-----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, RxBa8tEWpqFFqPLreZIvx+4PKtLp3gDtOIHaq0wIWKIXDZryaWQpven3ClPzbR08 s/a7KxptWdkyAC9SV85d6Q== 0000950117-03-002089.txt : 20030514 0000950117-03-002089.hdr.sgml : 20030514 20030514163026 ACCESSION NUMBER: 0000950117-03-002089 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL PAPER CO /NEW/ CENTRAL INDEX KEY: 0000051434 STANDARD INDUSTRIAL CLASSIFICATION: PAPER MILLS [2621] IRS NUMBER: 130872805 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03157 FILM NUMBER: 03699510 BUSINESS ADDRESS: STREET 1: 400 ATLANTIC STREET CITY: STAMFORD STATE: CT ZIP: 06921 BUSINESS PHONE: 203-541-8000 MAIL ADDRESS: STREET 1: 400 ATLANTIC STREET CITY: STAMFORD STATE: CT ZIP: 06921 FORMER COMPANY: FORMER CONFORMED NAME: INTERNATIONAL PAPER & POWER CORP DATE OF NAME CHANGE: 19710527 10-Q 1 a35274.txt INTERNATIONAL PAPER COMPANY ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 2003 [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From _______________ to _______________ ---------- Commission File Number 1-3157 INTERNATIONAL PAPER COMPANY (Exact name of registrant as specified in its charter) New York 13-0872805 (State or other jurisdiction of (I.R.S. Employer incorporation of organization) Identification No.) 400 Atlantic Street, Stamford, CT 06921 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (203) 541-8000 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 whether the registrant is an accelerated filer (as defined in Rule 12b-2) of the Exchange Act. Yes [X] No [_] The number of shares outstanding of the registrant's common stock as of April 30, 2003 was 478,935,506. ================================================================================ INTERNATIONAL PAPER COMPANY INDEX
PAGE NO. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statement of Earnings - Three Months Ended March 31, 2003 and 2002 1 Consolidated Balance Sheet - March 31, 2003 and December 31, 2002 2 Consolidated Statement of Cash Flows - Three Months Ended March 31, 2003 and 2002 3 Consolidated Statement of Common Shareholders' Equity - Three Months Ended March 31, 2003 and 2002 4 Notes to Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Financial Information by Industry Segment 21 Item 3. Quantitative and Qualitative Disclosures About Market Risk 23 Item 4. Controls and Procedures 24 PART II. Other Information Item 1. Legal Proceedings 25 Item 2. Changes in Securities * Item 3. Defaults upon Senior Securities * Item 4. Submission of Matters to a Vote of Security Holders * Item 5. Other Information 26 Item 6. Exhibits and Reports on Form 8-K 27 Signatures 28
* Omitted since no answer is called for, answer is in the negative or inapplicable. PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS INTERNATIONAL PAPER COMPANY Consolidated Statement of Earnings (Unaudited) (In millions, except per share amounts)
Three Months Ended March 31, ------------------ 2003 2002 ------ ------- Net Sales $6,075 $ 6,038 ------ ------- Costs and Expenses Cost of products sold 4,506 4,465 Selling and administrative expenses 497 515 Depreciation, amortization and cost of timber harvested 398 382 Distribution expenses 270 271 Taxes other than payroll and income taxes 64 71 Restructuring and other charges 23 -- ------ ------- Total Costs and Expenses 5,758 5,704 Reversal of reserves no longer required -- 10 ------ ------- Earnings Before Interest, Income Taxes, Minority Interest and Cumulative Effect of Accounting Changes 317 344 Interest expense, net 184 205 ------ ------- Earnings Before Income Taxes, Minority Interest and Cumulative Effect of Accounting Changes 133 139 Income tax provision 39 43 Minority interest expense, net of taxes 40 31 ------ ------- Earnings Before the Cumulative Effect of Accounting Changes 54 65 Cumulative effect of accounting changes: Asset retirement obligations, net of taxes (10) -- Transitional goodwill impairment charge, net of minority interest -- (1,175) ------ ------- Net Earnings (Loss) $ 44 $(1,110) ====== ======= Basic and Diluted Earnings (Loss) Per Common Share Earnings before the cumulative effect of accounting changes $ 0.11 $ 0.13 Cumulative effect of accounting changes: Asset retirement obligations (0.02) -- Transitional goodwill impairment charge -- (2.44) ------ ------- Net earnings (loss) $ 0.09 $ (2.31) ====== ======= Average Shares of Common Stock Outstanding 479.0 482.3 ====== ======= Cash Dividends Per Common Share $ 0.25 $ 0.25 ====== =======
The accompanying notes are an integral part of these financial statements. 1 INTERNATIONAL PAPER COMPANY Consolidated Balance Sheet (Unaudited) (In millions)
March 31, December 31, 2003 2002 --------- ------------ Assets Current Assets Cash and temporary investments $ 2,218 $ 1,074 Accounts and notes receivable, net 2,959 2,780 Inventories 2,993 2,879 Assets of businesses held for sale 138 128 Other current assets 891 877 ------- ------- Total Current Assets 9,199 7,738 ------- ------- Plants, Properties and Equipment, net 14,109 14,167 Forestlands 3,925 3,846 Investments 234 227 Goodwill 5,328 5,307 Deferred Charges and Other Assets 2,547 2,507 ------- ------- Total Assets $35,342 $33,792 ======= ======= Liabilities and Common Shareholders' Equity Current Liabilities Notes payable and current maturities of long-term debt $ 270 $ -- Accounts payable 2,061 2,014 Accrued payroll and benefits 408 523 Liabilities of businesses held for sale 41 44 Other accrued liabilities 1,879 1,998 ------- ------- Total Current Liabilities 4,659 4,579 ------- ------- Long-Term Debt 14,110 13,042 Deferred Income Taxes 1,812 1,765 Other Liabilities 3,812 3,778 Minority Interest 1,662 1,449 International Paper - Obligated Mandatorily Redeemable Preferred Securities of Subsidiaries Holding International Paper Debentures 1,805 1,805 Common Shareholders' Equity Common stock, $1 par value, 484.8 shares in both 2003 and 2002 485 485 Paid-in capital 6,479 6,493 Retained earnings 3,184 3,260 Accumulated other comprehensive loss (2,442) (2,645) ------- ------- 7,706 7,593 Less: Common stock held in treasury, at cost, 2003 - 5.9 shares 2002 - 5.7 shares 224 219 ------- ------- Total Common Shareholders' Equity 7,482 7,374 ------- ------- Total Liabilities and Common Shareholders' Equity $35,342 $33,792 ======= =======
The accompanying notes are an integral part of these financial statements. 2 INTERNATIONAL PAPER COMPANY Consolidated Statement of Cash Flows (Unaudited) (In millions)
Three Months Ended March 31, ------------------ 2003 2002 ------- -------- Operating Activities Net earnings (loss) $ 44 $(1,110) Cumulative effect of accounting changes 10 1,175 Depreciation, amortization and cost of timber harvested 398 382 Deferred income tax benefit 11 3 Payments related to restructuring and legal reserves (90) (70) Restructuring and other charges 23 -- Reversal of reserves no longer required -- (10) Net losses on sales and impairments of businesses held for sale -- 4 Other, net 15 (53) Changes in current assets and liabilities Accounts and notes receivable (154) (106) Inventories (94) 6 Accounts payable and accrued liabilities (4) 41 Other (32) (40) ------ ------- Cash Provided by Operations 127 222 ------ ------- Investment Activities Invested in capital projects Ongoing businesses (173) (140) Businesses sold and held for sale -- (13) Proceeds from divestitures 44 28 Other (45) (42) ------ ------- Cash Used for Investment Activities (174) (167) ------ ------- Financing Activities Issuance of common stock 6 30 Issuance of debt 1,350 1 Reduction of debt (50) (223) Change in bank overdrafts (88) 3 Purchases of treasury stock (26) (6) Dividends paid (120) (121) Sale of minority interest 150 -- Other (48) 1 ------ ------- Cash Provided by (Used for) Financing Activities 1,174 (315) ------ ------- Effect of Exchange Rate Changes on Cash 17 3 ------ ------- Change in Cash and Temporary Investments 1,144 (257) ------ ------- Cash and Temporary Investments Beginning of the period 1,074 1,224 ------ ------- End of the period $2,218 $ 967 ====== =======
The accompanying notes are an integral part of these financial statements. 3
INTERNATIONAL PAPER COMPANY Consolidated Statement of Common Shareholders' Equity (Unaudited) (In millions, except share amounts in thousands) Three Months Ended March 31, 2003 Accumulated Total Common Stock Issued Other Treasury Stock Common ------------------- Paid-in Retained Comprehensive -------------- Shareholders' Shares Amount Capital Earnings Income (Loss) Shares Amount Equity ------- ------ ------- -------- ------------- ------ ------ ------------- Balance, December 31, 2002 484,760 $485 $6,493 $3,260 $(2,645) 5,680 $219 $7,374 Issuance of stock for various plans 2 -- (14) -- -- (512) (21) 7 Repurchases of stock -- -- -- -- -- 713 26 (26) Cash dividends - Common stock ($0.25 per share) -- -- -- (120) -- -- -- (120) Comprehensive income (loss): Net earnings -- -- -- 44 -- -- -- 44 Foreign currency translation adjustments -- -- -- -- 200 -- -- 200 Cash flow hedging derivatives: Net gain arising during the period (less tax expense of $14) -- -- -- -- 30 -- -- 30 Reclassification adjustments for gains included in net income (less tax expense of $12) -- -- -- -- (27) -- -- (27) ------ Total comprehensive income 247 ------- ---- ------ ------ ------- ----- ---- ------ Balance, March 31, 2003 484,762 $485 $6,479 $3,184 $(2,442) 5,881 $224 $7,482 ======= ==== ====== ====== ======= ===== ==== ======
Three Months Ended March 31, 2002 Accumulated Total Common Stock Issued Other Treasury Stock Common ------------------- Paid-in Retained Comprehensive -------------- Shareholders' Shares Amount Capital Earnings Income (Loss) Shares Amount Equity ------- ------ ------- -------- ------------- ------ ------ ------------- Balance, December 31, 2001 484,281 $484 $6,465 $ 4,622 $(1,175) 2,693 $105 $10,291 Issuance of stock for various plans 367 1 6 -- -- (975) (38) 45 Repurchases of stock -- -- -- -- -- 160 6 (6) Cash dividends - Common stock ($0.25 per share) -- -- -- (121) -- -- -- (121) Comprehensive income (loss): Net loss -- -- -- (1,110) -- -- -- (1,110) Foreign currency translation adjustments -- -- -- -- 45 -- -- 45 Cash flow hedging derivatives: Net gain arising during the period (less tax expense of $7) -- -- -- -- 20 -- -- 20 Reclassification adjustments for losses included in net income (less tax benefit of $8) -- -- -- -- 19 -- -- 19 ------- Total comprehensive loss (1,026) ------- ---- ------ ------- ------- ----- ---- ------- Balance, March 31, 2002 484,648 $485 $6,471 $ 3,391 $(1,091) 1,878 $ 73 $ 9,183 ======= ==== ====== ======= ======= ===== ==== =======
The accompanying notes are an integral part of these financial statements. 4 INTERNATIONAL PAPER COMPANY Notes to Consolidated Financial Statements (Unaudited) NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, in the opinion of Management, include all adjustments (consisting only of normal recurring accruals) that are necessary for the fair presentation of results for the interim periods. Results for the first three months of the year may not necessarily be indicative of full year results. It is suggested that these consolidated financial statements be read in conjunction with the audited financial statements and the notes thereto included in International Paper's (the Company) Annual Report on Form 10-K for the year ended December 31, 2002, which has previously been filed with the Securities and Exchange Commission. NOTE 2 - EARNINGS PER COMMON SHARE Earnings per common share before the cumulative effect of accounting changes were computed by dividing earnings before the cumulative effect of accounting changes by the weighted average number of common shares outstanding. Earnings per common share before the cumulative effect of accounting changes, assuming dilution, were computed assuming that all potentially dilutive securities, including "in-the-money" stock options, were converted into common shares at the beginning of each period. A reconciliation of the amounts included in the computation of earnings per common share before the cumulative effect of accounting changes, and earnings per common share before the cumulative effect of accounting changes, assuming dilution, is as follows:
Three Months Ended March 31, ------------------ In millions, except per share amounts 2003 2002 - ------------------------------------- ------ ------ Earnings before the cumulative effect of accounting changes $ 54 $ 65 Effect of dilutive securities -- -- ------ ------ Earnings before the cumulative effect of accounting changes - assuming dilution $ 54 $ 65 ====== ====== Average common shares outstanding 479.0 482.3 Effect of dilutive securities Stock options 1.1 2.0 ------ ------ Average common shares outstanding - assuming dilution 480.1 484.3 ====== ====== Earnings per common share before the cumulative effect of accounting changes $ 0.11 $ 0.13 ====== ====== Earnings per common share before the cumulative effect of accounting changes - assuming dilution $ 0.11 $ 0.13 ====== ======
Note: If an amount does not appear in the above table, the security was antidilutive for the period presented. Antidilutive securities included preferred securities of a subsidiary trust for the periods presented. NOTE 3 - MERGERS AND ACQUISITIONS In December 2002, Carter Holt Harvey acquired Starwood Australia's Bell Bay medium density fiberboard plant in Tasmania for $28 million in cash. 5 NOTE 4 -RESTRUCTURING, BUSINESS IMPROVEMENT AND OTHER CHARGES During the first quarter of 2003, special charges totaling $23 million before taxes and minority interest ($14 million after taxes and minority interest) were recorded for asset shutdowns of excess internal capacity and cost reduction actions. This amount included a $2 million charge for asset write-downs and a $21 million charge for severance and other charges. The following table presents additional detail related to the $23 million charge:
Asset Severance In millions Write-downs and Other Total - ----------- ----------- --------- ----- Industrial Packaging (a) $-- $ 2 $ 2 Specialty Businesses and Other (b) 2 18 20 Carter Holt Harvey (c) -- 1 1 --- --- --- $ 2 $21 $23 === === ===
(a) The Industrial Packaging business implemented a plan to reorganize the Creil and Mortagne locations in France into a single complex. Charges associated with the reorganization include $1 million for severance costs covering the termination of 31 employees and other cash costs of $1 million. (b) Arizona Chemical recorded a charge of $1 million for severance costs for 51 employees associated with the Valkeakoski, Finland plant closure. Chemical Cellulose implemented a plan to shut down the Natchez, Mississippi dissolving pulp mill by mid-2003. Charges associated with this shutdown included a $1 million charge to write down assets to their salvage value and $12 million of severance costs covering the termination of 141 employees in April and other employees to be terminated upon closure. Additional shutdown charges, estimated at approximately $40 million, for additional severance and closure costs will be recorded in the second quarter of 2003. Additionally, Industrial Papers approved a plan to restructure converting operations at the Kaukauna, Wisconsin facility, modify its release products organization and implement division-wide productivity improvement actions. Charges associated with these plans included $1 million to write down assets to their salvage value and $5 million of severance costs covering the termination of 130 employees. (c) Carter Holt Harvey recorded a charge of $1 million for severance costs for 33 employees associated with a headcount reduction initiative. During the first quarter of 2002, special items consisted of a $10 million pre-tax credit ($7 million after taxes) for the reversal of fourth-quarter 2001 restructuring reserves no longer required. During the last three quarters of 2002, restructuring and other charges totaling $695 million before taxes and minority interest ($435 million after taxes and minority interest) were recorded. These charges included a $199 million charge before taxes and minority interest ($130 million after taxes and minority interest) including $80 million for asset shutdowns of excess internal capacity and $119 million for severance and other charges, a $450 million pre-tax charge ($278 million after taxes) for additional exterior siding legal reserves, and a charge of $46 million before taxes and minority interest ($27 million after taxes and minority interest) for early debt retirement costs. In addition, a $58 million pre-tax credit ($36 million after taxes) was recorded in the last three quarters of 2002, including $35 million for the reversal of 2001 and 2000 reserves no longer required and $23 million for the reversal of excess Champion purchase accounting reserves. 6 The following table presents a roll forward of the cumulative severance and other costs included in the 2002 restructuring plans:
Severance In millions and Other - ----------- --------- Opening balance - second quarter 2002 $ 37 Additions - third quarter 2002 10 Additions - fourth quarter 2002 72 Cash charges - 2002 (15) Cash charges - first quarter 2003 (43) ---- Balance, March 31, 2003 $ 61 ====
The severance charges recorded in the second, third and fourth quarters of 2002 related to 1,989 employees. As of March 31, 2003, 1,436 employees had been terminated. International Paper continually evaluates its operations for improvement. When any such improvement plans are finalized, we may incur costs or charges in future periods related to the implementation of such plans. As this review process is ongoing, it is possible that additional charges will be incurred in future periods in our businesses should such triggering events occur. NOTE 5 - BUSINESSES HELD FOR SALE AND DIVESTITURES Businesses Held for Sale: Sales and operating earnings for each of the three month periods ended March 31, 2003 and 2002 for smaller businesses currently held for sale, as well as results for businesses sold through their respective divestiture dates, were:
- -------------------------------------------------------------------------------- In millions 2003 2002 - -------------------------------------------------------------------------------- Sales $34 $129 Operating Profit -- 1
The sales and operating earnings for these businesses are included in Specialty Businesses and Other in management's discussion and analysis. The assets of businesses held for sale, totaling $138 million at March 31, 2003, are included in Assets of businesses held for sale in Current Assets in the accompanying consolidated balance sheet. The liabilities of businesses held for sale, totaling $41 million at March 31, 2003, are included in Liabilities of businesses held for sale in Current Liabilities in the accompanying consolidated balance sheet. In June 2002, International Paper announced that it would discontinue efforts to divest its Arizona Chemical and Industrial Papers businesses after these efforts did not generate acceptable offers. International Paper has made a decision to operate these two businesses. International Paper discontinued efforts to divest the Chemical Cellulose Pulp business in February 2002, and in January 2003, announced it would close the Natchez mill comprising this business in mid-2003. 7 NOTE 6 - SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION Inventories by major category were:
March 31, December 31, In millions 2003 2002 - ----------- --------- ------------ Raw materials $ 420 $ 469 Finished pulp, paper and packaging products 1,789 1,694 Finished lumber and panel products 194 158 Operating supplies 534 517 Other 56 41 ------ ------ Total $2,993 $2,879 ====== ======
Temporary investments with maturities of three months or less are treated as cash equivalents and are stated at cost. Temporary investments totaled $1.8 billion and $689 million at March 31, 2003 and December 31, 2002, respectively. Interest payments during the three-month periods ended March 31, 2003 and 2002 were $184 million and $271 million, respectively. Capitalized net interest costs were $2 million for both the three months ended March 31, 2003 and 2002. Total interest expense was $210 million for the first three months of 2003 and $231 million for the first three months of 2002. Income tax payments of $33 million and $19 million were made during the first three months of 2003 and 2002, respectively. Distributions paid under all of International Paper's preferred securities of subsidiaries were $37 million during the first three months of both 2003 and 2002, and are included in minority interest expense. Accumulated depreciation was $18.2 billion at both March 31, 2003 and December 31, 2002. The allowance for doubtful accounts was $158 million at March 31, 2003 and $169 million at December 31, 2002. NOTE 7 - RECENT ACCOUNTING DEVELOPMENTS Asset Retirement Obligations: Effective January 1, 2003, International Paper adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 143, "Accounting for Asset Retirement Obligations." It requires the recording of an asset and a liability equal to the present value of the estimated costs associated with the retirement of long-lived assets where a legal or contractual obligation exists. The asset is required to be depreciated over the life of the related equipment or facility, and the liability accreted each year using a credit-adjusted risk-free rate. International Paper's asset retirement obligations under this standard generally relate to closure costs for landfills and other environmental liabilities resulting from the normal operations of long-lived assets. The estimated future liability was determined using historical experience in other similar landfill closures and federal and state regulatory requirements. The liability was discounted using a credit-adjusted risk-free rate of approximately 5%. Revisions to the liability could occur due to changes in the estimated costs or timing of environmental closures, or possible new federal or state regulations affecting these closures. Upon adoption of SFAS No. 143, International Paper recorded a discounted liability of $22 million, increased Property, plant and equipment, net by $7 million and recognized a one-time cumulative effect charge of $10 million (net of deferred tax benefit of $5 million). Pro forma effects on earnings from continuing operations before the cumulative effect of the accounting change for the three months ended March 31, 2002, assuming the adoption of SFAS No. 143 as of January 1, 2002, were not material to net earnings or earnings per share. No additional liabilities were incurred or settled during the three-month period ended March 31, 2003. 8 Costs Associated with Exit or Disposal Activities: International Paper adopted SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," effective January 1, 2003, with no material effect on the Company's financial position or results of operations. NOTE 8 - COMMITMENTS AND CONTINGENCIES International Paper has established reserves relating to certain liabilities associated with exterior siding and roofing products manufactured by its former Masonite subsidiary, which were the subject of settlements in three nationwide class action lawsuits. These lawsuits, which were settled during 1998 and 1999, are discussed in detail in Note 11 to the Financial Statements included in International Paper's Annual Report on Form 10-K for the year ended December 31, 2002. In November 1995, International Paper and Masonite commenced a lawsuit in the Superior Court of the State of California against certain of their insurance carriers because of their refusal to indemnify International Paper and Masonite for claims paid as a result of the settlement of the lawsuit entitled Judy Naef v. Masonite and International Paper (Hardboard Lawsuit) and the refusal of one insurer, Employer's Insurance of Wausau, to provide a defense of that lawsuit. During the fall of 2001, a trial of Masonite's claim that Wausau breached its duty to defend was conducted in a state court in California. The jury found that Wausau had breached its duty to defend Masonite and awarded Masonite $13 million for its expense to defend the Hardboard Lawsuit; an additional $12 million in attorneys' fees and interest for Masonite's expense to prosecute the duty to defend its case against Wausau based on a finding that Wausau had acted in bad faith; and an additional $68 million in punitive damages. In a post-trial proceeding, the court awarded an additional $2 million in attorneys' fees based on the finding that Wausau had acted in bad faith. As of March 31, 2003, all post-trial motions brought by Wausau seeking to upset the jury verdict have been denied, but no judgment has been entered by the court. Masonite has agreed to pay amounts equal to the proceeds of its bad faith and punitive damage award to International Paper and has assigned its breach of contract claim against Wausau to International Paper. The trial of International Paper's and Masonite's claims for indemnification began in April 2003. Because of the uncertainties inherent in the litigation, International Paper is unable to estimate the amount that it will recover against those insurance carriers. However, as of April 22, 2003, International Paper had received an aggregate of $91 million from certain of its insurance carriers, and had signed a settlement agreement with one of its insurers that provides for the payment to International Paper of an additional $10 million in January 2004. Under a financial collar arrangement, International Paper contracted with a third party for payment in an amount up to $100 million for certain costs relating to the Hardboard Lawsuit if payments by International Paper with respect thereto exceeded $165 million. The arrangement with the third party is in excess of insurance otherwise available to International Paper, which is the subject of the separate litigation referred to above. Accordingly, International Paper believes that the obligation of the third party with respect to this financial collar does not constitute "other valid and collectible insurance" that would either eliminate or otherwise affect its right to collect insurance coverage available to it and Masonite under the insurance policies, which are the subject of this separate litigation. At December 31, 2001, International Paper had received the $100 million. A dispute between International Paper and the third party concerning a number of issues, including the timing of International Paper's obligation to repay the third party is the subject of an arbitration commenced in 2002 by the third party in London, England. The arbitration hearing is expected to take place in February 2004. 9 The following table presents an analysis of the net reserve activity related to these lawsuits for the three months ended March 31, 2003. RESERVE ANALYSIS
- -------------------------------------------------------------------------------- Hard- Omni- In millions board wood Woodruf Total - -------------------------------------------------------------------------------- Balance, December 31, 2002 $357 $138 $12 $507 Payments (41) (6) (1) (48) Insurance collections -- -- -- -- ---- ---- --- ---- Balance, March 31, 2003 $316 $132 $11 $459 ==== ==== === ====
The following table shows an analysis of claims statistics related to these lawsuits for the three months ended March 31, 2003. CLAIMS STATISTICS
- ------------------------------------------------------------------------------------------------------------- In thousands Hardboard Omniwood Woodruf Total No. of Single Multi- Single Multi- Single Multi- Single Multi- Claims Pending Family Family Family Family Family Family Family Family Total - ------------------------------------------------------------------------------------------------------------- December 31, 2002 28.6 4.0 1.9 0.4 1.1 0.3 31.6 4.7 36.3 No. of Claims Filed 11.2 2.9 0.9 0.1 0.2 -- 12.3 3.0 15.3 No. of Claims Paid (8.1) (2.0) (0.9) (0.2) (0.3) -- (9.3) (2.2) (11.5) No. of Claims Dismissed (5.1) (1.3) (0.3) -- (0.1) -- (5.5) (1.3) (6.8) March 31, 2003 26.6 3.6 1.6 0.3 0.9 0.3 29.1 4.2 33.3
While International Paper believes that the reserve balances established for these matters are adequate, and that additional amounts will be recovered from its insurance carriers in the future relating to these claims, International Paper is unable to estimate at this time the amount of additional charges, if any, that may be required for these matters in the future. International Paper is also involved in various other inquiries, administrative proceedings and litigation relating to contracts, sales of property, environmental protection, tax, antitrust, personal injury and other matters, some of which allege substantial monetary damages. While any proceeding or litigation has the element of uncertainty, International Paper believes that the outcome of any of the other lawsuits or claims that are pending or threatened, or all of them combined, will not have a material adverse effect on its consolidated financial position or results of operations. NOTE 9 - DEBT In March 2003, International Paper completed a private placement with registration rights of $300 million 3.80% notes due April 1, 2008 and $700 million 5.30% notes due April 1, 2015. Proceeds from the notes, which totaled approximately $992 million, will be used to redeem certain preferred securities of a wholly owned subsidiary, to refinance certain long-term debt and for general corporate purposes. NOTE 10 - PREFERRED SECURITIES OF SUBSIDIARIES In March 2003, Southeast Timber, Inc. (Southeast Timber), a consolidated subsidiary of International Paper, issued $150 million of preferred securities to a private investor with future dividend payments based on LIBOR plus a defined margin. Southeast Timber, which through a subsidiary holds approximately 1.5 million acres of forestlands in the southern United States, will be International Paper's primary vehicle for future sales of southern forestlands. The preferred securities may be put back to International Paper by the private investor upon the occurrence of certain events, and have a liquidation preference that approximates their face amount. The securities are included in minority interest in International Paper's consolidated balance sheet. 10 The agreement with the private investor also places certain limitations on International Paper's ability to sell forestlands in the southern United States outside of Southeast Timber without either the investor's consent or upon a cash contribution of up to a maximum of $80 million to Southeast Timber, its consolidated subsidiary. In addition, because Southeast Timber is a separate legal entity, the assets of Southeast Timber and its subsidiaries, consisting principally of forestlands having a book value of approximately $430 million, will not be available to satisfy future liabilities and obligations of International Paper, although the value of International Paper's interests in Southeast Timber and its subsidiaries will be available for these purposes. NOTE 11 - STOCK OPTIONS International Paper has a Long-Term Incentive Compensation Plan (LTICP) that includes a Stock Option Program, a Restricted Performance Share Program and a Continuity Award Program, administered by a committee of nonemployee members of the Board of Directors who are not eligible for awards. The Company accounts for stock options granted under the plan using the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations and the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." These plans are discussed in detail in Note 18 to the Financial Statements included in International Paper's Annual Report on Form 10-K for the year ended December 31, 2002. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation.
Three Months Ended March 31, ------------------ In millions 2003 2002 - ----------- ----- ------- Net income (loss), as reported $ 44 $(1,110) Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (10) (12) ----- ------- Pro forma net income (loss) $ 34 $(1,122) ===== ======= Earnings (loss) per share: Basic - as reported $0.09 $ (2.31) ===== ======= Basic - pro forma $0.07 $ (2.33) ===== ======= Diluted - as reported $0.09 $ (2.31) ===== ======= Diluted - pro forma $0.07 $ (2.33) ===== =======
The effect on the three months ended March 31, 2003 and 2002 pro forma net earnings, earnings per common share and earnings per common share-assuming dilution of expensing the estimated fair market value of stock options is not necessarily representative of the effect on reported earnings for future periods due to the vesting period of stock options and the potential for issuance of additional stock options in future periods. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations International Paper Company (the "Company" or "International Paper"), reported net earnings of $44 million, or $.09 per share, in the 2003 first quarter. This compared with a net loss of $1.1 billion, or $2.31 per share, in the first quarter of 2002 and a net loss of $130 million, or $.27 per share, in the fourth quarter of 2002. Amounts include the cumulative effect of accounting changes. First-quarter 2003 net sales totaled $6.1 billion, compared with $6.0 billion in the first quarter of 2002 and $6.3 billion in the fourth quarter of 2002. Before the cumulative effect of accounting changes, earnings for the first quarter of 2003 were $54 million compared with $65 million in the 2002 first quarter and a loss of $130 million in the fourth quarter of 2002. Compared with the fourth quarter of 2002, earnings for the first quarter of 2003 were negatively impacted by increased energy and wood fiber costs as poor weather conditions hampered harvesting activity and delivery of raw materials. Cost reduction efforts continued to benefit earnings but these effects were offset by unfavorable mill operating results in January and February partially due to the winter weather. Reduced forestland sales and higher pension and tax costs also contributed to the earnings decline, although the quarter also benefited from lower interest expense. Fourth quarter 2002 results also included $290 million of net special items, principally for restructuring costs and additional exterior siding legal reserves. Compared with the first quarter of 2002, higher average prices, increased average sales volumes, the impact of prior capacity rationalizations and lower interest expense contributed to higher earnings in the current quarter, while increased energy and raw material costs and higher pension expense were negative factors. During the quarter, International Paper took approximately 220,000 tons of downtime, including 60,000 tons for lack-of-orders, compared with approximately 400,000 tons of downtime in the fourth quarter of 2002, which included 270,000 tons for lack-of-orders. Lack-of-order downtime is taken to balance internal supply with our customer demand to help manage inventory levels, while maintenance downtime, which makes up the difference between total downtime and lack-of-order downtime, is taken periodically during the year. The costs for annual planned maintenance downtime are charged to expense evenly in each quarter. Downtime costs due to lack-of-orders are expensed in the periods that they are taken. Segment Operating Profits To measure the performance of the Company's business segments from period to period without variations caused by special or unusual items, International Paper's management focuses on business segment operating profit. This is defined as earnings before taxes and minority interest, excluding interest expense, corporate charges and special items that include charges for asset shutdowns of excess internal capacity and cost reduction actions and the reversal of reserves no longer required. The following table presents a reconciliation of International Paper's net earnings to its operating profit for each of the three months ended: 12
March 31, March 31, In millions 2003 2002 - ----------- --------- --------- Net Earnings (Loss) $ 44 $(1,110) Add back: Cumulative effect of accounting changes 10 1,175 ---- ------- Earnings Before the Cumulative Effect of Accounting Changes 54 65 Add back: Income tax provision 39 43 Minority interest expense, net of taxes 40 31 ---- ------- Earnings Before Taxes and Minority Interest 133 139 Interest expense, net 184 205 Minority interest included in operations (18) (10) Corporate items 88 94 Special items: Restructuring charges 23 -- Reversal of reserves no longer required -- (10) ---- ------- Segment Operating Profit $410 $ 418 ==== =======
Results for the first quarter of 2003 included a charge of $10 million after taxes for the cumulative effect of an accounting change to record the transitional charge for the adoption of Statement of Financial Accounting Standards (SFAS) No. 143, "Accounting for Asset Retirement Obligations." Results for the first quarter of 2002 included a charge of $1.2 billion after minority interest for the cumulative effect of an accounting change to record the transitional impairment charge for the adoption of SFAS No. 142, "Goodwill and Other Intangible Assets." Net interest expense was $184 million in the first quarter of 2003 compared with $205 million in the first quarter of 2002, reflecting the refinancing of higher rate debt during 2002. The increase in Minority interest reflects higher earnings in the 2003 first quarter for the Company's non wholly-owned subsidiaries, principally Carter Holt Harvey Limited. Special items in the first quarter of 2003 included a charge of $23 million before taxes and minority interest ($14 million after taxes and minority interest) for asset shutdowns of excess internal capacity and cost reduction actions. This amount included $2 million for asset write-downs to estimated realizable value and $21 million for severance and other charges. First-quarter 2002 special items included a $10 million pre-tax credit ($7 million after taxes) for the reversal of reserves no longer required. BUSINESS SEGMENT OPERATING RESULTS The following presents segment discussions for the first quarter of 2003. Printing Papers
2003 2002 ----------- ------------------------- In millions 1st Quarter 1st Quarter 4th Quarter - ----------- ----------- ----------- ----------- Sales $1,885 $1,820 $1,910 Operating Profit 122 76 157
Printing Papers net sales for the first quarter of 2003 were 4% higher than the first quarter of 2002 and were slightly lower than the fourth quarter of 2002. Operating profits in the first quarter of 2003 were 61% higher than the first quarter of 2002 and were 22% lower than the fourth quarter of 2002. Compared with the first quarter of 2002, Printing Papers' first quarter of 2003 earnings benefited from higher average prices, increased volume and lower administrative costs partially offset by higher raw material costs. Increased energy, fiber costs and the impact of a severe winter in the United States resulted in lower earnings in the first quarter of 2003 compared with the 2002 fourth quarter. Printing Papers took approximately 70% less market related 13 downtime in the first quarter of 2003 compared with both the first and fourth quarters of 2002. Uncoated freesheet sales volumes increased slightly during the quarter while average prices remained about flat. Prices for pulp improved during the quarter from very low levels in late 2002, contributing to a reduction in operating losses for this business compared with the previous quarter. Although coated paper shipments were down, reflecting lower levels of advertising in the current uncertain economic environment, average prices were higher as previously announced price increases began to be realized in the 2003 first quarter. European Papers' first quarter earnings benefited from solid mill operations, higher volumes, and favorable foreign exchange rates, although average prices in local currency were lower than in the previous quarter. In Brazil, operating profits decreased slightly from the fourth quarter of 2002 as lower volumes offset the benefit of higher average prices. The focus of this segment for the second quarter will be on maintaining market place momentum, managing manufacturing and overhead costs, and improving operating efficiencies. Industrial and Consumer Packaging
2003 2002 ----------- ------------------------- In millions 1st Quarter 1st Quarter 4th Quarter - ----------- ----------- ----------- ----------- Sales $1,500 $1,460 $1,540 Operating Profit 89 128 116
Industrial and Consumer Packaging net sales for the first quarter of 2003 were 3% higher than in the first quarter of 2002, but were 3% lower than in the fourth quarter of 2002. Operating profits for the first quarter of 2003 were down 30% and 23%, respectively, from the first and fourth quarters of 2002 primarily as a result of increased energy and fiber costs. Lack-of-order downtime in the first quarter of 2003 declined 70% and 82% from the first and fourth quarters of 2002, respectively. Sales volumes in 2003 for the Industrial Packaging business increased from the first quarter of 2002, although overall average prices declined. Average domestic box prices were down slightly versus the fourth quarter of 2002 while volumes improved modestly. Average containerboard prices also were lower, while sales volumes reflected a small improvement. Containerboard shipments to domestic customers were stronger despite sluggish U.S. box demand. The weakening U.S. dollar and accelerated sales activities overseas helped to mitigate the soft domestic market conditions. Consumer Packaging's 2003 first quarter sales volumes reflected a seasonal slowdown from the fourth quarter of 2002. Bleached board prices were up slightly due to improved mix, and volumes were flat. Higher energy, fiber and polyethylene costs as well as poor weather conditions adversely impacted operating results. Operating results for the converting businesses reflected a seasonal weakness versus the previous quarter. In the coming months, economic conditions are not expected to improve significantly. However, a seasonal improvement in demand should favorably impact our results for the second quarter. Improved operational performance and continued focus on cost reduction and control efforts should also favorably impact earnings. 14 Distribution
2003 2002 ----------- ------------------------- In millions 1st Quarter 1st Quarter 4th Quarter - ----------- ----------- ----------- ----------- Sales $1,530 $1,535 $1,630 Operating Profit 15 18 28
Distribution's 2003 first-quarter sales were flat compared with the first quarter of 2002 and were 6% less than in the fourth quarter of 2002. Operating profits in the 2003 first quarter were 17% lower than in the first quarter of 2002 and were 46% lower than in the fourth quarter of 2002, primarily due to lower sales volumes and increased energy costs that affected both warehousing and delivery costs. Sales were flat in the first quarter of 2003 versus the 2002 first quarter as lower sales in commercial printing were offset by an increase in packaging sales. Compared with the 2002 fourth quarter, demand was seasonally lower across all market segments. Although the general market conditions remained depressed, an increased focus on key customers and a higher margin product mix has helped bolster operating results. Distribution continues to reduce controllable overhead costs through headcount reductions associated with facility consolidations and efficiency initiatives in transaction processing. Bad debt expense improved during the quarter to a more normal level. With the expected modest seasonal strengthening during the second quarter and continued momentum of our cost control initiatives, we expect improved earnings in the second quarter of 2003. Forest Products
2003 2002 ----------- ------------------------- In millions 1st Quarter 1st Quarter 4th Quarter - ----------- ----------- ----------- ----------- Sales $675 $765 $765 Operating Profit 161 176 156
Forest Products 2003 first-quarter net sales were 12% lower than in both the first and fourth quarters of 2002. Operating profits were 3% higher than the fourth quarter of 2002 but were 9% lower than the first quarter of 2002. The decline in first-quarter earnings compared with the same period in 2002 reflected lower harvest volumes, average stumpage prices and forestland sales in our forestlands operations, and lower volumes and average prices in the lumber and plywood businesses. Compared with the fourth quarter of 2002, the increase in operating profits in the first quarter of 2003 reflects higher average lumber prices and reduced overhead and forest operations expenses, and lower raw material costs in our wood products businesses offset in part by lower forestland and timber sales. In addition, wet weather conditions had a negative impact on earnings in this segment in the first quarter of 2003. Average prices for pine pulpwood decreased 3% and pine sawtimber decreased 10% during the quarter. Earnings from sales of timberlands were about $20 million less than in the fourth quarter of 2002. Compared with the fourth quarter of 2002, sales volumes in wood products were slightly lower overall due mainly to weather-related conditions, although the effect on earnings was more than offset by an increase in average lumber prices. International Paper monetizes its forest assets in various ways, including sales of short- and long-term harvest rights, on a pay-as-cut or lump-sum bulk sale basis, as well as sale of timberlands. Accordingly, earnings from quarter to quarter may vary depending on the number of sales, timber prices and underlying timber volumes of such sales. Carter Holt Harvey
2003 2002 ----------- ------------------------- In millions 1st Quarter 1st Quarter 4th Quarter - ----------- ----------- ----------- ----------- Sales $500 $410 $520 Operating Profit 16 10 16
15 Carter Holt Harvey's 2003 first-quarter sales were 22% higher than the first quarter of 2002 and were 4% lower than the fourth quarter of 2002. Operating profits in the first quarter of 2003 were 60% higher than the first quarter of 2002 and were flat compared with the fourth quarter of 2002. The strong 2003 first quarter reflected a continuation of strong housing markets in Australia and New Zealand, improved average pricing, and a continued focus on cost control measures. A stronger New Zealand dollar versus the U.S. dollar also had a positive effect on International Paper's translated operating results. Compared with the previous quarter, Forests' 2003 first-quarter sales volumes declined slightly. Earnings were also unfavorably impacted by weaker domestic prices and increased distribution costs. The Wood Products business benefited from the continued strength of housing construction markets. Sales volumes in the Australian lumber and plywood business were up compared with the same quarter last year and were slightly higher than the previous quarter. The Pulp and Paper business was negatively impacted during the first quarter of 2003 by a strike at the Kinleith mill. Prices, however, improved during the quarter. The Tissue business reflected lower earnings compared with the seasonally strong fourth quarter of 2002. The Packaging business performed well with a seasonal decline in earnings compared with the 2002 fourth quarter but higher than the same quarter last year, reflecting the contribution from cost savings programs and improved sales volumes. Looking forward to the second quarter of 2003, overall business conditions are expected to be comparable to those in the first quarter. The resolution of the Kinleith mill strike, as well as higher hydroelectric energy costs due to very dry weather conditions, are likely to affect second quarter operating results. International Paper's results for this segment differ from those reported by Carter Holt Harvey in New Zealand in three major respects: (1) Carter Holt Harvey's earnings include only our share of Carter Holt Harvey's operating earnings. Segment sales, however, represent 100% of Carter Holt Harvey's sales. (2) Carter Holt Harvey reports in New Zealand dollars but our segment results are reported in U.S. dollars. (3) Carter Holt Harvey reports under New Zealand accounting standards, but our segment results comply with generally accepted accounting principles in the United States. The major differences relate to cost of timber harvested (COTH), goodwill amortization, pensions, deferred taxes and financial instruments. Specialty Businesses and Other
2003 2002 ----------- ------------------------- In millions 1st Quarter 1st Quarter 4th Quarter - ----------- ----------- ----------- ----------- Sales $350 $420 $330 Operating Profit 7 10 13
The Specialty Businesses and Other segment includes the operating results of Arizona Chemical, Industrial Papers and Chemical Cellulose Pulp. Also included are businesses identified in our divestiture program whose results are included in this segment for periods prior to their sale. First-quarter 2003 net sales were 17% less than the first quarter of 2002 and were 6% higher than the fourth quarter of 2002. Operating profits in the first quarter of 2003 were 30% and 46% lower than the first and fourth quarters of 2002, respectively, as a result of losses in the Chemical Cellulose Pulp business. The segment was negatively impacted by higher raw material costs in the current quarter versus the prior quarter. Operating profits in our Arizona Chemical and Industrial Papers businesses were slightly lower than the 2002 fourth quarter due to lower average prices while sales volumes were relatively flat. In January 2003, we announced the planned closure of the Natchez, Mississippi Chemical Cellulose dissolving pulp mill by mid-2003. Corporate Items Corporate items, net, were $88 million for the 2003 first quarter, slightly lower than the $94 million in the first quarter of 2002, but higher than the $51 million in the fourth quarter of 2002 which was lower than normal due to a gain from the sale of shares received from an insurance company demutualization. Higher pension expenses and supply chain initiative costs, partially offset by lower benefit costs, also contributed to the increase versus the fourth quarter of 2002. These items were also factors versus the prior year first quarter, but were offset by favorable natural gas hedging costs compared with the 2002 first quarter. 16 Liquidity and Capital Resources Cash provided by operations totaled $127 million for the first three months of 2003 compared with $222 million for the comparable 2002 period. Increased working capital requirements of $284 million in the first quarter of 2003, reflecting slightly higher accounts and notes receivable and inventory balances, led to the operating cash flow decrease. Investments in capital projects totaled $173 million and $153 million for the first three months of 2003 and 2002, respectively. Full year capital spending for 2003 is now expected to be approximately $1.1 billion, below projected depreciation and amortization charges. Financing activities for the first three months of 2003 included a $1.3 billion net increase in debt versus a $222 million net reduction in the comparable 2002 three-month period. In March 2003, International Paper completed the private placements of $300 million of 3.80% notes due April 1, 2008 and $700 million of 5.30% notes due April 1, 2015. The proceeds from these notes will be used to redeem certain preferred securities and retire other maturing debt balances later in 2003. Also during the 2003 first quarter, approximately 713,000 shares were added to treasury stock at a cost of $26 million, while 512,000 treasury shares were issued for various incentive plans, including stock option exercises that generated $6 million of cash. In the 2002 three-month period, approximately 160,000 shares were added to treasury stock at a cost of $6 million with approximately 975,000 treasury shares issued for various incentive plans, including stock option exercises that generated $30 million of cash. Common stock dividend payments were $.25 per share for both the 2003 and 2002 three-month periods. In March 2003, International Paper sold a minority interest in Southeast Timber, Inc. (Southeast Timber), a consolidated subsidiary of International Paper, to a private investor for $150 million. Southeast Timber, through a subsidiary, holds approximately 1.5 million acres of forestlands in the southern United States, and will be the primary vehicle for selling International Paper's southern forestlands over the next five years. Southeast Timber and its subsidiaries will continue to be consolidated by International Paper. The private investor is entitled to an annual preferred dividend based on LIBOR plus a defined margin. The $150 million third-party interest is included in minority interest in International Paper's consolidated balance sheet. At March 31, 2003, cash and temporary investments totaled $2.2 billion compared with $1.1 billion at December 31, 2002. In March 2003, International Paper renegotiated its $1.5 billion commercial paper credit facility. The facility now has a maturity of March 2006. This facility was unused at March 31, 2003. International Paper believes its capital resources remain adequate to fund expected working capital requirements. 17 Other The effective income tax rate before the cumulative effect of accounting changes was 29% and 31% for the 2003 and 2002 three-month periods, respectively, which include the tax effects of certain special and unusual items that can affect the effective income tax rate in a given quarter, but may not recur in subsequent quarters. Management believes that the effective tax rate computed after excluding these special or unusual items provides a better estimate of the rate that could be expected in future quarters of the current calendar year if no additional special or unusual items were to occur in those quarters. The effective tax rate for the three-month periods ended March 31, 2003 and 2002 excluding these special and unusual items was 31% in both periods. Critical Accounting Policies The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires International Paper to establish accounting policies and to make estimates that affect both the amounts and timing of the recording of assets, liabilities, revenues and expenses. Some of these estimates require judgments about matters that are inherently uncertain. Accounting policies whose application may have a significant effect on the reported results of operations and financial position of International Paper, and that can require judgments by management that affect their application, include SFAS No. 5, "Accounting for Contingencies," SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," SFAS No. 142, "Goodwill and Other Intangible Assets," SFAS No. 87, "Employers' Accounting for Pensions," as amended by SFAS No. 132, "Employers' Disclosures About Pension and Other Postretirement Benefits," and SFAS No. 109, "Accounting for Income Taxes." The following is a discussion of the impact of these accounting policies on International Paper: Contingent Liabilities. Accruals for contingencies including legal and environmental matters are recorded when it is probable that a liability has been incurred or an asset impaired and the amount of the loss can be reasonably estimated. Liabilities accrued for legal matters require judgments regarding projected outcomes and range of loss based on historical experience and recommendations of legal counsel. Additionally, as discussed in Note 11 of the Notes to Consolidated Financial Statements included in International Paper's Annual Report on Form 10-K for the year ended December 31, 2002, reserves for projected future claims settlements relating to exterior siding products previously manufactured by Masonite require judgments regarding projections of future claims rates and amounts. When deemed appropriate, International Paper utilizes independent third parties to assist in developing these estimates. Liabilities for environmental matters require evaluations of relevant environmental regulations and estimates of future remediation alternatives and costs. International Paper determines these estimates after a detailed evaluation of each site. Impairment of Long-Lived Assets and Goodwill. An impairment of a long-lived asset exists when the asset carrying amount exceeds its fair value, and is recorded when the carrying amount is not recoverable through future operations. A goodwill impairment exists when the carrying amount of goodwill exceeds its fair value. Assessments of possible impairments of long-lived assets and goodwill are made when events or changes in circumstances indicate that the carrying value of the asset may not be recoverable through future operations. Additionally, testing for possible impairment of recorded goodwill and intangible asset balances will be performed in the third quarter of each year. The amount and timing of impairment charges for these assets require the estimation of future cash flows and the fair market value of the related assets. Pension and Postretirement Benefit Obligations. The charges recorded for pension and other postretirement benefit obligations are determined annually in conjunction with International Paper's consulting actuary, and are dependent upon various assumptions. These assumptions include the expected long-term rate of return on plan assets, discount rates, projected future compensation increases, health care cost trend rates, and mortality rates. 18 Income Taxes. International Paper records provisions for U.S. federal, state and foreign income taxes based on the respective tax rules and regulations for the jurisdictions in which it operates, and judgments as to the allocation of income and the amount of deductions relating to those jurisdictions. Domestic and foreign tax authorities frequently challenge the timing and amounts of these income allocations and deductions. International Paper records reserves for estimated taxes payable and for projected settlements of these disputes. However, the final resolution of these challenges can differ from estimated amounts. While the judgments and estimates made by International Paper are based on historical experience and other assumptions that management believes are appropriate and reasonable under current circumstances, actual resolution of these matters may differ from recorded estimated amounts, resulting in charges or credits that could materially affect future financial statements. Significant Accounting Estimates Pension Accounting. Net pension expense reported in operating income totaled approximately $1.4 million for International Paper's U.S. plans for the three months ended March 31, 2003, or about $19.5 million lower than the pension income amount recorded for the first three months of 2002. Net pension expense for non-U.S. plans was about $11 million and $6 million for the three-month periods in 2003 and 2002, respectively. The decrease in U.S. plan pension income was principally due to a reduction in the expected long-term rate of return on plan assets to 8.75% for 2003 from 9.25% for 2002, and reductions in the discount rate (6.50% for 2003 and 7.25% for 2002) and assumed rate of future compensation increase (3.75% for 2003 and 4.5% for 2002). After consultation with our actuaries, International Paper determines these actuarial assumptions on December 31 of each year to calculate liability information as of that date and pension expense for the following year. The discount rate assumption is determined based on the internal rate of return for a portfolio of high quality bonds (Moody's Aa Corporate bonds) with maturities that are consistent with projected future plan cash flows. The expected long-term rate of return on plan assets is based on historical and projected average rates of return for current and planned asset classes in the plan investment portfolio. The market value of plan assets for International Paper's U.S. plans at December 31, 2002, totaled approximately $5.6 billion, consisting of approximately 60% equity securities, 30% fixed income securities, and 10% real estate and other assets. Plan assets included approximately $25 million of International Paper common stock that was sold in the first quarter of 2003. At December 31, 2002, the market value of assets was less than the accumulated benefit obligation for International Paper's qualified pension plans and, accordingly, a minimum liability of approximately $1.0 billion was established with an after tax charge of approximately $1.5 billion to Shareholders' equity, with no impact on earnings or cash flows. If the difference between the market value of plan assets and the accumulated benefit obligation increases by the next plan measurement date, normally December 31, 2003, a further increase to the recorded minimum liability would be required, with an additional charge to Shareholders' equity. Factors that could cause this difference to increase include a further decline in the market value of plan assets or a decrease in the discount rate used to compute the accumulated benefit obligation. During the first quarter of 2003, the actual return on plan assets for these plans has been below the expected long-term rate of return. While International Paper may elect to make voluntary contributions to its plans in the coming years, it is unlikely that there will be any required minimum contributions to the plans before 2005 unless interest rates decline below current levels or investment performance is significantly below projections. Accounting for Stock Options. International Paper accounts for stock options using the intrinsic value method under APB Opinion No. 25, "Accounting for Stock Issued to Employees." Under this method, compensation expense is recorded over the related service period when the market price exceeds the option price at the measurement date, which is the grant date for International Paper's options. No compensation expense is recorded as options are issued with an exercise price equal to the market price of International Paper stock on the grant date. 19 During each reporting period, fully diluted earnings per share is calculated by assuming that "in-the-money" options are exercised and the exercise proceeds are used to repurchase shares in the marketplace. When options are actually exercised, option proceeds are credited to equity and issued shares are included in the computation of earnings per common share, with no effect on reported earnings. Equity is also increased by the tax benefit that International Paper will receive in its tax return for income reported by the optionees in their individual tax returns. Under the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," expense for stock options is measured at the grant date based on a computed fair value of options granted, and then charged to expense over the related vesting period. Had this method of accounting been applied, additional expense of $10 million and $12 million would have been recorded in the first quarters of 2003 and 2002, respectively, decreasing the reported earnings per share by 22% to $0.07 in the first quarter of 2003 and increasing the reported loss per share by 1% to ($2.33) in the first quarter of 2002. Forward-Looking Statements Certain statements in this Quarterly Report on Form 10-Q, and in particular, statements found in Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, that are not historical in nature may constitute forward-looking statements. These statements are often identified by the words, "will," "may," "should," "continue," "anticipate," "believe," "expect," "plan," "appear," "project," "estimate," "intend," and words of similar import. Such statements reflect the current views of International Paper with respect to future events and are subject to risks and uncertainties. Actual results may differ materially from those expressed or implied in these statements. Factors which could cause actual results to differ include, among other things, the timing and strength of an economic recovery, changes in interest rates and plan asset values which could have an impact on reported earnings and shareholders' equity, the strength of demand for the Company's products and changes in overall demand, the effects of competition from foreign and domestic producers, the level of housing starts, changes in the cost or availability of raw materials, the cost of compliance with environmental and other governmental regulations, the ability of the Company to continue to realize anticipated cost savings, performance of the Company's manufacturing operations, results of legal proceedings, changes related to international economic conditions, changes in currency exchange rates, particularly the relative value of the U.S. dollar to the Euro, economic conditions in developing countries, specifically Brazil and Russia, and the war on terrorism. In view of such uncertainties, investors are cautioned not to place undue reliance on these forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. 20 Financial Information by Industry Segment (Unaudited) (In millions) Sales by Industry Segment
Three Months Ended March 31, ------------------ 2003 2002 ------ ------ Printing Papers $1,885 $1,820 Industrial and Consumer Packaging 1,500 1,460 Distribution 1,530 1,535 Forest Products 675 765 Carter Holt Harvey 500 410 Specialty Businesses and Other (1) 350 420 Corporate and Inter-segment Sales (365) (372) ------ ------ Net Sales $6,075 $6,038 ====== ======
Operating Profit by Industry Segment
Three Months Ended March 31, ------------------ 2003 2002 ----- ----- Printing Papers $ 122 $ 76 Industrial and Consumer Packaging 89 128 Distribution 15 18 Forest Products 161 176 Carter Holt Harvey 16 10 Specialty Businesses and Other (1) 7 10 ----- ----- Operating Profit 410 418 Interest expense, net (184) (205) Minority interest (2) 18 10 Corporate items, net (88) (94) Restructuring and other charges (23) -- Reversal of reserves no longer required -- 10 ----- ----- Earnings before income taxes, minority interest, and cumulative effect of accounting changes $ 133 $ 139 ===== =====
(1) Includes Arizona Chemical, Industrial Papers, Chemical Cellulose Pulp and businesses identified in our divestiture program. (2) Operating profits for industry segments include each segment's percentage share of the profits of subsidiaries included in that segment that are less than wholly owned. The pre-tax minority interest for these subsidiaries is added here to present consolidated earnings before income taxes, minority interest, and cumulative effect of accounting changes. 21 INTERNATIONAL PAPER COMPANY SALES VOLUMES BY PRODUCT (1)(2) (Unaudited)
Three Months Ended March 31, ------------------ 2003 2002 ----- ----- Printing Papers (In thousands of short tons) Uncoated Papers and Bristols 1,604 1,621 Coated Papers 506 509 Market Pulp 631 611 Packaging (In thousands of short tons) Containerboard 586 504 Bleached Packaging Board 340 314 Kraft 150 173 Industrial and Consumer Packaging 1,117 1,113 Forest Products (In millions) Panels (sq. ft. 3/8" - basis) 506 779 Lumber (board feet) 964 1,005 MDF and Particleboard (sq. ft. 3/4"- basis) 147 179
(1) Sales volumes include third party and inter-segment sales and 100% of volumes sold by Carter Holt Harvey. (2) Volumes for divested businesses are included through the date of sale. 22 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information relating to quantitative and qualitative disclosures about market risk are shown on pages 25 and 56 through 58 of International Paper's Annual Report to Shareholders for the year ended December 31, 2002 as previously filed on Form 10-K, which information is incorporated herein by reference. 23 ITEM 4. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Within 90 days prior to the filing of this report, an evaluation was carried out under the supervision and with the participation of the Company's management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-14 (c) under the Securities Exchange Act (Act). Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports we file under the Act is recorded, processed, summarized and reported by management of the Company on a timely basis in order to comply with the Company's disclosure obligations under the Act and the SEC rules thereunder. Changes in Internal Controls There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation. 24 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The following matters discussed in previous filings under the Act, are updated as follows: Exterior Siding and Roofing Litigation: A discussion of developments relating to the financial impact of certain class action lawsuits that were settled in 1998 and 1999 is found in Note 8 in this Form 10-Q. Other Litigation: In March and April 2000, Champion and 10 members of its board of directors were served with six lawsuits that were filed in the Supreme Court for the State of New York, New York County. Each of the suits purported to be a class action filed on behalf of Champion shareholders and alleged that the defendants breached their fiduciary duties in connection with the proposed merger with UPM-Kymmene Corporation and the merger proposal from International Paper. On September 26, 2002, the parties signed a stipulation of settlement providing for the settlement and final disposition of this lawsuit. Pursuant to the stipulation, International Paper will donate $100,000 to a law school designated by the Court to fund educational programs in support of corporate governance and shareholder rights. International Paper will also pay such attorneys' fees and expenses of plaintiffs' counsel as may be awarded by the Court, up to $300,000. The Court held a hearing on the fairness of the proposed settlement on February 10, 2003. On April 23, 2003, the Court entered an order approving the settlement. On May 14, 1999, and May 18, 1999, two lawsuits were filed in federal court in the Eastern District of Pennsylvania against International Paper, the former Union Camp Corporation and other manufacturers of linerboard. These suits allege that the defendants conspired to fix prices for linerboard and corrugated sheets during the period October 1, 1993, through November 30, 1995. These lawsuits seek injunctive relief as well as treble damages and other costs associated with the litigation. The cases have been consolidated. The plaintiffs in these consolidated cases sought certification on behalf of both corrugated sheet purchasers and corrugated container purchasers. On September 4, 2001, the district court certified both classes. Defendants filed a petition appealing the certification order, which the Court of Appeals for the Third Circuit, in its discretion, granted. On September 5, 2002, the Court of Appeals for the Third Circuit affirmed the district court's certification decision. On January 14, 2003, the defendants filed a petition for certiorari with the U.S. Supreme Court seeking a review of the Court of Appeals decision; the Supreme Court denied the petition on April 21, 2003. Discovery in the case is ongoing. Environmental In February 2000, the Town of Lyman, South Carolina issued an administrative order alleging past violations of a wastewater pretreatment permit at the former Union Camp folding carton facility in Spartanburg, South Carolina. International Paper has satisfied the terms of the order, and in March 2003 agreed to resolve the matter for a payment of $400,000 for past wastewater treatment fees and other expenses allegedly incurred by the Town of Lyman. In March 2003, the United States Environmental Protection Agency (EPA) notified the Company that it intends to initiate an enforcement action alleging hazardous waste deficiencies at the Company's treated pole facility in Joplin, Missouri. The Company and the EPA have entered into settlement discussions. International Paper is also involved in various other inquiries, administrative proceedings and litigation relating to contracts, sales of property, environmental protection, tax, antitrust, personal injury and other matters, some of which allege substantial monetary damages. While any proceeding or litigation has the element of uncertainty, International Paper believes that the outcome of any of the other lawsuits or claims that are pending or threatened, or all of them combined, will not have a material adverse effect on its consolidated financial position or results of operations. 25 ITEM 5. OTHER INFORMATION The Company announced the following changes in senior management: John V. Faraci, formerly executive vice president and chief financial officer became president and a director of the Company in February 2003. Christopher P. Liddell, formerly vice president-finance of the Company, and before that chief executive officer of Carter Holt Harvey Limited, became senior vice president and chief financial officer in March 2003. Maura A. Smith, formerly senior vice president, chief restructuring officer, general counsel and secretary of Owens Corning, became senior vice president and general counsel of the Company on March 31, 2003. Paul Herbert, senior vice president of the Company and president of IP Europe, became senior vice president-printing and communications papers in March 2003. Charles H. Greiner, formerly senior vice president - printing and communications papers became senior vice president - commercial development in March 2003. Richard B. Lowe, formerly vice president of the Company was elected senior vice president - distribution in April 2003. Robert J. Grillet was appointed vice president and controller in April 2003. 26 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits In connection with Item 601(b)(4)(iii)(A) of Regulation S-K, certain instruments respecting long-term debt of the Company have been omitted but will be furnished to the Commission upon request. 10.1 $1.5 Billion 3-Year Credit Agreement dated as of March 6, 2003 between International Paper Company, the Lenders Party thereto, Citibank, N.A., as Syndication Agent, Bank of America, N.A., BNP Paribas and Deutsche Bank Securities Inc., as Documentation Agents and J.P. Morgan Securities Inc. and Salomon Smith Barney Inc., as Joint Lead Arrangers and Joint Bookrunners. 10.2 Management Incentive Plan, amended and restated as of January 1, 2003. 11 Statement of Computation of Per Share Earnings 12 Computation of Ratio of Earnings to Fixed Charges 99.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted by Section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted by Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K International Paper Company furnished a report on Form 8-K under Item 9. Regulation FD Disclosure (Information provided under Item 12-Results of Operations and Financial Condition) with respect to its press release dated April 24, 2003 announcing first quarter earnings. 27 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INTERNATIONAL PAPER COMPANY (Registrant) Date: May 14, 2003 By /s/CHRISTOPHER P. LIDDELL ------------------------------------- Christopher P. Liddell Senior Vice President and Chief Financial Officer Date: May 14, 2003 By /s/ ROBERT J. GRILLET ------------------------------------- Robert J. Grillet Vice President and Controller 28 Certifications: I, John T. Dillon, certify that: 1. I have reviewed this quarterly report on Form 10-Q of International Paper Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 14, 2003 /s/ John T. Dillon - ------------------------------------ John T. Dillon Chairman and Chief Executive Officer 29 I, Christopher P. Liddell, certify that: 1. I have reviewed this quarterly report on Form 10-Q of International Paper Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 14, 2003 /s/ Christopher P. Liddell - ------------------------------------------------- Christopher P. Liddell Senior Vice President and Chief Financial Officer 30 EX-10 3 ex10-1.txt EXHIBIT 10.1 [Execution Copy] ================================================================================ 3-YEAR CREDIT AGREEMENT dated as of March 6, 2003 Between INTERNATIONAL PAPER COMPANY The LENDERS Party Hereto CITIBANK, N.A., as Syndication Agent ---------- BANK OF AMERICA, N.A., BNP PARIBAS and DEUTSCHE BANK SECURITIES INC., as Documentation Agents ---------- J.P. MORGAN SECURITIES INC. and SALOMON SMITH BARNEY INC., as Joint Lead Arrangers and Joint Bookrunners ---------- JPMORGAN CHASE BANK as Administrative Agent $1,500,000,000 ================================================================================ TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS .........................................................1 SECTION 1.01. Defined Terms ...............................................1 SECTION 1.02. Classification of Loans and Borrowings .....................16 SECTION 1.03. Terms Generally ............................................16 SECTION 1.04. Accounting Terms and Determinations ........................16 SECTION 1.05. Currencies; Currency Equivalents ...........................17 ARTICLE II THE CREDITS .......................................................18 SECTION 2.01. The Commitments; Borrowings by Approved Borrowers ..........18 SECTION 2.02. Loans and Borrowings .......................................18 SECTION 2.03. Requests for Syndicated Borrowings .........................19 SECTION 2.04. Competitive Bid Procedure ..................................20 SECTION 2.05. Funding of Borrowings ......................................23 SECTION 2.06. Interest Elections .........................................23 SECTION 2.07. Changes of Commitments .....................................25 SECTION 2.08. Repayment of Loans; Evidence of Debt .......................28 SECTION 2.09. Prepayment of Loans ........................................29 SECTION 2.10. Fees .......................................................30 SECTION 2.11. Interest ...................................................31 SECTION 2.12. Alternate Rate of Interest .................................32 SECTION 2.13. Increased Costs ............................................33 SECTION 2.14. Break Funding Payments .....................................34 SECTION 2.15. U.S. Taxes .................................................35 SECTION 2.16. Foreign Taxes ..............................................35 SECTION 2.17. Payments Generally; Pro Rata Treatment; Sharing of Set-offs .............................................37 SECTION 2.18. Mitigation Obligations; Replacement of Lenders .............39 ARTICLE III REPRESENTATIONS AND WARRANTIES ...................................40 SECTION 3.01. Corporate Existence ........................................40 SECTION 3.02. Financial Condition ........................................40 SECTION 3.03. Litigation .................................................40 SECTION 3.04. No Breach ..................................................40 SECTION 3.05. Corporate Action of the Company ............................41 SECTION 3.06. Approvals ..................................................41 SECTION 3.07. Use of Loans ...............................................41 SECTION 3.08. ERISA ......................................................41 SECTION 3.09. Taxes ......................................................41 SECTION 3.10. Investment Company Act .....................................41 SECTION 3.11. Public Utility Holding Company Act .........................42
(i) SECTION 3.12. Credit Agreements ..........................................42 SECTION 3.13. Hazardous Materials and Environmental Matters ..............42 SECTION 3.14. Full Disclosure ............................................43 SECTION 3.15. Existence of Approved Borrowers ............................43 SECTION 3.16. No Breach ..................................................43 SECTION 3.17. Corporate Action ...........................................43 SECTION 3.18. Approvals ..................................................43 SECTION 3.19. Taxes on Payments of Approved Borrowers ....................43 ARTICLE IV GUARANTEE .........................................................44 SECTION 4.01. Guarantee ..................................................44 SECTION 4.02. Obligations Unconditional ..................................44 SECTION 4.03. Reinstatement ..............................................45 SECTION 4.04. Subrogation ................................................45 SECTION 4.05. Remedies ...................................................45 SECTION 4.06. Continuing Guarantee .......................................45 ARTICLE V CONDITIONS .........................................................46 SECTION 5.01. Effective Date .............................................46 SECTION 5.02. Initial Loan to any Approved Borrower ......................47 SECTION 5.03. Each Credit Event ..........................................48 ARTICLE VI COVENANTS OF THE COMPANY ..........................................48 SECTION 6.01. Financial Statements .......................................48 SECTION 6.02. Litigation .................................................50 SECTION 6.03. Corporate Existence, Etc ...................................50 SECTION 6.04. Insurance ..................................................50 SECTION 6.05. Use of Proceeds ............................................51 SECTION 6.06. Prohibition of Fundamental Changes .........................51 SECTION 6.07. Limitation on Liens ........................................52 SECTION 6.08. Total Debt to Total Capital Ratio ..........................54 SECTION 6.09. Minimum Consolidated Net Worth .............................54 ARTICLE VII EVENTS OF DEFAULT ................................................54 ARTICLE VIII THE ADMINISTRATIVE AGENT ........................................57 ARTICLE IX MISCELLANEOUS .....................................................59 SECTION 9.01. Notices ....................................................59 SECTION 9.02. Waivers; Amendments ........................................59 SECTION 9.03. Expenses; Indemnity; Damage Waiver .........................60
(ii) SECTION 9.04. Successors and Assigns .....................................62 SECTION 9.05. Survival ...................................................65 SECTION 9.06. Counterparts; Integration; Effectiveness ...................65 SECTION 9.07. Severability ...............................................65 SECTION 9.08. Right of Setoff ............................................66 SECTION 9.09. Governing Law; Jurisdiction; Etc............................66 SECTION 9.10. Waiver Of Jury Trial .......................................67 SECTION 9.11. Headings ...................................................67 SECTION 9.12. Treatment of Certain Information; Confidentiality ..........67 SECTION 9.13. European Monetary Union ....................................68 SECTION 9.14. Judgment Currency ..........................................70
SCHEDULE I - Commitments SCHEDULE II - Material Agreements SCHEDULE III - Approved Borrowers SCHEDULE IV - MCR COST SCHEDULE V - Existing Liens EXHIBIT A - Form of Assignment and Assumption EXHIBIT B-1 - Form of Opinion of Counsel to the Company EXHIBIT B-2 - Form of Opinion of Counsel to any Approved Borrower EXHIBIT C - Form of Opinion of Special New York Counsel to JPMorgan EXHIBIT D-1 - Form of Designation Letter EXHIBIT D-2 - Form of Termination Letter EXHIBIT E - Form of Assumption Agreement (iii) 3-YEAR CREDIT AGREEMENT dated as of March 6, 2003, between INTERNATIONAL PAPER COMPANY, the LENDERS party hereto, and JPMORGAN CHASE BANK, as Administrative Agent. The Company has requested that the Lenders (as hereinafter defined) make loans to the Company and to Approved Borrowers (as so defined) in an aggregate principal amount not exceeding $1,500,000,000 at any one time outstanding. The Lenders are prepared to make such loans upon the terms and conditions hereof, and, accordingly, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Defined Terms. As used in this Agreement, the following terms have the meanings specified below: "ABR", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans constituting such Borrowing, are denominated in Dollars and bearing interest at a rate determined by reference to the Alternate Base Rate. "Adjusted Eurocurrency Rate" means, for the Interest Period for any Eurocurrency Borrowing, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the Eurocurrency Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate for such Interest Period. "Administrative Agent" means JPMCB, in its capacity as Administrative Agent for the Lenders hereunder. "Administrative Agent's Account" means, for each Currency, an account in respect of such Currency designated by the Administrative Agent in a notice to the Company and the Lenders. "Administrative Questionnaire" means an Administrative Questionnaire in a form supplied by the Administrative Agent. "Affiliate" means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "Agreed Foreign Currency" means, at any time, any of English Pounds Sterling, Euros, Swedish Kroner, Swiss Francs, Japanese Yen, and, with the agreement of the Required Lenders, any other Foreign Currency, so long as, in respect of any such specified Currency or other Foreign Currency, at such time (a) such Currency is dealt with in the London interbank deposit market, (b) such Currency is freely transferable and convertible into Dollars in the London foreign exchange market and (c) no central bank or other governmental authorization in 3-Year Credit Agreement - 2 - the country of issue of such Currency (including, in the case of the Euro, any authorization by the European Central Bank) is required to permit use of such Currency by any Lender for making any Loan hereunder and/or to permit the Company to borrow and repay the principal thereof and to pay the interest thereon, unless such authorization has been obtained and is in full force and effect. "Alternate Base Rate" means a fluctuating interest rate per annum in effect from time to time, which rate per annum shall at all times be equal to the higher of (a) the rate of interest announced publicly by JPMCB in New York, New York, from time to time, as JPMCB's prime rate and (b) 0.50% per annum above the Federal Funds Effective Rate. Each change in any interest rate provided for herein based upon the Alternate Base Rate resulting from a change in the Alternate Base Rate shall take effect at the time of such change in the Alternate Base Rate. "Applicable Percentage" means, with respect to any Lender, the percentage of the total Commitments represented by such Lender's Commitment. If the Commitments have terminated or expired, the Applicable Percentages shall be determined based upon the Commitments most recently in effect, giving effect to any assignments. "Applicable Rate" means, for any day, with respect to the facility fees payable hereunder, or with respect to any Syndicated Eurocurrency Loan, as the case may be, the applicable rate per annum set forth below under the caption "Facility Fee" or "Eurocurrency Margin", respectively, based upon the long-term debt ratings by Moody's and S&P, respectively, applicable on such date to the Index Debt:
=================================================== Long-term debt rating S&P/Moody's Facility Fee LIBOR Margin - --------------------------------------------------- A/A2 or above 7.5 bps 30.0 bps - --------------------------------------------------- A-/A3 10.0 bps 40.0 bps - --------------------------------------------------- BBB+/Baa1 12.5 bps 50.0 bps - --------------------------------------------------- BBB/Baa2 15.0 bps 60.0 bps - --------------------------------------------------- BBB-/Baa3 17.5 bps 82.5 bps - --------------------------------------------------- BB+/Ba1 or lower 25.0 bps 100.0 bps ===================================================
For purposes of the foregoing, (i) if either Moody's or S&P shall not have in effect a rating for the Index Debt (other than by reason of the circumstances referred to in the last sentence of this definition), then such rating agency shall be deemed to have established a rating in the lowest category in the schedule above; (ii) if the ratings established or deemed to have been established by Moody's and S&P for the Index Debt shall fall within different categories in the schedule above, the Applicable Rate shall be based on the higher of the two ratings; (iii) if 3-Year Credit Agreement - 3 - the ratings established or deemed to have been established by Moody's and S&P for the Index Debt shall be changed (other than as a result of a change in the rating system of Moody's or S&P), such change shall be effective as of the date on which it is first announced by the applicable rating agency; and (iv) if any Event of Default shall have occurred and be continuing, each of Moody's and S&P shall be deemed to have established a rating in the lowest category in the schedule above. Each change in the Applicable Rate shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. If the rating system of Moody's or S&P shall change, or if either such rating agency shall cease to be in the business of rating corporate debt obligations, the Company (on its own behalf and on behalf of each Approved Borrower) and the Lenders shall negotiate in good faith to amend this definition to reflect such changed rating system or the unavailability of ratings from such rating agency and, pending the effectiveness of any such amendment, the Applicable Rate shall be determined by reference to the rating most recently in effect prior to such change or cessation. "Approved Borrower" means (i) each of the entities set forth on Schedule III and (ii) any Wholly Owned Consolidated Subsidiary of the Company as to which a Designation Letter has been delivered to the Administrative Agent and as to which a Termination Letter shall not have been delivered to the Administrative Agent, which Subsidiary has been approved as a borrower hereunder by the Administrative Agent, all in accordance with Section 2.01(b). "Approved Fund" means any Person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course of its business and that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender. "Assignment and Assumption" means an assignment and assumption entered into by a Lender and an assignee pursuant to Section 9.04, in substantially the form of Exhibit A. "Assuming Lender" means any Person not previously a Lender that becomes a Lender hereunder pursuant to Section 2.07(e). "Assumption Agreement" means an agreement, in substantially the form of Exhibit E, pursuant to which a Person agrees to become an Assuming Lender hereunder pursuant to Section 2.07(e) and agrees to be bound by all obligations of a Lender under this Agreement. "Aussedat Rey" means Aussedat Rey S.A., a French corporation. "Availability Period" means the period from and including the Effective Date to but excluding the earlier of the Commitment Termination Date and the date of termination of the Commitments. "Board" means the Board of Governors of the Federal Reserve System of the United States of America. 3-Year Credit Agreement - 4 - "Borrowers" means the Company and each Approved Borrower. "Borrowing" means (a) all ABR Loans made, converted or continued on the same date or (b) all Syndicated Eurocurrency Loans or Competitive Loans of the same Class, Type and Currency that have the same Interest Period (or any single Competitive Loan that does not have the same Interest Period as any other Competitive Loan of the same Type and Currency). For purposes hereof, the date of a Syndicated Borrowing comprising one or more Loans that have been converted or continued shall be the effective date of the most recent conversion or continuation of such Loan or Loans. "Borrowing Request" means a request by a Borrower for a Syndicated Borrowing in accordance with Section 2.03. "Business Day" means any day (a) that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed, (b) if such day relates to a Competitive Bid Request or Competitive Bid for a Competitive Eurocurrency Loan (other than any such Loan denominated in Euros), or to a borrowing of, a payment or prepayment of principal of or interest on, a continuation or conversion of or into, or the Interest Period for, a Eurocurrency Borrowing (other than any such Borrowing denominated in Euros), or to a notice by the Company with respect to any such borrowing, payment, prepayment, continuation, conversion, or Interest Period, that is also (i) a day (other than a Saturday or Sunday) on which commercial banks are open for general business in London and (ii) if the applicable Currency is an Agreed Foreign Currency (other than Euros) that is also a day on which commercial banks are open for general business in the Principal Financial Center for such Currency and (c) if such day relates to a Competitive Bid Request or Competitive Bid for a Competitive Eurocurrency Loan denominated in Euros, or to a borrowing or continuation of, a payment or prepayment of principal of or interest on, or the Interest Period for, any Borrowing denominated in Euros, or to a notice by the Company with respect to any such borrowing, continuation, payment, prepayment or Interest Period, that is also a Target Operating Day. "Capital Lease Obligations" means, as to any Person, the obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) real and/or personal property which obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP (including Statement of Financial Accounting Standards No. 13 of the Financial Accounting Standards Board) and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP (including such Statement No. 13). "Change in Law" means (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender (or, for purposes of Section 2.13(b), by any lending office of such Lender or by such Lender's holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement. 3-Year Credit Agreement - 5 - "Citibank" means Citibank, N.A. "Class", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans constituting such Borrowing, are Syndicated Loans or Competitive Loans. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Commitment" means, with respect to each Lender, the commitment of such Lender to make Syndicated Loans hereunder, expressed as an amount representing the maximum aggregate amount of such Lender's Revolving Credit Exposure hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.07 and (b) reduced or increased from time to time pursuant to Section 2.07(b), 2.07(e), or pursuant to assignments by or to such Lender pursuant to Section 9.04. The initial amount of each Lender's Commitment is set forth on Schedule I, in the Assumption Agreement or confirmation entered into pursuant to Section 2.07(e), or in the Assignment and Assumption pursuant to which such Lender shall have assumed its Commitment, as applicable. The initial aggregate amount of the Lenders' Commitments is $1,500,000,000. "Commitment Increase Date" has the meaning assigned to such term in Section 2.07(e). "Commitment Termination Date" means March 6, 2006. "Company" means International Paper Company, a New York corporation. "Competitive", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans constituting such Borrowing, are made pursuant to Section 2.04. "Competitive Bid" means an offer by a Lender to make a Competitive Loan in accordance with Section 2.04. "Competitive Bid Rate" means, with respect to any Competitive Bid, the Margin or the Fixed Rate, as applicable, offered by the Lender making such Competitive Bid. "Competitive Bid Request" means a request by a Borrower for Competitive Bids in accordance with Section 2.04. "Consolidated Net Worth" means, as at any time, the sum of the following for the Company and its Consolidated Subsidiaries determined on a consolidated basis (without duplication) in accordance with GAAP: (a) the amount of capital stock; plus (b) the amount of surplus and retained earnings (or, in the case of a surplus or retained earnings deficit, minus the amount of such deficit); minus 3-Year Credit Agreement - 6 - (c) the cost of treasury shares. provided, however, the foregoing calculation shall not take into account any impairment of goodwill arising under FASB 142. "Consolidated Subsidiary" means, as to any Person, each Subsidiary of such Person (whether now existing or hereafter created or acquired) the financial statements of which shall be (or should have been) consolidated with the financial statements of such Person in accordance with GAAP. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" have meanings correlative thereto. "Currency" means Dollars or any Foreign Currency. "Default" means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default. "Designation Letter" has the meaning assigned to such term in Section 2.01(b). "Dollar Equivalent" means, with respect to any Borrowing denominated in any Foreign Currency, the amount of Dollars that would be required to purchase the amount of the Foreign Currency of such Borrowing on the date two Business Days prior to the date of such Borrowing (or, in the case of any determination made under Section 2.09(b) or redenomination under the last sentence of Section 2.17(a), on the date of determination or redenomination therein referred to), based upon the spot selling rate at which the Administrative Agent offers to sell such Foreign Currency for Dollars in the London foreign exchange market at approximately 11:00 a.m., London time, for delivery two Business Days later. "Dollars" or "$" refers to lawful money of the United States of America. "Effective Date" means the date on which the conditions specified in Section 5.01 are satisfied (or waived in accordance with Section 9.02). "Environmental Laws" means any and all Federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions relating to the environment or to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment including ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes. 3-Year Credit Agreement - 7 - "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliate" means any corporation or trade or business which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as the Company or is under common control (within the meaning of Section 414(c) of the Code) with the Company. "Eurocurrency", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans constituting such Borrowing, are bearing interest at a rate determined by reference to (a) in the case of a Syndicated Loan or Borrowing, the Adjusted Eurocurrency Rate, or (b) in the case of a Competitive Loan or Borrowing, the Eurocurrency Rate. "Eurocurrency Rate" means, for the Interest Period for any Eurocurrency Borrowing denominated in any Currency, the rate appearing on the Screen at the Specified Time on the Quotation Date for such Currency, as IBOR for deposits denominated in such Currency with a maturity comparable to such Interest Period. In the event that such rate is not available on the Screen at such Specified Time for any reason, then, unless the last sentence of Section 9.13(e) is applicable, the Eurocurrency Rate for such Interest Period shall be the rate at which deposits in such Currency in the amount of $5,000,000 (or its equivalent in the applicable Foreign Currency) and for a maturity comparable to such Interest Period are offered by the principal London office of the Administrative Agent in immediately available funds in the London interbank market at the Specified Time on the Quotation Date; provided that the Eurocurrency Rate for any Eurocurrency Borrowing for any Interest Period denominated in Sterling shall be increased by the MCR Cost. "Eur-IBOR" means for Euros, the rate at which deposits denominated in Euros are offered to leading banks in the Brussels interbank market. "Euros" has the meaning assigned to such term in Section 9.13(a). "Event of Default" has the meaning assigned to such term in Article VII. "Excluded Taxes" means, with respect to the Administrative Agent, any Lender or any other recipient of any payment to be made by or on account of any obligation of any Borrower hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which such Borrower is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Company under Section 2.18(b)), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement or is attributable to such Foreign Lender's failure or inability to comply with Section 2.15(e), except to the extent that such Foreign Lender's assignor (if any) was entitled, at the time of assignment, 3-Year Credit Agreement - 8 - to receive additional amounts from such Borrower with respect to such withholding tax pursuant to Section 2.15(a). "Federal Funds Effective Rate" means, for any day, the weighted average (rounded upwards, if necessary, to the ext 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such date (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by JPMCB from three Federal funds brokers of recognized standing selected by it. "Fixed Rate" means, with respect to any Competitive Loan (other than a Competitive Eurocurrency Loan), the fixed rate of interest per annum specified by the Lender making such Competitive Loan in its related Competitive Bid. "Fixed Rate Loan" means a Competitive Loan bearing interest at a Fixed Rate. "Foreign Currency" means at any time any currency other than Dollars. "Foreign Currency Equivalent" means, with respect to any amount in Dollars, the amount of any Foreign Currency that could be purchased with such amount of Dollars using the reciprocal of the foreign exchange rate(s) specified in the definition of the term "Dollar Equivalent", as determined by the Administrative Agent. "Foreign Jurisdiction" means any jurisdiction other than the United States of America, a State thereof, the District of Columbia or any political subdivision of any of the foregoing. "Foreign Lender" means any Lender that is organized under the laws of a Foreign Jurisdiction. "Foreign Taxes" means, with respect to any Approved Borrower organized under a Foreign Jurisdiction, all present and future income, stamp, registration and other taxes and levies, imposts, deductions, charges, compulsory loans and withholdings whatsoever, and all interest, penalties or similar amounts with respect thereto, now or hereafter imposed, assessed, levied or collected by such Foreign Jurisdiction, or any political subdivision or taxing authority thereof or therein, or by any federal or other association of or with which such Foreign Jurisdiction may be a member or associated, on or in respect of this Agreement, the Loans made to such Approved Borrower, the recording, registration, notarization or other formalization of any thereof, the enforcement thereof or the introduction thereof in any judicial proceedings, or on or in respect of any payments of principal, interest, premiums, charges, fees or other amounts made on, under or in respect of any thereof, excluding, however income taxes imposed upon the overall net income of any Lender organized under the laws of such Foreign Jurisdiction and having an applicable lending office in such Foreign Jurisdiction. 3-Year Credit Agreement - 9 - "GAAP" means generally accepted accounting principles applied on a basis consistent with those which, in accordance with Section 1.04, are to be used in making the calculations for purposes of determining compliance with the terms of this Agreement. "Governmental Authority" means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "Guarantee" means a guarantee, an endorsement, a contingent agreement to purchase or to furnish funds for the payment or maintenance of, or otherwise to be or become contingently liable under or with respect to, the Indebtedness, other obligations, net worth, working capital or earnings of any Person, or a guarantee of the payment of dividends or other distributions upon the stock of any corporation, or an agreement to purchase, sell or lease (as lessee or lessor) property, products, materials, supplies or services primarily for the purpose of enabling a debtor to make payment of his, her or its obligations or an agreement to assure a creditor against loss, and including causing a bank to open a letter of credit for the benefit of another Person, but excluding endorsements for collection or deposit in the ordinary course of business. The terms "Guarantee" and "Guaranteed" used as a verb shall have a correlative meaning. "Guaranteed Obligations" has the meaning assigned to such term in Section 4.01. "Guarantor" means the Company in its capacity as the guarantor under Article IV. "IBOR" means (a) for all Currencies other than Euros, LIBOR and (b) for Euros, Eur-IBOR. "Increasing Lender" has the meaning assigned to such term in Section 2.07(e)(i). "Indebtedness" means, as to any Person: (a) indebtedness created, issued or incurred by such Person for borrowed money (whether by loan or the issuance and sale of debt securities); (b) obligations of such Person to pay the deferred purchase or acquisition price of property or services, other than trade accounts payable (other than for borrowed money) arising, and accrued expenses incurred, in the ordinary course of business so long as such trade accounts payable are payable within 90 days of the date the respective goods are delivered or the respective services are rendered; (c) indebtedness of others secured by a Lien on the property of such Person, whether or not the respective indebtedness so secured has been assumed by such Person; (d) obligations of such Person in respect of letters of credit or similar instruments issued or accepted by banks and other financial institutions for the account of such Person; (e) Capital Lease Obligations of such Person; and (f) Indebtedness of others Guaranteed by such Person. "Indemnified Taxes" means Taxes other than Excluded Taxes. 3-Year Credit Agreement - 10 - "Index Debt" means senior, unsecured, long-term indebtedness for borrowed money of the Company that is not guaranteed by any other Person or subject to any other credit enhancement. "Interest Election Request" means a request by a Borrower to convert or continue a Syndicated Borrowing in accordance with Section 2.06. "Interest Payment Date" means the Commitment Termination Date and (a) with respect to any ABR Loan, each Quarterly Date, (b) with respect to any Eurocurrency Loan, the last day of each Interest Period therefor and, in the case of any Interest Period for a Eurocurrency Loan that is more than three months long, each day prior to the last day of such Interest Period that occurs at intervals of three months after the first day of such Interest Period and (c) with respect to any Fixed Rate Loan, the last day of the Interest Period therefor and, in the case of any Interest Period for a Fixed Rate Loan that is more than 90 days long (unless otherwise specified in the applicable Competitive Bid Request), each day prior to the last day of such Interest Period that occurs at intervals of 90 days after the first day of such Interest Period, and any other dates that are specified in the applicable Competitive Bid Request as Interest Payment Dates with respect to such Loan. "Interest Period" means: (a) for any Borrowing (other than an ABR Borrowing), the Interest Period of the Loan or Loans constituting such Borrowing; (b) for any Syndicated Eurocurrency Loan, the period commencing on the date of such Loan and ending on the numerically corresponding day in the calendar month that is one, two, three or six months thereafter or, with respect to such portion of any Syndicated Eurocurrency Loan denominated in a Foreign Currency that is scheduled to be repaid on the Commitment Termination Date, a period of less than one month's duration commencing on the date of such Loan and ending on the Commitment Termination Date, as specified in the applicable Borrowing Request or Interest Election Request; (c) for any Competitive Eurocurrency Loan, the period commencing on the date of such Loan and ending on the numerically corresponding day in the calendar month that is one, two, three or six months thereafter (provided that in no event shall any such Interest Period end after the Commitment Termination Date) or, with respect to such portion of any Competitive Eurocurrency Loan denominated in a Foreign Currency that is scheduled to be repaid on the Commitment Termination Date, a period of less than one month's duration commencing on the date of such Loan and ending on the Commitment Termination Date, as specified in the applicable Competitive Bid Request; and (d) for any Fixed Rate Loan, the period (which shall not be less than 30 days or more than 360 days) commencing on the date of such Loan and ending on the date specified in the applicable Competitive Bid Request (provided that in no event shall any Interest Period for a Fixed Rate Loan end after the Commitment Termination Date); 3-Year Credit Agreement - 11 - provided, that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of a Eurocurrency Borrowing only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day, and (ii) any Interest Period pertaining to a Eurocurrency Borrowing (other than an Interest Period pertaining to a Eurocurrency Borrowing denominated in a Foreign Currency that ends on the Commitment Termination Date that is permitted to be of less than one month's duration as provided in this definition) that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Loan initially shall be the date on which such Loan is made and, in the case of a Syndicated Loan, thereafter shall be the effective date of the most recent conversion or continuation of such Loan. "IPISA" means International Paper Investments S.A., a French corporation. "JPMCB" means JPMorgan Chase Bank. "Kwidzyn" means International Paper Kwidzyn S.A., a Polish joint stock company. "Kwidzyn Entity" means (i) Kwidzyn, (ii) Kwidzyn France, as long as it holds no assets other than (A) interests in Kwidzyn, (B) cash and cash equivalents and (C) "political risk" insurance policies with respect to Kwidzyn, and (iii) international Paper Investments (Poland), Inc., a Delaware corporation, as long as it holds no assets other than (A) interests in and contracts with Kwidzyn, (B) unless Kwidzyn France is not then a Kwidzyn Entity, interests in Kwidzyn France and (C) cash and cash equivalents. "Kwidzyn France" means Celouse et Papiers de Pologne, S.A., a French corporation. "Lenders" means the Persons listed on Schedule I and any other Person that shall have become a party hereto pursuant to an Assignment and Assumption or pursuant to Section 2.07(e), other than any such Person that ceases to be a party hereto pursuant to an Assignment and Assumption. "LIBOR" means for all Currencies other than Euros, the rate at which deposits denominated in such Currency are offered to leading banks in the London interbank market. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset. For purposes of this Agreement, the Company or any of its Subsidiaries shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset. 3-Year Credit Agreement - 12 - "Loans" means the loans made by the Lenders to the Borrowers pursuant to this Agreement. "Local Time" means, with respect to any Loan denominated in or any payment to be made in any Currency, the local time in the Principal Financial Center for the Currency in which such Loan is denominated or such payment is to be made. "Margin" means, with respect to any Competitive Loan bearing interest at a rate based on the Eurocurrency Rate, the marginal rate of interest, if any, to be added to or subtracted from the Eurocurrency Rate to determine the rate of interest applicable to such Loan, as specified by the Lender making such Loan in its related Competitive Bid. "Margin Stock" means margin stock within the meaning of Regulations U and X. "Material Adverse Effect" means a material adverse change in, or material adverse effect on, the business, results of operations or financial condition of the Company and its Subsidiaries, taken as a whole. "Material Subsidiary" means any Subsidiary of the Company that (a) is an Approved Borrower or (b) has total assets equal to 5% or more of Consolidated Net Worth. "MCR Cost" means, with respect to any Lender, the cost imputed to such Lender of compliance with the Mandatory Cost Rate requirements of the Bank of England during the relevant period, determined in accordance with Schedule IV. "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" means a multiemployer plan defined as such in Section 3(37) of ERISA to which contributions have been made by the Company or any ERISA Affiliate and which is covered by Title IV of ERISA. "Obligors" means the Borrowers and the Guarantor. "Other Taxes" means any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement. "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Person" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity. 3-Year Credit Agreement - 13 - "Plan" means any employee benefit or other plan established or maintained by the Company or any ERISA Affiliate and which is covered by Title IV of ERISA, other than a Multiemployer Plan. "Principal Financial Center" means, in the case of any Currency, the principal financial center where such Currency is cleared and settled, as determined by the Administrative Agent. "Project Indebtedness" means (i) Indebtedness of any Kwidzyn Entity or (ii) Indebtedness of the Company, IPISA or Aussedat Rey that constitutes Indebtedness of such Person due solely to the pledge, on a non-recourse basis, by such Person of Indebtedness or capital stock of any Kwidzyn Entity held by such Person to secure Indebtedness of any Kwidzyn Entity to any other Person or Persons or (iii) Indebtedness of the Company or any Subsidiary incurred to finance the acquisition, construction or development of Project Assets (as defined in Section 6.07(h)); provided in the case of this clause (iii) that (x) such Indebtedness is non-recourse to any other assets and (y) the aggregate principal amount of such Indebtedness may at no time exceed $200,000,000. "Quarterly Dates" means the last Business Day of March, June, September and December in each year, the first of which shall be the first such day after the date hereof. "Quotation Date" means, for the Interest Period for any Eurocurrency Borrowing denominated in any Currency the date two Business Days prior to the commencement of such Interest Period, provided that if market practice differs in the relevant interbank market for any Foreign Currency, the "Quotation Date" for such Foreign Currency shall be determined by the Administrative Agent in accordance with market practice in the relevant interbank market (and if quotations would normally be given by leading banks in the relevant interbank market on more than one day, the "Quotation Date" shall be the last of such days). "Register" has the meaning assigned to such term in Section 9.04. "Regulations D, U and X" means, respectively, Regulations D, U and X of the Board of Governors of the Federal Reserve System (or any successor), as the same may be amended or supplemented from time to time. "Related Parties" means, with respect to any specified Person, such Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates. "Required Lenders" means, at any time, Lenders having Revolving Credit Exposures and unused Commitments representing more than 50% of the sum of the total Revolving Credit Exposures and unused Commitments at such time (provided that, and for all purposes after the Loans become due and payable pursuant to Article VII or the Commitments expire or terminate, the outstanding Competitive Loans of the Lenders shall be included in their respective Revolving Credit Exposures in determining the Required Lenders). 3-Year Credit Agreement - 14 - "Revolving Credit Exposure" means, with respect to any Lender at any time, the aggregate outstanding principal amount of such Lender's Syndicated Loans at such time. "S&P" means Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies, Inc. "Screen" means, for any Currency, the relevant display page for IBOR for such Currency (as determined by the Administrative Agent) on the Telerate Service; provided that, if the Administrative Agent determines that there is no such relevant display page for IBOR for such Currency, "Screen" shall mean the relevant display page for IBOR for such Currency (as determined by the Administrative Agent) on the Reuter Monitor Money Rates Service. As of the date hereof, the relevant display page for IBOR for all Currencies other than Euros is Page 3750, and the relevant display page for IBOR for Euros is Page 248. "Specified Time" means, for the Interest Period for any Eurocurrency Borrowing denominated in any Currency, (a) for all Currencies other than English Pounds Sterling or Euros, approximately 11:00 a.m., London time, on the relevant Quotation Date, (b) for English Pounds Sterling, approximately 11:00 a.m., London time, on the relevant Quotation Date and (c) for Euros, approximately 11:00 a.m., Brussels time, on the relevant Quotation Date. "Statutory Reserve Rate" means, for the Interest Period for any Eurocurrency Borrowing, a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the arithmetic mean, taken over each day in such Interest Period, of the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject for eurocurrency funding (currently referred to as "Eurocurrency liabilities" in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurocurrency Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "Subsidiary" means, as to any Person, (a) any corporation of which at least a majority of the outstanding shares of stock whose class or classes have by the terms thereof ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether or not at the time stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person and (b) any partnership or other entity in which such Person and/or one or more Subsidiaries of such Person shall have an ownership or controlling interest (whether in the form of voting or participation in profits or capital contribution) of more than 50%. "Wholly Owned Subsidiary" means any 3-Year Credit Agreement - 15 - Subsidiary of which all of such shares or ownership interests, other than (in the case of a corporation) directors' qualifying shares, are so owned or controlled. "Syndicated Loan" means a Loan made pursuant to Section 2.01. "Tangible Assets" means, at any time, Total Assets minus the sum of the items identified in clause (c) of the definition in this Section 1.01 of the term "Tangible Net Worth". "Tangible Net Worth" means, as at any time, the sum of the following for the Company and its Consolidated Subsidiaries determined on a consolidated basis (without duplication) in accordance with GAAP: (a) the amount of capital stock; plus (b) the amount of surplus and retained earnings (or, in the case of a surplus or retained earnings deficit, minus the amount of such deficit); minus (c) the sum of the following: cost of treasury shares and the book value of all assets of the Company and its Consolidated Subsidiaries which should be classified as intangibles (without duplication of deductions in respect of items already deducted in arriving at surplus and retained earnings) but in any event including goodwill, research and development costs, trademarks, trade names, copyrights, patents and franchises, unamortized debt discount and expense, and any write-up in the book value of assets resulting from a revaluation thereof subsequent to December 31, 2002 (other than any write-up, at the time of its acquisition, in the book value of any asset acquired subsequent to December 31, 2002).(1) "Target Operating Day" has the meaning assigned to such term in Section 9.13(a). "Taxes" means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority. "Termination Letter" has the meaning assigned to such term in Section 2.01(b). "Total Assets" means, at any time, the total assets of the Company and its Consolidated Subsidiaries at such time determined on a consolidated basis (without duplication) in accordance with GAAP. "Total Capital" means, at any date, Consolidated Net Worth plus Total Debt plus (i) the amount of the minority interest in Carter Holt Harvey, Ltd. and (ii) the amount of the minority interest represented by the Tax Deductible Convertible Preferred issued by International Paper Capital Trust, each determined as of such date. - ---------- (1) The references in this Section, and in other provisions of this Agreement, to financial statements as at December 31, 2002 assumes that such financial statements are delivered to the Lenders before closing. 3-Year Credit Agreement - 16 - "Total Debt" means, at any time, the aggregate outstanding principal amount of all Indebtedness of the Company and its Consolidated Subsidiaries at such time determined on a consolidated basis (without duplication) in accordance with GAAP. "2002 Credit Agreement" means the 364-Day Credit Agreement dated as of March 8, 2002 between the Company, each of the lenders party thereto and Citibank, as Administrative Agent. "Type", when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans constituting such Borrowing, is determined by reference to the Adjusted Eurocurrency Rate, the Alternate Base Rate or, in the case of a Competitive Loan or Borrowing, the Eurocurrency Rate or a Fixed Rate. SECTION 1.02. Classification of Loans and Borrowings. For purposes of this Agreement, Loans may be classified and referred to by Class (e.g., a "Syndicated Loan"), by Type (e.g., a "Eurocurrency Loan") or by Class and Type (e.g., a "Syndicated Eurocurrency Loan"). Borrowings also may be classified and referred to by Class (e.g., a "Syndicated Borrowing"), by Type (e.g., a "Eurocurrency Borrowing") or by Class and Type (e.g., a "Syndicated Eurocurrency Borrowing"). Loans and Borrowings may also be identified by Currency. SECTION 1.03. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person's successors and assigns, (c) the words "herein", "hereof" and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. SECTION 1.04. Accounting Terms and Determinations. (a) Accounting Terms. Except as otherwise expressly provided herein, all accounting terms used herein shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Lenders hereunder shall (unless otherwise disclosed to the Lenders in writing at the time of delivery thereof in the manner 3-Year Credit Agreement - 17 - described in subsection (b) below) be prepared in accordance with generally accepted accounting principles applied on a basis consistent with that used in the preparation of the latest financial statements furnished to the Lenders hereunder (which, until the first financial statements are delivered under Section 6.01, shall mean the financial statements referred to in Section 3.02). All calculations made for the purposes of determining compliance with this Agreement shall (except as otherwise expressly provided herein) be made by application of generally accepted accounting principles applied on a basis consistent with that used in the preparation of the latest annual or quarterly financial statements furnished to the Lenders pursuant to Section 6.01 unless (i) the Company shall have objected to determining such compliance on such basis at the time of delivery of such financial statements or (ii) the Required Lenders shall so object in writing within 30 days after delivery of such financial statements, in either of which events such calculations shall be made on a basis consistent with those used in the preparation of the latest financial statements as to which such objection shall not have been made (which, if objection is made in respect of the first financial statements delivered under Section 6.01, shall mean the financial statements referred to in Section 3.02). (b) Descriptions of Material Variations. The Company shall deliver to the Lenders at the same time as the delivery of any annual or quarterly financial statement under Section 6.01 a description in reasonable detail of any material variation between the application of accounting principles employed in the preparation of such statement and the application of accounting principles employed in the preparation of the next preceding annual or quarterly financial statements as to which no objection has been made in accordance with the last sentence of paragraph (a) above and reasonable estimates of the difference between such statements arising as a consequence thereof. (c) Changes of Fiscal Years. To enable the ready and consistent determination of compliance with the covenants set forth in Article VI, the Company will not change the last day of its fiscal year from December 31 of each year, or the last days of the first three fiscal quarters in each of its fiscal years from March 31, June 30 and September 30 of each year, respectively, without giving prior notice of such change to each Lender and the Administrative Agent. SECTION 1.05. Currencies; Currency Equivalents. At any time, any reference in the definition of the term "Agreed Foreign Currency" or in any other provision of this Agreement to the Currency of any particular nation means the lawful currency of such nation at such time whether or not the name of such Currency is the same as it was on the date hereof. Except as provided in Section 2.09(b) and the last sentence of Section 2.17(a), for purposes of determining (i) whether the amount of any Borrowing, together with all other Borrowings then outstanding or to be borrowed at the same time as such Borrowing, would exceed the aggregate amount of the Commitments, (ii) the aggregate unutilized amount of the Commitments and (iii) the outstanding aggregate principal amount of Borrowings, the outstanding principal amount of any Borrowing that is denominated in any Foreign Currency shall be deemed to be the Dollar Equivalent of the amount of the Foreign Currency of such Borrowing determined as of the date of such Borrowing (determined in accordance with the last sentence of the definition of the term "Borrowing"). Wherever in this Agreement in connection with a Borrowing or Loan an amount, such as a required minimum or multiple amount, is expressed in Dollars, but such Borrowing or 3-Year Credit Agreement - 18 - Loan is denominated in a Foreign Currency, such amount shall be the relevant Foreign Currency Equivalent of such Dollar amount (rounded to the nearest 1,000 units of such Foreign Currency). ARTICLE II THE CREDITS SECTION 2.01. The Commitments; Borrowings by Approved Borrowers. (a) The Commitments. Subject to the terms and conditions set forth herein, each Lender agrees to make Syndicated Loans in Dollars or in any Agreed Foreign Currency to the Borrowers from time to time during the Availability Period in an aggregate principal amount that will not result in (a) such Lender's Revolving Credit Exposure exceeding such Lender's Commitment or (b) the sum of the total Revolving Credit Exposures plus the aggregate principal amount of outstanding Competitive Loans exceeding the total Commitments. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrowers may borrow, prepay and reborrow Syndicated Loans. (b) Borrowings by Approved Borrowers. The Company may, at any time or from time to time during the Availability Period, designate one or more Wholly Owned Consolidated Subsidiaries as Borrowers hereunder by furnishing to the Administrative Agent a letter (a "Designation Letter") in duplicate, substantially in the form of Exhibit D-1, duly completed and executed by the Company and such Subsidiary. Upon approval by the Administrative Agent (which approval shall not be unreasonably withheld) of such Subsidiary as an Approved Borrower, which approval shall be evidenced by the Administrative Agent signing and returning to the Company a copy of such Designation Letter, such Subsidiary shall be an Approved Borrower. So long as all principal and interest on all Loans of any Approved Borrower and all other amounts payable by such Approved Borrower hereunder have been paid in full, the Company may terminate its status as an Approved Borrower hereunder by furnishing to the Administrative Agent a letter (a "Termination Letter"), substantially in the form of Exhibit D-2, duly completed and executed by the Company and such Approved Borrower. Any Termination Letter furnished in accordance with this Section shall be effective upon receipt by the Administrative Agent. Notwithstanding the foregoing, the delivery of a Termination Letter with respect to any Approved Borrower shall not affect any obligation of such Approved Borrower theretofore incurred. SECTION 2.02. Loans and Borrowings. (a) Obligations of Lenders. Each Syndicated Loan shall be made as part of a Borrowing consisting of Loans of the same Currency and Type made by the Lenders ratably in accordance with their respective Commitments. Each Competitive Loan shall be made in accordance with the procedures set forth in Section 2.04. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that the Commitments and Competitive Bids of the Lenders are several and no Lender shall be responsible for any other Lender's failure to make Loans as required. 3-Year Credit Agreement - 19 - (b) Type of Loans. Subject to Section 2.12, (i) each Syndicated Borrowing shall be constituted entirely of ABR Loans or of Eurocurrency Loans denominated in a single Currency as the respective Borrower may request in accordance herewith, and (ii) each Competitive Borrowing shall be constituted entirely of Eurocurrency Loans or Fixed Rate Loans denominated in a single Currency as the respective Borrower may request in accordance herewith. Each ABR Loan shall be denominated in Dollars. Each Lender at its option may make any Eurocurrency Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrowers to repay such Loan in accordance with the terms of this Agreement. (c) Minimum Amounts; Limitation on Number of Borrowings. At the commencement of the Interest Period for any Syndicated Borrowing, such Syndicated Borrowing shall be in an aggregate amount of $15,000,000 or a larger multiple of $1,000,000 (or, in either case, the U.S. Dollar Equivalent thereof); provided that an ABR Borrowing may be in an aggregate amount that is equal to the entire unused balance of the total Commitments. Each Competitive Borrowing shall be in an aggregate amount equal to $15,000,000 or a larger multiple of $1,000,000 (or, in either case, the U.S. Dollar Equivalent thereof). Borrowings of more than one Class, Currency and Type may be outstanding at the same time; provided that there shall not at any time be more than a total of fifteen Syndicated Eurocurrency Borrowings outstanding. (d) Limitations on Lengths of Interest Periods. Notwithstanding any other provision of this Agreement, no Borrower shall be entitled to request, or to elect to convert to or continue as a Syndicated Eurocurrency Borrowing, any Borrowing if the Interest Period requested therefor would end after the Commitment Termination Date. SECTION 2.03. Requests for Syndicated Borrowings. To request a Syndicated Borrowing, a Borrower shall notify the Administrative Agent of such request by telephone (a) in the case of a Syndicated Eurocurrency Borrowing denominated in Dollars, not later than 11:00 a.m., New York City time, three Business Days before the date of the proposed Borrowing, (b) in the case of a Syndicated Eurocurrency Borrowing denominated in a Foreign Currency, not later than 11:00 a.m., London time, three Business Days before the date of the proposed Borrowing or (c) in the case of an ABR Borrowing, not later than 10:00 a.m., New York City time, on the date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Borrowing Request in a form approved by the Administrative Agent and signed by the Company (on its own behalf or, as applicable, on behalf of an Approved Borrower). Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02: (i) the Borrower and the aggregate amount and Currency of the requested Borrowing; (ii) the date of such Borrowing, which shall be a Business Day; 3-Year Credit Agreement - 20 - (iii) in the case of a Syndicated Borrowing denominated in Dollars, whether such Borrowing is to be an ABR Borrowing or a Eurocurrency Borrowing; (iv) in the case of a Syndicated Eurocurrency Borrowing, the Interest Period therefor, which shall be a period contemplated by the definition of the term "Interest Period" and permitted under Section 2.02(d); and (v) the location and number of the account to which funds are to be disbursed, which shall comply with the requirements of Section 2.05. If no election as to the Type of Syndicated Borrowing is specified, then the requested Syndicated Borrowing shall be an ABR Borrowing unless an Agreed Foreign Currency has been specified, in which case the requested Syndicated Borrowing shall be a Eurocurrency Borrowing denominated in such Agreed Foreign Currency. If no Interest Period is specified with respect to any requested Syndicated Eurocurrency Borrowing, (i) if the Currency specified for such Borrowing is Dollars (or if no Currency has been so specified), the requested Borrowing shall be made instead as an ABR Borrowing, and (ii) if the Currency specified for such Borrowing is an Agreed Foreign Currency, the respective Borrower shall be deemed to have selected an Interest Period of one month's duration. If no election as to the Currency of a Syndicated Borrowing is specified, then the requested Syndicated Borrowing shall be denominated in Dollars. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender's Loan to be made as part of the requested Borrowing. SECTION 2.04. Competitive Bid Procedure. (a) Requests for Bids by the Borrowers. Subject to the terms and conditions set forth herein, from time to time during the Availability Period a Borrower may request Competitive Bids and may (but shall not have any obligation to) accept Competitive Bids and borrow Competitive Loans denominated in Dollars or in any Foreign Currency; provided that the sum of the total Revolving Credit Exposures plus the aggregate principal amount of outstanding Competitive Loans at any time shall not exceed the total Commitments. To request Competitive Bids, a Borrower shall notify the Administrative Agent of such request by telephone, in the case of a Eurocurrency Borrowing, not later than 11:00 a.m., New York City time, four Business Days (or, in the case of a Eurocurrency Borrowing denominated in a Foreign Currency, 11:00 a.m., London time, five Business Days) before the date of the proposed Borrowing and, in the case of a Fixed Rate Borrowing, not later than 10:00 a.m., New York City time (or, in the case of a Fixed Rate Borrowing denominated in a Foreign Currency, 10:00 a.m., London time), two Business Days before the date of the proposed Borrowing; provided that the Borrowers may in the aggregate submit up to (but not more than) three Competitive Bid Requests on the same day, and a Competitive Bid Request shall not be made within five Business Days after the date of any previous Competitive Bid Request, unless any and all such previous Competitive Bid Requests shall have been withdrawn or all Competitive Bids received in response thereto rejected. Each such telephonic Competitive Bid Request shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Competitive Bid Request in a form 3-Year Credit Agreement - 21 - approved by the Administrative Agent and signed by the Company (on behalf of itself or, as applicable, an Approved Borrower). Each such telephonic and written Competitive Bid Request shall specify the following information in compliance with Section 2.02: (i) the Borrower and the aggregate amount and Currency of the requested Borrowing; (ii) the date of such Borrowing, which shall be a Business Day; (iii) whether such Borrowing is to be a Eurocurrency Borrowing or a Fixed Rate Borrowing; (iv) the Interest Period for such Borrowing, which shall be a period contemplated by the definition of the term "Interest Period"; and (v) the location and number of the account to which funds are to be disbursed, which shall comply with the requirements of Section 2.05. Promptly following receipt of a Competitive Bid Request in accordance with this Section, the Administrative Agent shall notify the Lenders of the details thereof by telecopy, inviting the Lenders to submit Competitive Bids. (b) Making of Bids by Lenders. Each Lender may (but shall not have any obligation to) make one or more Competitive Bids in response to a Competitive Bid Request. Each Competitive Bid by a Lender must be in a form approved by the Administrative Agent and must be received by the Administrative Agent by telecopy, in the case of a Competitive Eurocurrency Borrowing, not later than 9:30 a.m, New York City time, three Business Days (or, in the case of a Competitive Eurocurrency Borrowing denominated in a Foreign Currency, 9:30 a.m, London time, four Business Days) before the proposed date of such Competitive Borrowing, and in the case of a Fixed Rate Borrowing, not later than 9:30 a.m, New York City time (or, in the case of a Fixed Rate Borrowing denominated in a Foreign Currency, 9:30 a.m, London time), on the proposed date of such Competitive Borrowing. Competitive Bids that do not conform substantially to the form approved by the Administrative Agent may be rejected by the Administrative Agent, and the Administrative Agent shall notify the applicable Lender of such rejection as promptly as practicable. Each Competitive Bid shall specify (i) the principal amount (which shall be $15,000,000 or a larger multiple of $1,000,000 (or, in either case, the U.S. Dollar Equivalent thereof) and which may equal the entire principal amount of the Competitive Borrowing requested by the respective Borrower) of the Competitive Loan or Loans that such Lender is willing to make, (ii) the Competitive Bid Rate or Competitive Bid Rates at which such Lender is prepared to make such Loan or Loans (expressed as a percentage rate per annum in the form of a decimal to no more than four decimal places) and (iii) the Interest Period for each such Loan and the last day thereof. (c) Notification of Bids by Administrative Agent. The Administrative Agent shall promptly notify the respective Borrower by telecopy of the Competitive Bid Rate and the 3-Year Credit Agreement - 22 - principal amount specified in each Competitive Bid and the identity of the Lender that shall have made such Competitive Bid. (d) Acceptance of Bids by the Borrowers. Subject only to the provisions of this paragraph, a Borrower may accept or reject any Competitive Bid. Such Borrower shall notify the Administrative Agent by telephone, confirmed by telecopy in a form approved by the Administrative Agent, whether and to what extent such Borrower has decided to accept or reject each Competitive Bid, in the case of a Competitive Eurocurrency Borrowing, not later than 10:30 a.m, New York City time, three Business Days (or, in the case of a Eurocurrency Borrowing denominated in a Foreign Currency, 2:00 p.m., London time, four Business Days) before the date of the proposed Competitive Borrowing, and in the case of a Fixed Rate Borrowing, not later than 10:30 a.m, New York City time (or, in the case of a Fixed Rate Borrowing denominated in a Foreign Currency, 10:30 a.m, London time), on the proposed date of the Competitive Borrowing; provided, that (i) the failure of such Borrower to give such notice shall be deemed to be a rejection of each Competitive Bid, (ii) such Borrower shall not accept a Competitive Bid made at a particular Competitive Bid Rate if such Borrower rejects a Competitive Bid made at a lower Competitive Bid Rate, (iii) the aggregate amount of the Competitive Bids accepted by such Borrower shall not exceed the aggregate amount of the requested Competitive Borrowing specified in the related Competitive Bid Request, (iv) to the extent necessary to comply with clause (iii) of this proviso, such Borrower may accept Competitive Bids at the same Competitive Bid Rate in part, which acceptance, in the case of multiple Competitive Bids at such Competitive Bid Rate, shall be made pro rata in accordance with the amount of each such Competitive Bid, and (v) except pursuant to clause (iv) of this proviso, no Competitive Bid shall be accepted for a Competitive Loan unless such Competitive Loan is in a principal amount of $15,000,000 or a larger multiple of $1,000,000 (or, in either case, the U.S. Dollar Equivalent thereof); provided further that if a Competitive Loan must be in an amount less than $15,000,000 because of the provisions of clause (iv) of the first proviso of this paragraph, such Competitive Loan may be in an amount of $1,000,000 or any multiple thereof, and in calculating the pro rata allocation of acceptances of portions of multiple Competitive Bids at a particular Competitive Bid Rate pursuant to such clause (iv) the amounts shall be rounded to multiples of $1,000,000 in a manner determined by the Company. A notice given by any Borrower pursuant to this paragraph shall be irrevocable. (e) Notification of Acceptances by the Administrative Agent. The Administrative Agent shall promptly notify each bidding Lender by telecopy whether or not its Competitive Bid has been accepted (and, if so, the amount and Competitive Bid Rate so accepted), and each successful bidder will thereupon become bound, subject to the terms and conditions hereof, to make the Competitive Loan in respect of which its Competitive Bid has been accepted. (f) Bids by the Administrative Agent. If the Administrative Agent shall elect to submit a Competitive Bid in its capacity as a Lender, it shall submit such Competitive Bid directly to the respective Borrower at least one quarter of an hour earlier than the time by which the other Lenders are required to submit their Competitive Bids to the Administrative Agent pursuant to paragraph (b) of this Section. 3-Year Credit Agreement - 23 - (g) Continuing Obligations of Lenders. The extension of any Competitive Loan by any Lender shall not constitute utilization of such Lender's Commitment hereunder, and such Lender shall remain obligated (as provided in Section 2.17(c)) to make Loans in an amount equal to its pro rata share of the aggregate Commitments under this Agreement, provided that in no event shall the sum of the total Revolving Credit Exposures plus the aggregate principal amount of outstanding Competitive Loans at any time exceed the total Commitments. SECTION 2.05. Funding of Borrowings. (a) Funding by Lenders. Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 12:00 noon, Local Time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders. The Administrative Agent will make such Loans available to the respective Borrower by promptly crediting the amounts so received, in like funds, to an account maintained with the Administrative Agent in New York City and designated by such Borrower in the applicable Borrowing Request or Competitive Bid Request. (b) Presumption by the Administrative Agent. Unless the Administrative Agent shall have received notice from a Lender prior to the proposed time of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the respective Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and such Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to such Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of such Lender, the Federal Funds Effective Rate or (ii) in the case of such Borrower, the interest rate applicable to ABR Loans. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender's Loan included in such Borrowing. SECTION 2.06. Interest Elections. (a) Elections by Borrowers for Syndicated Borrowings. Each Syndicated Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Syndicated Eurocurrency Borrowing, shall have the Interest Period specified in such Borrowing Request. Thereafter, a Borrower may elect to convert such Borrowing to a Borrowing of a different Type or to continue such Borrowing as a Borrowing of the same Type and, in the case of a Syndicated Eurocurrency Borrowing, may elect the Interest Period therefor, all as provided in this Section; provided, however, that (i) a Syndicated Borrowing denominated in one Currency may not be continued as, or converted to, a Syndicated Borrowing in a different Currency, (ii) no Syndicated Eurocurrency Borrowing denominated in a Foreign Currency may be continued if, after giving effect thereto, the sum of the Revolving Credit Exposures plus the aggregate principal amount of outstanding Competitive Loans would exceed the aggregate 3-Year Credit Agreement - 24 - Commitments, and (iii) a Syndicated Eurocurrency Borrowing denominated in a Foreign Currency may not be converted to a Borrowing of a different Type. A Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans constituting such Borrowing, and the Loans constituting each such portion shall be considered a separate Borrowing. This Section shall not apply to Competitive Borrowings, which may not be converted or continued. (b) Notice of Elections. To make an election pursuant to this Section, a Borrower shall notify the Administrative Agent of such election by telephone by the time that a Borrowing Request would be required under Section 2.03 if the Company were requesting a Syndicated Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Interest Election Request in a form approved by the Administrative Agent and signed by the Company (on behalf of itself or, as applicable, on behalf of an Approved Borrower). (c) Information in Interest Election Requests. Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.02: (i) the Borrower and the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) of this paragraph shall be specified for each resulting Borrowing); (ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day; (iii) whether, in the case of a Borrowing denominated in Dollars, the resulting Borrowing is to be an ABR Borrowing or a Eurocurrency Borrowing; and (iv) if the resulting Borrowing is a Eurocurrency Borrowing, the Interest Period therefor after giving effect to such election, which shall be a period contemplated by the definition of the term "Interest Period" and permitted under Section 2.02(d). If any such Interest Election Request requests a Eurocurrency Borrowing (whether denominated in Dollars or a Foreign Currency) but does not specify an Interest Period, then the respective Borrower shall be deemed to have selected an Interest Period of one month's duration. (d) Notice by the Administrative Agent to Lenders. Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender's portion of each resulting Borrowing. 3-Year Credit Agreement - 25 - (e) Failure to Elect; Events of Default. If a Borrower fails to deliver a timely Interest Election Request with respect to a Syndicated Eurocurrency Borrowing prior to the end of the Interest Period therefor, then, unless such Borrowing is repaid as provided herein, (i) if such Borrowing is denominated in Dollars, at the end of such Interest Period such Borrowing shall be converted to an ABR Borrowing, and (ii) if such Borrowing is denominated in a Foreign Currency, the Company shall be deemed to have selected an Interest Period of one month's duration. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Borrowers, then, so long as an Event of Default is continuing (A) no outstanding Syndicated Borrowing denominated in Dollars may be converted to or continued as a Syndicated Eurocurrency Borrowing, (B) unless repaid, each Syndicated Eurocurrency Borrowing denominated in Dollars shall be converted to an ABR Borrowing at the end of the Interest Period therefor and (C) no outstanding Syndicated Eurocurrency Borrowing denominated in a Foreign Currency may have an Interest Period of more than one month's duration. SECTION 2.07. Changes of Commitments. (a) Scheduled Termination. Unless previously terminated the aggregate amount of the Commitments shall terminate on the Commitment Termination Date. (b) Voluntary Termination or Reduction. The Company may at any time terminate or from time to time reduce the Commitments; provided that (i) each reduction of the Commitments shall be in an amount that is $15,000,000 or a larger multiple of $1,000,000 and (ii) the Company shall not terminate or reduce the Commitments if, after giving effect to any concurrent prepayment of the Syndicated Loans in accordance with Section 2.09, the sum of the total Revolving Credit Exposures plus the aggregate principal amount of outstanding Competitive Loans would exceed the total Commitments. (c) Notice of Voluntary Termination or Reduction. The Company shall notify the Administrative Agent of any election to terminate or reduce the Commitments under paragraph (b) of this Section at least three Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any such notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by the Company pursuant to this Section shall be irrevocable; provided that a notice of termination of the Commitments delivered by the Company may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Company (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. (d) Effect of Termination or Reduction. Any termination or reduction of the Commitments shall be permanent. Each reduction of the Commitments shall be made ratably among the Lenders in accordance with their respective Commitments. 3-Year Credit Agreement - 26 - (e) Increase of Commitments. (i) Requests for Increase by Company. The Company may at any time, by notice to the Administrative Agent, propose that the aggregate amount of the Commitments hereunder be increased (each such proposed increase being a "Commitment Increase"), effective as of a date (the "Commitment Increase Date") that shall be specified in such notice and that shall be prior to the Commitment Termination Date; provided that (A) the Company may not propose more than one Commitment Increase during any calendar month, (B) the proposed Commitment Increase in respect of the Commitment of either (i) any Increasing Lender or (ii) any Assuming Lender for each Commitment Increase Date shall be in the aggregate amount of $10,000,000 or a multiple of $1,000,000 in excess thereof, provided that the minimum amount of the Commitment of any Assuming Lender shall be $20,000,000, (C) in no event shall the aggregate amount of the Commitments hereunder at any time exceed $1,600,000,000, (D) no Default shall have occurred and be continuing on such Commitment Increase Date or shall result from the proposed Commitment Increase, (E) the representations and warranties contained in Article III shall be true and correct on and as of the Commitment Increase Date as if made on and as of such date, and (F) immediately after giving effect to such Commitment Increase, no Lender shall hold more than 20% of the aggregate amount of the Commitments. The Administrative Agent shall notify the Lenders of a proposed Commitment Increase promptly upon its receipt of any notice from the Company with respect to such proposed Commitment Increase. It shall be in each Lender's sole discretion whether to increase its Commitment hereunder in connection with any proposed Commitment Increase. No later than 10 Business Days (or such longer period as the Company and the Administrative Agent shall agree) after its receipt of the Company's notice proposing a Commitment Increase, each Lender that is willing to increase its Commitment hereunder (each such Lender being an "Increasing Lender") shall deliver to the Administrative Agent a notice in which such Lender shall set forth the maximum increase in its Commitment to which such Lender is willing to agree, and the Administrative Agent shall promptly provide to the Company a copy of such Increasing Lender's notice. (ii) Acceptance of Commitment Increase by Company. If agreement is reached prior to the relevant Commitment Increase Date with any Increasing Lenders and Assuming Lenders, if any, as to a Commitment Increase (the amount of which may be less than (subject to the limitation set forth in clause (i)(B) of this Section 2.07(e)) but not greater than that amount specified in the applicable notice from the Company), the Company shall deliver, no later than 3-Year Credit Agreement - 27 - three Business Days prior to such Commitment Increase Date, a notice thereof in reasonable detail to the Administrative Agent (and the Administrative Agent shall give notice thereof to the Lenders, including any Assuming Lenders). The Assuming Lenders, if any, shall become Lenders hereunder as of such Commitment Increase Date and the Commitments of any Increasing Lenders and such Assuming Lenders shall be increased as of such Commitment Increase Date; provided that: (x) the Administrative Agent shall have received on or prior to 9:00 a.m., New York City time, on such Commitment Increase Date a certificate of a duly authorized officer of the Company stating that each of the applicable conditions to such Commitment Increase set forth in this Section 2.07(e) has been satisfied; (y) with respect to each Assuming Lender, the Administrative Agent shall have received, on or prior to 9:00 a.m., New York City time, on such Commitment Increase Date, an appropriate Assumption Agreement in substantially the form of Exhibit E, duly executed by such Assuming Lender and the Company and acknowledged by the Administrative Agent; and (z) each Increasing Lender shall have delivered to the Administrative Agent, on or prior to 9:00 a.m., New York City time, on such Commitment Increase Date, confirmation in writing satisfactory to the Administrative Agent as to its increased Commitment, with a copy of such confirmation to the Company. (iii) Recordation into Register. Upon its receipt of confirmation from a Lender that it is increasing its Commitment hereunder, together with the certificate referred to in clause (ii)(x) above, the Administrative Agent shall (A) record the information contained therein in the Register and (B) give prompt notice thereof to the Company. Upon its receipt of an Assumption Agreement executed by an Assuming Lender, together with the certificate referred to in clause (ii)(x) above, the Administrative Agent shall, if such Assumption Agreement has been completed and is in substantially the form of Exhibit E, (x) accept such Assumption Agreement, (y) record the information contained therein in the Register and (z) give prompt notice thereof to the Company. (iv) Adjustments of Borrowings upon Effectiveness of Increase. In the event that the Administrative Agent shall have received notice from the Company as to any agreement with respect to a Commitment Increase on or prior to the relevant Commitment Increase Date and the actions provided for in clauses (ii)(x) through (ii)(z) above shall have occurred by 9:00 a.m., New York City time, on such Commitment Increase Date, the Administrative Agent shall notify the Lenders (including any Assuming Lenders) of the occurrence of such Commitment Increase Date promptly on such date by facsimile transmission or electronic messaging system. On the date of such increase, the Borrowers shall each prepay their respective then outstanding Syndicated Loans (if any) in full (together with any amounts payable under Section 2.14 as a result of any such prepayment of a Eurocurrency Borrowing prior to the last day of the Interest Period therefor), and shall simultaneously borrow new Syndicated Loans hereunder in an amount equal to such prepayment, so that, after giving effect thereto, the Syndicated Loans of the 3-Year Credit Agreement - 28 - respective Lenders to each Borrower are held ratably by the Lenders in accordance with their respective Commitments (after giving effect to such Commitment Increases). SECTION 2.08. Repayment of Loans; Evidence of Debt. (a) Repayment. Each Borrower hereby unconditionally promises to pay the Loans as follows: (i) to the Administrative Agent for account of the Lenders the outstanding principal amount of the Syndicated Loans on the Commitment Termination Date, and (ii) to the Administrative Agent for account of the respective Lender the then unpaid principal amount of each Competitive Loan of such Lender on the last day of the Interest Period therefor. (b) Manner of Payment. Prior to any repayment or prepayment of any Borrowings hereunder, the respective Borrower shall select the Borrowing or Borrowings to be paid and shall notify the Administrative Agent by telephone (confirmed by telecopy) of such selection not later than 11:00 a.m., New York City time, three Business Days before the scheduled date of such repayment; provided that each repayment of Borrowings shall be applied to repay any outstanding ABR Borrowings before any other Borrowings. If a Borrower fails to make a timely selection of the Borrowing or Borrowings to be repaid or prepaid, such payment shall be applied, first, to pay any outstanding ABR Borrowings of such Borrower and, second, to other Borrowings of such Borrower in the order of the remaining duration of their respective Interest Periods (the Borrowing with the shortest remaining Interest Period to be repaid first), and for these purposes, Competitive Loans shall be deemed to be in the same Class as Syndicated Loans. Each payment of a Syndicated Borrowing shall be applied ratably to the Loans included in such Borrowing. (c) Maintenance of Loan Accounts by Lenders. Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrowers to such Lender resulting from each Loan made by such Lender, including the amounts and Currency of principal and interest payable and paid to such Lender from time to time hereunder. (d) Maintenance of Loan Accounts by the Administrative Agent. The Administrative Agent shall maintain accounts in which it shall record (i) the amount and Currency of each Loan made hereunder, the Class and Type thereof and each Interest Period therefor, (ii) the amount and Currency of any principal or interest due and payable or to become due and payable from each Borrower to each Lender hereunder and (iii) the amount and Currency of any sum received by the Administrative Agent hereunder for account of the Lenders and each Lender's share thereof. (e) Effect of Entries. The entries made in the accounts maintained pursuant to paragraph (c) or (d) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative 3-Year Credit Agreement - 29 - Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of a Borrower to repay the Loans in accordance with the terms of this Agreement. (f) Promissory Notes. Any Lender may request that Loans made by it to a Borrower be evidenced by a promissory note. In such event, such Borrower shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Administrative Agent. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 9.04) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns). SECTION 2.09. Prepayment of Loans. (a) Optional Prepayments. Each Borrower shall have the right at any time and from time to time to prepay any Borrowing made to it in whole or in part, subject to the requirements of this Section; provided that no Borrower shall have the right to prepay any Competitive Loan without the prior consent of the Lender thereof. (b) Mandatory Prepayments. (i) Determination of Amount Outstanding. On each Quarterly Date and promptly upon the receipt by the Administrative Agent of a Currency Valuation Notice (as defined below), the Administrative Agent shall determine the sum of the aggregate Revolving Credit Exposure plus the aggregate outstanding principal amount of all Competitive Loans. For the purpose of this determination, the outstanding principal amount of any Loan that is denominated in any Foreign Currency shall be deemed to be the Dollar Equivalent of the amount in the Foreign Currency of such Loan, determined as of such Quarterly Date or, in the case of a Currency Valuation Notice received by the Administrative Agent prior to 11:00 a.m., New York City time, on a Business Day, on such Business Day or, in the case of a Currency Valuation Notice otherwise received, on the first Business Day after such Currency Valuation Notice is received. Upon making such determination, the Administrative Agent shall promptly notify the Lenders and the Company thereof. (ii) Prepayment. If, on the date of such determination such sum exceeds 105% of the aggregate amount of the Commitments as then in effect, the Borrowers shall, if requested by the Required Lenders (through the Administrative Agent), prepay the Syndicated Loans and Competitive Loans in such amounts as shall be necessary so that after giving effect thereto the sum of the aggregate Revolving Credit Exposure plus the aggregate outstanding principal amount of all Competitive Loans does not exceed the Commitments. For purposes hereof, "Currency Valuation Notice" means a notice given by the Required Lenders to the Administrative Agent stating that such notice is a "Currency Valuation Notice" and requesting that the Administrative Agent determine the sum of the aggregate Revolving Credit 3-Year Credit Agreement - 30 - Exposure plus the aggregate outstanding principal amount of all Competitive Loans. The Administrative Agent shall not be required to make more than one valuation determination pursuant to Currency Valuation Notices within any rolling three month period. Any prepayment pursuant to this paragraph shall be applied, first, to Syndicated Loans outstanding and second, to Competitive Loans outstanding. (c) Notices, Etc. Each Borrower shall notify the Administrative Agent by telephone (confirmed by telecopy) of any optional prepayment to be made by it hereunder (i) in the case of prepayment of a Syndicated Eurocurrency Borrowing or of a Competitive Borrowing, not later than 11:00 a.m., New York City time (or, in the case of a Borrowing denominated in a Foreign Currency, 11:00 a.m., London time), two Business Days before the date of prepayment or (ii) in the case of prepayment of an ABR Borrowing, not later than 11:00 a.m., New York City time, on the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date, the principal amount of each Borrowing or portion thereof to be prepaid and, in the case of a mandatory prepayment, a reasonably detailed calculation of the amount of such prepayment; provided that, if a notice of prepayment is given in connection with a conditional notice of termination of the Commitments as contemplated by Section 2.07, then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.07. Promptly following receipt of any such notice relating to a Syndicated Borrowing or Competitive Borrowing, the Administrative Agent shall advise the relevant Lenders of the contents thereof. Each partial prepayment of any Borrowing shall be in an amount that would be permitted in the case of a Borrowing of the same Type as provided in Section 2.02, except as necessary to apply fully the required amount of a mandatory prepayment. Each prepayment of a Syndicated Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.11 and shall be made in the manner specified in Section 2.08(b). SECTION 2.10. Fees. (a) Facility Fee. The Company agrees to pay to the Administrative Agent for account of each Lender a facility fee, which shall accrue at the Applicable Rate on the daily amount of the Commitment of such Lender (whether used or unused) during the period from and including the Effective Date to but excluding the earlier of the date such Commitment terminates and the Commitment Termination Date; provided that, if such Lender continues to have any Revolving Credit Exposure after its Commitment terminates, then such facility fee shall continue to accrue on the daily amount of such Lender's Revolving Credit Exposure from and including the date on which its Commitment terminates to but excluding the date on which such Lender ceases to have any Revolving Credit Exposure. Accrued facility fees shall be payable on each Quarterly Date and on the earlier of the date the Commitments terminate and the Commitment Termination Date, commencing on the first such date to occur after the date hereof; provided that any facility fees accruing after the date on which the Commitments terminate shall be payable on demand. All facility fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). 3-Year Credit Agreement - 31 - (b) Administrative Agent Fees. The Company agrees to pay to the Administrative Agent, for its own account, fees payable in the amounts and at the times separately agreed upon between the Company and the Administrative Agent. (c) Payment of Fees. All fees payable hereunder shall be paid on the dates due, in Dollars and immediately available funds, to the Administrative Agent for distribution, in the case of facility fees, to the Lenders entitled thereto. Fees paid shall not be refundable under any circumstances. SECTION 2.11. Interest. (a) ABR Loans. The Loans constituting each ABR Borrowing shall bear interest at a rate per annum equal to the Alternate Base Rate. (b) Eurocurrency Loans. The Loans constituting each Eurocurrency Borrowing shall bear interest at a rate per annum equal to (i) in the case of a Syndicated Eurocurrency Borrowing, the Adjusted Eurocurrency Rate for the Interest Period for such Borrowing plus the Applicable Rate, or (ii) in the case of a Competitive Eurocurrency Borrowing, the Eurocurrency Rate for the Interest Period for such Borrowing plus (or minus, as applicable) the Margin applicable to such Loan. (c) Fixed Rate Loans. Each Fixed Rate Loan shall bear interest at a rate per annum equal to the Fixed Rate applicable to such Loan. (d) Default Interest. Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by a Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration, by mandatory prepayment or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the rate otherwise applicable to such Loan as provided above or (ii) in the case of any other amount, 2% plus the rate applicable to ABR Loans as provided in paragraph (a) of this Section. (e) Payment of Interest. Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan and, in the case of Syndicated Loans, upon termination of the Commitments; provided that (i) interest accrued pursuant to paragraph (d) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of an ABR Loan prior to the Commitment Termination Date), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Syndicated Eurocurrency Borrowing denominated in Dollars prior to the end of the Interest Period therefor, accrued interest on such Borrowing shall be payable on the effective date of such conversion. (f) Computation. All interest hereunder shall be computed on the basis of a year of 360 days, except that (i) interest in respect of Eurocurrency Borrowings denominated in English Pounds Sterling shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and (ii) interest computed by reference to the Alternate Base Rate at times when the 3-Year Credit Agreement - 32 - Alternate Base Rate is based on the base rate of JPMCB shall be computed on the basis of a year of 365 days (or 366 days in a leap year); interest shall in each case be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate, Adjusted Eurocurrency Rate or Eurocurrency Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error. SECTION 2.12. Alternate Rate of Interest. If prior to the commencement of the Interest Period for any Eurocurrency Borrowing (the Currency of such Borrowing herein called the "Affected Currency"): (a) the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted Eurocurrency Rate (in the case of a Syndicated Eurocurrency Borrowing) or the Eurocurrency Rate (in the case of a Competitive Eurocurrency Borrowing) for the Affected Currency for such Interest Period; or (b) the Administrative Agent is advised by the Required Lenders (or, in the case of a Competitive Eurocurrency Borrowing, any Lender that is required to make such Loan) that the Adjusted Eurocurrency Rate (in the case of a Syndicated Eurocurrency Borrowing) or the Eurocurrency Rate (in the case of a Competitive Eurocurrency Borrowing) for the Affected Currency for such Interest Period will not adequately and fairly reflect the cost to such Lenders (or Lender) of making or maintaining their Loans (or its Loan) included in such Borrowing for such Interest Period; then the Administrative Agent shall give notice thereof to the Borrowers and the Lenders by telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrowers and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Syndicated Borrowing to, or the continuation of any Syndicated Borrowing as, a Syndicated Eurocurrency Borrowing denominated in the Affected Currency shall be ineffective and, if the Affected Currency is Dollars, such Syndicated Borrowing (unless prepaid) shall be continued as, or converted to, an ABR Borrowing, (ii) if the Affected Currency is Dollars and any Borrowing Request requests a Syndicated Eurocurrency Borrowing denominated in Dollars, such Borrowing shall be made as an ABR Borrowing, (iii) if the Affected Currency is a Foreign Currency, any Borrowing Request that requests a Syndicated Eurocurrency Borrowing denominated in the Affected Currency shall be ineffective and (iv) any request by a Borrower for a Competitive Eurocurrency Borrowing denominated in the Affected Currency shall be ineffective; provided that (A) if the circumstances giving rise to such notice do not affect all the Lenders, then requests by a Borrower for Competitive Eurocurrency Borrowings denominated in the Affected Currency may be made to Lenders that are not affected thereby, and (b) the provisions of this Section shall not apply to any determination of the Adjusted Eurocurrency Rate or the Eurocurrency Rate (as the case may be) for the Interest Period for any Eurocurrency Borrowing if the applicable Eurocurrency Rate is available on the Screen as contemplated by the first sentence of the definition of "Eurocurrency Rate". 3-Year Credit Agreement - 33 - SECTION 2.13. Increased Costs. (a) Increased Costs Generally. If any Change in Law shall: (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted Eurocurrency Rate); or (ii) impose on any Lender or the London interbank market any other condition affecting this Agreement or Eurocurrency Loans or Fixed Rate Loans made by such Lender; and the result of any of the foregoing shall be to increase the cost to such Lenders of making or maintaining any Eurocurrency Loan or Fixed Rate Loan to any Borrower (or of maintaining its obligation to make any such Loan) or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or otherwise), then the respective Borrower will pay to such Lender, in Dollars, such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered. (b) Capital Requirements. If any Lender determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender's capital or on the capital of such Lender's holding company, if any, as a consequence of this Agreement or the Loans made by such Lender to a level below that which such Lender or such Lender's holding company could have achieved but for such Change in Law (taking into consideration such Lender's policies and the policies of such Lender's holding company with respect to capital adequacy), then from time to time the Company will pay to such Lender, in Dollars, such additional amount or amounts as will compensate such Lender or such Lender's holding company for any such reduction suffered. (c) Certificates from Lenders. A certificate of a Lender setting forth the amount or amounts, in Dollars, necessary to compensate such Lender or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section, and setting forth calculations of such amount or amounts, shall be delivered to the Company and shall be conclusive absent manifest error. The respective Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof. (d) Delay in Requests. Failure or delay on the part of any Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender's right to demand such compensation; provided that no Borrower shall be required to compensate a Lender pursuant to this Section for any increased costs or reductions incurred more than six months prior to the date that such Lender notifies the Company of the Change in Law giving rise to such increased costs or reductions and of such Lender's intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the six-month period referred to above shall be extended to include the period of retroactive effect thereof. 3-Year Credit Agreement - 34 - (e) Competitive Loans. Notwithstanding the foregoing provisions of this Section, a Lender shall not be entitled to compensation pursuant to this Section in respect of any Competitive Loan if the Change in Law that would otherwise entitle it to such compensation shall have been publicly announced prior to submission of the Competitive Bid pursuant to which such Loan was made. SECTION 2.14. Break Funding Payments. In the event of (a) the payment of any principal of any Eurocurrency Loan or Fixed Rate Loan of any Borrower other than on the last day of an Interest Period therefor (including as a result of an Event of Default), (b) the conversion of any Syndicated Eurocurrency Loan of any Borrower other than on the last day of an Interest Period therefor, (c) the failure to borrow, convert, continue or prepay any Syndicated Loan of any Borrower on the date specified in any notice delivered pursuant hereto (regardless of whether such notice is permitted to be revocable under Section 2.09(c) and is revoked in accordance herewith), (d) the failure by any Borrower to borrow any Competitive Loan after accepting the Competitive Bid to make such Loan, (e) the assignment of any Syndicated Eurocurrency Loan or Fixed Rate Loan of any Borrower other than on the last day of an Interest Period therefor as a result of a request by the Company pursuant to Section 2.18 or (f) any repayment of all or any portion of any Syndicated Eurocurrency Loan or Fixed Rate Loan other than on the last day of an Interest Period therefor as a result of a request by the Company for a Commitment Increase pursuant to Section 2.07(e) and a resulting adjustment of outstanding Borrowings as between Lenders under paragraph (iv) of said Section, then, in any such event, such Borrower shall compensate each Lender for the loss, cost and expense attributable to such event. In the case of a Eurocurrency Loan, the loss to any Lender attributable to any such event shall be deemed to include an amount determined by such Lender to be equal to the excess, if any, of (i) the amount of interest that such Lender would pay for a deposit equal to the principal amount of such Loan denominated in the Currency of such Loan for the period from the date of such payment, conversion, failure or assignment to the last day of the then current Interest Period for such Loan (or, in the case of a failure to borrow, convert or continue, the duration of the Interest Period that would have resulted from such borrowing, conversion or continuation) if the interest rate payable on such deposit were equal to the Adjusted Eurocurrency Rate for such Currency (in the case of a Syndicated Eurocurrency Loan) or the Eurocurrency Rate for such Currency (in the case of a Competitive Eurocurrency Loan) for such Interest Period, over (ii) the amount of interest that such Lender would earn on such principal amount for such period if such Lender were to invest such principal amount for such period at the interest rate that would be bid by such Lender (or an affiliate of such Lender) for deposits denominated in such Currency from other banks in the eurocurrency market at the commencement of such period. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to the Company and shall be conclusive absent manifest error. The respective Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof. 3-Year Credit Agreement - 35 - SECTION 2.15. U.S. Taxes. (a) Payments Free of Taxes. Any and all payments by or on account of any obligation of any Borrower hereunder shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if any Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent or Lender (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Borrower shall make such deductions and (iii) such Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) Payment of Other Taxes by the Borrowers. In addition, each Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) Indemnification by the Company. The Company shall indemnify the Administrative Agent and each Lender, within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) paid by the Administrative Agent or such Lender, as the case may be, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Company by a Lender, or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error. (d) Evidence of Payments. As soon as practicable after any payment of Indemnified Taxes or Other Taxes by any Borrower to a Governmental Authority, such Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. (e) Foreign Lenders. Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the United States of America, or any treaty to which the United States of America is a party, with respect to payments under this Agreement by any Borrower shall deliver to the Company (with a copy to the Administrative Agent), at the time or times prescribed by applicable law or reasonably requested by the Company, such properly completed and executed documentation prescribed by applicable law as will permit such payments by such Borrower to be made without withholding or at a reduced rate. SECTION 2.16. Foreign Taxes. (a) Payments to be Made Free and Clear of Foreign Taxes. All payments on account of the principal of and interest on the Loans, fees and all other amounts payable 3-Year Credit Agreement - 36 - hereunder by any Approved Borrower organized under a Foreign Jurisdiction to or for the account of the Administrative Agent or any Lender, including amounts payable under paragraph (b) of this Section, shall be made free and clear of and without reduction or liability for Foreign Taxes. Such Approved Borrower will pay all Foreign Taxes applicable to it, without charge to or offset against any amount due to the Administrative Agent or any Lender, prior to the date on which penalties attach thereto, except for any such Foreign Taxes (other than Foreign Taxes imposed on or in respect of any amount payable by such Approved Borrower hereunder) the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained, so long as no claim for such Foreign Taxes is made on the Administrative Agent or any Lender. (b) Indemnification by Approved Borrowers. Each Approved Borrower organized under a Foreign Jurisdiction shall indemnify the Administrative Agent and each Lender against, and reimburse the Administrative Agent and each Lender on demand for, any Foreign Taxes applicable to it and any loss, liability, claim or expense, including interest, penalties and legal fees, that the Administrative Agent or such Lender may incur at any time arising out of or in connection with any failure of such Approved Borrower to make any payment of Foreign Taxes when due. (c) Gross-Up for Foreign Taxes. In the event that any Approved Borrower organized under a Foreign Jurisdiction is required by applicable law, decree or regulation to deduct or withhold Foreign Taxes from any amounts payable on, under or in respect of this Agreement or the Loans made to it, such Approved Borrower shall (to the fullest extent permitted by applicable law) promptly pay the Person entitled to such amount such additional amounts as may be required, after the deduction or withholding of Foreign Taxes, to enable such Person to receive from such Approved Borrower on the due date thereof, an amount equal to the full amount stated to be payable to such Person under this Agreement. Each Lender shall provide to such Approved Borrower such forms or certificates as such Approved Borrower may reasonably request to establish such Lender's entitlement to an exemption from or reduction of Foreign Taxes, but no Lender shall be required to provide any form or certificate if it determines in its discretion that the provision of such form or certificate could adversely affect it or it is not legally entitled to provide such form or certificate. (d) Evidence of Payment of Foreign Taxes. Each Approved Borrower organized under a Foreign Jurisdiction shall furnish to the Administrative Agent, upon the request of any Lender (through the Administrative Agent), together with sufficient certified copies for distribution to each Lender requesting the same (identifying the Lenders that have so requested), original official tax receipts (or certified copies thereof) in respect of each payment of Foreign Taxes required under this Section made by such Approved Borrower or such other information, documents and receipts that the Administrative Agent or such Lender may reasonably require to establish to its satisfaction that full and timely payment has been made of all Foreign Taxes required to be paid under this Section within 30 days after the date such payment is made. 3-Year Credit Agreement - 37 - SECTION 2.17. Payments Generally; Pro Rata Treatment; Sharing of Set-offs. (a) Payments by the Borrowers. Each Borrower shall make each payment required to be made by it hereunder (whether of principal, interest or fees, or under Section 2.13, 2.14, 2.15 or 2.16, or otherwise) prior to 12:00 noon, Local Time, on the date when due, in immediately available funds, without set-off, counterclaim or other deduction. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at the Administrative Agent's Account, except that payments pursuant to Sections 2.13, 2.14, 2.15, 2.16 and 9.03 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder (including facility fees, payments required under Section 2.13, and payments required under Section 2.14 relating to any Loan denominated in Dollars, but not including principal of, and interest on, any Loan denominated in any Foreign Currency or payments relating to any such Loan required under Section 2.14, which are payable in such Foreign Currency) shall be made in Dollars. Notwithstanding the foregoing, if any Borrower shall fail to pay any principal of any Loan when due (whether at stated maturity, by acceleration, by mandatory prepayment or otherwise), the unpaid portion of such Loan shall, if such Loan is not denominated in Dollars, automatically be redenominated in Dollars on the due date thereof (or, if such due date is a day other than the last day of the Interest Period therefor, on the last day of such Interest Period) in an amount equal to the Dollar Equivalent thereof on the date of such redenomination and such principal shall be payable on demand; and if any Borrower shall fail to pay any interest on any Loan that is not denominated in Dollars, such interest shall automatically be redenominated in Dollars on the due date therefor (or, if such due date is a day other than the last day of the Interest Period therefor, on the last day of such Interest Period) in an amount equal to the Dollar Equivalent thereof on the date of such redenomination and such interest shall be payable on demand. (b) Application of Insufficient Payments. If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, interest and fees then due hereunder, such funds shall be applied (i) first, to pay interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, to pay principal then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal then due to such parties. (c) Pro Rata Treatment. Except to the extent otherwise provided herein: (i) each Syndicated Borrowing shall be made from the Lenders, each payment of a facility fee under Section 2.10 shall be made for account of the Lenders, and each termination or reduction of the amount of the Commitments under Section 2.07 shall be applied to the respective Commitments of the Lenders, pro rata according to the amounts of their respective Commitments (or, in the 3-Year Credit Agreement - 38 - case of payment of facility fees, pro rata according to the amounts of their respective Revolving Credit Exposures); (ii) each Syndicated Borrowing shall be allocated pro rata among the Lenders according to the amounts of their respective Commitments (in the case of the making of Syndicated Loans) or their respective Loans (in the case of conversions and continuations of Loans); (iii) each payment or prepayment of principal of Syndicated Loans by any Borrower shall be made for account of the Lenders pro rata in accordance with the respective unpaid principal amounts of the Syndicated Loans of such Borrower held by them; and (iv) each payment of interest on Syndicated Loans by any Borrower shall be made for account of the Lenders pro rata in accordance with the amounts of interest on such Loans of such Borrower then due and payable to the respective Lenders. (d) Sharing of Payments by Lenders. If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Syndicated Loans resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Syndicated Loans and accrued interest thereon then due than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Syndicated Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Syndicated Loans; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by a Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans to any assignee or participant, other than to the Company or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). Each Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against such Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of such Borrower in the amount of such participation. (e) Presumptions of Payment. Unless the Administrative Agent shall have received notice from a Borrower prior to the date on which any payment is due to the Administrative Agent for account of the Lenders hereunder that the respective Borrower will not make such payment, the Administrative Agent may assume that such Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders the amount due. In such event, if such Borrower has not in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the Federal Funds Effective Rate. 3-Year Credit Agreement - 39 - (f) Certain Deductions by the Administrative Agent. If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.05(b) or 2.17(e), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for account of such Lender to satisfy such Lender's obligations under such Sections until all such unsatisfied obligations are fully paid. SECTION 2.18. Mitigation Obligations; Replacement of Lenders. (a) Designation of a Different Lending Office. If any Lender requests compensation under Section 2.13, or if any Borrower is required to pay any additional amount to any Lender or any Governmental Authority for account of any Lender pursuant to Section 2.15 or 2.16, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.13, 2.15 or 2.16, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. Each Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. (b) Replacement of Lenders. If any Lender requests compensation under Section 2.13, or if any Borrower is required to pay any additional amount to any Lender or any Governmental Authority for account of any Lender pursuant to Section 2.15 or 2.16, or if any Lender defaults in its obligation to fund Loans hereunder, then the Company may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 9.04), all its interests, rights and obligations under this Agreement (other than any outstanding Competitive Loans held by it) to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (i) the Company shall have received the prior written consent of the Administrative Agent, which consent shall not unreasonably be withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans (other than Competitive Loans), accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrowers (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.13 or payments required to be made pursuant to Section 2.15 or 2.16, such assignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Company to require such assignment and delegation cease to apply. 3-Year Credit Agreement - 40 - ARTICLE III REPRESENTATIONS AND WARRANTIES Representations and Warranties. Each of the Company and the Approved Borrowers, as applicable, represents and warrants to the Lenders that: Part A. Representations and Warranties of the Company. SECTION 3.01. Corporate Existence. Each of the Company and its Material Subsidiaries: (a) is a corporation duly organized and validly existing under the laws of the jurisdiction of its incorporation (or, in the case of a Material Subsidiary that is not a corporation, is a partnership or other entity duly organized and validly existing under the laws of its jurisdiction of organization); (b) has all requisite legal power, and has all material governmental licenses, authorizations, consents and approvals, necessary to own its assets and carry on its business as now being or as proposed to be conducted; and (c) is qualified to do business in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary and where failure so to qualify would have a Material Adverse Effect. SECTION 3.02. Financial Condition. The consolidated balance sheet of the Company and its Consolidated Subsidiaries as at December 31, 2002 and the related consolidated statements of earnings, cash flow and common shareholders' equity of the Company and its Consolidated Subsidiaries for the fiscal year ended on said date, with the opinion thereon of Deloitte & Touche LLP, heretofore furnished to each of the Lenders, are complete and correct and fairly present the consolidated financial condition of the Company and its Consolidated Subsidiaries as at said date and the consolidated results of their operations for the fiscal year, on said date, all in accordance with GAAP. Neither the Company nor any of its Material Subsidiaries had on said dates any material contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments, except as referred to or reflected or provided for in said balance sheets as at said dates. Since December 31, 2002, there has been no event or condition that could result in a Material Adverse Effect. SECTION 3.03. Litigation. Except as disclosed to the Lenders in writing prior to the date of this Agreement, the legal or arbitral proceedings, and proceedings by or before any Governmental Authority, now pending or (to the knowledge of the Company) threatened against the Company and/or any of its Material Subsidiaries will not, in the opinion of the General Counsel of the Company, result in imposition of liability or assessment against (including seizure of) property that would result in a Material Adverse Effect. SECTION 3.04. No Breach. None of the execution and delivery of this Agreement, the consummation of the transactions herein contemplated and compliance with the terms and provisions hereof will conflict with or result in a breach of, or require any consent under, the charter or by-laws of the Company, or any applicable law or regulation, or any order, writ, injunction or decree of any Governmental Authority, or any agreement or instrument to 3-Year Credit Agreement - 41 - which the Company or any of its Material Subsidiaries is a party or by which any of them is bound or to which any of them is subject, or constitute a default under any such agreement or instrument. SECTION 3.05. Corporate Action of the Company. The Company has all necessary corporate power and authority to execute, deliver and perform its obligations under this Agreement; the execution, delivery and performance by the Company of this Agreement have been duly authorized by all necessary corporate action on its part; and this Agreement has been duly and validly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with its terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally. SECTION 3.06. Approvals. No authorizations, approvals or consents of, and no filings or registrations with, any Governmental Authority are necessary for the execution, delivery or performance by the Company of this Agreement or for the validity or enforceability thereof. SECTION 3.07. Use of Loans. Neither the Company nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose, whether immediate, incidental or ultimate, of buying or carrying Margin Stock and no part of the proceeds of any Loan hereunder will be used to buy or carry, or to extend credit to others to buy or carry, any Margin Stock. SECTION 3.08. ERISA. The Company and the ERISA Affiliates have fulfilled their respective obligations under the minimum funding standards of ERISA and the Code with respect to each Plan and are in compliance in all material respects with the presently applicable provisions of ERISA and the Code, and have not incurred any liability to the PBGC or any Plan or Multiemployer Plan (other than to make contributions in the ordinary course of business). SECTION 3.09. Taxes. United States Federal income tax returns of the Company have been examined and closed through the fiscal year of the Company ended December 31, 1996. The Company and its Subsidiaries have filed all United States Federal income tax returns and all other material tax returns required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Company or any of its Subsidiaries except for those being contested in good faith and for which adequate reserves have been established in accordance with GAAP. The charges, accruals and reserves on the books of the Company and its Material Subsidiaries in respect of taxes and other governmental charges are, in the opinion of the Company, adequate. If the Company is a member of an affiliated group of corporations filing consolidated returns for United States Federal income tax purposes, it is the "common parent" of such group. SECTION 3.10. Investment Company Act. None of the Company or any of the Approved Borrowers is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 3-Year Credit Agreement - 42 - SECTION 3.11. Public Utility Holding Company Act. None of the Company or any of the Approved Borrowers is a "holding company", or an "affiliate" of a "holding company" or a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. SECTION 3.12. Credit Agreements. Schedule II is a complete and correct list, as of the date of this Agreement, of each credit agreement, loan agreement, indenture, purchase agreement, guarantee or other arrangement providing for or otherwise relating to any Indebtedness or any extension of credit (or commitment for any extension of credit) to, or guarantee by, the Company or any of its Material Subsidiaries the aggregate principal or face amount of which equals or exceeds (or may equal or exceed) $150,000,000 and the aggregate principal or face amount outstanding or which may become outstanding under each such arrangement is correctly described in Schedule II. SECTION 3.13. Hazardous Materials and Environmental Matters. (a) Licenses and Permits, Etc. The Company and each of its Material Subsidiaries have obtained all permits, licenses and other authorizations required under all Environmental Laws, except to the extent failure to have any such permit, license or authorization could not in the aggregate reduce by more than 25% the annual tonnage capacity of the paper processing operations of the Company and its Consolidated Subsidiaries. The Company and each of its Material Subsidiaries are in compliance with the terms and conditions of all such permits, licenses and authorizations, and are also in compliance with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in any applicable Environmental Law or in any regulation, code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder, except to the extent failure to comply could not in the aggregate reduce by more than 25% the annual tonnage capacity of the paper processing operations of the Company and its Consolidated Subsidiaries. (b) Compliance Review. In the ordinary course of its business, the Company conducts an ongoing review of the effect of Environmental Laws on the business, operations and properties of the Company and its Subsidiaries, in the course of which it identifies and evaluates associated liabilities and costs (including any capital or operating expenditures required for clean-up or closure of properties presently or previously owned, any capital or operating expenditures required to achieve or maintain compliance with environmental protection standards imposed by law or as a condition of any license, permit or contract, any related constraints on operating activities, including any periodic or permanent shutdown of any facility or reduction in the level of or change in the nature of operations conducted thereat, any costs or liabilities in connection with off-site disposal of wastes or hazardous substances, and any actual or potential liabilities to third parties, including employees, and any related costs and expenses). On the basis of this review, the Company has reasonably concluded that such associated liabilities and costs, including the costs of compliance with Environmental Laws, are unlikely to have a Material Adverse Effect. 3-Year Credit Agreement - 43 - SECTION 3.14. Full Disclosure. The Company has heretofore furnished to each of the Lenders a true copy of the Company's annual report to shareholders for 2002 setting forth consolidated audited financial statements for the year ended December 31, 2002, as filed with the Securities and Exchange Commission. Except as disclosed in writing to the Lenders, the annual, quarterly and other periodic reports most recently delivered to the Lenders pursuant to this Section or Section 3.02 do not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading. Part B. Representations and Warranties of the Approved Borrowers. Each Approved Borrower represents and warrants to the Lenders that: SECTION 3.15. Existence of Approved Borrowers. It (a) is duly organized and validly existing under the laws of the jurisdiction of its formation; (b) has all requisite power, and has all material governmental licenses, authorizations, consents and approvals necessary to own its assets and carry on its business as now being or as proposed to be conducted; and (c) is qualified to do business in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary and where failure so to qualify would have a Material Adverse Effect. SECTION 3.16. No Breach. None of the execution and delivery of its Designation Letter, the consummation of the transactions herein contemplated and compliance with the terms and provisions hereof will conflict with or result in a breach of, or require any consent under, the charter or by-laws of such Approved Borrower, or any applicable law or regulation, or any order, writ, injunction or decree of any Governmental Authority, or any agreement or instrument to which such Approved Borrower or any of its Subsidiaries is a party or by which any of them is bound or to which any of them is subject, or constitute a default under any such agreement or instrument. SECTION 3.17. Corporate Action. Such Approved Borrower has all necessary power and authority to execute, deliver and perform its obligations under its Designation Letter and to perform its obligations hereunder; the execution and delivery by such Approved Borrower of its Designation Letter and the performance by such Approved Borrower hereunder and thereunder have been duly authorized by all necessary action on its part; and its Designation Letter when executed and delivered by such Approved Borrower, will constitute, the legal, valid and binding obligation of such Approved Borrower, enforceable in accordance with its terms. SECTION 3.18. Approvals. No authorizations, approvals or consents of, and no filings or registrations with, any Governmental Authority are necessary for the execution, delivery or performance by such Approved Borrower of its Designation Letter or for the validity or enforceability thereof. SECTION 3.19. Taxes on Payments of Approved Borrowers. Except as disclosed to the Lenders in writing prior to the delivery of such Approved Borrower's Designation Letter, there is no income, stamp or other tax of any country, or of any taxing authority thereof or therein, imposed by or in the nature of withholding or otherwise, which is 3-Year Credit Agreement - 44 - imposed on any payment to be made by such Approved Borrower pursuant hereto, or is imposed on or by virtue of the execution, delivery or enforcement of its Designation Letter. ARTICLE IV GUARANTEE SECTION 4.01. Guarantee. The Guarantor hereby guarantees to each Lender and the Administrative Agent and their respective successors and assigns the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the principal of and interest on the Loans made by the Lenders to any Approved Borrower and all other amounts from time to time owing to the Lenders or the Administrative Agent by any Approved Borrower under this Agreement pursuant to its Designation Letter, in each case strictly in accordance with the terms thereof (such obligations being herein collectively called the "Guaranteed Obligations"). The Guarantor hereby further agrees that if any Approved Borrower shall fail to pay in full when due (whether at stated maturity, by acceleration or otherwise) any of the Guaranteed Obligations, the Guarantor will promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Guaranteed Obligations, the same will be promptly paid in full when due (whether at extended maturity, by acceleration or otherwise) in accordance with the terms of such extension or renewal. This is a guarantee of payment and not of collection. SECTION 4.02. Obligations Unconditional. The obligations of the Guarantor under Section 4.01 are absolute and unconditional irrespective of the value, genuineness, validity, regularity, legality or enforceability of the obligations of any Approved Borrower under this Agreement or any other agreement or instrument referred to herein or therein (including any Designation Letter), or any substitution, release or exchange of any other guarantee of or security for any of the Guaranteed Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor (including any immunity, sovereign or otherwise, to which any Approved Borrower may be entitled), it being the intent of this Section that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances. Without limiting the generality of the foregoing, it is agreed that the occurrence of any one or more of the following shall not affect the liability of the Guarantor hereunder: (i) at any time or from time to time, without notice to the Guarantor, the time for any performance of or compliance with any of the Guaranteed Obligations shall be extended, or such performance or compliance shall be waived; (ii) any of the acts mentioned in any of the provisions of this Agreement or any other agreement or instrument referred to herein or therein shall be done or omitted; or (iii) the maturity of any of the Guaranteed Obligations shall be accelerated, or any of the Guaranteed Obligations shall be modified, supplemented, or amended in any 3-Year Credit Agreement - 45 - respect, or any right under this Agreement or any other agreement or instrument referred to herein or therein shall be waived or any other guarantee of any of the Guaranteed Obligations or any security therefor shall be released or exchanged in whole or in part or otherwise dealt with. The Guarantor hereby expressly waives diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Administrative Agent or any Lender exhaust any right, power or remedy or proceed against any Approved Borrower under this Agreement or any other agreement or instrument referred to herein or therein, or against any other Person under any other guarantee of, or security for, any of the Guaranteed Obligations. SECTION 4.03. Reinstatement. The obligations of the Guarantor under this Article IV shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of any Approved Borrower in respect of the Guaranteed Obligations is rescinded or must be otherwise restored by any holder of any of the Guaranteed Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise and the Guarantor agrees that it will indemnify the Administrative Agent and each Lender on demand for all reasonable costs and expenses (including fees of counsel) incurred by the Administrative Agent or such Lender in connection with such rescission or restoration. SECTION 4.04. Subrogation. The Guarantor hereby waives all rights of subrogation or contribution, whether arising by operation of law (including any such right arising under the Bankruptcy Code, as now or hereafter in effect) or otherwise, by reason of any payment by it pursuant to the provisions of this Article IV and further agrees that for the benefit of each of its creditors (including each Lender and the Administrative Agent) that any such payment by it of the Guaranteed Obligations of any Approved Borrower shall constitute a contribution of capital by the Guarantor to such Approved Borrower or, if evidenced by an instrument in form and substance (and containing terms of subordination) satisfactory to the Required Lenders, indebtedness subordinated in right of payment to the principal of and interest (including post-petition interest) on the Loans owing by such Approved Borrower. SECTION 4.05. Remedies. The Guarantor agrees that, as between the Guarantor and the Lenders, the obligations of any Approved Borrower under this Agreement may be declared to be forthwith due and payable as provided in Article VII (and shall be deemed to have become automatically due and payable in the circumstances provided in Article VII) for purposes of Section 4.01 notwithstanding any stay, injunction or other prohibition preventing such declaration (or such obligations from becoming automatically due and payable) as against any Approved Borrower and that, in the event of such declaration (or such obligations being deemed to have become automatically due and payable), such obligations (whether or not due and payable by such Approved Borrower) shall forthwith become due and payable by the Guarantor for purposes of said Section 4.01. SECTION 4.06. Continuing Guarantee. The guarantee in this Article IV is a continuing guarantee, and shall apply to all Guaranteed Obligations whenever arising. 3-Year Credit Agreement - 46 - ARTICLE V CONDITIONS SECTION 5.01. Effective Date. The obligations of the Lenders to make Loans hereunder shall not become effective until the date on which the Administrative Agent shall have received each of the following documents, each of which shall be satisfactory to the Administrative Agent (and to the extent specified below, to each Lender) in form and substance (or such condition shall have been waived in accordance with Section 9.02): (a) Executed Counterparts. From each party hereto either (i) a counterpart of this Agreement signed on behalf of such party or (ii) written evidence satisfactory to the Administrative Agent (which may include telecopy transmission of a signed signature page to this Agreement) that such party has signed a counterpart of this Agreement. (b) Opinion of Counsel to the Company. A favorable written opinion (addressed to the Administrative Agent and the Lenders and dated the Effective Date) of Barbara Smithers, Vice President, Corporate Secretary and counsel for the Company substantially in the form of Exhibit B-1 (and the Company hereby instructs such counsel to deliver such opinion to the Lenders and the Administrative Agent). (c) Opinion of Special New York Counsel to JPMCB. An opinion, dated the Effective Date, of Milbank, Tweed, Hadley & McCloy LLP, special New York counsel to JPMCB, substantially in the form of Exhibit C (and JPMCB hereby instructs such counsel to deliver such opinion to the Lenders). (d) Corporate Documents. Such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of the Company, the authorization of the borrowings hereunder by the Company, and its Guarantee of obligations of the Approved Borrowers, all in form and substance satisfactory to the Administrative Agent and its counsel. (e) Officer's Certificate. A certificate, dated the Effective Date and signed by the President, a Vice President or a senior financial officer of the Company, confirming compliance with the conditions set forth in the lettered clauses of the first sentence of Section 5.03. (f) 2002 Credit Agreement. Evidence that the principal of and interest on, and all other amounts owing in respect of the "Loans" (if any) outstanding under the 2002 Credit Agreement shall have been paid in full, and all "Commitments" to make "Loans" thereunder shall have been terminated. (g) Other Documents. Such other documents as the Administrative Agent or any Lender or special New York counsel to JPMCB may reasonably request. 3-Year Credit Agreement - 47 - The effectiveness of the obligations of the Lenders to make Loans hereunder shall also be subject to the conditions precedent that: (i) No Material Adverse Change. Since December 31, 2002, there has been no material adverse change in the consolidated financial condition, operations, business or prospects taken as a whole of the Company and its Subsidiaries from that set forth in the respective financial statements of the Company as at said date (and the Administrative Agent shall have received a certificate to such effect from a senior financial officer of the Company). (ii) Fees. The Company shall have paid such fees as it shall have agreed to pay to any Lender or the Administrative Agent in connection herewith, including the reasonable fees and expenses of Milbank, Tweed, Hadley & McCloy LLP, special New York counsel to JPMCB, in connection with the negotiation, preparation, execution and delivery of this Agreement and the Loans hereunder (to the extent that statements for such fees and expenses have been delivered to the Company). The Administrative Agent shall notify the Company and the Lenders of the Effective Date, and such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the Lenders to make Loans hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 9.02) on or prior to 3:00 p.m., New York City time, on March 6, 2003 (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time). SECTION 5.02. Initial Loan to any Approved Borrower. The obligations of the Lenders to make Loans hereunder to any Approved Borrower shall not become effective until the date on which the Administrative Agent shall have received each of the following documents, each of which shall be satisfactory to the Administrative Agent (and to the extent specified below, to each Lender) in form and substance (or such condition shall have been waived in accordance with Section 9.02): (a) Designation Letter. A Designation Letter, duly executed by such Approved Borrower and the Company. (b) Opinion of Counsel to Approved Borrower. A favorable written opinion (addressed to the Administrative Agent and the Lenders) of counsel for such Approved Borrower satisfactory to the Administrative Agent substantially in the form of Exhibit B-2, with such changes therein as the Administrative Agent may request to address matters of foreign law. (c) Corporate Documents. Such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of such Approved Borrower, the authorization of the borrowings hereunder by such Approved Borrower, all in form and substance satisfactory to the Administrative Agent and its counsel. 3-Year Credit Agreement - 48 - (d) Financial Statements. The financial statements of such Approved Borrower required pursuant to the fourth paragraph of such Approved Borrower's Designation Letter. (e) Other Documents. Such other documents as the Administrative Agent or any Lender or special New York counsel to JPMCB may reasonably request. SECTION 5.03. Each Credit Event. The obligation of each Lender to make a Loan on the occasion of any Borrowing is subject to the satisfaction of the following conditions: (a) the representations and warranties of the Company in Part A of Article III (other than the last sentence of Section 3.02) shall be true and correct on and as of the date of such Borrowing; (b) in the case of any Borrowing by an Approved Borrower, the representations and warranties of such Approved Borrower in Part B of Article III shall be true and correct on and as of the date of such Borrowing; and (c) at the time of and immediately after giving effect to such Borrowing, no Default shall have occurred and be continuing. Each Borrowing shall be deemed to constitute a representation and warranty by the Company and the respective Borrower on the date thereof as to the matters specified in the preceding sentence. ARTICLE VI COVENANTS OF THE COMPANY The Company agrees that, so long as any of the Commitments are in effect and until payment in full of all Loans hereunder, all interest thereon and all other amounts payable by any Obligor hereunder: Part A. Affirmative Covenants. SECTION 6.01. Financial Statements. The Company shall deliver to the Administrative Agent on behalf of the Lenders (and upon receipt thereof the Administrative Agent shall promptly deliver to the Lenders): (a) as soon as available and in any event within 55 days after the end of each of the first three quarters of each fiscal year of the Company, consolidated statements of earnings and cash flow of the Company and its Consolidated Subsidiaries for such period and for the period from the beginning of the respective fiscal year to the end of such period, and the related consolidated balance sheet as at the end of such period, setting forth in each case in comparative form the corresponding consolidated figures for the 3-Year Credit Agreement - 49 - corresponding period in the preceding fiscal year, accompanied by a certificate of a senior financial officer of the Company which certificate shall state that said financial statements fairly present the consolidated financial condition, results of operations and cash flows of the Company and its Consolidated Subsidiaries on a consolidated basis as of and for the periods presented in accordance with GAAP consistently applied; (b) as soon as available and in any event within 100 days after the end of each fiscal year of the Company, consolidated statements of earnings, cash flow and common shareholders' equity of the Company and its Consolidated Subsidiaries for such year and the related consolidated balance sheet as at the end of such year, setting forth in each case in comparative form the corresponding consolidated figures for the preceding fiscal year, and accompanied by an unqualified opinion thereon of Deloitte & Touche LLP or any other independent certified public accountants of recognized national standing, which opinion shall state that said consolidated financial statements fairly present the consolidated financial condition and results of operations of the Company and its Consolidated Subsidiaries as at the end of, and for, such fiscal year, and a certificate of such accountants stating that, in making the examination necessary for their opinion, they obtained no knowledge, except as specifically stated, of any Default; (c) promptly upon their becoming available, copies of all regular periodic reports which the Company shall have filed with the Securities and Exchange Commission (or any Governmental Authority substituted therefor) or any national securities exchange; (d) promptly upon the mailing thereof to the shareholders of the Company generally, copies of all financial statements, reports and proxy statements so mailed; (e) promptly after the Company knows or has reason to know that any Default has occurred, a notice of such Default describing the same in reasonable detail and, together with such notice or as soon thereafter as possible, a description of the action that the Company has taken and proposes to take with respect thereto; (f) as soon as available and in any event within 100 days after the end of each fiscal year of each Approved Borrower, statements of earnings, cash flow and common shareholders' equity (if any) of such Approved Borrower for such year and the related balance sheet as at the end of such year, setting forth in each case in comparative form the corresponding figures for the preceding fiscal year, accompanied by a certificate of a senior financial officer of the Company, which certificate shall state that said financial statements fairly present the financial condition and results of operations of such Approved Borrower in accordance with generally accepted accounting principles, consistently applied, as at the end of, and for, such fiscal year; and (g) from time to time such other information regarding the business, affairs or financial condition of the Company or any of its Material Subsidiaries (including any Plan or Multiemployer Plan and any reports or other information required to be filed 3-Year Credit Agreement - 50 - under ERISA) as the Administrative Agent may reasonably request (on its own behalf or on behalf of any Lender). The Company will furnish to the Administrative Agent, at the time it furnishes each set of financial statements pursuant to paragraph (a) or (b) above, a certificate of a senior financial officer of the Company (i) to the effect that no Default has occurred and is continuing (or, if any Default has occurred and is continuing, describing the same in reasonable detail and describing the action that the Company has taken and proposes to take with respect thereto) and (ii) setting forth in reasonable detail the computations necessary to determine whether the Company is in compliance with Sections 6.08 and 6.09 as of the end of the respective quarterly fiscal period or fiscal year. SECTION 6.02. Litigation. The Company will promptly give to the Administrative Agent (and upon receipt thereof the Administrative Agent shall promptly give to the Lenders) notice of all legal or arbitral proceedings, and of all proceedings by or before any governmental or regulatory authority or agency, and any material development in respect of such legal or other proceedings, affecting the Company or any of its Material Subsidiaries, except any proceeding which, if adversely determined, would not have a Material Adverse Effect. SECTION 6.03. Corporate Existence, Etc. The Company will, and will cause each of its Material Subsidiaries to: preserve and maintain its legal existence and all of its material rights, privileges and franchises (provided that nothing in this Section shall prohibit any transaction expressly permitted under Section 6.06); comply with the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority if failure to comply with such requirements (i) will in the opinion of the General Counsel of the Company result in imposition of liability or assessment against (including seizure of) property in an aggregate amount (as to all such failures to comply) exceeding 10% of Consolidated Net Worth or (ii) could in the aggregate (as to all such failures to comply) reduce by more than 25% the annual tonnage capacity of the paper processing operations of the Company and its Consolidated Subsidiaries; pay and discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of its property prior to the date on which penalties attach thereto, except for any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained; maintain all of its properties used or useful in its business in good working order and condition, ordinary wear and tear excepted; provided, however, that the Company or any Subsidiary of the Company may discontinue the maintenance of a property if such discontinuance is, in the opinion of the Company, desirable in the conduct of its business and is not likely to have a Material Adverse Effect; and upon reasonable advance notice, permit representatives of any Lender or the Administrative Agent, during normal business hours, to examine, copy and make extracts from its books and records, to inspect its properties, and to discuss its business and affairs with its officers, all to the extent reasonably requested by such Lender or the Administrative Agent. SECTION 6.04. Insurance. The Company will maintain, and will cause each of its Subsidiaries to maintain, insurance underwritten by financially sound and reputable insurers, 3-Year Credit Agreement - 51 - or self insurance (in accordance with normal industry practice) in such amounts and against such risks as ordinarily is carried or maintained by owners of like businesses and properties in similar circumstances. SECTION 6.05. Use of Proceeds. The Company will, and will cause each Approved Borrower to, use the proceeds of the Loans made to it hereunder solely for its general corporate purposes (in compliance with all applicable legal and regulatory requirements), including acquisition financing and commercial paper liquidity; provided that neither the Administrative Agent nor any Lender shall have any responsibility as to the use of any of such proceeds. Part B. Negative Covenants. SECTION 6.06. Prohibition of Fundamental Changes. The Company will not, nor will it permit any of its Material Subsidiaries to, enter into any transaction of merger or consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution). The Company will not, and will not permit any of its Material Subsidiaries to, convey, sell, lease, transfer or otherwise dispose of, in one transaction or a series of transactions, all or a substantial part of its business or assets, whether now owned or hereafter acquired (excluding any inventory or other assets sold or disposed of in the ordinary course of business). Notwithstanding the foregoing provisions of this Section: (a) any Subsidiary of the Company may be merged or consolidated with or into: (i) the Company if the Company shall be the continuing or surviving corporation or (ii) any other Subsidiary; provided that if any such transaction shall be between a Subsidiary and a Wholly Owned Subsidiary, the Wholly Owned Subsidiary shall be the continuing or surviving corporation; (b) any Subsidiary of the Company may sell, lease, transfer or otherwise dispose of any or all of its assets (upon voluntary liquidation or otherwise) to the Company or a Wholly Owned Subsidiary of the Company; (c) the Company or any Subsidiary of the Company may merge or consolidate with any other Person if (i) in the case of a merger or consolidation of the Company, any successor entity (if other than Company) assumes, in a manner satisfactory to the Administrative Agent, all of the Company's obligations under this Agreement (and, in that connection, delivers to the Administrative Agent such evidence of corporate authorization and opinions of counsel as are consistent with those delivered by the Company pursuant to Section 5.01 on the Effective Date and are reasonably requested by the Administrative Agent) and, in the case of a merger or consolidation of any Subsidiary, the surviving corporation is a Wholly Owned Subsidiary of the Company and (ii) after giving effect thereto no Default would exist hereunder; and (d) in addition to the dispositions permitted pursuant to clauses (a) through (c) of this Section, the Company or any Subsidiary of the Company may sell or otherwise dispose of assets (including by merger or consolidation) if, after giving effect to any such 3-Year Credit Agreement - 52 - sale or disposition, the book value of such assets, together with the aggregate book value of the assets so sold or disposed of since December 31, 2002, does not exceed 20% of Total Assets at December 31, 2002. SECTION 6.07. Limitation on Liens. The Company will not, nor will it permit any of its Material Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, except: (a) Liens imposed by any Governmental Authority for taxes, assessments or charges not yet due or which are being contested in good faith and by appropriate proceedings if, unless the amount thereof is not material with respect to it or its financial condition, adequate reserves with respect thereto are maintained on the books of the Company or any of its Material Subsidiaries, as the case may be, in accordance with GAAP; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 30 days or which are being contested in good faith and by appropriate proceedings; (c) pledges or deposits under worker's compensation, unemployment insurance and other social security legislation; (d) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (e) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business and encumbrances consisting of zoning restrictions, easements, licenses, restrictions on the use of property or minor imperfections in title thereto which, in the aggregate, are not material in amount, and which do not in any case materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of the Company or any of its Material Subsidiaries; (f) Liens on assets of Persons that become Subsidiaries of the Company after the date of this Agreement, provided that such Liens are in existence at the time the respective Persons become Subsidiaries of the Company and were not created in anticipation thereof; (g) Liens upon real and/or tangible personal property acquired after the date hereof (by purchase, construction or otherwise) by the Company or any of its Material Subsidiaries, each of which Liens either (A) existed on such property before the time of its acquisition and was not created in anticipation thereof, or (B) was created solely for the purpose of securing Indebtedness representing, or incurred to finance, refinance or refund, the cost (including the cost of construction) of the respective property; provided 3-Year Credit Agreement - 53 - in the case of clause (B) that such Lien attaches to such asset within 270 days after the acquisition or completion of construction and commencement of full operations thereof; provided further that no such Lien shall extend to or cover any property of the Company or such Material Subsidiary other than the respective property so acquired and improvements thereon; and provided further, that the principal amount of Indebtedness secured by any such Lien shall at no time exceed 95% of the fair market value (as determined in good faith by a senior financial officer of the Company) of the respective property at the time it was acquired (by purchase, construction or otherwise); (h) Liens on assets consisting of a capital project and rights related thereto ("Project Assets") securing Indebtedness incurred to finance the acquisition, construction or development of such Project Assets; provided that (x) such Indebtedness is non-recourse to any other assets; (y) the aggregate principal amount of Indebtedness secured by Liens permitted by this paragraph (h) may at no time exceed $200,000,000 and (z) such Liens attach to such Project Assets within two years after the initial acquisition or completion of construction or development of such Project Assets; (i) Liens upon real and/or personal property of the Company or any Material Subsidiary of the Company in favor of the United States of America or any State thereof, any department, agency or instrumentality or political subdivision of the United States or any State thereof, or any bonding authority (including any authority established for the issuance of industrial revenue bonds or similar instruments) to secure partial, progress, or advance or other payments pursuant to any contract or statute or to secure Indebtedness (including, but not limited to, industrial revenue bonds and similar instruments) incurred for the purpose of refinancing all or any part of the purchase price or cost of constructing or improving such property; (j) Liens on (i) accounts receivable and related contract rights, letters of credit, accounts and similar assets arising in connection with any securitization transaction, and (ii) promissory notes, regulatory and any other related assets in connection with any financing transaction, in each case whether denominated as sales or borrowings; (k) Liens granted to provide security in substitution for collateral presently securing existing Indebtedness, so long as such substitute collateral does not cover any property other than the property securing such existing Indebtedness; (l) Liens securing judgments up to $200,000,000 for the payment of money in an amount not resulting (whether immediately or with the passage of time) in an Event of Default under subsection (h) of Article VII; (m) Liens in existence on the date hereof and listed on Schedule V; (n) additional Liens upon property, assets or revenues created after the date hereof, provided that the aggregate outstanding Indebtedness secured thereby and incurred on and after the date hereof shall not at any time exceed 10% of Tangible Assets; and 3-Year Credit Agreement - 54 - (o) any extension, renewal or replacement of the foregoing, provided, however, that the Liens permitted hereunder shall not be spread to cover any additional Indebtedness or property (other than a substitution of like property); and provided further that the sale, mortgage or other transfer of timber in connection with an arrangement under which the Company or any of its Subsidiaries is obligated to cut such timber (or any portion thereof) in order to provide the transferee with a specified amount of money (however determined) shall not be deemed to create Indebtedness secured by a Lien hereunder. SECTION 6.08. Total Debt to Total Capital Ratio. The Company will not at any time permit the ratio of Total Debt to Total Capital to exceed 0.60 to 1. SECTION 6.09. Minimum Consolidated Net Worth. The Company will not at any time permit Consolidated Net Worth to be less than $9,000,000,000. ARTICLE VII EVENTS OF DEFAULT If one or more of the following events (herein called "Events of Default") shall occur and be continuing: (a) Any Borrower shall default in the payment when due of any principal of any Loan; or any Borrower shall default in the payment when due of any interest on any Loan or any other amount payable by it hereunder and such default shall continue unremedied for five or more Business Days; or (b) Any event specified in any note, agreement, indenture or other document evidencing or relating to any Indebtedness (other than (i) Indebtedness hereunder, (ii) Project Indebtedness, or (iii) Indebtedness owed by any Material Subsidiary to the Company) of the Company or any of its Material Subsidiaries aggregating $200,000,000 or more shall occur if the effect of such event is to cause, or (with the giving of any notice or the lapse of time or both) to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, such Indebtedness to become due, or to be prepaid in full (whether by redemption, purchase or otherwise), prior to its stated maturity; or (c) Any representation, warranty or certification made or deemed made herein or in any Designation Letter (or in any modification or supplement hereto or thereto) by any Obligor, or any certificate furnished to any Lender or the Administrative Agent pursuant to the provisions hereof or of any Designation Letter (or thereof), shall prove to have been false or misleading in any material respect as of the time made or furnished; or (d) The Company shall default in the performance of any of its obligations under any of Sections 6.06, 6.07, 6.08 or 6.09; or any Obligor shall default in the performance 3-Year Credit Agreement - 55 - of any of its other obligations in this Agreement and such default shall continue unremedied for a period of thirty days after notice thereof to such Obligor (through notification to the Company) by the Administrative Agent or any Lender (through the Administrative Agent); or (e) The Company or any of its Material Subsidiaries shall admit in writing its inability to, or be generally unable to, pay its debts as such debts become due; or (f) The Company or any of its Material Subsidiaries shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the Bankruptcy Code (as now or hereafter in effect), (iv) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or readjustment of debts, (v) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the Bankruptcy Code, or (vi) take any corporate action for the purpose of effecting any of the foregoing; or (g) A proceeding or case shall be commenced, without the application or consent of the Company or any of its Material Subsidiaries, in any court of competent jurisdiction, seeking (i) its liquidation, reorganization, dissolution or winding-up, or the composition or readjustment of its debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of the Company or such Material Subsidiary or of all or any substantial part of its assets, or (iii) similar relief in respect of the Company or such Material Subsidiary under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 90 or more days; or an order for relief against the Company or such Material Subsidiary shall be entered in an involuntary case under the Bankruptcy Code; or (h) A final judgment or judgments for the payment of money in excess of $200,000,000 in the aggregate shall be rendered by a court or courts against the Company and/or any of its Material Subsidiaries and the same shall not be discharged (or provision shall not be made for such discharge), or a stay of execution thereof shall not be procured, within 30 days from the date of entry thereof and the Company or the relevant Material Subsidiary shall not, within said period of 30 days, or such longer period during which execution of the same shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal; or (i) An event or condition shall occur or exist with respect to any Plan or Multiemployer Plan and, as a result of such event or condition, together with all other such events or conditions, the Company or any ERISA Affiliate shall be reasonably likely in the opinion of the General Counsel of the Company to incur a liability to a Plan, a 3-Year Credit Agreement - 56 - Multiemployer Plan or PBGC (or any combination of the foregoing) which is in excess of 10% of Consolidated Net Worth; or (j) Any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended, it being agreed that an employee of the Company or any Consolidated Subsidiary for whom shares are held under an employee stock ownership, employee retirement, employee savings or similar plan and whose shares are voted in accordance with the instructions of such employee shall not be a member of a group of persons within the meaning of said Section 13 or 14 solely because such employee's shares are held by a trustee under said plan) shall acquire, directly or indirectly, beneficial ownership (within the meaning of Rule 13d-3 promulgated by the SEC under said Act, as amended) of 20% or more of the outstanding shares of stock of the Company having by the terms thereof ordinary voting power to elect (whether immediately or ultimately) a majority of the board of directors of the Company (irrespective of whether or not at the time stock of any other class or classes of stock of the Company shall have or might have voting power by reason of the happening of any contingency); or (k) During any period of 24 consecutive calendar months, a majority of the Board of Directors of the Company shall no longer be composed of individuals (i) who were members of said Board on the first day of such period or (ii) whose election or nomination to said Board was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of said Board; THEREUPON: (1) in the case of an Event of Default other than one referred to in clause (f) or (g) of this Article VII with respect to any Obligor, (a) the Administrative Agent may and, upon request of Lenders having Revolving Credit Exposures and unused Commitments representing more than 50% of the sum of the total Revolving Credit Exposures and unused Commitments at such time, shall, by notice to the Company, cancel the Commitments and they shall thereupon terminate, and (b) the Administrative Agent may and, upon request of Lenders holding more than 50% of the aggregate unpaid principal amount of the Loans (including Competitive Loans) shall, by notice to the Company, declare the principal amount then outstanding of, and the accrued interest on, the Loans and all other amounts payable by the Obligors hereunder (including any amounts payable under Section 2.14) to be forthwith due and payable, whereupon such amounts shall be immediately due and payable without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by each Obligor; and (2) in the case of the occurrence of an Event of Default referred to in clause (f) or (g) of this Article VII with respect to any Obligor, the Commitments shall automatically be canceled and the principal amount then outstanding of, and the accrued interest on, the Loans and all other amounts payable by the Obligors hereunder (including any amounts payable under Section 2.14) shall automatically become immediately due and payable without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by each Obligor. 3-Year Credit Agreement - 57 - ARTICLE VIII THE ADMINISTRATIVE AGENT Each of the Lenders hereby irrevocably appoints the Administrative Agent as its agent and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof, together with such actions and powers as are reasonably incidental thereto. The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent, and such Person and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Company or any Subsidiary or other Affiliate thereof as if it were not the Administrative Agent hereunder. The Administrative Agent shall not have any duties or obligations except those expressly set forth herein. Without limiting the generality of the foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby that the Administrative Agent is required to exercise in writing by the Required Lenders, and (c) except as expressly set forth herein, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Company or any of its Subsidiaries that is communicated to or obtained by the bank serving as Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders or in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to the Administrative Agent by the Company or a Lender, and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement, (ii) the contents of any certificate, report or other document delivered hereunder or in connection herewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in Article V or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent. The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (who may be 3-Year Credit Agreement - 58 - counsel for the Company), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts. The Administrative Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent. The Administrative Agent may resign at any time by notifying the Lenders and the Company. Upon any such resignation, the Required Lenders shall have the right, in consultation with the Company, to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent's resignation shall nonetheless become effective and (1) the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and (2) the Required Lenders shall perform the duties of the Administrative Agent (and all payments and communications provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender directly) until such time as the Required Lenders appoint a successor agent as provided for above in this paragraph. Upon the acceptance of its appointment as Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring (or retired) Administrative Agent and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder (if not already discharged therefrom as provided above in this paragraph). The fees payable by the Company to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Company and such successor. After the Administrative Agent's resignation hereunder, the provisions of this Article VIII and Section 9.03 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Administrative Agent. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any related agreement or any document furnished hereunder or thereunder. 3-Year Credit Agreement - 59 - ARTICLE IX MISCELLANEOUS SECTION 9.01. Notices. Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: (a) if to the Company, to it at Office of the Assistant Treasurer - Domestic, International Paper Company, 400 Atlantic Street, Stamford, Connecticut 06921, Attention: Rosemarie A. Loffredo (Telecopy No. (203) 541-8263; Telephone No. (203) 541-8584); (b) if to the Administrative Agent, to JPMCB, Loan and Agency Services - Texas, 1111 Fannin 10th Floor, Houston, Texas 77002, Attention of Carla M. Kinney (Telecopy No. (713) 750-2223 and Telephone No. (713) 302-5891) and Melissa A. Rivas (Telecopy No. (713) 750-2223 and Telephone No. (713) 750-3570); and (c) if to a Lender, to it at its address (or telecopy number) set forth in its Administrative Questionnaire. Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto (or, in the case of any such change by a Lender, by notice to the Company and the Administrative Agent). All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt. Each Approved Borrower hereby agrees that any notice or other communication provided for herein to be given by or to such Approved Borrower may be given by or to the Company on behalf of such Approved Borrower in the manner specified above and neither the Administrative Agent nor any Lender shall be required to accept as effective any notice or other communication purporting to have been issued directly by an Approved Borrower (and not by the Company on behalf of such Approved Borrower). SECTION 9.02. Waivers; Amendments. (a) No Deemed Waivers; Remedies Cumulative. No failure or delay by the Administrative Agent or any Lender in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent and the Lenders hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by any Obligor therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. 3-Year Credit Agreement - 60 - Without limiting the generality of the foregoing, the making of a Loan shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent or any Lender may have had notice or knowledge of such Default at the time. (b) Amendments. Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by each Obligor and the Required Lenders or by each Obligor and the Administrative Agent with the consent of the Required Lenders; provided that no such agreement shall (i) increase the Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of each Lender affected thereby, (iii) postpone the scheduled date of payment of the principal amount of any Loan, or any interest thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender affected thereby, (iv) alter the manner in which payments or prepayments of principal, interest or other amounts hereunder, or reductions of commitments, shall be applied as among the Lenders or Types or Classes of Loans, without the written consent of each Lender, (v) change any of the provisions of this Section or the percentage in the definition of the term "Required Lenders" or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder or release the Guarantor's obligations in respect of any Approved Borrower, without the written consent of each Lender, or (vi) require any Lender to make a Syndicated Loan if the amount of such Syndicated Loan would exceed such Lender's ratable share (determined in accordance with the respective Commitments of the Lenders) of the Syndicated Loans being concurrently requested to be made by the other Lenders, without the written consent of such Lender; and provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent hereunder without the prior written consent of the Administrative Agent. SECTION 9.03. Expenses; Indemnity; Damage Waiver. (a) Costs and Expenses. The Company shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel for the Administrative Agent, in connection with the 3-Year Credit Agreement - 61 - syndication of the credit facilities provided for herein, the preparation and administration of this Agreement or any amendments, modifications or waivers of the provisions hereof (whether or not the transactions contemplated hereby or thereby shall be consummated) and (ii) all out-of-pocket expenses incurred by the Administrative Agent or any Lender, including the fees, charges and disbursements of any counsel for the Administrative Agent, or any Lender, in connection with the enforcement or protection of its rights in connection with this Agreement, including its rights under this Section, or in connection with the Loans made hereunder, including in connection with any workout, restructuring or negotiations in respect thereof. (b) Indemnification by the Company. The Company shall indemnify the Administrative Agent and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an "Indemnitee") against, and to hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement or any agreement or instrument contemplated hereby, the performance by the parties hereto of their respective obligations hereunder or the consummation of the transactions contemplated hereby, (ii) any Loan or the use of the proceeds therefrom, (iii) any actual or alleged presence or release of hazardous materials on or from any property owned or operated by the Company or any of its Subsidiaries, or any environmental liability related in any way to the Company or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses have resulted from the gross negligence or willful misconduct of such Indemnitee. (c) Reimbursement by Lenders. To the extent that the Company fails to pay any amount required to be paid by it to the Administrative Agent under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Administrative Agent such Lender's Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent in its capacity as such. (d) Waiver of Consequential Damages, Etc. To the extent permitted by applicable law, no Obligor shall assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the transactions contemplated hereby, any Loan or the use of the proceeds thereof. (e) Payments. All amounts due under this Section shall be payable promptly after written demand therefor. 3-Year Credit Agreement - 62 - SECTION 9.04. Successors and Assigns. (a) Successors Generally. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that (i) no Obligor may assign or otherwise transfer any of its rights or obligations hereunder without the prior consent of each Lender (and any attempted assignment or transfer by any Obligor without such consent shall be null and void) and (ii) no Lender may assign or otherwise transfer its rights or obligations hereunder except in accordance with this Section. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants (to the extent provided in paragraph (c) of this Section) and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. (b) Assignments by Lenders. (i) Subject to the conditions set forth in paragraph (b)(ii) below, any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it) with the prior consent (such consent not to be unreasonably withheld) of the Company and the Administrative Agent, provided that (x) no such consent shall be required for an assignment of a Commitment by a Lender to an assignee that was a Lender, an Affiliate of a Lender or an Approved Fund, prior to the completion of such assignment and (y) no such consent of the Company shall be required for an assignment to any assignee, if an Event of Default under clause (a), (f) or (g) of Article VII has occurred and is continuing. (ii) Assignments shall be subject to the following additional conditions: (A) except in the case of an assignment to a Lender or an Affiliate (or Approved Fund) of a Lender or an assignment of the entire remaining amount of the assigning Lender's Commitment or Loans of any Class, the amount of the Commitment or Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent) shall not be less than $10,000,000 unless each of the Company and the Administrative Agent otherwise consent, (B) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement, provided that this clause shall not be construed to prohibit the assignment of a proportionate part of all the assigning Lender's rights and obligations in respect of one Class of Commitments or Loans, (C) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500, and 3-Year Credit Agreement - 63 - (D) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire. (iii) Subject to acceptance and recording pursuant to paragraph (iv) of this Section, from and after the effective date specified in each Assignment and Assumption, the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.13, 2.14, 2.15, 2.16 and 9.03). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph (b) shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (c) of this Section. (iv) The Administrative Agent, acting for this purpose as an agent of the Obligors, shall maintain at one of its offices in The City of New York a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive, and the Obligors, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Obligors and any Lender, at any reasonable time and from time to time upon reasonable prior notice. (v) Upon its receipt of a duly completed Assignment and Assumption executed by an assigning Lender and an assignee, the assignee's completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b)(ii)(C) of this Section and any consent to such assignment required by paragraph (b)(i) of this Section, the Administrative Agent shall accept such Assignment and Assumption and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph. (c) Participations. (i) Any Lender may, without the consent of the Company, the Administrative Agent or the Issuing Lender, sell participations to one or more banks or other entities (a "Participant") in all or a portion of such Lender's rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided that (A) such Lender's obligations under this Agreement shall remain unchanged, (B) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (C) the Obligors, the Administrative Agent and the other Lenders shall continue to deal solely 3-Year Credit Agreement - 64 - and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 9.02(b) that affects such Participant. Subject to paragraph (c)(ii) of this Section, the Company agrees that each Participant shall be entitled to the benefits of Sections 2.13, 2.14, 2.15 and 2.16 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. (ii) A Participant shall not be entitled to receive any greater payment under Section 2.13, 2.15 or 2.16 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Company's prior consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.15 unless the Company is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Obligors, to comply with Section 2.15(e) as though it were a Lender. (d) Assignments by SPC's. Notwithstanding anything to the contrary contained herein, any Lender (a "Granting Lender") may grant to a special purpose funding vehicle (an "SPC"), identified as such in writing from time to time by the Granting Lender to the Administrative Agent and the Company, the option to provide to the Borrowers all or any part of any Loan that such Granting Lender would otherwise be obligated to make to the Borrowers pursuant to this Agreement; provided, that (i) nothing herein shall constitute a commitment by any SPC to make any Loan and (ii) if an SPC elects not to exercise such option or otherwise fails to provide all or any part of such Loan, the Granting Lender shall be obligated to make such Loan pursuant to the terms hereof. The making of a Loan by an SPC hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Loan were made by such Granting Lender. Each party hereto hereby agrees that no SPC shall be liable for any indemnity or similar payment obligation under this Agreement (all liability for which shall remain with the Granting Lender). In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior indebtedness of any SPC, it will not institute against, or join any other person in instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any State thereof arising out of any claim against such SPC under this Agreement. In addition, notwithstanding anything to the contrary contained in this Section 9.04, any SPC may (x) with notice to, but without the prior written consent of, the Company and the Administrative Agent and without paying any processing fee therefor, (A) assign all or any portion of its interest in any Loans to the Granting Lender and (B) pledge all or a portion of its interests in any Loans to the Granting Lender or to any financial institutions (consented to by the Company and Administrative Agent) providing liquidity and/or credit support to or for the account of such SPC to support the funding or maintenance of Loans (and assign to the Granting Lender and to any such financial institution any such Loans upon a 3-Year Credit Agreement - 65 - realization in respect of such pledge or in connection with the performance by such financial institution of its liquidity or credit support obligations) and (y) disclose on a confidential basis any non-public information relating to its Loans to any rating agency, commercial paper dealer or provider of any surety, guarantee or credit or liquidity enhancement to such SPC, subject to the requirements of Section 9.12(b)(vi). (e) Certain Pledges. Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any such pledge or assignment to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such assignee for such Lender as a party hereto. SECTION 9.05. Survival. All covenants, agreements, representations and warranties made by any Obligor herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid and so long as the Commitments have not expired or terminated. The provisions of Sections 2.13, 2.14, 2.15, 2.16 and 9.03 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Commitments or the termination of this Agreement or any provision hereof. SECTION 9.06. Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and any separate letter agreements with respect to fees payable to the Administrative Agent constitute the entire contract between and among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 5.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page to this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 9.07. Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality 3-Year Credit Agreement - 66 - and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. SECTION 9.08. Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of any Obligor against any of and all the obligations of such Obligor now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. SECTION 9.09. Governing Law; Jurisdiction; Etc. (a) Governing Law. This Agreement and each Designation Letter shall be construed in accordance with and governed by the law of the State of New York. (b) Submission to Jurisdiction. Each Obligor hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Administrative Agent or any Lender may otherwise have to bring any action or proceeding relating to this Agreement against any Obligor or its properties in the courts of any jurisdiction. (c) Waiver of Venue. Each Obligor hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (d) Service of Process. Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01 (and for such purpose, each Approved Borrower hereby irrevocably appoints the Company as its authorized agent to accept such service of process in New York with respect to this Agreement and its Designation Letter). Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. 3-Year Credit Agreement - 67 - SECTION 9.10. Waiver Of Jury Trial. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. SECTION 9.11. Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. SECTION 9.12. Treatment of Certain Information; Confidentiality. (a) Treatment of Certain Information. Each Obligor acknowledges that from time to time financial advisory, investment banking and other services may be offered or provided to the Company or one or more of its Subsidiaries (in connection with this Agreement or otherwise) by any Lender or by one or more subsidiaries or affiliates of such Lender and each Obligor hereby authorizes each Lender to share any information delivered to such Lender by the Company and its Subsidiaries pursuant to this Agreement, or in connection with the decision of such Lender to enter into this Agreement, to any such subsidiary or affiliate, it being understood that any such subsidiary or affiliate receiving such information shall be bound by the provisions of paragraph (b) of this Section as if it were a Lender hereunder. Such authorization shall survive the repayment of the Loans, the expiration or termination of the Commitments or the termination of this Agreement or any provision hereof. (b) Confidentiality. Each of the Administrative Agent and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (i) to its and its Affiliates' directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (ii) to the extent requested by any regulatory authority, (iii) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (iv) to any other party to this Agreement, (v) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, (vi) subject to an agreement containing provisions substantially the same as those of this paragraph, to any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement, (vii) with the consent of the Company or (viii) to the extent such Information (A) becomes publicly available 3-Year Credit Agreement - 68 - other than as a result of a breach of this paragraph or (B) becomes available to the Administrative Agent or any Lender on a nonconfidential basis from a source other than the Company. For the purposes of this paragraph, "Information" means all information received from any Obligor relating to the Company or any of its Subsidiaries (or their business), other than any such information that is available to the Administrative Agent or any Lender on a nonconfidential basis prior to disclosure by such Obligor; provided that, in the case of information received from an Obligor after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. The Company hereby agrees that, from the commencement of discussions with respect to the transactions contemplated by this Agreement, each Lender (and each of its employees, representatives, or agents) is permitted to disclose to any and all Persons, without limitation of any kind, the structure and tax aspects of such transactions, and all materials of any kind (including opinions or other tax analyses) that are provided to any Lender related to such structure and tax aspects. In this regard, the Company acknowledges and agrees that any Lender's disclosure of the structure or tax aspects of the transactions contemplated by this Agreement is not limited in any way by an express or implied understanding or agreement, oral or written (whether or not such understanding or agreement is legally binding). The foregoing is intended solely to comply with the presumption set forth in Treasury Regulation 1.6011-4T(b)(3)(iv) and is not intended to permit the disclosure of any Information to the extent such disclosure is not required in order to avoid the transactions contemplated by this Agreement being treated as a "reportable transaction" within the meaning of Treasury Regulation 1.6011-4T(b). SECTION 9.13. European Monetary Union. (a) Definitions. As used herein, the following terms shall have the following meanings: "EMU" means economic and monetary union as contemplated in the Treaty on European Union. "EMU Legislation" means legislative measures of the European Council for the introduction of, changeover to or operation of a single or unified European currency (whether known as the euro or otherwise), being in part the implementation of the third stage of EMU. "Euros" means the single currency of Participating Member States of the European Union, which shall be an Agreed Foreign Currency and a Foreign Currency under this Agreement. "National Currency" means the Currency, other than the Euro, of a Participating Member State. 3-Year Credit Agreement - 69 - "Participating Member State" means each state so described in any EMU Legislation. "Target Operating Day" means any day that is not (i) a Saturday or Sunday, (ii) Christmas Day or New Year's Day or (iii) any other day on which the Trans-European Real-time Gross Settlement Operating System (or any successor settlement system) is not operating (as determined by the Administrative Agent). "Treaty on European Union" means the Treaty of Rome of March 25, 1957, as amended by the Single European Act 1986 and the Maastricht Treaty (which was signed at Maastricht on February 7, 1992, and came into force on November 1, 1993), as amended from time to time. (b) Effectiveness of Provisions. The provisions of paragraphs (c) through (h) of this Section shall be effective on the date hereof, provided that, if and to the extent that any such provision relates to any state (or the Currency of such state) that is not a Participating Member State on the date hereof, such provision shall become effective in relation to such state (and such Currency) at and from the date on which such state becomes a Participating Member State. (c) Redenomination and Alternative Currencies. Each obligation under this Agreement of a party to this Agreement which has been denominated in the National Currency of a state that is not a Participating Member State on the date hereof shall, effective upon the date on which such state becomes a Participating Member State, be redenominated in Euros in accordance with EMU Legislation; provided that, if and to the extent that any EMU Legislation provides that an amount denominated either in Euros or in the National Currency of a Participating Member State and payable within the Participating Member State by crediting an account of the creditor can be paid by the debtor either in Euros or in such National Currency, any party to this Agreement shall be entitled to pay or repay any such amount either in Euros or in such National Currency. (d) Payments by the Administrative Agent Generally. With respect to the payment of any amount denominated in Euros or in a National Currency, the Administrative Agent shall not be liable to any Borrower or any of the Lenders in any way whatsoever for any delay, or the consequences of any delay, in the crediting to any account of any amount required by this Agreement to be paid by the Administrative Agent if the Administrative Agent shall have taken all relevant steps to achieve, on the date required by this Agreement, the payment of such amount in immediately available, freely transferable, cleared funds (in Euros or in such National Currency, as the case may be) to the account of any Lender in the Principal Financial Center in the Participating Member State which such Borrower or such Lender, as the case may be, shall have specified for such purpose. For the purposes of this paragraph, "all relevant steps" means all such steps as may be prescribed from time to time by the regulations or operating procedures of such clearing or settlement system as the Administrative Agent may from time to time determine for the purpose of clearing or settling payments in Euros or such National Currency. 3-Year Credit Agreement - 70 - (e) Certain Rate Determinations. For the purposes of determining the date on which the Eurocurrency Rate is determined under this Agreement for the Interest Period for any Borrowing denominated in Euros (or in any National Currency), references in this Agreement to Business Days shall be deemed to be references to Target Operating Days. In addition, if the Administrative Agent determines, with respect to the Interest Period for any Borrowing denominated in a National Currency, that there is no IBOR displayed on the Screen for deposits denominated in such National Currency, the Eurocurrency Rate for such Interest Period shall be based upon IBOR displayed on the Screen for the offering of deposits denominated in Euros. (f) Basis of Accrual. If the basis of accrual of interest or fees expressed in this Agreement with respect to the Currency of any state that becomes a Participating Member State shall be inconsistent with any convention or practice in the interbank market for the basis of accrual of interest or fees in respect of the Euro, such convention or practice shall replace such expressed basis effective as of and from the date on which such state becomes a Participating Member State; provided that, with respect to any Borrowing denominated in such Currency that is outstanding immediately prior to such date, such replacement shall take effect at the end of the Interest Period therefor. (g) Rounding. Without prejudice and in addition to any method of conversion or rounding prescribed by the EMU Legislation, each reference in this Agreement to a minimum amount, or to a multiple of a specified amount, in a National Currency to be paid to or by the Administrative Agent shall be replaced by a reference to such reasonably comparable and convenient amount, or to a multiple of such reasonably comparable and convenient amount, in Euros as the Administrative Agent may from time to time reasonably specify. (h) Other Consequential Changes. Without prejudice to the respective liabilities of any Borrower to the Lenders and the Lenders to any Borrower under or pursuant to this Agreement, except as expressly provided in this Section, each provision of this Agreement shall be subject to such reasonable changes of construction as the Administrative Agent may from time to time reasonably specify to be necessary or appropriate to reflect the introduction of or changeover to the Euro in Participating Member States. SECTION 9.14. Judgment Currency. This is an international loan transaction in which the specification of Dollars or any Foreign Currency, as the case may be (the "Specified Currency"), and payment in New York City or the country of the Specified Currency, as the case may be (the "Specified Place"), is of the essence, and the Specified Currency shall be the currency of account in all events relating to Loans denominated in the Specified Currency. The payment obligations of the Obligors under this Agreement shall not be discharged or satisfied by an amount paid in another currency or in another place, whether pursuant to a judgment or otherwise, to the extent that the amount so paid on conversion to the Specified Currency and transfer to the Specified Place under normal banking procedures does not yield the amount of the Specified Currency at the Specified Place due hereunder. If for the purpose of obtaining judgment in any court it is necessary to convert a sum due hereunder in the Specified Currency into another currency (the "Second Currency"), the rate of exchange that shall be applied shall be the rate at which in accordance with normal banking procedures the Administrative Agent could 3-Year Credit Agreement - 71 - purchase the Specified Currency with the Second Currency on the Business Day next preceding the day on which such judgment is rendered. The obligation of any Borrower in respect of any such sum due from it to the Administrative Agent or any Lender hereunder (in this Section called an "Entitled Person") shall, notwithstanding the rate of exchange actually applied in rendering such judgment, be discharged only to the extent that on the Business Day following receipt by such Entitled Person of any sum adjudged to be due hereunder in the Second Currency such Entitled Person may in accordance with normal banking procedures purchase and transfer to the Specified Place the Specified Currency with the amount of the Second Currency so adjudged to be due; and such Obligor hereby, as a separate obligation and notwithstanding any such judgment, agrees to indemnify such Entitled Person against, and to pay such Entitled Person on demand, in the Specified Currency, the amount (if any) by which the sum originally due to such Entitled Person in the Specified Currency hereunder exceeds the amount of the Specified Currency so purchased and transferred. 3-Year Credit Agreement - 72 - IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. INTERNATIONAL PAPER COMPANY By ------------------------------------- Name: Title: 3-Year Credit Agreement LENDERS JPMORGAN CHASE BANK, individually and as Administrative Agent By ------------------------------------- Name: Title: 3-Year Credit Agreement CITIBANK, N.A. By: ------------------------------------ Name: Title: 3-Year Credit Agreement DEUTSCHE BANK AG, NEW YORK BRANCH By: ------------------------------------ Name: Title: 3-Year Credit Agreement BANK OF AMERICA, N.A. By: ------------------------------------ Name: Title: 3-Year Credit Agreement BNP PARIBAS By: ------------------------------------ Name: [___] Title: [_____] By: ------------------------------------ Name: [___] Title: [_____] 3-Year Credit Agreement WACHOVIA BANK, NA By: ------------------------------------ Name: [___] Title: [_____] 3-Year Credit Agreement UBS AG By: ------------------------------------ Name: [___] Title: [_____] 3-Year Credit Agreement ABN AMRO BANK, N.V. By: ------------------------------------ Name: [___] Title: [_____] 3-Year Credit Agreement BANK ONE, NA By: ------------------------------------ Name: [___] Title: [_____] 3-Year Credit Agreement BANK OF TOKYO-MITSUBISHI TRUST COMPANY By: ------------------------------------ Name: [___] Title: [_____] 3-Year Credit Agreement MORGAN STANLEY BANK By: ------------------------------------ Name: [___] Title: [_____] 3-Year Credit Agreement CREDIT SUISSE FIRST BOSTON, ACTING THROUGH ITS CAYMAN ISLANDS BRANCH By: ------------------------------------ Name: [___] Title: [_____] 3-Year Credit Agreement MERRILL LYNCH BANK USA By: ------------------------------------ Name: [___] Title: [_____] 3-Year Credit Agreement PNC BANK, NA By: ------------------------------------ Name: [___] Title: [_____] 3-Year Credit Agreement THE BANK OF NEW YORK By: ------------------------------------ Name: [___] Title: [_____] 3-Year Credit Agreement CAJA MADRID By: ------------------------------------ Name: [___] Title: [_____] 3-Year Credit Agreement ING CAPITAL By: ------------------------------------ Name: [___] Title: [_____] 3-Year Credit Agreement MELLON BANK, NA By: ------------------------------------ Name: [___] Title: [_____] 3-Year Credit Agreement FORTIS CAPITAL CORP. By: ------------------------------------ Name: [___] Title: [_____] 3-Year Credit Agreement LEHMAN BROTHERS COMMERCIAL PAPER INC. By: ------------------------------------ Name: [___] Title: [_____] 3-Year Credit Agreement THE BANK OF NOVA SCOTIA By: ------------------------------------ Name: [___] Title: [_____] 3-Year Credit Agreement SUNTRUST BANK By: ------------------------------------ Name: [___] Title: [_____] 3-Year Credit Agreement SUMITOMO MITSUI BANKING CORPORATION By: ------------------------------------ Name: [___] Title: [_____] 3-Year Credit Agreement THE NORTHERN TRUST COMPANY By: ------------------------------------ Name: [___] Title: [_____] 3-Year Credit Agreement STATE STREET BANK AND TRUST COMPANY By: ------------------------------------ Name: [___] Title: [_____] 3-Year Credit Agreement EX-10 4 ex10-2.txt EXHIBIT 10.2 MANAGEMENT INCENTIVE PLAN (MIP) Amended and Restated as of January 1, 2003 I. Purposes of the Plan The purposes of this Amended and Restated Management Incentive Plan are: (a) to provide incentive for Participants to exert their best efforts to increase the profitability of the Company, (b) to attract and retain the best talent available, and (c) to further align the interests of the participants and shareholders. The awards made under the Plan are not a form of deferred regular compensation with respect to the Participants' normal performance of their regular duties, but are instead intended to provide an incentive to achieve higher than expected levels of performance. II. Definitions o Business : "Business" means one of the Business Groups reporting to the Executive Office. o Committee: "Committee" means the Management Development and Compensation Committee of the Company's Board of Directors. o Company: "Company" means International Paper Company, a New York corporation, together with its subsidiaries. o Employees: "Employees" means those persons who are full-time employees of the Company. o Award Scale: "Award Scale" means the conversion of the performance objective rating to a percent of target award earned. o Industry Financial Performance Peer Group: "Industry Financial Performance Peer Group" means that representative group of companies in the paper and forest products industry with which the Company competes, as determined from time to time by the Company, listed in Appendix A. o Participant: "Participant" means a person who has been designated as a participant in the Plan, according to Section V. o Performance Objective Rating: "Performance Objective Rating" means the percentage amount assigned to a Performance Objective for a level of achievement which translates to a percentage of the Target Award. o Performance Objectives: "Performance Objectives" mean the measures developed around ROI, customer, operational excellence, and people or other objectives as identified by the Company upon which awards may be earned. o Plan: "Plan" means this Amended and Restated Management Incentive Plan, as may be amended from time to time. o Plan Year: "Plan Year" means the twelve month period corresponding to the Company's fiscal year. o Return on Investment/ROI: "Return on Investment" or "ROI" means earnings before interest and after taxes divided by capital employed, with or without the effect of cyclical product pricing. o Target Award: "Target Award" means an amount equal to the percentage of salary range midpoint applicable to the actual position level of each Participant, shown in Appendix B. III. Plan Description The Plan is an annual cash incentive plan developed around the achievement of pre-established Return on Investment (ROI) measures and appropriate key performance objectives promoting Customers, Operational Excellence, and People and funded by the Company's level of performance against those objectives. Total awards cannot exceed the amount funded for the MIP pool generated by overall corporate performance and approved by the Committee. IV. Administration of the Plan The Plan operates at the discretion of the Management Development and Compensation Committee (Committee) of the Board of Directors. The Committee may exercise considerable discretion and judgment in interpreting the Plan, and adopting, from time to time, rules and regulations that govern the administration of the Plan. The Committee delegates authority to the Chairman and Chief Executive Officer or his designee, for the day-to-day administration of the Plan, except for any participant considered an Officer/Insider of the Company or those designated as coporate Senior Vice President or higher. Decisions of the Committee are final, conclusive and binding on all parties, including the Company, its shareholders, and employees. V. Participation in the Plan Participants in the Plan are limited to employees of the Company, whose position level is 14 - 43 and are considered to have a meaningful impact on the Company's performance as determined by the Chairman and Chief Executive Officer or his designee. They must be full-time, employed actively during the plan year January 1 - December 31. If an employee moves into a MIP eligible position during the plan year then they will be eligible for a prorated award. If an employee moves from one MIP eligible position to another their full award is based on the PL as of December 31. Employees who are eligible for participation in any other annual, recurring variable cash compensation plan of the Company are not eligible for participation in this Plan. Participation in this Plan, or receipt of an award under this Plan, does not give a Participant or Employee any right to a subsequent award, nor any right to continued employment by the Company for any period. VI. Award Pool and Award Scale A. Pool: The company must achieve at least a minimum level of performance in order to fund the award pool. The total corporate award pool will be determined by corporate performance defined as: o 40% Weight: Improvement of Return on Investment (ROI), without the effects of cyclical product pricing.
Achievement of Objective % of Target Award ------------------------ ----------------- 125% 200% 100% 100% 70% 50% Below 70% 0%
o 30% Weight: Return on Investment as compared to Industry Financial Performance Peer Group rank.
Rank % of Target Award --------------- ----------------- Top Quartile 150 - 200% 2nd Quartile 101 - 149% 3rd Quartile 25 - 100% Bottom Quartile 0%
o 30% Weight: Key Company Drivers: People, Customers, and Operational Excellence. o 10% Aggregate Weighted Customer Objectives o 10% Aggregate Weighted Operational Excellence Objectives o 10% Aggregate Weighted People Objectives
Improvement Goal % of Target Award ---------------- ----------------- 100% or Higher 100% 70% 70% Below 70% 0%
B. Business Objectives o Business objectives must reflect the 70/30 ratio of financial to non-financial objectives. Non-Financial objectives should include specific goals under each of the major performance drivers of People, Customers, and Operational Excellence, and weighted as appropriate for the specific business, but not to exceed 30% of the overall business award. o The business performance achievement percentage may be modified by the Executive Office to ensure that the overall MIP award pool is not exceeded. C. Performance Objective Rating. Each performance objective will be evaluated at the end of the plan year and assigned a rating representing the level at which the objective was achieved. Ratings will be assigned by appropriate management levels for final review and approval by the Chairman and Chief Executive Officer before submitting to the Committee for final approval. In connection with Company ROI and Competitive ROI, the Committee may take into account, without limitation, such items as unforeseen changes in economic conditions. Overall MIP awards may be reduced for deteriorating safety performance. VII. Allocation of Incentive Compensation Pools Among Business/Corporate Staff Units: Pool amounts available under the MIP for payment of individual awards will be earned and allocated to Corporate and Business Participants based upon: A. Corporate Level Participants. Members of the Executive Office and all Corporate Staff members not specifically assigned to a business are considered corporate participants. As such, these participants' award pool is based: o 100% upon Achievement of Corporate Objectives. B. Business Level Participants. Participants other than members of the Executive Office or Corporate Staff members and whose primary responsibilities rest within a business unit are considered Business Participants. As such, these participants' award pool is based: o 50% upon Corporate Objectives o 50% upon Business Objectives. VIII. Award Recommendations. A. Recommendations. The Chairman and Chief Executive Officer will submit to the Committee at the end of each Plan Year individual award recommendations for participants considered Officers/Insiders/Senior Vice Presidents or higher and an aggregate award amount for all other participants. B. Granting of Awards. The Committee, in its sole discretion, may approve, revise or disapprove any recommended award to an Officer/Insider/Senior Vice President as it deems appropriate. Any award to an Officer/Insider/Senior Vice President will be subject to approval by the full Board of Directors of the Company. C. Death, Disability or Retirement of a Participant. A Participant whose employment terminates during a Plan Year because of death, disability or retirement (or who is granted a leave of absence) may, at the discretion of the Committee and under such rules as the Committee may from time to time prescribe, be eligible for consideration for a pro-rata award based on the period of active employment during the Plan Year. If a Participant's employment with the Company is terminated for any reason other than death, disability, retirement, or the grant of a leave of absence, prior to actual payment of an award, such award will be canceled and the Participant will have no right to receive payment. IX. Method and Time of Payment of Awards A. Type of Payment. As soon as practical after an individual incentive award under this Plan has been approved by the Committee (or approved by the Board of Directors with respect to an award to an Officer/Insider/Senior Vice President), the award will be paid to the Participant in cash unless the Participant has elected to defer payment as described in Article IX(C). B. Payment to Beneficiaries. If a Participant dies prior to receipt of an approved award under the Plan, the award will be paid to such beneficiary or beneficiaries as the Participant has designated in writing. The beneficiary designation will state whether payment will be made in a lump-sum or in quarterly installments over a specified period of time (not to exceed forty calendar quarters). If a Participant dies without having a filed a beneficiary designation, the award will be paid in a lump-sum to the Participant's estate. C. Deferral of Payment. Any Participant may elect to defer payment, not to exceed 85%, of any award under this Plan by filing an irrevocable Election to Defer Payment with the Company by a date determined by the Company. Awards or portions elected to be deferred will be invested in accounts under the Company's savings plans as directed by the participants. X. Modification, Suspension or Termination of Plan. The Board of Directors may at any time suspend, terminate, modify or amend any or all of the provisions of this Plan. XI. Governing Law. The Plan is governed by the laws of the State of New York. XII. Tax Withholding. The Company will deduct from any award made under the Plan, a sufficient amount to cover withholding of any federal, state, local or foreign jurisdiction taxes required by law, or to take such other action as may be necessary to satisfy any such withholding obligations. XIII. Non-Transferability of Award. No award, under this Plan, and no rights or interests therein, will be assignable or transferable by a Participant (or legal representative). XIV. Effective Date. This Plan is effective as of January 1, 2003 and continues until terminated, suspended, modified, or amended. Appendix A Industry Financial Performance Peer Group o Boise Cascade o Georgia-Pacific o Smurfit Stone o Stora Enso o UPM-Kymmene o MeadWestvaco o Weyerhaeuser Appendix B Management Incentive Plan (MIP) Target Awards
Position Level Target Award (% of Midpoint) - -------------- ---------------------------- 43 100% 40 85% 37 75% 36 75% 35 70% 34 70% 33 65% 32 65% 31 60% 30 55% 29 50% 28 50% 27 45% 26 45% 25 40% 24 40% 23 35% 22 30% 21 30% 20 25% 19 25% 18 20% 17 15% 16 15% 15 10% 14 10%
EX-11 5 ex11.txt EXHIBIT 11 Exhibit 11 INTERNATIONAL PAPER COMPANY STATEMENT OF COMPUTATION OF PER SHARE EARNINGS (Unaudited) (In millions, except per share amounts)
Three Months Ended March 31, ------------------ 2003 2002 ------ ------- Earnings before accounting changes $ 54 $ 65 Cumulative effect of accounting changes (10) (1,175) ------ ------- Net earnings (loss) 44 (1,110) Effect of dilutive securities -- -- ------ ------- Net earnings (loss) - assuming dilution $ 44 $(1,110) ====== ======= Average common shares outstanding 479.0 482.3 Effect of dilutive securities Stock options 1.1 2.0 ------ ------- Average common shares outstanding - assuming dilution 480.1 484.3 ====== ======= Earnings per common share before accounting changes $ 0.11 $ 0.13 Cumulative effect of accounting changes (0.02) (2.44) ------ ------- Net earnings (loss) per common share $ 0.09 $ (2.31) ====== ======= Net earnings (loss) per common share - assuming dilution $ 0.09 $ (2.31) ====== =======
Note: If an amount does not appear in the above table, the security was antidilutive for the period presented. Antidilutive securities included preferred securities of a subsidiary trust for the periods presented. Stock options are antidilutive in periods when net losses are recorded. EX-12 6 ex12.txt EXHIBIT 12 Exhibit 12 INTERNATIONAL PAPER COMPANY COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Dollar amounts in millions) (Unaudited)
Three Months Ended For the Years Ended December 31, March 31, ----------------------------------------------------- ------------------ TITLE 1998 1999 2000 2001 2002 2002 2003 - ----------------------------------------------- -------- -------- -------- --------- -------- ------ ------ Earnings (loss) before income taxes, minority interest, extraordinary items and accounting changes $ 429.0 $ 448.0 $ 723.0 $(1,265.0) $ 371.0 $139.0 $133.0 Minority interest expense, net of taxes (87.0) (163.0) (238.0) (147.0) (130.0) (31.0) (40.0) Fixed charges excluding capitalized interest 866.7 820.9 1,151.5 1,256.0 1,095.3 280.5 259.2 Amortization of previously capitalized interest 38.8 17.0 23.5 31.8 43.3 11.2 10.8 Equity in undistributed earnings of affiliates 23.7 (41.6) 5.6 13.5 21.5 2.7 (2.9) -------- -------- -------- --------- -------- ------ ------ Earnings (loss) before income taxes, extraordinary items, accounting changes and fixed charges $1,271.2 $1,081.3 $1,665.6 $ (110.7) $1,401.1 $402.4 $360.1 ======== ======== ======== ========= ======== ====== ====== Fixed Charges Interest and amortization of debt expense $ 716.9 $ 611.5 $ 938.1 $ 1,050.3 $ 891.3 $231.0 $210.0 Interest factor attributable to rentals 80.7 76.3 72.8 76.7 89.0 20.8 21.2 Preferred dividends of subsidiaries 69.1 133.1 140.6 129.0 115.0 28.7 28.0 Capitalized interest 53.4 29.3 25.2 13.2 12.3 2.5 1.6 -------- -------- -------- --------- -------- ------ ------ Total fixed charges $ 920.1 $ 850.2 $1,176.7 $ 1,269.2 $1,107.6 $283.0 $260.8 ======== ======== ======== ========= ======== ====== ====== Ratio of earnings to fixed charges 1.38 1.27 1.42 1.26 1.42 1.38 ======== ======== ======== ======== ====== ====== Deficiency in earnings necessary to cover fixed charges $(1,379.9) =========
Note: Dividends on International Paper's preferred stock are insignificant. As a result, for all periods presented, the ratios of earnings to fixed charges and preferred stock dividends are the same as the ratios of earnings to fixed charges. EX-99 7 ex99-1.txt EXHIBIT 99.1 Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of International Paper Company (the "Company") on Form 10-Q for the period ending March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John T. Dillon, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ John T. Dillon - ------------------------------------ John T. Dillon Chairman and Chief Executive Officer May 14, 2003 Subscribed and sworn to before me this 14th day of May 2003. /s/ Paula Bauer - -------------------- Notary Public State of Connecticut My commission expires July 31, 2006 This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. EX-99 8 ex99-2.txt EXHIBIT 99.2 Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of International Paper Company (the "Company") on Form 10-Q for the period ending March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Christopher P. Liddell, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Christopher P. Liddell - ------------------------------------------------- Christopher P. Liddell Senior Vice President and Chief Financial Officer May 14, 2003 Subscribed and sworn to before me this 14th day of May 2003. /s/ Paula Bauer - -------------------- Notary Public State of Connecticut My commission expires July 31, 2006 This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. -----END PRIVACY-ENHANCED MESSAGE-----