary in a lump sum, in monthly payments, or a combination of both. If you die after the monthly payments you have received equal or exceed the annuity value, no additional payments will be made after your death. There is a reduction in your benefit to compensate for the possible benefits to your beneficiary. 6. Social Security Adjustment Option If you retire before you are eligible for your primary benefit under Social Security (either at age 62 or Social Security retirement age), this option may be of interest to you. The Social Security retirement age is gradually increasing from age 65 to age 67, depending on your date of birth. This option permits you to have your retirement benefit adjusted, to provide a constant total income (your retirement benefits and Social Security income) both before and after your Social Security benefit begins. Under this option, you will receive a larger amount from the retirement plan before your Social Security benefit A-12 begins and a smaller amount from the retirement plan after your Social Security benefit begins. This option does not provide a benefit to anyone after your death. 7. Lump-sum Payment If your retirement benefit is less than $50 a month when calculated as a Single-Life Annuity, or if the lump-sum value of your benefit is less than or equal to $3,500, your benefit may be paid in a single lump sum. CHOOSING A PAYMENT OPTION The payment option you choose goes into effect on the date benefits start. If you're rejecting your standard payment form, you must choose or change payment methods within 90 days before benefits start. WHEN YOUR BENEFITS ARE PAID Usually, you receive your retirement benefit in monthly payments, with checks drawn on the first of every month. The date your retirement benefit starts depends on when you retire and when you want payments to start. Although you may choose to have your retirement benefit start earlier, payments must begin by April 1 of the year after you reach age 70 1/2. ---- PAYING TAXES ON YOUR BENEFITS Benefits you receive from the plan are considered taxable income. Federal tax law requires Champion to automatically withhold taxes on your benefits before they're paid to you, unless you specifically request otherwise in writing. The amount that Champion withholds depends on your filing status and the number of exemptions you claim. IF YOU DIE BEFORE RETIREMENT Once you are vested, the retirement plan provides for continuing income to your spouse in certain circumstances. PRE-RETIREMENT SURVIVING SPOUSE BENEFIT If you and your spouse have been married for at least one year on the date of your death, the Pre-Retirement Surviving Spouse Benefit is payable in the event that you die before your benefit payments begin. The Pre-Retirement Surviving Spouse Benefit is a monthly benefit equal to the monthly amount your spouse would have received under the Joint and 50% Surviving Spouse Annuity (described on page A-11). . If your death occurs at or after the earliest date you could take early retirement under the plan, the benefit is determined as though you had retired the day before your death. A-13 . If your death occurs before the earliest date you could take early retirement under the plan, the benefit is determined as though you had left Champion the day before your death and elected to start receiving pension benefits at the earliest possible date. Payment will begin on the earliest date you could have commenced your benefit. Once the Pre-Retirement Surviving Spouse Benefit becomes payable, it will be paid for the remainder of your spouse's lifetime even if your spouse remarries. When your spouse dies, the benefit will cease. For terminated vested participants, there is a charge for this coverage in the form of a reduction in your pension benefit. The reduction is based on the number of years the coverage is in effect. The maximum reduction is 8%, and the reduction factors are related to age at coverage, as follows:
==================================================================== TERMINATED VESTED, PRE-RETIREMENT SURVIVING SPOUSE BENEFIT REDUCTION SCHEDULE -------------------------------------------------------------------- Age Range Reduction per Year --------- ------------------ -------------------------------------------------------------------- 35-44 .1% 45-54 .2% 55-64 .5% 65 and older 0% ====================================================================
Coverage under the Pre-Retirement Surviving Spouse Benefit and the resulting charge to terminated vested employees does not apply: . For any period of time during which you are not married. . For any period of time during which a valid waiver of the Pre-Retirement Surviving Spouse Benefit coverage is in effect. You can waive this coverage by completing a form -- requiring your signature and your spouse's notarized or properly witnessed signature -- specifically electing not to have the coverage. IF YOU DIE AFTER RETIREMENT - -------------------------------------------------------------------------------- If you retire from Champion, the plan pays a lump sum death benefit to your beneficiary when you die. This benefit is in addition to any other continuing income you provide to a survivor through your plan payment options. RETIREMENT BEFORE AGE 62 If you retire before age 62, your beneficiary will receive a post- retirement death benefit of $5,000 upon your death. A-14 RETIREMENT ON OR AFTER AGE 62 If you retire at or after age 62, your beneficiary will be entitled to a post-retirement death benefit when you die. If you retire after age 65, the percentage will be determined as if you retired at age 65. The minimum benefit in any year is $5,000.
================================================================================ LUMP-SUM DEATH BENEFIT REDUCTION SCHEDULE Year of Retirement Your Post-retirement Death Benefit ------------------ ---------------------------------- First year 100% of your final average earnings Second year 80% of your final average earnings Third year 60% of your final average earnings Fourth year 40% of your final average earnings Fifth year 20% of your final average earnings Six year and thereafter $5,000 ================================================================================
APPLYING FOR BENEFITS - -------------------------------------------------------------------------------- You should talk to your local Benefits Representative about information on applying for benefits at least 90 days before you plan to retire. Someone will help you fill out the application form and explain your rights under the plan. If Benefits Administration requests, you may be asked to provide the following information: . proof of your age and your spouse's age; . your Social Security number and/or your spouse's Social Security number; and . proof of your marriage. If you die before retirement, Champion will help your beneficiary apply for any benefits which may be due. IF A BENEFIT IS DENIED You or your beneficiary is entitled to a full review if a benefit is denied, in whole or in part. For information on the process for reviewing denied benefits, see the "General Information" section. SITUATIONS AFFECTING YOUR PLAN BENEFITS - -------------------------------------------------------------------------------- Champion's Salaried Retirement Plan is designed to provide you with a monthly income after you retire. But some situations could affect your plan benefits. . No benefits are payable if you leave Champion permanently for any reason before you are vested (see page A-9). A-15 . If you don't notify Champion when you plan to retire or leave Champion, payments will begin only after your application for benefits is received and approved. . If you don't keep your most recent address on file and Champion can't locate you, benefit payments may be delayed. . If you continued employment with a purchaser of any Champion operation after a sale, payments can not commence until after the date you leave employment with a purchaser or age 65, if sooner. . If it is determined that you deceptively or fraudulently received disability payments, service will not be credited for that period. ASSIGNMENT OF BENEFITS Your retirement benefits belong to you and may not be sold, assigned, transferred, pledged, or garnisheed, under most circumstances. If you become divorced or separated, certain court orders could require that part of your benefit be paid to someone else -- your spouse or children, for example. This is known as a Qualified Domestic Relations Order. As soon as you're aware of any court proceedings which may affect your retirement benefit, contact your local personnel or Benefits Representative. If you (or your beneficiary) are unable to care for your own affairs, any payments due may be paid to someone who is authorized to conduct your affairs. This may be a relative or a court-appointed guardian. OTHER INFORMATION YOU SHOULD KNOW - -------------------------------------------------------------------------------- If the plan changes or ends, certain laws apply which protect part or all of your plan benefits. Champion reserves the right to end, suspend, or amend the plan at any time, in whole or in part. The Pension and Employee Benefits Committee is authorized to take any of these actions. Termination of the plan is unlikely, however, if circumstances make it impossible or inadvisable to continue the plan, benefits would be paid as described below. IF THE PLAN IS TERMINATED If the plan is terminated, or if there is a partial termination affecting you, you will immediately be 100% vested as of the termination date. Benefits will be paid, according to law, as described below. No money in the fund can be returned to Champion until all required benefit commitments have been satisfied. Trust fund assets would be used first to provide benefits to retirees, beneficiaries, and active participants. PENSION BENEFIT GUARANTY CORPORATION (PBGC) Benefits under the Champion Salaried Retirement Plan are guaranteed by the Pension Benefit Guaranty Corporation, a federal A-16 government agency, if the plan terminates. Generally, this agency guarantees most vested normal retirement benefits, early retirement benefits, and certain disability and survivors' pensions. However, it does not guarantee all types of benefits under covered plans, and the amount of protection is subject to certain limitations. The agency guarantees vested benefits at the level in effect on the date of plan termination. However, if a plan has been in effect less than five years before plan termination, or if benefits have been increased in the five years before termination, the whole amount of the plan's vested benefits or the benefit increase may not be guaranteed. In addition, there is a ceiling, which is adjusted periodically, on the amount of monthly benefit the PBGC guarantees. For more information on the PBGC insurance protection and its limitations, ask the Plan Administrator or the PBGC. Inquiries to the PBGC should be addressed to The Pension Benefit Guaranty Corporation; 2020 K Street, N.W.; Washington, D.C. 20006; Attention: Control Branch. The PBGC also may be reached by calling (202) 778-8840. ADDITIONAL PLAN INFORMATION - -------------------------------------------------------------------------------- LIMITATIONS ON BENEFITS The federal tax laws place limitations on the amount of benefits that may be received from the plan. As a general rule, your total annual benefit from this plan and any other plans cannot exceed 100% of your compensation. There is also a dollar limit that federal tax laws place on your annual benefit payable at Social Security normal retirement age. The dollar limit is indexed to increase each year. This amount would be reduced for early retirement, optional forms of benefit payments, and/or participation in other retirement or savings plans. TAX CONSIDERATIONS Generally speaking, your retirement income from Champion is taxable as ordinary income to you under current Internal Revenue Service regulations. As for your Social Security retirement income, separate tax rules govern its taxability. As a result, your Social Security retirement income may or may not be taxable to you. Unless you elect otherwise, taxes will be withheld from your benefit payments under the Salaried Retirement Plan. In all cases, it is advisable to seek competent tax advice during your first year of retirement in order to become completely aware of the tax filing requirements and your tax liabilities. ANNUAL BENEFIT STATEMENT A-17 Once a year, you will receive a statement telling you, among other things: . Whether you have a vested right to a retirement benefit at normal retirement age; . If you are vested, what your benefits would be at normal retirement if you stopped working under the plan as of the statement date; and . If you are not vested, how many more years you have to work in order to become vested in a retirement benefit. You can request this statement by writing to the Vice President, Benefits. However, such a request cannot be made more often than once a year. FINANCIAL INFORMATION LINE The Financial Information Line is an automated voice-response system that is accessible from any touch tone phone. A personal identification number (PIN) keeps your inquiries confidential; only you can gain access to information about your pension or your savings accounts. Call the Financial Information Line Monday through Friday, 7:30 a.m. to 10:00 p.m., or Saturday and Sunday, 9:00 a.m. to 2:30 p.m. All hours are Eastern Standard Time. . Using a touch tone phone, dial one of the Financial Information Line access numbers: either 1-800-323-6334 or Chamcon 868-4844. . Enter your Social Security number. . Enter your PIN. . Identify the type of information you are seeking by pressing "2" for pension or "3" for savings. If you choose the pension option, you'll be able to: . Receive a pension estimate for any age in the future. . Get written confirmation of up to five pension estimates mailed to your home within several days. . Receive general information on retirement options; how to retire; and various pension plan provisions, such as eligibility, vesting, and early retirement. FIDUCIARIES The individuals who are responsible for the operation and administration of employee benefit plans are called "fiduciaries." The fiduciaries will continue to operate and administer the plans in a reasonable and prudent manner with the exclusive interest of you and other plan participants and beneficiaries in mind. A-18 Exhibit B to Agreement between Champion International Corporation and Richard E. Olson dated as of September 18, 1997 --------------------------------------------------------------- Exhibit B --------- [subparagraph 6(a)] LONG-TERM DISABILITY INSURANCE OPTIONS SUMMARY CHART - --------------------------------------------------------------------------------
--------------------------------------------------------------------------------- LONG-TERM DISABILITY INSURANCE OPTIONS --------------------------------------------------------------------------------- Assures Continuation of Option This Amount of Earnings ------ ----------------------- 1 50% 2 60% 3 70% ---------------------------------------------------------------------------------
ENROLLMENT - -------------------------------------------------------------------------------- Coverage for temporary disability is automatic; you decide what level of long-term disability coverage best meets your needs. TEMPORARY AND LONG-TERM DISABILITY COVERAGE You're eligible for coverage if you're an active, non-represented, salaried employee of Champion. Your coverage will begin automatically on the first day you are actively at work. You are not eligible for coverage while you are on a family care leave of absence or on any leave of absence. Champion pays the full cost of your temporary disability insurance coverage; it is not part of the flexible benefits program. For long-term disability coverage you have three levels of coverage to choose from (see page B-1). You must complete a Flexible Benefits Enrollment Form indicating your choice of coverage. ================================================================================ If your earnings change during the year, your coverage amount and your price for coverage will remain the same through the end of the year. ================================================================================ The plan is "self-funded." This means that Champion pays plan benefits from Company funds. Champion also processes claims and approves all benefit payments. HOW DISABILITY COVERAGE WORKS - -------------------------------------------------------------------------------- TEMPORARY DISABILITY If you are ill or injured, Champion's temporary disability plan will pay you a weekly benefit for up to 180 days for any one illness or injury. B-1 For the first seven calendar days you are absent due to disability, your regular pay will continue at the discretion of local management. (You are responsible for notifying your local Benefits Representative if you are not able to return to work after seven days.) Beginning on the eighth day, the temporary disability plan pays 100% of your earnings. For this plan, earnings is defined as your base pay in effect at the time of the disability. (If you are a Nationwide commissioned sales representative, the definition of earnings is different and you should contact your local Benefits Representative for details.) Temporary disability benefits continue as long as you are disabled through the 180th day of your disability, or until you retire, whichever happens first. Qualifying for benefits - ----------------------- To qualify for temporary disability benefits, you must complete a request for disability claim form and have a signed statement from your physician certifying that you cannot perform the regular duties of your job. These statements, must be completed, signed, and returned to your local Benefits Representative by the eighth day of your disability. You may be asked to furnish additional physician's statements. Also, from time to time, you may be required to have an examination by a Champion-appointed physician at Champion's expense. =============================================================================== If you are asked by Benefits Administration to submit to an examination by a Champion-appointed physician and, after being examined, there is a difference of opinion as to whether you qualify for temporary disability benefits, the decision of Benefits Administration is final and conclusive. =============================================================================== Periods of disability - ---------------------- You receive temporary disability benefits from the eighth through the 180th day of each period of disability. If you return to work after receiving temporary disability benefits, and within two weeks you become disabled again from the same cause (or related cause), both absences will be considered as one period of disability. However, if you return to work for at least two or more weeks between absences, your second absence will be considered a second period of disability. Payment frequency - ----------------- Temporary disability benefits are paid on the same basis as regular payroll checks. Payroll deductions - ------------------ Any payroll deductions which you authorized as an active employee will continue while you are receiving temporary B-2 disability benefits. Such payroll deductions include federal, state, and local taxes; Social Security taxes; deductions for your benefits; and savings plan contributions. LONG-TERM DISABILITY The long-term disability (LTD) plan provides you with a source of income if you become disabled and can't work for an extended period of time. For the first 180 days of disability, your pay is continued through Champion's temporary disability plan. After this period, you can have a percentage of your earnings continued through the long-term disability plan. You can choose from three coverage options, each of which continues a percentage of your earnings if you are totally disabled and can't work. For this plan, earnings is defined as the higher of your previous year's flexible benefits earnings or benefit earnings. The percentage the plan guarantees to pay (50%, 60%, or 70% of earnings) is a combination of all disability benefits -- such as benefits for you or your family from Social Security, or income from workers' compensation -- and payments from the Champion plan. The Champion plan benefit will never be less than $50 per month after other offsets have been made. Your benefits continue for as long as you remain totally disabled, up to age 65. If your disability begins after age 60, your benefits may be paid for five years or until your date of recovery, whichever occurs first. Qualifying for benefits - ----------------------- During the first 24 months. To qualify for the first 24 months of long-term disability benefits, you must be under the regular care of a physician and your physician must certify that you are unable to perform any part of your regular job. However, you may be requested to perform a job other than your regular position as long as it is within the limitations as outlined by your attending physician. Beyond 24 months. For long-term disability benefits to continue beyond 24 months, you must be considered totally and permanently disabled. This means that you are unable to do any job for which you are reasonably qualified by your training, education, and experience. Your physician -- and in certain cases a physician appointed by the Plan Supervisor -- must certify your disability. And, statements from the physician may be requested periodically during your long-term disability if they are needed to facilitate a review of your disability condition. B-3 ======================================================================== If you are asked by Benefits Administration to submit to an examination by a Champion-appointed physician and, after being examined, there is a difference of opinion as to whether you qualify for long-term disability benefits, the decision of Benefits Administration is final and conclusive. ======================================================================== Periods of disability - --------------------- If you return to work after receiving long-term disability benefits, and you become disabled again within six months for the same or a related cause, both absences will be considered as one period of disability and long-term disability plan benefits will begin again immediately. However, if you return to work for at least six months between absences, your second absence will be considered a new period of temporary disability. Payment frequency - ----------------- Long-term disability benefits are paid monthly. Payments are made to disabled employees on the first of each month, covering the prior month. Payroll deductions - ------------------ Applicable federal and state taxes may be deducted from your long-term disability benefit. If you have an outstanding savings plan loan balance when you go on long-term disability, you may elect to have loan repayments deducted from your long-term disability benefit. You will automatically be transferred to the lowest deductible medical and dental plans, and any required contributions for coverage will be deducted from your monthly long-term disability check. Group life insurance coverage continues, but contributions end. All other contributions and benefit coverages will also end. OTHER INFORMATION ABOUT YOUR DISABILITY BENEFITS - -------------------------------------------------------------------------------- There are some special provisions that can affect the way your disability benefits are paid. BENEFITS FROM OTHER SOURCES If you are receiving disability payments from other sources, Champion will adjust the amount of your payment so that you don't receive less than the plan's $50 minimum monthly benefit from -- all income sources. Champion's disability benefit will be reduced by: . any amounts paid or payable under workers' compensation or any occupational disease act or law; . any amounts paid or payable under the state-sponsored temporary disability plans of California, Hawaii, New York, B-4 New Jersey, Rhode Island, and Puerto Rico, or any other state or federal disability law in effect at the time of disability; . the amount paid or payable to you and your family from Social Security disability and/or retirement plans; . 50% of the amount of any earned income from rehabilitative employment performed during your disability period and 100% of any other earned income; and . any commissions paid during your disability period, except commissions paid instead of expense reimbursement. WHEN BENEFITS AREN'T PAID Disability benefits will not be paid for: . Any period during which you are not under the regular care of a physician, or if a physician determines that you no longer qualify for benefits; . Periods during which you fail to comply with the plan; . Any period during which you are incarcerated for any reason (however, benefit eligibility may resume after your release from incarceration if you otherwise qualify at that time); . Disability due to or attributable to: - intentionally self-inflicted injury or attempted suicide while sane or insane; - illness or injury while committing a felony; - war or any act of war, declared or undeclared; - military, naval, or any service in the armed forces of any country; or - a disability or illness caused by an accident related to employment other than with Champion. ALCOHOL OR OTHER SUBSTANCE ABUSE REHABILITATION The disability plans will provide benefits during periods of alcohol or other substance abuse rehabilitation if you are receiving care and treatment from a licensed doctor. All services must be received in an approved substance abuse treatment facility. An approved substance abuse treatment facility is one that is accredited by the National Institute on Alcohol Abuse and Alcoholism, the American Hospital Association, or the Joint Council on Hospital Accreditation. It may also be a facility that is recognized for treatment to aid in the recovery from alcohol or other substance abuse and which is approved by an appropriate state agency. REHABILITATIVE WORK INCOME The disability plans support your participation in rehabilitative work programs. While you are receiving temporary or long-term disability benefits, you can increase your income during the first 30 months you are disabled by doing rehabilitative work. B-5 For the plans, rehabilitative work means participation in an approved rehabilitation program in any occupation in which you are employed for wage or profit. Any work you do while you are unable to fully perform your own job qualifies as rehabilitative work as long as such work is approved by the Plan Supervisor. If you accept rehabilitative employment, and this employment is approved by Champion, your disability benefits will not stop. If the rehabilitative employment is outside of Champion, your disability benefits will be reduced by 50% of what you have earned during your rehabilitation. If the rehabilitative employment is within Champion, your disability benefits will be reduced by 100% of what you have earned. WHEN AND HOW BENEFITS ARE PAID - -------------------------------------------------------------------------------- To receive benefits from either of the disability plans, you must submit a claim as well as written proof of your disability, and you must be under the regular care of a doctor. To file a claim, contact your local Benefits Representative. PAYMENT OF BENEFITS Temporary disability benefits are paid on the same basis as your regular payroll check. Long-term disability benefits are paid on the first of each month, covering the prior month. PAYING TAXES ON YOUR BENEFITS When you receive temporary disability benefits, income taxes are withheld from your payments. Social Security taxes are withheld until the end of your sixth month of disability. The price you pay for long-term disability coverage is deducted from your pay on an after-tax basis. As a result, the benefits you receive from the plan are not taxable when you receive them. IF A CLAIM FOR BENEFITS IS DENIED If a claim is denied, in whole or in part, you are entitled to a full review. For information on the process for reviewing denied claims, see the "General Information" section. APPLICATION FOR BENEFIT PAYMENT A signed application form, including physician's statements must be filed with the Plan Supervisor within one year after the occurrence of the event for which a claim for disability benefits is made. Failure to file the required application within the one-year period will completely discharge the disability plans and Champion. HOW DISABILITY AFFECTS YOUR OTHER BENEFITS - -------------------------------------------------------------------------------- When you're away from work because of a disability, your other benefits could be affected. While you're receiving temporary disability benefits from Champion, no changes will be made to your other Champion benefits. B-6 If you are receiving long-term disability payments, you are not eligible to participate in Champion's flexible benefits program. However, you will have the following benefit coverages: (provided you make the required contributions) core level of medical coverage until you become eligible for Medicare, at which time, your coverage will be provided under the Medicare Supplemental Plan; core level of dental coverage; and your core level of group life insurance coverage. All other flexible coverages cease. If you have medical coverage under an HMO when you begin long-term disability, you can continue that coverage if you continue to meet the HMO's eligibility rules. If you are on temporary or long-term disability and are receiving benefits from the Champion plan, you continue to earn credit for service under the retirement plan and the savings plan. If you are not receiving benefits from the Champion disability plans for any reason specified on beginning on page B-7, then you will not earn credit for service during that period for retirement and savings plan purposes. If you become totally and permanently disabled, as defined on page B-3, the full value of your savings account is available to you after 30 months. SITUATIONS AFFECTING YOUR DISABILITY BENEFITS - -------------------------------------------------------------------------------- Your Champion disability coverage is designed to provide you with income protection you can rely on. But some situations could cause a loss or delay of plan benefits. The most important of those situations are summarized here. WHEN BENEFITS ARE DELAYED OR NOT PAID . Benefits may be delayed until you notify the appropriate person of your disability. However, benefits may be payable if you can show that the delay was unavoidable. . If your address changes while you're receiving benefits, and you don't notify Champion, benefits will be delayed. . If your plan benefits are overpaid or underpaid, benefit payments will be adjusted until there is no more overpayment or underpayment. . If you do not provide satisfactory medical evidence of your disability, benefits could stop. . If your disability ends, payments stop. WHEN COVERAGE ENDS Your disability coverage will end if: . you leave Champion; . you no longer meet or comply with the terms, provisions, and/or requirements for participation in the plan; . you retire; B-7 . you enter the armed forces of any country on a full-time basis; or . the plan ends. Unlike some of your other insurance, disability coverage can't be converted to an individual policy when your coverage ends. OTHER INFORMATION YOU SHOULD KNOW - -------------------------------------------------------------------------------- Here is some important information about your disability benefit plans. IF THE PLAN IS ENDED OR MODIFIED Champion reserves the right to end, suspend, or amend the plan at any time, in whole or in part. If any material changes are made, however, some claims may still be paid. SUBROGATION RIGHTS If you recover any charges for covered expenses from a third party (for instance, an auto policy or as a result of a lawsuit), the amount of the benefit which Champion's plan will pay will be reduced by the amount you recover. If benefits have already been paid, you will have to reimburse Champion. ATTACHMENT OF BENEFITS To the extent permitted by law, all rights and benefits under this plan are exempt from execution, attachment, garnishment, or other legal process from your debts or liabilities. MISREPRESENTATION AND/OR FRAUD Misrepresentation of material facts or other fraudulent or negligent actions may result in disciplinary action including, but not limited, to your termination of employment, loss of plan coverage, or even legal action. Willful fraud will be prosecuted at the discretion of Champion. B-8 Exhibit C to Agreement between Champion International Corporation and Richard E. Olson dated as of September 18, 1997 --------------------------------------------------------------- Exhibit C --------- [subparagraph 8(a)(ii)(y)] Schedule of Certain Benefit Coverages during the Severance Payment Period under Subparagraph 8(a)(i) after a Termination following a Change in Control --------------------------------------------------- ` Disability: Same as for active employees. ` Medical: Difference between active employee medical benefit and retiree medical benefit, if any. ` Dental: Same as for active employees. For other benefit coverages after termination following a Change in Control, see subparagraph 8(a)(ii)(x) and (z). Exhibit D to Agreement between Champion International Corporation and Richard E. Olson dated as of September 18, 1997 --------------------------------------------------------------- Exhibit D --------- [subparagraph 10(g)] Schedule of Payments and Benefits upon a Breach after Cessation of Employment -------------------------------------- ` Severance: 2 years termination payments (or the unpaid balance thereof); however, payments not to cover the period, if any, after the last day of the month next preceding the Executive's normal retirement date under the Company's pension plan. Payments are based on highest total of salary and annual bonus for any calendar year of employment. ` Retirement: (A) In the case of a breach during a period in which the Company is making payments under subparagraph 8(a)(i) above by reason of a "termination" as defined in subparagraph 8(b) above, all allowances under subparagraph 9(b)(i) and (ii) hereof without regard to the offsets set forth in subparagraph 9(b)(iii) hereof in excess of the respective benefits payable to the Executive and his spouse under the #001 Plan. If the Executive does not have a spouse at the time as of which the lump sum calculation is being made, then such calculation shall be made on the assumption that he had a spouse, his own age, at such time; (B) In the case of a breach other than during the period referred to in clause (A) above, all allowances under subparagraph 9(b)(i) and (ii) or (iv) above, whichever in fact is applicable, (or the unpaid balance thereof) without regard to the offsets set forth in subparagraph 9(b)(iii) above in excess of the respective benefits payable to the Executive and his spouse or other Beneficiary under the #001 Plan. ` Disability: Same as for active employees, during the 2 year termination payment period or balance thereof. ` Medical: Difference between active employee medical benefit and retiree medical benefit, during the 2 year termination payment period or balance thereof. ` Dental: Same as for active employees, during the 2 year termination payment period or balance thereof. Exhibit E to Agreement between Champion International Corporation and Richard E. Olson dated as of September 18, 1997 --------------------------------------------------------------- Exhibit E --------- [Intentionally left blank] Exhibit F to Agreement between Champion International Corporation and Richard E. Olson dated as of September 18, 1997 --------------------------------------------------------------- Exhibit F --------- [subparagraph 16(d)] FORM OF TRUST AGREEMENT TRUST AGREEMENT TRUST AGREEMENT (the "Trust"), dated as of February 19, 1987, by and between Champion International Corporation, a New York corporation (the "Company"), and Connecticut National Bank (the "Trustee"). WHEREAS, the Company is obligated under the individual agreements set forth on Exhibit I (together with any additional agreements included on Exhibit I pursuant to Section 2.01(c) hereof, the "Agreements") to make specified payments to certain of the Company's executives (together with any additional executives and retired executives included on Exhibit I pursuant to Section 2.01(c) hereof, the "Executives"); and WHEREAS, the aforesaid obligations of the Company are not funded or otherwise secured, and the Company has agreed, to the extent practicable, to assure that the future payment of certain of said obligations will not be improperly withheld in the event that a "Change in Control" (as defined herein) of the Company should occur; and WHEREAS, for purposes of assuring that such payments will not be improperly withheld, the Company desires to deposit with the Trustee, subject only to the claims of the Company's existing or future general creditors in the event of bankruptcy or insolvency (as hereinafter provided), amounts of cash or marketable securities sufficient to fund such payments; NOW, THEREFORE, in consideration of the mutual agreements contained herein and for other good and valuable consideration, the parties hereto agree as follows: ARTICLE I THE AGREEMENTS -------------- SECTION 1.01 Agreements. The agreements subject to this Trust ---------- consist of the Agreements listed from time to time on Exhibit I hereof respectively. The Company shall continue to be liable to the Executives to make all payments required under the terms of such Agreements to the extent such payments have not been made pursuant to this Trust. ARTICLE II TRUST AND THE TRUST CORPUS -------------------------- SECTION 2.01 Trust. ----- (a) The Company will deliver to the Trustee to be held in trust hereunder, concurrently with the execution of this Trust, the sum of $100 in cash, and upon the occurrence of a "Potential Change in Control" (as defined in Section 3.02), (i) an additional amount in cash (or in marketable securities having a fair market value equal to such amount, or some combination thereof) representing the sum of the amounts, determined as provided in Section 4.02, which is estimated to be sufficient to fund the Company's obligations to pay to the Executives certain amounts and benefits due to them pursuant to the Agreements and (ii) an amount estimated by the Trustee to be sufficient to pay all of the Trustee's fees and expenses hereunder with respect to the period of time that this Trust Agreement shall be in effect. (b) The payment by the Company pursuant to Section 2.01(a)(i) hereof shall be accompanied by a Payment Schedule for each Executive as required by Section 4.02(a) hereof. (c) The Company may, subject to the provisions of Section 2.01(d), from time to time prior to the occurrence of a Change in Control revise Exhibit I in order to include thereon (A) additional Executives, and (B) additional Agreements with respect to any Executive. If a revised Exhibit I is delivered to the Trustee with respect to any Executive upon or after the occurrence of a Potential Change in Control, the Company will deliver to the Trustee, concurrently with such revised Exhibit I: (x) a Payment Schedule or a revised Payment Schedule, as applicable, with respect to such Executive which complies with Section 4.02(a) and which sets forth the additional amount delivered to the Trustee with respect to such Executive, and (y) an amount which is estimated to be sufficient when added to the amount or amounts previously delivered to the Trustee to fund the Company's obligations under the Payment Schedule or the revised Payment Schedule, as applicable, pursuant to such Executive's Agreements. Such Payment Schedule or revised Payment Schedule shall be effective in accordance with the provisions of Section 4.02(b). A revised Exhibit I shall be effective upon the later of (C) receipt by Trustee of such revised Exhibit I and (D) receipt by the Trustee of all amounts required under this Section 2.01(c), if any, and such revised Exhibit I shall supersede any and all such Exhibits previously delivered to the Trustee. (d) In no event may Exhibit I be revised to eliminate any Executive or any Agreements with respect to any Executive without such Executive's written consent, except as provided in the following sentence. Prior to the occurrence of a Change in Control, the Company shall deliver instructions to the Trustee to delete the name of, and the Agreements with respect to, an Executive from Exhibit I promptly following the termination of his employment with the Company prior to the occurrence of a Change in Control. The Trustee shall make such deletions and shall be able to rely upon such instructions and shall have no duty to inquire with respect to the termination of such Executive's employment with the Company. The deletions described in the immediately preceding sentence may not be made with respect to instructions delivered to the Trustee on or after the occurrence of a Change in Control of the Company. Notwithstanding the foregoing, following a Potential Change in Control the Company may, in its discretion, add retired Executives and their agreements with the Company to Exhibit I in accordance with Section 2.01(c) to assure that the payment of certain amounts payable by the Company to such retired Executives under such agreements will not be improperly withheld following a Change in Control. SECTION 2.02 Trust Corpus. ------------ (a) As used herein, the term "Trust Corpus" shall mean the amounts delivered to the Trustee as described in Section 2.01 and 4.02(b) hereof in whatever form held or invested as provided herein. The Trust Corpus shall be held, invested and reinvested by the Trustee in cash or marketable securities only in accordance with this Section 2.02. The Trustee shall use its good faith efforts to invest or reinvest from time to time all or such part of the Trust Corpus as it believes prudent under the circumstances in either one or a combination of the following investments: (i) investments in direct obligations of the United States of America or agencies of the United States of America or obligations unconditionally and fully guaranteed as to principal and interest by the United States of America, in each case maturing within one year or less from the date of acquisition; or (ii) investments in negotiable certificates of deposit (in each case maturing within one (1) year or less from the date of acquisition) issued by a commercial bank organized and existing under the laws of the United States of America or any state thereof having a combined capital and surplus of at least $1,000,000,000, including the Trustee's banking department; provided, however, that the Trustee shall not be liable for any failure to - ----------------- maximize the income earned on that portion of the Trust Corpus as is from time to time invested or reinvested as set forth above, nor for any loss of income due to liquidation of any investment which the Trustee, in its sole discretion, believes necessary to make payments or to reimburse expenses under the terms of this Trust. (b) The Trust is intended to be grantor trust within the meaning of Section 671 of the Internal Revenue Code of 1986, as amended (the "Code"), and except as hereinafter provided, all interest and other income earned on the investment of the Trust Corpus shall be the property of the Company and shall not constitute a part of the Trust Corpus. Except as provided in Section 4.02(a), the interest and other income earned in any calendar quarter shall be paid over to the Company by the Trustee as promptly as practicable after the end of such calendar quarter. (c) All losses of principal in respect of, and expenses (including, as provided in Section 5.01(g) hereof, any expenses of the Trustee) charged against, the Trust Corpus shall be for the account of the Company and the Company shall be obligated to promptly reimburse the Trust Corpus for any loss in principal amount of, or expense charged against, the Trust Corpus except to the extent that such amounts have been applied to reduce amounts payable to the Company pursuant to Section 2.02(b) hereof. To the extent any such losses and expenses are not reimbursed by the Company, the aggregate amount payable to an Executive under the applicable Payment Schedule shall be reduced by a portion of such losses and expenses, as determined on a pro rata basis. ARTICLE III CHANGE IN CONTROL ----------------- SECTION 3.01 Definition of Change in Control. ------------------------------- For purposes of this Trust, a Change in Control of the Company shall be deemed to have occurred if (a) any "person" (as defined in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the combined voting power of the Company's then outstanding securities; (b) during any period within two (2) consecutive years (not including any period prior to the Company's 1987 Annual Meeting of Shareholders) there shall cease to be a majority of the Board of Directors comprised as follows: individuals who at the beginning of such period constitute the Board of Directors and any new director(s) whose election by the Board of Directors or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved; or (c) the shareholders of the Company approve (i) a plan of complete liquidation of the Company or (ii) the sale or other disposition of all or substantially all the Company's assets. SECTION 3.02 Definition of a Potential Change in Control. For ------------------------------------------- purposes of this Trust, a Potential Change in Control shall be deemed to have occurred if (a) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control of the Company; (b) any person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change in Control of the Company; (c) any person, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing ten percent (10%) or more of the combined voting power of the Company's then outstanding securities; or (d) the Board of Directors adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control of the Company has occurred. SECTION 3.03 Notification of the Trustee. The Company shall notify --------------------------- the Trustee of the occurrence of a Potential Change in Control and the Company shall or an Executive may notify the Trustee of the occurrence of a Change in Control, and the Trustee may rely on such notice or on any other actual notice, satisfactory to the Trustee, of such a change or potential change which the Trustee may receive. The Trustee shall have no obligation to make an independent determination as to the occurrence of a Potential Change in Control or Change in Control. ARTICLE IV RELEASE OF THE TRUST CORPUS --------------------------- The Trustee shall hold the Trust Corpus in its possession under the provisions of this Trust Agreement until authorized to deliver the Trust Corpus or any specified portion thereof as follows: SECTION 4.01 Delivery to the Company. ----------------------- (a) Any amount in excess of $100 delivered to the Trustee pursuant to Section 2.01 hereof or otherwise constituting part of the Trust Corpus shall be returned to the Company, unless within six (6) months of such delivery to the Trustee a Change in Control shall have occurred. Such six month period shall be renewed (i) for any Potential Change in Control which occurs during any initial six month period or (ii) by a resolution adopted by the Board of Directors and delivered to the Trustee by the Company to the effect that such an initial six month period (or a six month period that is renewed in accordance with clause (i) of this Section 4.01(a)) shall start anew. (b) Any amount held by the Trustee for the benefit of an Executive shall be paid to the Company immediately following the final payment of all amounts payable to such Executive pursuant to the terms of the Executive's Agreement, as certified to the Trustee by the Executive. (c) Upon the termination of the Trust as provided in the first sentence of Section 6.01(a), the Trustee shall pay to the Company the amount of the Trust Corpus, less all payments, expenses, taxes and other charges under this Trust Agreement as of such date of termination, provided that in the event that the Trust shall continue with respect to one or more Executives in accordance with the provisions of Section 6.01(b), the Trustee shall pay to the Company the amount that would have been payable to the Company if the Trust had terminated as provided in Section 6.01(a), less (i) the amounts subject to litigation or arbitration for each such Executive, as certified to the Trustee by each such Executive, and (ii) an amount estimated by the Trustee to be sufficient to pay all of the Trustee's fees and expenses with respect to the additional period of time that the Trust shall continue in effect pursuant to Section 6.01(b). SECTION 4.02 Deliveries to Executives. ------------------------ (a) The Company shall deliver to the Trustee, upon the occurrence of a Potential Change in Control, a separate schedule for each Executive (the "Payment Schedule") indicating (x) the amounts delivered to the Trustee for the benefit of each such Executive pursuant to Section 2.01(a)(i) in accordance with such Executive's Agreements and (y) the amounts payable in respect of such Executive, or providing a formula or instructions acceptable to the Trustee for determining the amounts so payable. The Payment Schedule shall include instructions as to the amount of interest, if any, accruing in respect of an Executive and such instructions may be revised from time to time prior to the occurrence of a Change in Control. Each Payment Schedule also shall be delivered by the Company to such Executive. The aggregate payment to be made hereunder to an Executive by the Trustee shall not exceed the aggregate amount delivered to the Trustee for the benefit of such Executive as indicated in the Payment Schedule applicable to such Executive. The Trustee shall make payments to each Executive under the Payment Schedule applicable to such Executive upon receipt by the Trustee of a written request for payment signed by the Executive or, following his death, his beneficiary or beneficiaries. Such request shall set forth each of the following items: (i) the specific amount of payment requested, (ii) the specific Agreement or Agreements and the specific section or sections of such Agreements under which such payment is to be made, (iii) the existence or absence of any "excess parachute payment" (as defined in Section 280G of the Code) respecting the amount payable to such Executive in accordance with the applicable Payment Schedule and (iv) the amount of any reduction in the amount otherwise payable to such Executive in accordance with the applicable Payment Schedule and the item or items to be reduced, if any. The Trustee shall rely upon such written request in making payments under the Payment Schedule and shall have no duty to inquire into the amounts, instructions or formulas set forth in the Payment Schedule or the Executive's right to such payments. (b) The Company may from time to time after the occurrence of a Potential Change in Control deliver concurrently to the Trustee (i) a revised Payment Schedule with respect to any Executive which sets forth the aggregate amounts payable with respect to such Executive and (ii) an amount which is estimated to be sufficient when added to the amount or amounts previously delivered to the Trustee to fund the Company's obligations pursuant to such Executive's Agreements. A revised Payment Schedule shall be effective upon the later of (x) receipt by the Trustee of such revised Payment Schedule and (y) receipt by the Trustee of all amounts required under Section 4.02(b)(ii) and such revised Payment Schedule shall supersede any and all Payment Schedules previously delivered by the Company to the Trustee with respect to such Executive. (c) Except as provided in this Section 4.02(c), a revised Payment Schedule may not reduce the amounts payable with respect to an Executive pursuant to the prior Payment Schedule for such Executive except with the written consent of such Executive. (i) After a Potential Change in Control and before a Change in Control, the Company shall deliver to the Trustee, promptly following the termination of an Executive's employment with the Company, a revised Payment Schedule with respect to such Executive which deletes all of the amounts set forth on the prior Payment Schedule for such Executive. The Trustee may rely upon such revised Payment Schedule and shall have no duty to inquire with respect to the termination of such Executive's employment with the Company. The Trustee shall return to the Company all amounts previously delivered by the Company to the Trustee for the benefit of such Executive. Notwithstanding the foregoing, following a Potential Change in Control the Company may, in its discretion, deliver Payment Schedules for retired Executives in accordance with Section 4.02(a) hereof. (ii) After a Potential Change in Control and before a Change in Control, the Company may deliver a revised Payment Schedule with respect to an Executive which reduces the amounts payable in respect of such Executive pursuant to his prior Payment Schedule as the result of a more accurate calculation by the Company of the amount of the benefits to which such Executive is entitled pursuant to his Agreements. The Trustee may rely on such revised Payment Schedule and shall have no duty to inquire with respect to said calculation. The Trustee shall return to the Company an amount equal to such reduction. A revised Payment Schedule of the type described in this Section 4.02(c) may not be delivered to, or honored by, the Trustee on or after the occurrence of a Change in Control of the Company. A revised Payment Schedule shall be effective upon its receipt by the Trustee and shall supersede any and all Payment Schedules previously delivered by the Company to the Trustee with respect to such Executive. (d) The Trustee shall be permitted to withhold from any payment due to an Executive hereunder the amount required by law to be so withheld under federal, state and local withholding requirements or otherwise, and shall pay over to the appropriate government authority the amounts so withheld. The Trustee may rely on instructions from the Company as to any required withholding and shall be fully protected under Section 5.01(g) hereof in relying on such instructions. (e) Except as otherwise provided herein, in the event of any final determination by the Internal Revenue Service or a court of competent jurisdiction, which determination is not appealable or the time for appeal or protest of which has expired, or the receipt by the Trustee of a substantially unqualified opinion of tax counsel selected by the Trustee with the written consent of the Company, which determination determines, or which opinion concludes, that the Executives or any particular Executive, is subject to federal income taxation on amounts held in Trust hereunder prior to the distribution to the Executives or Executive of such amounts, the Trustee shall, on receipt by the Trustee of such opinion or notice of such determination, pay to each Executive the portion of the Trust Corpus includible in such Executive's federal gross income. SECTION 4.03 Deliveries to Creditors of the Company. It is the -------------------------------------- intent of the parties hereto that the Trust Corpus is and shall remain at all times subject to the claims of the general creditors of the Company in the event of bankruptcy or insolvency as hereinafter provided, but in no other event. Accordingly, the Company shall not create a security interest in the Trust Corpus in favor of the Executives or any creditor. If the Trustee receives the notice provided for in Section 4.04 hereof, or otherwise receives actual notice that the Company is insolvent or bankrupt as defined in Section 4.04 hereof, the Trustee will make no further distributions of the Trust Corpus to any of the Executives but will deliver the entire amount of the Trust Corpus only as a court of competent jurisdiction, or duly appointed receiver or other person authorized to act by such a court, may direct to make the Trust Corpus available to satisfy the claims of the Company's general creditors. The Trustee shall resume holding the Trust Corpus under the terms hereof and resume any distribution of Trust Corpus to the Executives under the terms hereof, upon no less than thirty (30) days advance notice to the Company, if it determines that the Company was not, or is no longer, bankrupt or insolvent. Unless the Trustee has actual knowledge of the Company's bankruptcy or insolvency, the Trustee shall have no duty to inquire whether the Company is bankrupt or insolvent. SECTION 4.04 Notification of Bankruptcy or Insolvency. The Company, ---------------------------------------- through its Board of Directors and Chief Executive Officer, shall advise the Trustee promptly in writing of the Company's bankruptcy or insolvency. The Company shall be deemed to be bankrupt or insolvent in the following circumstances: (a) The Company is subject to a pending proceeding as a debtor under the Bankruptcy Reform Act of 1978, as amended; or (b) The Company shall generally not pay its debts as such debts become due or shall cease to pay its debts in the ordinary course of business. ARTICLE V TRUSTEE ------- SECTION 5.01 Trustee. ------- (a) The duties and responsibilities of the Trustee shall be limited to those expressly set forth in this Trust, and no implied covenants or obligations shall be read into this Trust against the Trustee. (b) If all or any part of the Trust Corpus is at any time attached, garnished, or levied upon by any court order, or in case the payment, assignment, transfer, conveyance or delivery of any such property shall be stayed or enjoined by any court order, or in case any order, judgment or decree shall be made or entered by a court affecting such property or any part thereof, then and in any of such events the Trustee is authorized, in its sole discretion, to rely upon and comply with any such order, judgment or decree, and it shall not be liable to the Company or any Executive by reason of such compliance even though such order, judgment or decree subsequently may be reversed, modified, annulled, set aside or vacated. (c) The Trustee shall maintain such books, records and accounts as may be necessary for the proper administration of the Trust Corpus, including, without limitation, as provided in Article II hereof, and shall render to the Company, on or prior to each January 31 following the date of this Trust until the termination of this Trust (and on the date of such termination), an accounting with respect to the Trust Corpus as of the end of the then most recent calendar year (and as of the date of such termination). The Trustee will at all times maintain a separate bookkeeping account for each Executive to which it will credit each amount delivered by the Company to the Trustee with respect to such Executive. Upon the written request of an Executive or the Company, the Trustee shall deliver to such Executive or the Company, as the case may be, a written report setting forth the amount held in the Trust for such Executive (or each Executive if such request is made by the Company) and a record of the deposits made with respect thereto by the Company. Unless the Company or any Executive shall have filed with the Trustee written exceptions or objections to any such statement and account within one hundred eighty (180) days after receipt thereof, the Company or the Executive shall be deemed to have approved such statement and account, and in such case the Trustee shall be forever released and discharged with respect to all matters and things reported in such statement and account as though it had been settled by a decree of a court of competent jurisdiction in an action or proceeding to which the Company and the Executive were parties. (d) The Trustee shall not be liable for any act taken or omitted to be taken hereunder if taken or omitted to be taken by it in good faith, absent the gross negligence or wilful misconduct of the Trustee. The Trustee shall also be fully protected in relying upon any notice given hereunder which it in good faith believes to be genuine and executed and delivered in accordance with this Trust. (e) The Trustee may consult with legal counsel to be selected by it, and the Trustee shall not be liable for any action taken or suffered by it in accordance with the advice of such counsel. (f) The Trustee shall be reimbursed by the Company for its reasonable expenses incurred in connection with the performance of its duties hereunder and shall be paid reasonable fees for the performance of such duties in the manner provided by paragraph (g) of this Section 5.01. (g) The Company agrees to indemnify and hold harmless the Trustee from and against any and all damages, losses, claims or expenses as incurred (including expenses of investigation and fees and disbursements of counsel to the Trustee and any taxes imposed on the Trust Corpus or income of the Trust) arising out of or in connection with the performance by the Trustee of its duties hereunder, other than such damages, losses, claims or expenses arising out of the Trustee's gross negligence or wilful misconduct. Any amount payable to the Trustee under paragraph (f) of this Section 5.01 or this paragraph (g) shall be paid by the Company promptly upon demand therefor by the Trustee or, in the event that the Company fails to make such payment, from the Trust Corpus. In the event that payment is made hereunder to the Trustee from the Trust Corpus, the Trustee shall promptly notify the Company in writing of the amount of such payment. The Company agrees that, upon receipt of such notice, it will deliver to the Trustee to be held in the Trust an amount in cash (or in marketable securities or in some combination thereof) equal to any payments made from the Trust Corpus to the Trustee pursuant to paragraph (f) of this Section 5.01 or this paragraph (g). The failure of the Company to transfer any such amount shall not in any way impair the Trustee's right to indemnification, reimbursement and payment pursuant to paragraph (f) of this Section 5.01 or this paragraph (g). SECTION 5.02 Successor Trustee. The Trustee may resign and be ----------------- discharged from its duties hereunder at any time by giving notice in writing of such resignation to the Company and each Executive specifying a date (not less than thirty (30) days after the giving of such notice) when such resignation shall take effect. Promptly after such notice, the Company (or, if a Change in Control shall previously have occurred, Executive(s) having at least 65% percent of all amounts then held in the Trust credited to their accounts) shall appoint a successor trustee, such trustee to become Trustee hereunder upon the resignation date specified in such notice. If the Company fails to appoint a successor trustee or if such Executive(s) are unable to so agree upon a successor trustee within thirty (30) days after such notice, the Trustee shall be entitled, at the expense of the Company, to petition a United States District Court or any of the courts of the State of New York having jurisdiction to appoint its successor. The Trustee shall continue to serve until its successor accepts the trust and receives delivery of the Trust Corpus. The Company (or, if a Change in Control shall previously have occurred, Executive(s) having at least 65% percent of all amounts then held in the Trust credited to their accounts) may at any time substitute a new trustee by giving fifteen (15) days notice thereof to the Trustee then acting. In the event of such removal or resignation, the Trustee shall duly file with the Company and, on and after a Change in Control, the Executives a written statement or statements of accounts and proceedings as provided in Section 5.01(c) hereof for the period since the last previous annual accounting of the Trust, and if written objection to such account is not filed as provided in Section 5.01(c) hereof, the Trustee shall to the maximum extent permitted by applicable law be forever released and discharged from all liability and accountability with respect to the propriety of its acts and transactions shown in such account. The Trustee and any successor thereto appointed hereunder shall be a commercial bank which is not an affiliate of the Company, but which is a national banking association or established under the laws of one of the states of the United States, and which has equity in excess of $100 million. SECTION 5.03 Settlement of Accounts. Notwithstanding any other ---------------------- provision of this Agreement, in the event of the termination of the Trust, or the resignation or discharge of the Trustee, the Trustee shall have the right to a settlement of its accounts, which accounting may be made, at the option of the Trustee, either (a) by a judicial settlement in a court of competent jurisdiction; or (b) by agreement of settlement, release and indemnity from the Company to the Trustee. ARTICLE VI TERMINATION, AMENDMENT AND WAIVER --------------------------------- SECTION 6.01 Termination. ----------- (a) Except as provided in Section 6.01(b) of this Agreement, this Trust shall terminate forty-two months after the occurrence of a Change in Control, or, if earlier, upon the earliest of either of the following events: (i) the exhaustion of the Trust Corpus; or (ii) the final payment of all amounts payable to all of the Executives pursuant to the Agreements, as certified to the Trustee by each Executive. Promptly upon termination of this Trust, any remaining portion of the Trust Corpus, less all payments, expenses, taxes and other charges under this Trust Agreement as of such date of termination, shall be paid to the Company. (b) Notwithstanding any other provision of this Agreement, in the situation where the payments under an Executive's Agreements are the subject of litigation or arbitration, and if the Trust Corpus has not been exhausted with respect to such Executive, the Trust shall not terminate and the funds held in the Trust with respect to such Executive shall continue to be held by the Trustee until the final resolution of such litigation or arbitration. The Trustee may assume that no Agreement of an Executive is the subject of such litigation or arbitration unless the Trustee receives written notice from an Executive or the Company with respect to such litigation or arbitration. The Trustee may rely upon written notice from an Executive as to the final resolution of such litigation or arbitration. Following such final resolution, the Trust shall terminate with respect to each Executive described in this Section 6.01(b) upon the earliest of either of the following events: (i) the exhaustion of the Trust Corpus held by the Trustee with respect to such Executive; or (ii) the final payment of all amounts payable to the Executive pursuant to such Executive's Agreements, as certified to the Trustee by such Executive. Promptly upon termination of this Trust with respect to an Executive described in Section 6.01(b), any remaining portion of the Trust Corpus held by the Trustee with respect to such Executive shall be paid to the Company. At such time as the Trust shall be terminated with respect to all such Executives, the Trust Corpus, less all payments, expenses, taxes and other charges attributable to the extension of the Trust term beyond the termination date described in Section 6.01(a), shall be paid promptly to the Company. SECTION 6.02 Amendment and Waiver. Except as provided in Sections -------------------- 2.01(c),(d) and 4.02(b),(c), this Trust may not be amended except by an instrument in writing signed on behalf of the parties hereto together with the written consent of Executives having at least 65% of all amounts then held in the Trust credited to their accounts. The parties hereto, together with the consent of Executives having at least 65% of all amounts then held in the Trust credited to their accounts, may at any time waive compliance with any of the agreements or conditions contained herein. Any agreement on the part of a party hereto or an Executive to any such waiver shall be valid if set forth in an instrument in writing signed on behalf of such party or Executive. This Trust may not be amended nor may compliance with any provisions hereunder be waived except by an instrument in writing signed on behalf of the parties hereto and by at least seventy-five percent (75%) of the Executives in the situation where, prior to such amendment or waiver, no payment has been made by the Company pursuant to Section 2.01(a)(i) that is then held by the Trustee. Notwithstanding the foregoing, any such amendment or waiver may be made prior to a Change in Control by written agreement of the parties hereto without obtaining the consent of the Executives if such amendment or waiver does not adversely affect the rights of the Executives hereunder. Except as provided in Sections 2.01(c),(d) and 4.02(b),(c), no amendment or waiver relating to this Trust may be made (i) with respect to the amount of funds to be delivered by the Company to the Trustee with respect to an Executive or by the Trustee to such Executive, or the timing of such deliveries or (ii) which amends Section 6.01, unless such Executive, in the case of clause (i) or, all Executives in the case of clause (ii), agree in writing to such amendment or waiver. ARTICLE VII GENERAL PROVISIONS ------------------ SECTION 7.01 Further Assurances. The Company shall, at any time and ------------------ from time to time, upon the reasonable request of the Trustee, execute and deliver such further instruments and do such further acts as may be necessary or proper to effectuate the purposes of this Trust. SECTION 7.02 Certain Provisions Relating to this Trust. (a) This ----------------------------------------- Trust sets forth the entire understanding of the parties with respect to the subject matter hereof and supersedes any and all prior agreements, arrangements and understandings relating thereto. This Trust shall be binding upon and inure to the benefit of the parties and their respective successors and legal representatives. (b) If by the end of the eight-month period following the date hereof, or such later date as the Company and the Trustee shall agree, counsel is unable to deliver to the Company a favorable opinion that is satisfactory to the Company, substantially to the effect that (i) the Company will be treated as the owner of the Trust under Section 677 of the Code and Section 1.677(a)-1(d) of the regulations. Under Section 671, the Company must include all of the income, deductions and credits against tax of the Trust in computing its own taxable income and credits, and (ii) the transfer of assets to the Trust will not constitute a transfer of property for purposes of Section 83 of the Code or Section 1.83-3(e) of the regulations, and (iii) under Section 451 of the Code, amounts will be includible in the gross income of the Executives only in the taxable year or years in which such amounts are actually distributed or made available by the Trustee, the Trust shall immediately terminate and the amount of the Trust Corpus, less all payments, expenses, taxes and other charges under this Trust Agreement, if any, as of such date, shall be returned to the Company as soon as possible. Upon termination of the Trust, the Executives shall have no rights under this Trust Agreement. (c) This Trust shall be governed by and construed in accordance with the laws of the State of New York, other than and without reference to any provisions of such laws regarding choice of laws or conflict of laws. (d) In the event that any provision of this Trust or the application thereof to any person or circumstances shall be determined by a court of proper jurisdiction to be invalid or unenforceable to any extent, the remainder of this Trust, or the application of such provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each provision of this Trust shall be valid and enforced to the fullest extent permitted by law. (e) The article and section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or interpretation of this Agreement. SECTION 7.03 Alienation. The right of any Trust Beneficiary (as ---------- hereinafter defined) to any benefit or to any payment hereunder shall not be subject to alienation or assignment. SECTION 7.04 Arbitration. Any dispute between the Executives and ----------- the Company or the Trustee as to the interpretation or application of the provisions of this Trust and amounts payable hereunder may, at the election of any party to such dispute (or, if more than one (1) Executive is such a party, at the election of seventy-five percent (75%) of such Executives), be determined by binding arbitration within the greater New York City metropolitan area or the State of Connecticut in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court of competent jurisdiction. All fees and expenses of such arbitration shall be paid by the Trustee and considered an expense of the Trust under Section 5.01(g). SECTION 7.05 Notices. Any notice, report, demand or waiver required ------- or permitted hereunder shall be in writing and shall be given personally or by prepaid registered or certified mail, return receipt requested, addressed as follows: If to the Company: Champion International Corporation One Champion Plaza Stamford, Connecticut 06921 Attention: Corporate Secretary If to the Trustee: Connecticut National Bank 777 Main Street Hartford, Connecticut 06115 Attention: Employee Benefits Administration - MSN 215 If to an Executive, to the address of such Executive as listed next to his name on Exhibit I hereto. A notice shall be deemed received upon the date of delivery if given personally or, if given by mail, upon the receipt thereof. A change of address may be given by any party to another by similar notice. SECTION 7.06 Trust Beneficiaries. Each Executive is an intended ------------------- beneficiary ("Trust Beneficiary") under this Trust, and as a Trust Beneficiary shall be entitled to enforce all terms and provisions hereof with the same force and effect as if such person had been a party hereto. The term Trust Beneficiary shall, to the extent provided in the Agreements respecting a deceased Executive, also mean the legal representative of the estate of such deceased Executive and the surviving spouse of the deceased Executive or beneficiary designated by such Executive in accordance with the terms of such Agreements. IN WITNESS WHEREOF, the parties have executed this Trust as of the date first written above. CHAMPION INTERNATIONAL CORPORATION By /s/ Andrew C. Sigler --------------------------------- Andrew C. Sigler Chairman and Chief Executive Officer CONNECTICUT NATIONAL BANK By /s/ Thomas F. Mullaney Jr. --------------------------------- Thomas F. Mullaney, Jr. Executive Vice-President Exhibit I AGREEMENTS BETWEEN CHAMPION INTERNATIONAL CORPORATION AND CERTAIN EXECUTIVES
Agreement and Name and Address Title Date of Agreement ----------------- ----- ----------------- Mr. L. Scott Barnard Executive Vice President October 18, 1990: One Champion Plaza -Agreement* Stamford, CT 06921 -Agreement Relating to Legal Expenses Mr. Stephen B. Brown Senior Vice President and October 18, 1990: One Champion Plaza General Counsel -Agreement* Stamford, CT 06921 -Agreement Relating to Legal Expenses Mr. Mark V. Childers Senior Vice President- November 16, 1995: One Champion Plaza Organizational -Agreement Stamford, CT 06921 Development and -Agreement Relating to Legal Human Resources Expenses Mr. Michael P. Corey Senior Vice President September 18, 1997: One Champion Plaza -Agreement Stamford, CT 06921 -Agreement Relating to Legal Expenses Mr. Richard J. Diforio, Jr. Senior Vice President November 16, 1995: One Champion Plaza -Agreement Stamford, CT 06921 -Agreement Relating to Legal Expenses Mr. Joe K. Donald Executive Vice President October 18, 1990: One Champion Plaza -Agreement** Stamford, CT 06921 -Agreement Relating to Legal Expenses Mr. Lawrence A. Fox Vice President and October 18, 1990: One Champion Plaza Secretary -Agreement* Stamford, CT 06921 -Agreement Relating to Legal Expenses Mr. Odair A. Garcia President and Managing November 16, 1995: One Champion Plaza Director of -Agreement Stamford, CT 06921 Champion Papel e -Agreement Relating to Legal Celulose Ltda. Expenses
Mr. Thomas L. Hart Vice President and November 16, 1995: One Champion Plaza Treasurer -Agreement Stamford, CT 06921 -Agreement Relating to Legal Expenses Mr. Frank Kneisel Senior Vice President -October 18, 1990: One Champion Plaza Finance -Agreement* Stamford, CT 06921 -Agreement Relating to Legal Expenses Mr. Burton G. MacArthur, Jr. Executive Vice President October 18, 1990: One Champion Plaza -Agreement* Stamford, CT 06921 -Agreement Relating to Legal Expenses Mr. Kenwood C. Nichols Vice Chairman and October 18, 1990: One Champion Plaza Executive Officer -Agreement* Stamford, CT 06921 -Agreement Relating to Legal Expenses Mr. John M. Nimons Vice President and October 18, 1990: One Champion Plaza Controller -Agreement* Stamford, CT 06921 -Agreement Relating to Legal Expenses Mr. Richard E. Olson Chairman and Chief September 18, 1997: One Champion Plaza Executive Officer -Agreement Stamford, CT 06921 -Agreement Relating to Legal Expenses Mr. Richard L. Porterfield Executive Vice President October 18, 1990: One Champion Plaza -Agreement* Stamford, CT 06921 -Agreement Relating to Legal Expenses
_____________________ * As amended September 19, 1991 ** As amended September 19, 1991 and November 21, 1996 2 AMENDMENT TO TRUST AGREEMENT DATED AS OF FEBRUARY 19, 1987 BETWEEN CHAMPION INTERNATIONAL CORPORATION AND CONNECTICUT NATIONAL BANK ------------------------------------------------------- This Amendment between Champion International Corporation, a New York corporation (the "Company"), and Connecticut National Bank (the "Trustee") is effective as of August 18, 1988 and amends the Trust Agreement dated as of February 19, 1987 between the Company and the Trustee (the "Trust"). WHEREAS, the Company and the Trustee have entered into the Trust; and WHEREAS, the Company and the Trustee wish to amend the Trust in order to (1) ensure that it is in compliance with the rule against perpetuities and with applicable restraints on alienation, and (2) clarify the circumstances in which interest earned on the investment of Trust Corpus may be paid to the Executives; and WHEREAS. all of the Executives have agreed in writing to this Amendment as required by Section 6.02 of the Trust; NOW, THEREFORE, it is hereby agreed by and between the parties as follows: 1. Section 4.01 of the Trust is hereby amended by adding a new subsection (d) thereto, as follows: "(d) Notwithstanding any provision of this Agreement, upon termination of the Trust as provided in Section 6.01(c) the Trustee shall pay to the Company all amounts held hereunder." 2. The second, third and fourth sentences of Section 4.02(a) of the Trust are hereby amended in their entirety to read as follows: "Each Payment Schedule also shall be delivered by the Company to such Executive. The Payment Schedule shall include instructions as to the amount of interest (if any) to accrue for the benefit of an Executive, from the date on which the Trustee receives a written request for payment signed by the Executive (or his beneficiary or beneficiaries) as hereinafter provided until the date on which such payment is made, in respect of such payment; such instructions may be revised from time to time prior to the occurrence of a Change in Control. The aggregate payment to be made hereunder to an Executive by the Trustee shall not exceed the aggregate amount delivered to the Trustee for the benefit of such Executive, plus interest (if any) thereon as described in the immediately preceding sentence, all as indicated in the Payment Schedule applicable to such Executive." 3. Subsection (a) of Section 6.01 of the Trust is hereby amended to delete the first nine words thereof (i.e., "Except as provided in Section 6.01(b) of this Agreement,") and to substitute the following therefor: "Except as provided in Sections 6.01(b) and 6.01(c) of this Agreement,". 4. Subsection (b) of Section 6.01 of the Trust is hereby amended to delete the first seven words thereof (i.e., "Notwithstanding any other provision of this Agreement,") and to substitute the following therefor: Notwithstanding any other provision of this Agreement except Section 6.01(c),". 5. Section 6.01 of the Trust is hereby amended by adding a new subsection (c) thereto, as follows: "(c) Notwithstanding any other provision of this Agreement, this Trust shall terminate in all events and under all circumstances not later than twenty-one years after the death of the last survivor of the Executives who were included on Exhibit I hereto at the time this Trust was executed, such Executives being John A. Ball, Gerald J. Beiser, William H. Burchfield, Aubrey L. Cole, Mark A. Fuller, Jr., Marvin H. Ginsky, Judson Hannigan, L. C. Heist, Robert F. Longbine, Kenwood C. Nichols, Philip R. O'Connell and Andrew C. Sigler. Promptly upon termination of this Trust pursuant to this Section 6.01(c), the Trustee shall pay to the Company all amounts held hereunder." 6. All capitalized terms used herein and not defined herein shall have the meanings assigned to them in the Trust. 7. Except as amended hereby, all of the provisions of the Trust shall continue in full force and effect without change. 2 IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first above written. CHAMPION INTERNATIONAL CORPORATION By /s/ Andrew C. Sigler -------------------------- Chairman and Chief Executive Officer CONNECTICUT NATIONAL BANK By /s/ Thomas J. Botticelli ------------------------------------ Vice President AGREED TO: /s/ John A. Ball /s/ Judson Hannigan - ------------------------- --------------------------- John A. Ball Judson Hannigan /s/ Gerald J. Beiser /s/ L. C. Heist - ------------------------- --------------------------- Gerald J. Beiser L.C. Heist /s/ William H. Burchfield /s/ Kenwood C. Nichols - ------------------------- --------------------------- William H. Burchfield Kenwood C. Nichols /s/ Aubrey L. Cole /s/ Philip R. O'Connell - ------------------------- --------------------------- Aubrey L. Cole Philip R. O'Connell /s/ Mark A. Fuller, Jr. /s/ Richard E. Olson - ------------------------- --------------------------- Mark A. Fuller, Jr. Richard E. Olson /s/ Marvin H. Ginsky /s/ Andrew C. Sigler - ------------------------- --------------------------- Marvin H. Ginsky Andrew C. Sigler 3 Exhibit G to Agreement between Champion International Corporation and Richard E. Olson dated as of September 18, 1997 --------------------------------------------------------------- Exhibit G --------- [subparagraph 16(d)] Schedule of Amounts to be Deposited in Trust Upon a Potential Change in Control* -------------------------------------------- For Active Employees - -------------------- ` Severance: 2 years termination payments; however, payments not to cover the period, if any, after the last day of the month next preceding the Executive's normal retirement date under the Company's pension plan. Payments are based on highest total of salary and annual bonus for any calendar year of employment. ` Retirement: All allowances under subparagraph 9(b)(i) and (ii) hereof, without regard to the offsets set forth in subparagraph 9(b)(iii) hereof, as if the Executive had continued in the employ of the Company until the date on which he shall attain the age of 62, in excess of the respective benefits payable to the Executive and his spouse under the #001 Plan. If the Executive does not have a spouse at the time as of which the lump sum calculation is being made, then such calculation shall be made on the assumption that he had a spouse, his own age, at such time. ` Disability: Same as for active employees for the 2 year termination payment period (or balance thereof). ` Medical: Difference between active employee medical benefit and retiree medical benefit for the 2 year termination payment period (or balance thereof). ` Dental: Same as for active employees for the 2 year termination payment period (or balance thereof). ` Options: Fund for those options referred to in sub-paragraph 8(a)(iii) hereof. "Spread" to be calculated on the basis of the closing price ________________ * This Exhibit G does not reflect the possible reduction provided for in subparagraph 16(d)(v) hereof. of Common Shares of the Company as reported in "New York Stock Exchange Composite Transactions" of the Eastern Edition of The --- Wall Street Journal for the trading day immediately after ------------------- the Potential Change in Control. ` Contingently Credited Shares: Fund for those contingently credited shares referred to in subparagraph 8(a)(iii) hereof in an amount per share equal to the closing price of Common Shares of the Company as reported in "New York Stock Exchange Composite Transactions" of the Eastern Edition of The Wall Street --------------- Journal for the trading day immediately after the ------- Potential Change in Control. ` Legal Expenses: An amount equal to twelve times the monthly base salary paid at time of deposit into trust. For Retired Employees ` Retirement: If the Executive (or, in the event of his death, his spouse or other Beneficiary) and Company agree, fund for unpaid balance of excess retirement allowance and payments, if any, and excess survivor retirement allowance and payments, if any, as defined in subparagraph 9(d)(iii) hereof. 2 EX-10.12 4 AGREEMENT RELATING TO LEGAL EXPENSES Exhibit 10.12 Champion International Corporation One Champion Plaza Stamford, CT 06921 September 18, 1997 Mr. Richard E. Olson One Champion Plaza Stamford, CT 06921 Re: Agreement Relating to Legal Expenses Dated September 18, 1997 ------------------------------------- Dear Dick: As an inducement for you to continue in the employ of Champion International Corporation (the "Company"), the Board of Directors of the Company has today authorized entering into an Agreement between you and the Company effective September 18, 1997 (the "Agreement"). One of the principal purposes in entering into the Agreement is to provide you with reasonable assurance in the event of a change in control of the Company against loss of rights to benefits that you could reasonably expect to receive in the absence of such a change in control, and thereby provide an inducement for you to remain in the employ of the Company notwithstanding the possibility of a change in its control. As a separate and additional inducement for you to remain in the employment of the Company, and to provide you with reasonable assurance that the purposes of the Agreement and this Agreement Relating to Legal Expenses (the "Legal Expense Agreement") (collectively, the "Secured Agreements") will not be frustrated as a result of the cost of their enforcement should a claim or dispute be instituted or arise upon or within forty-two months following a Change in Control of the Company (as defined in the Agreement) and arise out of or relate to any provision of the Secured Agreements, the Company agrees to pay, in consideration of such continued employment, all legal expenses which you may incur in any such claim or dispute. Such legal expenses shall be paid in the amount provided in, and otherwise in accordance with the terms and conditions of, the memorandum attached to, incorporated in and by this reference made part of, this Legal Expense Agreement. By virtue of the mutual promises set forth in this Legal Expense Agreement and the Agreement and other good and valuable consideration the receipt and sufficiency of which you and the Company hereby acknowledge, your signature at the foot of this letter will constitute this letter a binding agreement and it shall thereupon be binding upon and inure Mr. Richard E. Olson September 18, 1997 Page 2 to the benefit of you, your spouse, your beneficiaries and estate, and the Company and its successors and assigns, including any corporation with or into which the Company may consolidate or merge or to which the Company may transfer all or substantially all of its assets. If you are deceased and survived by a beneficiary, then your beneficiary may act for herself or himself in enforcing her or his rights under this Legal Expense Agreement as your survivor, and may also act for you with respect to any rights to payments which became due and remained unpaid during your lifetime. Sincerely, CHAMPION INTERNATIONAL CORPORATION By /s/ Lawrence A. Bossidy ------------------------------------------------ Chairman of the Compensation and Stock Option Committee Attest: /s/ Lawrence A. Fox - ------------------------------------ Secretary Agreed: September 18, 1997 /s/ Richard E. Olson - -------------------------------------- Richard E. Olson Memorandum of Terms and Conditions Referred to in the Agreement Relating to Legal Expenses dated September 18, 1997 between Champion International Corporation and Richard E. Olson ------------------------------------------------------- 1. Reference hereafter to the Agreement Relating to Legal Expenses (the "Legal Expense Agreement") shall be deemed to refer also to this memorandum. Terms used or referred to in the Legal Expense Agreement shall have the same meaning or reference in this memorandum as in the Legal Expense Agreement. 2. The Company shall, upon presentation of appropriate commercial invoices, pay all legal expenses, which includes reasonable legal fees, court costs, arbitration costs, and ordinary and necessary out-of-pocket costs of attorneys, billed to and payable by you or by anyone claiming under or through you (such person being hereinafter referred to as your "beneficiary"), in connection with bringing, prosecuting, defending, litigating, arbitrating, negotiating or settling any claim or dispute by or against you or your beneficiary, or any claim or dispute between you or your beneficiary and the Company or any third party, that may be instituted or arise upon or within forty-two months following a Change in Control of the Company, as defined in the Agreement, and that may arise out of or relate to the Secured Agreements, or either of them, or the validity, operation, interpretation, enforceability or breach thereof, provided that: (a) you and your beneficiary shall repay to the Company any such expenses theretofore paid by or on behalf of the Company if and to the extent that a judgment should be rendered against you or your beneficiary by the judicial or arbitration forum that adjudicates such dispute beyond appeal, and such expenses were not incurred by you or your beneficiary while acting in good faith, and provided further, that (b) in the case of any request that the Company pay attorneys' fees or expenses, the Company shall have received a statement signed by the attorney or firm of attorneys rendering the bill setting forth the services that had been, and will be, performed, and provided further, that (c) in the case of any claim or dispute by or against you or your beneficiary, the claim for legal fees hereunder shall be made in writing, with specific reference to the provisions of the Legal Expense Agreement, delivered in the manner provided in subparagraph 4(c) below, in no event later than forty- two months after a Change in Control of the Company. 3. (a) At any time after the date hereof but in no event later than a Potential Change in Control of the Company as defined in the Agreement, if you are in the employ of the Company at such time, the Company will, at its own expense, set aside in trust an amount, or establish, extend, renew and maintain an irrevocable bank letter of credit in an amount, in favor of you or in the event of your death your beneficiary, equal to twelve (12) times the monthly base salary being paid to you at such time. (b) The Company has entered into a trust agreement, as amended, in the form attached to the Agreement (the "Trust Agreement"), and agrees that, upon the terms, conditions and procedures set forth therein, you will be named a beneficiary of the Trust Agreement, and this Legal Expense Agreement will be listed on Exhibit I of the Trust Agreement as one of the agreements which is subject to the trust established by the Trust Agreement. If the Company shall become liable for the payment of legal expenses under paragraph 2 above, and if you or in the event of your death your beneficiary shall request the Company in writing, in accordance with the terms, conditions and procedures set forth in such paragraph 2, to make such payment, and if the Company shall fail to do so fully within a reasonable time after receipt of such written demand, you may request the trustee of such trust, in accordance with the terms, conditions and procedures set forth in the Trust Agreement, to make such payment to the extent that the Company had failed to do so. The Company shall continue to be liable to make all payments required under the terms of this Legal Expense Agreement to the extent such payments have not been made pursuant to the Trust Agreement. (c) If the Company establishes, extends, renews and maintains an irrevocable bank letter of credit in favor of you or your beneficiary, you or, in the event of your death, your beneficiary, shall be entitled to draw upon such letter of credit only if and to the extent that the Company shall fail to discharge its obligations under paragraph 2 above within a reasonable time after receipt of written demand by you or your beneficiary. As and when any funds are paid by the bank under such letter of credit, the Company shall renew such letter of credit at its own expense to the extent of the funds so paid. The Company need not establish or renew any such letter of credit for any period subsequent to the date on which an attorney or a firm of attorneys selected by mutual agreement of the Company and you or, in the event of your death, your beneficiary, the fees and expenses of which attorney or firm of attorneys shall be borne by the Company, shall determine, after consultation with the Company and you or, in the event of your death, your beneficiary, that all obligations of the parties under the Secured Agreements have been substantially satisfied. (d) The bank that shall issue any such letter of credit shall be a national or state bank having a combined capital, surplus and undivided profits and reserves of not less than One Hundred Million Dollars ($100,000,000). 4. (a) Any dispute between you and the Company as to the interpretation or application of the provisions of either of the Secured Agreements may at your election be determined by binding arbitration within the greater New York City metropolitan area or the State of Connecticut in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court of competent jurisdiction. All fees and expenses of such arbitration shall be paid by the Company subject to repayment in accordance with the terms and conditions set forth in clause (a) of paragraph 2 above. (b) Anything to the contrary notwithstanding, all payments and other provisions required to be made by the Company under this Legal Expense Agreement to or on behalf of you or your beneficiaries shall be subject to the withholding of such amounts, if any, relating to tax and other payroll deductions as the Company may reasonably determine it should withhold pursuant to any applicable law or regulation. In lieu of withholding such amounts, the Company may accept other provisions to the end that it has sufficient funds to pay all taxes required by law to be withheld in respect of any or all of such payments. (c) All notices, requests, demands and other communications provided for by this Legal Expense Agreement shall be in writing and shall be sufficiently given if and when mailed in the continental United States by registered or certified mail, return receipt requested, or personally delivered to the party entitled thereto at the address stated below, which address shall be such address as the addressee may have given most recently by a similar notice. Any such notice shall be deemed to have been received on the date of delivery. To the Company: Champion International Corporation One Champion Plaza Stamford, Connecticut 06921 Attention: Corporate Secretary To the Executive: Mr. Richard E. Olson One Champion Plaza Stamford, CT 06921 (d) No provision of this Legal Expense Agreement may be amended, modified or waived unless such amendment, modification or waiver shall be authorized by the Board of Directors of the Company or any authorized committee of the Board of Directors and shall be agreed to in writing, signed by you and by an officer of the Company thereunto duly authorized. Except as otherwise specifically provided in this Legal Expense 2 Agreement, no waiver by either party hereto of any breach by the other party hereto of any condition or provision of this Legal Expense Agreement to be performed by such other party shall be deemed a waiver of a subsequent breach of such condition or provision or a waiver of a similar or dissimilar provision or condition at the same time or at any prior or subsequent time. (e) Anything in this Legal Expense Agreement to the contrary notwithstanding: (i) In the event that any provision of this Legal Expense Agreement, or portion thereof, shall be determined to be invalid or unenforceable for any reason, in whole or in part, the remaining provisions of this Legal Expense Agreement and parts of such provision not so invalid or unenforceable shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law; (ii) Any provision of this Legal Expense Agreement, or portion thereof, which may be invalid or unenforceable in any jurisdiction shall be limited by construction thereof, to the end that such provision, or portion thereof, shall be valid and enforceable in such jurisdiction; and (iii) Any provision of this Legal Expense Agreement, or portion thereof, which may for any reason be invalid or unenforceable in any jurisdiction shall remain in effect and be enforceable in any jurisdiction in which such provision, or portion thereof, shall be valid and enforceable. (f) Except as otherwise provided herein, this Legal Expense Agreement shall be binding upon and inure to the benefit of the Company and any successor of the Company, including, without limitation, any corporation or corporations acquiring directly or indirectly all or substantially all of the assets of the Company whether by merger, consolidation, sale or otherwise (and such successor shall thereafter be deemed embraced within the term "the Company" for the purposes of this Legal Expense Agreement), but shall not otherwise be assignable by the Company. (g) The validity, interpretation, construction, performance and enforcement of this Legal Expense Agreement shall be governed by the laws of the State of New York without giving effect to the principles of conflicts of laws thereof. (h) There shall be no right of set-off or counterclaim in respect of any claim, debt or obligation against any payments to you, your beneficiaries or estate, provided for in this Legal Expense Agreement. (i) The Company and you recognize that each party will have no adequate remedy at law for breach by the other of any of the agreements contained in this Legal Expense Agreement and, in the event of any such breach, the Company and you hereby agree and consent that the other shall be entitled to a decree of specific performance, mandamus or other appropriate remedy to enforce performance of such agreements. (j) No right or interest to or in any payments shall be assignable by you; provided, however, that this provision shall not preclude you from designating one or more beneficiaries to receive any amount that may be payable after your death and shall not preclude the legal representative of your estate from assigning any right hereunder to the person or persons entitled thereto under your will or, in the case of intestacy, to the person or persons entitled thereto under the laws of intestacy applicable to your estate. (k) No right, benefit or interest hereunder shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge, hypothecation, or set-off in respect of any claim, debt or obligation, or to execution, attachment, levy or similar process, or assignment by operation of law. Any attempt, voluntary or involuntary, to effect any action specified in the immediately preceding sentence shall, to the full extent permitted by law, be null, void and of no effect. 3 (l) In the event of your death or a judicial determination of your incompetence, reference in this Legal Expense Agreement to you shall be deemed, where appropriate, to refer to your legal representative or, where appropriate, to your beneficiary or beneficiaries. (m) If any event provided for in this Legal Expense Agreement is scheduled to take place on a legal holiday, such event shall take place on the next succeeding day that is not a legal holiday. (n) This Legal Expense Agreement shall be binding upon and shall inure to the benefit of you, your heirs and legal representatives, and the Company and its successors as provided in subparagraph 4(f) hereof. (o) This Legal Expense Agreement and the Agreement contain the entire agreement of the parties relating to the subject matter of this Legal Expense Agreement and supersede and replace all prior agreements and understandings with respect to such subject matter, and the parties hereto have made no agreements, representations or warranties relating to the subject matter of this Legal Expense Agreement which are not set forth herein or in the Agreement. 5. This Legal Expense Agreement is not intended to confer upon you any right to continue in the employ of the Company or to affect any rights of the Company, subject to any agreement or agreements between you and the Company relating to your employment by the Company, to terminate your employment at any time with or without assigning a reason therefor. o0o 4 EX-10.23 5 AGREEMENT BTW CHAMPION & BURTON G. MACARTHUR, JR. EXHIBIT 10.23 AGREEMENT between CHAMPION INTERNATIONAL CORPORATION and BURTON G. MACARTHUR, JR. Effective October 18, 1990 Table of Contents -----------------
Paragraph Number Title Page - --------- ----- ---- 1 Termination 1 (a) Termination Payments 1 (i) Monthly Payments 1 (ii) Lump Sum Payment Upon Termination Following a Change in Control 1 (iii) Cash-Out of Options and Contingently 1 Credited Shares (iv) Payment of Value of Excess Benefit 2 and Supplemental Retirement Plan Payments (v) Participation in Benefit Plans 2 (b) Definition of Termination 3 (c) Definition of Cause 3 (d) Definition of Change in Control 4 2 Termination During Month 4 3 Post-termination Obligations 4 of Executive; Default by Company (a) Assistance in Litigation 4 (b) Detrimental Conduct 5 (c) Discoveries and Inventions 5 (d) Reimbursement of Expenses 5 (e) Competition 5 (f) Failure to Comply 5 (g) Post-termination Default in 6 Payments or Benefits 4 Determination of Benefits 6 5 (a) Time of Payment 6 (b) Withholding of Taxes 7 6 Decisions by Company 7 7 Prior Agreements 7 8 Consolidation or Merger 7 9 (a) Non-assignability 7 (b) No Attachment 7 (c) Binding Agreement 8 (d) Unfunded Obligations; Trust 8 Agreement 10 (a) Amendment of Agreement 9 (b) No Waiver 9 11 Severability 9 12 Headings 9 13 Governing Law 9 14 Parachute Tax 10 15 Notices 10 16 Arbitration 10
i EXHIBITS --------
Page Exhibit Reference ------- --------- A Certain benefits to be provided after a 1 termination following a change in control B Payments and benefits subject to 6 acceleration in event of default in payments or benefits by Company after cessation of employment C Form of Trust Agreement 8 D Amounts to be deposited in trust upon a 8 potential change in control
DEFINED TERMS -------------
Page Defined Term Paragraph Reference - ------------ --------- --------- Agreement Introduction 1 Cause 1(c) 3 Change in Control 1(d) 4 Code 1(a)(iii) 2 Company Introduction 1 Executive Introduction 1 Fair Market Value 1(a)(iii) 2 Legal Expense Agreement 1(b)(ii) 3 Potential Change in Control 9(d)(vii) 9 Termination 1(b) 3
ii THIS AGREEMENT between CHAMPION INTERNATIONAL CORPORATION, a New York corporation (the "Company"), and BURTON G. MacARTHUR, JR. (the "Executive"), effective October 18, 1990 (the "Agreement"). W I T N E S S E T H: WHEREAS, the Executive is now in the employ of the Company; and WHEREAS, the Executive was elected an Executive Vice President of the Company on January 18, 1990; and WHEREAS, the Company wishes to provide additional incentive for the Executive to continue in the employ of the Company; NOW, THEREFORE, it is hereby agreed by and between the parties as follows: 1. Termination ----------- In the event of a termination, as defined in subparagraph 1(b) below, the following provisions of this paragraph 1 shall apply. (a) Termination Payments -------------------- (i) Monthly payments. Subject to compliance with the applicable ---------------- provisions of paragraph 3 below, the Company shall pay the Executive or, in the event of his subsequent death, his beneficiary or beneficiaries or his estate, as the case may be, as severance pay or liquidated damages, or both, a monthly sum equal to the highest total monthly compensation (highest total of annual salary plus annual bonus for any calendar year of employment, divided by twelve), paid to the Executive. Such payments shall commence on the last day of the month next following the termination of employment of the Executive and shall continue until the last day of the twenty-fourth full calendar month following the termination of employment of the Executive, provided, however, that such payments shall not continue beyond the earlier of (A) the last day of the month next preceding his normal retirement date under the Company's pension plan, and (B) the last day of the month next preceding the month in which he shall, with his written consent, commence receiving his retirement allowance under the Company's pension plan. (ii) Lump Sum Payment upon Termination following a Change in ------------------------------------------------------- Control. Anything in subparagraph 1(a)(i) above or elsewhere in this Agreement - ------- to the contrary notwithstanding, if termination of the Executive occurs within three years following a Change in Control: (x) the total of the monthly payments provided for in subparagraph 1(a)(i) above shall be accelerated and paid in a lump sum as soon as practicable after such termination if termination occurs before the last day of the month next preceding the Executive's normal retirement date under the Company's pension plan; if termination occurs on or after such last day, no payment pursuant to subparagraph 1(a)(i) or (ii) shall be made to the Executive; (y) the benefits required to be provided thereafter to the Executive, his spouse and family, set forth in attached Exhibit A, shall be --------- valued at the cost of acquiring insurance policies which would provide such benefit coverage over the period of time involved in subparagraph 1(a)(i) above, and such cost shall be paid in a lump sum as soon as practicable after termination; and (z) the Executive shall be paid the amount payable, if any, pursuant to subparagraph 1(a)(iii) and the amount payable pursuant to subparagraph 1(a)(iv). (iii) Cash-Out of Options and Contingently Credited Shares. In the ---------------------------------------------------- event that the Executive shall, at the time of termination of his employment within three years following a Change in Control, (A) hold an outstanding and unexercised (whether or not exercisable at the time) option or options theretofore granted by the Company to him prior to the Change in Control, (B) have shares contingently credited to him prior to the Change in Control under the Company's Contingent Compensation Plan or 1986 Contingent Compensation Plan or a successor plan, or both hold such option and have such shares contingently credited to him, 1 unless the Executive shall have given the Company written notice to the contrary within thirty (30) days following such termination of employment, the Company shall pay him, in a lump sum, an amount equal to the excess above the option price, of each such option that is not an Incentive Stock Option as defined in Section 422A of the Internal Revenue Code of 1986 as amended (the "Code"), of the Fair Market Value of Company shares at the time of termination, and the Fair Market Value at the time of termination of the shares, if any, so contingently credited. Solely for the purpose of this subparagraph 1(a)(iii), Fair Market Value at the time of termination shall mean the higher of (i) the average of the reported closing prices of the Common Shares of the Company, as reported in "New York Stock Exchange Composite Transactions" of the Eastern Edition of The Wall -------- Street Journal, for the last trading day prior to the termination and for each - -------------- trading day of the preceding sixty calendar days, and (ii) in the event that a Change in Control of the Company, as defined in subparagraph 1(d) below, shall have taken place prior to termination as the result of a tender or exchange offer, and such Change in Control was consummated within three years of termination, an amount equal to the highest consideration paid for Common Shares of the Company in the course of such tender or exchange offer. (iv) Payment of Value of Excess Benefit and Supplement Retirement ------------------------------------------------------------ Plan Payments Benefits. Anything in this Agreement to the contrary - ---------------------- notwithstanding, in the event of a termination of the Executive's employment within three years following a Change in Control, the Executive shall be entitled to a monthly retirement allowance for life payable on a straight life annuity basis, equal to the benefit payable, if any, under the Company's excess benefit and supplemental retirement plans, utilizing the monthly payments set forth in subparagraph 1(a)(i) above for purposes of the pension calculation for the termination period set forth in such subparagraph 1(a)(i). For the purposes of this clause (iv), the excess benefit and supplemental retirement plans payments shall include the pension enhancement resulting from service credit for pension benefit during the termination period set forth in subparagraph 1(a)(i) above. Such retirement allowance shall be valued and discounted in the manner set forth in subparagraph 3(g) below relating to default in payments or benefits and shall be paid in a lump sum as soon as practicable after such termination. (v) Participation in Benefit Plans. The Executive shall be ------------------------------ eligible to receive, during any period that he shall be entitled to receive payments from the Company under subparagraph 1(a)(i) above (whether or not any such period shall be accelerated), as if the Executive had continued to be employed by the Company during such period, any benefits and emoluments for which key executives are eligible under any hospitalization, health care or dental care plan, life or other insurance or death benefit plan, travel and accident insurance, executive or contingent compensation plan, restricted stock or stock purchase plan, retirement income or pension plan, vacation plan, or other present or future employee benefit plans or programs of the Company for which key executives are eligible, in accordance with the provisions of any such plan or program, provided, however, that during the period that the Executive is so entitled to receive payments under subparagraph 1(a)(i) above, he shall not be eligible to participate in the Company's Savings Plan for Salaried Employees or to receive option grants under any stock option plan of the Company. Nothing in this Agreement shall preclude the Company from terminating or amending any such employee benefit plan or program so as to eliminate, reduce or otherwise change any benefit payable thereunder. To the extent that such benefits or service credits for benefits shall not be payable or provided under such plans or programs by reason of the Executive no longer being an employee of the Company, the Company shall itself pay or provide for payment of such benefits and service credit for benefits. 2 (b) Definition of Termination ------------------------- The term "termination" for purposes of this Agreement shall mean: (i) The termination by the Company of the Executive's full-time employment with the Company for any reason other than Cause; or (ii) Any (A) failure to elect or re-elect the Executive to an office and position at least equal to the office and position he held immediately prior to such failure, or removal of the Executive from such office or position, (B) material change by the Company of the Executive's functions, duties or responsibilities without his express written consent as a result of which change the Executive's position with the Company shall be or become of less dignity, responsibility, importance or scope than the position he held at the time of such material change, and any such material change shall be deemed a continuing breach of this Agreement, (C) reduction in the monthly base salary of the Executive below the highest monthly base salary paid from and after October 18, 1990, (D) liquidation, dissolution, consolidation or merger of the Company, or transfer of all or substantially all of its assets, other than in compliance with the provisions of paragraph 8 below, or (E) breach of this Agreement by the Company, or breach of the Agreement Relating to Legal Expenses between the Company and the Executive dated October 18, 1990 (the "Legal Expense Agreement"); provided that in any such event the Executive elects to terminate his employment under this Agreement upon not less than sixty days' advance written notice given within a reasonable period of time not to exceed, except in case of a continuing breach, four calendar months after the event giving rise to the election. (c) Definition of Cause ------------------- For the purpose of any provision of this Agreement, the termination of the Executive's employment shall be deemed to have been for Cause only if termination of his employment shall have been the result of an act or acts of dishonesty on the part of the Executive constituting a felony and resulting or intended to result directly or indirectly in gain or personal enrichment at the expense of the Company; provided that there shall have been delivered to the Executive a certified copy of a resolution of the Board of Directors of the Company adopted by the affirmative vote of not less than three-fourths of the entire membership of the Board of Directors at a meeting called and held for that purpose and at which the Executive was given an opportunity to be heard, finding that the Executive was guilty of such conduct, specifying the particulars thereof in detail. Anything in this subparagraph 1(c) or elsewhere in this Agreement to the contrary notwithstanding, the employment of the Executive shall in no event be considered to have been terminated by the Company for Cause if termination of his employment took place (A) as the result of bad judgment or negligence on the part of the Executive, or (B) as the result of an act or omission without intent of gaining therefrom directly or indirectly a profit to which the Executive was not legally entitled, or (C) because of an act or omission believed by the Executive in good faith to have been in or not opposed to the interests of the Company, or (D) for any act or omission in respect of which a determination could properly be made that the Executive met the applicable standard of conduct prescribed for indemnification or reimbursement or payment of expenses under (I) the Restated Certificate of Incorporation or By-Laws of the Company, or (II) the laws of the State of New York, or (III) the directors' and officer's liability insurance of the Company, in each case either as in effect at the time of this Agreement or in effect at the time of such act or omission, or (E) as the result of an act or omission which occurred more than twelve calendar months prior to the Executive's having been given notice of the termination of his employment for such act or omission unless the commission of such act or such omission could not at the time of such commission or 3 omission have been known to a member of the Board of Directors of the Company (other than the Executive, if he is then a member of the Board of Directors), in which case more than twelve calendar months from the date that the commission of such act or such omission was or could reasonably have been so known, or (F) as the result of a continuing course of action which commenced and was or could reasonably have been known to a member of the Board of Directors of the Company (other than the Executive, if he is then a member of the Board of Directors) more than twelve calendar months prior to notice having been given to the Executive of the termination of his employment. (d) Definition of Change in Control ------------------------------- For the purpose of this Agreement, a Change in Control of the Company shall be deemed to have occurred if (i) any "person" (as defined in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the combined voting power of the Company's then outstanding securities; (ii) during any period within two (2) consecutive years there shall cease to be a majority of the Board of Directors comprised as follows: individuals who at the beginning of such period constitute the Board of Directors and any new director(s) whose election by the Board of Directors or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved; or (iii) the shareholders of the Company approve (A) a plan of complete liquidation of the Company or (B) the sale or other disposition of all or substantially all the Company's assets. 2. Termination During Month ------------------------ In the event that the employment of the Executive shall terminate prior to the end of a calendar month as a result of a termination described in paragraph 1 above, the Company shall pay the Executive, in addition to any other amounts payable by the Company hereunder, a lump cash sum which shall in no event be less than the salary plus any bonus to which the Executive would have been entitled had he remained in full-time employment until the end of the month in which his employment shall so terminate. 3. Post-termination Obligations of Executive; Default by Company ------------------------------------------------------------- All payments and benefits to the Executive under this Agreement after his full-time employment with the Company shall have terminated shall be subject to compliance with the following provisions, which compliance shall be subject to the proviso in subparagraph 3(e) below. Anything in this paragraph 3 or elsewhere in this Agreement to the contrary notwithstanding, the Executive may continue to serve as a director, after his full-time employment with the Company shall have terminated, of any corporation which he has served as a director for the last six months of his full-time employment with the Company. (a) Assistance In Litigation ------------------------ The Executive shall, upon reasonable notice, furnish such information and proper assistance to the Company as may reasonably be required by the Company in connection with any litigation in which it or any of its subsidiaries or affiliates is or may become a party. 4 (b) Detrimental Conduct ------------------- The Executive shall not to the material detriment of the Company knowingly disclose or reveal to any unauthorized person any manufacturing or trade secret or other confidential information relating to the Company, its subsidiaries or affiliates, or to any of the businesses operated by them and confirms that such information constitutes the exclusive property of the Company. The Executive shall not otherwise knowingly act or conduct himself to the material detriment of the Company, its subsidiaries or affiliates, or in a manner which is materially inimical or contrary to their interests, including, without limitation, through competition materially detrimental to the Company, its subsidiaries or affiliates, in any of the businesses in which they may be engaged at the time of termination of his employment. The Executive recognizes that the restrictions on his activities contained in this Agreement are required for the reasonable protection of the Company and its investments. (c) Discoveries and Inventions -------------------------- If, while employed by the Company or during a period of one year after termination of such employment, the Executive shall have made, either solely or jointly with others, any discovery, improvements or invention which would pertain or relate in any way to the business, products, publications or processes of the Company, its subsidiaries or affiliates at the time of termination of his employment, such discovery, improvement or invention (whether or not of a patentable nature) shall be the exclusive property of the Company. The Executive shall execute and deliver to the Company without further compensation any documents which the Company may deem necessary or appropriate to prepare or prosecute applications for patents upon such discovery, improvement or invention, to assign and transfer to the Company his entire right, title and interest in and to such discovery, improvement or invention, and patents therefor, or otherwise more fully and perfectly to evidence the Company's ownership thereof. (d) Reimbursement of Expenses ------------------------- The Company shall pay or reimburse the Executive for all reasonable travel and other expenses incurred by the Executive in performing his obligations under this paragraph 3. (e) Competition ----------- The Executive shall not engage in competition with any of the businesses in which the Company, its subsidiaries or affiliates may be engaged at the time of termination of his employment if such competition should be materially detrimental to the Company, its subsidiaries or affiliates. (f) Failure to Comply ----------------- If the Executive, for any reason other than death or disability, shall, without the written consent of the Company, fail to comply with any provision of this paragraph 3, his rights to any future payments or other benefits hereunder shall terminate, and the Company's obligations to make such payments and provide such benefits shall cease; provided, however, that no failure to comply with any provision of this paragraph 3 shall be deemed to have occurred unless and until the Executive shall have received written notice on behalf of the Board of Directors of the Company, specifying the conduct alleged to constitute such failure, and has thereafter continued to engage in such conduct after a reasonable opportunity and a reasonable period, but in no event more than sixty days after receipt of such notice, to refrain from such conduct. In no event shall the Executive be under any obligation to repay to the Company any amounts theretofore paid to him. 5 (g) Post-termination Default in Payments or Benefits ------------------------------------------------ If, after the Executive ceases to be an employee of the Company, the Company should (i) default in payment of all or any part of the payments required to be made hereunder or under the Legal Expense Agreement, or (ii) fail to pay for or provide any benefits required to be provided hereunder, and if the Company should not remedy such default or failure within thirty (30) days after having received notice of such default or failure from the Executive, his spouse, or such other person or entity who or which is entitled thereto, the applicable payments or benefits set forth in Exhibit B shall, at the sole --------- election of the Executive, his spouse, or such other person or entity then entitled thereto, exercised in writing signed by the Executive, his spouse or such other person or entity, and delivered to the Company within 90 days after the expiration of such thirty-day period, be accelerated and become immediately due and payable in a lump sum equal to the total of (x) the severance payment set forth in Exhibit B, if applicable, and (y) the cost of acquiring insurance --------- policies which would provide the disability, medical and dental coverages set forth in Exhibit B, if applicable, and (z) all amounts, if any, payable under --------- the excess benefit and supplemental retirement plans set forth in Exhibit B in --------- an actuarially equivalent lump sum calculated by utilizing the 1983 GAM Table (or such other pensioner annuity mortality table as the Company with the Executive's written consent or, following his death, his spouse's or other Beneficiary's consent, shall determine) and discounted to a present value amount by applying a discount rate, equal to the arithmetic average of (i.e., one- twelfth of the sum of) the single employer interest rates for immediate annuities promulgated by the Pension Benefit Guaranty Corporation each month during the calendar year immediately preceding the date of payment as set forth in Appendix B to Part 2619 of 29 Code of Federal Regulations or such successor to such Appendix B as may be in effect during such calendar year, to all such retirement payments which otherwise would become due thereafter. In the event the election referred to in the preceding sentence has been made, then the total amount due and payable from the Company pursuant to this subparagraph shall be the sum of all accelerated amounts, together with any expenses incurred in enforcing payment thereof (including all reasonable legal fees). In making the foregoing retirement payment calculations, the intent is to compute a lump sum amount which will provide the Executive and his spouse or other Beneficiary, as the case may be, with the same amount, after deduction of all federal, state and municipal income taxes, as he and his spouse or other Beneficiary, as the case may be, would have retained, after all such income taxes, had payments and benefits been made and provided as originally scheduled and without acceleration. It is understood and agreed that this subparagraph 3(g) shall not apply to any default or failure to pay, as described in the first sentence of this subparagraph 3(g), which occurs during the Executive's period of employment; upon any such default or failure to pay, the Executive shall be entitled to such payments as may be applicable pursuant to subparagraph 1(a). 4. Determination of Benefits ------------------------- Whenever under this Agreement it is necessary to determine whether one benefit is less than, equal to or larger than another, whether or not such benefits are provided under this Agreement, such determination shall be made by the Company's independent consulting actuary, using mortality, interest and any other assumptions normally used at the time by such actuary in determining actuarial equivalents for the purpose of employee benefit plans of the Company. 5. (a) Time of Payment --------------- Anything in this Agreement to the contrary notwithstanding, the Company may, for its 6 own administrative convenience or for any other reason deemed by it sufficient, accelerate payment to the Executive of any sums due under this Agreement following termination of his employment; provided, however, that payments by the Company under this Agreement in any one calendar year shall not, as a result of such acceleration, together with any payments required to be made under the pension plan of the Company, exceed an amount equal to (i) 80 percent of his monthly rate of salary paid for the last full calendar month of his employment, multiplied by (ii) the number 12. (b) Withholding of Taxes -------------------- The Company may withhold from any benefits payable under this Agreement all federal, state, city or other taxes as shall be required pursuant to any law or governmental regulation or ruling. 6. Decisions by Company -------------------- Except as otherwise expressly provided in this Agreement, any decision or action by the Company relating to this Agreement, its operation or its termination, shall be made by the Board of Directors. Any decision or action of such Board shall, to the extent permitted by law, be by the affirmative vote of not less than three-fourths of the members of the Board of Directors then in office; provided, however, that in the event of any dispute as to any benefit payable under this Agreement, the Executive shall have the same rights as a Participant under the Company's pension plan in effect at the time with respect to the method of determining such dispute and enforcing his rights with respect thereto. 7. Prior Agreements ---------------- This Agreement shall supersede any prior employment and severance agreement between the Company or any predecessor of the Company and the Executive, but this Agreement shall not affect or operate to reduce any benefit or compensation of any kind not expressly provided for in this Agreement, including, without limitation, any employee stock option or stock appreciation right and any agreements under the Company's Restricted Share Performance Plan. 8. Consolidation or Merger ----------------------- Nothing in this Agreement shall preclude the Company from consolidating or merging into or with, or transferring all or substantially all of its assets to, another corporation which assumes this Agreement and all obligations of the Company hereunder. Upon such a consolidation, merger or transfer of assets and assumption, the term, "Company", shall refer to such other corporation and this Agreement shall continue in full force and effect. 9. (a) Non-assignability ----------------- Neither this Agreement nor any right or interest hereunder shall be assignable by the Executive or the beneficiaries of the Executive or by his legal representatives without the Company's prior written consent; provided, however, that nothing in this subparagraph 9(a) shall preclude (i) the Executive from designating a beneficiary to receive any benefit payable on his death, and (ii) the legal representatives of the estate of the Executive from assigning any rights hereunder to the person or persons entitled thereto under his will or, in the case of intestacy, to the person or persons entitled thereto under the laws of intestacy applicable to his estate. (b) No Attachment ------------- Except as otherwise required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrances, charge, pledge or hypothecation or to execution, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. 7 (c) Binding Agreement ----------------- This Agreement shall be binding upon and inure to the benefit of the Company, its successors and assigns. (d) Unfunded Obligations; Trust Agreement ------------------------------------- (i) All payments to be made hereunder shall be made from the general funds of the Company. To the extent that any person or entity acquires a right to receive any payment hereunder, such right shall be no greater than the right of an unsecured general creditor of the Company except to the extent otherwise provided by law. No person who is entitled to payments hereunder shall have any right, title or interest in or to any assets or investments which may be acquired or made by the Company to aid it in meeting its obligations hereunder. (ii) Anything in this subparagraph 9(d) or elsewhere in this Agreement to the contrary notwithstanding, the Company may provide the Executive with collateral security, in the form of a bank letter of credit, an interest in a trust or otherwise, to secure a portion of any or all of the Company's obligations to the Executive under this Agreement and any other agreement. In this connection, the Company has entered into a Trust Agreement substantially in the form attached hereto as Exhibit C and, under the circumstances and upon the ---------- terms and conditions set forth therein, the Executive will be a beneficiary under the Trust therein established, this Agreement and the Legal Expense Agreement (and its related memorandum) will be listed on Exhibit I of such Trust Agreement, the amounts to be deposited with the trustee under the Trust Agreement shall be those set forth on the Schedule of Amounts to be Deposited in Trust Upon a Potential Change in Control, a copy of which is attached hereto as Exhibit D, and any other benefits which the Company, in its sole discretion, - --------- shall agree to secure by the Trust Agreement. (iii) If a Potential Change in Control should take place while the Executive is in the employ of the Company, the value of the benefits set forth in Exhibit D to be delivered by the Company to the trustee under such Trust --------- Agreement shall be equal to the total of (x) the severance, options, contingently credited shares and legal expenses payments set forth in Exhibit D, --------- (y) the cost of acquiring insurance policies which would provide the disability, medical and dental coverages set forth in Exhibit D, and (z) all amounts, if --------- any, payable under the excess benefit and supplemental retirement plans payments (as described in subparagraph 1(a)(iv) above) set forth in Exhibit D. --------- (iv) The value of the excess benefit and supplemental retirement plans payments shall be an actuarially equivalent amount calculated by utilizing the 1983 GAM Table (or such other pensioner annuity mortality table as the Company with the Executive's written consent, or following his death, his spouse's or other Beneficiary's consent, shall determine) and discounted to a present value amount by applying a discount rate, equal to the arithmetic average of (i.e., one-twelfth of the sum of) the single employer interest rates for immediate annuities promulgated by the Pension Benefit Guaranty Corporation each month during the calendar year immediately preceding the date of payment as set forth in Appendix B to Part 2619 of 29 Code of Federal Regulations or such successor to such Appendix B as may be in effect during such calendar year, to all such retirement benefits which otherwise would become due thereafter. In making the foregoing retirement payment calculations, the intent is to compute a lump sum payment which will provide the Executive with the same amount of benefit, after deduction of all federal, state and municipal income taxes, as he would have retained, after all such income taxes, had payments been made as originally scheduled and without acceleration. (v) Anything in this subparagraph 9(d) or elsewhere in this Agreement to the 8 contrary notwithstanding, the amount to be paid by the Company to the trustee pursuant to the preceding provisions of this subparagraph 9(d) shall be reduced by the amount, if any, that the Board of Directors of the Company expressly determines, in its sole discretion on the advice of the Company's independent public accountants or its tax counsel or other experts selected by the Board of Directors, as a result of the application of the provisions of paragraph 14 below, is not expected to be paid by the trustee to the Executive and his beneficiary or beneficiaries. (vi) The Company shall continue to be liable to make all payments and provide all benefits required to be made and provided hereunder to the extent such payments have not been made or such benefits have not been provided through the above-mentioned trust. (vii) For purposes of this Agreement, a "Potential Change in Control" shall be deemed to have occurred if (A) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control of the Company; (B) any person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change in Control of the Company; (C) any person, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing ten percent (10%) or more of the combined voting power of the Company's then outstanding securities; or (D) the Board of Directors adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control of the Company has occurred. 10. (a) Amendment of Agreement ---------------------- No amendment or modification of this Agreement shall be deemed effective unless and until executed in writing. (b) No Waiver --------- No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel to enforce any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel. Any written waiver shall not be deemed a continuing waiver unless specifically stated, shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived. 11. Severability ------------ If for any reason any provision of this Agreement shall be held invalid, such invalidity shall not affect any other provision of this Agreement not held so invalid, and all other such provisions shall to the full extent consistent with law continue in full force and effect. If any such provision shall be held invalid in part, such invalidity shall in no way affect the rest of such provision not held so invalid, and the rest of such provision, together with all other provisions of this Agreement, shall likewise to the full extent consistent with law continue in full force and effect. 12. Headings -------- The headings of paragraphs are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 13. Governing Law ------------- The validity, interpretation, construction, performance and enforcement of this Agreement shall be governed by the laws of the State of New York without giving effect to the principles of conflict of laws thereof. 9 14. Parachute Tax ------------- If the payments and benefits provided for the Executive under this Agreement, together with any other payments and benefits that the Executive may have a right to receive from the Company or any other person or entity, would result in "excess parachute payments" (as defined in Section 280G of the Code), the payments and benefits to be made and provided to the Executive and his beneficiary or beneficiaries pursuant to this Agreement shall be reduced to the largest whole-dollar amount that will result in there being no such "excess parachute payment." The existence or absence of any such "excess parachute payment," the amount of any such reduction, and the item or items to be reduced, if any, shall be determined, in each case, by the Executive or, following his death, his beneficiary or beneficiaries, and the specifics of such determination shall be delivered in writing to the Company and to the trustee of the Trust referred to in subparagraph 9(d)(ii) above, at the time of the Executive's termination within three years after a Change in Control, or as soon as practicable thereafter, by the Executive or, following his death, his beneficiary or beneficiaries. The reasonable fees and expenses of such tax counsel and financial advisor as may reasonably be called upon to assist the Executive or his beneficiary or beneficiaries in the foregoing endeavors shall be paid by the Company. 15. Notices ------- All notices, requests, demands and other communications provided for by this Agreement shall be in writing and shall be sufficiently given if and when mailed in the continental United States by registered or certified mail, return receipt requested, or personally delivered to the party entitled thereto at the address stated below, which address shall be such address as the addressee may have given most recently by a similar notice. Any such notice shall be deemed to have been received on the date of delivery. To the Company: Champion International Corporation One Champion Plaza Stamford, Connecticut 06921 Attention: Corporate Secretary To the Executive: Mr. Burton G. MacArthur, Jr. One Champion Plaza Stamford, CT 06921 16. Arbitration ----------- Any dispute between the Executive and the Company as to the interpretation or application of any of the provisions of this Agreement may, at the Executive's election, be determined by binding arbitration within the greater New York City metropolitan area or the State of Connecticut in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court of competent jurisdiction. All fees and expenses of such arbitration shall be paid by the Company subject to repayment by the Executive if and to the extent that a judgment should be rendered against him beyond appeal and such fees and expenses were not incurred by him while acting in good faith. 10 IN WITNESS WHEREOF, the Company has caused this Agreement to be executed and its seal to be affixed hereto, and the Executive has signed this Agreement, all as of October 18, 1990. CHAMPION INTERNATIONAL CORPORATION By /s/ Andrew C. Sigler ------------------------------------------- Chairman of the Board of Directors Attest: /s/ Lawrence A. Fox - -------------------------------- Secretary /s/ Burton G. MacArthur, Jr. ------------------------------------------- Burton G. MacArthur, Jr. 11 Exhibit A --------- [subparagraph 1(a)(ii)(y)] Schedule of Certain Benefit Coverages during the Severance Payment Period under Subparagraph 1(a)(i) after a Termination following a Change in Control --------------------------------------------------- ` Disability: Same as for active employees. ` Medical: Same as for active employees less retiree medical benefit, if any. ` Dental: Same as for active employees. For other benefit coverages after termination following a Change in Control, see subparagraph 1(a)(ii)(x) and (z). oOo Exhibit B --------- [subparagraph 3(g)] Schedule of Payments and Benefits upon a Breach after Cessation of Employment -------------------------------------- ` Severance: 2 years termination payments (or the unpaid balance thereof); however, payments not to cover the period, if any, after the last day of the month next preceeding the Executive's normal retirement date under the Company's pension plan. Payments are based on highest total of salary and annual bonus for any calendar year of employment. ` Retirement: All unpaid amounts, if any, excess benefit and supplemental of the Company. payable under the retirement plans ` Disability: Same as for active employees, termination payment period or during the 2 year balance thereof. ` Medical: Same as for active employees benefit, if any, during the 2 year payment period or balance less retiree medical termination thereof. ` Dental: Same as for active employees, termination payment period or during the 2 year balance thereof. oOo Exhibit C --------- [subparagraph 9(d)] FORM OF TRUST AGREEMENT ----------------------- TRUST AGREEMENT (the "Trust"), dated as of February 19, 1987, by and between Champion International Corporation, a New York corporation (the "Company"), and Connecticut National Bank (the "Trustee"). WHEREAS, the Company is obligated under the individual agreements set forth on Exhibit I (together with any additional agreements included on Exhibit I pursuant to Section 2.01(c) hereof, the "Agreements") to make specified payments to certain of the Company's executives (together with any additional executives and retired executives included on Exhibit I pursuant to Section 2.01(c) hereof, the "Executives"); and WHEREAS, the aforesaid obligations of the Company are not funded or otherwise secured, and the Company has agreed, to the extent practicable, to assure that the future payment of certain of said obligations will not be improperly withheld in the event that a "Change in Control" (as defined herein) of the Company should occur; and WHEREAS, for purposes of assuring that such payments will not be improperly withheld, the Company desires to deposit with the Trustee, subject only to the claims of the Company's existing or future general creditors in the event of bankruptcy or insolvency (as hereinafter provided), amounts of cash or marketable securities sufficient to fund such payments; NOW, THEREFORE, in consideration of the mutual agreements contained herein and for other good and valuable consideration, the parties hereto agree as follows: ARTICLE I THE AGREEMENTS -------------- SECTION 1.01 Agreements. The agreements subject to this Trust ---------- consist of the Agreements listed from time to time on Exhibit I hereof respectively. The Company shall continue to be liable to the Executives to make all payments required under the terms of such Agreements to the extent such payments have not been made pursuant to this Trust. ARTICLE II TRUST AND THE TRUST CORPUS -------------------------- SECTION 2.01 Trust. ----- (a) The Company will deliver to the Trustee to be held in trust hereunder, concurrently with the execution of this Trust, the sum of $100 in cash, and upon the occurrence of a "Potential Change in Control" (as defined in Section 3.02), (i) an additional amount in cash (or in marketable securities having a fair market value equal to such amount, or some combination thereof) representing the sum of the amounts, determined as provided in Section 4.02, which is estimated to be sufficient to fund the Company's obligations to pay to the Executives certain amounts and benefits due to them pursuant to the Agreements and (ii) an amount estimated by the Trustee to be sufficient to pay all of the Trustee's fees and expenses hereunder with respect to the period of time that this Trust Agreement shall be in effect. (b) The payment by the Company pursuant to Section 2.01(a)(i) hereof shall be accompanied by a Payment Schedule for each Executive as required by Section 4.02(a) hereof. (c) The Company may, subject to the provisions of Section 2.01(d), from time to time prior to the occurrence of a Change in Control revise Exhibit I in order to include thereon (A) additional Executives, and (B) additional Agreements 1 with respect to any Executive. If a revised Exhibit I is delivered to the Trustee with respect to any Executive upon or after the occurrence of a Potential Change in Control, the Company will deliver to the Trustee, concurrently with such revised Exhibit I: (x) a Payment Schedule or a revised Payment Schedule, as applicable, with respect to such Executive which complies with Section 4.02(a) and which sets forth the additional amount delivered to the Trustee with respect to such Executive, and (y) an amount which is estimated to be sufficient when added to the amount or amounts previously delivered to the Trustee to fund the Company's obligations under the Payment Schedule or the revised Payment Schedule, as applicable, pursuant to such Executive's Agreements. Such Payment Schedule or revised Payment Schedule shall be effective in accordance with the provisions of Section 4.02(b). A revised Exhibit I shall be effective upon the later of (C) receipt by Trustee of such revised Exhibit I and (D) receipt by the Trustee of all amounts required under this Section 2.01(c), if any, and such revised Exhibit I shall supersede any and all such Exhibits previously delivered to the Trustee. (d) In no event may Exhibit I be revised to eliminate any Executive or any Agreements with respect to any Executive without such Executive's written consent, except as provided in the following sentence. Prior to the occurrence of a Change in Control, the Company shall deliver instructions to the Trustee to delete the name of, and the Agreements with respect to, an Executive from Exhibit I promptly following the termination of his employment with the Company prior to the occurrence of a Change in Control. The Trustee shall make such deletions and shall be able to rely upon such instructions and shall have no duty to inquire with respect to the termination of such Executive's employment with the Company. The deletions described in the immediately preceding sentence may not be made with respect to instructions delivered to the Trustee on or after the occurrence of a Change in Control of the Company. Notwithstanding the foregoing, following a Potential Change in Control the Company may, in its discretion, add retired Executives and their agreements with the Company to Exhibit I in accordance with Section 2.01(c) to assure that the payment of certain amounts payable by the Company to such retired Executives under such agreements will not be improperly withheld following a Change in Control. SECTION 2.02 Trust Corpus. ------------ (a) As used herein, the term "Trust Corpus" shall mean the amounts delivered to the Trustee as described in Section 2.01 and 4.02(b) hereof in whatever form held or invested as provided herein. The Trust Corpus shall be held, invested and reinvested by the Trustee in cash or marketable securities only in accordance with this Section 2.02. The Trustee shall use its good faith efforts to invest or reinvest from time to time all or such part of the Trust Corpus as it believes prudent under the circumstances in either one or a combination of the following investments: (i) investments in direct obligations of the United States of America or agencies of the United States of America or obligations unconditionally and fully guaranteed as to principal and interest by the United States of America, in each case maturing within one year or less from the date of acquisition; or 2 (ii) investments in negotiable certificates of deposit (in each case maturing within one (1) year or less from the date of acquisition) issued by a commercial bank organized and existing under the laws of the United States of America or any state thereof having a combined capital and surplus of at least $1,000,000,000, including the Trustee's banking department; provided, however, that the Trustee shall not be liable for any failure to - ----------------- maximize the income earned on that portion of the Trust Corpus as is from time to time invested or reinvested as set forth above, nor for any loss of income due to liquidation of any investment which the Trustee, in its sole discretion, believes necessary to make payments or to reimburse expenses under the terms of this Trust. (b) The Trust is intended to be grantor trust within the meaning of Section 671 of the Internal Revenue Code of 1986, as amended (the "Code"), except as hereinafter provided, all interest and other income earned on the investment of the Trust Corpus shall be the property of the Company and shall not constitute a part of the Trust Corpus. Except as provided in Section 4.02(a), the interest and other income earned in any calendar quarter shall be paid over to the Company by the Trustee as promptly as practicable after the end of such calendar quarter. (c) All losses of principal in respect of, and expenses (including, as provided in Section 5.01(g) hereof, any expenses of the Trustee) charged against, the Trust Corpus shall be for the account of the Company and the Company shall be obligated to promptly reimburse the Trust Corpus for any loss in principal amount of, or expense charged against, the Trust Corpus except to the extent that such amounts have been applied to reduce amounts payable to the Company pursuant to Section 2.02(b) hereof. To the extent any such losses and expenses are not reimbursed by the Company, the aggregate amount payable to an Executive under the applicable Payment Schedule shall be reduced by a portion of such losses and expenses, as determined on a pro rata basis. ARTICLE III CHANGE IN CONTROL ----------------- SECTION 3.01 Definition of Change in Control. ------------------------------- For purposes of this Trust, a Change in Control of the Company shall be deemed to have occurred if (a) any "person" (as defined in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the combined voting power of the Company's then outstanding securities; (b) during any period within two (2) consecutive years (not including any period prior to the Company's 1987 Annual Meeting of Shareholders) there shall cease to be a majority of the Board of Directors comprised as follows: individuals who at the beginning of such period constitute the Board of Directors and any new director(s) whose election by the Board of Directors or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved; or 3 (c) the shareholders of the Company approve (i) a plan of complete liquidation of the Company or (ii) the sale or other disposition of all or substantially all the Company's assets. SECTION 3.02 Definition of a Potential Change in Control. For ------------------------------------------- purposes of this Trust, a Potential Change in Control shall be deemed to have occurred if (a) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control of the Company; (b) any person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change in Control of the Company; (c) any person, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing ten percent (10%) or more of the combined voting power of the Company's then outstanding securities; or (d) the Board of Directors adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control of the Company has occurred. SECTION 3.03 Notification of the Trustee. The Company shall notify --------------------------- the Trustee of the occurrence of a Potential Change in Control and the Company shall or an Executive may notify the Trustee of the occurrence of a Change in Control, and the Trustee may rely on such notice or on any other actual notice, satisfactory to the Trustee, of such a change or potential change which the Trustee may receive. The Trustee shall have no obligation to make an independent determination as to the occurrence of a Potential Change in Control or Change in Control. ARTICLE IV RELEASE OF THE TRUST CORPUS --------------------------- The Trustee shall hold the Trust Corpus in its possession under the provisions of this Trust Agreement until authorized to deliver the Trust Corpus or any specified portion thereof as follows: SECTION 4.01 Delivery to the Company. ----------------------- (a) Any amount in excess of $100 delivered to the Trustee pursuant to Section 2.01 hereof or otherwise constituting part of the Trust Corpus shall be returned to the Company, unless within six (6) months of such delivery to the Trustee a Change in Control shall have occurred. Such six month period shall be renewed (i) for any Potential Change in Control which occurs during any initial six month period or (ii) by a resolution adopted by the Board of Directors and delivered to the Trustee by the Company to the effect that such an initial six month period (or a six month period that is renewed in accordance with clause (i) of this Section 4.01(a)) shall start anew. (b) Any amount held by the Trustee for the benefit of an Executive shall be paid to the Company immediately following the final payment of all amounts payable to such Executive pursuant to the terms of the Executive's Agreement, as certified to the Trustee by the Executive. (c) Upon the termination of the Trust as provided in the first sentence of Section 6.01(a), the Trustee shall pay to the Company the amount of the Trust Corpus, less all payments, expenses, taxes and other charges under this Trust Agreement as of such date of termination, provided that in the event that the Trust shall continue with respect to one or more Executives in accordance with the provisions of Section 6.01(b), the Trustee shall pay to the Company the amount that would have been payable to the Company if the Trust had terminated as provided in Section 6.01(a), less (i) the amounts subject to litigation or arbitration for each such Executive, as certified to the Trustee by each such Executive, and (ii) an amount 4 estimated by the Trustee to be sufficient to pay all of the Trustee's fees and expenses with respect to the additional period of time that the Trust shall continue in effect pursuant to Section 6.01(b). SECTION 4.02 Deliveries to Executives. ------------------------ (a) The Company shall deliver to the Trustee, upon the occurrence of a Potential Change in Control, a separate schedule for each Executive (the "Payment Schedule') indicating (x) the amounts delivered to the Trustee for the benefit of each such Executive pursuant to Section 2.01(a)(i) in accordance with such Executive's Agreements and (y) the amounts payable in respect of such Executive, or providing a formula or instructions acceptable to the Trustee for determining the amounts so payable. The Payment Schedule shall include instructions as to the amount of interest, if any, accruing in respect of an Executive and such instructions may be revised from time to time prior to the occurrence of a Change in Control. Each Payment Schedule also shall be delivered by the Company to such Executive. The aggregate payment to be made hereunder to an Executive by the Trustee shall not exceed the aggregate amount delivered to the Trustee for the benefit of such Executive as indicated in the Payment Schedule applicable to such Executive. The Trustee shall make payments to each Executive under the Payment Schedule applicable to such Executive upon receipt by the Trustee of a written request for payment signed by the Executive or, following his death, his beneficiary or beneficiaries. Such request shall set forth each of the following items: (i) the specific amount of payment requested, (ii) the specific Agreement or Agreements and the specific section or sections of such Agreements under which such payment is to be made, (iii) the existence or absence of any "excess parachute payment" (as defined in Section 280G of the Code) respecting the amount payable to such Executive in accordance with the applicable Payment Schedule and (iv) the amount of any reduction in the amount otherwise payable to such Executive in accordance with the applicable Payment Schedule and the item or items to be reduced, if any. The Trustee shall rely upon such written request in making payments under the Payment Schedule and shall have no duty to inquire into the amounts, instructions or formulas set forth in the Payment Schedule or the Executive's right to such payments. (b) The Company may from time to time after the occurrence of a Potential Change in Control deliver concurrently to the Trustee (i) a revised Payment Schedule with respect to any Executive which sets forth the aggregate amounts payable with respect to such Executive and (ii) an amount which is estimated to be sufficient when added to the amount or amounts previously delivered to the Trustee to fund the Company's obligations pursuant to such Executive's Agreements. A revised Payment Schedule shall be effective upon the later of (x) receipt by the Trustee of such revised Payment Schedule and (y) receipt by the Trustee of all amounts required under Section 4.02(b)(ii) and such revised Payment Schedule shall supersede any and all Payment Schedules previously delivered by the Company to the Trustee with respect to such Executive. (c) Except as provided in this Section 4.02(c), a revised Payment Schedule may not reduce the amounts payable with respect to an Executive pursuant to the prior Payment Schedule for such Executive except with the written consent of such Executive. (i) After a Potential Change in Control and before a Change in Control, the Company shall deliver to the Trustee, promptly following the termination of an Executive's employment with the Company, a revised Payment Schedule with respect to such Executive which deletes all of the amounts set forth on the prior Payment Schedule for such Executive. The Trustee may rely 5 upon such revised Payment Schedule and shall have no duty to inquire with respect to the termination of such Executive's employment with the Company. The Trustee shall return to the Company all amounts previously delivered by the Company to the Trustee for the benefit of such Executive. Notwithstanding the foregoing, following a Potential Change in Control the Company may, in its discretion, deliver Payment Schedules for retired Executives in accordance with Section 4.02(a) hereof. (ii) After a Potential Change in Control and before a Change in Control, the Company may deliver a revised Payment Schedule with respect to an Executive which reduces the amounts payable in respect of such Executive pursuant to his prior Payment Schedule as the result of a more accurate calculation by the Company of the amount of the benefits to which such Executive is entitled pursuant to his Agreements. The Trustee may rely on such revised Payment Schedule and shall have no duty to inquire with respect to said calculation. The Trustee shall return to the Company an amount equal to such reduction. A revised Payment Schedule of the type described in this Section 4.02(c) may not be delivered to, or honored by, the Trustee on or after the occurrence of a Change in Control of the Company. A revised Payment Schedule shall be effective upon its receipt by the Trustee and shall supersede any and all Payment Schedules previously delivered by the Company to the Trustee with respect to such Executive. (d) The Trustee shall be permitted to withhold from any payment due to an Executive hereunder the amount required by law to be so withheld under federal, state and local withholding requirements or otherwise, and shall pay over to the appropriate government authority the amounts so withheld. The Trustee may rely on instructions from the Company as to any required withholding and shall be fully protected under Section 5.01(g) hereof in relying on such instructions. (e) Except as otherwise provided herein, in the event of any final determination by the Internal Revenue Service or a court of competent jurisdiction, which determination is not appealable or the time for appeal or protest of which has expired, or the receipt by the Trustee of a substantially unqualified opinion of tax counsel selected by the Trustee with the written consent of the Company, which determination determines, or which opinion concludes, that the Executives or any particular Executive, is subject to federal income taxation on amounts held in Trust hereunder prior to the distribution to the Executives or Executive of such amounts, the Trustee shall, on receipt by the Trustee of such opinion or notice of such determination, pay to each Executive the portion of the Trust Corpus includible in such Executive's federal gross income. SECTION 4.03 Deliveries to Creditors of the Company. It is the -------------------------------------- intent of the parties hereto that the Trust Corpus is and shall remain at all times subject to the claims of the general creditors of the Company in the event of bankruptcy or insolvency as hereinafter provided, but in no other event. Accordingly, the Company shall not create a security interest in the Trust Corpus in favor of the Executives or any creditor. If the Trustee receives the notice provided for in Section 4.04 hereof, or otherwise receives actual notice that the Company is insolvent or bankrupt as defined in Section 4.04 hereof, the Trustee will make no further distributions of the Trust Corpus to any of the Executives but will deliver the entire amount of the Trust Corpus only as a court of competent jurisdiction, or duly appointed receiver or other person authorized to act by such a court, may direct to make the Trust Corpus available to satisfy the claims of the Company's general creditors. The Trustee shall resume 6 holding the Trust Corpus under the terms hereof and resume any distribution of Trust Corpus to the Executives under the terms hereof, upon no less than thirty (30) days advance notice to the Company, if it determines that the Company was not, or is no longer, bankrupt or insolvent. Unless the Trustee has actual knowledge of the Company's bankruptcy or insolvency, the Trustee shall have no duty to inquire whether the Company is bankrupt or insolvent. SECTION 4.04 Notification of Bankruptcy or Insolvency. The Company, ---------------------------------------- through its Board of Directors and Chief Executive Officer, shall advise the Trustee promptly in writing of the Company's bankruptcy or insolvency. The Company shall be deemed to be bankrupt or insolvent in the following circumstances: (a) The Company is subject to a pending proceeding as a debtor under the Bankruptcy Reform Act of 1978, as amended; or (b) The Company shall generally not pay its debts as such debts become due or shall cease to pay its debts in the ordinary course of business. ARTICLE V TRUSTEE ------- SECTION 5.01 Trustee. ------- (a) The duties and responsibilities of the Trustee shall be limited to those expressly set forth in this Trust, and no implied covenants or obligations shall be read into this Trust against the Trustee. (b) If all or any part of the Trust Corpus is at any time attached, garnished, or levied upon by any court order, or in case the payment, assignment, transfer, conveyance or delivery of any such property shall be stayed or enjoined by any court order, or in case any order, judgment or decree shall be made or entered by a court affecting such property or any part thereof, then and in any of such events the Trustee is authorized, in its sole discretion, to rely upon and comply with any such order, judgment or decree, and it shall not be liable to the Company or any Executive by reason of such compliance even though such order, judgment or decree subsequently may be reversed, modified, annulled, set aside or vacated. (c) The Trustee shall maintain such books, records and accounts as may be necessary for the proper administration of the Trust Corpus, including, without limitation, as provided in Article II hereof, and shall render to the Company, on or prior to each January 31 following the date of this Trust until the termination of this Trust (and on the date of such termination), an accounting with respect to the Trust Corpus as of the end of the then most recent calendar year (and as of the date of such termination). The Trustee will at all times maintain a separate bookkeeping account for each Executive to which it will credit each amount delivered by the Company to the Trustee with respect to such Executive. Upon the written request of an Executive or the Company, the Trustee shall deliver to such Executive or the Company, as the case may be, a written report setting forth the amount held in the Trust for such Executive (or each Executive if such request is made by the Company) and a record of the deposits made with respect thereto by the Company. Unless the Company or any Executive shall have filed with the Trustee written exceptions or objections to any such statement and account within one hundred eighty (180) days after receipt thereof, the Company or the Executive shall be deemed to have approved such statement and account, and in such case the Trustee shall be forever released and discharged with respect to all matters and things reported in such statement and account as though it had been settled by a decree of a court of competent jurisdiction in an action or proceeding to which the Company and the Executive were parties. (d) The Trustee shall not be liable for any act taken or omitted to be taken hereunder if taken or omitted to be taken by it in good faith, absent the gross 7 negligence or wilful misconduct of the Trustee. The Trustee shall also be fully protected in relying upon any notice given hereunder which it in good faith believes to be genuine and executed and delivered in accordance with this Trust. (e) The Trustee may consult with legal counsel to be selected by it, and the Trustee shall not be liable for any action taken or suffered by it in accordance with the advice of such counsel. (f) The Trustee shall be reimbursed by the Company for its reasonable expenses incurred in connection with the performance of its duties hereunder and shall be paid reasonable fees for the performance of such duties in the manner provided by paragraph (g) of this Section 5.01. (g) The Company agrees to indemnify and hold harmless the Trustee from and against any and all damages, losses, claims or expenses as incurred (including expenses of investigation and fees and disbursements of counsel to the Trustee and any taxes imposed on the Trust Corpus or income of the Trust) arising out of or in connection with the performance by the Trustee of its duties hereunder, other than such damages, losses, claims or expenses arising out of the Trustee's gross negligence or wilful misconduct. Any amount payable to the Trustee under paragraph (f) of this Section 5.01 or this paragraph (g) shall be paid by the Company promptly upon demand therefor by the Trustee or, in the event that the Company fails to make such payment, from the Trust Corpus. In the event that payment is made hereunder to the Trustee from the Trust Corpus, the Trustee shall promptly notify the Company in writing of the amount of such payment. The Company agrees that, upon receipt of such notice, it will deliver to the Trustee to be held in the Trust an amount in cash (or in marketable securities or in some combination thereof) equal to any payments made from the Trust Corpus to the Trustee pursuant to paragraph (f) of this Section 5.01 or this paragraph (g). The failure of the Company to transfer any such amount shall not in any way impair the Trustee's right to indemnification, reimbursement and payment pursuant to paragraph (f) of this Section 5.01 or this paragraph (g). SECTION 5.02 Successor Trustee. The Trustee may resign and be ----------------- discharged from its duties hereunder at any time by giving notice in writing of such resignation to the Company and each Executive specifying a date (not less than thirty (30) days after the giving of such notice) when such resignation shall take effect. Promptly after such notice, the Company (or, if a Change in Control shall previously have occurred, Executive(s) having at least 65% percent of all amounts then held in the Trust credited to their accounts shall appoint a successor trustee, such trustee to become Trustee hereunder upon the resignation date specified in such notice. If the Company fails to appoint a successor trustee or if such Executive(s) are unable to so agree upon a successor trustee within thirty (30) days after such notice, the Trustee shall be entitled, at the expense of the Company, to petition a United States District Court or any of the courts of the State of New York having jurisdiction to appoint its successor. The Trustee shall continue to serve until its successor accepts the trust and receives delivery of the Trust Corpus. The Company (or, if a Change in Control shall previously have occurred, Executive(s) having at least 65% percent of all amounts then held in the Trust credited to their accounts) may at any time substitute a new trustee by giving fifteen (15) days notice thereof to the Trustee then acting. In the event of such removal or resignation, the Trustee shall duly file with the Company and, on and after a Change in Control, the Executives a written statement or statements of accounts and proceedings as provided in Section 5.01(c) hereof for the period since the last previous annual accounting of the Trust, and if written objection to such account is not filed as provided in Section 5.01(c) hereof, the Trustee shall to the maximum extent 8 permitted by applicable law be forever released and discharged from all liability and accountability with respect to the propriety of its acts and transactions shown in such account. The Trustee and any successor thereto appointed hereunder shall be a commercial bank which is not an affiliate of the Company, but which is a national banking association or established under the laws of one of the states of the United States, and which has equity in excess of $100 million. SECTION 5.03 Settlement of Accounts. Notwithstanding any other ---------------------- provision of this Agreement, in the event of the termination of the Trust, or the resignation or discharge of the Trustee, the Trustee shall have the right to a settlement of its accounts, which accounting may be made, at the option of the Trustee, either (a) by a judicial settlement in a court of competent jurisdiction; or (b) by agreement of settlement, release and indemnity from the Company to the Trustee. ARTICLE VI TERMINATION, AMENDMENT AND WAIVER --------------------------------- SECTION 6.01 Termination. ----------- (a) Except as provided in Section 6.01(b) of this Agreement, this Trust shall terminate forty-two months after the occurrence of a Change in Control, or, if earlier, upon the earliest of either of the following events: (i) the exhaustion of the Trust Corpus; or (ii) the final payment of all amounts payable to all of the Executives pursuant to the Agreements, as certified to the Trustee by each Executive. Promptly upon termination of this Trust, any remaining portion of the Trust Corpus, less all payments, expenses, taxes and other charges under this Trust Agreement as of such date of termination, shall be paid to the Company. (b) Notwithstanding any other provision of this Agreement, in the situation where the payments under an Executive's Agreements are the subject of litigation or arbitration, and if the Trust Corpus has not been exhausted with respect to such Executive, the Trust shall not terminate and the funds held in the Trust with respect to such Executive shall continue to be held by the Trustee until the final resolution of such litigation or arbitration. The Trustee may assume that no Agreement of an Executive is the subject of such litigation or arbitration unless the Trustee receives written notice from an Executive or the Company with respect to such litigation or arbitration. The Trustee may rely upon written notice from an Executive as to the final resolution of such litigation or arbitration. Following such final resolution, the Trust shall terminate with respect to each Executive described in this Section 6.01(b) upon the earliest of either of the following events: (i) the exhaustion of the Trust Corpus held by the Trustee with respect to such Executive; or (ii) the final payment of all amounts payable to the Executive pursuant to such Executive's Agreements, as certified to the Trustee by such Executive. Promptly upon termination of this Trust with respect to an Executive described in Section 6.01(b), any remaining portion of the Trust Corpus held by the Trustee with respect to such Executive shall be paid to the Company. At such time as the Trust shall be terminated with respect to all such Executives, the Trust Corpus, less all payments, expenses, taxes and other charges attributable to the extension of the Trust term beyond the termination date described in Section 6.01(a), shall be paid promptly to the Company. SECTION 6.02 Amendment and Waiver. Except as provided in Sections -------------------- 2.01(c),(d) and 4.02(b),(c), this Trust may not be amended except by an instrument in writing signed on behalf of the parties hereto together with the written consent of Executives having at least 65% of all amounts then held in the Trust credited to their accounts. The parties hereto, together with the consent of Executives having at least 65% of all amounts then held in the Trust credited to their accounts, 9 may at any time waive compliance with any of the agreements or conditions contained herein. Any agreement on the part of a party hereto or an Executive to any such waiver shall be valid if set forth in an instrument in writing signed on behalf of such party or Executive. This Trust may not be amended nor may compliance with any provisions hereunder be waived except by an instrument in writing signed on behalf of the parties hereto and by at least seventy-five percent (75%) of the Executives in the situation where, prior to such amendment or waiver, no payment has been made by the Company pursuant to Section 2.01(a)(i) that is then held by the Trustee. Notwithstanding the foregoing, any such amendment or waiver may be made prior to a Change in Control by written agreement of the parties hereto without obtaining the consent of the Executives if such amendment or waiver does not adversely affect the rights of the Executives hereunder. Except as provided in Sections 2.01(c),(d) and 4.02(b),(c), no amendment or waiver relating to this Trust may be made (i) with respect to the amount of funds to be delivered by the Company to the Trustee with respect to an Executive or by the Trustee to such Executive, or the timing of such deliveries or (ii) which amends Section 6.01, unless such Executive, in the case of clause (i) or, all Executives in the case of clause (ii), agree in writing to such amendment or waiver. ARTICLE VII GENERAL PROVISIONS ------------------ SECTION 7.01 Further Assurances. The Company shall, at any time and ------------------ from time to time, upon the reasonable request of the Trustee, execute and deliver such further instruments and do such further acts as may be necessary or proper to effectuate the purposes of this Trust. SECTION 7.02 Certain Provisions Relating to this Trust. (a) This ----------------------------------------- Trust sets forth the entire understanding of the parties with respect to the subject matter hereof and supersedes any and all prior agreements, arrangements and understandings relating thereto. This Trust shall be binding upon and inure to the benefit of the parties and their respective successors and legal representatives. (b) If by the end of the eight-month period following the date hereof, or such later date as the Company and the Trustee shall agree, counsel is unable to deliver to the Company a favorable opinion that is satisfactory to the Company, substantially to the effect that (i) the Company will be treated as the owner of the Trust under Section 677 of the Code and Section 1.677(a)-1(d) of the regulations. Under Section 671, the Company must include all of the income, deductions and credits against tax of the Trust in computing its own taxable income and credits, and (ii) the transfer of assets to the Trust will not constitute a transfer of property for purposes of Section 83 of the Code or Section 1.83-3(e) of the regulations, and (iii) under Section 451 of the Code, amounts will be includible in the gross income of the Executives only in the taxable year or years in which such amounts are actually distributed or made available by the Trustee, the Trust shall immediately terminate and the amount of the Trust Corpus, less all payments, expenses, taxes and other charges under this Trust Agreement, if any, as of such date, shall be returned to the Company as soon as possible. Upon termination of the Trust, the Executives shall have no rights under this Trust Agreement. (c) This Trust shall be governed by and construed in accordance with the laws of the State of New York, other than and without reference to any 10 provisions of such laws regarding choice of laws or conflict of laws. (d) In the event that any provision of this Trust or the application thereof to any person or circumstances shall be determined by a court of proper jurisdiction to be invalid or unenforceable to any extent, the remainder of this Trust, or the application of such provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each provision of this Trust shall be valid and enforced to the fullest extent permitted by law. (e) The article and section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or interpretation of this Agreement. SECTION 7.03 Alienation. The right of any Trust Beneficiary (as ---------- hereinafter defined) to any benefit or to any payment hereunder shall not be subject to alienation or assignment. SECTION 7.04 Arbitration. Any dispute between the Executives and ----------- the Company or the Trustee as to the interpretation or application of the provisions of this Trust and amounts payable hereunder may, at the election of any party to such dispute (or, if more than one (1) Executive is such a party, at the election of seventy-five percent (75%) of such Executives), be determined by binding arbitration within the greater New York City metropolitan area or the State of Connecticut in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court of competent jurisdiction. All fees and expenses of such arbitration shall be paid by the Trustee and considered an expense of the Trust under Section 5.01(g). SECTION 7.05 Notices. Any notice, report, demand or waiver required ------- or permitted hereunder shall be in writing and shall be given personally or by prepaid registered or certified mail, return receipt requested, addressed as follows: If to the Company: Champion International Corporation One Champion Plaza Stamford, Connecticut 06921 Attention: Corporate Secretary If to the Trustee: Connecticut National Bank 777 Main Street Hartford, Connecticut 06115 Attention: Employee Benefits Administration - MSN 215 If to an Executive, to the address of such Executive as listed next to his name on Exhibit I hereto. A notice shall be deemed received upon the date of delivery if given personally or, if given by mail, upon the receipt thereof. A change of address may be given by any party to another by similar notice. SECTION 7.06 Trust Beneficiaries. Each Executive is an intended ------------------- beneficiary ("Trust Beneficiary") under this Trust, and as a Trust Beneficiary shall be entitled to enforce all terms and provisions hereof with the same force and effect as if such person had been a party hereto. The term Trust Beneficiary shall, to the extent provided in the Agreements respecting a deceased Executive, also mean the legal representative of the estate of such deceased Executive and the surviving spouse of the deceased Executive or beneficiary designated by such Executive in accordance with the terms of such Agreements. 11 IN WITNESS WHEREOF, the parties have executed this Trust as of the date first written above. CHAMPION INTERNATIONALCORPORATION By /s/ Andrew C. Sigler ---------------------------------------------- Andrew C. Sigler Chairman and Chief Executive Officer CONNECTICUT NATIONAL BANK By /s/ Thomas F. Mullaney, Jr. ------------------------------------------ Thomas F. Mullaney, Jr. Executive Vice-President 12 Exhibit I AGREEMENTS BETWEEN CHAMPION INTERNATIONAL CORPORATION AND CERTAIN EXECUTIVES
Name and Address Title Date of Agreement - ---------------- ----- ----------------- Mr. John A. Ball Senior Vice President February 19, 1987: One Champion Plaza -Restated Agreement /1/ Stamford, CT 06921 -Agreement Relating to Legal Expenses Mr. Gerald J. Beiser Senior Vice President -February 19, 1987: One Champion Plaza Finance -Restated Agreement /1/ Stamford, CT 06921 -Agreement Relating to Legal Expenses Mr. William H. Burchfield Executive Vice President February 19, 1987: One Champion Plaza -Agreement /2/ Stamford, CT 06921 -Agreement Relating to Legal Expenses Mr. Mark A. Fuller, Jr. Executive Vice President February 19, 1987: One Champion Plaza -Agreement /2/ Stamford, CT 06921 -Agreement Relating to Legal Expenses Mr. Marvin H. Ginsky Senior Vice President February 19, 1987: One Champion Plaza and General Counsel -Agreement /2/ Stamford, CT 06921 -Agreement Relating to Legal Expenses Mr. L. C. Heist President and Chief August 18, 1988: One Champion Plaza Operating Officer -Agreement Stamford, CT 06921 -Agreement Relating to Legal Expenses Mr. Kenwood C. Nichols Vice Chairman February 19, 1987: One Champion Plaza -Agreement /2/ Stamford, CT 06921 -Agreement Relating to Legal Expenses Mr. Richard E. Olson Executive Vice President August 18, 1988: One Champion Plaza -Agreement Stamford, CT 06921 -Agreement Relating to Legal Expenses Mr. Andrew C. Sigler One Champion Plaza Chairman and Chief February 19, 1987: Stamford, CT 06921 Executive Officer -Restated Agreement /1/ -Agreement Relating to Legal Expenses /3/
_________________________ /1/ As Amended April 21, 1988 and August 18, 1988 /2/ As Amended April 21, 1988 /3/ As Amended August 18, 1988 AMENDMENT TO TRUST AGREEMENT DATED AS OF FEBRUARY 19, 1987 BETWEEN CHAMPION INTERNATIONAL CORPORATION AND CONNECTICUT NATIONAL BANK ------------------------------------------------------- This Amendment between Champion International Corporation, a New York corporation (the "Company"), and Connecticut National Bank (the "Trustee") is effective as of August 18, 1988 and amends the Trust Agreement dated as of February 19, 1987 between the Company and the Trustee (the "Trust"). WHEREAS, the Company and the Trustee have entered into the Trust; and WHEREAS, the Company and the Trustee wish to amend the Trust in order to (1) ensure that it is in compliance with the rule against perpetuities and with applicable restraints on alienation, and (2) clarify the circumstances in which interest earned on the investment of Trust Corpus may be paid to the Executives; and WHEREAS, all of the Executives have agreed in writing to this Amendment as required by Section 6.02 of the Trust; NOW, THEREFORE, it is hereby agreed by and between the parties as follows: 1. Section 4.01 of the Trust is hereby amended by adding a new subsection (d) thereto, as follows: "(d) Notwithstanding any provision of this Agreement, upon termination of the Trust as provided in Section 6.01(c) the Trustee shall pay to the Company all amounts held hereunder." 2. The second, third and fourth sentences of Section 4.02(a) of the Trust are hereby amended in their entirety to read as follows: "Each Payment Schedule also shall be delivered by the Company to such Executive. The Payment Schedule shall include instructions as to the amount of interest (if any) to accrue for the benefit of an Executive, from the date on which the Trustee receives a written request for payment signed by the Executive (or his beneficiary or beneficiaries) as hereinafter provided until the date on which such payment is made, in respect of such payment; such instructions may be revised from time to time prior to the occurrence of a Change in Control. The aggregate payment to be made hereunder to an Executive by the Trustee shall not exceed the aggregate amount delivered to the Trustee for the benefit of such Executive, plus interest (if any) thereon as described in the immediately preceding sentence, all as indicated in the Payment Schedule applicable to such Executive." 3. Subsection (a) of Section 6.01 of the Trust is hereby amended to delete the first nine words thereof (i.e., "Except as provided in Section 6.01(b) of this Agreement,") and to substitute the following therefor: "Except as provided in Sections 6.01(b) and 6.01(c) of this Agreement,". 4. Subsection (b) of Section 6.01 of the Trust is hereby amended to delete the first seven words thereof (i.e., "Notwithstanding any other provision of this Agreement,") and to substitute the following therefor: Notwithstanding any other provision of this Agreement except Section 6.01(c),". 5. Section 6.01 of the Trust is hereby amended by adding a new subsection (c) thereto, as follows: "(c) Notwithstanding any other provision of this Agreement, this Trust shall terminate in all events and under all circumstances not later than twenty-one years after the death of the last survivor of the Executives who were included on Exhibit I hereto at the time this Trust was executed, such Executives being John A. Ball, Gerald J. Beiser, William H. Burchfield, Aubrey L. Cole, Mark A. Fuller, Jr., Marvin H. Ginsky, Judson Hannigan, L. C. Heist, Robert F. Longbine, Kenwood C. Nichols, Philip R. O'Connell and Andrew C. Sigler. Promptly upon termination of this Trust pursuant to this Section 6.01(c), the Trustee shall pay to the Company all amounts held hereunder." 6. All capitalized terms used herein and not defined herein shall have the meanings assigned to them in the Trust. 7. Except as amended hereby, all of the provisions of the Trust shall continue in full force and effect without change. IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first above written. CHAMPION INTERNATIONAL CORPORATION By /s/ Andrew C. Sigler -------------------------------------------------- Chairman and Chief Executive Officer CONNECTICUT NATIONAL BANK By /s/ Thomas J. Botticelli -------------------------------------------------- Thomas J. Botticelli AGREED TO: /s/ John A. Ball /s/ Judson Hannigan - --------------------------- -------------------------------------- John A. Ball Judson Hannigan /s/ Gerald J. Beiser /s/ L. C. Heist - --------------------------- -------------------------------------- Gerald J. Beiser L.C. Heist /s/ William H. Burchfield /s/ Kenwood C. Nichols - --------------------------- -------------------------------------- William H. Burchfield Kenwood C. Nichols /s/ Aubrey L. Cole /s/ Philip R. O'Connell - --------------------------- -------------------------------------- Aubrey L. Cole Philip R. O'Connell /s/ Mark A. Fuller, Jr. /s/ Richard E. Olson - --------------------------- -------------------------------------- Mark A. Fuller, Jr. Richard E. Olson /s/ Marvin H. Ginsky /s/ Andrew C. Sigler - --------------------------- -------------------------------------- Marvin H. Ginsky Andrew C. Sigler 2 Exhibit D --------- [subparagraph 9(d)] Schedule of Amounts to be Deposited in Trust Upon a Potential Change in Control* -------------------------------------------- ` Severance: 2 years termination payments; however, payments not to cover the period, if any, after the last day of the month next preceding the Executive's normal retirement date under the Company's pension plan. Payments are based on highest total of salary and annual bonus for any calendar year of employment. ` Retirement: All amounts, if any, payable under the excess benefit and supplemental retirement plans of the Company. ` Disability: Same as for active employees, for the 2 year termination payment period (or balance thereof). ` Medical: Same as for active employees less retiree medical benefit, if any, for the 2 year termination payment period (or balance thereof). ` Dental: Same as for active employees, for the 2 year termination payment period (or balance thereof). ` Options: Fund for those options referred to in subparagraph 1(a)(iii) hereof. "Spread" to be calculated on the basis of the closing price of Common Shares of the Company as reported in "New York Stock Exchange Composite Transactions" of the Eastern Edition of The Wall Street Journal for the trading ----------------------- day immediately after the Potential Change in Control. ` Contingently Credited Shares: Fund for those contingently credited shares referred to in subparagraph 1(a)(iii) hereof in an amount per share equal to the closing price of Common Shares of the Company as reported in "New York Stock Exchange Composite Transactions" of the Eastern Edition of The Wall Street Journal for the ----------------------- trading day immediately after the Potential Change in Control. ` Legal Expenses: An amount equal to twelve times the monthly base salary paid at time of deposit into trust. ________________ * This Exhibit D does not reflect the possible reduction provided for in subparagraph 9(d)(v) hereof. oOo EX-10.24 6 AGREEMENT RELATING TO LEGAL EXPENSES (10/18/90) EXHIBIT 10.24 Champion International Corporation One Champion Plaza Stamford, CT 06921 October 18, 1990 Mr. Burton G. MacArthur, Jr. One Champion Plaza Stamford, CT 06921 Re: Agreement Relating to Legal Expenses Dated October 18, 1990 ------------------------------------------------ Dear Twig: As an inducement for you to continue in the employ of Champion International Corporation (the "Company"), the Board of Directors of the Company has today authorized entering into an Agreement between you and the Company effective October 18, 1990 (the "Agreement"). One of the principal purposes in entering into the Agreement is to provide you with reasonable assurance in the event of a change in control of the Company against loss of rights to benefits that you could reasonably expect to receive in the absence of such a change in control, and thereby provide an inducement for you to remain in the employ of the Company notwithstanding the possibility of a change in its control. As a separate and additional inducement for you to remain in the employment of the Company, and to provide you with reasonable assurance that the purposes of the Agreement and this Agreement Relating to Legal Expenses (the "Legal Expense Agreement") (collectively, the "Secured Agreements") will not be frustrated as a result of the cost of their enforcement should a claim or dispute be instituted or arise upon or within forty-two months following a Change in Control of the Company (as defined in the Agreement) and arise out of or relate to any provision of the Secured Agreements, the Company agrees to pay, in consideration of such continued employment, all legal expenses which you may incur in any such claim or dispute. Such legal expenses shall be paid in the amount provided in, and otherwise in accordance with the terms and conditions of, the memorandum attached to, incorporated in and by this reference made part of, this Legal Expense Agreement. By virtue of the mutual promises set forth in this Agreement Relating to Legal Expenses and the Agreement and other good and valuable consideration the receipt and sufficiency of which you and the Company hereby acknowledge, your signature at the foot of this letter will constitute this letter a binding agreement and it shall thereupon be binding upon and inure to the benefit of you, your spouse, any other beneficiaries and your estate, and the Company and its successors and assigns, including any corporation with or into which the Company may consolidate or merge or to which the Company may transfer all or substantially all of its assets. If you are deceased and survived by a beneficiary, then your beneficiary may act for herself or himself in enforcing her or his rights under this Legal Expense Agreement as your survivor, and may also act for you with respect to any rights to payments which became due and remained unpaid during your lifetime. For the Company's files, please execute the enclosed copy of this Legal Expense Agreement and return it in an envelope marked "Confidential" to Lionel N. Zimmer. Sincerely, CHAMPION INTERNATIONAL CORPORATION Attest: By /s/ Andrew C. Sigler -------------------------------------------- Chairman of the Board of Directors /s/ Lawrence A. Fox - ----------------------------- Secretary Agreed: October 18, 1990 /s/ Burton G. MacArthur, Jr. - ---------------------------- Burton G. MacArthur, Jr. -2- Memorandum of Terms and Conditions Referred to in the Agreement Relating to Legal Expenses dated October 18, 1990 between Champion International Corporation and Burton G. MacArthur, Jr. --------------------------------------------------------------- 1. Reference hereafter to the Agreement Relating to Legal Expenses (the "Legal Expense Agreement") shall be deemed to refer also to this memorandum. Terms used or referred to in the Legal Expense Agreement shall have the same meaning or reference in this memorandum as in the Legal Expense Agreement. 2. The Company shall, upon presentation of appropriate commercial invoices, pay all legal expenses, which includes reasonable legal fees, court costs, arbitration costs, and ordinary and necessary out-of-pocket costs of attorneys, billed to and payable by you or by anyone claiming under or through you (such person being hereinafter referred to as your "beneficiary"), in connection with bringing, prosecuting, defending, litigating, arbitrating, negotiating or settling any claim or dispute by or against you or your beneficiary, or any claim or dispute between you or your beneficiary and the Company or any third party, that may be instituted or arise upon or within forty-two months following a Change in Control of the Company, as defined in the Agreement, and that may arise out of or relate to the Secured Agreements, or any of them, or the validity, operation, interpretation, enforceability or breach thereof, provided that: (a) you and your beneficiary shall repay to the Company any such expenses theretofore paid by or on behalf of the Company if and to the extent that a judgment should be rendered against you or your beneficiary by the judicial or arbitration forum that adjudicates such dispute beyond appeal, and such expenses were not incurred by you or your beneficiary while acting in good faith, and provided further, that (b) in the case of any request that the Company pay attorneys' fees or expenses, the Company shall have received a statement signed by the attorney or firm of attorneys rendering the bill setting forth the services that had been, and will be, performed, and provided further, that (c) in the case of any claim or dispute by or against you or your beneficiary, the claim for legal fees hereunder shall be made in writing, with specific reference to the provisions of the Legal Expense Agreement, delivered in the manner provided in subparagraph 4(c) below, in no event later than forty- two months after a Change in Control of the Company. 3. (a) At any time after the date hereof but in no event later than a Potential Change in Control of the Company as defined in the Agreement, if you are in the employ of the Company at such time, the Company will, at its own expense, set aside in trust, or establish, extend, renew and maintain an irrevocable bank letter of credit in favor of you or, in the event of your death, your beneficiary, in an amount equal to twelve (12) times the monthly base salary being paid to you at such time. (b) The Company has entered into a trust agreement substantially in the form attached to the Agreement (the "Trust Agreement"), and agrees that, upon the terms, conditions and procedures set forth therein, you will be named a beneficiary of the Trust Agreement, and this Legal Expense Agreement will be listed on Exhibit I of the Trust Agreement as one of the agreements which is subject to the trust established by the Trust Agreement. If the Company shall become liable for the payment of legal expenses under paragraph 2 above, you or, in the event of your death, your beneficiary shall request the Company in writing, in accordance with the terms, conditions and procedures set forth in such paragraph 2, to make such payment and, if the Company shall fail to do so fully within a reasonable time after receipt of such written demand, you may request the trustee of such trust, in accordance with the terms, conditions and procedures set forth in the Trust Agreement, to make such payment to the extent that the Company had failed to do so. The Company shall continue to be liable to make all payments required under the terms of this Legal Expense Agreement to the extent such payments have not been made pursuant to the Trust Agreement. (c) If the Company establishes, extends, renews and maintains an irrevocable bank letter of credit in favor of you or your beneficiary, you or, in the event of your death, your beneficiary, shall be entitled to draw upon such letter of credit only if and to the extent that the Company shall fail to discharge its obligations under paragraph 2 above within a reasonable time after receipt of written demand by you or your beneficiary. As and when any funds are paid by the bank under such letter of credit, the Company shall renew such letter of credit at its own expense to the extent of the funds so paid. The Company need not establish or renew any such letter of credit for any period subsequent to the date on which an attorney or a firm of attorneys selected by mutual agreement of the Company and you or, in the event of your death, your beneficiary, the fees and expenses of which attorney or firm of attorneys shall be borne by the Company, shall determine, after consultation with the Company and you or, in the event of your death, your beneficiary, that all obligations of the parties under the Secured Agreements have been substantially satisfied. (d) The bank that shall issue any such letter of credit shall be a national or state bank having a combined capital, surplus and undivided profits and reserves of not less than One Hundred Million Dollars ($100,000,000). 4. (a) Any dispute between you and the Company as to the interpretation or application of the provisions of either of the Secured Agreements may at your election be determined by binding arbitration within the greater New York City metropolitan area or the State of Connecticut in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court of competent jurisdiction. All fees and expenses of such arbitration shall be paid by the Company subject to repayment in accordance with the terms and conditions set forth in clause (a) of paragraph 2 above. (b) Anything to the contrary notwithstanding, all payments and other provisions required to be made by the Company under this Legal Expense Agreement to or on behalf of you or your beneficiaries shall be subject to the withholding of such amounts, if any, relating to tax and other payroll deductions as the Company may reasonably determine it should withhold pursuant to any applicable law or regulation. In lieu of withholding such amounts, the Company may accept other provisions to the end that it has sufficient funds to pay all taxes required by law to be withheld in respect of any or all of such payments. (c) All notices, requests, demands and other communications provided for by this Legal Expense Agreement shall be in writing and shall be sufficiently given if and when mailed in the continental United States by registered or certified mail, return receipt requested, or personally delivered to the party entitled thereto at the address stated below, which address shall be such address as the addressee may have given most recently by a similar notice. Any such notice shall be deemed to have been received on the date of 2 delivery. To the Company: Champion International Corporation One Champion Plaza Stamford, Connecticut 06921 Attention: Corporate Secretary To the Executive: Mr. Burton G. MacArthur, Jr. One Champion Plaza Stamford, CT 06921 (d) No provision of this Legal Expense Agreement may be amended, modified or waived unless such amendment, modification or waiver shall be authorized by the Board of Directors of the Company or any authorized committee of the Board of Directors and shall be agreed to in writing, signed by you and by an officer of the Company thereunto duly authorized. Except as otherwise specifically provided in this Legal Expense Agreement, no waiver by either party hereto of any breach by the other party hereto of any condition or provision of this Legal Expense Agreement to be performed by such other party shall be deemed a waiver of a subsequent breach of such condition or provision or a waiver of a similar or dissimilar provision or condition at the same time or at any prior or subsequent time. (e) Anything in this Legal Expense Agreement to the contrary notwithstanding: (i) In the event that any provision of this Legal Expense Agreement, or portion thereof, shall be determined to be invalid or unenforceable for any reason, in whole or in part, the remaining provisions of this Legal Expense Agreement and parts of such provision not so invalid or unenforceable shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law; (ii) Any provision of this Legal Expense Agreement, or portion thereof, which may be invalid or unenforceable in any jurisdiction shall be limited by construction thereof, to the end that such provision, or portion thereof, shall be valid and enforceable in such jurisdiction; and (iii) Any provision of this Legal Expense Agreement, or portion thereof, which may for any reason be invalid or unenforceable in any jurisdiction shall remain in effect and be enforceable in any jurisdiction in which such provision, or portion thereof, shall be valid and enforceable. (f) Except as otherwise provided herein, this Legal Expense Agreement shall be binding upon and inure to the benefit of the Company and any successor of the Company, including, without limitation, any corporation or corporations acquiring directly or indirectly all or substantially all of the assets of the Company whether by merger, consolidation, sale or otherwise (and such successor shall thereafter be deemed embraced within the term "the Company" for the purposes of this Legal Expense Agreement), but shall not otherwise be assignable by the Company. (g) The validity, interpretation, construction, performance and enforcement of this Legal Expense Agreement shall be governed by the laws of the State of New York without giving effect to the principles of conflicts of laws thereof. (h) There shall be no right of set-off or counterclaim in respect of any claim, debt or obligation against any payments to you, your beneficiaries or estate, provided for in this Legal Expense Agreement. (i) The Company and you recognize that each party will have no adequate remedy at law for breach by the other of any of the agreements 3 contained in this Legal Expense Agreement and, in the event of any such breach, the Company and you hereby agree and consent that the other shall be entitled to a decree of specific performance, mandamus or other appropriate remedy to enforce performance of such agreements. (j) No right or interest to or in any payments shall be assignable by you; provided, however, that this provision shall not preclude you from designating one or more beneficiaries to receive any amount that may be payable after your death and shall not preclude the legal representative of your estate from assigning any right hereunder to the person or persons entitled thereto under your will or, in the case of intestacy, to the person or persons entitled thereto under the laws of intestacy applicable to your estate. (k) No right, benefit or interest hereunder, shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge, hypothecation, or set-off in respect of any claim, debt or obligation, or to execution, attachment, levy or similar process, or assignment by operation of law. Any attempt, voluntary or involuntary, to effect any action specified in the immediately preceding sentence shall, to the full extent permitted by law, be null, void and of no effect. (l) In the event of your death or a judicial determination of your incompetence, reference in this Legal Expense Agreement to you shall be deemed, where appropriate, to refer to your legal representative or, where appropriate, to your beneficiary or beneficiaries. (m) If any event provided for in this Legal Expense Agreement is scheduled to take place on a legal holiday, such event shall take place on the next succeeding day that is not a legal holiday. (n) This Legal Expense Agreement shall be binding upon and shall inure to the benefit of you, your heirs and legal representatives, and the Company and its successors as provided in subparagraph 4(f) hereof. (o) This instrument and the Agreement contain the entire agreement of the parties relating to the subject matter of this Legal Expense Agreement and supersede and replace all prior agreements and understandings with respect to such subject matter, and the parties hereto have made no agreements, representations or warranties relating to the subject matter of this Legal Expense Agreement which are not set forth herein. 5. The Legal Expense Agreement is not intended to confer upon you any right to continue in the employ of the Company or to affect any rights of the Company, subject to any agreement or agreements between you and the Company relating to your employment by the Company, to terminate your employment at any time with or without assigning a reason therefor. oOo 4 EX-10.25 7 AMENDMENT EFFECTIVE AS OF 09/19/91 EXHIBIT 10.25 AMENDMENT EFFECTIVE AS OF SEPTEMBER 19, 1991 TO OCTOBER 18, 1990 AGREEMENT -------------------------------------------- This Agreement between Champion International Corporation, a New York corporation (the "Company"), and Burton G. MacArthur, Jr. (the "Executive") is effective as of September 19, 1991. WHEREAS, the Company and the Executive entered into an Agreement dated October 18, 1990 (the "Agreement") relating to the employment of the Executive by the Company; and WHEREAS, The Company and the Executive wish to amend the Agreement in order to (1) provide that any benefits thereunder which constitute "parachute payments" for Federal tax purposes be paid in an amount the net effect of which is intended to result in the Executive receiving "parachute payments" from all sources equal to the greater of (i) the total of the "parachute payments" from all sources, less income taxes and any Federal excise tax thereon, and (ii) the maximum amount of "parachute payments" that can be paid without triggering such Federal excise tax, less income taxes thereon; and (2) expressly allow the Executive to engage the Company's independent consulting actuary to assist in "parachute payment" determinations; NOW, THEREFORE, it is hereby agreed by and between the parties as follows: 1. Paragraph 14 of the Agreement is hereby amended in its entirety to read as follows: "14. Parachute Tax ------------- (a) Except in the specific circumstance hereinafter described in this paragraph 14, the Company shall pay to the Executive the full amount to which he is entitled under this Agreement. (b) (i) If any payments or benefits received or to be received by the Executive under this Agreement, or any other payments or benefits received or to be received by the Executive from the Company or any other person, constitute "parachute payments" within the meaning of Section 280G(b)(2) or any successor provision of the Code (such payments or benefits being hereinafter referred to as the "Parachute Payments"), and (ii) If the aggregate present value of the Parachute Payments from all sources, minus (A) any excise tax imposed under Section 4999 of the Code (or any similar tax that may hereafter be imposed) (the "Excise Tax") and (B) the net amount of federal, state and local income tax on such aggregate present value, would be less than the maximum amount of Parachute Payments from all sources that can be paid without triggering the Excise Tax, after deduction of the net amount of federal, state and local income tax on such maximum amount, then (iii) the Parachute Payments to be paid by the Company to the Executive under this Agreement shall be reduced to a lump sum amount (if any) such that the aggregate present value of the Parachute Payments from all sources is equal to the maximum amount of Parachute Payments that can be paid without triggering the Excise Tax. Anything in this subparagraph 14(b) to the contrary notwithstanding, it is understood and agreed that the amount to be paid by the Company to the Executive pursuant to this subparagraph 14(b) in the specific circumstance described herein may be less, but never more, than the amount to which he would otherwise be entitled under this Agreement. (c) All matters to be determined pursuant to subparagraph 14(b) including, without limitation, the existence or absence of any Parachute Payments, the aggregate present value of any Parachute Payments, the amount of the Excise Tax (if any), the net amount of federal, state and local income tax (assuming the highest applicable marginal rate in each case), the maximum amount of Parachute Payments that can be paid without triggering the Excise Tax, the amount of any reduction in the Parachute Payments to be paid by the Company to the Executive under this Agreement and the item or items (if any) to be reduced, shall be determined by the Executive or, following his death, his beneficiary or beneficiaries. The specifics of such determination shall be delivered in writing to the Company and to the trustee of the Trust referred to in subparagraph 9(d)(ii) above at the time of the Executive's termination within three years after a Change in Control, or as soon as practicable thereafter, by the Executive or, following his death, his beneficiary or beneficiaries. The reasonable fees and expenses of such tax counsel and financial advisor as may reasonably be called upon to assist the Executive or his beneficiary or beneficiaries in the foregoing determinations shall be paid by the Company. Without limiting the generality of the immediately preceding sentence, the Executive or his beneficiary or beneficiaries may select as such financial advisor Hewitt Associates or such other person or firm as may be serving at the time as the Company's independent consulting actuary." 2. Except as amended hereby, all of the terms and conditions set forth in the Agreement shall continue in full force and effect without change. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed and its seal to be affixed hereto, and the Executive has executed this Agreement, all as of September 19, 1991. CHAMPION INTERNATIONAL CORPORATION By /s/ Andrew C. Sigler ------------------------------------- Chairman of the Board of Directors Attest: /s/ Lawrence A. Fox - ------------------------ Secretary /s/ Burton G. MacArthur, Jr. ------------------------------------- Burton G. MacArthur, Jr. -2- EX-11 8 CALCULATION OF BASIC EARNINGS EXHIBIT 11 CHAMPION INTERNATIONAL CORPORATION AND SUBSIDIARIES CALCULATION OF BASIC EARNINGS (LOSS) PER COMMON SHARE AND DILUTED EARNINGS (LOSS) PER COMMON SHARE (In millions, except per share)
Years Ended December 31, --------------------------------------------------------------------- 1997 1996 1995 ------------------- ------------------- ------------------- Basic earnings (loss) per common share (1): Net income (loss) $ (548.5) $ 141.3 $ 771.8 Dividends on preference shares ___ ___ 13.2 ------------------- ------------------- ------------------- Net income (loss) applicable to common stock $ (548.5) $ 141.3 $ 758.6 =================== =================== =================== Average number of common shares outstanding 95.8 95.5 94.7 =================== =================== =================== Basic earnings (loss) per share $ (5.72) $ 1.48 $ 8.01 =================== =================== =================== Diluted earnings (loss) per common share (1, 2): Net income (loss) applicable to common stock $ (548.5) $ 141.3 $ 758.6 Add income effect, assuming conversion of potentially dilutive securities ___ ___ 15.1 ------------------- ------------------- ------------------- Net income (loss) on a diluted basis $ (548.5) $ 141.3 $ 773.7 =================== =================== =================== Average number of common shares outstanding 95.8 95.5 94.7 Add common share effect, assuming conversion of potentially dilutive securities ___ 0.3 6.2 ------------------- ------------------- ------------------- Average number of common shares outstanding on a diluted basis 95.8 95.8 100.9 =================== =================== =================== Diluted earnings (loss) per share $ (5.72) $ 1.48 $ 7.67 =================== =================== ===================
- ---------------------------------------------- Notes: (1) In December 1997, the company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share". Under this standard, basic earnings per share is computed by dividing net income applicable to common stockholders by the average number of common shares outstanding during the year. The computation of diluted earnings per share assumes that the average number of common shares outstanding is increased by dilutive common share equivalents and the conversion of securities having a dilutive effect, and that net income applicable to common stock is increased by dividends and after-tax interest on such securities. (2) Potentially dilutive securities at December 31, 1997 included shares issuable pursuant to certain stock-based compensation. These securities included 450,000 shares issuable upon the vesting of the restricted share units issued in 1996 as well as 270,000 shares issuable upon the exercise of stock options calculated using the treasury stock method. Potentially dilutive securities in 1997 were not included in the computation of diluted earnings per share because the effect would have been antidilutive. EX-13 9 CONSOLIDATED STATEMENT OF INCOME EXHIBIT 13
Paper - ------------------------------------------------------------------------------------------------------------------ Years Ended December 31 Net Sales (in millions of dollars) 1997 % 1996 % 1995 % - -------------------------------------- ---------- ------- ---------- ------- ---------- ------- Product Category: Uncoated free sheet (U.S. & Brazil) $ 1,329 28 $ 1,422 29 $ 1,857 31 Coated free sheet 557 12 555 12 647 11 Coated groundwood 668 14 659 13 792 13 Uncoated groundwood 261 5 309 6 369 6 Newsprint 362 7 395 8 439 7 Bleached board business 299 6 311 6 320 5 Kraft paper and linerboard 189 4 199 4 267 4 Market pulp 411 9 360 7 541 9 Resale of outside purchases 680 14 737 15 758 14 Other 10 1 15 --- 17 --- ---------- ------- ---------- ------- ---------- ------- $ 4,766 100 $ 4,962 100 $ 6,007 100 ========== ======= ========== ======= ========== ======= Wood Products - ---------------------------------------------------------------------------------------------------------- Years Ended December 31 Net Sales (in millions of dollars) 1997 % 1996 % 1995 % - -------------------------------------- ---------- ------- ---------- ------- ---------- ------- Product Category: Lumber $ 404 41 $ 382 42 $ 334 35 Softwood plywood and waferboard 230 24 237 26 284 29 Logs and stumpage 226 23 224 24 247 26 Sidings and industrial plywood 54 6 54 6 49 5 Chips 46 5 10 1 10 1 Miscellaneous products 9 1 12 1 41 4 ---------- ------- ---------- ------- ---------- ------- $ 969 100 $ 919 100 $ 965 100 ========== ======= ========== ======= ========== =======
1 Champion International Corporation and Subsidiaries - -------------------------------------------------------------------------------- Consolidated Statement of Income (in millions, except per share amounts)
Years Ended December 31 1997 1996 1995 - -------------------------------------------- ------------ ------------ ------------ Net Sales $ 5,735.5 $ 5,880.4 $ 6,972.0 Costs and Expenses: Cost of products sold 5,152.6 5,134.4 5,156.4 Selling, general and administrative expenses 392.8 363.0 386.1 Provision for restructuring (Note 9) 891.0 --- --- Interest and debt expense (Notes 3 and 5) 240.1 222.2 226.0 Other (income) expense -- net (Note 10) (44.4) (44.2) (33.0) ------------ ------------ ------------ Total Costs and Expenses 6,632.1 5,675.4 5,735.5 Income (Loss) before Income Taxes (896.6) 205.0 1,236.5 Income Taxes (Benefit) (Note 11) (348.1) 63.7 464.7 ------------ ------------ ------------ Net Income (Loss) $ (548.5) $ 141.3 $ 771.8 ============ ============ ============ Dividends on Preference Stock (Note 7) --- --- 13.2 ------------ ------------ ------------ Net Income (Loss) Applicable to Common Stock $ (548.5) $ 141.3 $ 758.6 ============ ============ ============ Average Number of Common Shares Outstanding 98.5 95.5 94.7 ============ ============ ============ Basic Earnings (Loss) Per Common Share $ (5.72) $ 1.48 $ 8.01 ============ ============ ============ Diluted Earnings (Loss) Per Common Share $ (5.72) $ 1.48 $ 7.67 ============ ============ ============
The accompanying notes are an integral part of this statement. 2 Champion International Corporation and Subsidiaries - -------------------------------------------------------------------------------- Consolidated Balance Sheet (in millions of dollars)
Assets December 31 1997 1996 - -------------------------------------------- ------------ ------------ Current Assets: Cash and cash equivalents $ 275.0 $ 174.6 Receivables 594.9 579.4 Inventories (Note 2) 451.1 458.1 Prepaid expenses 25.6 29.9 Deferred income taxes (Note 11) 101.4 73.7 ------------ ------------ Total Current Assets 1,448.0 1,315.7 ------------ ------------ Timber and Timberlands, at cost -- less cost of timber harvested 2,397.3 2,364.9 ------------ ------------ Property, Plant and Equipment, at cost (Notes 3, 5 and 6) 9,473.4 9,297.6 Less - accumulated depreciation 4,673.3 3,644.1 ------------ ------------ 4,800.1 5,653.5 ------------ ------------ Other Assets and Deferred Charges 465.2 485.9 ------------ ------------ $ 9,110.6 $ 9,820.0 ============ ============
The accompanying notes are an integral part of this statement. 3 Champion International Corporation and Subsidiaries - -------------------------------------------------------------------------------- Consolidated Balance Sheet (in millions of dollars)
Liabilities and Shareholders' Equity December 31 1997 1996 - ------------------------------------------------------- --------- --------- Current Liabilities: Current installments of long-term debt (Note 5) $ 143.7 $ 80.9 Short-term borrowings (Note 5) 71.1 126.9 Accounts payable and accrued liabilities (Note 4) 794.2 713.1 Income taxes (Note 11) 10.5 23.1 --------- --------- Total Current Liabilities 1,019.5 944.0 --------- --------- Long-Term Debt (Note 5) 3,194.4 3,085.4 --------- --------- Other Liabilities (Notes 12 and 15) 693.1 671.0 --------- --------- Deferred Income Taxes (Note 11) 993.6 1,363.9 --------- --------- Commitments and Contingent Liabilities (Notes 6, 15 and 16) --- --- --------- --------- Shareholders' Equity: Capital Shares (Notes 7 and 8): Preference stock, 8,531,431 shares authorized but unissued --- --- Common stock, $.50 par value: 250,000,000 authorized shares; 110,900,212 and 110,323,099 issued shares 55.5 55.2 Capital surplus 1,697.2 1,651.4 Retained Earnings (Note 5) 2,172.5 2,740.2 --------- --------- 3,925.2 4,446.8 Treasury Shares, at cost (Note 7) (657.9) (657.9) Cumulative Translation Adjustment (57.3) (33.2) --------- --------- 3,210.0 3,755.7 --------- --------- $ 9,110.6 $ 9,820.0 ========= =========
The accompanying notes are an integral part of this statement. 4 Champion International Corporation and Subsidiaries - -------------------------------------------------------------------------------- Consolidated Cash Flows (in millions of dollars)
Years Ended December 31 1997 1996 1995 - ------------------------------------------ --------- -------- -------- Cash flows from operating activities: Net Income (Loss) $ (548.5) $ 141.3 $ 771.8 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Provision for restructuring 891.0 --- --- Depreciation expense 424.6 407.8 392.5 Cost of timber harvested 93.4 94.1 78.9 Gain on disposal of assets (24.0) (23.1) (46.5) Pension contributions --- (70.2) (10.1) (Increase) decrease in: Receivables (15.7) 65.0 (77.7) Inventories 6.6 (34.4) (72.6) Prepaid expenses 4.2 (4.6) (6.4) Increase (decrease) in: Accounts payable and accrued liabilities (23.0) (38.2) 118.3 Income taxes payable (12.2) (102.1) 81.4 Other liabilities 9.5 (13.9) (20.7) Deferred income taxes (370.9) 3.2 159.0 All other - net 50.5 13.5 84.7 --------- -------- -------- Net cash provided by operating activities 485.5 438.4 1,452.6 --------- -------- -------- Cash flows from investing activities: Expenditures for property, plant and equipment (321.1) (460.5) (367.6) Timber and timberlands expenditures (128.4) (121.2) (256.6) Timberlands and related assets acquisitions (46.9) (130.4) --- Purchase of investments (22.1) --- (98.3) Proceeds from redemptions of investments 25.0 101.2 --- Proceeds from sales of property, plant and equipment and timber and timberlands 43.1 39.8 181.2 All other - net (15.0) 16.6 (9.5) --------- -------- -------- Net cash used in investing activities (465.4) (554.5) (550.8) --------- -------- -------- Cash flows from financing activities: Proceeds from issuance of long-term debt 473.9 834.2 826.1 Payments of current installments of long-term debt and long-term debt (385.0) (645.1) (951.3) Purchase by Weldwood of minority interest --- (191.4) --- Cash dividends paid (19.2) (19.2) (32.1) Payments to acquire treasury stock --- (7.8) (549.7) All other - net 10.6 2.9 31.3 --------- -------- -------- Net cash provided by (used in) financing activities 80.3 (26.4) (675.7) --------- -------- -------- Increase (decrease) in cash and cash equivalents 100.4 (142.5) 226.1 Cash and cash equivalents: Beginning of period 174.6 317.1 91.0 --------- -------- -------- End of period $ 275.0 $ 174.6 $ 317.1 ========= ======== ======== Supplemental cash flow disclosures: Nonmonetary transactions (Note 5) Cash paid during the year for: Interest (net of capitalized amounts) $ 241.2 $ 210.0 $ 227.3 Income taxes (net of refunds) (Note 11) 42.1 178.8 208.6
The accompanying notes are an integral part of this statement. 5 Champion International Corporation and Subsidiaries - -------------------------------------------------------------------------------- Consolidated Retained Earnings (in millions, except per share amounts)
Years Ended December 31 1997 1996 1995 - -------------------------------------------- -------- -------- -------- Beginning Balance $2,740.2 $2,618.0 $1,878.5 Net Income (Loss) (548.5) 141.3 771.8 Cash Dividends Declared: $92.50 Convertible Preference Stock - $44.19 per share in 1995 _ _ (13.3) Common Stock - $.20 per share in 1997, 1996 and 1995 (19.2) (19.1) (19.0) -------- -------- -------- Ending Balance $2,172.5 $2,740.2 $2,618.0 ======== ======== ========
The accompanying notes are an integral part of this statement. 6 Champion International Corporation and Subsidiaries - -------------------------------------------------------------------------------- Notes to Financial Statements Note 1. Summary of Significant Accounting Policies A. Consolidation The consolidated financial statements include the accounts of the company and all of its domestic and foreign subsidiaries. Affiliates which are 20% to 50% owned are reflected using the equity method of accounting, with the related investments included in Other Assets and Deferred Charges. All significant intercompany transactions have been eliminated. Certain amounts have been reclassified to conform to the current year's presentation. B. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the 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. C. Cash and Cash Equivalents Cash and cash equivalents includes all highly liquid investments with original maturities of three months or less. Short-term investments are investments which mature within 12 months but which do not meet the criteria of cash equivalents. D. Inventories Inventories are generally stated at the lower of average cost or market (market approximates net realizable value), except for certain inventories of the paper segment which are stated on the last-in, first-out (LIFO) method. E. Fixed Assets Property, Plant and Equipment, which includes capitalized leases, is stated at cost. Timber and Timberlands, which includes original costs, road construction costs, and reforestation costs, such as site preparation and planting costs, is stated at unamortized cost. Property taxes, surveying, fire control and other forest management expenses are charged to expense as incurred. When fixed assets are sold or retired, cost and accumulated depreciation are eliminated from the accounts and gains or losses are recorded in income. For financial reporting purposes, plant and equipment are depreciated using the straight-line method over the estimated service lives of the individual assets. Machinery and equipment lives range from three to 35 years, buildings from 10 to 40 years, and land improvements from five to 24 years. Leasehold improvements are amortized over the shorter of the lives of the leases or estimated service lives. Cost of timber harvested is based on the estimated quantity of timber available during the growth cycle and is credited directly to the asset accounts. 7 Champion International Corporation and Subsidiaries - -------------------------------------------------------------------------------- Notes to Financial Statements F. Revenue Recognition The company recognizes revenues as products are shipped. G. Earnings Per Share In December 1997, the company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share". Under this standard, basic earnings per share is computed by dividing net income applicable to common stockholders by the average number of common shares outstanding during the year. The computation of diluted earnings per share assumes that the average number of common shares outstanding is increased by dilutive common share equivalents and the conversion of securities having a dilutive effect, and that net income applicable to common stock is increased by dividends and after-tax interest on such securities. H. Foreign Currency Translation The assets and liabilities of the company's Canadian subsidiary are translated into U.S. dollars using year-end exchange rates. The resulting translation gains or losses are included with the cumulative translation adjustment in the Shareholders' Equity section of the balance sheet. Due to the high inflation rate in Brazil, the company's Brazilian subsidiary used the U.S. dollar as its functional currency for the periods covered by these financial statements. Except for certain items translated at historical exchange rates, assets and liabilities have been translated using year-end exchange rates. Gains or losses resulting from balance sheet translation have been included in net income. Gains or losses resulting from foreign currency transactions are included in net income. During 1997, Brazil's three-year cumulative inflation rate fell below 100% and, as a result, Brazil was determined to be non-highly-inflationary for accounting purposes. Effective January 1, 1998, the company will begin accounting for its Brazilian subsidiary using the Real as its functional currency, and assets and liabilities will be translated into U.S. dollars using the same procedures as described above for the company's Canadian subsidiary. I. Financial Instruments The carrying amounts reported in the balance sheet for cash and cash equivalents, receivables, short-term borrowings, and accounts payable and accrued liabilities approximate fair values due to the short maturity of those instruments. The fair value of the company's debt is discussed in Note 5. The company occasionally enters into forward exchange contracts to hedge certain assets that are denominated in foreign currencies. At December 31, 1997, the company had forward exchange contracts covering approximately $72 million of investments and accounts receivable, the deferred gains and losses on which were not material. The contracts range in duration from 21 days to 63 days. The company does not hold financial instruments for trading purposes. 8 Champion International Corporation and Subsidiaries - -------------------------------------------------------------------------------- Notes to Financial Statements Note 2. Inventories
December 31 (in millions of dollars) 1997 1996 - ---------------------------------------- ------------ ------------ Paper, pulp and packaging products $ 244.3 $ 261.7 Wood products 35.4 31.8 Logs 46.5 42.7 Pulpwood 23.0 24.3 Raw materials, parts and supplies 101.9 97.6 ------------ ------------ $ 451.1 $ 458.1 ============ ============
At December 31, 1997 and 1996, inventories stated using the last-in, first-out (LIFO) method, representing approximately 29% and 34% of total inventories, were $129.8 million and $154.3 million, respectively. If the lower of average cost or market method (which approximates current cost) had been utilized for inventories carried at LIFO, inventory balances would have been increased by $65.4 million and $69.5 million at December 31, 1997 and 1996, respectively. The LIFO inventory reduction in 1997 resulted in a liquidation of LIFO inventory layers carried at lower costs which prevailed in prior years. The effect of this liquidation was to decrease cost of products sold by $1.3 million and to increase net income $0.8 million or $.01 per share. Note 3. Property, Plant and Equipment
December 31 (in millions of dollars) 1997 1996 - --------------------------------- ------------ ------------ Land and land improvements $ 356.4 $ 340.4 Buildings and leasehold improvements 993.3 936.4 Machinery and equipment 7,965.5 7,742.9 Construction in progress 158.2 277.9 ------------ ------------ 9,473.4 9,297.6 Accumulated depreciation (4,673.3) (3,644.1) ------------ ------------ $ 4,800.1 $ 5,653.5 ============ ============
9 Champion International Corporation and Subsidiaries - -------------------------------------------------------------------------------- Notes to Financial Statements Interest capitalized into construction in progress during 1997, 1996 and 1995 was $8.0 million, $10.6 million, and $9.6 million, respectively. Accumulated depreciation at December 31, 1997 includes $680 million of asset impairment and asset write-off charges related to assets to be divested pursuant to the company's restructuring plan (Note 9). Depreciation expense includes the following components:
Years Ended December 31 (in millions of dollars) 1997 1996 1995 - ---------------------------------------------------- --------- --------- --------- Land improvements $ 13.0 $ 14.3 $ 13.4 Buildings and leasehold improvements 29.2 27.8 28.0 Machinery and equipment 382.4 365.7 351.1 --------- --------- --------- $424.6 $407.8 $392.5 ========= ========= =========
Note 4. Accounts Payable and Accrued Liabilities
December 31 (in millions of dollars) 1997 1996 - ----------------------------------------- -------- -------- Accounts payable $ 285.3 $ 294.0 -------- -------- Accrued liabilities: Payrolls and commissions 125.4 137.6 Employee benefits 133.2 63.4 Interest 56.3 57.7 Taxes, other than income taxes 33.1 31.4 Other 156.1 124.2 -------- -------- Total accrued liabilities 504.1 414.3 -------- -------- Dividends payable 4.8 4.8 -------- -------- $ 794.2 $ 713.1 ======== ========
10 Champion International Corporation and Subsidiaries - -------------------------------------------------------------------------------- Notes to Financial Statements Note 5. Indebtedness
December 31 (in millions of dollars) 1997 1996 - --------------------------------------------------------- ------------ ------------ Secured debt, 7.8% average rate, payable through 2012 (a) $ 48.0 $ 50.6 Unsecured fixed rate debt, 7.8% average rate, payable through 2037 (b) 2,669.9 2,470.3 Unsecured variable rate debt, 6.7% average rate, payable through 2012 (b) 318.7 348.9 Lease obligations, 6.8% average rate, payable through 2029 297.2 290.0 Other contractual obligations, 7.3% average rate, payable through 2001 4.3 6.5 ------------ ------------ Total Debt 3,338.1 3,166.3 Less: Current installments of long-term debt 143.7 80.9 ------------ ------------ Long-term debt (c) $ 3,194.4 $ 3,085.4 ============ ============ Short-term borrowings (d) $ 71.1 $ 126.9 ============ ============
(a) Such debt is secured by assets with a net book value at December 31, 1997 of approximately $204 million, primarily assets of Lake Superior Land Company, a wholly-owned subsidiary of the company. (b) Unsecured fixed and variable rate debt includes borrowings payable in less than one year. The company has the ability to refinance these borrowings under the credit agreements discussed below. At December 31, 1997, $345 million of current maturities of long-term debt and short-term obligations have been classified as long-term debt since the company intends to renew or refinance these obligations through 1998 and into future periods. (c) The annual principal payment requirements under the terms of all long-term debt agreements for the years 1998 through 2002 are $489 million, $258 million, $206 million, $206 million and $6 million, respectively. (d) Weighted average interest rates on outstanding balances, excluding book cash overdrafts, for 1997 and 1996 were 7.7% and 7.8%, respectively. Book cash overdrafts totaled $70 million and $84 million, respectively, at December 31, 1997 and 1996. The indentures and agreements relating to long-term debt arrangements, as well as the company's Certificate of Incorporation, contain restrictions on the payment of cash dividends. Under the most restrictive of these provisions, approximately $571 million of consolidated retained earnings at December 31, 1997 is free of such restrictions. 11 Champion International Corporation and Subsidiaries - -------------------------------------------------------------------------------- Notes to Financial Statements At December 31, 1997, the company had unused U.S. lines of credit of $1.19 billion ($345 million of which supported the classification of current maturities of long-term debt and short-term obligations as long-term debt) and unused foreign bank lines of credit of approximately $126 million. At December 31, 1997, interest rates on the U.S. and foreign lines were no higher than the prime rate or its equivalent. Facility fees of .10% are required on the $1.19 billion U.S. lines of credit, which are available to May 31, 2002 on a revolving basis, at which time amounts owed, if any, become payable. Commitment fees of no more than .17% are required on the $126 million foreign lines of credit. Commitments under the credit agreements cannot be withdrawn provided the company continues to meet required conditions. The fair value of the company's long-term debt, which includes current installments and excludes lease obligations, exceeded the carrying amount by $180 million and $60 million, at December 31, 1997 and 1996, respectively. The fair value was estimated using discounted cash flow analyses, based on the company's incremental borrowing rates for similar types of borrowings. At the time of their acquisition by the company in 1996, Lake Superior Land Company had a $44 million mortgage loan outstanding, and Amapa Florestal e Celulose (AMCEL) had $35 million of debt outstanding. 12 Champion International Corporation and Subsidiaries - -------------------------------------------------------------------------------- Notes to Financial Statements Note 6. Commitments
Future Minimum Lease Payments ---------------------------------------- Capitalized Non-Cancelable Period (in millions of dollars) Leases Operating Leases - ----------------------------------- --------------- ---------------- 1998 $ 20.2 $ 27.2 1999 20.2 29.3 2000 20.2 26.5 2001 20.2 25.7 2002 20.2 24.6 Thereafter 680.0 184.1 --------------- ---------------- Total Payments 781.0 317.4 Less: Sublease rental receipts 61.7 ---------------- Net operating lease payments $ 255.7 ================ Less: Amount representing interest 483.8 --------------- Present value of capitalized lease payments (all long-term) $ 297.2 ===============
The following schedule shows the composition of total rental expense for all operating leases:
Years Ended December 31 (in millions of dollars) 1997 1996 1995 - ------------------------------------------------ -------- -------- --------- Minimum rentals $ 34.1 $ 29.8 $ 24.5 Less: Sublease rental income 0.2 0.2 0.2 -------- -------- --------- $ 33.9 $ 29.6 $ 24.3 ======== ======== =========
13 Champion International Corporation and Subsidiaries - -------------------------------------------------------------------------------- Notes to Financial Statements Note 7. Capital Shares and Earnings Per Share Unissued Preference Stock - ------------------------- At December 31, 1997 and 1996, 7,031,431 preference shares for which no series has been designated were authorized and unissued. At December 31, 1997 and 1996, 1,500,000 additional authorized and unissued shares were designated and reserved for the issuance of the company's Preference Stock, Participating Cumulative Series or Participating Cumulative Series B, $1.00 par value. Preference Stock - ---------------- On December 6, 1989, the company issued 300,000 shares of Preference Stock, $92.50 Cumulative Convertible Series, $1.00 par value ("$92.50 Preference Stock"). On June 22, 1995, all of the $92.50 Preference Stock was converted into 7,894,737 shares of common stock, which then were purchased by the company on that date. Common Stock - ------------ Changes in common shares during the three years ended December 31, 1997 are as follows:
(in shares and millions of dollars) Treasury Shares Issued Shares (at cost) ------------------------------------ ------------------------- Par Capital Shares Value Surplus Shares Amount ---------- -------- ----------- ----------- --------- Balance at January 1, 1995 96,786,039 $48.4 $1,175.0 (3,492,280) ($100.3) Conversions 12,205,192 6.1 441.7 --- --- Exercise of stock options 1,224,750 0.6 36.4 --- --- Compensation plans 11,805 --- 0.3 --- --- Repurchase of stock --- --- --- (11,080,731) (549.7) Other 2,593 --- --- --- --- ----------- -------- ----------- ---------- ---------- Balance at December 31, 1995 110,230,379 55.1 1,653.4 (14,573,011) (650.0) Exercise of stock options 79,800 0.1 2.4 --- --- Compensation plans 9,184 --- 1.5 --- --- Repurchase of stock --- --- --- (195,300) (7.9) Other 3,736 --- (5.9) --- --- ----------- -------- ----------- ---------- ---------- Balance at December 31, 1996 110,323,099 55.2 1,651.4 (14,768,311) (657.9) Exercise of stock options 566,075 0.3 24.4 --- --- Compensation plans 8,829 --- 21.4 --- --- Other 2,209 --- --- 200 --- ----------- -------- ----------- ---------- ---------- Balance at December 31, 1997 110,900,212 $55.5 $1,697.2 (14,768,111) ($657.9) =========== ======== =========== ========== ==========
14 Champion International Corporation and Subsidiaries - -------------------------------------------------------------------------------- Notes to Financial Statements At December 31, 1997, common shares of the company were reserved for issue as follows: Stock options granted or available for grant 4,217,675 Compensation plans 2,731,337 ----------- 6,949,012 =========== Earnings (Loss) Per Share - ------------------------- In December 1997, the company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share". In accordance with this standard, basic and diluted earnings (loss) per share were calculated as follows:
Years Ended December 31 (in millions, except per share amounts) 1997 1996 1995 - ----------------------------------------------- --------- ------- ------- Basic earnings (loss) per share: Net income (loss) $ (548.5) $ 141.3 $ 771.8 Less: Dividends on preference shares --- --- 13.2 --------- ------- ------- Net income (loss) applicable to common stockholders $ (548.5) $ 141.3 $ 758.6 ========= ======= ======= Average number of common shares outstanding 95.8 95.5 94.7 ========= ======= ======= Basic earnings (loss) per share $ (5.72) $ 1.48 $ 8.01 ========= ======= ======= Diluted earnings (loss) per share: Net income (loss) applicable to common stockholders $ (548.5) $ 141.3 $ 758.6 Add: Income effect, assuming conversion of potentially dilutive securities --- --- 15.1 --------- ------- ------- Net income (loss) on diluted basis $ (548.5) $ 141.3 $ 773.7 ========= ======= ======= Average number of common shares outstanding 95.8 95.5 94.7 Add: Common share effect, assuming conversion of potentially dilutive securities --- 0.3 6.2 --------- ------- ------- Average number of common shares outstanding on a diluted basis 95.8 95.8 100.9 ========= ======= ======= Diluted earnings (loss) per share $ (5.72) $ 1.48 $ 7.67 ========= ======= =======
Potentially dilutive securities at December 31, 1997 included shares issuable pursuant to certain stock-based compensation (Note 8). These securities included 450,000 shares issuable upon the vesting of the restricted share units issued in 1996 as well as 270,000 shares issuable upon the exercise of stock options calculated using the treasury stock method. Potentially dilutive securities in 1997 were not included in the computation of diluted earnings per share because the effect would have been antidilutive. 15 Champion International Corporation and Subsidiaries - -------------------------------------------------------------------------------- Notes to Financial Statements Note 8. Stock-Based Compensation Stock Options - ------------- The company has granted to officers and key employees options to purchase common shares at the market price of the shares on the date of grant. All options granted to officers prior to 1997 were accompanied by stock appreciation rights. Options granted to officers and key employees in 1997 were not accompanied by stock appreciation rights. The options expire 10 years or 10 years and 31 days from the date of grant and generally become exercisable subsequent to a period of 12 calendar months from date of grant. Stock Option Transactions:
Weighted Average Options Exercise Price ----------- ---------------- Balance at January 1, 1995 3,964,800 $29.71 Granted 605,100 39.13 Exercised (2,272,100) 29.46 Surrendered or canceled (18,650) 35.02 ----------- ----------- Balance at December 31, 1995 2,279,150 32.42 Granted 556,350 46.63 Exercised (215,400) 30.45 Surrendered or canceled (24,300) 33.16 ----------- ----------- Balance at December 31, 1996 2,595,800 35.62 Granted 684,380 44.63 Exercised (1,188,525) 33.99 Surrendered or canceled (19,100) 40.80 ----------- ----------- Balance at December 31, 1997 2,072,555 $39.48 =========== ========== Options exercisable at December 31 - ---------------------------------- 1995 1,683,650 $30.05 1996 2,043,550 32.65 1997 1,398,775 37.01
At December 31, 1997, the stock options outstanding had an aggregate exercise price of $81.8 million, with exercise prices ranging from $26.25 to $46.63 and a weighted average remaining contractual life of 7.3 years. Other Stock-Based Compensation - ------------------------------ The company granted an aggregate of 450,000 restricted share units on August 15, 1996 to certain officers and key employees at the market price per share on that date ($44.25). Each unit represents one share of common stock to be issued upon vesting (unless the issuance is deferred), provided that the awardee remains in the company's employ until the vesting date. The units vest over a six-year period as follows: 135,000 on August 15, 1998; 135,000 on August 15, 2000; and 180,000 on August 15, 2002. 16 Champion International Corporation and Subsidiaries - -------------------------------------------------------------------------------- Notes to Financial Statements In March 1997, the company adopted a performance share plan under which share units were awarded to officers and key employees. These units entitle the recipients, upon earn-out, to receive shares of common stock. The earn-out of shares is dependent on the company's stock price appreciation plus dividend yield (i.e., total shareholder return or "TSR") increasing, at any time within three years from the date of grant, to a value equivalent to approximately 15% per annum compounded for three years. If the TSR goal is achieved, the amount of the payout will depend on the company's TSR, during the performance period, relative to an industry peer group. If the TSR goal is not achieved, there will be will be no payout. Based on the current dividend rate, the shares would be earned if the common stock price reaches $67.25 per share. The number of shares that could be earned ranges from 340,000 shares to 720,000 shares. Total compensation expense recognized for stock appreciation rights and other stock-based compensation for 1997, 1996 and 1995 was $35 million, $3 million and $25 million, respectively. Pro Forma Impact of Grant of Stock Options - ------------------------------------------ The company accounts for stock options under Accounting Principles Board Opinion No. 25, pursuant to which no compensation cost has been recognized for the options that are not accompanied by stock appreciation rights. Had compensation cost for these options been determined consistent with Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," the impact on net income and earnings per share would have been as follows:
Years Ended December 31 1997 1996 1995 - ------------------------------ -------- ------ ------ Net Income (Loss) (in millions) As reported $(548.5) $141.3 $771.8 Pro forma $(554.3) $137.7 $769.6 Basic Earnings (Loss) Per Share As reported $ (5.72) $ 1.48 $ 8.01 Pro forma (5.79) $ 1.44 $ 7.98 Diluted Earnings (Loss) Per Share As reported $ (5.72) $ 1.48 $ 7.67 Pro forma $ (5.79) $ 1.44 $ 7.65 Weighted Average Fair Value of Options Granted $ 14.90 $14.92 $13.15
Because the SFAS No. 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma amounts for 1995 only reflect compensation cost for 9.5 months (the time between the date of grant and year end). 17 Champion International Corporation and Subsidiaries - -------------------------------------------------------------------------------- Notes to Financial Statements The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions used for grants in 1997, 1996 and 1995.
Years Ended December 31 1997 1996 1995 - --------------------------------- -------- -------- -------- Risk-free interest rates 6.57 % 6.31 % 6.95 % Expected dividend yield 0.4 % 0.4 % 0.4 % Expected volatility 20.1 % 20.4 % 20.4 % Expected life (years) 5.50 5.25 5.25
Note 9. Provision for Restructuring On October 7, 1997, the company approved a plan to maximize total shareholder return by focusing on strategic businesses, increasing profitability and improving financial discipline. As part of this plan, the company will divest several non-strategic product segments. These product segments include the newsprint, recycling, coated and uncoated groundwood specialty papers, premium papers, specialty uncoated papers, and liquid packaging and bleached board businesses. Also to be divested are 325,000 acres of timberlands. Additionally, the company plans to reduce its worldwide workforce in the businesses remaining after the divestitures by 11%, or approximately 2,000 positions, by the end of 1999. As a result of the above plan, in the fourth quarter of 1997, the company recorded a pre-tax charge of $891 million ($552 million after-tax, or $5.76 per share). The charge included $763 million of non-cash expenses and $128 million for one-time cash costs. Components of the provision were: $658 million for asset impairment, $82 million for other asset write-offs, $38 million for pension and postretirement enhancement and curtailment losses, $42 million for other severance costs and $71 million for other expenses, including selling costs, contract cancellations and other costs. Asset impairment was based on estimated sales proceeds. The company expects the non-strategic segments to be sold in 1998. Results of operations for the product segments to be divested are as follows:
Years Ended December 31 (in millions of dollars) 1997 1996 1995 - ------------------------------------- -------- -------- -------- Net sales $1,316.0 $1,391.0 $1,597.6 Costs and expenses 1,394.4 1,438.7 1,450.7 -------- -------- -------- Income (loss) from operations $ ( 78.4) $ ( 47.7) $ 146.9 ======== ======== ========
18 Champion International Corporation and Subsidiaries - -------------------------------------------------------------------------------- Notes to Financial Statements The consolidated balance sheet includes the following amounts related to the product segments to be divested, excluding the asset impairment provision:
December 31 (in millions of dollars) 1997 - ----------------------------------------- -------- Current assets $ 241.9 Long-term assets (primarily property, plant and equipment) 1,431.6 Current liabilities (91.8) Long-term liabilities (2.9) -------- Net assets $1,578.8 ========
Note 10. Other (Income) Expense -- Net
Years Ended December 31 (in millions of dollars) 1997 1996 1995 - --------------------------------------- ------- ------- ------- Interest income (a) $(17.8) $(32.4) $(38.0) Foreign currency (gains) losses -- net (1.1) 3.4 5.9 Minority interest in subsidiaries (b) (0.5) 1.9 34.3 Equity in net income of affiliates (1.0) (1.0) (0.3) Royalty, rental and commission income (13.6) (13.9) (11.3) Net gain on disposal of fixed assets, timberlands and investments (c) (24.0) (23.1) (46.5) Miscellaneous -- net 13.6 20.9 22.9 ------- ------- ------- $(44.4) $(44.2) $(33.0) ======= ======= =======
(a) The decline in interest income in 1997 compared to 1996 and 1995 was due primarily to a reduction in average outstanding cash investments by the company's foreign subsidiaries. (b) In July 1996, Weldwood of Canada Limited acquired all of its publicly-held shares for (U.S.) $191 million and became a wholly-owned subsidiary of the company. (c) 1995 included a gain of $89 million from the sale of certain operations in Canada and charges of $68 million primarily for the writedown of certain U.S. paper and wood products assets. 19 Champion International Corporation and Subsidiaries - -------------------------------------------------------------------------------- Notes to Financial Statements Note 11. Income Taxes The provision (benefit) for income taxes includes the following components:
Years Ended December 31 (in millions of dollars) 1997 1996 1995 - ------------------------------------------------ ------- -------- -------- Provision for income taxes currently payable (receivable): Federal $ (14.6) $ 6.1 $ 128.8 State and local 2.6 2.4 10.7 Foreign 34.8 52.0 166.2 ------- -------- -------- 22.8 60.5 305.7 ------- -------- -------- Provision for deferred income taxes: Federal (306.5) 8.0 120.1 State and local (47.3) 1.3 31.5 Foreign (17.1) (6.1) 7.4 ------- -------- -------- (370.9) 3.2 159.0 ------- -------- -------- Total Provision ($348.1) $63.7 $464.7 ======= ======== ========
Domestic and foreign income (loss) before income taxes are as follows:
Years Ended December 31 (in millions of dollars) 1997 1996 1995 - ------------------------------------------------- ------- -------- -------- Domestic $(982.9) $ 30.6 $ 785.2 Foreign 86.3 174.4 451.3 ------- -------- -------- Total income (loss) before income taxes $(896.6) $ 205.0 $1,236.5 ======= ======== ========
20 Champion International Corporation and Subsidiaries - -------------------------------------------------------------------------------- Notes to Financial Statements Principal reasons for the variation between the statutory rate and the effective federal income tax rate are as follows:
Years Ended December 31 1997 1996 1995 - ---------------------------- ------- ------- ------ Statutory rate -- provision (benefit) (35.0) % 35.0 % 35.0 % Rate difference -- foreign subsidiaries (2.4) (7.5) 1.7 Foreign dividends 1.3 4.3 0.3 State and local taxes, net of federal tax effect (3.2) 0.1 2.2 All other -- net 0.5 (0.8) (1.6) ------- ------- ------ Effective income tax rate (38.8) % 31.1 % 37.6 % ======= ======= ======
Deferred tax liabilities (assets) are composed of the following:
December 31 (in millions of dollars) 1997 1996 - -------------------------------------- -------- -------- Depreciation and cost of timber harvested $1,754.6 $1,783.2 Capitalization of interest and deferral of other costs 30.4 32.6 Other 88.7 86.2 -------- --------- Gross Liabilities 1,873.7 1,902.0 -------- --------- Reserve for asset impairment (277.7) --- Loss and other carryforwards (266.2) (236.4) Accrued liabilities and reserves (207.6) (151.8) Postretirement benefits other than pensions (155.6) (151.7) Other (91.3) (87.1) -------- --------- Gross Assets (998.4) (627.0) -------- --------- Valuation allowance 16.9 15.2 -------- --------- $892.2 $1,290.2 ======== =========
21 Champion International Corporation and Subsidiaries - -------------------------------------------------------------------------------- Notes to Financial Statements As of December 31, 1997, the company had available, for U.S. income tax return purposes, general business credit carryforwards of $37 million, which expire from 2001 through 2011, and alternative minimum tax credit carryforwards of $196 million, which do not expire. In addition, the company had, for Brazilian income tax return purposes, operating loss carryforwards of $60 million, which do not expire. It is the company's intention to reinvest undistributed earnings of certain of its foreign subsidiaries and thereby indefinitely postpone their remittance. Accordingly, no provision has been made for income taxes on undistributed earnings of $1.2 billion at December 31, 1997. Computation of the potential deferred tax liability associated with these undistributed earnings is not practicable. The valuation allowance primarily relates to general business credit and other carryforwards. The increase in the valuation allowance of $1.7 million for 1997 and the decrease of $5.6 million for 1996 is primarily due to issues with respect to the utilization of such carryforwards. Purchase accounting adjustments for various acquisitions resulted in a decrease to the company's deferred tax liabilities of approximately $14 million in 1997 and an increase of approximately $136 million in 1996. Note 12. Pension and Other Benefit Plans The company and its subsidiaries have a number of noncontributory pension plans covering substantially all employees. The plans covering salaried employees provide pension benefits that generally are based on the employee's compensation during the 60 months before retirement. Plans covering hourly employees generally provide benefits of stated amounts for each year of service. The company bases domestic pension contributions on funding standards established by the Employee Retirement Income Security Act of 1974. During the year, the company approved a plan to restructure its operations (Note 9). In connection with this plan, the company intends to divest several non- strategic product segments and reduce the workforce in its ongoing operations by approximately 2,000 employees, some of whom will be eligible for enhanced early retirement benefits. The expense associated with such benefits, together with the curtailment gains or losses, is reflected in net periodic pension cost and net periodic postretirement costs below. The net periodic pension cost of these plans in 1997, 1996 and 1995 consisted of the following:
Years Ended December 31 (in millions of dollars) 1997 1996 1995 - ------------------------------------------------ -------- ------- ------- Service cost--benefits earned during the period $ 29.2 $ 26.4 $ 23.9 Interest cost on projected benefit obligation 112.6 106.4 102.7 Actual return on plan assets (383.5) (123.7) (253.4) Net amortization and deferral 246.1 7.1 130.4 Curtailment and termination benefits 27.6 ___ ___ -------- ------- ------- Net periodic pension cost $ 32.0 $ 16.2 $ 3.6 ======== ======= =======
22 Champion International Corporation and Subsidiaries - -------------------------------------------------------------------------------- Notes to Financial Statements
=============================================================================================== Assumptions used in determining 1997, 1996 and 1995 net periodic pension cost were: Expected long-term rate of return on assets 10.0% 10.0% 10.0% Discount rate 7.75% 7.5% 8.0% Long-term rate of increase in compensation levels 4.75% 4.5% 5.0% ===============================================================================================
The consolidated accrued pension asset at December 31, 1997 and 1996 for defined benefit plans is shown below. The measurement dates used to determine the funded status were September 30, 1997 and 1996. The funded status was adjusted to record the effect of curtailment and termination benefits resulting from the company's restructuring plan, which was approved on October 7, 1997 (Note 9). Benefit obligations for 1997 and 1996 were determined using an assumed discount rate of 7.5% and 7.75%, respectively, and an assumed average long-term rate of increase in compensation levels of 4.5% and 4.75%, respectively. Plan assets consist primarily of listed stocks and bonds.
December 31 (in millions of dollars) 1997 1996 - -------------------------------------- -------- -------- Actuarial present value of benefit obligations: Vested benefit obligation $1,525.9 $1,364.3 ======== ======== Accumulated benefit obligation $1,578.8 $1,412.9 ======== ======== Projected benefit obligation $1,651.7 $1,509.7 Plan assets at fair value 1,839.6 1,549.4 -------- -------- Plan assets in excess of the projected benefit obligation 187.9 39.7 Unrecognized net gain (162.6) (13.9) Prior service cost not yet recognized in net periodic pension cost 38.0 54.1 Unrecognized net transitional asset (4.6) (5.3) -------- -------- Pension asset $ 58.7 $ 74.6 ======== ========
The company sponsors several defined contribution plans that provide all domestic salaried employees and certain domestic hourly employees of the company an opportunity to accumulate funds for their retirement. The company matches the contributions of participating employees on the basis of the percentages specified in the respective plans. Company matching contributions to the plans, which are invested in shares of the company's common stock, were approximately $14 million in 1997, $13 million in 1996 and $12 million in 1995. 23 Champion International Corporation and Subsidiaries - -------------------------------------------------------------------------------- Notes to Financial Statements Other Retiree Benefits The company provides certain health care and life insurance benefits to eligible retired employees. Employees are generally eligible for benefits upon retirement following a specified number of years of service. These benefit plans are unfunded. Summary information on the company's plans providing postretirement benefits other than pensions is as follows:
December 31 (in millions of dollars) 1997 1996 - ------------------------------------- ------- ------ Accumulated postretirement benefit obligation: Retirees $300.7 $284.6 Fully eligible, active plan participants 48.0 19.1 Other active plan participants 59.1 68.4 ------- ------ Accumulated postretirement benefit obligation 407.8 372.1 Unrecognized prior service benefit 20.1 24.4 Unrecognized net (loss) (35.9) (17.3) ------- ------ Accrued postretirement benefit obligation $392.0 $379.2 ======= ======
Net periodic postretirement benefit cost for 1997, 1996 and 1995 includes the following components:
Years Ended December 31 (in millions of dollars) 1997 1996 1995 - ------------------------------------------- -------- ------- ------- Service cost $ 3.6 $ 3.8 $ 3.5 Interest cost on accumulated postretirement benefit obligation 28.5 26.9 27.9 Net amortization and deferral (2.0) (2.0) (2.0) Effect of curtailment 10.8 ___ ___ -------- ------- ------- Net periodic postretirement benefit cost $ 40.9 $ 28.7 $ 29.4 ======== ======= =======
The accumulated postretirement benefit obligation at December 31, 1997 and 1996 was determined using an assumed discount rate of 7.75% and 8.0%, respectively. The assumed health care cost trend rate used for measurement purposes is 7.4% for 1998, declining ratably to an ultimate rate of 5.0% over a period of four years. If the health care cost trend rate assumptions were increased by 1%, the accumulated postretirement benefit obligation as of December 31, 1997 would be increased by approximately 8%. The effect of this change on the aggregate of service and interest cost for 1997 would be an increase of approximately 12%. 24 Champion International Corporation and Subsidiaries - -------------------------------------------------------------------------------- Notes to Financial Statements Note 13. Business Segments The company's business segments are paper and wood products. The markets in which the company sells its products are highly competitive. The company faces numerous competitors within the forest products industry in each of its major markets and also competes with suppliers of milk and juice cartons and kraft paper substitutes made from plastics. Competition in all markets is based primarily on price. The company is one of the largest domestic producers and suppliers of coated and uncoated free sheet and groundwood papers, newsprint, milk and juice cartons, and hardwood market pulp. Weldwood of Canada Limited, a wholly-owned Canadian subsidiary, is one of the largest producers of lumber and softwood market pulp in Canada. Champion Papel e Celulose Ltda., a wholly-owned Brazilian subsidiary, is one of the largest producers and suppliers of uncoated free sheet papers in Brazil. See Note 9 regarding the planned divestiture of certain domestic product segments. See Note 17 regarding the acquisition of a coated groundwood papers mill in Brazil on January 26, 1998. The company believes that the risks associated with its foreign operations are somewhat greater than those associated with its domestic operations. Weldwood and Champion Papel export substantial portions of their products and, as a result, are affected by currency fluctuations. In addition, Champion Papel is subject to Brazil's continuing inflation, which has moderated substantially as the result of various governmental actions in the last four years. Tight monetary and fiscal policies, including high interest rates, imposed in recent years in an attempt to control Brazil's high inflation rate, remain in effect. In addition, in late 1997 the government of Brazil implemented stringent economic austerity measures, including increases in certain taxes and interest rates and limitations on government spending, to support the Brazilian currency in light of the recent economic crisis in certain Asian countries. The company is not yet in a position to determine whether these measures will adversely affect results at its Brazilian operations. Exports by the company, including by its Brazilian and Canadian operations, to the Asian countries that currently are experiencing economic turmoil are not material. However, the company would be adversely affected if pulp and paper producers significantly shift sales from those Asian markets to markets in which the company has a more significant presence, such as North America, South America and, to a lesser extent, Europe. 25 Champion International Corporation and Subsidiaries - -------------------------------------------------------------------------------- Notes to Financial Statements Information about the company's operations in different businesses for the three years in the period ended December 31, 1997 is as follows:
Timber, Timberlands and Wood Corporate Consolidated (in millions of dollars) Paper Products and Other Total - -------------------------------------- ---------- ----------- --------- ------------ Net Sales to Unaffiliated Customers: 1997 $ 4,766.5 $ 969.0 $ --- $ 5,735.5 1996 4,961.7 918.7 --- 5,880.4 1995 6,007.1 964.9 --- 6,972.0 Income from Operations: 1997: Before provision for restructuring $ 140.7 $ 106.5 $ (57.1) $ 190.1 Provision for restructuring (870.2) (17.5) (3.3) (891.0) After provision for restructuring (729.5) 89.0 (60.4) (700.9) 1996 290.0 126.1 (33.2) 382.9 1995 1,344.0 138.3 (52.8) 1,429.5 Identifiable Assets: 1997 $ 5,599.7 $ 2,917.4 $ 593.5 $ 9,110.6 1996 6,486.1 2,863.4 470.5 9,820.0 1995 6,432.7 2,673.0 437.6 9,543.3 Capital Expenditures: 1997 $ 246.9 $ 183.5 $ 19.1 $ 449.5 1996 339.0 214.1 28.6 581.7 1995 313.5 299.5 11.2 624.2 Depreciation Expense and Cost of Timber Harvested: 1997 $ 433.1 $ 69.2 $ 15.7 $ 518.0 1996 427.1 62.0 12.8 501.9 1995 404.2 54.4 12.8 471.4
The company's timber and timberlands assets and related capital expenditures support both business segments but were not allocated to the paper segment because identification of the specific timber and timberlands assets associated with either segment is impossible. The timber that has been harvested has been included at cost in the results of the business segments. 26 Champion International Corporation and Subsidiaries - -------------------------------------------------------------------------------- Notes to Financial Statements Information about the company's operations in different geographic areas for the three years ended December 31, 1997 is as follows:
Corporate Consolidated (in millions of dollars) U.S. Canada Brazil and Other Total - ------------------------------------- --------- -------- ---------- ----------- ------------ Net Sales to Unaffiliated Customers: 1997 $ 4,852.7 $ 556.3 $ 326.5 $ ___ $ 5,735.5 1996 5,006.1 535.4 338.9 ___ 5,880.4 1995 5,912.3 655.6 404.1 ___ 6,972.0 Income from Operations: 1997: Before provision for restructuring $ 145.7 $ 39.0 $ 62.5 $ (57.1) $ 190.1 Provision for restructuring (869.8) (13.0) (4.9) (3.3) (891.0) After provision for restructuring (724.1) 26.0 57.6 (60.4) (700.9) 1996 271.6 58.2 86.3 (33.2) 382.9 1995 1,116.2 205.6 160.5 (52.8) 1,429.5 Identifiable Assets: 1997 $ 6,688.2 $ 818.1 $ 1,010.8 $ 593.5 $ 9,110.6 1996 7,515.3 857.9 976.3 470.5 9,820.0 1995 7,418.5 920.2 767.0 437.6 9,543.3 Capital Expenditures: 1997 $ 290.6 $ 61.2 $ 78.6 $ 19.1 $ 449.5 1996 409.7 70.0 73.4 28.6 581.7 1995 434.2 16.0 162.8 11.2 624.2 Depreciation Expense and Cost of Timber Harvested: 1997 $ 425.8 $ 39.0 $ 37.5 $ 15.7 $ 518.0 1996 424.6 34.0 30.5 12.8 501.9 1995 401.2 29.8 27.6 12.8 471.4
As of December 31, 1997, net assets located outside of the United States included in the consolidated financial statements were approximately $1.4 billion. Of this amount, $174 million of cash and cash equivalents was held by the company's Canadian and Brazilian subsidiaries. 27 Champion International Corporation and Subsidiaries - -------------------------------------------------------------------------------- Notes to Financial Statements Note 14. Quarterly Results of Operations (Unaudited) (in millions of dollars, except per share amounts) - --------------------------------------------------------------------------------
March 31 June 30 September 30 December 31 ---------- -------- ------------ ----------- Net Sales: 1997 $1,366.7 $1,407.5 $1,478.4 $1,482.9 1996 1,533.2 1,444.6 1,470.5 1,432.2 Gross Profit: 1997 $ 85.6 $ 125.9 $ 180.4 $ 191.0 1996 272.7 158.1 187.5 127.7 Income Taxes (Benefit) (a): 1997 $ (22.5) $ (14.3) $ 10.1 $ (321.4) 1996 48.3 6.8 13.5 (4.9) Net Income (Loss) (a): 1997 $ (37.1) $ (11.4) $ 20.2 $ (520.2) 1996 83.6 15.6 32.0 10.1 Basic Earnings (Loss) Per Common Share (a): 1997 $ (.39) $ (.12) $ .21 $ (5.42) 1996 .88 .16 .33 .11 Diluted Earnings (Loss) Per Common Share (a): 1997 $ (.39) $ ($.12) $ $.21 ($5.42) 1996 .88 .16 .33 .11
(a) The income tax benefit and net loss for the three months ended December 31, 1997 included the provision for restructuring (Note 9). The provision resulted in a pre-tax charge of $891 million ($552 million after-tax, or $5.76 per share). 28 Champion International Corporation and Subsidiaries - -------------------------------------------------------------------------------- Notes to Financial Statements Note 15. Environmental Liabilities The company has been designated as a potentially responsible party by the U.S. Environmental Protection Agency (the "EPA") under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, and by certain states under applicable state laws, with respect to the cleanup of hazardous substances at a number of sites. In the case of many of these sites, other potentially responsible parties also have been so designated. In addition, the company and, in certain instances, other responsible parties have entered into agreements with the EPA and certain states regarding the cleanup of hazardous substances at various other locations. Also, the company is involved in the remediation of certain other sites which are not the subject of investigation by federal or state agencies. The company cannot predict with certainty the total cost of such cleanups, the company's share of the total cost of multiparty cleanups or the extent to which contribution will be available from other parties, or the amount of time necessary to accomplish such cleanups. However, based upon, among other things, its previous experience with respect to the cleanup of hazardous substances as well as the regular detailed review of known hazardous waste sites by the company, the company has accrued $73 million at December 31, 1997, which represents its current estimate of the probable cleanup liabilities, including remediation and legal costs, at all known sites. This accrual does not reflect any possible future insurance recoveries, which are not expected to be significant, but does reflect a reasonable estimate of cost-sharing at multiparty sites. Although the company's probable liabilities have been accrued for currently, hazardous substance cleanup expenditures generally are paid over an extended period of time, in some cases possibly more than 30 years. Annual cleanup expenditures during the period from 1995 through 1997 were approximately $5 million, $4 million and $3 million, respectively. Note 16. Legal Proceedings The company is involved in legal and administrative proceedings and claims of various types. While any litigation contains an element of uncertainty, management, based upon the opinion of the company's General Counsel, presently believes that the outcome of each such proceeding or claim which is pending or known to be threatened will not have a material adverse effect on the company. Note 17. Subsequent Event On January 26, 1998, the company's Brazilian subsidiary acquired Industria de Papel Arapoti S.A. ("Inpacel") and its forestry affiliate for $75 million. Inpacel has outstanding debt of $277 million. Inpacel and its affiliate are Brazilian companies that own a pulp and coated groundwood papers mill with an annual capacity of 160,000 tons of pulp and 178,000 tons of coated groundwood papers, a sawmill and 124,000 acres of timberlands, all of which are located in the State of Parana, Brazil. The transaction will be accounted for using the purchase method of accounting. 29 Report of Independent Public Accountants - -------------------------------------------------------------------------------- To the Shareholders and Board of Directors of Champion International Corporation: We have audited the accompanying consolidated balance sheet of Champion International Corporation (a New York corporation) and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, retained earnings and cash flows for each of the three years in the period ended December 31, 1997. 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 generally accepted auditing standards. 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 Champion International Corporation and subsidiaries as of December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP New York, N.Y. January 16, 1998 (except for Note 17, as to which the date is January 26, 1998) 30 Champion International Corporation and Subsidiaries - -------------------------------------------------------------------------------- Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Overall Annual Results Results for 1997 declined significantly from 1996 and 1995. In 1997, net income was $4 million, or four cents per share, before an after-tax charge of $552 million, or $5.76 per share, related to the restructuring plan announced in October 1997. This compared with net income of $141 million or $1.48 per share in 1996 and $772 million or $7.67 per share, diluted, in 1995. The decline from both prior years reflected significantly lower operating income in the paper segment due to lower average prices, and, to a lesser extent, lower operating income in the wood products segment. Restructuring Plan On October 7, 1997, the company approved a plan to maximize total shareholder return by focusing on strategic businesses, increasing profitability and improving financial discipline. As part of this plan, the company will divest several non-strategic product segments with 1997 net sales of $1.3 billion and a 1997 operating loss of $78 million. These product segments include newsprint, the recycling business, coated and uncoated groundwood specialty papers, premium papers, specialty uncoated papers and liquid packaging and bleached board. Also to be divested are 325,000 acres of timberlands. The proceeds from these divestitures will initially be used for debt repayment. The plan also includes a profit-improvement program that is targeted to increase the annual pre-tax profit of the company's ongoing operations by $400 million by the end of 2000 through cost reduction, productivity increases and changes in product mix. As part of cost reduction, the company has set a goal of reducing its worldwide workforce in the businesses remaining after the divestitures by 11% by the end of 1999. As a result of the restructuring plan, the company incurred a pre-tax charge of $891 million ($552 million after-tax, or $5.76 per share), in the fourth quarter of 1997. The charge included (i) $763 million of non-cash expenses, primarily for asset impairment and other asset write-offs, and (ii) one-time cash costs of $65 million for severance and $63 million for other expenses. Significant Income Statement Line Item Changes Net sales for 1997 of $5.7 billion declined from $5.9 billion in 1996 and $7 billion in 1995. Gross profit was $583 million, compared to $746 million in 1996 and $1.8 billion in 1995. A pre-tax loss of $6 million, before the restructuring charge, represented a decline from pre-tax income of $205 million in 1996 and $1.2 billion in 1995. The declines in net sales, gross profit and pre-tax income, before the restructuring charge, from both prior years were primarily due to lower average prices for all of the company's major paper (and, compared to 1995, pulp) grades, which more than offset higher pulp and paper shipments and lower pulp and paper manufacturing costs. Wood products shipments were approximately even with 1996 and declined from 1995, reflecting the sale and the closure of various plywood plants. 31 Selling, general and administrative expenses of $393 million increased from $363 million in 1996 and $386 million in 1995. The increase from 1996 was principally the result of the impact of stock price fluctuations on the value of stock appreciation rights and other stock-based compensation, including the performance share units described in Note 8 to the consolidated financial statements. Future stock price volatility would impact the expense associated with the company's stock-based compensation. The increase from 1995 was mainly due to higher compensation costs and professional fees. Interest and debt expense increased from both 1996 and 1995, primarily due to an increase in the average amount of long-term debt. Other (income) expense-net for 1997 was approximately even with 1996 and improved from 1995. The improvement from 1995 was principally due to lower minority interest expense, which more than offset lower net gains from the sale and disposition of assets. The decrease in minority interest expense resulted from the purchase by the company's Canadian subsidiary, Weldwood of Canada Limited ("Weldwood"), of all its publicly-held shares in 1996. Other (income) expense - net for 1995 included an $89 million gain from the sale by Weldwood of its coastal British Columbia timberlands and wood products facilities and charges of $68 million principally for the writedown of certain U.S. paper and wood products assets. The tax benefit in 1997 reflected an effective tax rate higher than the rate associated with the tax provisions in 1996 and 1995. The increases from both prior years were primarily due to the mix of earnings from the company's operations in North America and Brazil. A much larger portion of the restructuring charge applied to the company's North American operations than to its Brazilian operations, and the tax rate applicable to North American operations was higher than the Brazilian tax rate in 1997. All outstanding shares of the company's $92.50 Cumulative Convertible Preference Stock were converted on June 22, 1995. As a result, there were no dividends on preference stock in 1997 and 1996. Quarterly Results Earnings per share of 34 cents for the fourth quarter of 1997, before the impact of the restructuring charge, compared to 11 cents for the fourth quarter of 1996 and 21 cents for the third quarter of 1997. The improvement from the year-ago quarter reflected higher operating income in the paper segment due to lower manufacturing costs, higher prices for most of the company's pulp and paper grades and increased shipments. The improvement from the prior quarter was due to improved results, including higher prices, in uncoated free sheet operations and lower general corporate expense. The decline in general corporate expense was principally due to the impact of stock price fluctuations on the value of stock appreciation rights and other stock-based compensation, including the performance share units described in Note 8 to the consolidated financial statements. These improvements more than offset the decline in wood products earnings from both prior quarters. Paper Segment For the company's paper segment, operating income of $141 million in 1997 declined substantially from $290 million in 1996 and $1.3 billion in 1995. Compared to both prior years, lower average prices more than offset lower manufacturing costs and increased shipments. Total paper, packaging and pulp shipments of approximately 6.3 million tons in 1997 increased from approximately 6 million tons in 1996 and 1995. Fourth quarter 1997 operating income of $95 million compared with $21 million in the fourth quarter of 1996 and $72 million in the third quarter of 1997. 32 In general, pulp and paper prices tend to reflect overall economic trends as well as industry production levels. The decline in pulp and paper prices that began in the fourth quarter of 1995 continued through the first quarter of 1997. Average prices for all of the company's paper grades were lower in 1997 than in both prior years. However, prices for many of the company's key pulp and paper grades gradually improved over the last nine months of 1997, reflecting strong demand attributable to economic growth in North America and Europe. In addition, on the supply side, there were relatively few capacity additions in the industry, although domestic pulp and paper manufacturers increased production from existing facilities. This somewhat improved demand/supply relationship contributed to progressively higher earnings in the paper segment during the last three quarters of 1997. In late 1997 and early 1998, the continued weak economy of Japan and the recent economic crisis in certain Asian countries resulted in a moderation in paper prices and a decline in prices for pulp. Operating income for the domestic free sheet business improved from 1996 but declined substantially from 1995. The average price for domestic uncoated free sheet papers, the principal product of the free sheet business, was $657 per ton in 1997, compared to $708 per ton in 1996 and $960 per ton in 1995. The average price for coated free sheet papers was $850 per ton in 1997, compared to $893 per ton in 1996 and $1,038 per ton in 1995. Shipments of all grades of 2,240,000 tons increased slightly from the two prior years. The improvement in operating income from 1996 was due to lower manufacturing costs and slightly higher shipments, which more than offset the lower prices. The decline from 1995 was attributable to the sharply lower prices. The operating income for the fourth quarter of 1997 represented a significant improvement from the operating loss for the fourth quarter of 1996 and an increase from the operating income for the third quarter of 1997. The improvement from the fourth quarter of 1996 was mainly due to higher prices for coated and uncoated free sheet papers and lower manufacturing costs. The improvement from the prior quarter was principally due to higher prices for uncoated free sheet papers. A maintenance outage is scheduled at the company's Pensacola, Florida mill in the first quarter of 1998. Operating income at the company's Brazilian subsidiary, Champion Papel e Celulose Ltda. ("Champion Papel"), declined from 1996 and was down significantly from 1995. The decline from both prior years was primarily due to lower domestic and export prices for uncoated free sheet papers, which more than offset lower manufacturing costs and slightly higher shipments. The overall average price for uncoated free sheet papers was $722 per ton in 1997, compared to $838 per ton in 1996 and $1,028 per ton in 1995. Shipments of uncoated free sheet papers of 392,000 tons increased slightly from both 1996 and 1995. Fourth quarter operating income declined from the fourth quarter of 1996, but improved from the third quarter of 1997. The decline from the fourth quarter of 1996 was principally due to lower domestic and export prices for uncoated free sheet papers, which more than offset lower manufacturing costs. The improvement from last quarter was primarily due to lower manufacturing costs. Operating income for the groundwood business declined substantially from 1996 and 1995. The decline from both prior years was mainly due to lower prices for coated and uncoated groundwood papers and newsprint, which more than offset lower manufacturing costs and higher shipments. The average price for coated groundwood papers was $835 per ton in 1997, compared to $963 per ton in 1996 and $1,047 per ton in 1995. Prices for uncoated groundwood papers were also lower than in both prior years. The average price for newsprint was $491 per ton in 1997, compared to $564 per ton in 1996 and $618 per ton in 1995. Shipments of all groundwood and newsprint grades were 1,793,000 tons in 1997, compared to 1,659,000 tons in 1996 and 1,747,000 tons in 1995. Fourth quarter 1997 operating income improved significantly from the fourth quarter of 1996 and was approximately even with the third quarter of 1997. The improvement from the fourth quarter of 1996 was mainly due to higher prices for all grades and lower manufacturing costs. Early in 1998, a price increase for coated groundwood papers was implemented. 33 The operating loss for the specialty business represented a substantial decline from the operating income of both 1996 and 1995. The decline from both prior years was primarily due to lower average prices for all grades, which more than offset lower manufacturing costs and higher overall shipments. Shipments of all grades were 887,000 tons in 1997, compared to 843,000 tons in 1996 and 870,000 tons in 1995. Fourth quarter 1997 operating income was approximately even with the fourth quarter of 1996 but improved from an operating loss in the third quarter of 1997. The improvement from the prior quarter was mainly due to higher prices for coated and uncoated groundwood papers and linerboard, which more than offset higher purchased pulp and energy costs. In early 1998, the Deferiet, New York mill had a seven-day, weather-related outage. Operating income for the U.S. and Canadian market pulp operations improved from 1996 but declined significantly from 1995. The improvement from 1996 was principally due to lower manufacturing costs, higher prices for northern hardwood pulp and higher overall shipments. The decline from 1995 was due to significantly lower prices for all grades, which more than offset higher shipments and lower manufacturing costs. The average price for Canadian softwood pulp was (U.S.) $419 per ton in 1997, compared to $422 per ton in 1996 and $693 per ton in 1995. The average price for northern hardwood pulp improved slightly from 1996 but declined significantly from 1995. Shipments of all pulp grades were 948,000 tons in 1997, compared to 894,000 tons in 1996 and 797,000 tons in 1995. Operating income in the fourth quarter of 1997 improved from the fourth quarter of 1996 but declined from the third quarter of 1997. The improvement from the fourth quarter of 1996 was principally due to higher prices for all grades, lower manufacturing costs and higher shipments. The decline from the third quarter of 1997 was mainly due to lower prices for northern hardwood and softwood pulp grades and slightly higher manufacturing costs. In early 1998, Weldwood's Hinton, Alberta pulp mill took an 11-day outage due to market conditions. Since the company is a net seller of pulp, overall profits are adversely affected by lower pulp prices; however, the company's Bucksport, Canton, Deferiet, Hamilton and Sartell mills purchase pulp from outside suppliers and benefit from lower pulp prices. Wood Products Segment For the company's wood products segment, which includes the wood-related operations of Weldwood and Champion Papel, income from operations of $106 million in 1997 declined from $126 million in 1996 and $138 million in 1995. Fourth quarter 1997 operating income of $13 million declined from $36 million in the fourth quarter of 1996 and $25 million in the third quarter of 1997. The decline from both prior years primarily reflected lower results for Weldwood's wood products operations. Lower results at Weldwood were attributable to higher purchased wood costs, the start-up of a new sawmill and rebuilt plywood plant and reduced plywood shipments due to the sale and the closure of various plywood plants. For U.S. and Canadian operations overall, the average price for plywood was 2% higher than in 1996 and 6% lower than in 1995. The average price for lumber increased 5% from 1996 and 26% from 1995. The decline in earnings from the fourth quarter of 1996 and the third quarter of 1997 was mainly due to lower lumber prices in the United States and Canada. Foreign Operations The company's major foreign operations, which are discussed above under their respective segment headings, are in Brazil and Canada. Net sales to unaffiliated customers for Champion Papel and Weldwood for 1997 were (U.S.) $327 million and (U.S.) $556 million, respectively, accounting for 5.7% and 9.7%, respectively, of consolidated net 34 sales of the company. Excluding the 1997 restructuring provision, pre-tax income for Champion Papel and Weldwood for 1997 was (U.S.) $59 million and (U.S.) $45 million, respectively, which was more than offset by the pre-tax loss of the company's domestic operations. Excluding the 1997 restructuring provision, net income for 1997 for Champion Papel and Weldwood was (U.S.) $61 million and (U.S.) $28 million, respectively, which was substantially offset by the company's domestic loss. Substantially all of the restructuring provision was applicable to the company's domestic operations. Identifiable assets held by Champion Papel and Weldwood at December 31, 1997 were $1.01 billion and $818 million, respectively, accounting for 11.1% and 9.0%, respectively, of consolidated assets of the company. The company recently increased its presence in Brazil through the acquisition on January 26, 1998 of Industria de Papel Arapoti S.A. ("Inpacel") and its forestry affiliate, as discussed below. With this acquisition and the divestiture in 1998 of certain non-strategic assets in the United States, foreign operations overall and Brazilian operations in particular will account for a larger percentage of the company's consolidated sales and assets. The company believes that the risks associated with its foreign operations are somewhat greater than those associated with its domestic operations. Weldwood and Champion Papel export substantial portions of their products and, as a result, are affected by currency fluctuations. In addition, Champion Papel is subject to Brazil's continuing inflation, which has moderated substantially as the result of various governmental actions in the last four years. Tight monetary and fiscal policies, including high interest rates, imposed in recent years to control Brazil's high inflation rate, remain in effect. In addition, in late 1997 the government of Brazil implemented stringent economic austerity measures, including increases in certain taxes and interest rates and limitations on government spending, to support the Brazilian currency in light of the recent economic crisis in certain Asian countries. The company is not yet in a position to determine whether these measures will adversely affect results at its Brazilian operations. Exports by the company, including by its Brazilian and Canadian operations, to the Asian countries that currently are experiencing economic turmoil are not material. However, the company would be adversely affected if pulp and paper producers significantly shift sales from those Asian markets to markets in which the company has a more significant presence, such as North America, South America and, to a lesser extent, Europe. Labor Contracts The company has labor agreements, which expire between 1998 and 2002, at ten of its eleven domestic paper mills. The only such mills whose labor agreements expire in 1998 are the pulp and paper mills at Canton, North Carolina and Deferiet, New York, which are among the facilities to be divested by the company. The Quinnesec, Michigan mill is a non-union facility. The labor agreement that covers the paper industry in Brazil, including Champion Papel, is renegotiated each year. New labor agreements are in effect at most of Weldwood's wood products plants. Efforts to reach new labor agreements continue at the Hinton, Alberta pulp mill and wood products plant, and the joint venture pulp mill at Quesnel, British Columbia, which are presently operating under the terms of their expired contracts. 35 Financial Condition General The company's current ratio was 1.4 to 1 at year-end 1997 and at year-end 1996, as compared to 1.5 to 1 at year-end 1995. Total debt to total capitalization was 45% at year-end 1997, compared to 39% at year-end 1996 and 38% at year-end 1995. The increase in 1997 was principally attributable to the restructuring charge and, to a lesser extent, a financing in December 1997, a portion of the proceeds of which will be used to repay debt as it matures in early 1998. Significant Balance Sheet Line Item Changes The provision for restructuring in 1997 was the main reason for (i) the decreases from December 31, 1996 in property, plant and equipment - net; other assets and deferred charges; the deferred income tax liability; and retained earnings; and (ii) the increases from December 31, 1996 in the deferred income tax asset; accrued liabilities; and other liabilities. Timber and timberlands - net increased by $32 million from December 31, 1996 primarily due to the acquisition from Fort James Corporation of forest lands in central Maine. Short-term borrowings decreased by $56 million principally due to the timing of payments. The cumulative translation adjustment increased by $24 million mainly due to the effect of the decline in the value of the Canadian dollar on the valuation of the company's Canadian net assets. For a discussion of changes in long-term debt (including current installments) and cash and cash equivalents, see below. Cash Flows Statement - General 1997 - ---- In 1997, the company's net cash provided by operating activities, asset sales and financing activities exceeded the requirements of its investing activities (principally capital expenditures) and financing activities (principally debt payments and cash dividends). The excess was used to increase cash and cash equivalents by $100 million to a total of $275 million, $174 million of which was held by the company's Canadian and Brazilian subsidiaries. In 1997, net borrowings generated cash proceeds of $89 million; long-term debt (including current installments) and short-term borrowings in the aggregate increased by $116 million. The approximately equal increases in cash and cash equivalents and debt was attributable largely to a financing in December 1997, a portion of the proceeds of which will be used to repay debt as it matures in early 1998. 1996 - ---- In 1996, the company's net cash provided by operating activities and asset sales was not sufficient to meet the requirements of its investing activities (principally capital expenditures and the acquisitions of Lake Superior Land Company and Amapa Florestal e Celulose ("AMCEL")) and its financing activities (principally debt payments, cash dividends, the purchase of shares of the company's common stock and the Weldwood share purchase). The difference was financed through borrowings and the use of cash and cash equivalents. In 1996, net borrowings generated cash proceeds of $189 million; long-term debt (including current installments) increased by $260 million, including a $44 million mortgage loan of Lake Superior Land Company and $35 million of debt from AMCEL which were outstanding at the time of their respective acquisitions. Cash and cash equivalents decreased by $142 million in 1996 to a total of $175 million. A substantial portion of the company's cash deficit in 1996 was attributable to the Weldwood share purchase and the acquisitions of Lake Superior Land Company and AMCEL. 36 1995 - ---- In 1995, the company's net cash provided by operation activities and assets sales substantially exceeded the requirements of its investing activities (principally capital expenditures). The excess was used primarily to pay dividends, to pay a portion of the company's long-term debt (including current installments), to increase cash and cash equivalents, and to purchase shares of the company's common stock. In 1995, long-term debt (including current installments) declined by $292 million; a substantial portion of this reduction was effected through the conversion of virtually all $149,893,000 of the company's 6 1/2% Convertible Subordinated Debentures into an aggregate of 4,309,070 shares of common stock rather than through the use of cash. Cash and cash equivalents increased by $226 million. Cash Flows Statement - Operating Activities Net cash provided by operating activities of $485 million increased from $438 million in 1996 but decreased from $1.5 billion in 1995. The increase from 1996 was mainly due to lower income tax payments and a decrease in pension contributions and inventories, which more than offset lower earnings and an increase in receivables. The decrease from 1995 was primarily due to lower earnings, deferred income taxes and accounts payable and accrued liabilities, which more than offset lower income tax payments, a decrease in inventories and a smaller increase in receivables. Cash Flows Statement - Investing Activities Net cash used in investing activities of $465 million decreased from $554 million in 1996 and $551 million in 1995. The decrease from 1996 was primarily due to lower capital expenditures and asset acquisitions, which more than offset lower proceeds from the redemptions of investments. The decrease from 1995 was mainly due to lower capital expenditures and lower purchases of investments, which more than offset lower net proceeds from the sale of assets. In 1997, the company purchased from Fort James Corporation 140,000 acres of forest lands in central Maine as well as a stud mill in Passadumkeag, Maine for $46 million. In 1996, the company acquired Lake Superior Land Company for $76 million (as well as an outstanding $44 million mortgage loan) and AMCEL for $60 million (as well as $35 million of outstanding debt). Lake Superior Land Company owns 290,000 acres of forest lands in Michigan and Wisconsin. AMCEL is a Brazilian company that owns 438,000 acres of land and a chip mill in the State of Amapa, Brazil. In 1997, the company received $43 million of proceeds from sales of timberlands and fixed assets. In 1996, the company received $101 million of proceeds from redemptions of investments and $40 million from sales of timberlands and fixed assets. In 1995, Weldwood received net proceeds of (U.S.) $175 million from the sale of its coastal British Columbia timberlands and wood operations, and the company purchased investments for $98 million. On January 26, 1998, the company's Brazilian subsidiary acquired Inpacel and its forestry affiliate for $75 million. Inpacel has outstanding debt of $277 million. Inpacel and its affiliate are Brazilian companies that own a pulp and coated groundwood papers mill with an annual capacity of 160,000 tons of pulp and 178,000 tons of coated groundwood papers, a sawmill and 124,000 acres of timberlands, all of which is located in the State of Parana, Brazil. Cash Flows Statement - Financing Activities Net cash provided by financing activities of $80 million increased from net cash used in financing activities of $26 million in 1996 and $676 million in 1995. The increase from 1996 mainly reflected the purchase of the Weldwood shares in 1996, which more than offset larger net borrowings in 1996. The increase from 1995 was principally due to the purchase of shares of common stock in 1995 and the reduction in long-term debt (including current installments) in 1995. 37 At December 31, 1997, the company had $345 million of current maturities of long-term debt and short-term obligations outstanding, all of which is classified as long-term debt, down from $7 million at year-end 1996 and $58 million at year-end 1995. At December 31, 1997 and December 31, 1996, no notes were outstanding under the company's U.S. bank lines of credit, compared to $40 million at year-end 1995. Domestically, at December 31, 1997, $345 million of the company's unused bank lines of credit of $1.19 billion supported the classification of current maturities of long-term debt and short-term obligations as long-term debt. At December 31, 1997, Weldwood had unused bank lines of credit of approximately (U.S.) $126 million. During 1997, the company (i) issued $100 million of debentures which are due in 2027, (ii) issued $100 million of notes which are redeemable at the option of the holders in 2007 and are due in 2037 and (iii) borrowed $7 million through the issuance of long-term tax-exempt bonds. The annual principal payment requirements under the terms of all long-term debt agreements for the years 1998 through 2002 are $489 million, $258 million, $206 million, $206 million and $6 million, respectively. Capital Expenditures Capital expenditures, including contract timber, reforestation and capitalized interest, were $449 million in 1997 compared to $582 million in 1996 and $624 million in 1995. The company presently anticipates that capital expenditures will be approximately $500 million in 1998, all of which is expected to be financed through internally generated funds and the use of cash and cash equivalents. At Quesnel, British Columbia, the company completed construction of a lumber mill and the modernization of the existing plywood plant in 1997. The total project cost was approximately (U.S.) $83 million. In 1997, the company began a project to modernize the No. 5 paper machine at the Bucksport, Maine mill. The project is expected to be completed in 1998 at a cost of approximately $40 million, of which approximately $18 million had been expended as of December 31, 1997. In 1997, the company began an alkaline-conversion project and various environmental improvement projects at the Courtland, Alabama mill. These projects are expected to be completed in 2000 at a total cost of approximately $121 million, of which approximately $76 million will be spent in 1998. In addition to the pine and eucalyptus plantations and chip mill acquired through the purchase of AMCEL in 1996, the company plans to establish eucalyptus and pine plantations and a new chipping operation in the State of Amapa, Brazil, in the next few years. The company also has under consideration the possible construction of a pulp and paper mill at Tres Lagoas, State of Mato Grosso do Sul, Brazil, in the next several years. Approximately $27 million of the anticipated capital spending in 1998 will be devoted to these projects. In 1997, the company canceled the $127 million recycling project at the Courtland, Alabama mill. The Environment Environmental Capital Expenditures The company is subject to various federal, state and local laws and regulations relating to the discharge of materials into the environment and to the disposal of solid waste. These laws and regulations require the company to obtain permits and licenses from appropriate governmental authorities with respect to its facilities and to operate its facilities in compliance with such permits and licenses. 38 In order to meet the standards established by the various federal, state and local environmental laws and regulations to which the company is subject, the company is required to invest substantial amounts in pollution abatement facilities. During the period from 1993 through 1997, the company spent approximately $229 million in its domestic operations to purchase and install systems to control the discharge of pollutants into air and water and to dispose of solid wastes. In addition, from 1990 through 1994, the company spent approximately $300 million on an environmental improvement and modernization project at the Canton, North Carolina mill. In 1997, capital expenditures incurred in the United States for environmental purposes were $23 million. In view of changing environmental laws and regulations and their interpretation, as well as the uncertainties and variables inherent in business planning, it is not possible for the company to predict with certainty the amount of capital expenditures to be incurred for environmental purposes in the future. However, the company estimates that capital expenditures for air and water pollution control systems and solid waste disposal systems in the United States will be approximately $63 million in 1998 and $25 million in 1999. In carrying forward its environmental program, the company will commit additional amounts for environmental purposes in years subsequent to 1999. Preliminary estimates indicate that for the period from 2000 through 2002 capital expenditures for air and water pollution control facilities and solid waste disposal facilities in the United States will aggregate approximately $21 million. The environmental capital expenditures described in this paragraph are included in the respective past and estimated 1998 capital expenditure amounts set forth above under "Capital Expenditures." As previously reported, the company is evaluating relocating the point of discharge for its Pensacola, Florida mill's effluent due to potential limitations on the assimilative capacity of the existing receiving body of water. The results of the study are expected to be submitted to the Florida Department of Environmental Protection by May 1998, and a decision on a possible new point of discharge will then be made. The cost of this potential project is not included in the capital expenditure information set forth above under "Capital Expenditures" or set forth above in this section. Although some pollution control and solid waste disposal facilities produce improvements in operating efficiency, most increase product costs without enhancing capacity or operating efficiency. However, since other paper and forest products companies also are subject to environmental laws and regulations, the company does not believe that compliance with such laws and regulations will have a material adverse effect on its competitive position. New EPA Air and Water Regulations In 1997, the United States Environmental Protection Agency (the "EPA") adopted regulations, known as the "Cluster Rule", pursuant to the federal Clean Air Act Amendments of 1990 and the federal Clean Water Act. Compliance is required as early as 2000 for certain provisions and as late as 2004 for other provisions of the Cluster Rule. Further regulations are expected to be proposed in the future. Compliance with such further regulations is expected to be required within three years after each becomes final. As previously reported, trace amounts of dioxin were found in the pulp, sludge and effluent at some bleached kraft mills in the United States and Canada, including certain of the company's mills. The water-related provisions of the Cluster Rule are based upon the substitution of chlorine dioxide for elemental chlorine, which reduces the potential for the formation of dioxin in the pulp- bleaching process. This technology already has been installed at most, and by the end of 2000 will be in place at all, of the company's fully bleached kraft mills in the United States. The company presently expects that it will incur capital expenditures to meet the requirements of the Cluster Rule and state air toxics regulations, additional to those set forth above under "Capital Expenditures" and "Environmental Capital Expenditures," in the range of $20 million to $40 million over the period of approximately 1998 through 2004. 39 Great Lakes Initiative The company may incur capital expenditures, additional to those set forth above under "Capital Expenditures" and "Environmental Capital Expenditures," in order to meet the requirements of the Great Lakes Water Quality Agreement of 1978 and the Great Lakes Critical Programs Act of 1990. Pursuant thereto, in March 1995, the EPA issued guidance to the states regarding water quality standards for the waters of the Great Lakes and their tributaries. The company is awaiting the issuance of implementing regulations by the environmental agencies of the affected states in order to determine the extent of any additional costs and the period over which they will be incurred. As a result, the company is not yet in a position to provide a meaningful estimate of any such costs. Hazardous Substance Cleanup The company has been designated as a potentially responsible party by the EPA under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, and by certain states under applicable state laws, with respect to the cleanup of hazardous substances at a number of sites. In the case of many of these sites, other potentially responsible parties also have been so designated. In addition, the company and, in certain instances, other responsible parties have entered into agreements with the EPA and certain states regarding the cleanup of hazardous substances at various other locations. Also, the company is involved in the remediation of certain other sites which are not the subject of investigation by federal or state agencies. The cost of all such cleanups is not capitalized and, accordingly, is not included in the capital expenditure information set forth above under "Capital Expenditures" and "Environmental Capital Expenditures." The company cannot predict with certainty the total cost of such cleanups, the company's share of the total cost of multiparty cleanups or the extent to which contribution will be available from other parties, or the amount of time necessary to accomplish such cleanups. However, based upon, among other things, its previous experience with respect to the cleanup of hazardous substances as well as the regular detailed review of known hazardous waste sites by the company, the company has developed an estimate of its probable cleanup liabilities. This estimate includes remediation and legal costs with respect to properties presently or formerly owned or operated by the company or its predecessors as well as properties, such as municipal or county landfills, owned and operated by third parties to which the company or its contractor sent waste material. The company has accrued $73 million at December 31, 1997, on a non- discounted basis, which represents its current estimate of the probable cleanup liabilities at all known sites. This accrual does not reflect any possible insurance recoveries, which are not expected to be significant, but does reflect a reasonable estimate of cost-sharing at multiparty sites. Although the company's probable liabilities have been accrued for currently, hazardous substance cleanup expenditures generally are paid over an extended period of time, in some cases possibly more than 30 years. Annual cleanup expenditures during the period from 1995 through 1997 were approximately $5 million, $4 million and $3 million, respectively. Wastewater Discharge Permit for Canton, North Carolina Mill As previously reported, in late 1996, the North Carolina Department of Environment, Health and Natural Resources renewed the NPDES wastewater discharge permit for the company's Canton, North Carolina mill. The permit included a revised variance from the North Carolina water quality standard for color in the Pigeon River. In early 1997, the State of Tennessee and various municipalities and environmental groups in Tennessee filed an administrative appeal of the permit, principally on the grounds that the color variance failed to satisfy Tennessee's water quality standard for the portion of the Pigeon River in Tennessee. In December 1997, the permit was modified to the satisfaction of the company, the EPA, the State of North Carolina, the State of Tennessee and the other parties to the appeal, which withdrew their administrative appeal of the permit. 40 Other Year 2000 Computer Issue The company utilizes computer software and related technologies throughout its businesses that will be affected by the date change to the year 2000. In early 1996, the company organized a Year 2000 project team to assess the impact of the Year 2000 issue on its operations and to develop plans to address the issue. The company is in the process of modifying or replacing portions of its software and related technologies so that they will continue to function properly after December 31, 1999. The company expects that this project will be completed before the end of 1999 at a cost of approximately $10 million, of which approximately $3 million had been incurred as of December 31, 1997. All maintenance and modification costs are being expensed as incurred. In addition, the Year 2000 issue will impact the company's customers and suppliers. The company is in the process of discussing with certain of its major customers and suppliers their own remediation plans with respect to the Year 2000 issue. These customers and suppliers have indicated that they expect to successfully address the issue in timely fashion. However, it is not possible for the company to predict with certainty whether its customers and suppliers will experience any remediation problems and, if so, the materiality of the impact of such problems on the company. Change in Accounting for Brazilian Operations Accounting standards require that a country whose three-year cumulative inflation rate falls below 100% be categorized as a non-highly-inflationary economy. During 1997, Brazil's three-year cumulative inflation rate fell below 100%. Effective January 1, 1998, the company will begin accounting for its Brazilian operations as non-highly inflationary. In the past, the U.S. dollar was used as the functional currency for Brazilian operations. As the result of the accounting change, effective January 1, 1998, the Brazilian currency, the Real, will be used as the functional currency, and the recorded net book value of fixed assets such as property, plant and equipment, and timber and timberlands, will be converted to U.S. dollars based on current exchange rates. As a result of this accounting change, effective January 1, 1998, the company will record a one-time balance sheet adjustment, increasing its deferred tax liability by approximately $50 million with a corresponding increase in cumulative translation adjustment in shareholders' equity. The Brazilian currency has historically declined in value relative to the U.S. dollar. If this trend continues, the recorded net book value of the company's fixed assets in Brazil will decrease in future years to reflect this decline in value, offset by an increase in the cumulative translation adjustment balance. The company does not expect a material change in results of operations as a result of this accounting change, although depreciation and depletion expense will decrease over time if the recorded net book value of fixed assets declines due to a decline in value of the Brazilian currency. Financial Market Risk The company's financial market risk arises from fluctuations in interest rates and foreign currencies. Most of the company's debt obligations at year-end 1997 were at fixed interest rates. Consequently, a 10% change in market interest rates would not have a material effect on the company's 1998 pre-tax earnings or cash flows. 41 At December 31, 1997, the company had forward exchange contracts covering approximately $72 million of investments and accounts receivable, the deferred gains and losses on which were not material. The company has no material sensitivity to changes in foreign currency exchange rates on its derivative financial instrument position. The company does not hold financial instruments for trading purposes. Asset Replacement Value The industry in which the company operates is capital intensive. Due to inflation, the company's property, plant and equipment, and timber and timberlands, could not be replaced for the historical cost value at which they are reflected in the company's financial statements. On a current cost basis, depreciation expense and cost of timber harvested would be greater than reported on a historical cost basis. 42
Champion International Corporation and Subsidiaries - -------------------------------------------------------------------------------------------------------------------- Eleven-Year Selected Financial Data (in millions, except per share amounts and ratio data) 1997 1996 1995 1994 - --------------------------------------------------------------- -------- -------- -------- -------- Earnings: Net Sales $ 5,736 $ 5,880 $ 6,972 $ 5,318 Depreciation expense and cost of timber harvested 518 502 471 459 Gross profit 583 746 1,816 565 Provision for restructuring 891 --- --- --- Interest and debt expense 240 222 226 235 Other (income) expense - net (44) (44) (33) (57) Income (loss) before income taxes, extraordinary item and cumulative effect of accounting changes (897) 205 1,237 88 Income taxes (benefit) (348) 64 465 25 Income (loss) before extraordinary item and cumulative effect of accounting changes (549) 141 772 63 Extraordinary item, net of taxes --- --- --- --- Cumulative effect of accounting changes, net of taxes --- --- --- --- Net income (loss) (549) 141 772 63 Per Common Share (a): Basic earnings (loss) $ (5.72) $ 1.48 $ 8.01 $ 0.38 Diluted earnings (loss) (5.72) 1.48 7.67 0.38 Cash dividends declared 0.20 0.20 0.20 0.20 Cash dividends paid 0.20 0.20 0.20 0.20 Shareholders' equity 33.39 39.30 38.12 31.25 Financial Position: Current assets $ 1,448 $ 1,316 $ 1,583 $ 1,179 Timber and timberlands - net 2,397 2,365 2,008 1,847 Property, plant and equipment - net 4,800 5,653 5,514 5,603 Other assets and deferred charges 466 486 438 335 -------- -------- -------- -------- Total assets $ 9,111 $ 9,820 $ 9,543 $ 8,964 ======== ======== ======== ======== Current liabilities $ 1,020 $ 944 $ 1,080 $ 1,034 Long-term debt 3,194 3,085 2,828 2,889 Other liabilities 693 671 769 740 Deferred income taxes 994 1,364 1,219 1,040 $92.50 convertible preference stock --- --- --- 300 Shareholders' equity 3,210 3,756 3,647 2,961 -------- -------- -------- -------- Total liabilities and shareholders' equity $ 9,111 $ 9,820 $ 9,543 $ 8,964 ======== ======== ======== ======== Other Statistics: Expenditures for property, plant and equipment $ 321 $ 461 $ 368 $ 225 Timber and timberlands expenditures $ 128 $ 121 $ 257 $ 104 U.S. timber acreage owned or controlled 5.4 5.3 5.3 5.1 Common shares outstanding at year-end 96 96 96 93 Dividends declared on preference shares $ --- $ --- $ 13 $ 28 Dividends declared on common shares $ 19 $ 19 $ 19 $ 19 Current ratio 1.4 1.4 1.5 1.1 Ratio of total debt to total capitalization .45:1 .39:1 .38:1 .43:1 Return on average shareholders' equity and $92.50 convertible preference stock before extraordinary item and cumulative effect of accounting changes (15.7)% (b) 3.8% 22.6% 2.0 %
(a) Basic and diluted earnings (loss) per share for 1997 includes the provision for restructuring of ($5.76). Basic and diluted earnings (loss) per share for 1993 includes the cumulative effect of an accounting change of ($.08) and an extraordinary item for early retirement of debt of ($.15). Basic and diluted earnings (loss) per share for 1992 includes the cumulative effect of accounting changes of ($4.90). (b) Includes the 1997 provision for restructuring of $891 million ($552 million after-tax). 43
- ------------------------------------------------------------------------------------- 1993 1992 1991 1990 1989 1988 1987 -------- -------- -------- -------- -------- -------- -------- $ 5,069 $ 4,926 $ 4,786 $ 5,090 $ 5,163 $ 5,129 $ 4,615 443 411 342 323 279 260 252 359 362 454 800 1,048 1,141 872 --- --- --- --- --- --- --- 224 206 211 156 136 161 177 7 (143) (110) (85) (93) (30) (198) (165) 10 78 420 726 730 619 (31) (4) 38 197 294 274 237 (134) 14 40 223 432 456 382 (14) --- --- --- --- --- --- (8) (454) --- --- ---- ---- --- (156) (440) 40 223 432 456 382 $ (1.98) $ (5.05) $ 0.14 $ 2.11 $ 4.56 $ 4.80 $ 4.03 (1.98) (5.05) 0.14 2.08 4.43 4.65 3.92 0.20 0.20 0.20 1.10 1.10 0.95 0.72 0.20 0.20 0.43 1.10 1.08 0.90 0.65 31.23 33.53 39.02 39.10 38.12 35.06 30.82 $ 1,114 $ 1,142 $ 1,162 $ 1,104 $ 1,074 $ 986 $ 896 1,839 2,012 1,666 1,645 1,613 1,581 1,554 5,802 5,763 5,386 5,117 4,404 3,702 3,340 388 464 442 485 440 431 389 -------- -------- -------- -------- -------- -------- -------- $ 9,143 $ 9,381 $ 8,656 $ 8,351 $ 7,531 $ 6,700 $ 6,179 ======== ======== ======== ======== ======== ======== ======== $ 772 $ 786 $ 794 $ 801 $ 804 $ 699 $ 657 3,316 3,291 2,978 2,689 2,025 1,909 1,864 728 686 235 231 208 273 307 1,077 1,159 678 651 605 474 415 300 300 300 300 300 --- --- 2,950 3,159 3,671 3,679 3,589 3,345 2,936 -------- -------- -------- -------- -------- -------- -------- $ 9,143 $ 9,381 $ 8,656 $ 8,351 $ 7,531 $ 6,700 $ 6,179 ======== ======== ======== ======== ======== ======== ======== $ 476 $ 623 $ 604 $ 959 $ 916 $ 585 $ 340 $ 130 $ 95 $ 58 $ 88 $ 78 $ 88 $ 62 5.1 6.0 6.2 6.4 6.4 6.4 6.5 93 93 93 93 93 95 95 $ 28 $ 28 $ 28 $ 28 $ 2 $ --- $ --- $ 19 $ 19 $ 19 $ 102 $ 104 $ 91 $ 69 1.4 1.5 1.5 1.4 1.3 1.4 1.4 .44:1 .42:1 .40:1 .38:1 .32:1 .34:1 .36:1 (4.0) % 0.4 % 1.0 % 5.6 % 12.2 % 14.5 % 13.8 %
44 Common Stock Prices and Dividends Paid Quarterly sales prices for the company's common stock as reported on the New York Stock Exchange composite tape, and quarterly dividends paid, in 1997 and 1996 were:
- -------------------------------------------------------------------------------- March 31 June 30 Sept. 30 Dec. 31 ---------- --------- ---------- --------- 1997 - --- High $47 3/8 $55 7/16 $65 5/16 $66 1/2 Low 41 3/8 42 1/4 55 1/4 43 1/16 Dividends Paid .05 .05 .05 .05 - -------------------------------------------------------------------------------- March 31 June 30 Sept. 30 Dec. 31 ---------- --------- ---------- --------- 1996 High $48 3/8 $51 1/8 $48 1/8 $46 1/2 Low 39 41 1/4 40 1/4 40 7/8 Dividends Paid .05 .05 .05 .05 - --------------------------------------------------------------------------------
45 EX-21 10 LIST OF SIGNIFICANT SUBSIDIARIES EXHIBIT 21 LIST OF SIGNIFICANT SUBSIDIARIES -------------------------------- Subsidiary Jurisdiction of Incorporation - ---------- ----------------------------- Champion Pacific Timberlands Inc........................................Delaware Champion Papel e Celulose Ltda............................................Brazil Weldwood of Canada Limited......................................British Columbia _________________________________ All subsidiaries of the Company other than those listed above, considered in the aggregate as a single subsidiary, do not constitute a significant subsidiary as of December 31, 1997. EX-23.1 11 CONSENT OF STEVEN B. BROWN EXHIBIT 23.1 CHAMPION INTERNATIONAL CORPORATION One Champion Plaza Stamford, CT 06921 March 27, 1998 Champion International Corporation One Champion Plaza Stamford, CT 06921 Dear Sirs: As Senior Vice President and General Counsel of Champion International Corporation (the "Company"), I advise you as follows in connection with legal and administrative claims and proceedings which are pending or known to be threatened against the Company. I call your attention to the fact that, as Senior Vice President and General Counsel of the Company, I have general supervision of the Company's legal affairs. In such capacity, I have reviewed litigation and claims threatened or asserted involving the Company and have consulted with outside legal counsel with respect thereto where I have deemed it appropriate. There are currently no material legal or administrative claims or proceedings pending or known to be threatened against the Company. I hereby consent to the reference to this opinion in the Company's Annual Report to Shareholders for the fiscal year ended December 31, 1997, and in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (the "Form 10-K"), and to the filing of this opinion as an exhibit to the Form 10-K. Very truly yours, /s/ Stephen B. Brown Senior Vice President and General Counsel SBB/col EX-23.2 12 CONSENT OF ARTHUR ANDERSEN EXHIBIT 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated January 16, 1998 incorporated by reference in this Form 10-K into the Company's previously filed Registration Statements on Form S-3 (Registration No. 333-19929) and on Form S-8 (Registration No. 33-63126 and No. 333-34069). /s/ ARTHUR ANDERSEN LLP New York, N.Y. March 27, 1998 EX-24 13 POWER OF ATTORNEY EXHIBIT 24 POWER OF ATTORNEY ----------------- Each of the undersigned Directors and Officers of CHAMPION INTERNATIONAL CORPORATION (the "Company") hereby constitutes and appoints STEPHEN B. BROWN, LAWRENCE A. FOX and RICHARD E. OLSON his or her true and lawful attorneys-in- fact and agents, each of them with full power to act without the others, for him or her and in his or her name, place and stead, in any and all capacities, to sign the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 and any and all amendments and other documents relating thereto, and to file such Annual Report on Form 10-K and such amendments with all exhibits thereto, and any and all other information and documents in connection therewith, with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, hereby granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys- in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the 27th day of March, 1998. /s/ RICHARD E. OLSON /s/ KENWOOD C. NICHOLS - ---------------------------------- ---------------------------------------- Richard E. Olson Kenwood C. Nichols Chairman of the Board, Chief Vice Chairman and Executive Officer Executive Officer and Director and Director (Principal Executive Officer) (Principal Accounting Officer) /s/ FRANK KNEISEL ---------------------------------------- Frank Kneisel Senior Vice President - Finance (Principal Financial Officer) /s/ LAWRENCE A. BOSSIDY /s/ SYBIL C. MOBLEY - ---------------------------------- ---------------------------------------- Lawrence A. Bossidy, Director Sybil C. Mobley, Director /s/ ROBERT A. CHARPIE /s/ WALTER V. SHIPLEY - ---------------------------------- ---------------------------------------- Robert A. Charpie, Director Walter V. Shipley, Director /s/ H. CORBIN DAY /s/ RICHARD E. WALTON - ---------------------------------- ---------------------------------------- H. Corbin Day, Director Richard E. Walton, Director /s/ ALICE F. EMERSON /s/ JOHN L. WEINBERG - ---------------------------------- ---------------------------------------- Alice F. Emerson, Director John L. Weinberg, Director /s/ ALLAN E. GOTLIEB - ---------------------------------- Allan E. Gotlieb, Director EX-27 14 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 275 0 616 21 451 1,448 11,871 4,673 9,111 1,020 3,194 0 0 56 3,155 9,111 5,736 5,736 5,153 5,153 0 0 240 (897) (348) (549) 0 0 0 (549) (5.72) (5.72) Includes timber and timberlands.
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