-----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, RIegl9Yf0jKiQmIRKBm4mxDrxmNET6rV5xp6zllgoahIVDbWx1tOQTxJDJU9uMSs 42t+Hki70FLMjudv69Dz6A== 0000950123-99-002735.txt : 19990331 0000950123-99-002735.hdr.sgml : 19990331 ACCESSION NUMBER: 0000950123-99-002735 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19990330 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: S-4/A SEC ACT: SEC FILE NUMBER: 333-75235 FILM NUMBER: 99578028 BUSINESS ADDRESS: STREET 1: TWO MANHATTANVILLE RD CITY: PURCHASE STATE: NY ZIP: 10577 BUSINESS PHONE: 9143971500 MAIL ADDRESS: STREET 1: TWO MANHATTANVILLE ROAD CITY: PURCHASE STATE: NY ZIP: 10577 FORMER COMPANY: FORMER CONFORMED NAME: INTERNATIONAL PAPER & POWER CORP DATE OF NAME CHANGE: 19710527 S-4/A 1 AMMENDMENT NO. 1 TO FORM S-4 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 30, 1999 REGISTRATION NO. 333-75235 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------------ AMENDMENT NO. 1 TO FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ INTERNATIONAL PAPER COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) NEW YORK 2600 13-0872805 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
TWO MANHATTANVILLE ROAD NEW YORK, NEW YORK 10577 (914) 397-1500 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ JAMES W. GUEDRY, ESQ. VICE PRESIDENT, SECRETARY & ASSOCIATE GENERAL COUNSEL INTERNATIONAL PAPER COMPANY TWO MANHATTANVILLE ROAD NEW YORK, NEW YORK 10577 (914) 397-1500 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ COPIES TO: DENNIS S. HERSCH, ESQ. DIRK R. SOUTENDIJK, ESQ. JAMES C. MORPHY, ESQ. DAVIS POLK & WARDWELL UNION CAMP CORPORATION SULLIVAN & CROMWELL 450 LEXINGTON AVENUE 1600 VALLEY ROAD 125 BROAD STREET NEW YORK, NEW YORK 10017 WAYNE, NEW JERSEY 07470 NEW YORK, NEW YORK 10004 (212) 450-4000 (973) 628-2000 (212) 558-4000
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. ------------------------ If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] ------------------------ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 INTERNATIONAL PAPER COMPANY CROSS REFERENCE SHEET
LOCATION IN JOINT PROXY ITEM NUMBER IN FORM S-4 STATEMENT/PROSPECTUS ----------------------- ----------------------- A. INFORMATION ABOUT THE TRANSACTION 1. Forepart of Registration Statement and Outside Front Cover Page of Prospectus... Facing Page of the Registration Statement; Outside Front Cover Page of Joint Proxy Statement/Prospectus 2. Inside Front and Outside Back Cover Pages of Prospectus............................ Where You Can Find More Information; Table of Contents 3. Risk Factors, Ratio of Earnings to Fixed Charges and Other Information............ Outside Front Cover Page of Prospectus; Summary; Risk Factors; Selected Financial Information; Historical and Pro Forma Per Share Data; The Merger; Comparative Per Share Market Price and Dividend Information; Where You Can Find More Information 4. Terms of the Transaction................. Outside Front Cover Page of Prospectus; Summary; The Merger; Role of Financial Advisors; Certain Provisions of the Merger Agreement; Comparison of Shareholder Rights; Description of International Paper Capital Stock 5. Pro Forma Financial Information.......... Pro Forma Condensed Consolidated Financial Data 6. Material Contacts with the Company Being Acquired................................. * 7. Additional Information Required for Reoffering by Persons and Parties Deemed to be Underwriters....................... * 8. Interests of Named Experts and Counsel... * 9. Disclosure of Commission Position on Indemnification for Securities Act Liabilities.............................. * B. INFORMATION ABOUT THE REGISTRANT 10. Information with Respect to S-3 Registrants.............................. Where You Can Find More Information 11. Incorporation of Certain Information by Reference................................ Where You Can Find More Information 12. Information with Respect to S-2 and S-3 Registrants.............................. * 13. Incorporation of Certain Information by Reference................................ *
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LOCATION IN JOINT PROXY ITEM NUMBER IN FORM S-4 STATEMENT/PROSPECTUS ----------------------- ----------------------- 14. Information with Respect to Registrants Other Than S-3 or S-2 Registrants........ * C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED 15. Information with Respect to S-3 Companies................................ Where You Can Find More Information 16. Information with Respect to S-2 or S-3 Companies................................ * 17. Information with Respect to Companies Other Than S-2 or S-3 Companies.......... * D. VOTING AND MANAGEMENT INFORMATION 18. Information if Proxies, Consents or Authorizations are to be Solicited....... Outside Front Cover Page of Joint Proxy Statement/Prospectus; Summary; Interests of Certain Persons in the Merger; The Merger; Certain Provisions of the Merger Agreement; The Meetings; Comparison of Shareholder Rights; Where You Can Find More Information 19. Information if Proxies, Consents or Authorizations are not to be Solicited or in an Exchange Offer..................... *
- ------------------------- * Omitted because the Item is inapplicable or the answer thereto is negative. 4 INTERNATIONAL PAPER COMPANY NOTICE OF SPECIAL MEETING OF STOCKHOLDERS A special meeting of stockholders of International Paper Company will be held at the offices of Davis Polk & Wardwell at 9:00 a.m., local time, on April 30, 1999 for the following purposes: 1. To consider and vote upon a proposal to issue shares of International Paper common stock in the merger of Maple Acquisition, Inc., a wholly owned subsidiary of International Paper, with and into Union Camp Corporation, upon the terms and subject to the conditions set forth in the Merger Agreement dated as of November 24, 1998 among International Paper, Union Camp and Maple Acquisition; and 2. To amend the International Paper certificate of incorporation to increase the number of authorized International Paper common stock to 1,000,000,000 shares. Only holders of record of International Paper common stock at the close of business on March 18, 1999 are entitled to vote at the special meeting or any adjournments or postponements thereof. Approval of the share issuance proposal at the special meeting requires the favorable vote of the holders of a majority of the International Paper common stock present in person or by proxy at the special meeting, assuming a quorum is present, and approval of the charter amendment proposal at the special meeting requires the favorable vote of the holders of a majority of the outstanding shares of International Paper common stock. James Guedry Vice President & Secretary March 30, 1999 PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. THE BOARD OF DIRECTORS OF INTERNATIONAL PAPER UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF THE MATTERS TO BE VOTED UPON AT THE SPECIAL MEETING. 5 UNION CAMP CORPORATION NOTICE OF SPECIAL MEETING OF STOCKHOLDERS A special meeting of stockholders of Union Camp Corporation will be held at The Union League Club, 38 East 37th Street, New York, NY, at 10:30 a.m., local time, on April 30, 1999 for the following purposes: To consider and vote upon a proposal to adopt the Merger Agreement dated as of November 24, 1998 among UCC, International Paper Company and Maple Acquisition, Inc., a wholly owned subsidiary of International Paper, providing for the merger of Maple Acquisition with and into Union Camp. Only holders of record of Union Camp common stock at the close of business on February 23, 1999 are entitled to vote at the special meeting or any adjournments or postponements thereof. Approval of the merger proposal at the special meeting requires the affirmative vote of the holders of more than two-thirds of the outstanding shares of Union Camp common stock. Dirk Soutendijk Vice-President, Secretary and General Counsel March 30, 1999 PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. THE BOARD OF DIRECTORS OF UNION CAMP UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF THE MATTERS TO BE VOTED UPON AT THE SPECIAL MEETING. 6 [INTERNATIONAL PAPER LOGO] [UNION CAMP CORPORATION LOGO] MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT The Boards of Directors of International Paper Company and Union Camp Corporation have approved a merger and a merger agreement and are seeking your approval of this important transaction. If we complete the merger, Union Camp's shareholders will receive between 1.47 and 1.6247 International Paper common shares for each Union Camp common share that they own. We will determine the exchange ratio by referring to the average price per International Paper common share, calculated based on market prices on ten randomly selected days during a 20-trading day period shortly prior to the merger. International Paper shareholders will continue to own their existing shares after the merger. International Paper common stock is listed on the New York Stock Exchange under the symbol "IP". On March 26, 1999, the closing price of International Paper common stock was $44.25. The following chart briefly summarizes the exchange ratio for the merger: - ----------------------------------------------- NUMBER OF INTERNATIONAL PAPER CALCULATED AVERAGE SHARES TO BE ISSUED IN PRICE PER THE INTERNATIONAL MERGER PER UNION CAMP PAPER COMMON SHARE COMMON SHARE - ----------------------------------------------- Less than $43.70 1.6247 - ----------------------------------------------- $43.70-$48.30 71 divided by average price per International Paper common share - ----------------------------------------------- More than $48.30 1.47 - -----------------------------------------------
PLEASE SEE PAGES 5-6 AND 60 FOR DETAILED INFORMATION ABOUT THE EXCHANGE RATIO, AS WELL AS PAGES 11-13 FOR A DESCRIPTION OF ADDITIONAL FACTORS THAT MAY AFFECT THE VALUE OF THE INTERNATIONAL PAPER COMMON SHARES TO BE ISSUED IN THE MERGER, ALONG WITH SEVERAL OTHER RISK FACTORS PERTAINING TO THE MERGER THAT YOU SHOULD CONSIDER. Please call 1-877-278-9293 (toll-free) if you would like more information about the exchange ratio. International Paper and Union Camp have scheduled special meetings to vote on the following proposals, which are necessary for the completion of the merger: - - Approval and adoption by the Union Camp shareholders of the merger and the merger agreement; and - - Approval by the International Paper shareholders of the following proposals: - an amendment to International Paper's certificate of incorporation increasing the number of authorized common shares from 400,000,000 to 1,000,000,000, and - the issuance of International Paper common shares in the merger. If you are a Union Camp shareholder and fail to return the enclosed proxy card or call in your vote, the effect will be a vote against the merger agreement proposal, unless you attend your meeting and vote for that proposal. If you are an International Paper shareholder and fail to return the enclosed proxy card or call in your vote, the effect will be a vote against the proposal to amend International Paper's certificate of incorporation, and, accordingly, against the merger, unless you attend your meeting and vote for that proposal. WE ENCOURAGE YOU TO READ THIS DOCUMENT CAREFULLY. [John Dillon Signature] - ------------------------------------------------------ John T. Dillon Chairman and Chief Executive Officer, International Paper Company [W. Craig McClelland Signature] - ------------------------------------------------------ W. Craig McClelland Chairman and Chief Executive Officer, Union Camp Corporation Neither the Securities and Exchange Commission nor any state securities commission has approved the International Paper common stock to be issued under this document or determined if this document is accurate or adequate. Any representation to the contrary is a criminal offense. Joint Proxy Statement/Prospectus dated March 30, 1999, and first mailed to shareholders on March 31, 1999. 7 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE MERGER............................ 1 WHO CAN HELP ANSWER YOUR QUESTIONS......................... 2 SUMMARY............................. 3 The Companies....................... 3 Reasons for the Merger.............. 3 Additional International Paper Reasons for the Merger............ 3 Additional Union Camp Reasons for the Merger........................ 4 Our Recommendations to Shareholders...................... 4 The Merger.......................... 5 RISK FACTORS........................ 11 The International Paper common shares to be issued in the merger will fluctuate in value........... 11 Risks posed by systems compatibility and overlapping customers to realizing anticipated cost savings........................... 12 Forward-looking statements may prove inaccurate........................ 12 THE MERGER.......................... 14 General............................. 14 Background of the Merger............ 14 Reasons for the Merger.............. 18 Recommendation of the International Paper Board; Additional Considerations of the International Paper Board......... 19 Recommendation of International Paper's board of directors........ 21 Recommendation of the Union Camp Board; Additional Considerations of the Union Camp Board........... 21 Recommendation of Union Camp's board of directors...................... 23 Accounting Treatment................ 23 Material Federal Income Tax Consequences...................... 23 Regulatory Matters.................. 25 No Appraisal or Dissenters' Rights............................ 26
PAGE ---- Federal Securities Laws Consequences; Stock Transfer Restriction Agreements........................ 26 COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION.......... 27 SELECTED FINANCIAL INFORMATION...... 28 International Paper................. 28 Union Camp.......................... 29 HISTORICAL AND PRO FORMA PER SHARE DATA.............................. 31 SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA.............................. 33 ROLE OF FINANCIAL ADVISORS.......... 42 Opinion of Union Camp's Financial Advisor........................... 42 Opinion of International Paper's Financial Advisor................. 49 INTERESTS OF INSIDERS IN THE MERGER............................ 56 Interests of Union Camp Officers and Directors......................... 56 PRINCIPAL PROVISIONS OF THE MERGER AGREEMENT......................... 60 General............................. 60 Consideration to be Received in the Merger............................ 60 Exchange of Shares.................. 60 Principal Representations and Warranties........................ 61 Principal Covenants................. 61 Conditions to the Consummation of the Merger........................ 70 Termination......................... 71 Termination Fees Payable by International Paper............... 73 Termination Fees Payable by Union Camp.............................. 73 Expenses............................ 74
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PAGE ---- THE SHAREHOLDERS' MEETINGS.......................... 75 Times and Places; Purposes.......... 75 Voting Rights; Votes Required for Approval.......................... 75 Voting of Proxies................... 76 INTERNATIONAL PAPER CERTIFICATE OF INCORPORATION AMENDMENT PROPOSAL.......................... 78 COMPARISON OF SHAREHOLDER RIGHTS.... 80 DESCRIPTION OF INTERNATIONAL PAPER CAPITAL STOCK..................... 96 International Paper Common Shares... 97
PAGE ---- International Paper Preferred Stock............................. 98 LEGAL MATTERS....................... 99 EXPERTS............................. 99 FUTURE SHAREHOLDER PROPOSALS........ 100 WHERE YOU CAN FIND MORE INFORMATION....................... 100 LIST OF ANNEXES Annex A Agreement and Plan of Merger Annex B Opinion of Goldman, Sachs & Co. Annex C Opinion of Credit Suisse First Boston Corporation
ii 9 QUESTIONS AND ANSWERS ABOUT THE MERGER Q: What do I need to do now? A: Just indicate on your proxy card how you want to vote, sign it and mail it in the enclosed postage-prepaid return envelope as soon as possible, so that your shares may be represented at your shareholders' meeting. The shareholders of both International Paper and Union Camp also have the option of submitting their vote by telephone. If you sign and send in your proxy card and do not indicate how you want to vote, we will count your proxy card as a vote in favor of the proposals submitted at your shareholders' meeting. You may attend your shareholders' meeting and vote your shares in person, rather than signing and mailing your proxy card, or call in your vote. Q: Can I change my vote after submitting my proxy card? A: Yes. Any person who gives a proxy in connection with this solicitation, including one given by telephone, may revoke the proxy at any time before it is voted. The proxy may be revoked in writing, by telephone or by appearing at your company's shareholders' meeting and voting in person. You can find further details on how to revoke your proxy on page 77. Q: If my shares are held in "street name" by my broker, will my broker vote my shares for me? A: Your broker will not be able to vote your shares without instructions from you. You should instruct your broker to vote your shares, following the directions provided by your broker. Q: Should I send in my stock certificates now? A: No. We will send instructions to Union Camp shareholders on how to exchange their Union Camp stock certificates for International Paper stock after completion of the merger. Q: What happens to my future dividends? A: We expect no changes in International Paper's or Union Camp's dividend policies before the consummation of the merger. After the consummation of the merger, International Paper expects that its initial annual dividend rate will be $1.00 per International Paper common share, which is equivalent to the current annual dividend payment on International Paper common shares, but lower than Union Camp's current annual dividend of $1.80 on Union Camp common shares. The payment of dividends by International Paper in the future will depend on business conditions, its financial condition and earnings, and other factors. Q: When do you expect to complete the merger? A: We are working to complete the merger as soon as possible. We hope to complete the merger shortly after the special shareholders' meetings, if we obtain the required shareholder approvals at those shareholders' meetings. 1 10 WHO CAN HELP ANSWER YOUR QUESTIONS If you have more questions about the merger you should contact: if you are an INTERNATIONAL PAPER SHAREHOLDER: International Paper Company Two Manhattanville Road Purchase, New York 10577 Attention: Office of Investor Relations Phone Number: (914) 397-1625 if you are a UNION CAMP SHAREHOLDER: Union Camp Corporation 1600 Valley Road Wayne, New Jersey 07470 Attention: Office of Investor Relations Phone Number: (973) 628-2273 If you have any questions about the exchange ratio, please call (877) 278-9293 (toll-free). If you would like additional copies of this document, or if you have questions about the merger, you should contact: if you are an INTERNATIONAL PAPER SHAREHOLDER: Georgeson & Company Inc. Wall Street Plaza New York, NY 10005 Phone Number: (800) 223-2064 (toll-free) if you are a UNION CAMP SHAREHOLDER: MacKenzie Partners, Inc. 156 Fifth Avenue New York, NY 10010 Phone Number: (212) 929-5500 (collect for international callers) or (800) 322-2885 (toll-free) 2 11 SUMMARY This summary contains selected information from this document and may not contain all of the information that is important to you. To understand the merger more fully and for a more complete description of the legal terms of the merger, you should read this entire document carefully, including the Annexes, and the documents to which we refer. A list of documents that we incorporate by reference appears below under the heading "Where You Can Find More Information". THE COMPANIES INTERNATIONAL PAPER COMPANY Two Manhattanville Road Purchase, New York 10577 Telephone: (914) 397-1500 International Paper is a worldwide producer of printing and writing papers, paperboard and packaging and wood products. It is also a leading distributor of paper and office supply products, primarily in the United States and Europe. On December 31, 1997, International Paper had manufacturing operations in 31 countries and sales in more than 130 countries. It also produces pulp, laminated products and specialty products, including chemicals and minerals. UNION CAMP CORPORATION 1600 Valley Road Wayne, New Jersey 07470 Telephone: (973) 628-2000 Union Camp is a diversified forest products company operating in five business areas including packaging products, paper and paperboard, wood products, distribution and chemicals, primarily in the United States. Union Camp controls approximately 1,600,000 acres of timberlands in Georgia, Alabama, Virginia, Florida, North Carolina and South Carolina, approximately 1,500,000 acres of which are owned by Union Camp. REASONS FOR THE MERGER (SEE PAGES 18-19) International Paper and Union Camp believe that the merger will: - create one of the world's premier manufacturers of printing paper and paper-based packaging materials, with annual net sales, based on 1997 results, of approximately $24.4 billion; - create opportunities for significant operational and financial cost savings through the integration of International Paper's and Union Camp's operations; and - significantly strengthen the combined company's product distribution arm, enabling it to provide its customers with better service. However, you should note that achieving these objectives is subject to particular risks which we discuss below in the section entitled "Risk Factors". These risks include possible difficulties in integrating two companies that have previously operated independently and in achieving anticipated cost savings and other financial and operating benefits from the merger. ADDITIONAL INTERNATIONAL PAPER REASONS FOR THE MERGER (SEE PAGES 19-21) International Paper also believes that the merger will: - focus International Paper's product strategy by increasing its market share for uncoated printing paper and containerboard, reflecting its long-term strategy to focus on those businesses in which it believes it can develop a more competitive position; - boost International Paper's timberland holdings by about 25%; and 3 12 - enhance the strategic position of International Paper beyond that which it could achieve on its own. ADDITIONAL UNION CAMP REASONS FOR THE MERGER (SEE PAGES 21-23) Union Camp also believes that the merger offers Union Camp's shareholders: - an attractive premium for their shares; - the opportunity to hold a less volatile, more liquid stock in a significantly larger, more diversified company; and - the ability to participate in the future growth potential of the combined company and share in any cost reduction and revenue enhancements realized as a result of the merger. OUR RECOMMENDATIONS TO SHAREHOLDERS TO THE INTERNATIONAL PAPER SHAREHOLDERS: International Paper's board of directors believes that the merger is in your best interests and unanimously recommends that you vote FOR the proposals to: - approve an amendment to International Paper's certificate of incorporation, increasing the number of authorized International Paper common shares from 400,000,000 to 1,000,000,000; and - approve the issuance of International Paper common shares in the merger. TO THE UNION CAMP SHAREHOLDERS: Union Camp's board of directors believes that the merger is in your best interests and unanimously recommends that you vote FOR the proposal to: - approve and adopt the merger and the merger agreement. RECORD DATE; VOTING POWER (SEE PAGES 75-76) If you are an International Paper shareholder, you are entitled to vote at your shareholders' meeting if you owned shares of common stock as of the record date for that shareholders' meeting, which was the close of business on March 18, 1999. If you are a Union Camp shareholder, you are entitled to vote at your shareholders' meeting if you owned shares of common stock as of the record date for that shareholders' meeting, which was the close of business on February 23, 1999. On March 18, 1999, there were 306,851,559 International Paper common shares outstanding. For each International Paper common share owned on that date, International Paper shareholders will have one vote at the International Paper shareholders' meeting. On February 23, 1999, there were 69,781,473 Union Camp common shares outstanding. For each Union Camp common share owned on that date, Union Camp shareholders will have one vote at the Union Camp shareholders' meeting. REQUIRED VOTES OF INTERNATIONAL PAPER SHAREHOLDERS The following approvals of International Paper's shareholders are required for the merger to occur: - the approval of a majority of all outstanding shares entitled to vote at the International Paper shareholders' meeting in order to approve and adopt the proposal to increase the number of International Paper's authorized common shares; and - the approval of a majority of the holders of International Paper common shares present and voting at the International Paper shareholders' meeting in order to approve and adopt the proposal to 4 13 issue the International Paper common shares required to consummate the merger. REQUIRED VOTE OF UNION CAMP SHAREHOLDERS The following approval of Union Camp's shareholders is required for the merger to occur: - the approval of the merger and the merger agreement by more than two-thirds of the outstanding Union Camp common shares. SHARE OWNERSHIP OF MANAGEMENT AND DIRECTORS On March 18, 1999, the record date for International Paper's shareholders' meeting, directors and executive officers of International Paper and their affiliates owned and were entitled to vote 1,790,726 International Paper common shares, or less than 1% of the International Paper common shares outstanding on that date. On February 23, 1999, the record date for Union Camp's shareholders' meeting, directors and executive officers of Union Camp and their affiliates owned and were entitled to vote 179,728 Union Camp common shares, or less than 1% of the Union Camp common shares outstanding on that date. THE MERGER We have attached the merger agreement as Annex A to this document. We encourage you to read the merger agreement because it is the legal document that governs the merger. WHAT UNION CAMP SHAREHOLDERS WILL HOLD AFTER THE MERGER As a result of the merger, Union Camp shareholders will receive, for each Union Camp common share that they own, between 1.47 and 1.6247 International Paper common shares. We will determine the exchange ratio by referring to the average International Paper share price, calculated based on market prices on ten randomly selected days during a 20-trading day period shortly prior to the merger. The following chart briefly summarizes how the exchange ratio for the merger is calculated: - --------------------------------------------------- HYPOTHETICAL VALUE PER UNION CAMP NUMBER OF COMMON SHARE INTERNATIONAL BASED ON THE CALCULATED PAPER SHARES CALCULATED AVERAGE TO BE ISSUED AVERAGE PRICE PER IN THE MERGER PRICE PER INTERNATIONAL PER UNION INTERNATIONAL PAPER CAMP PAPER COMMON COMMON SHARE COMMON SHARE SHARE - --------------------------------------------------- Less than 1.6247 Less than $43.70 $71/share - --------------------------------------------------- 71 divided $43.70 -- by Approximately Average $48.30 Price $71/share per International Paper Share - --------------------------------------------------- More than 1.47 More than $48.30 $71/share - ---------------------------------------------------
We have described more fully how the exchange ratio for the merger works under the heading "Principal Provisions of the Merger Agreement -- Consideration to be Received in the Merger". Based on the closing prices of International Paper common stock over the twenty trading days prior to and including March 26, 1999, the most recent practicable date prior to the filing of this document, the exchange ratio would be 1.6247, if one calculates the average of the ten trading days with the lowest closing prices in this period, or 1.5815, if one calculates the average of the ten trading days with the highest closing prices in this period. Assuming these exchange ratios and average prices, the hypothetical value of the International Paper common shares to be received by Union Camp shareholders would be $66.42 per Union Camp share, based on an exchange ratio of 1.6247, or $71.00 per Union 5 14 Camp share based on an exchange ratio of 1.5815. Furthermore, if the average International Paper share price is equal to $44.25, the closing price of International Paper common stock on March 26, 1999, the most recent practicable date prior to the filing of this document, the exchange ratio would be 1.6045 and the hypothetical value of the International Paper shares to be received by Union Camp shareholders would be $71.00 per Union Camp share. However, the actual value of the International Paper common shares to be issued in the merger will depend on market prices at that time, and may be more or less than the value implied by this hypothetical average International Paper share price or by the chart above. We explain this matter in more detail on page 11 under the heading "Risk Factors -- The International Paper common shares to be issued in the merger will fluctuate in value", which also provides a further description of risk factors that may affect price volatility or the value of the International Paper common shares issued in the merger. International Paper will not issue any fractional common shares in the merger. Instead, Union Camp shareholders will receive cash for any fractional common shares owed to them in an amount based upon the exchange ratio for the merger. Union Camp shareholders should not send in their stock certificates for exchange until instructed to do so after we complete the merger. WHAT INTERNATIONAL PAPER SHAREHOLDERS WILL HOLD AFTER THE MERGER International Paper shareholders will continue to own their existing International Paper common shares after the merger. International Paper shareholders should not send in their stock certificates in connection with the merger. OWNERSHIP OF INTERNATIONAL PAPER AFTER THE MERGER Based upon the number of International Paper and Union Camp common shares outstanding on March 26, 1999, and not taking into account stock options or convertible securities of Union Camp or International Paper, International Paper will issue between 101.7 and 112.4 million International Paper common shares to Union Camp shareholders in the merger. The International Paper common shares that will be issued to Union Camp shareholders in the merger will represent between 24.9% and 26.8% of the outstanding International Paper common shares after the merger, excluding stock options and convertible securities. MATERIAL FEDERAL INCOME TAX CONSEQUENCES (SEE PAGES 23 - 25) We have structured the merger so that none of International Paper, its merger subsidiary, Union Camp, or holders of either Union Camp common shares or International Paper common shares will recognize any income, gain or loss for federal income tax purposes as a result of the merger, except for gain on cash received by Union Camp shareholders for fractional shares. It is a condition to closing of the merger that Union Camp receives an opinion of Sullivan & Cromwell, special counsel to Union Camp, that the merger will be a reorganization for federal income tax purposes. Union Camp does not currently intend to waive this condition. In the unlikely event that Union Camp does waive this condition because the merger is a taxable transaction, Union Camp would recirculate this document to disclose the waiver of this condition and the resulting risks to Union Camp's shareholders, including all related material disclosures, and would resolicit proxies from Union Camp's shareholders. 6 15 TAX MATTERS ARE VERY COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER TO YOU WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. WE URGE YOU TO CONSULT YOUR TAX ADVISORS FOR A FULL DESCRIPTION OF THE TAX CONSEQUENCES OF THE MERGER TO YOU. NO APPRAISAL OR DISSENTERS' RIGHTS (SEE PAGE 26) Union Camp is a Virginia corporation. Under Virginia law, Union Camp shareholders have no right to an appraisal of the value of their Union Camp common shares in connection with the merger. COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION (SEE PAGE 27) International Paper common shares are listed on the New York Stock Exchange under the symbol "IP". Union Camp common shares are also listed on the New York Stock Exchange under the symbol "UCC". On November 23, 1998, the last full trading day prior to public announcement of the proposed merger, the last sales price per International Paper common share was $45.8125 and the last sales price per Union Camp common share was $48.9375. On March 26, 1999, the most recent practicable date prior to the filing of this document, the last sales price per International Paper common share was $44.25 and the last sales price per Union Camp common share was $67.9375. LISTING OR QUOTATION OF INTERNATIONAL PAPER COMMON SHARES It is a condition to the closing of the merger that the International Paper common shares to be issued to Union Camp shareholders in the merger be approved for listing on the New York Stock Exchange. ACCOUNTING TREATMENT (SEE PAGE 23) We expect the merger to qualify as a "pooling of interests." This means we will treat our companies as if they had always been combined for accounting and financial reporting purposes at their current book value. REGULATORY APPROVALS (SEE PAGES 25-26) The parties have already obtained all material regulatory approvals required to permit consummation of the merger from the applicable U.S. and foreign regulatory authorities. The Hart-Scott-Rodino statute prohibits completion of a merger until statutory notification requirements and waiting periods have been satisfied. The waiting period under the statute applicable to the merger expired on February 3, 1999. However, the Department of Justice and the FTC have the authority to challenge the merger on antitrust grounds before or after we complete the merger. Additionally, on February 5, 1999, the European Commission rendered a decision not to oppose the merger. INTERESTS OF UNION CAMP'S OFFICERS AND DIRECTORS IN THE MERGER (SEE PAGES 56-59) The International Paper and Union Camp shareholders should note that a number of Union Camp directors and executive officers may have interests in the merger that are different from, or in addition to, the interests of the Union Camp shareholders generally. These interests exist because of the rights that these Union Camp directors and executive officers have under the terms of their Union Camp benefit and compensation plans and also, in the case of the officers, under the terms of various agreements with Union Camp. These agreements may provide some officers with severance benefits if International Paper terminates their employment under specified circumstances following the merger. Some of the plans provide for the accelerated vesting of stock options and restricted stock. 7 16 The members of Union Camp's board of directors knew about and considered these additional interests when they approved the merger and the merger agreement. DIRECTORS AND MANAGEMENT OF INTERNATIONAL PAPER AFTER THE MERGER (SEE PAGE 56) Following the merger, International Paper's board of directors will consist of International Paper's directors elected either by its board of directors or by its shareholders at its 1996, 1997 and 1998 annual shareholders' meetings. In addition, International Paper agreed in the merger agreement that, upon completion of the merger, W. Craig McClelland and two current members of Union Camp's board of directors approved by the nominating committee of International Paper's board of directors will become members of International Paper's board of directors. These three additional directors will be allocated equally among the three classes of directors on International Paper's board. International Paper has established an integration committee composed of senior executive officers of both International Paper and Union Camp who were selected by International Paper's chairman. The purpose of this committee is to propose alternatives and recommend actions to International Paper's chairman regarding issues and matters arising in connection with the integration of the two companies. Following the merger, International Paper's chairman will appoint the combined company's management and executive officers, which will include members of the existing management of International Paper and/or Union Camp. International Paper has announced the members of the combined company's executive officer and management group, which will include former Union Camp executive officers. CONDITIONS TO THE MERGER (SEE PAGES 70 - 71) We will complete the merger only if specific conditions are satisfied or, in some cases, waived, including the following: - the International Paper proposals having been approved by its shareholders and the merger agreement having been approved by the Union Camp shareholders; - there being no law or final and nonappealable court order that prohibits the merger; - receipt by International Paper of a letter from Arthur Andersen LLP that the acquisition should be treated as a "pooling of interests" and receipt by Union Camp of a letter from PricewaterhouseCoopers LLP that Union Camp is a pooling candidate for purposes of the merger, in each case in conformity with U.S. generally accepted accounting principles; and - receipt of an opinion of Union Camp's special counsel that the merger will be a reorganization for federal income tax purposes. The company entitled to assert the condition may waive some of the conditions to the merger, but not the first two conditions listed above. TERMINATION OF THE MERGER AGREEMENT (SEE PAGES 71 - 73) Our boards of directors can jointly agree to terminate the merger agreement at any time before completing the merger. In addition, either company can terminate the merger agreement if: - the parties do not complete the merger by September 30, 1999; - a law or final and nonappealable court order prohibits the merger; 8 17 - either company's shareholders fail to approve that company's merger proposal(s); - the other party willfully breaches any of its representations or warranties or fails to comply with any of its obligations under the merger agreement, resulting in its inability to satisfy a condition to the completion of the merger by September 30, 1999; - the other party's board of directors amends, modifies, withdraws, conditions or qualifies its recommendation of the merger proposal(s) to its shareholders in a manner adverse to the other party; or - Union Camp's board of directors decides to recommend an alternative transaction by a third party after determining it is superior to the merger and to enter into an agreement relating to that transaction. However, Union Camp must give International Paper five business days to match the third party's offer before either party can terminate the merger agreement based on this condition. In addition, International Paper can terminate the merger agreement if Union Camp either willfully and materially breaches the covenant restricting its ability to negotiate with a third party concerning an alternative transaction or recommends an alternative transaction to its shareholders. TERMINATION FEES AND EXPENSES (SEE PAGES 73 - 74) Union Camp must pay International Paper a termination fee of $150 million in cash, plus out-of-pocket expenses not to exceed $10 million, in specified circumstances, including termination of the merger agreement because: - Union Camp enters into an agreement with a third party that its board of directors determines is superior to the merger agreement, or - Union Camp's board of directors has recommended an alternative transaction. If Union Camp's board of directors has adversely changed its recommendation of the merger agreement proposal, Union Camp must pay International Paper a termination fee of $75 million, plus out-of-pocket expenses of up to $10 million. However, if Union Camp enters into an agreement for the sale of Union Camp within the following 12 months, it must pay International Paper an additional $75 million. If Union Camp's shareholders reject the merger agreement proposal after a third party has publicly announced a takeover proposal for Union Camp and, within twelve months of the termination of the merger agreement, Union Camp and that third party enter into a definitive agreement for the acquisition of Union Camp, then Union Camp must pay International Paper a termination fee of $75 million, plus out-of-pocket expenses of up to $10 million. If that transaction is completed, Union Camp must pay International Paper an additional $75 million. International Paper must pay Union Camp a termination fee of $150 million in cash, plus out-of-pocket expenses of up to $10 million, in specified circumstances, including upon a termination of the merger agreement because International Paper's shareholders reject the International Paper proposals. International Paper also must pay Union Camp a termination fee of $75 million in cash, plus out-of-pocket expenses of up to $10 million, if International Paper's board of directors changes in a manner adverse to 9 18 Union Camp its recommendation of the International Paper proposals. OPINIONS OF FINANCIAL ADVISORS (SEE PAGES 42 - 55) In connection with the merger, each company's board of directors received an opinion from its financial advisor as to the fairness of the exchange ratio in the merger from a financial point of view. International Paper received an opinion from Credit Suisse First Boston Corporation and Union Camp received an opinion from Goldman, Sachs & Co. We have attached the full text of these opinions as Annexes B and C to this document. These opinions set forth assumptions made, matters considered and limitations on the review undertaken in connection with the opinions. We encourage you to read and consider the opinion addressed to the board of directors of your company. These opinions are directed to the boards of directors and do not constitute a recommendation to any shareholder as to how that shareholder should vote in connection with the merger proposals. 10 19 RISK FACTORS Union Camp's shareholders should consider the following matters in deciding whether to vote in favor of the merger agreement proposal. International Paper's shareholders should consider the following matters in deciding whether to vote in favor of the International Paper proposals. Shareholders should consider these matters in conjunction with the other information that we have included or incorporated by reference in this document. THE INTERNATIONAL PAPER COMMON SHARES TO BE ISSUED IN THE MERGER WILL FLUCTUATE IN VALUE The value of the International Paper common shares to be issued in the merger will fluctuate and will depend on both the market price of the International Paper common shares and the actual exchange ratio for the merger. The market price of the International Paper common shares to be issued in the merger may vary as a result of changes in the business, operations or prospects of International Paper or Union Camp or market assessments of the impact of the merger. The exchange ratio may vary from 1.47 to 1.6247 shares of International Paper common stock issuable in the merger per Union Camp common share, as described in the "Summary" section above. So long as the average price per International Paper share is between the exchange ratio collar of $43.70 and $48.30, the International Paper common shares to be issued in the merger are generally intended to have a value close to $71.00 per Union Camp common share at the effective time of the merger. Because the actual calculated average International Paper share price and the actual International Paper share price at the effective time of the merger are likely to be different, however, even if the average International Paper share price is between $43.70 and $48.30, the exchange ratio is unlikely to yield a number of International Paper common shares worth exactly $71.00 either at the time of the merger or at the time the International Paper common shares are received. Based on the closing prices of International Paper common stock over the twenty trading days prior to and including March 26, 1999, the most recent practicable date prior to the filing of this document, the exchange ratio would be 1.6247, if one calculates the average of the ten trading days with the lowest closing prices in this period, or 1.5815, if one calculates the average of the ten trading days with the highest closing prices in this period. Assuming these exchange ratios and average prices, the hypothetical value of the International Paper shares to be issued in the merger per Union Camp common share would be $66.42, based on an exchange ratio of 1.6247, or $71.00 per Union Camp share based on an exchange ratio of 1.5815. Furthermore, if the average International Paper share price is equal to $44.25, the closing price of International Paper common stock on March 26, 1999, the most recent practicable date prior to the filing of this document, the exchange ratio would be 1.6045 and the hypothetical value of the International Paper shares to be received by Union Camp shareholders would be $71.00 per Union Camp share. However, the actual exchange ratio, which we will calculate as set forth in "Principal Provisions of the Merger Agreement -- Consideration to be Received in the Merger", has not yet been determined. BECAUSE BOTH THE ACTUAL EXCHANGE RATIO AND THE AVERAGE INTERNATIONAL PAPER SHARE PRICE AT THE EFFECTIVE TIME OF THE MERGER MAY VARY FROM THE HYPOTHETICAL EXCHANGE RATIO AND THE AVERAGE INTERNATIONAL PAPER SHARE PRICE SET FORTH 11 20 ABOVE, THE ACTUAL VALUE OF THE MERGER CONSIDERATION MAY VARY, PERHAPS SUBSTANTIALLY, FROM THAT INDICATED BY THE HYPOTHETICAL VALUE SET FORTH ABOVE. Subject to these qualifications, for every $1.00 fluctuation in the average International Paper share price outside of the exchange ratio collar of 1.47 to 1.6247, the value of the merger consideration received per Union Camp share will vary by $1.62 if the actual exchange ratio is 1.6247 and by $1.47 if the actual exchange ratio is 1.47. During the period from September 1, 1998 to March 26, 1999, the highest closing price per International Paper common share was 29.75% greater than its lowest closing price. HOWEVER, SHAREHOLDERS SHOULD NOT VIEW THIS FACT AS NECESSARILY INDICATIVE OF THE FUTURE MARKET PERFORMANCE OR VOLATILITY OF INTERNATIONAL PAPER COMMON STOCK. The actual performance and volatility of International Paper common stock and/or the financial markets could be significantly more or less than that indicated by the data set forth above. We refer you to the information found under the headings "Principal Provisions of the Merger Agreement -- Consideration to be Received in the Merger". WE URGE YOU TO REVIEW THE INFORMATION FOUND IN THOSE SECTIONS CAREFULLY. We believe that it is necessary for you to do so in order to understand more fully how the exchange ratio works. RISKS POSED BY SYSTEMS COMPATIBILITY AND OVERLAPPING CUSTOMERS TO REALIZING ANTICIPATED COST SAVINGS IN THE MERGER The merger involves the integration of two companies that have previously operated independently. International Paper expects the combined company to realize approximately $300 million of cost savings and other financial and operating benefits from the merger, but there can be no assurance regarding when or the extent to which the combined company will be able to realize these cost savings or benefits. There are numerous systems that the companies must integrate, including management information, purchasing, accounting and finance, sales, billing, payroll and regulatory compliance. Specifically, the two companies have a number of information systems that are dissimilar. The companies will have to integrate, or, in some cases, replace, these systems. Furthermore, in some instances, International Paper and Union Camp serve the same customers. Some of these customers may decide that it is desirable to have additional suppliers. Difficulties associated with integrating International Paper and Union Camp could have a material adverse effect on the combined company and the value of International Paper common shares. FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE This document contains forward-looking statements about International Paper, Union Camp and the combined company which International Paper and Union Camp believe are within the meaning of the Private Securities Litigation Reform Act of 1995. Statements in this document that are not historical facts are hereby identified as "forward-looking statements" for the purpose of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. When used in this document, the words "anticipates," "believes," "expects," "intends", and similar expressions as they relate to International Paper, Union Camp or the combined company or the management of either company are intended to identify such forward-looking statements. In making any such statements, we believe that our expectations are based on reasonable assumptions. However, any such statement may be influenced by factors that could cause actual outcomes and results to be materially different from those projected. These forward-looking statements are subject to numerous 12 21 risks and uncertainties. There are numerous important factors that could cause actual results to differ materially from those in forward-looking statements, some of which are beyond the control of International Paper, Union Camp or the combined company, including: the impact of general economic conditions in the U.S. and Canada and in other regions in which they currently do business, including Asia, Europe and Latin and South America; industry conditions, including competition and product and raw material prices; fluctuations in exchange rates and currency values; capital expenditure requirements; legislative or regulatory requirements, particularly concerning environmental matters; interest rates; access to capital markets; and the timing of and value received in connection with asset divestiture. The actual results, performance or achievement by International Paper, Union Camp or the combined company could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what impact they will have on the results of operations and financial condition of International Paper, Union Camp or the combined company. 13 22 THE MERGER GENERAL We are furnishing this document to holders of International Paper common shares and holders of Union Camp common shares in connection with the solicitation of proxies by International Paper's board of directors at a special meeting of its shareholders and by Union Camp's board of directors at a special meeting of its shareholders, and at any adjournments or postponements of either shareholders' meeting. At the International Paper special shareholders' meeting, International Paper will ask its shareholders to vote upon: - an amendment to International Paper's restated certificate of incorporation increasing the number of authorized International Paper common shares from 400,000,000 to 1,000,000,000; and - the issuance of International Paper common shares in the merger. At the Union Camp special shareholders' meeting, Union Camp will ask its shareholders to vote upon: - a proposal to approve and adopt the Agreement and Plan of Merger, dated as of November 24, 1998, among International Paper, Union Camp and Maple Acquisition, Inc., a wholly-owned subsidiary of International Paper, and the merger and the related transactions. The merger agreement provides for the merger of Maple Acquisition, Inc. with and into Union Camp, with Union Camp surviving the merger. The merger will become effective in accordance with the articles of merger to be filed with both the State Corporation Commission of the Commonwealth of Virginia and the Secretary of State of the State of Delaware and at the time that the Virginia Commission issues the certificate of merger. We anticipate that the parties will make this filing as soon as practicable after the last of the conditions precedent to the merger contained in the merger agreement has been satisfied or waived. Immediately after the merger becomes effective, we expect that Union Camp will be merged with and into International Paper, with International Paper surviving that merger. We have attached a copy of the merger agreement as Annex A to this document. We urge all shareholders of International Paper and Union Camp to read the merger agreement in its entirety because it is the legal document governing the merger. BACKGROUND OF THE MERGER As part of its strategic planning, International Paper continually reviews trends and strategic opportunities in the forest products industry. With continuing consolidation in the worldwide pulp and paper industry, as indicated by several recent business combinations such as Jefferson Smurfit/Stone Container, Stora/Enzo and UPM/Kymmene, International Paper believed that it needed to increase its scale in printing papers and industrial packaging to supplement its expansion in consumer packaging accomplished with the acquisition of Federal Paper Board Company in 1996. International Paper believed that increased scale was important to reduce costs through lower overhead and manufacturing expenses and to develop broader product offerings. Although International Paper has a number of low-cost facilities in printing papers and industrial packaging, it viewed the addition of other low-cost, large-scale facilities as an important objective. In connection with this review of business plans, Credit Suisse First Boston Corporation began to provide 14 23 financial advisory services to International Paper in April 1998 and formalized its relationship with International Paper on October 20, 1998. International Paper's management considered numerous strategic alternatives including a sale of one or more of its large divisions to generate funds for investment in the remaining segments, as well as joint venture combinations with other companies with printing papers or industrial packaging operations. In each case, management concluded that International Paper could better achieve its long-term interests by acquiring businesses in these areas and applying its manufacturing and cost-reduction expertise through a combination with its own businesses. Beginning in June 1998, Mr. John T. Dillon, International Paper's Chairman and Chief Executive Officer, discussed on several occasions with International Paper's board of directors the competitive trends in the forest products industry and the importance of focusing on areas where International Paper could develop a more competitive position. During these discussions, Mr. Dillon identified and compared domestic and international competitors, finally focusing on an intensive review of five or six domestic competitors as candidates for merger or acquisition. Each of these companies offered different opportunities to one or more of International Paper's core printing papers and industrial packaging businesses. Each was also a major integrated paper and forest products company with a significant presence either in printing papers, industrial packaging or both. To pursue these objectives, Mr. Dillon secured the board of directors' approval to investigate the possibility of a merger with another forest products company. Ultimately, Mr. Dillon concluded that a combination transaction with Union Camp was the most compelling and strategic choice, as he viewed Union Camp as providing the best fit and requiring the least restructuring in a combination with International Paper. Mr. Dillon believed that each of Union Camp's businesses fit well with comparable International Paper businesses and that International Paper could integrate Union Camp with relatively little disruption. Moreover, International Paper judged Union Camp's facilities to be among the lowest cost mills in the industry. On October 13, 1998, International Paper's board of directors reviewed the advisability of a merger with Union Camp. After this review, it authorized Mr. Dillon to pursue a transaction by contacting Union Camp. On October 21, 1998, Mr. Dillon called Mr. W. Craig McClelland, Union Camp's Chairman and Chief Executive Officer, to express International Paper's interest in combining with Union Camp and to advise Mr. McClelland that he was sending a letter to him proposing a transaction. Mr. McClelland indicated that Union Camp would duly consider the letter, but told Mr. Dillon that Union Camp was pursuing its own strategic plan as an independent company and was not looking for a merger partner. On October 22, 1998, Union Camp received International Paper's letter dated October 20, 1998 to Mr. McClelland, in which International Paper proposed a merger of Union Camp and International Paper, whereby Union Camp shareholders would receive International Paper common shares with a value of $58 for each Union Camp common share. On October 26 and 27, 1998, Union Camp's board of directors met with management and its legal and financial advisors to consider the merger proposal set forth in International Paper's October 20 letter. After completing its review, the board of directors unanimously determined that the International Paper proposal was not in Union Camp's best interests. The board of directors authorized Mr. McClelland to inform International Paper that Union Camp had rejected the proposal and had no interest in any further discussions 15 24 unless International Paper was prepared to improve its proposal substantially. Mr. McClelland telephoned Mr. Dillon on October 27, 1998 to advise him of the board of directors' decision. On November 3, 1998, Mr. Dillon telephoned Mr. McClelland to request a face-to-face meeting. In the course of their discussion, Mr. Dillon advised Mr. McClelland that International Paper would be willing to negotiate a merger agreement with Union Camp, whereby Union Camp's shareholders would receive International Paper common shares with a value of $62 for each Union Camp common share. Mr. McClelland advised Mr. Dillon that he would not recommend a combination at $62 per share to Union Camp's board of directors and would not be willing to meet to discuss such a transaction. On November 5, 1998, Mr. Dillon telephoned Mr. McClelland to pursue further the merger proposal and the reasons why Mr. McClelland had rejected it. Mr. McClelland advised him that, based on, among other things, Union Camp's asset quality and earnings potential, as well as the significant cost savings and other financial and operating benefits that would be derived from any business combination between International Paper and Union Camp, Mr. McClelland believed that International Paper should be willing to pay significantly more than $62 per share. Unless International Paper was prepared to do so, Mr. McClelland informed Mr. Dillon that he would not be willing to meet to discuss a business combination. In response, Mr. Dillon stated that he might consider a transaction above $62 per share under certain circumstances. After further discussion, Mr. Dillon requested a meeting with Mr. McClelland to discuss preliminarily what level of synergies the two companies might be able to achieve in a business combination. The two CEOs agreed to meet on November 9, 1998. At the November 9 meeting between Mr. McClelland and Mr. Dillon, Mr. Dillon described his overview of the proposed transaction and his preliminary views with respect to the potential cost savings and other financial and operating benefits that could be obtained through a merger. The two CEOs concluded that a more detailed analysis of synergies from a business combination might benefit their discussions. However, Mr. McClelland reiterated his view that further discussions would depend on International Paper's willingness to provide Union Camp shareholders with value significantly higher than $62 per share. The following day, Mr. Dillon telephoned Mr. McClelland to state that he understood Union Camp's views on value and, if sufficient synergies from a combination were present, International Paper would be prepared to increase the value of its offer to Union Camp shareholders. The two agreed to schedule a meeting for November 17, 1998 to review the potential synergies in more detail. On November 11, 1998, Union Camp's board of directors met by conference call with its management and legal and financial advisors to review the status of the discussions with International Paper. Mr. McClelland reported on his various conversations with Mr. Dillon, their meeting on November 9, 1998, and the plans for a meeting scheduled for November 17, 1998 with International Paper to discuss potential cost savings and other potential financial and operating benefits from a merger. Mr. McClelland also noted that he believed that fair treatment of Union Camp employees would be an important component of any transaction with International Paper. After further discussion, the board of directors authorized Mr. McClelland and management to continue their dialogue with International Paper. On November 13, 1998, International Paper's board of directors met by conference call to review the status of discussions with Union Camp. Mr. Dillon reported on his various conversations with Mr. McClelland and the plans for a meeting scheduled for 16 25 November 17, 1998 with Union Camp to discuss potential cost savings and other potential financial and operating benefits from a combination. On November 17, 1998, Mr. McClelland, Mr. Jerry H. Ballengee, Union Camp's President and Chief Operating Officer, Mr. A. William Hamill, Union Camp's Executive Vice President and Chief Financial Officer, and Mr. Charles H. Greiner, Jr., a Union Camp Executive Vice President, met with Mr. Dillon, Mr. C. Cato Ealy, International Paper's Vice President -- Business Development and Planning, Ms. Marianne Parrs, International Paper's Senior Vice President and Chief Financial Officer, and Mr. C. Wesley Smith, International Paper's Executive Vice President -- Operations, to discuss possible cost savings and other financial and operating benefits from a business combination. Based on Union Camp's estimates and assumptions regarding the two companies, its representatives identified approximately $300 million of potential cost savings from an International Paper/Union Camp combination and significant other operating benefits the financial impact of which would be difficult to quantify. At the conclusion of the meeting, International Paper's representatives undertook to study further the information on potential synergies from a business combination presented by Union Camp's representatives. On both November 19 and 20, 1998, Mr. Dillon telephoned Mr. McClelland. During those conversations, the two CEOs discussed their views about the appropriate value of an International Paper/Union Camp combination. Mr. McClelland repeated his unwillingness to meet further with Mr. Dillon unless International Paper proposed a transaction at a price to Union Camp shareholders that recognized the substantial earnings power and value that Union Camp would contribute to the combined entity. At the conclusion of those conversations, Mr. Dillon indicated to Mr. McClelland that International Paper was willing to negotiate a merger agreement whereby Union Camp shareholders would receive International Paper common shares with a value of $70 for each Union Camp common share based on the current market prices. Mr. McClelland agreed to meet with Mr. Dillon that day to discuss further Mr. Dillon's proposal and the issues posed by a possible transaction. During the November 20 meeting, the two CEOs continued to review their positions on the proper pricing of a transaction. Mr. McClelland also emphasized that International Paper would need to treat Union Camp's employees fairly in any business combination. Accordingly, Mr. McClelland proposed that International Paper agree to establish an integration committee composed of both International Paper and Union Camp executives who would be involved in decisions relating to employees and the integration of the two companies. The parties concluded the meeting without reaching agreement on the value of any merger consideration. On November 21, 1998, Mr. Dillon called Mr. McClelland and advised him that, after considering their prior discussions and the prospective cost savings and other benefits of an International Paper/Union Camp combination, International Paper would be prepared to agree, subject to the further review of the prospective cost savings, to a transaction that would provide Union Camp shareholders with International Paper common shares with a value of $71 per Union Camp common share, based on then current market prices. Subject to reaching agreement on all other aspects of the deal, Mr. McClelland agreed that he would recommend such a transaction to Union Camp's board of directors. The parties and their external financial and legal advisors negotiated the terms of the merger agreement, including the ultimate mechanism for the exchange ratio for the 17 26 merger, in a series of meetings and telephone conversations held between November 21 and November 23, 1998. On November 22, 1998, International Paper executives Mr. Dillon, Mr. Smith and Ms. Parrs met with Union Camp executives Mr. McClelland, Mr. Ballengee, Mr. Greiner and Mr. Heald. At this meeting, Union Camp's executives outlined to a greater extent the cost savings and other financial and operating benefits that they believed were achievable from the merger, based on Union Camp's estimates and assumptions regarding the two companies. On November 23, 1998, International Paper's board of directors met by conference call to review the proposed merger agreement. After considering reports from management and management's analysis of the proposed merger based on information received from International Paper's financial and legal advisors, the board of directors voted unanimously to enter into the merger agreement and to recommend that the International Paper shareholders vote to approve the International Paper proposals. On November 23, 1998, Union Camp's board of directors met to consider the revised International Paper offer. After considering reports from management and Union Camp's financial and legal advisors, the board of directors voted unanimously to enter into the merger agreement and to recommend that Union Camp's shareholders vote to approve the merger agreement proposal. Following the approvals of the companies' boards of directors, Union Camp, International Paper and one of its subsidiaries, Maple Acquisition, Inc., entered into the merger agreement on November 24, 1998. REASONS FOR THE MERGER International Paper and Union Camp believe that the merger will: - CREATE ONE OF THE WORLD'S PREMIER MANUFACTURERS OF PRINTING PAPER AND PAPER-BASED PACKAGING MATERIALS. Upon consummation of the merger, the combined entity will be among the world's premier producers of timber, corrugated containers, folding cartons, industrial bags, recycled paperboard, coated and uncoated paper and paper recycling and containerboard. Based on pro forma 1997 data, the combined company will have approximately $24.4 billion in annual net sales and be one of the larger companies in various segments in the forest products industry. - ENABLE THE COMBINED COMPANY TO PROVIDE BETTER SERVICE TO ITS CUSTOMERS. The companies believe that the merger will strengthen the combined company's product-distribution arm, which will allow the combined company to service the needs of customers better than either company would be able to do on its own. - CREATE OPPORTUNITIES FOR SIGNIFICANT COST SAVINGS AND OTHER FINANCIAL AND OPERATING BENEFITS THROUGH THE INTEGRATION OF THE TWO COMPANIES' OPERATIONS. International Paper and Union Camp have identified significant annual operating and financial cost savings, without any planned asset divestitures, in excess of those savings that could be achieved by operating the two companies independently. The 18 27 companies believe that the combined company can achieve $300 million of cost savings as follows: - The companies anticipate that the largest part, about $200 million in cost savings, will come from reduced selling and administrative expenses. These reduced expenses would include eliminating duplicate activities in the two companies, resulting in fewer employees and lower support costs such as telephone, travel and computer costs. The parties also anticipate that the combined company will be able to reduce fees for duplicate activities, such as auditing. - The companies anticipate that another $35 million in cost savings will come from lower costs for purchased items that they believe will be possible because the combined company should get larger volume discounts. - The companies anticipate that a further $65 million in cost savings will come from operating the manufacturing systems more efficiently. Many of the machines that produce paper and paperboard products are large and can make a wide variety of sizes and weights. After the merger, the parties believe that there should be opportunities to consolidate production of sizes and weights on machines best designed to produce specific products efficiently. Also, production runs can last longer which will reduce costs for changing from one product to another. We describe the uncertainties associated with realizing these anticipated cost savings under the heading "Risk Factors -- Risks posed by systems compatibility and overlapping customers to realizing anticipated cost savings in the merger". RECOMMENDATION OF THE INTERNATIONAL PAPER BOARD; ADDITIONAL CONSIDERATIONS OF THE INTERNATIONAL PAPER BOARD At its meeting on November 23, 1998, International Paper's board of directors voted unanimously to enter into the merger agreement and to recommend that the International Paper shareholders vote to approve the shareholder proposals. International Paper's board of directors made its determination after careful consideration of, and based on, a number of factors including those described below, which are the material factors that the board of directors considered: - all the reasons described above under "Reasons for the Merger"; - upon completion, the merger will boost International Paper's timberland holdings by approximately 25% to approximately 7.6 million acres; - following the merger, International Paper expects the annual U.S. revenues of the combined entity from uncoated printing paper will be approximately $3 billion. International Paper also anticipates that the merger should almost double its revenue for containerboard in the U.S. This reflects International Paper's long-term strategy to focus on businesses in which it believes it can develop a more competitive position; - information concerning the business, assets, capital structure, financial performance and condition and prospects of International Paper and Union Camp, focusing in particular on the quality of Union Camp's assets and the compatibility of the two companies' operations; 19 28 - current and historical prices and trading information with respect to each company's common stock, which assisted the board of directors in its conclusion that the merger was fairly priced; - the anticipated increasing worldwide competition in, and consolidation of, the forest products industry; - the composition and strength of the expected senior management of the combined company and the proximity and familiarity of the companies and their similar corporate cultures; - the likelihood of the enhancement of the strategic position of the combined company beyond that which International Paper could achieve on its own; - the opinion of Credit Suisse First Boston Corporation to International Paper's board of directors to the effect that, as of the date of its opinion and based upon and subject to the matters stated in that opinion, the exchange ratio provided for in the merger was fair to International Paper from a financial point of view. We have described Credit Suisse First Boston Corporation's opinion in detail under the heading "Role of Financial Advisors -- Opinion of International Paper's Financial Advisor"; - the challenges of combining the businesses of two major corporations of this size and the attendant risks of not achieving the expected cost savings, other financial and operating benefits or improvement in earnings and of diverting management focus and resources from other strategic opportunities and from operational matters for an extended period of time; - the risk that the merger would not be consummated; - the terms and structure of the merger and the terms and conditions of the merger agreement, including the exchange ratio for the merger, the size of the termination fees and the circumstances in which they are payable and the ability of both companies to negotiate with third parties that make acquisition proposals and to accept superior proposals; and - the accounting treatment for the merger. In view of the number and wide variety of factors considered in connection with its evaluation of the merger and the complexity of these matters, International Paper's board of directors did not find it practicable to, nor did it attempt to, quantify, rank or otherwise assign relative weights to the specific factors it considered. In addition, the board of directors did not undertake to make any specific determination as to whether any particular factor was favorable or unfavorable to the board of directors' ultimate determination or assign any particular weight to any factor, but rather conducted an overall analysis of the factors described above, including through discussions with and questioning of International Paper's management and management's analysis of the proposed merger based on information received from International Paper's legal, financial and accounting advisors. In considering the factors we have described above, individual members of International Paper's board of directors may have given different weight to different factors. International Paper's board of directors considered all these factors as a whole, and overall considered the factors to be favorable to and to support its determination. 20 29 RECOMMENDATION OF INTERNATIONAL PAPER'S BOARD OF DIRECTORS INTERNATIONAL PAPER'S BOARD OF DIRECTORS BELIEVES THAT THE TERMS OF THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF INTERNATIONAL PAPER AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS TO ITS SHAREHOLDERS THAT THEY VOTE "FOR" THE PROPOSALS TO AMEND THE INTERNATIONAL PAPER CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED INTERNATIONAL PAPER COMMON SHARES AND TO ISSUE INTERNATIONAL PAPER COMMON SHARES IN THE MERGER. RECOMMENDATION OF THE UNION CAMP BOARD; ADDITIONAL CONSIDERATIONS OF THE UNION CAMP BOARD At its meeting on November 23, 1998, Union Camp's board of directors voted unanimously to enter into the merger agreement and to recommend that Union Camp shareholders vote to approve the merger and the merger agreement. Union Camp's board of directors made its determination after careful consideration of, and based on, a number of factors including those described below, which are the material factors that the board of directors considered: - all the reasons described above under "Reasons for the Merger"; - information concerning the business, earnings, operations, competitive position and prospects of Union Camp and International Paper both individually and on a combined basis including, but not limited to, the compatibility of the two companies' operations, the potential efficiencies, cost savings and other synergies expected to be realized as a result of the consolidation of Union Camp's and International Paper's operations as well as Union Camp's board of directors' own knowledge of Union Camp, International Paper and the paper industry; - analyses and other information with respect to Union Camp and International Paper and current industry and economic conditions and trends presented to Union Camp's board of directors by management, including, without limitation, a discussion of the complementary nature of some product lines of Union Camp and International Paper; - the presentation of Goldman, Sachs & Co. at the Union Camp board of directors' meeting held on November 23, 1998, and the opinion of Goldman Sachs to the effect that, as of the date of Goldman Sachs' opinion, the exchange ratio for the merger is fair to the Union Camp shareholders from a financial point of view. The full text of Goldman Sachs' opinion, which sets forth assumptions made, matters considered and limitations on the review undertaken in connection with Goldman Sachs' opinion, is attached hereto as Annex B and is incorporated herein by reference. We urge Union Camp shareholders to read Goldman Sachs' opinion in its entirety; - the amount and form of the consideration to be received by Union Camp shareholders in the merger and information on the historical trading ranges of Union Camp common shares and International Paper common shares; - that the merger would provide Union Camp shareholders with an opportunity to receive a premium over the market price for their Union Camp common shares immediately prior to the announcement of the merger. On November 24, 1998, the exchange ratio for the merger represented a premium of approximately 45% over the closing sales price of $48.9375 per Union Camp common share on 21 30 November 23, 1998, the last trading day prior to the announcement of the merger, and a premium of approximately 35% over the average price at which Union Camp common shares had traded in the year prior to the announcement of the merger; - that the transaction will provide Union Camp shareholders with an opportunity to hold a less volatile, more liquid stock in a significantly larger, more diversified company. Union Camp expects that Union Camp shareholders will own approximately 25% of the combined entity and that the merger will provide them with the opportunity to share in the combined company's long-term growth and any synergies realized as a result of the merger. In addition, employees of Union Camp should benefit from expanded business opportunities due to Union Camp's premier facilities becoming part of a combined company that is a leader in the paper industry; - the conditions to the merger agreement that the merger will be accounted for under the pooling of interests method of accounting and will be a tax-free transaction for federal income tax purposes, described under the sub-headings "-- Accounting Treatment" and "-- Federal Income Tax Consequences"; and - the financial and other terms and conditions of the merger and the merger agreement including, without limitation: the limited conditions to International Paper's obligation to close the merger; the collar pricing mechanism that is intended to provide Union Camp shareholders with International Paper common shares valued at approximately $71 per Union Camp common share so long as the average International Paper closing price is between $43.70 and $48.30, subject to the qualifications noted above under the heading "Risk Factors"; the obligation of International Paper, for one year following the effective time of the merger, to provide Union Camp employees with salary and benefits that are no less favorable in the aggregate to those currently provided by Union Camp; the obligation of International Paper to establish an integration committee composed of senior executive officers of both International Paper and Union Camp that will be responsible for proposing alternatives and recommendations to the chairman of International Paper's board of directors regarding issues arising in connection with the integration of the two companies and their businesses, assets and organizations; and the fact that the terms of the merger agreement should not unduly discourage third parties from making bona fide proposals subsequent to signing the merger agreement and, if any such proposal were made, Union Camp's board of directors, in the exercise of its fiduciary duties in accordance with the merger agreement, could authorize Union Camp to provide information to, engage in negotiations with, and, subject to payment of the termination fee, enter into a transaction with, another party. In view of the number and wide variety of factors considered in connection with its evaluation of the merger, and the complexity of these matters, Union Camp's board of directors did not find it practicable to, nor did it attempt to, quantify, rank or otherwise assign relative weights to the specific factors it considered. In addition, the Union Camp board did not undertake to make any specific determination as to whether any particular factor was favorable or unfavorable to the board of directors' ultimate determination or assign any particular weight to any factor, but rather conducted an overall analysis of the factors described above, including through discussions with and questioning of Union Camp's management and management's analysis of the proposed merger based on information received from Union Camp's legal, financial and accounting advisors. In 22 31 considering the factors described above, individual members of the board of directors may have given different weight to different factors. Union Camp's board of directors considered all these factors as a whole, and overall considered the factors to be favorable to and to support its determination. RECOMMENDATION OF UNION CAMP'S BOARD OF DIRECTORS UNION CAMP'S BOARD OF DIRECTORS BELIEVES THAT THE TERMS OF THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF UNION CAMP AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS TO ITS SHAREHOLDERS THAT THEY VOTE "FOR" THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AND THE MERGER AGREEMENT. ACCOUNTING TREATMENT The merger is conditioned upon: - the receipt by International Paper of a letter from Arthur Andersen LLP, dated as of the effective time of the merger and addressed to International Paper, stating that Arthur Andersen LLP believes that the transactions contemplated by the merger agreement should be treated as a "pooling of interests" in conformity with U.S. generally accepted accounting principles as described in Accounting Principles Board Opinion No. 16 and applicable rules and regulations of the SEC; and - such letter not having been withdrawn or modified in any material respect. Similarly, the merger is also conditioned upon: - Union Camp having received a letter from PricewaterhouseCoopers LLP, dated as of the effective time of the merger and addressed to Union Camp, stating that PricewaterhouseCoopers LLP believes that Union Camp is a pooling candidate for purposes of the transactions contemplated by the merger agreement in conformity with U.S. generally accepted accounting principles as described in Accounting Principles Board Opinion No. 16 and applicable rules and regulations of the SEC; and - such letter not having been withdrawn or modified in any material respect. In rendering the letter, PricewaterhouseCoopers LLP will rely upon representations from Union Camp for purposes of the letter. Under the "pooling of interests" accounting method, the assets and liabilities of Union Camp will be carried forward to International Paper at their historical recorded bases. Results of operations of International Paper will include the results of both International Paper and Union Camp for the entire fiscal year in which the merger occurs. The reported balance sheet amounts and results of operations of the separate companies for prior periods will be restated, as appropriate, to reflect the combined financial position and results of operations for International Paper. We present these restated amounts under the heading "Unaudited Pro Forma Condensed Combined Financial Statements". MATERIAL FEDERAL INCOME TAX CONSEQUENCES TAX OPINION. We have structured the merger so that it will constitute a "reorganization" within the meaning of Section 368(a) of the federal tax code, and that each of International Paper, its merger subsidiary and Union Camp will be a party to the reorganization within the meaning of Section 368(b) of the federal tax code. It is a condition to Union Camp's obligation to consummate the merger that Sullivan & 23 32 Cromwell render an opinion to this effect at the effective time of the merger. Accordingly, we anticipate that: - none of International Paper, its merger subsidiary or Union Camp will recognize any gain or loss as a result of the merger, except Union Camp may recognize gain or loss on any assets held by it that are required to be marked to market at the end of its taxable year; - Union Camp shareholders will not recognize any gain or loss upon the exchange of their Union Camp common shares solely for International Paper common shares pursuant to the merger, except with respect to any cash that they receive in lieu of fractional International Paper common shares; - the aggregate tax basis of the International Paper common shares received solely in exchange for Union Camp common shares pursuant to the merger, including fractional International Paper common shares for which cash is received, will be the same as the aggregate tax basis of the Union Camp common shares exchanged therefor; - the holding period for International Paper common shares received in exchange for Union Camp common shares pursuant to the merger will include the holding period of the Union Camp common shares exchanged therefor, provided that the relevant Union Camp shareholder held those Union Camp common shares as a capital asset at the effective time of the merger; and - a Union Camp shareholder who receives cash in lieu of fractional International Paper common shares will recognize gain or loss equal to the difference, if any, between his tax basis in the fractional share and the amount of cash received. In rendering its opinion, Sullivan & Cromwell will rely upon representations contained in certificates from Union Camp and International Paper delivered for purposes of the opinion and will assume that those representations are true as of the effective time of the merger. Union Camp does not currently intend to waive the condition that Sullivan & Cromwell will render its opinion. In the unlikely event that Union Camp does decide to waive this condition, however, Union Camp will recirculate this document to disclose the waiver of this condition and all related material disclosures, including the risks to Union Camp shareholders resulting from the waiver, and will resolicit proxies from the Union Camp shareholders. The foregoing discussion is a summary of the material United States federal income tax consequences of the merger to a United States shareholder who holds Union Camp common shares as a capital asset but does not purport to be a complete analysis or description of all potential tax effects of the merger. In addition, the discussion does not address all of the tax consequences that may be relevant to particular taxpayers in light of their personal circumstances or to taxpayers subject to special treatment under the federal tax code. For example, such taxpayers may include insurance companies, financial institutions, dealers in securities, traders that mark to market, tax-exempt organizations, shareholders who acquired the Union Camp common shares through the exercise of options or otherwise as compensation or through a tax-qualified retirement plan, foreign corporations, foreign partnerships or other foreign entities and individuals who are not citizens or residents of the United States. We have not provided any information in this document relating to any tax consequences of the merger under applicable foreign, state, local and other tax laws. We have based the 24 33 foregoing discussion upon the provisions of the federal tax code, applicable Treasury regulations, and IRS rulings and judicial decisions, as in effect as of the date of this document. There can be no assurance that future legislative, administrative or judicial changes or interpretations will not affect the accuracy of the statements or conclusions set forth herein. Any such change could apply retroactively and could affect the accuracy of this discussion. No rulings have been or will be sought from the IRS concerning the tax consequences of the merger and the opinion of counsel as to the federal income tax consequences set forth above will not be binding on the IRS. THE PRECEDING DISCUSSION DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT TO THE MERGER. WE URGE UNION CAMP SHAREHOLDERS TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING TAX RETURN REPORTING REQUIREMENTS, THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL, AND OTHER APPLICABLE TAX LAWS AND THE EFFECT OF ANY PROPOSED CHANGES IN THE TAX LAWS. REGULATORY MATTERS We have already obtained all material regulatory approvals required to permit consummation of the merger from the applicable U.S. and foreign regulatory authorities, including the antitrust authorities in the United States and in the European Union. The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated under that Act, prohibited International Paper and Union Camp from consummating the merger until they notified and furnished information to the FTC and the Antitrust Division of the United States Department of Justice and specified waiting period requirements were satisfied. On January 4, 1999, in connection with the merger, International Paper and Union Camp each filed with the FTC and the Antitrust Division a Notification and Report Form under the Hart-Scott-Rodino Act. The applicable waiting period under the Hart-Scott-Rodino Act relating to the merger expired at 11:59 pm on February 3, 1999. Notwithstanding the expiration of the waiting period under the Hart-Scott-Rodino Act relating to the merger, at any time before or after the completion of the merger, either the Antitrust Division or the FTC could take any action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the consummation of the merger or seeking the divestiture of substantial assets of International Paper or Union Camp. Private parties and the state attorneys general may also bring actions under the U.S. antitrust laws depending on the circumstances. Although International Paper and Union Camp believe that the merger is legal under the U.S. antitrust laws, there can be no assurance that a challenge to the merger on antitrust grounds will not be made or if such a challenge is made, that it would not be successful. Both International Paper and Union Camp conduct business in member states of the European Union. European Union Council Regulation 4064/89, as amended, requires notification of and approval by the European Commission of specific mergers or acquisitions involving parties with aggregate worldwide sales and individual European Union sales exceeding given thresholds before such mergers or acquisitions are implemented. International Paper and Union Camp duly notified the European Commission of the merger on January 4, 1999. On February 5, 1999, the European Commission rendered a decision not to oppose the merger and declared it compatible with the common market and the functioning of the European Economic Area Agreement. 25 34 Both International Paper and Union Camp conduct operations in a number of other foreign countries where regulatory filings, notifications or approvals with applicable commissions and other authorities may be required in connection with consummation of the merger. NO APPRAISAL OR DISSENTERS' RIGHTS Shareholders of a corporation that is proposing to merge or consolidate with another entity are sometimes entitled to appraisal or dissenters' rights in connection with the proposed transaction depending on the circumstances. Most commonly, these rights confer on shareholders who oppose the merger or consolidation the right to receive the fair value for their shares as determined in a judicial appraisal proceeding, in lieu of the consideration being offered in the merger. Union Camp shareholders are not entitled to appraisal or dissenters' rights under Virginia law in connection with the merger because Union Camp common shares were listed on the New York Stock Exchange on the record date for its special shareholders' meeting and the International Paper common shares that Union Camp shareholders will be entitled to receive in the merger will be listed on the New York Stock Exchange at the effective time of the merger. International Paper shareholders are not entitled to appraisal or dissenters' rights under New York law in connection with the merger because International Paper is not a constituent corporation in the merger. FEDERAL SECURITIES LAWS CONSEQUENCES; STOCK TRANSFER RESTRICTION AGREEMENTS This document does not cover any resales of the International Paper common shares to be received by Union Camp's shareholders upon consummation of the merger, and no person is authorized to make any use of this document in connection with any such resale. All International Paper common shares that Union Camp shareholders receive in the merger will be freely transferable, with the exception of the International Paper common shares received by persons who are deemed to be "affiliates" of Union Camp under the Securities Act of 1933, as amended, and the rules and regulations promulgated under that Act, at the time of the Union Camp shareholders' meeting. These "affiliates" may only re-sell their International Paper common shares in transactions permitted by Rule 145 under the Securities Act of 1933 or as otherwise permitted under that Act. Persons who may be deemed to be affiliates of Union Camp for such purposes generally include individuals or entities that control, are controlled by, or are under common control with, Union Camp and may include some officers, directors and principal shareholders of Union Camp. The merger agreement requires Union Camp to use commercially reasonable efforts to deliver or cause to be delivered to International Paper on or prior to the effective time of the merger from each of those affiliates an executed letter agreement to the effect that those persons will not offer or sell or otherwise dispose of any International Paper common shares issued to them in the merger in violation of the Securities Act of 1933. 26 35 COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION For the calendar quarters indicated, the table below sets forth 1. the high and low sales prices per International Paper common share and Union Camp common share, in each case as reported on the New York Stock Exchange Composite Transaction Tape and based on published financial sources, and 2. the cash dividends per International Paper common share and Union Camp common share for the calendar quarters indicated below. The sales prices per International Paper common share reflect the stock split effective on September 15, 1995.
INTERNATIONAL PAPER UNION CAMP COMMON SHARES COMMON SHARES ------------------------------ ----------------------------- MARKET PRICE MARKET PRICE ------------------ CASH ----------------- CASH HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS ------- -------- --------- ------- ------- --------- 1997 First Quarter...... $43.625 $ 38.750 $0.25 $52.250 $46.875 $ 0.45 Second Quarter..... 51.875 38.625 0.25 54.875 45.125 0.45 Third Quarter...... 61.000 48.250 0.25 63.125 50.250 0.45 Fourth Quarter..... 58.500 39.875 0.25 64.562 49.750 0.45 1998 First Quarter...... $52.625 $ 40.875 $0.25 $63.250 $50.375 $ 0.45 Second Quarter..... 55.250 42.500 0.25 64.437 49.125 0.45 Third Quarter...... 49.375 35.500 0.25 49.750 34.000 0.45 Fourth Quarter..... 49.188 40.188 0.25 68.000 38.375 0.45 1999 First Quarter (through March 26)............. $46.500 $39.5625 $0.25 $69.500 $61.750 $ 0.45
On November 23, 1998, the last full trading day prior to the public announcement of the proposed merger, the closing price per International Paper common share quoted on the New York Stock Exchange Composite Transaction Tape was $45.8125 and the closing price per Union Camp common share reported on the New York Stock Exchange Composite Transaction Tape was $48.9375. On March 26, 1999, the most recent practicable date prior to the printing of this document, the closing price per International Paper common share reported on the New York Stock Exchange Composite Transaction Tape was $44.25 and the closing price per Union Camp common share reported on the New York Stock Exchange Composite Transaction Tape was $67.9375. WE URGE SHAREHOLDERS TO OBTAIN CURRENT MARKET QUOTATIONS PRIOR TO MAKING ANY DECISION WITH RESPECT TO THE MERGER. After the merger, International Paper expects that it will pay quarterly dividends to International Paper shareholders at an annual dividend rate per International Paper common share of $1.00, which is equivalent to the current annual dividend payment on International Paper common shares, but is lower than the current annual dividend of $1.80 on the Union Camp common shares. The payment of dividends by International Paper in the future, however, will depend on business conditions, its financial condition and earnings, and other factors. 27 36 SELECTED FINANCIAL INFORMATION Shareholders should read the selected financial data presented below in conjunction with the financial statements and the notes thereto incorporated by reference for International Paper and Union Camp. INTERNATIONAL PAPER The following selected historical financial data for, and as of the end of, each of the five years in the period ended December 31, 1997 have been derived from International Paper's consolidated financial statements, which have been audited by Arthur Andersen LLP, International Paper's independent public accountants. The data as of September 30, 1998 and 1997 and for the nine months ended September 30, 1998 and 1997 are derived from International Paper's unaudited consolidated financial statements which include, in management's opinion, all adjustments, consisting of normal recurring adjustments, necessary to present fairly the results of operations and financial position of International Paper for the periods and dates presented. We have presented the financial information below to include the impact of special items which included gains on the sales of businesses, reversals of previously established restructuring reserves, a provision for legal reserve, impairment charges and restructuring and other charges. These special items reduced net after-tax earnings by $60 million for the nine-month period in 1998; $478 million for the nine-month period in 1997; $461 million for the year ended December 31, 1997; and $131 million for the year ended December 31, 1996. The information also reflects the July 1998 acquisition of the Zellerbach distribution business for $263 million in cash; the April 1998 acquisition of Weston Paper and Manufacturing Company for International Paper common stock worth $232 million; the March 1996 purchase of Federal Paper Board for $1.3 billion in cash and International Paper common stock worth $1.4 billion; and the consolidation of Carter Holt Harvey in 1995. Shareholders should read this data together with the audited and unaudited consolidated financial statements of International Paper, including the notes thereto, incorporated herein by reference. We have listed the documents that we incorporate by reference under the heading "Where You Can Find More Information". Operating results for the nine-month period ended September 30, 1998 are not necessarily indicative of the results that can be expected for the year ending December 31, 1998. We have adjusted per share data to reflect the impact of a two-for-one stock split in September 1995. 28 37
AS OF OR FOR THE NINE MONTHS ENDED AS OF OR FOR THE SEPTEMBER 30, YEAR ENDED DECEMBER 31, ----------------- ----------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ------- ------- ------- ------- ------- ------- ------- (UNAUDITED) (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) RESULTS OF OPERATIONS: Net sales................... $14,514 $15,015 $20,096 $20,143 $19,797 $14,966 $13,685 Costs and expenses, excluding interest........ 13,913 14,881 19,760 19,403 17,276 13,902 12,837 Earnings (loss) before income taxes, minority interest, and cumulative effect of accounting change.................... 292 (241) 16 802 2,028 715 538 Earnings (loss) before cumulative effect of accounting change......... 182 (283) (151) 303 1,153 432 289 Earnings (loss) per common share before cumulative effect of accounting change.................... $ .60 $ (.94) $ (.50) $ 1.04 $ 4.50 $ 1.73 $ 1.17 Earnings (loss) per common share before cumulative effect of accounting change -- assuming dilution.................. .60 (.94) (.50) 1.04 4.41 1.72 1.17 Cash dividends per common share..................... .75 .75 1.00 1.00 .92 .84 .84 BALANCE SHEET DATA: Working capital............. $ 2,620 $ 279 $ 1,065 $ 104 $ 1,010 $ 796 $ 472 Plants, properties and equipment, net............ 12,066 12,387 12,369 13,217 10,997 9,139 8,872 Forestlands................. 2,790 3,152 2,969 3,342 2,803 802 786 Total assets................ 27,080 27,394 26,754 28,252 23,977 17,836 16,631 Long-term debt.............. 6,908 6,656 7,154 6,691 5,946 4,464 3,601 Common shareholders' equity.................... 8,969 8,749 8,710 9,344 7,797 6,514 6,225
UNION CAMP The following selected historical financial data for, and as of the end of, each of the five years in the period ended December 31, 1997 have been derived from Union Camp's consolidated financial statements, which have been audited by PricewaterhouseCoopers LLP, Union Camp's independent accountants. The data as of September 30, 1998 and September 30, 1997 and for the nine months then ended are derived from Union Camp's unaudited consolidated financial statements which include, in management's opinion, all adjustments, consisting of normal recurring adjustments, necessary to present fairly the results of operations and financial position of Union Camp for the periods and dates presented. We have presented the financial information below to include the impact of special charges for restructuring activities and asset write-downs of $26 million after-tax in 1998 and $24 million after-tax in 1996 and a gain of $35 million pre-tax on the sale of a minority interest in Bush Boake Allen, Inc. in 1994. Shareholders should read this data together with the audited and unaudited consolidated 29 38 financial statements of Union Camp, including the notes thereto, incorporated herein by reference. We have listed the documents that we incorporate by reference under the heading "Where You Can Find More Information". Operating results for the nine-month period ended September 30, 1998 are not necessarily indicative of the results that can be expected for the year ending December 31, 1998.
AS OF OR FOR THE NINE MONTHS ENDED AS OF OR FOR THE SEPTEMBER 30, YEAR ENDED DECEMBER 31, ----------------- ------------------------------------------ 1998 1997 1997 1996 1995 1994 1993 ------- ------- ------ ------ ------ ------ ------ (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) STATEMENT OF INCOME DATA: Net sales........................... $3,386 $3,290 $4,477 $4,013 $4,212 $3,396 $3,120 Costs and other charges............. 3,241 3,116 4,220 3,761 3,370 3,112 2,889 Income before income taxes, minority interest and accounting change.... 55 89 144 151 731 195 100 Net income.......................... 24 48 81 85 451 114 50 Net income per common share: Basic............................. $ .34 $ .69 $ 1.17 $ 1.23 $ 6.45 $ 1.62 $ .72 Diluted........................... .34 .69 1.16 1.23 6.39 1.61 .71 Dividends per common share.......... 1.35 1.35 1.80 1.80 1.66 1.56 1.56 BALANCE SHEET DATA (END OF PERIOD): Working capital..................... $ 339 $ 316 $ 409 $ 354 $ 414 $ 67 $ 1 Plant and equipment, net............ 3,327 3,383 3,396 3,401 3,385 3,431 3,399 Timberlands, net.................... 379 360 364 351 275 254 247 Total assets........................ 5,191 5,155 5,242 5,096 4,838 4,777 4,685 Long-term debt...................... 1,302 1,231 1,367 1,252 1,152 1,252 1,245 Stockholders' equity................ 1,965 2,055 2,036 2,094 2,122 1,836 1,816
30 39 HISTORICAL AND PRO FORMA PER SHARE DATA The following table sets forth selected historical and unaudited pro forma per share data for International Paper and historical and equivalent unaudited pro forma per share data for Union Camp. The unaudited pro forma financial data assumes that the merger was consummated at the beginning of each period presented and gives effect to the merger as a "pooling of interests" under U.S. generally accepted accounting principles. We have based the unaudited pro forma per share data for International Paper upon the historical average number of outstanding International Paper common shares adjusted to include the number of International Paper common shares that would be issued in the merger based upon an assumed exchange ratio of 1.6247, which is the highest possible exchange ratio permitted by the merger agreement. The actual exchange ratio will potentially range from a minimum of 1.47 to a maximum of 1.6247, depending on the calculated average International Paper common share price shortly prior to the merger. For more details, see "Principal Provisions of the Merger Agreement -- Consideration to be Received in the Merger". The highest possible exchange ratio has been used because International Paper common shares are trading below the low end of the exchange ratio collar as of the most recent practicable date prior to the filing of this document. We have based the unaudited pro forma equivalent per share data for Union Camp on the unaudited pro forma amounts per share for International Paper, multiplied by an assumed exchange ratio of 1.6247, which is the highest possible exchange ratio permitted by the merger agreement. Shareholders should read the information set forth below in conjunction with the historical consolidated financial data of International Paper and Union Camp incorporated by reference herein. Pro forma cash dividends per common share are calculated by dividing the total of the combined cash dividends paid by International Paper and Union Camp in each period by the pro forma average common shares outstanding in each period. The equivalent cash dividends per Union Camp common share were $1.22 for the nine-month period in 1998; $1.62 for each of the years 1997 and 1996; and $1.49 for 1995. The equivalent expected annual cash dividend per Union Camp common share after the merger will decrease relative to the $1.80 annual cash dividend per share that Union Camp shareholders received in 1996, 1997 and 1998.
AS OF OR FOR THE NINE MONTHS AS OF OR FOR THE YEAR ENDED ENDED DECEMBER 31, SEPTEMBER 30, ----------------------------- 1998 1997 1996 1995 ---------------- ------- ------- ------- INTERNATIONAL PAPER COMMON SHARES -- HISTORICAL Earnings (loss) per common share.... $ .60 $ (.50) $ 1.04 $ 4.50 Earnings (loss) per common share -- assuming dilution................. .60 (.50) 1.04 4.41 Cash dividends per common share..... .75 1.00 1.00 .92 Book value per common share (at end of period)........................ 29.22 28.82
31 40
AS OF OR FOR THE NINE MONTHS AS OF OR FOR THE YEAR ENDED ENDED DECEMBER 31, SEPTEMBER 30, ----------------------------- 1998 1997 1996 1995 ---------------- ------- ------- ------- UNION CAMP COMMON SHARES -- HISTORICAL Earnings per common share........... $ .34 $ 1.17 $ 1.23 $ 6.45 Earnings per common share -- assuming dilution........ .34 1.16 1.23 6.39 Cash dividends per common share..... 1.35 1.80 1.80 1.66 Book value per common share (at end of period)........................ 28.40 29.39 PRO FORMA COMBINED COMPANY Pro forma earnings (loss) per common share............................. $ .49 $ (.17) $ .96 $ 4.34 Union Camp equivalent pro forma earnings (loss) per common share............................. .80 (.28) 1.56 7.05 Pro forma earnings (loss) per common share -- assuming dilution........ .49 (.17) .96 4.29 Union Camp equivalent pro forma earnings (loss) per common share -- assuming dilution........ .80 (.28) 1.56 6.97 Pro forma cash dividends per common share............................. .77 1.03 1.03 .96 Union Camp equivalent pro forma cash dividends per common share........ 1.25 1.67 1.67 1.56 Book value per common share (at end of period) Pro forma......................... 25.98 25.82 Union Camp equivalent pro forma... 42.21 41.95
32 41 SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA The following selected unaudited pro forma combined financial data gives effect to the merger. The unaudited pro forma condensed combined statement of earnings data for the nine months ended September 30, 1998 was prepared based upon International Paper's unaudited consolidated financial statements for the nine months ended September 30, 1998, and Union Camp's unaudited consolidated financial statements for the nine months ended September 30, 1998, as if the merger had occurred as of the beginning of that period. The unaudited pro forma combined statement of earnings data for the three years ended December 31, 1997 was prepared based upon International Paper's audited consolidated financial statements for the three years ended December 31, 1997 and Union Camp's audited consolidated financial statements for the three years ended December 31, 1997, as if the merger had occurred at the beginning of each of the three years. The selected unaudited pro forma combined balance sheet data was prepared based upon the balance sheet data of International Paper at September 30, 1998 and Union Camp at September 30, 1998, giving effect to the merger. The unaudited data may not be indicative of the results that actually would have been achieved if the merger had been in effect as of the date and for the periods indicated or which may be obtained in the future. The pro forma financial data does not reflect any cost savings or other synergies discussed elsewhere in this document. The pro forma adjustments are based upon the "pooling of interests" method of accounting, available information and particular assumptions described on page 41 that International Paper and Union Camp believe to be reasonable. The pro forma condensed consolidated financial statements and accompanying notes should be read in conjunction with the historical financial statements of International Paper and Union Camp, and the related notes thereto, that are incorporated by reference or included elsewhere in this document. The pro forma condensed consolidated financial statements are provided for informational purposes only in response to SEC requirements and do not purport to represent what International Paper's financial position or results of operations would actually have been if the merger had in fact occurred at such dates or to project International Paper's financial position or results of operations for any future date or period. 33 42
PRO FORMA COMBINED -------------------------------------------------- AS OF OR FOR THE AS OF OR FOR THE NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ----------------------------- 1998 1997 1996 1995 ----------------- ------- ------- ------- (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) RESULTS OF OPERATIONS: Net Sales..................... $17,873 $24,568 $24,192 $24,150 Costs and expenses, excluding interest.................... 17,131 23,971 23,189 20,786 Earnings before income taxes and minority interest....... 346 160 953 2,757 Net earnings (loss)........... 205 (70) 388 1,602 Earning (loss) per common share....................... $ .49 $ (.17) $ .96 $ 4.34 Earnings (loss) per common share -- assuming dilution.................... .49 (.17) .96 4.29 Cash dividends per common share....................... .77 1.03 1.03 .96 BALANCE SHEET DATA (END OF PERIOD): Working capital............... $ 2,918 Plants, properties and equipment, net.............. 15,393 Forestlands................... 3,169 Total assets.................. 32,257 Long-term debt................ 8,210 Common shareholders' equity... 10,893
34 43 UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS TO REFLECT THE PROPOSED UNION CAMP MERGER NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN MILLIONS, EXCEPT PER SHARE DATA)
IP UCC PRO FORMA PRO FORMA (HISTORICAL) (HISTORICAL) ADJUSTMENTS COMBINED ------------ ------------ ----------- --------- Net Sales........................ $14,514 $3,386 $ (27)(a)(b) $17,873 ------- ------ ----- ------- Costs and Expenses Cost of products sold.......... 10,959 2,586 (239)(a)(b)(d) 13,306 Selling and administrative expenses.................... 1,105 380 1,485 Depreciation and amortization................ 890 235 (10)(b) 1,115 Distribution expenses.......... 640 189(b) 829 Taxes other than payroll and income taxes................ 144 37(b) 181 Equity (earnings) losses from investment in Scitex........ 15 15 Restructuring and other charges..................... 160 40 200 ------- ------ ----- ------- Total Costs and Expenses.... 13,913 3,241 (23) 17,131 ------- ------ ----- ------- Gain on sale of business......... 20 20 Reversals of reserves no longer required....................... 45 45 ------- ------ ----- ------- Earnings Before Interest, Income Taxes and Minority Interest.... 666 145 (4) 807 Interest expense, net.......... 374 87 461 Other (income) expense, net.... 3 (3)(b) ------- ------ ----- ------- Earnings Before Income Taxes and Minority Interest.............. 292 55 (1) 346 Provision for income taxes..... 69 23 92 Minority interest expense, net of taxes.................... 41 8 49 ------- ------ ----- ------- Net Earnings (Loss).............. $ 182 $ 24 $ (1) $ 205 ======= ====== ===== ======= Earnings Per Common Share........ $ 0.60 $ 0.49 ======= ======= Earnings Per Common Share -- Assuming Dilution.............. $ 0.60 $ 0.49 ======= ======= Average Shares of Common Stock Outstanding.................... 305.4 417.8 ======= =======
The accompanying notes are an integral part of these Unaudited Pro Forma Condensed Combined Financial Statements. 35 44 UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS TO REFLECT THE PROPOSED UNION CAMP MERGER YEAR ENDED DECEMBER 31, 1997 (IN MILLIONS, EXCEPT PER SHARE DATA)
IP UCC PRO FORMA PRO FORMA (HISTORICAL) (HISTORICAL) ADJUSTMENTS COMBINED ------------ ------------ ----------- --------- Net Sales............................. $20,096 $4,477 $ (5)(a)(b) $24,568 ------- ------ ----- ------- Costs and Expenses Cost of products sold............... 14,974 3,400 (313)(a)(b)(d) 18,061 Selling and administrative expenses......................... 1,581 509 2,090 Depreciation and amortization....... 1,258 311 (10)(b) 1,559 Distribution expenses............... 933 264(b) 1,197 Taxes other than payroll and income taxes............................ 205 50(b) 255 Equity (earnings) losses from investment in Scitex............. (1) (1) Restructuring and other charges..... 810 810 ------- ------ ----- ------- Total Costs and Expenses......... 19,760 4,220 (9) 23,971 ------- ------ ----- ------- Gain on sale of west coast partnership interest............................ 170 170 ------- ------ ----- ------- Earnings Before Interest, Income Taxes and Minority Interest............... 506 257 4 767 Interest expense, net............... 490 117 607 Other (income) expense, net......... (4) 4(b) ------- ------ ----- ------- Earnings Before Income Taxes and Minority Interest................... 16 144 0 160 Provision for income taxes.......... 38 52 90 Minority interest expense, net of taxes............................ 129 11 140 ------- ------ ----- ------- Net Earnings (Loss)................... $ (151) $ 81 $ 0 $ (70) ======= ====== ===== ======= Earnings (Loss) Per Common Share...... $ (0.50) $ (0.17) ======= ======= Earnings (Loss) Per Common Share -- Assuming Dilution................... $ (0.50) $ (0.17) ======= ======= Average Shares of Common Stock Outstanding......................... 301.6 414.0 ======= =======
The accompanying notes are an integral part of these Unaudited Pro Forma Condensed Combined Financial Statements. 36 45 UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS TO REFLECT THE PROPOSED UNION CAMP MERGER YEAR ENDED DECEMBER 31, 1996 (IN MILLIONS, EXCEPT PER SHARE DATA)
IP UCC PRO FORMA PRO FORMA (HISTORICAL) (HISTORICAL) ADJUSTMENTS COMBINED ------------ ------------ ----------- --------- Net Sales............................. $20,143 $4,013 $ 36(a)(b) $24,192 ------- ------ ----- ------- Costs and Expenses Cost of products sold............... 14,883 2,972 (237)(a)(b)(d) 17,618 Selling and administrative expenses......................... 1,509 451 1,960 Depreciation and amortization....... 1,194 299 (9)(b) 1,484 Distribution expenses............... 925 222(b) 1,147 Taxes other than payroll and income taxes............................ 194 49(b) 243 Equity (earnings) losses from investment in Scitex............. 28 28 Restructuring and other charges..... 670 39 709 ------- ------ ----- ------- Total Costs and Expenses......... 19,403 3,761 25 23,189 ------- ------ ----- ------- Gain on sale of west coast partnership interest............................ 592 592 ------- ------ ----- ------- Earnings Before Interest, Income Taxes and Minority Interest............... 1,332 252 11 1,595 Interest expense, net............... 530 112 642 Other (income) expense, net......... (11) 11(b) ------- ------ ----- ------- Earnings Before Income Taxes and Minority Interest................... 802 151 0 953 Provision for income taxes.......... 330 55 385 Minority interest expense, net of taxes............................ 169 11 180 ------- ------ ----- ------- Net Earnings.......................... $ 303 $ 85 $ 0 $ 388 ======= ====== ===== ======= Earnings Per Common Share............. $ 1.04 $ 0.96 ======= ======= Earnings Per Common Share -- Assuming Dilution............................ $ 1.04 $ 0.96 ======= ======= Average Shares of Common Stock Outstanding......................... 292.1 404.5 ======= =======
The accompanying notes are an integral part of these Unaudited Pro Forma Condensed Combined Financial Statements. 37 46 UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS TO REFLECT THE PROPOSED UNION CAMP MERGER YEAR ENDED DECEMBER 31, 1995 (IN MILLIONS, EXCEPT PER SHARE DATA)
IP UCC PRO FORMA PRO FORMA (HISTORICAL) (HISTORICAL) ADJUSTMENTS COMBINED ------------ ------------ ----------- --------- Net Sales............................. $19,797 $4,212 $ 141(a)(b) $24,150 ------- ------ ----- ------- Costs and Expenses Cost of products sold............... 13,886 2,681 (117)(a)(b)(d) 16,450 Selling and administrative expenses......................... 1,381 401 1,782 Depreciation and amortization....... 1,031 288 (6)(b) 1,313 Distribution expenses............... 794 214(b) 1,008 Taxes other than payroll and income taxes............................ 174 49(b) 223 Equity (earnings) losses from investment in Scitex............. 10 10 ------- ------ ----- ------- Total Costs and Expenses......... 17,276 3,370 140 20,786 ------- ------ ----- ------- Earnings Before Interest, Income Taxes and Minority Interest............... 2,521 842 1 3,364 Interest expense, net............... 493 114 607 Other (income) expense, net......... (3) 3(b) ------- ------ ----- ------- Earnings Before Income Taxes and Minority Interest................... 2,028 731 (2) 2,757 Provision for income taxes.......... 719 269 988 Minority interest expense, net of taxes............................ 156 11 167 ------- ------ ----- ------- Net Earnings (Loss)................... $ 1,153 $ 451 $ (2) $ 1,602 ======= ====== ===== ======= Earnings Per Common Share............. $ 4.50 $ 4.34 ======= ======= Earnings Per Common Share -- Assuming Dilution............................ $ 4.41 $ 4.29 ======= ======= Average Shares of Common Stock Outstanding......................... 256.5 368.9 ======= =======
The accompanying notes are an integral part of these Unaudited Pro Forma Condensed Combined Financial Statements. 38 47 UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET TO REFLECT THE PROPOSED UNION CAMP MERGER SEPTEMBER 30, 1998 (IN MILLIONS)
IP UCC PRO FORMA PRO FORMA (HISTORICAL) (HISTORICAL) ADJUSTMENTS COMBINED ------------ ------------ ----------- --------- ASSETS Current Assets Cash and temporary investments.... $ 857 $ 38 $ $ 895 Accounts and notes receivable, net............................ 2,516 566 (13)(c) 3,069 Inventories....................... 2,729 542 (1)(d) 3,270 Other current assets.............. 447 56 503 ------- ------ ----- ------- Total Current Assets........... 6,549 1,202 (14) 7,737 ------- ------ ----- ------- Plants, properties and equipment, net............................... 12,066 3,327 15,393 Forestlands......................... 2,790 379 3,169 Investments......................... 1,234 75(e) 1,309 Goodwill............................ 2,537 75(e) 2,612 Deferred charges and other assets... 1,904 283 (150)(e) 2,037 ------- ------ ----- ------- Total Assets................... $27,080 $5,191 $ (14) $32,257 ======= ====== ===== ======= LIABILITIES AND COMMON SHAREHOLDERS' EQUITY Current Liabilities Notes payable and current maturities of long-term debt... $ 1,330 $ $ 331(e) $ 1,661 Accounts payable and accrued liabilities.................... 2,599 519(c)(e) 3,158 40(g) Current liabilities............... 863 (863)(e) ------- ------ ----- ------- Total Current Liabilities...... 3,929 863 27 4,819 ------- ------ ----- ------- Long-term debt...................... 6,908 1,302 8,210 Deferred income taxes............... 2,672 752 3,424 Other liabilities................... 1,165 309 (110)(e) 1,364 Minority interest................... 1,632 110(e) 1,742 International Paper -- obligated mandatorily redeemable preferred securities of subsidiaries holding International Paper debentures.... 1,805 1,805
39 48
IP UCC PRO FORMA PRO FORMA (HISTORICAL) (HISTORICAL) ADJUSTMENTS COMBINED ------------ ------------ ----------- --------- Common Shareholders' Equity Common Stock...................... 308 69 43(f) 420 Paid-in capital................... 3,867 39 (43)(f) 3,863 Retained earnings................. 5,139 1,874 (1)(d) 6,972 (40)(g) Accumulated other comprehensive income (loss).................. (313) (17) (330) ------- ------ ----- ------- 9,001 1,965 (41) 10,925 Less: Common stock held in treasury, at cost.............. 32 32 ------- ------ ----- ------- Total Common Shareholders' Equity............................ 8,969 1,965 (41) 10,893 ------- ------ ----- ------- Total Liabilities and Common Shareholders' Equity.............. $27,080 $5,191 $ (14) $32,257 ======= ====== ===== =======
The accompanying notes are an integral part of these Unaudited Pro Forma Condensed Combined Financial Statements. 40 49 NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS The following is a summary of reclassifications and adjustments reflected in the Unaudited Pro Forma Condensed Combined Financial Statements. (a) Represents the elimination of intercompany transactions between Union Camp and International Paper. (b) Represents the reclassification of items in Union Camp's financial statements to conform with International Paper's financial reporting presentation, including the reclassifications of cost of timber harvested and other (income) expense, net, to cost of products sold; distribution expenses and taxes other than payroll and income taxes to separate cost and expense line items; and sales with containerboard trading partners from an offset in costs of goods sold to net sales. (c) Represents the elimination of intercompany balances between Union Camp and International Paper. (d) Represents the elimination of intercompany profit on sales between International Paper and Union Camp. The intercompany profit elimination in each year was approximated by multiplying the change in intercompany inventory balances on hand at both Union Camp and International Paper by the average margin on such sales. (e) Represents the reclassification of items in Union Camp's financial statements to conform with International Paper's financial reporting presentation, including the reclassification of investments, goodwill, minority interest, accounts payable and accrued liabilities, and notes payable and current maturities of long-term debt to separate balance sheet line items. (f) Represents the balance sheet effect of the exchange of Union Camp common shares for International Paper common shares. (g) The companies expect merger-related costs to be approximately $40 million. The combined company will charge these costs to earnings in the period in which the merger is consummated. The companies have reflected these costs in the September 30, 1998 unaudited pro forma condensed combined balance sheet. 41 50 ROLE OF FINANCIAL ADVISORS OPINION OF UNION CAMP'S FINANCIAL ADVISOR On November 23, 1998, Goldman Sachs delivered its oral opinion to Union Camp's board of directors that, as of the date of its opinion, the exchange ratio for the merger is fair from a financial point of view to Union Camp shareholders, other than International Paper or any of its subsidiaries. Goldman Sachs subsequently confirmed its opinion in writing. WE HAVE ATTACHED HERETO AS ANNEX B TO THIS DOCUMENT AND INCORPORATE HEREIN BY REFERENCE THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS DATED NOVEMBER 24, 1998. THIS OPINION SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION. WE URGE UNION CAMP SHAREHOLDERS TO READ THIS OPINION IN ITS ENTIRETY. In connection with its opinion, Goldman Sachs reviewed, among other things: -- the merger agreement; -- Annual Reports to Stockholders and Annual Reports on Form 10-K of Union Camp and International Paper for the five years ended December 31, 1997; -- interim reports to stockholders and Quarterly Reports on Form 10-Q of Union Camp and International Paper; -- other communications from Union Camp and International Paper to their respective stockholders; and -- internal financial analyses and forecasts for Union Camp prepared by its management, including the cost savings and operating synergies projected by the management of Union Camp to result from the transaction contemplated by the merger agreement. Goldman Sachs also held discussions with members of the senior management of Union Camp and International Paper regarding the strategic rationale for, and the potential benefits of, the transaction contemplated by the merger agreement and the past and current business operations, financial condition, and future prospects of their respective companies. In addition, Goldman Sachs reviewed the reported price and trading activity for the Union Camp common shares and International Paper common shares, compared financial and stock market information for Union Camp and International Paper with similar information for various other companies whose securities are publicly traded, reviewed the financial terms of several recent business combinations in the paper and forest products industry specifically and in other industries generally, and performed such other studies and analyses as it considered appropriate. Goldman Sachs relied upon the accuracy and completeness of all of the financial and other information reviewed by it and has assumed the accuracy and completeness of this information for purposes of rendering its opinion. In that regard, Goldman Sachs assumed, with the consent of Union Camp, that the costs savings and operating synergies projected to result from the merger have been reasonably prepared on a basis reflecting the best currently available estimates and judgments of Union Camp. International Paper's senior management informed Goldman Sachs that internal financial projections for International Paper were not available. Accordingly, Goldman Sachs' review of International Paper's future financial performance for purposes of rendering its opinion was limited to discussions with International Paper's management of various research analysts' estimates 42 51 of International Paper's future financial performance. In addition, Goldman Sachs has not made an independent evaluation or appraisal of the assets and liabilities of Union Camp or International Paper or any of their subsidiaries and Goldman Sachs has not been furnished with any such evaluation or appraisal. Goldman Sachs also assumed, with the consent of Union Camp, that the transaction contemplated by the merger agreement will be accounted for as a pooling of interests under U.S. generally accepted accounting principles. Goldman Sachs provided the opinion described herein for the information and assistance of Union Camp's board of directors in connection with its consideration of the transaction contemplated by the merger agreement. Goldman Sachs' opinion does not constitute a recommendation as to how any Union Camp shareholder should vote with respect to the merger agreement proposal. The following is a summary of the material financial analyses used by Goldman Sachs in connection with providing its opinion to Union Camp's board of directors on November 23, 1998. Some of the summaries of financial analyses include information presented in tabular format. In order to more fully understand the financial analyses used by Goldman Sachs, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. (1) HISTORICAL STOCK TRADING ANALYSIS. The purpose of this analysis was to provide information regarding the fairness of the exchange ratio based on periodic historical data regarding average weighted market prices and trading volumes of the Union Camp common shares. Goldman Sachs reviewed the historical trading prices and volumes for the Union Camp common shares. In addition, Goldman Sachs analyzed the consideration to be received by Union Camp shareholders pursuant to the merger agreement in relation to various market prices for the Union Camp common shares. This review included, among other things, Goldman Sachs' analysis of the weighted average market prices of the Union Camp common shares and the total volume of the Union Camp common shares traded as a percentage of Union Camp common shares outstanding during the period from November 22, 1993 to November 20, 1998. These analyses indicated a weighted average market price of $51.14 per share with 389.4% of the total outstanding stock of Union Camp common shares traded in such period. This review also included Goldman Sachs' assessment of the latest twelve months from November 20, 1997, to November 20, 1998. Such analysis indicated a weighted average market price of $50.43 per share, based on the daily closing prices for that period, with 85.0% of the total outstanding Union Camp common shares traded in that period. (2)SELECTED COMPANIES ANALYSIS. The purpose of this analysis was to provide information regarding the fairness of the exchange ratio based upon a comparison of specific financial information of Union Camp with several comparable public companies. Goldman Sachs reviewed and compared specific financial information relating to Union Camp to corresponding financial information, ratios and public market multiples for the following ten publicly-traded corporations: Boise Cascade Corporation, Champion International Corporation, Georgia-Pacific Corporation, Jefferson Smurfit Corporation, International Paper, The Mead Corporation, Temple-Inland Inc., Westvaco Corporation, Willamette Corporation and Weyerhaeuser, Inc. These companies were chosen for comparison because they are publicly-traded companies with operations that for purposes of analysis may be considered similar to Union Camp. Goldman Sachs calculated and compared various financial multiples and ratios. Goldman Sachs calculated the 43 52 multiples of Union Camp using a price of $48.88 per share, the closing price for the Union Camp common shares on November 20, 1998. The multiples and ratios for Union Camp and the comparative companies were based on the most recent publicly available information and recently published research estimates. Due to the historical volatility and cyclicality of paper prices and earnings in the industry and related difficulty in projecting those prices and earnings, Goldman Sachs considered the industry-wide peak earnings of 1995 as a basis for its analysis of peak earnings for Union Camp and the companies selected for comparison. Goldman Sachs calculated peak price/earnings multiples as a multiple of 1995 earnings with respect to the comparative companies. Goldman Sachs also analyzed price/earnings multiples for Union Camp and the comparative companies based on price as a multiple of Institutional Brokers Estimate System consensus earnings estimates for the years 1998 and 1999. The following table presents the ranges of price/earnings multiples for each of the relevant periods with respect to the selected companies, as compared to Union Camp.
RANGES FOR SELECTED COMPANIES UNION CAMP ------------- ---------- Price/Earnings Multiple (1995 actual)....... 5.1x - 10.2x 7.6x IBES Median Price/Earnings Multiple (1998 estimated)................................ 19.2x - 56.3x 54.3x IBES Median Price/Earnings Multiple (1999 estimated)................................ 18.1x - 52.4x 40.7x
This analysis also considered enterprise value calculated as a multiple of the average earnings before interest, taxes, depreciation and amortization, commonly known as EBITDA, for the years 1994 to estimated 1998 with respect to the selected companies. The following table presents the ranges of enterprise value as a multiple of EBITDA for the years 1994 to estimated 1998, for the industry peak for the year 1995 and for the years 1998 and 1999 with respect to the selected companies, in each case as compared to Union Camp.
RANGES FOR SELECTED COMPANIES UNION CAMP ------------ ---------- Enterprise Value/EBITDA (average -- 1994 to 1998 estimated)............................ 4.8x - 10.0x 7.3x Enterprise Value/EBITDA (1995 actual)........ 3.5x - 7.0x 4.4x Enterprise Value/EBITDA (1998 estimated)..... 6.9x - 12.4x 9.4x Enterprise Value/EBITDA (1999 estimated)..... 6.7x - 11.2x 8.8x
Goldman Sachs also analyzed dividend yield as a percentage of estimated earnings for 1998, reviewed the ratio of price to estimated 1998 book value and considered enterprise value as a multiple of estimated sales for 1998. The 44 53 following table presents the ranges of these percentages, ratios and multiples for the selected companies, compared to the values indicated for Union Camp.
RANGES FOR SELECTED COMPANIES UNION CAMP ----------- ---------- Dividend Yield/Earnings (1998 estimated).... 0.0% - 3.3% 3.7% Price/Book Value (1998 estimated)........... 1.2x - 2.1x 1.7x Enterprise Value/Sales (1998 estimated)..... 0.6x - 1.5x 1.1x
(3)DISCOUNTED CASH FLOW ANALYSIS. The purpose of this analysis was to provide information regarding the fairness of the exchange ratio using valuations of Union Camp based upon a discounted cash flow methodology. Goldman Sachs performed a discounted cash flow analysis using Union Camp's management projections. Goldman Sachs calculated a net present value of free cash flows for the years 1999 through 2002 using discount rates ranging from 10% to 15%. Goldman Sachs calculated Union Camp's terminal value in the year 2002 based on multiples ranging from 4.0x EBITDA to 8.0x EBITDA. This terminal value was then discounted to present value using discount rates from 10% to 15%. Adding the net present value of free cash flows to the net present value of Union Camp's terminal value in the year 2002, Goldman Sachs calculated the implied per share values for Union Camp, which ranged from $36 to $100. In addition, Goldman Sachs considered the impact, in each year, of a change in paper prices on free cash flows and on Union Camp's terminal value. Pursuant to this sensitivity analysis, Goldman Sachs assumed a terminal multiple of 6.0x EBITDA, a 12% discount rate and projected 1998 paper shipments of 3.55mm tons. Goldman Sachs considered a range of paper prices increasing or decreasing from $5 per ton to $30 per ton, in increments of $5 per ton. A potential price change of $5 per ton would result in a change in value of $1 per share, while a potential price change of $30 per ton would result in a change in value of $9 per share. Goldman Sachs further calculated the value per share of Union Camp common stock of the cost savings and operating synergies projected to result from the merger, assuming Union Camp management's estimate of $300 million of such savings and synergies as at October 26, 1998 and a multiple of 6x EBITDA, discounted at a rate of 12%, excluding costs to achieve these savings and synergies. Goldman Sachs considered the value per share of the savings and synergies based on assumptions of achievement of such savings and synergies of 25%, 50% and 100%. Assuming that 25%, 50% and 100% of the synergies were achieved, the value per share of those synergies would be $6, $12 and $25. (4)SELECTED TRANSACTIONS ANALYSIS. The purpose of this analysis was to provide information regarding the fairness of the exchange ratio based upon a comparison of the financial terms of the merger with the financial terms of several other proposed, pending or completed business combinations. Goldman Sachs analyzed various information relating to selected transactions in the paper industry since 1986, including: the acquisition of Hammermill Paper by International Paper on November 11, 1986; the acquisition of Great Northern Nekoosa by Georgia Pacific Corporation on June 26, 1990; the acquisition of Scott Paper by Kimberley-Clark on December 12, 1995; the acquisition of Federal Paper Board 45 54 by International Paper on March 12, 1996; the acquisition of Fort Howard by James River on August 13, 1997; the acquisition of Avenor by Bowater on July 24, 1998; and the acquisition of Stone Container by Jefferson Smurfit Corporation on November 18, 1998. This analysis focused on the multiples of EBITDA and earnings per share based on the relevant industry peak year for each of the selected transactions, as well as measuring premium to stock market prices. The following table presents the range of multiples of the relevant peak year EBITDA for the selected transactions, the range of multiples of earnings per share for each relevant peak year for the selected transactions and the stock price premiums based on market prices one day prior to announcement of each of the selected transactions, each as compared to the corresponding values indicated for the merger.
RANGES FOR SELECTED TRANSACTIONS THE MERGER ------------ ---------- Multiple of Peak Year EBITDA................ 4.3x - 10.2x 5.8x Multiple of Peak Year Earnings Per Share.... 5.2x - 20.0x 11.0x Premium to Day Prior Price.................. 9.3% - 53.8% 45.3%
(5)PRO FORMA MERGER ANALYSIS. The purpose of this analysis was to evaluate the potential pro forma impact of the merger on the earnings per share of International Paper's common stock before and after taking into account potential synergies resulting from the merger. Goldman Sachs prepared pro forma analyses of the financial impact of the merger. Using earnings for the peak year 1995 and Institutional Brokers Estimate System estimates for the years 1998, 1999 and 2000, Goldman Sachs considered the impact of the merger on the earnings per share of International Paper common stock. Goldman Sachs performed this analysis based on an exchange ratio for the merger of 1.543. This analysis indicated that: (a) the proposed transaction would be dilutive to the International Paper shareholders on an earnings per share basis in each of 1998, 1999 and 2000; and (b) the pre-tax savings and operational synergies required to break even for the estimated years 1998, 1999 and 2000 were $61.0, $106.4 and $98.6 million, respectively. (6)CONTRIBUTION ANALYSIS. The purpose of this analysis was to provide information regarding the fairness of the exchange ratio based on specific historical and estimated future operating and financial information comparing Union Camp's contribution to the combined company resulting from the merger with what Union Camp's shareholders would receive. Goldman Sachs reviewed specific historical and estimated future operating and financial information, including, among other things, sales, EBITDA, net income, Institutional Brokers Estimate System median earnings estimates, equity value and enterprise value, for Union Camp, International Paper and the pro forma combined entity resulting from the merger. 46 55 This analysis indicated, and the following table presents, the percentages of sales, EBITDA and net income that Union Camp would have contributed for the years 1995, 1996 and 1997.
1995 1996 1997 ---- ---- ---- Sales............................................. 18% 17% 18% EBITDA............................................ 24% 19% 19% Net Income........................................ 28% 21% 21%
This analysis also indicated that: (a) With respect to Institutional Brokers Estimate System median earnings estimates, Union Camp would have contributed 18% of earnings for the estimated year 1998 and 16% of earnings for the estimated year 1999; and (b) Union Camp shareholders would have contributed 19% of the equity value and 17% of the enterprise value to the combined entity as at November 20, 1998; and (c) Union Camp shareholders would receive 26% of the outstanding common equity of the combined entity and 21% of the implied enterprise value of the combined entity after the merger, assuming an exchange ratio for the merger of 1.543. (7)HISTORICAL EXCHANGE RATIO ANALYSIS. The purpose of this analysis was to provide information regarding the fairness of the exchange ratio range in the merger through comparison to the exchange ratios of the historical monthly trading prices for Union Camp and International Paper common shares. Goldman Sachs reviewed historical monthly trading prices for Union Camp common shares and International Paper common shares during the five-year period from October 31, 1993 to October 31, 1998 and for the period from November 20, 1997 to November 20, 1998. Goldman Sachs conducted this analysis by dividing the closing price per Union Camp common share by the closing price per International Paper common share. This analysis indicated, and the following columns present, exchange ratio ranges for the five-year period from October 31, 1993 to October 31, 1998, calculated on a monthly basis and for the period from November 20, 1997 to November 20, 1998, calculated on a daily basis, as compared with an assumed exchange ratio of 1.5435 for the merger.
RANGE OF EXCHANGE RATIOS RANGE OF EXCHANGE RATIOS FROM OCTOBER 31, 1993 FROM NOVEMBER 20, 1997 TO OCTOBER 31, 1998 TO NOVEMBER 20, 1998 ASSUMED EXCHANGE RATIO (CALCULATED MONTHLY) (CALCULATED DAILY) FOR MERGER ------------------------ ------------------------ ---------------------- 0.84 - 1.45 0.83 - 1.28 1.5435
The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Goldman Sachs' opinion. In arriving at its fairness determination, Goldman Sachs considered the results of all these analyses. No company or transaction used in the above analyses as a comparison is directly comparable to Union Camp or International Paper or the contemplated transaction. Goldman Sachs prepared the analyses solely for purposes of allowing it to provide its opinion to Union 47 56 Camp's board of directors as to the fairness from a financial point of view of the exchange ratio for the merger to Union Camp shareholders and these analyses do not purport to be appraisals or necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by such analyses. Because such analyses are inherently subject to uncertainty, as they are based upon numerous factors or events beyond the control of the parties or their respective advisors, none of Union Camp, International Paper, Goldman Sachs or any other person assumes responsibility if future results are materially different from those forecasted. As described above, Goldman Sachs' opinion to Union Camp's board of directors was one of many factors taken into consideration by Union Camp's board of directors in making its determination to approve the merger agreement. The foregoing summary describes material financial analyses used by Goldman Sachs in connection with providing its opinion to Union Camp's board of directors on November 23, 1998, but does not purport to be a complete description of the analyses performed by Goldman Sachs in connection with its opinion and is qualified by reference to the Goldman Sachs opinion as set forth in Annex B hereto. As part of its investment banking business, Goldman Sachs is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities and other purposes. Union Camp selected Goldman Sachs as its financial advisor because it is a nationally recognized investment banking firm that has substantial experience in transactions similar to the merger. In addition, Goldman Sachs is familiar with Union Camp, having provided investment banking services to Union Camp from time to time, including: having acted as lead manager of a public offering of $150 million of 6.50% Notes due November 15, 2007 in November 1997, and as lead manager of a public offering of $150 million of 7% Notes due August 15, 2006 in August 1996; acted as co-dealer on Union Camp's commercial paper program; and acted as Union Camp's financial advisor in connection with, and having participated in several of the negotiations leading to, the merger agreement. Goldman Sachs has also provided several investment banking services to International Paper from time to time, including acting as sole dealer for International Paper's commercial paper program, and may provide investment banking services to International Paper in the future. Goldman Sachs provides a full range of financial, advisory and brokerage services and in the course of its normal trading activities may from time to time effect transactions and hold positions in the securities or options on securities of Union Camp and/or International Paper for its own account and for the account of customers. Pursuant to its engagement letter dated October 23, 1998, Union Camp engaged Goldman Sachs to act as its financial advisor in connection with the contemplated transaction. Pursuant to the terms of the engagement letter, Union Camp paid Goldman Sachs an initial financial advisory fee of $1,000,000, to be credited against an additional fee equal to 0.355% of the aggregate value of the consideration received by Union Camp shareholders in the merger. Assuming the merger is consummated at an exchange ratio based on $44.25 per share, the closing price of International Paper's stock on March 26, 1999, Goldman Sachs estimates that its fee will total approximately $17.44 million. Union Camp has further agreed to reimburse Goldman Sachs for its reasonable out-of-pocket expenses, including attorneys' fees, and to indemnify Goldman Sachs against specified liabilities, including liabilities under the federal securities laws. In the opinion of the SEC, 48 57 indemnification for liabilities arising under the federal securities laws may not be enforceable. OPINION OF INTERNATIONAL PAPER'S FINANCIAL ADVISOR Credit Suisse First Boston Corporation has acted as financial advisor to International Paper in connection with the merger. International Paper selected Credit Suisse First Boston based on its experience, expertise and familiarity with International Paper and its business. Credit Suisse First Boston is an internationally recognized investment banking firm and is regularly engaged in the valuation of businesses and securities in connection with mergers and acquisitions, leveraged buyouts, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. In connection with Credit Suisse First Boston's engagement, International Paper requested that Credit Suisse First Boston evaluate the fairness of the exchange ratio provided for in the merger from a financial point of view to International Paper. On November 24, 1998, the date of the merger agreement, Credit Suisse First Boston delivered to International Paper's board of directors a written opinion to the effect that, as of that date and based upon and subject to the matters stated in its opinion, the exchange ratio in the merger was fair to International Paper from a financial point of view. WE HAVE ATTACHED AS ANNEX C TO THIS DOCUMENT AND INCORPORATE BY REFERENCE THE FULL TEXT OF CREDIT SUISSE FIRST BOSTON'S OPINION TO INTERNATIONAL PAPER'S BOARD OF DIRECTORS, WHICH SETS FORTH THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN. WE URGE YOU TO READ THIS ENTIRE OPINION CAREFULLY. CREDIT SUISSE FIRST BOSTON'S OPINION IS ADDRESSED TO INTERNATIONAL PAPER'S BOARD OF DIRECTORS AND RELATES ONLY TO THE FAIRNESS OF THE EXCHANGE RATIO PROVIDED FOR IN THE MERGER FROM A FINANCIAL POINT OF VIEW TO INTERNATIONAL PAPER, DOES NOT ADDRESS ANY OTHER ASPECT OF THE PROPOSED MERGER OR ANY RELATED TRANSACTION AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER AS TO HOW THAT SHAREHOLDER SHOULD VOTE AT THE INTERNATIONAL PAPER SPECIAL SHAREHOLDERS' MEETING. THE SUMMARY OF CREDIT SUISSE FIRST BOSTON'S OPINION SET FORTH IN THIS DOCUMENT DESCRIBES THE MATERIAL ASPECTS OF ITS OPINION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION. In arriving at its opinion, Credit Suisse First Boston reviewed the merger agreement and publicly available business and financial information relating to International Paper and Union Camp. Credit Suisse First Boston also reviewed other information relating to International Paper and Union Camp, including financial forecasts from publicly available sources, and discussed with the managements of International Paper and Union Camp the businesses and prospects of International Paper and Union Camp. Credit Suisse First Boston also considered financial and stock market data of International Paper and Union Camp and compared those data with similar data for other publicly held companies in businesses similar to International Paper and Union Camp and considered, to the extent publicly available, the financial terms of other business combinations and transactions recently effected. Credit Suisse First Boston also considered other information, financial studies, analyses and investigations and financial, economic and market criteria which it deemed relevant. In connection with its review, Credit Suisse First Boston did not assume any responsibility for independent verification of any of the information provided to or otherwise reviewed by it and relied on that information being complete and accurate in all material respects. With respect to the publicly available financial forecasts, International Paper informed 49 58 Credit Suisse First Boston that International Paper had reviewed those forecasts and believed that they represented reasonable estimates and judgments of the future financial performance of International Paper and Union Camp. With respect to the cost savings and other potential synergies anticipated to result from the merger, including the amount, timing and achievability of those cost savings and other potential synergies, International Paper informed Credit Suisse First Boston that those estimates represented the best currently available estimates of the managements of International Paper and Union Camp. International Paper also informed Credit Suisse First Boston that the merger will be treated as a tax-free reorganization for federal income tax purposes and accounted for as a pooling of interests in accordance with U.S. generally accepted accounting principles. Credit Suisse First Boston was not requested to make, and did not make, an independent evaluation or appraisal of the assets or liabilities, contingent or otherwise, of International Paper or Union Camp, nor was Credit Suisse First Boston furnished with any such evaluations or appraisals. Credit Suisse First Boston's opinion was necessarily based upon information available to, and financial, economic, market and other conditions as they existed and could be evaluated by, Credit Suisse First Boston on the date of its opinion. Credit Suisse First Boston did not express any opinion as to the actual value of the International Paper common shares when issued pursuant to the merger or the prices at which the International Paper common shares will trade subsequent to the merger. Although Credit Suisse First Boston evaluated the exchange ratio for the merger from a financial point of view, Credit Suisse First Boston was not requested to, and did not, recommend the specific consideration payable in the merger, which consideration was determined between International Paper and Union Camp. No other limitations were imposed on Credit Suisse First Boston with respect to the investigations made or procedures followed by Credit Suisse First Boston in rendering its opinion. In preparing its opinion to International Paper's board of directors, Credit Suisse First Boston performed a variety of financial and comparative analyses, including those described below. The summary of Credit Suisse First Boston's analyses set forth below does not purport to be a complete description of the analyses underlying Credit Suisse First Boston's opinion. The preparation of a fairness opinion is a complex analytic process involving various determinations as to the most appropriate and relevant methods of financial analyses and the application of those methods to the particular circumstances and, therefore, an opinion is not readily susceptible to summary description. Credit Suisse First Boston's opinion was not based on any single factor or analysis, but rather on the totality of the factors considered and analyses performed. In arriving at its opinion, Credit Suisse First Boston made qualitative judgments as to the significance and relevance of each analysis and factor considered by it. Accordingly, Credit Suisse First Boston believes that its analyses must be considered as a whole and that selecting portions of its analyses and factors or focusing on information presented in tabular format, without considering all analyses and factors, could create a misleading or incomplete view of the processes underlying its analyses and opinion. In its analyses, Credit Suisse First Boston made numerous assumptions with respect to International Paper, Union Camp, industry performance, regulatory, general business, economic, market and financial conditions and other matters, many of which are beyond the control of International Paper and Union Camp. No company, transaction or business used in its analyses as a comparison is identical to International Paper or Union Camp or the proposed merger, nor is an evaluation of the results of Credit Suisse First Boston's analyses entirely mathematical. Rather, Credit Suisse First Boston's analyses involve complex considerations and judgments concerning financial and operating characteristics 50 59 and other factors that could affect the acquisition, public trading or other values of the companies, business segments or transactions being analyzed. The estimates contained in Credit Suisse First Boston's analyses and the ranges of valuations resulting from any particular analysis are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by the analyses. In addition, analyses relating to the value of businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold. Accordingly, Credit Suisse First Boston's analyses and estimates are inherently subject to substantial uncertainty. Credit Suisse First Boston's opinion and financial analyses were only one of many factors that International Paper's board of directors considered in its evaluation of the proposed merger and should not be viewed as determinative of the views of International Paper's board of directors or its management with respect to the merger or the exchange ratio for the merger. The following is a summary of the material analyses performed by Credit Suisse First Boston in connection with its opinion dated November 24, 1998. SOME OF THE FINANCIAL ANALYSES SUMMARIZED BELOW INCLUDE INFORMATION PRESENTED IN TABULAR FORMAT. IN ORDER TO FULLY UNDERSTAND CREDIT SUISSE FIRST BOSTON'S FINANCIAL ANALYSES, THE TABLES MUST BE READ TOGETHER WITH THE TEXT OF EACH SUMMARY. THE TABLES ALONE DO NOT CONSTITUTE A COMPLETE DESCRIPTION OF THE FINANCIAL ANALYSES. CONSIDERING THE DATA SET FORTH IN THE TABLES BELOW WITHOUT CONSIDERING THE FULL NARRATIVE DESCRIPTION OF THE FINANCIAL ANALYSES, INCLUDING THE METHODOLOGIES AND ASSUMPTIONS UNDERLYING THE ANALYSES, COULD CREATE A MISLEADING OR INCOMPLETE VIEW OF CREDIT SUISSE FIRST BOSTON'S FINANCIAL ANALYSES. ESTIMATED SYNERGIES ANALYSIS. The purpose of this analysis was to estimate the capitalized value of the cost reductions and synergies that would accrue to International Paper's shareholders as a result of the merger. Based on estimates of the managements of International Paper and Union Camp as to the potential pre-tax annual cost savings and synergies that could be achieved in the merger, Credit Suisse First Boston derived an implied reference range for these synergies of approximately $1.8 billion to $2.2 billion using a multiple and a discounted cash flow approach. Based on the pro forma ownership of International Paper shareholders in the combined company of approximately 73%, Credit Suisse First Boston estimated International Paper's share of the capitalized synergies to be between approximately $1.314 billion and $1.606 billion, or approximately $18.26 and $22.32 per Union Camp common share. SELECTED COMPANIES ANALYSIS. The purpose of this analysis was to compare the exchange ratio range in the merger with the implied exchange ratio range derived by valuing Union Camp based on the trading multiples of a peer group of publicly traded companies, both before and after taking into account potential synergies resulting from the merger. Credit Suisse First Boston compared publicly available financial, operating and stock market data of Union Camp to corresponding data of the following selected companies in the global paper and forest products industry: International Paper, Champion International Corporation, Georgia-Pacific Corporation, Weyerhaeuser Company, and Willamette Industries, Inc. Credit Suisse First Boston analyzed equity values per share as a multiple of estimated calendar year 1999 earnings per share, average earnings per share for calendar years 1995 through 1999 and peak earnings per share for calendar year 1995. In addition, Credit Suisse First Boston analyzed enterprise values, calculated as equity value plus total debt plus the face value of preferred stock, if any, plus the value of minority interests, if any, minus cash and short-term investments, as multiples of earnings before interest, taxes, 51 60 depreciation and amortization, commonly referred to as EBITDA, and earnings before interest and taxes for estimated calendar year 1999, average EBITDA and earnings before interest and taxes for calendar years 1995 through 1999 and peak EBITDA and earnings before interest and taxes for calendar year 1995. All multiples were based on closing stock prices on November 20, 1998. Estimated financial data for Union Camp and the selected companies listed above were based on estimates of selected investment banking firms as compiled by First Call. Credit Suisse First Boston applied the following ranges of multiples for the selected companies listed above to corresponding financial data of Union Camp:
RANGE OF SELECTED MULTIPLES OF THE GLOBAL PAPER AND FOREST PRODUCTS COMPANIES --------------------------- Equity Value per Share as a Multiple of: 1999 Estimated Calendar Year Earnings Per Share......... 27.0x to 35.0x Average Earnings per Share for Calendar Years 1995 through 1999.................................................... 20.0x to 25.0x Peak Earnings per Share for Calendar Year 1995.......... 8.0x to 10.0x Enterprise Value as a Multiple of: Estimated Calendar Year 1999 EBITDA..................... 8.0x to 10.0x Average EBITDA for Calendar Years 1995 through 1999..... 7.0x to 9.0x Peak EBITDA for Calendar Year 1995...................... 5.0x to 7.0x Estimated Calendar Year 1999 Earnings Before Interest and Taxes............................................ 16.0x to 20.0x Average Earnings Before Interest and Taxes for Calendar Year 1995 through 1999............................... 13.0x to 17.0x Peak Earnings Before Interest and Taxes for Calendar Years 1995 through 1999.............................. 7.0x to 10.0x
This analysis indicated an implied equity reference range for Union Camp of approximately $45.00 to $73.00 per share before taking into account potential synergies anticipated by the managements of International Paper and Union Camp to result from the merger, and approximately $63.26 to $95.32 per share, after taking into account these potential synergies. Based on the closing stock price of International Paper common shares on November 20, 1998, this analysis indicated an implied exchange ratio range of 0.98 to 1.59 before taking into account potential synergies anticipated by the managements of International Paper and Union Camp to result from the merger, and 1.38 to 2.07 after taking into account these potential synergies. Because of inherent differences between the businesses, operations and prospects of Union Camp and the global paper and forest products companies listed above, Credit Suisse First Boston believes that a purely quantitative analysis of the selected companies without considering qualitative judgments concerning differences between the financial and operating characteristics of Union Camp and the selected companies that could affect the public trading values of Union Camp and the selected companies, would not be particularly meaningful in the context of the merger. ASSET ANALYSIS. The purpose of this analysis was to compare the exchange ratio range in the merger with the implied exchange ratio range derived by valuing Union Camp based on the estimated value of Union Camp's assets. Credit Suisse First Boston analyzed, among other things, the implied purchase prices paid in more than 50 selected recent 52 61 transactions and estimated replacement cost to estimate asset values for Union Camp from which Credit Suisse First Boston then derived an equity reference range for Union Camp. This analysis indicated an implied equity reference range for Union Camp of approximately $50.00 to $80.00 per share. Based on the closing stock price of International Paper common shares on November 20, 1998, this analysis indicated an implied exchange ratio range of 1.09 to 1.74. Because the market conditions, rationale and circumstances surrounding the selected transactions utilized in Credit Suisse First Boston's asset analysis were specific to each transaction and vary between transactions and because of inherent differences between the businesses, operations and prospects of Union Camp and the assets and/or companies involved in the selected transactions, Credit Suisse First Boston believes that a purely quantitative analysis of the selected transactions, without considering qualitative judgments concerning differences between the characteristics of the selected transactions and factors specific to Union Camp, would not be particularly meaningful in the context of the merger. DISCOUNTED CASH FLOW ANALYSIS. The purpose of this analysis was to compare the exchange ratio range in the merger with the implied exchange ratio range derived by valuing Union Camp based on the present value of Union Camp's projected free cash flows, both before and after taking into account potential synergies resulting from the merger. Credit Suisse First Boston estimated the present value of the future streams of the stand-alone, unlevered, after-tax free cash flows that could be produced by Union Camp from calendar years 1999 through 2007, based on analysts' estimates for calendar years 1998 and 1999 and extrapolations of these estimates for calendar years 2000 to 2007. Ranges of estimated terminal values were calculated using terminal multiples of trendline estimated calendar year 2007 EBITDA of 5.0x to 6.5x. The free cash flow streams and estimated terminal values were then discounted to a present value based upon the estimated weighted average cost of capital of Union Camp of 8.5% to 10.0%. This analysis indicated an implied equity reference range for Union Camp of approximately $54.91 to $61.91 per share before taking into account potential synergies anticipated by the managements of International Paper and Union Camp to result from the merger, and approximately $73.17 to $84.23 per share after taking into account these potential synergies. Based on the closing stock price of International Paper common shares on November 20, 1998, this analysis indicated an implied exchange ratio range of 1.19 to 1.35 before taking into account potential synergies anticipated by the managements of International Paper and Union Camp to result from the merger, and 1.59 to 1.83 after taking into account these potential synergies. CONTRIBUTION ANALYSIS. The purpose of this analysis was to compare the exchange ratio range in the merger with the implied exchange ratio range, both before and after taking into account potential synergies resulting from the merger, derived from Union Camp's contribution to the combined company resulting from the merger based upon various operational measures. Credit Suisse First Boston analyzed the relative contributions of International Paper and Union Camp to the estimated EBITDA, earnings before interest and taxes and net income of the pro forma combined company for calendar years 1998 and 1999 based on estimates of selected investment banking firms as compiled by First Call. This analysis indicated that International Paper would contribute the following to the pro 53 62 forma combined company's EBITDA, earnings before interest and taxes and net income in calendar years 1998 and 1999:
BEFORE TAKING INTO AFTER TAKING INTO ACCOUNT POTENTIAL ACCOUNT POTENTIAL SYNERGIES SYNERGIES ANTICIPATED BY THE ANTICIPATED BY THE MANAGEMENTS OF MANAGEMENTS OF INTERNATIONAL PAPER INTERNATIONAL PAPER AND UNION CAMP TO AND UNION CAMP TO RESULT FROM THE RESULT FROM THE MERGER MERGER -------------------- -------------------- 1999 1998 1999 1998 ------ ------ ------ ------ EBITDA................................ 80.7% 80.3% 75.9% 75.1% Earnings Before Interest and Taxes.... 81.9% 81.3% 72.6% 71.0% Net Income............................ 82.5% 81.9% 67.1% 63.6%
This analysis indicated implied exchange ratios ranging from 0.93 to 1.40 before taking into account potential synergies anticipated by the managements of International Paper and Union Camp to result from the merger and 2.02 to 2.88, after taking into account these potential synergies. HISTORICAL EXCHANGE RATIO ANALYSIS. The purpose of this analysis was to compare the exchange ratio range in the merger with the implied exchange ratio range based on historical trading prices for Union Camp and International Paper, both before and after taking into account potential synergies resulting from the merger. Credit Suisse First Boston analyzed the historical trading prices for Union Camp and International Paper during the five-year period from November 20, 1993 through November 20, 1998 and calculated the implied exchange ratio based on prevailing market prices of Union Camp common shares and International Paper common shares seven days, 30 days, 90 days, 180 days, one year, two years, three years, four years and five years prior to November 20, 1998. This analysis indicated an implied exchange ratio range of 0.98 to 1.44 before taking into account potential synergies anticipated by the managements of International Paper and Union Camp to result from the merger, and 1.35 to 1.96 after taking into account these potential synergies. SUMMARY OF EXCHANGE RATIO ANALYSES. On the basis of the valuation methodologies employed in the analyses described above, Credit Suisse First Boston derived low to high aggregate exchange ratio ranges of 0.93 to 1.74 before taking into account potential synergies anticipated by the managements of International Paper and Union Camp to result from the merger, and 1.35 to 2.88 after taking into account these potential synergies, as compared with the exchange ratio range in the merger of 1.47 to 1.62. PRO FORMA MERGER ANALYSIS. The purpose of this analysis was to evaluate the potential pro forma impact of the merger on International Paper's estimated earnings per share after taking into account potential synergies resulting from the merger. Credit Suisse First Boston analyzed the potential pro forma effect of the merger on International Paper's projected 1999 earnings per share and average earnings per share for calendar years 1995 through 1999 based, in the case of calendar years 1995 through 1997, on International Paper's and Union Camp's actual earnings per share and, in the case of calendar years 1998 and 1999, on estimates of selected investment banking firms as compiled by First Call. This analysis indicated that the merger would be accretive to International Paper's earnings per share commencing in calendar year 1999, the first full year after the closing of 54 63 the merger is expected to occur, and on an estimated five-year average basis, assuming cost savings and other potential synergies anticipated by the managements of International Paper and Union Camp to result from the merger are achieved. The actual results achieved by the combined company may vary from projected results and the variations may be material. MISCELLANEOUS. International Paper has agreed to pay Credit Suisse First Boston for its financial advisory services in connection with the merger an aggregate fee of $14.5 million, which fee is contingent upon consummation of the merger. International Paper also has agreed to reimburse Credit Suisse First Boston for all out-of-pocket expenses incurred by Credit Suisse First Boston in performing its services, including the fees and expenses for legal counsel and any other advisor retained by Credit Suisse First Boston, and to indemnify Credit Suisse First Boston and related persons and entities against liabilities, including liabilities under the federal securities laws, arising out of Credit Suisse First Boston's engagement. In the opinion of the SEC, indemnification for liabilities arising under the federal securities laws may not be enforceable. Credit Suisse First Boston and its affiliates have in the past provided financial services to International Paper and its affiliates unrelated to the proposed merger, for which services Credit Suisse First Boston and its affiliates have received compensation. In the ordinary course of business, Credit Suisse First Boston and its affiliates may actively trade the debt and equity securities of both International Paper and Union Camp and their respective affiliates for their own accounts and for the accounts of customers and, accordingly, may at any time hold long or short positions in such securities. 55 64 INTERESTS OF INSIDERS IN THE MERGER In considering the recommendations of International Paper's board of directors and Union Camp's board of directors with respect to the merger proposals, International Paper shareholders and Union Camp shareholders should be aware that some directors and members of management of Union Camp have interests in the merger that are in addition to their interests as Union Camp shareholders generally. The names and titles of the individuals who are directors and/or executive officers of Union Camp and who are known to have these additional interests are listed on the table located on page 59 of this document. Union Camp's board of directors was aware of these interests and considered them, among other matters, in approving the merger. INTERESTS OF UNION CAMP OFFICERS AND DIRECTORS INTERNATIONAL PAPER'S BOARD OF DIRECTORS. The merger agreement provides that, as of the effective time of the merger, W. Craig McClelland and two additional persons who are current members of Union Camp's board of directors and are reasonably acceptable to International Paper's board of directors' nominating committee, in its sole discretion, are to become members of International Paper's board of directors. It has not yet been decided which two current Union Camp directors in addition to Mr. McClelland will be named to the International Paper board upon consummation of the merger. The Union Camp directors who are to be appointed to International Paper's board will be apportioned equally among the three classes of directors comprising International Paper's board of directors. Upon the election of these three individuals, and assuming no change in the size of the current International Paper board of directors, International Paper's board of directors will consist of 15 directors, including the former Union Camp directors. STOCK OPTIONS AND STOCK AWARDS. Pursuant to the terms of the Union Camp stock option and stock award plans, as a result of the merger, some Union Camp options will become fully vested and exercisable and the restrictions on awards of restricted stock will lapse. The number of unvested Union Camp options and the number of Union Camp common shares underlying awards of restricted stock that will become nonforfeitable and transferable as a result of the merger that are held by the executive officers of Union Camp are set forth in the table on page 59 of this document. SEVERANCE. Each Union Camp executive officer has entered into a severance agreement with Union Camp. In addition, the remaining Union Camp officers participate in the Union Camp Severance Policy for Key Employees. These severance arrangements provide for the cash payment of some severance benefits in the event that the officer's employment is terminated under specific circumstances within two years of a change in control, or while the severance agreements are in effect, if longer. The merger will constitute a change of control under these severance arrangements. If the officer's employment is terminated within two years of the merger for any reason, other than death, by Union Camp for cause or disability, each as defined under the relevant severance arrangement, or by the officer without good reason, as defined under the relevant severance arrangement, the officer will be entitled to receive accrued base salary and the value of accrued and banked vacation, and any outstanding amounts due and owing to the officer as of the date of termination under the Union Camp Policy Group Executive Annual Incentive Plan and the Union Camp Restricted Stock Performance Plan, in the case of the severance agreements, or amounts due and owing under Union Camp's incentive compensation plan, in the case of the Severance Policy for Key Employees, or any successor, substitute or additional incentive plans, plus all other 56 65 amounts to which the officer is entitled under any Union Camp compensation or benefit plan or policy. In addition, if the officer's employment is terminated during the remainder of the calendar year in which the merger occurs, a pro rata annual target incentive award under each of the Union Camp Policy Group Executive Annual Incentive Plan and the Union Camp Restricted Stock Performance Plan, in the case of the severance agreements, or the target incentive under Union Camp's annual incentive plan, in the case of the Severance Policy for Key Employees, or any successor plans, in an amount equal to the products of (A) the quotient resulting from dividing the number of days the officer was employed during such year through the date of termination by 365, and (B) the annual target awards under each applicable plan, to the extent the officer participates in such plans and such pro rata payment is to be made under such plans. The severance benefits also include: 1. a lump sum cash severance payment equal to the sum of (A) 300%, or 200% under the Severance Policy for Key Employees, reduced by 8.33% for each full month that the officer's age is in excess of 62, or 63 under the Severance Policy for Key Employees, as of the date of termination, of the greater of the officer's annual rate of base salary in effect immediately prior to the date of termination and such rate of base salary in effect immediately prior to the merger, and (B) 300%, or 200% under the Severance Policy for Key Employees, reduced by 8.33% for each full month that the officer's age is in excess of 62, or 63 under the Severance Policy for Key Employees, as of the date of termination, of the greater of the amount of the officer's annual target incentive in effect under the applicable Union Camp annual incentive plan immediately prior to the merger and the target incentive in effect with respect to the year in which the date of termination occurs; 2. payment of all legal fees and expenses incurred by the officer in connection with the interpretation or enforcement of the severance arrangements; 3. continuation for 36 months, or 24 months under the Severance Policy for Key Employees, but not beyond age 65 in either case, of life, disability, accident and health insurance benefits equivalent to those that the officer was receiving immediately prior to termination, to the extent an equivalent benefit is not actually provided to the officer during such period; and 4. solely with respect to the severance agreements, the lump sum cash payment of the sum of all amounts credited to the officer's book account under the Union Camp Supplemental Retirement Plan, plus the actuarial equivalent of the supplemental pension benefit, determined as a straight life annuity commencing at the greater of age 62 or the officer's age at the date of termination, accrued under the Supplemental Retirement Plan, plus, under the severance agreements, the amount due to the officer under the Union Camp Supplemental Retirement Income Plan for Executive Officers determined under the applicable lump sum provisions as if the officer had been credited with three additional years of age and service, but not beyond age 65 and 20 years of service, with the amount reduced to the extent necessary to prevent duplicative payment of benefits. The severance benefits also include a gross-up payment to cover the imposition of any excise taxes imposed under Section 4999 of the federal tax code and any taxes on such gross-up payment. The severance arrangements further provide, however, that if payment to or for the benefit of the officer would not be subject to the excise tax if such payments were reduced by an amount that is less than 10% of the portion of such payments that are 57 66 treated as "parachute payments" under Section 280G of the federal tax code, then the severance benefits will be reduced to the maximum amount that could be paid without giving rise to the excise tax, and no gross-up payment will be payable. STOCK UNIT PLAN. After the effective time of the merger, the amounts payable to participants pursuant to Section 9(c) of Union Camp's Deferred Stock Unit Plan for Outside Directors shall be paid in International Paper common shares. The number of International Paper common shares payable to any participant in the Deferred Stock Unit Plan for Outside Directors shall be an amount equal to (A) the number of stock units credited to such participant's account under the Deferred Stock Unit Plan for Outside Directors immediately prior to the effective time of the merger multiplied by (B) the exchange ratio for the merger. RESTRICTED STOCK PLAN. After the effective time of the merger, any amounts payable to participants pursuant to Article X of the Union Camp Restricted Stock Performance Plan shall be paid in International Paper common shares. The number of International Paper common shares payable shall be an amount equal to (A) the amount payable to such participant determined in accordance with Article X of the Union Camp Restricted Stock Performance Plan, divided by (B) the average International Paper share price which is used to determine the exchange ratio in the merger. INDEMNIFICATION AND INSURANCE. Under the merger agreement, International Paper has agreed to, or cause Union Camp to, - indemnify and hold harmless present or former directors or officers of Union Camp or its subsidiaries for all acts or omissions occurring prior to the effective time of the merger, including the transactions contemplated by the merger agreement, to the same extent such persons are indemnified and held harmless in Union Camp's articles of incorporation or bylaws as of the date of the merger agreement, and - provide, for a period of six years after the effective time of the merger, an insurance and indemnification policy that grants Union Camp's officers and directors in office immediately prior to the effective time of the merger coverage substantially equivalent to Union Camp's policy in effect as of the date of the merger agreement; provided, however, that in no event will expenditures in any one year for such coverage exceed 200% of the annual premiums currently paid by Union Camp; provided, further, that if the annual premiums for such coverage exceed such amount, then a policy providing the best available coverage not exceeding such amount will be provided. See "Principal Provisions of The Merger Agreement -- Principal Covenants -- Benefits Continuation" for a description of the benefits provided by the merger agreement for employees of Union Camp generally. 58 67 The following table shows the benefits that may become payable to the executive officers of Union Camp as a consequence of the merger. An executive officer's employment must be terminated to receive the dollar amounts listed. The accelerated vesting of the stock options and restricted stock shown will occur regardless of termination of employment. The amounts shown assume a merger date of April 1, 1999 and that the executive officer's employment is terminated on that date.
PRO-RATED ACCELERATED PRO-RATED RESTRICTED CONTINUED ACCELERATED VESTING SEVERANCE ANNUAL STOCK BENEFIT VESTING OF RESTRICTED BENEFIT BONUS BONUS COVERAGE OF OPTIONS STOCK ----------- --------- ---------- --------- ------------- ------------- (# OF SHARES) (# OF SHARES) W. Craig McClelland........... $ 694,278 $140,875 $ 78,000 $ 872 84,600 6,779 Chairman of the Board and Chief Executive Officer Jerry H. Ballengee............ 2,887,785 79,500 51,500 26,058 39,100 4,581 President and Chief Operating Officer Charles H. Greiner, Jr.* ..... 2,150,657 48,125 33,300 22,400 17,000 2,546 Executive Vice President A. William Hamill............. 1,534,000 45,375 33,000 22,339 17,000 2,196 Executive Vice President and Chief Financial Officer John T. Heald, Jr. ........... 2,256,958 48,125 33,300 22,400 17,000 2,546 Executive Vice President John C. Albert................ 1,666,291 32,125 25,700 20,871 8,000 930 Senior Vice President Susan M. Arseven*............. 1,017,900 26,325 23,400 20,410 7,500 428 Senior Vice President and Chief Information Officer Jerome N. Carter*............. 1,329,884 25,875 23,000 20,329 8,000 682 Senior Vice President Thomas G. Lambrix............. 1,445,654 25,775 22,900 20,309 7,500 0 Senior Vice President Willis J. Potts............... 1,716,450 33,250 26,600 21,053 13,500 959 Senior Vice President L.H. Puckett.................. 1,376,968 27,275 24,250 20,581 9,000 0 Senior Vice President Dirk R. Soutendijk............ 1,298,928 31,625 28,100 21,355 9,500 2,604 Vice President, General Counsel and Secretary TOTAL................. $19,375,753 $564,250 $403,050 $238,973 237,700 24,251 =========== ======== ======== ======== ======= ======
There is uncertainty whether the options granted to employees of Union Camp in November 1998 will be subject to accelerated vesting due to pooling of interests accounting restrictions. If these options do vest upon the merger, the number of shares subject to options with accelerated vesting will be as follows: Mr. McClelland -- 172,600; Mr. Ballangee -- 80,151; Mr. Greiner -- 36,073; Mr. Hamill -- 36,073; Mr. Heald -- 36,073; Mr. Albert -- 16,000; Ms. Arseven -- 15,000; Mr. Carter -- 16,200; Mr. Lambrix -- 16,500; Mr. Potts -- 27,000; Mr. Puckett -- 18,000; Mr. Soutendijk -- 19,000; and 488,670 for the group as a whole. * Effective upon the completion of the merger, Messrs. Greiner and Carter have been named Senior Vice Presidents of the combined company and Ms. Arseven will assume responsibility for Information Technology for merger integration of the combined company. 59 68 PRINCIPAL PROVISIONS OF THE MERGER AGREEMENT GENERAL The merger agreement contemplates the merger of Maple Acquisition, Inc., a subsidiary of International Paper, with and into Union Camp, with Union Camp surviving the merger. The merger will become effective at the date and time that the certificate of merger is issued by the Virginia Commission in accordance with the articles of merger to be filed with the Virginia Commission and the Secretary of State of the State of Delaware. We anticipate that we will make these filings as soon as practicable after the last of the conditions precedent to the merger, as set forth in the merger agreement, has been satisfied or waived. Immediately after the merger becomes effective, we expect that Union Camp will be merged with and into International Paper, with International Paper surviving that merger. The merger agreement obligates International Paper to have the International Paper common shares to be issued in connection with the merger approved for listing on the New York Stock Exchange, subject to official notice of issuance, prior to the effective time of the merger. The following description of the merger agreement is only a summary and therefore is not complete. We encourage shareholders to refer to the complete text of the merger agreement, which we attach to this document as Annex A and incorporate by reference herein. CONSIDERATION TO BE RECEIVED IN THE MERGER At the effective time of the merger, each issued and outstanding Union Camp common share, together with the associated rights, which are described in detail under the heading "Comparison of Shareholder Rights -- Shareholder Rights Plan", will be converted into the right to receive a number of International Paper common shares equal to the exchange ratio for the merger. However, each Union Camp common share, together with the associated rights, owned by International Paper or any International Paper subsidiaries will be canceled and retired. Cash will be paid in lieu of any fractional International Paper common shares that would otherwise be issuable. The exchange ratio is to be determined by dividing 71.00 by the average International Paper share price, which is to be calculated by averaging the last sales price per International Paper common share on ten randomly selected days out of the 20-trading day period ending on the fifth trading day preceding the effective time of the merger. However, if the average International Paper share price is less than $43.70, the exchange ratio will be 1.6247, and if the average International Paper share price is greater than $48.30, the exchange ratio will be 1.4700. One officer of each of International Paper and Union Camp or their designated appointees will perform this random selection in the presence of representatives from each company's independent accountants who will both certify the outcome of the selection. EXCHANGE OF SHARES Subject to the terms and conditions of the merger agreement, International Paper will deposit with an exchange agent designated by International Paper and reasonably acceptable to Union Camp, as needed, certificates representing the International Paper common shares issuable in exchange for the outstanding Union Camp common shares and will from time to time deposit cash in an amount required to be paid for fractional International Paper common shares and dividends and other distributions on the International Paper common shares. As promptly as practicable after the effective time of the merger, International Paper will send, or will cause the exchange agent to send, to each holder of record of Union Camp common shares a letter of transmittal and 60 69 instructions. Thereafter, holders of Union Camp common shares may surrender their certificates to the exchange agent, together with a duly executed letter of transmittal. In exchange for such share certificates, holders will receive International Paper common share certificates representing such number of shares as described under "-- Consideration to be Received in the Merger". Holders of unexchanged Union Camp common shares will not be entitled to receive any dividends or other distributions payable by International Paper with respect to those International Paper common shares represented by such unexchanged Union Camp certificates until the applicable Union Camp certificate is surrendered. Upon surrender, however, subject to applicable laws, those holders will receive accumulated dividends and distributions, without interest, together with cash in lieu of fractional shares. International Paper will not issue fractional common shares to holders of Union Camp common shares. For each fractional share that would otherwise be issued, the exchange agent will pay the relevant holder an amount equal to the fractional part of an International Paper common share multiplied by the average International Paper share price used to determine the exchange ratio for the merger consideration. PRINCIPAL REPRESENTATIONS AND WARRANTIES The merger agreement contains a number of reciprocal representations and warranties of International Paper and Union Camp as to, among other things, due incorporation and good standing, corporate authority to enter into the contemplated transactions, required consents and filings with government entities, absence of conflicts with organizational documents and material agreements, capitalization, reports filed with the SEC, financial statements, undisclosed liabilities, litigation, material changes or events, compliance with laws, title to properties, tax matters, pooling matters, finder's fees, intellectual property, environmental matters, information supplied for use in this document and the required shareholder approvals. Representations and warranties made solely by Union Camp relate to the ownership of subsidiaries and particular employee benefits matters. Many of these representations and warranties are qualified by material adverse effect, which, for purposes of the merger agreement, means with respect to International Paper or Union Camp, as the case may be, a material adverse effect on the financial condition, business or results of operations of either party and its subsidiaries, taken as a whole, other than any material adverse effects arising out of any change or development relating to: - U.S. or global economic or industry conditions; - changes in U.S. or global financial markets or conditions; - any generally applicable change in law, rule or regulation or U.S. generally accepted accounting principles or related interpretations; and/or - the announcement of the merger agreement or the transactions contemplated thereby. None of the representations and warranties contained in the merger agreement will survive the effective time of the merger. PRINCIPAL COVENANTS CONDUCT OF BUSINESS PENDING THE MERGER. Pursuant to the merger agreement, Union Camp has agreed that from the date of the merger agreement until its effectiveness, except as consented to by International Paper, which consent is not to be unreasonably withheld or delayed, Union Camp will, and will cause each Union Camp subsidiary to, conduct its 61 70 business in all material respects in the ordinary course consistent with past practice and will use commercially reasonable efforts to: - preserve intact its present business organization; - maintain in effect all material foreign, federal, state and local licenses, approvals and authorizations, including, without limitation, all material licenses and permits that are required for Union Camp or any Union Camp subsidiary to carry on its business; and - preserve existing relationships with its material customers, lenders, suppliers and others having material business relationships with it. Without limiting the generality of the foregoing, except as consented to by International Paper, which consent is not to be unreasonably withheld or delayed, Union Camp will not, nor will it permit any Union Camp subsidiary to: (a) amend Union Camp's articles of incorporation or bylaws; (b) split, combine or reclassify any shares of capital stock of Union Camp or any less-than-wholly-owned Union Camp subsidiary or declare, set aside or pay any dividend or other distribution, in any form, in respect of its capital stock, or redeem, repurchase or otherwise acquire or offer to redeem, repurchase, or otherwise acquire any of its securities or any securities of any Union Camp subsidiary, except - for regular quarterly cash dividends having customary record and payment dates, not in excess of $0.45 per Union Camp common share, - for regular dividends by less-than-wholly-owned Union Camp subsidiaries on a pro rata basis to the equity owners of those subsidiaries, or - pursuant to the existing terms of any Union Camp employee benefit plan; (c)(1) issue, deliver or sell, or authorize the issuance, delivery or sale of, any shares of its capital stock of any class or any securities convertible into or exercisable for, or any rights, warrants or options to acquire, any such capital stock or any such convertible securities, except, in connection with the Union Camp employee benefit plans or benefit plans or arrangements existing on the date of the merger agreement and covering the members of Union Camp's board of directors, - the issuance of Union Camp common shares upon the exercise of stock options in accordance with their present terms, or - the granting of options to acquire Union Camp common shares in the ordinary course of business consistent with past practice, (2) amend in any material respect any material term of any outstanding security of Union Camp or any Union Camp subsidiary; (d) other than in connection with transactions permitted by clause (e) below, incur any capital expenditures or any obligations or liabilities relating to any capital expenditures, except for those - contemplated by the capital expenditure budgets for Union Camp and the Union Camp subsidiaries made available to International Paper, - incurred in the ordinary course of business of Union Camp and its subsidiaries, or 62 71 - not otherwise described under this subsection (d) which, in the aggregate, do not exceed $10 million; (e) acquire, whether pursuant to merger, stock or asset purchase or otherwise, in one transaction or series of related transactions, - any assets, including any equity interests, having a fair market value in excess of $10 million, or - all or substantially all of the equity interests of any third party or any business or division of any third party having a fair market value in excess of $5 million; (f) sell, lease, encumber or otherwise dispose of any assets, other than - sales in the ordinary course of business consistent with past practice, - equipment and property no longer used in the operation of Union Camp's business, and - assets related to discontinued operations of Union Camp or any Union Camp subsidiary; (g) incur any indebtedness for borrowed money or guarantee any such indebtedness or issue or sell any debt securities or warrants or rights to acquire any debt securities of Union Camp or any Union Camp subsidiary or guarantee any debt securities of others, except in the ordinary course of business consistent with past practice, which shall include, without limitation, borrowings under Union Camp's existing credit agreements and overnight borrowings; (h)(1) enter into any agreement or arrangement that limits or otherwise restricts Union Camp, any Union Camp subsidiary or any of their respective affiliates or any successor thereto or that would, after the effective time of the merger, limit or restrict Union Camp, any Union Camp subsidiary, the surviving corporation, International Paper, any International Paper subsidiary or any of their respective affiliates, from engaging or competing in any line of business or in any location, which agreement or arrangement would be material to the business of Union Camp and the Union Camp subsidiaries or the business of International Paper and the International Paper subsidiaries, assuming the merger had taken place, in either case taken as a whole, or (2) except in the ordinary course of business, amend, modify or terminate any material contract, agreement or arrangement of Union Camp or any Union Camp subsidiary or otherwise waive, release or assign any material rights, claims or benefits of Union Camp or any Union Camp subsidiary under any material contract, agreement or arrangement; (i)(1) except in the ordinary course of business consistent with past practice or as required by law or an existing agreement, increase the amount of compensation of any director or executive officer or make any increase in or commitment to increase any employee benefits, (2) except as required by law or an existing agreement or Union Camp severance policy, grant any severance or termination pay to any director, officer or employee of Union Camp or any Union Camp subsidiary, (3) adopt any additional employee benefit plan or, except in the ordinary course of business, make any contribution to any existing such plan, or 63 72 (4) except as may be required by law, amend in any material respect any Union Camp employee benefit plan; (j) change Union Camp's methods of accounting in effect at September 30, 1998, except as required by changes in U.S. generally accepted accounting principles or by Regulation S-X of the Securities Exchange Act of 1934, as concurred in by its independent accountants, or change Union Camp's fiscal year; (k)(1) settle, or propose to settle, any litigation, investigation, arbitration, proceeding or other claim that is material to the business of Union Camp and the Union Camp subsidiaries, taken as a whole, other than the payment, discharge or satisfaction, in the ordinary course of business consistent with past practice of liabilities - recognized or disclosed in the most recent consolidated financial statements, or the notes thereto, of Union Camp included in Union Camp's SEC filings or - incurred since the date of such financial statements in the ordinary course of business consistent with past practice, or (2) other than in the ordinary course of business consistent with past practice, make any tax election or enter into any settlement or compromise of any tax liability that in either case is material to the business of Union Camp and the Union Camp subsidiaries, taken as a whole; or (l) agree or commit to do any of the foregoing. Pursuant to the merger agreement, International Paper has agreed that from the date of the merger agreement until its effectiveness, except as consented to by Union Camp, which consent is not to be unreasonably withheld or delayed, International Paper shall, and will cause each of the International Paper subsidiaries to, conduct its business in all material respects in the ordinary course consistent with past practice and shall use commercially reasonable efforts to: - preserve intact its present business organization; - maintain in effect all material foreign, federal, state and local licenses, approvals and authorizations, including, without limitation, all material licenses and permits that are required for International Paper or any International Paper subsidiary to carry on its business; and - preserve existing relationships with its material customers, lenders, suppliers and others having material business relationships with it. Without limiting the generality of the foregoing, except as consented to by Union Camp, which consent is not to be unreasonably withheld or delayed, International Paper will not, nor will it permit any International Paper subsidiary to: (a) make any amendment to the International Paper certificate of incorporation that changes any material term or provision of the International Paper common shares; (b) make any material changes to Maple Acquisition's certificate of incorporation; (c) engage in any material repurchase at a premium, recapitalization, restructuring or reorganization with respect to International Paper's capital stock, including, without limitation, by way of any extraordinary dividend on, or other extraordinary distributions with respect to, International Paper's capital stock; 64 73 (d) acquire by merging or consolidating with, or by purchasing a substantial portion of the assets of or equity in, or by any other manner, any third party or any third party business or division, or otherwise acquire any assets, unless International Paper concludes in good faith that such acquisition or the entering into of a definitive agreement relating to or the consummation of such transaction would not - impose any material delay in the obtaining of, or significantly increase the risk of not obtaining, any authorizations, consents, orders, declarations or approvals of any governmental entity necessary to consummate the merger or the expiration or termination of any applicable waiting period, - significantly increase the risk of any governmental entity entering an order prohibiting the consummation of the merger or - significantly increase the risk of not being able to remove any such order on appeal or otherwise; or (e) agree, resolve or otherwise commit to do any of the foregoing. NO SOLICITATION OF TRANSACTIONS. Pursuant to the merger agreement: (a) Union Camp has agreed that it will not, nor will it permit any Union Camp subsidiary to, nor will it authorize or knowingly permit any officer, director, employee, investment banker, attorney, accountant, agent or other advisor or representative of Union Camp or any Union Camp subsidiary, directly or indirectly, to: 1. solicit, initiate or knowingly facilitate or encourage the submission of any acquisition proposal, which is defined in the merger agreement to include an offer to acquire 15% or more of the assets or common shares of Union Camp or any significant subsidiary of Union Camp; 2. participate in any discussions or negotiations regarding, or furnish to any person any information with respect to, or take any other action knowingly to facilitate any inquiries or the making of any proposal that constitutes, or may be reasonably expected to lead to, any acquisition proposal; 3. grant any waiver or release under any standstill or similar agreement with respect to any class of Union Camp's equity securities; or 4. enter into any agreement with respect to any acquisition proposal, other than in the manner contemplated by clause (d) below. However, Union Camp may take any action(s) described in the foregoing clauses 1, 2, 3 or 4, but only if - a bona fide written acquisition proposal is delivered that, in the reasonable judgment of Union Camp's board of directors, could be reasonably likely to lead to the delivery to Union Camp of a superior proposal, which is defined in the merger agreement to mean an acquisition proposal for at least a majority of Union Camp's common stock, which has been determined by Union Camp's board of directors, after consultation with an investment bank, to be more favorable to Union Camp shareholders from a financial point of view than the transaction proposed in the merger agreement, and - Union Camp's board of directors determines in good faith, on the basis of written advice from its outside legal counsel, that it is required to take such action(s) in order to comply with its fiduciary duties under applicable law. 65 74 Prior to Union Camp taking any such action(s), the third party must have entered into a confidentiality agreement with Union Camp on customary terms, and Union Camp must provide the notice required by clause (c) below. In addition, Union Camp may not enter into any agreement with respect to any third party acquisition proposal without first complying with clause (d) below. (b) Unless Union Camp's board of directors has previously withdrawn, or is concurrently withdrawing, its recommendation of the merger in order to satisfy its fiduciary duties, as determined in good faith by a majority of its members on the basis of the written advice of its outside legal counsel, neither Union Camp's board of directors nor any board committee may recommend any third party acquisition proposal to Union Camp shareholders. Notwithstanding the foregoing, nothing contained in the merger agreement will prevent Union Camp's board of directors from complying with Rule 14e-2 under the Exchange Act with respect to any acquisition proposal or making any disclosure required by applicable law. (c) Union Camp must notify International Paper within 24 hours after receipt by Union Camp or any Union Camp subsidiary, or any of their respective directors, officers, agents or advisors, of any acquisition proposal. Similarly, Union Camp will notify International Paper of any negotiations, discussions or contacts concerning, or any request for nonpublic information or for access to the properties, books or records of Union Camp or any Union Camp subsidiary or any request for a waiver or release under any standstill or similar agreement, by anyone that has made an acquisition proposal. Such notice to International Paper must be made orally and in writing and must indicate the identity of the offeror and the terms and conditions of such proposal, inquiry, contact or request. Union Camp must keep International Paper informed, on a reasonably current basis, of the status and details, including amendments or proposed amendments, of any such acquisition proposal or request and the status of any negotiations or discussions. (d) Either International Paper or Union Camp may terminate the merger agreement if Union Camp's board of directors determines, pursuant to the terms of this covenant, to approve or recommend and to enter into an agreement concerning an acquisition proposal after concluding that such acquisition proposal constitutes a superior proposal. However, Union Camp may not exercise its right to terminate under this covenant, and may not enter into a binding written agreement with respect to such acquisition proposal, unless: 1. Union Camp has provided to International Paper at least five business days' prior written notice that Union Camp's board of directors has authorized and intends to terminate the merger agreement pursuant to this covenant, specifying the material terms and conditions of such acquisition proposal and providing the most current version of the agreement relating thereto, if any; 2. International Paper does not make, within five business days of receiving such notice, an offer such that a majority of Union Camp's board of directors determines that the foregoing acquisition proposal no longer constitutes a superior proposal to the transaction proposed herein or its fiduciary duties no longer require it to take such action(s); and 3. on or prior to such termination, Union Camp has paid to International Paper the termination fee. Further details concerning the termination fee can be found under the subheading "-- Termination Fees Payable by Union Camp". 66 75 In connection with the foregoing, Union Camp agrees that it will: 1. not enter into a binding agreement with respect to that acquisition proposal until at least the sixth business day after it has provided the notice to International Paper required by the merger agreement; 2. negotiate in good faith with International Paper, and consider in good faith any offer made by International Paper during that period; and 3. notify International Paper promptly if its intention to enter into such an agreement shall change at any time after such notification. STANDSTILL AGREEMENT. International Paper has agreed that if the merger agreement is terminated, then, for two years after the date of such termination, neither International Paper, its successors, assigns nor its affiliates will: (a) acquire, offer, propose or otherwise seek to acquire, or agree to acquire, directly or indirectly, by merger, purchase or otherwise, beneficial ownership of any assets or in excess of 1% of any class of securities of Union Camp or its affiliates or any direct rights or options to acquire, through purchase, exchange, conversion or otherwise, any assets or in excess of 1% of any class of securities of Union Camp or its affiliates; (b) make, or in any way participate in, directly or indirectly, any solicitation of proxies, or seek to advise, encourage or influence any person or entity with respect to the voting of any voting securities of Union Camp; (c) call, or in any way participate in a call for, any meeting of shareholders of Union Camp, or take any action with respect to shareholders acting by written consent; (d) form, join or in any way participate in a group with respect to any voting securities of Union Camp; or (e) otherwise act to control or influence, or seek to control or influence, Union Camp or the management, board of directors, policies or affairs of Union Camp, including, without limitation, by: - making any offer or proposal to acquire any securities or assets of Union Camp or any of its affiliates or soliciting or proposing to effect or negotiate any form of business combination, restructuring, recapitalization or other extraordinary transaction involving Union Camp, its affiliates or any of their respective securities or assets; - seeking board representation or the removal of any directors or a change in the composition or size of Union Camp's board of directors; - making any request to amend or waive any provision of this covenant; - disclosing any intent, purpose, plan or proposal with respect to matters covered by this covenant or Union Camp, its affiliates or the boards of directors, management, policies or affairs or securities or assets of Union Camp or its affiliates that is inconsistent with this covenant, including an intent, purpose, plan or proposal that is conditioned on, or would require, waiver, amendment, nullification or invalidation of any provision of this covenant, or take any action that could require Union Camp or any of its affiliates to make any public disclosure relating to any such intent, purpose, plan, proposal or condition; or - assisting, advising or encouraging any person with respect to, or seeking to do, any of the foregoing. 67 76 The standstill agreement will not bind International Paper if Union Camp does not pay any portion of the termination fee if and when due or if International Paper terminates the merger agreement as a result of a willful breach of the merger agreement by Union Camp. In addition, any obligations of International Paper under the standstill agreement will cease if: - Union Camp shall have entered into an agreement with respect to any transaction that constitutes an acquisition proposal for at least a majority of either the voting securities of Union Camp then outstanding or the assets of Union Camp and the Union Camp subsidiaries, taken as a whole; or - any person or group shall have commenced any tender or exchange offer that constitutes an acquisition proposal for at least a majority of the voting securities of Union Camp then outstanding, which offer is recommended by Union Camp's board of directors to the Union Camp shareholders. INDEMNIFICATION AND INSURANCE. These matters are discussed above under the heading "Interests of Insiders in the Merger -- Interests of Union Camp Officers and Directors -- Indemnification and Insurance". UNION CAMP STOCK OPTIONS. The merger agreement provides that at the effective time of the merger, each outstanding Union Camp option, regardless of the extent vested and exercisable, shall be deemed to constitute an option to acquire, on the same terms and conditions as were applicable under such Union Camp stock option, the same number of International Paper common shares as the holder of such Union Camp option would have been entitled to receive pursuant to the merger agreement had such holder exercised such Union Camp option in full immediately prior to the effective time of the merger, rounded up to the nearest whole number. The price per share, rounded down to the nearest whole cent, will equal: - the aggregate exercise price for the Union Camp common shares otherwise purchasable pursuant to such Union Camp option, divided by - the number of full International Paper common shares deemed purchasable pursuant to such Union Camp option in accordance with the foregoing. BENEFITS CONTINUATION. For a period of one year following the effective time of the merger, International Paper has agreed in the merger agreement that it will provide, or will cause Union Camp to provide, for employees of Union Camp and its subsidiaries, salary and benefits under employee benefits plans that are, in the aggregate, no less favorable than those currently provided by Union Camp and the Union Camp subsidiaries to such employees. For purposes of any employee benefit plan or arrangement maintained by International Paper, Union Camp or any International Paper subsidiary, International Paper will recognize service with Union Camp and the Union Camp subsidiaries and any predecessor entities and any other service credited by Union Camp under similar benefit plans for all purposes; provided, that solely to the extent necessary to avoid duplication of benefits, amounts payable under employee benefit plans provided by International Paper, Union Camp or an International Paper subsidiary may be reduced by amounts payable under similar Union Camp employee benefit plans with respect to the same period of service. Any benefits accrued by employees of Union Camp and its subsidiaries prior to the effective time of the merger under any defined benefit pension plan of Union Camp or any Union Camp subsidiary that employs a final average pay formula will be calculated based 68 77 on the relevant employee's final average pay with International Paper, Union Camp or any International Paper subsidiary or other affiliate employing such employees. From and after the effective time of the merger, International Paper will, and will cause the International Paper subsidiaries to, waive any pre-existing condition limitations and credit any deductibles and out-of-pocket expenses that are applicable and/or covered under the Union Camp employee benefit plans, and are incurred by employees of Union Camp and its subsidiaries and their beneficiaries during the portion of the calendar year prior to participation in the benefit plans provided by International Paper, Union Camp and the International Paper subsidiaries. International Paper has also agreed to provide, and to cause Union Camp and the International Paper subsidiary to provide, at least 30 days' advance written notice of termination of employment of any employees or former employees of Union Camp or any Union Camp subsidiary. Amounts payable to participants pursuant to Section 9(c) of the Union Camp Deferred Stock Unit Plan for Outside Directors shall be paid in International Paper common shares, and the number of International Paper common shares payable shall be an amount equal to: - the number of stock units credited to such participant's account under the Deferred Stock Unit Plan for Outside Directors immediately prior to the effective time of the merger, multiplied by - the exchange ratio in the merger. Amounts payable to participants pursuant to Article X of the Union Camp Restricted Stock Performance Plan shall be paid in International Paper common shares. The number of International Paper common shares payable shall be an amount equal to: - the amount payable to such participant determined in accordance with Article X of the Union Camp Restricted Stock Performance Plan, divided by - the average International Paper share price, as used to calculate the exchange ratio in the merger. Pursuant to the merger agreement, International Paper will honor, and will cause Union Camp and the International Paper subsidiaries to honor, in accordance with their terms, Union Camp's existing severance programs, and each existing Union Camp employment, change of control, severance and termination agreement between Union Camp or any Union Camp subsidiary, and any officer, director or employee of Union Camp or any Union Camp subsidiary. OTHER COVENANTS. The merger agreement contains additional covenants, including covenants relating to preparation and distribution of this document, coordination of shareholders' meetings, access to information, mutual notification of particular events, public announcements and cooperation regarding filings with governmental and other agencies and organizations. In addition, the merger agreement contains a general covenant requiring each of the parties thereto to use its reasonable best efforts to effect the consummation of the merger. 69 78 CONDITIONS TO THE CONSUMMATION OF THE MERGER CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER. Each party's obligation to consummate the merger is subject to the satisfaction of the following conditions: (a) SHAREHOLDER APPROVALS. - Union Camp's shareholders having approved and adopted the merger and the merger agreement; and - International Paper's shareholders having approved both - an amendment to its certificate of incorporation, increasing the number of authorized International Paper common shares from 400,000,000 to 1,000,000,000, and - the issuance of International Paper common shares in the merger. (b) LISTING OR QUOTATION OF STOCK. The International Paper common shares to be issued in the merger having been approved for listing on the New York Stock Exchange, subject to official notice of issuance. (c) NO GOVERNMENTAL RESTRAINTS. No governmental entity shall have issued any order, injunction or decree, or taken any other action, that permanently restrains, enjoins or otherwise prohibits the consummation of the merger. (d) POOLING OF INTERESTS ACCOUNTING TREATMENT. International Paper shall have received a letter from Arthur Andersen LLP addressed to it, dated as of the effective time of the merger, stating that the merger should be treated as a "pooling of interests" in conformity with U.S. generally accepted accounting principles. Union Camp shall have received a letter from PricewaterhouseCoopers LLP addressed to it, dated as of the effective time of the merger, stating that Union Camp is a pooling candidate for purposes of the merger. Both of these letters may not be withdrawn or modified in any material respect. ADDITIONAL CONDITION TO OBLIGATIONS OF INTERNATIONAL PAPER. The obligation of International Paper and Maple Acquisition to consummate the merger is subject to the satisfaction of the following additional condition, which may be waived in writing exclusively by International Paper: (a)PERFORMANCE OF OBLIGATIONS; REPRESENTATIONS AND WARRANTIES. Union Camp shall have performed in all material respects all of its obligations under the merger agreement required to be performed by it at or prior to the effective time of the merger. The representations and warranties of Union Camp set forth in the merger agreement that are not qualified as to a material adverse effect shall have been true and correct when made and at and as of the time of the filing of the articles of merger, as if made at and as of such time, and all other representations and warranties of Union Camp shall have been true and correct when made and at and as of the time of filing of the articles of merger, as if made as of such time, except for such inaccuracies as are not reasonably likely, individually or in the aggregate, to have a Union Camp material adverse effect. 70 79 ADDITIONAL CONDITIONS TO OBLIGATIONS OF UNION CAMP. The obligation of Union Camp to effect the merger is subject to the satisfaction of each of the following additional conditions, any of which may be waived in writing exclusively by Union Camp: (a)PERFORMANCE OF OBLIGATIONS; REPRESENTATIONS AND WARRANTIES. International Paper and Maple Acquisition each shall have performed in all material respects all of its obligations under the merger agreement required to be performed by it at or prior to the time of the filing of the articles of merger. The representations and warranties of International Paper contained in the merger agreement that are not qualified by reference to a material adverse effect shall have been true and correct when made and at and as of the time of filing the articles of merger, as if made at and as of such time, and all other representations and warranties of International Paper shall have been true and correct when made and at and as of the time of the filing of the articles of merger, as if made at and as of such time, except for such inaccuracies as are not reasonably likely, individually or in the aggregate, to have an International Paper material adverse effect. (b)TAX OPINION. Union Camp having received a written opinion from Sullivan & Cromwell, special counsel to Union Camp, to the effect that the merger will be treated for federal income tax purposes as a reorganization within the meaning of Section 368(a) of the federal tax code. TERMINATION The merger agreement may be terminated at any time prior to the effective time of the merger, whether before or after approval of the matters presented in connection with the merger by the International Paper shareholders or the Union Camp shareholders: (a) by mutual written consent of International Paper and Union Camp; (b) by either International Paper or Union Camp, if the merger has not been consummated by September 30, 1999; provided, however, that the right to terminate the merger agreement under this clause (b) will not be available to any party whose breach of any obligation under the merger agreement has been the cause of or resulted in the failure of the merger to occur on or before that date; (c) by either International Paper or Union Camp, if there is any law or regulation that makes consummation of the merger illegal or otherwise prohibited or if any judgment, injunction, order or decree of any governmental entity having competent jurisdiction enjoining Union Camp, International Paper or Maple Acquisition from consummating the merger is entered and such judgment, injunction or order shall have become final and nonappealable and, prior to such termination, the parties shall have used reasonable best efforts to resist, resolve or lift, as applicable, such law, regulation, judgment, injunction, order or decree; (d) by either International Paper or Union Camp if, 1. at the Union Camp special shareholders' meeting, including any adjournment or postponement, the requisite vote of the Union Camp shareholders in favor of the merger and the merger agreement is not obtained, or 2. at the International Paper special shareholders' meeting, including any adjournment or postponement, the requisite vote of International Paper's shareholders is not obtained in favor of the International Paper proposals to amend the International 71 80 Paper certificate of incorporation and to issue International Paper common stock in the merger; (e) by Union Camp, if a breach of or failure to perform any representation, warranty, covenant or agreement on the part of International Paper or Maple Acquisition set forth in the merger agreement has occurred which would cause the conditions set forth in "-- Conditions to the Consummation of the Merger -- Additional Conditions to Obligations of Union Camp" not to be satisfied, and such conditions are incapable of being satisfied by September 30, 1999; (f) by Union Camp, if International Paper's board of directors has amended, modified, withdrawn, conditioned or qualified in a manner adverse to Union Camp its recommendation of the International Paper proposals to amend the International Paper certificate of incorporation and to issue International Paper common stock in the merger; (g) by International Paper, if a breach of or failure to perform any representation, warranty, covenant or agreement on the part of Union Camp set forth in the merger agreement has occurred which would cause the conditions set forth under "-- Conditions to the Consummation of the Merger -- Additional Conditions to Obligations of International Paper" not to be satisfied, and such conditions are incapable of being satisfied by September 30, 1999; (h) by International Paper, if Union Camp's board of directors has 1. amended, modified, withdrawn, conditioned or qualified in a manner adverse to International Paper its recommendation of the merger and the merger agreement, and/or 2. recommended any other acquisition proposal to the Union Camp shareholders; (i) by International Paper, if Union Camp, any Union Camp subsidiary or any of their respective officers, directors, employees, advisors or other agents has willfully and materially breached the covenant described under "-- No Solicitation of Transactions"; or (j) by International Paper or Union Camp, if Union Camp's board of directors shall have determined, in accordance with the requirements described under "-- No Solicitation of Transactions," to approve or recommend an acquisition proposal after concluding that such acquisition proposal constitutes a superior proposal and to enter into a binding agreement concerning such acquisition proposal. However, Union Camp may not exercise such right to terminate, and may not enter into a binding written agreement with respect to such acquisition proposal, unless 1. Union Camp shall have provided to International Paper at least five business days' prior written notice that Union Camp's board of directors has authorized and intends to terminate the merger agreement, specifying the material terms and conditions of such acquisition proposal and providing the most current version of the agreement relating thereto, if any, 2. International Paper does not make, within five business days of receiving such notice, an offer such that a majority of Union Camp's board of directors determines that the foregoing third party acquisition proposal no longer constitutes a superior proposal or its fiduciary duties no longer require it to take such action(s), and 72 81 3. on or prior to such termination, Union Camp must have paid to International Paper a $150 million termination fee, plus up to $10 million in out-of-pocket expenses, which is more fully described under the subheading "-- Termination Fees Payable by Union Camp" below. International Paper may exercise its right to terminate under these circumstances five business days after receiving the notice contemplated above. In connection with the foregoing, Union Camp agrees that it will 1. not enter into a binding agreement with respect to such acquisition proposal until at least the sixth business day after it has provided the notice to International Paper required by the merger agreement, 2. negotiate in good faith with International Paper, and consider in good faith any offer made by International Paper, during that period, and 3. notify International Paper promptly if its intention to enter into such an agreement shall change at any time after such notification. TERMINATION FEES PAYABLE BY INTERNATIONAL PAPER If the merger agreement is terminated pursuant to paragraph (d)2. or (e), to the extent such breach is willful, under "-- Termination" above, International Paper will pay to Union Camp a termination fee of $150 million in cash within one business day after such termination plus out-of-pocket expenses not to exceed $10 million. If the merger agreement is terminated pursuant to paragraph (f) under "-- Termination" above, International Paper will pay to Union Camp a termination fee of $75 million in cash within one business day after such termination plus out-of-pocket expenses not to exceed $10 million. TERMINATION FEES PAYABLE BY UNION CAMP If the merger agreement is terminated pursuant to paragraph (g), to the extent such breach is willful, (h)2., (i) or (j) under "-- Termination" above, Union Camp will pay to International Paper a termination fee of $150 million in cash within one business day after such termination plus out-of-pocket expenses not to exceed $10 million. If the merger agreement is terminated pursuant to paragraph (d)1. under "-- Termination" above, and 1. prior to the Union Camp special shareholders' meeting a third party shall have publicly announced an intention to make an acquisition proposal for Union Camp, and 2. concurrently with or within 12 months after such termination, Union Camp enters into a merger or similar transaction involving the acquisition of a majority of Union Camp common stock with the party that had publicly announced such acquisition proposal, then Union Camp shall: A. pay to International Paper a $75 million termination fee within one business day of the entering into of any such agreement, plus International Paper's out-of-pocket expenses not to exceed $10 million; and 73 82 B. within one business day of any consummation of the transaction contemplated by such agreement pay to International Paper a further $75 million termination fee. If the merger agreement is terminated pursuant to paragraph (h)1. under "-- Termination" above, Union Camp shall pay to International Paper a $75 million termination fee plus International Paper's out-of-pocket expenses not to exceed $10 million, and if within 12 months after such termination Union Camp enters into an agreement for a merger or a similar transaction with a third party, which involves the acquisition of a majority of Union Camp common stock, then Union Camp shall pay to International Paper a further $75 million termination fee within one business day of the consummation of the transaction contemplated by such third party agreement. EXPENSES All fees and expenses incurred in connection with the merger agreement and the transactions contemplated by the merger agreement, other than termination fees payable upon termination under "-- Termination Fees Payable by International Paper" and "-- Termination Fees Payable by Union Camp", will be paid by the party incurring such expenses, whether or not the merger is consummated. 74 83 THE SHAREHOLDERS' MEETINGS This document is furnished in connection with the solicitation of proxies from the holders of International Paper common shares by International Paper's board of directors for use at the International Paper special shareholders' meeting and from the holders of Union Camp common shares by Union Camp's board of directors for use at the Union Camp special shareholders' meeting. This document and accompanying form of proxy are first being mailed to the respective International Paper shareholders and Union Camp shareholders on or about March 31, 1999. TIMES AND PLACES; PURPOSES The International Paper special shareholders' meeting will be held at the offices of Davis Polk & Wardwell, 450 Lexington Avenue, Eighth Floor, New York, New York on April 30, 1999, starting at 9:00 a.m., local time. At the International Paper special shareholders' meeting, the International Paper shareholders will be asked to consider and vote upon the International Paper proposals to amend the International Paper certificate of incorporation and to issue International Paper common shares in the merger. The Union Camp special shareholders' meeting will be held at The Union League Club, 38 East 37th Street, New York, New York on April 30, 1999, starting at 10:30 a.m., local time. At the Union Camp special shareholders' meeting, the Union Camp shareholders will be asked to consider and vote upon the merger and the merger agreement. Representatives of Arthur Andersen LLP are expected to be present at the International Paper special shareholders' meeting, where they will have the opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions. Representatives of PricewaterhouseCoopers LLP are expected to be present at the Union Camp special shareholders' meeting, where they will have the opportunity to make a statement, if they so desire, and will be available to respond to appropriate questions. VOTING RIGHTS; VOTES REQUIRED FOR APPROVAL INTERNATIONAL PAPER. International Paper's board of directors has fixed the close of business on March 18, 1999 as the record date for International Paper shareholders entitled to notice of and to vote at the International Paper special shareholders' meeting. The only outstanding voting securities of International Paper are the International Paper common shares. Only holders of record of International Paper common shares on the International Paper record date are entitled to notice of and to vote at the International Paper special shareholders' meeting. Each holder of record, as of the International Paper record date, of International Paper common shares is entitled to cast one vote per share on each of the International Paper proposals. On the International Paper record date, there were approximately 306,851,559 International Paper common shares outstanding and entitled to vote at the International Paper special shareholders' meeting, held by approximately 30,570 International Paper shareholders of record. The favorable vote of a majority of the International Paper common shares present and voting is required to approve the share issuance proposal. The favorable vote of a majority of all outstanding shares on the International Paper record date entitled to vote at the International Paper special shareholders' meeting is required to approve the certificate of incorporation amendment proposal. 75 84 On the International Paper record date, the directors and executive officers of International Paper and their affiliates beneficially owned and were entitled to vote approximately 1,790,726 International Paper common shares, or less than one percent of the International Paper common shares outstanding on the International Paper record date. UNION CAMP. Union Camp's board of directors has fixed the close of business on February 23, 1999 as the record date for Union Camp shareholders entitled to notice of and to vote at the Union Camp special shareholders' meeting. Currently, the only outstanding voting securities of Union Camp are the Union Camp common shares. Only holders of record of Union Camp common shares on the Union Camp record date are entitled to vote at the Union Camp special shareholders' meeting, and only holders of record of Union Camp common shares on the Union Camp record date are entitled to notice of the Union Camp special shareholders' meeting. Each holder of record, as of the Union Camp record date, of Union Camp common shares is entitled to cast one vote per share on the merger agreement proposal. On the Union Camp record date, there were approximately 69,781,473 Union Camp common shares outstanding and entitled to vote at the Union Camp special shareholders' meeting, held by approximately 6,912 Union Camp shareholders of record. The favorable vote of more than two-thirds of the Union Camp common shares outstanding on the Union Camp record date is required to approve the merger and the merger agreement. On the Union Camp record date, the directors and executive officers of Union Camp and their affiliates beneficially owned and were entitled to vote 179,728 Union Camp common shares, or less than one percent of the Union Camp common shares outstanding on the Union Camp record date. VOTING OF PROXIES All International Paper common shares and Union Camp common shares represented by proxies properly received prior to or at the International Paper special shareholders' meeting or Union Camp special shareholders' meeting, as the case may be, and not revoked, will be voted in accordance with the instructions indicated in such proxies. If shareholders do not indicate any instructions on a properly executed and returned proxy, that proxy will be voted FOR the proposals required for the approval of the merger. If any other matters are properly presented at the International Paper special shareholders' meeting, in the case of the International Paper shareholders for consideration, the persons named in the enclosed form of proxy, and acting under that proxy, will have discretion to vote on such matters in accordance with their best judgment, unless authorization to use that discretion is withheld. If a proposal to adjourn the International Paper special shareholders' meeting or the Union Camp special shareholders' meeting is properly presented, the persons named in the enclosed form of proxy will not have discretion to vote shares voted against any of the proposals related to the approval of the merger in favor of the adjournment proposal. Neither International Paper nor Union Camp is aware of any matters expected to be presented at its respective shareholders' meeting other than as described in its respective notice of special shareholders' meeting. 76 85 Any proxy given pursuant to this solicitation may be revoked by the person giving it at any time before it is voted. Proxies may be revoked by: 1. filing, including by telegram or telecopy, with the Secretary of International Paper or the Secretary of Union Camp, as the case may be, before taking the vote at the relevant shareholders' meeting, a written notice of revocation bearing a later date than the date of the proxy or a later-dated proxy relating to the same shares; 2. voting by telephone before taking the vote at the International Paper special shareholders' meeting or the Union Camp special shareholders' meeting, as the case may be, which will serve to revoke any prior telephone vote; or 3. attending the relevant shareholders' meeting and voting in person. In order to vote in person at either the International Paper special shareholders' meeting or the Union Camp special shareholders' meeting, International Paper shareholders and Union Camp shareholders must attend the relevant shareholders' meeting and cast their votes in accordance with the voting procedures established for the shareholders' meeting. Attendance at a shareholders' meeting will not in and of itself constitute a revocation of a proxy. Any written notice of revocation or subsequent proxy must be sent so as to be delivered at or before the taking of the vote at the applicable shareholders' meeting as follows: - in the case of International Paper shareholders, to International Paper Company, Two Manhattanville Road, Purchase, New York 10577, Telecopy: (914) 397-1505, Attention: Secretary; and - in the case of Union Camp shareholders, to Union Camp Corporation, 1600 Valley Road, Wayne, New Jersey 07470, Telecopy: (973) 628-2640, Attention: Secretary. International Paper shareholders who require assistance in changing or revoking a proxy should contact Georgeson & Co. Inc. at the address or phone number provided in this document under the caption "Who Can Help Answer Your Questions". Union Camp shareholders who require assistance in changing or revoking a proxy should contact MacKenzie Partners, Inc. at the address or phone number provided in this document under the caption "Who Can Help Answer Your Questions". Abstentions may be specified on each of the proposals required for approval of the merger. Since the favorable vote of holders of more than two-thirds of the Union Camp common shares on Union Camp's merger agreement proposal and the majority of all shares of International Paper's capital stock entitled to vote at the International Paper special shareholders' meeting on the proposal to amend the International Paper certificate of incorporation is in each case required to approve that proposal, a proxy marked "ABSTAIN" with respect to any such proposal will have the effect of a vote against that proposal. In addition, the failure of a Union Camp shareholder in connection with Union Camp's merger agreement proposal, or an International Paper shareholder in connection with the proposal to amend the International Paper certificate of incorporation, to return a proxy will have the effect of a vote against that proposal. Further, as the merger cannot occur unless the International Paper shareholders adopt both of the International Paper merger proposals, any vote that counts as a vote against the proposal to amend the International Paper certificate of incorporation has the effect of a vote against the proposal to issue International Paper common shares in the merger. Under New York Stock Exchange rules, brokers who hold shares in street name for customers have the authority to vote on some "routine" proposals when they have not 77 86 received instructions from beneficial owners. Under New York Stock Exchange rules, such brokers are precluded from exercising their voting discretion with respect to the approval and adoption of non-routine matters such as International Paper's and Union Camp's merger proposals and, thus, absent specific instructions from the beneficial owner of such shares, brokers are not empowered to vote such shares with respect to the approval and adoption of such proposals (i.e., " broker non-votes"). Since the affirmative votes described above are required for approval of the proposal to amend International Paper's certificate of incorporation and Union Camp's merger agreement proposal, a "broker non-vote" with respect to any such proposal will have the effect of a vote against such proposal. It is the policy of both International Paper and Union Camp to keep confidential proxy cards, ballots and voting tabulations that identify individual shareholders, except where disclosure is mandated by law and in other limited circumstances. The cost of solicitation of proxies will be paid by International Paper for International Paper proxies and by Union Camp for Union Camp proxies. In addition to solicitation by mail, arrangements will be made with brokerage houses and other custodians, nominees and fiduciaries to send the proxy materials to beneficial owners, and International Paper or Union Camp, as the case may be, will, upon request, reimburse those brokerage houses and custodians for their reasonable expenses in so doing. International Paper has retained Georgeson & Co. Inc. and Union Camp has retained MacKenzie Partners, Inc. to aid in the solicitation of proxies and to verify records related to the solicitations. Each such firm will receive customary fees and expense reimbursement for such services. To the extent necessary in order to ensure sufficient representation at its shareholders' meeting, International Paper or Union Camp may request by telephone or telegram the return of proxy cards. The extent to which this will be necessary depends entirely upon how promptly proxies are received. We urge shareholders to vote proxies without delay. Union Camp shareholders should not send in any stock certificates with their proxy cards. A transmittal form with instructions for the surrender of certificates representing Union Camp common shares will be mailed by International Paper to former Union Camp shareholders as soon as practicable after the consummation of the merger. INTERNATIONAL PAPER CERTIFICATE OF INCORPORATION AMENDMENT PROPOSAL At the International Paper special shareholders' meeting, International Paper will ask its shareholders to approve the certificate of incorporation amendment proposal, as required under the terms of the merger agreement. International Paper's authorized capital stock includes 400,000,000 International Paper common shares. At March 18, 1999, there were outstanding: - 306,851,559 International Paper common shares; and - employee stock options to purchase an aggregate of approximately 12,837,150 International Paper common shares. In addition, on that date, approximately 8,332,000 International Paper common shares were reserved for issuance upon the conversion of the 5 1/4% convertible preferred securities issued by International Paper Capital Trust. Additionally, up to 120,817,082 International Paper common shares will be required to be authorized for issuance in connection with the merger. The issuance of this number of International Paper common shares would, absent an amendment, violate the International Paper certificate of incorporation because the number of International Paper common shares outstanding would exceed the number that 78 87 had been authorized. Therefore, in order to consummate the merger, the International Paper shareholders must approve an amendment to the International Paper certificate of incorporation, increasing the number of authorized International Paper common shares. In addition, International Paper's board of directors believes that it is desirable to have available additional authorized International Paper common shares for future stock dividends, employee benefit plans, financings, acquisitions, stock splits or dividends or other corporate purposes. International Paper's board of directors therefore requests that the International Paper shareholders approve the certificate of incorporation amendment proposal for a total number of 1,000,000,000 authorized International Paper common shares after effectiveness of the amendment of the International Paper certificate of incorporation. Other than as required by the merger agreement or in connection with its employee benefit plans, International Paper has no present plan to issue the additional International Paper common shares to be authorized. International Paper's board of directors would have the sole discretion to issue the additional International Paper common shares from time to time for any corporate purpose without further action by International Paper shareholders, except as may be required by New York Stock Exchange rules, and without first offering such shares to International Paper shareholders. If International Paper were to issue additional shares, it could have a dilutive effect on International Paper's per share earnings and on each International Paper shareholder's voting power in International Paper, unless the International Paper shareholder were to purchase additional shares to keep the same level of ownership. There are no preemptive rights available to International Paper shareholders in connection with the issuance of International Paper common shares. Although the proposed increase in authorized International Paper common shares is not prompted by a belief that additional takeover defenses are needed, the additional authorized, but unissued, International Paper common shares could be viewed as having an anti-takeover effect. Some provisions of the International Paper certificate of incorporation, the International Paper bylaws and state law also may be deemed to have an anti-takeover effect and may delay, deter or prevent a tender offer or takeover attempt that an International Paper shareholder might consider in its best interest, including those attempts that might result in a premium over the market price for the shares held by International Paper shareholders. Further details of relevant anti-takeover measures can be found under the headings "Comparison of Shareholder Rights -- Shareholder Rights Plan" and "Comparison of Shareholder Rights -- State Anti-Takeover Laws" below. If approved, the proposal to amend International Paper's certificate of incorporation would become effective immediately prior to the consummation of the merger. Approval of this proposal is a condition to the parties' obligation to consummate the merger. We describe this in more detail under the heading "Principal Provisions of The Merger Agreement -- Conditions to the Consummation of the Merger -- Shareholder Approvals". International Paper's board of directors unanimously recommends that the International Paper shareholders vote FOR the proposal to amend International Paper's certificate of incorporation. 79 88 COMPARISON OF SHAREHOLDER RIGHTS Set forth on the following pages is a summary comparison of material differences between the rights of an International Paper shareholder under the current International Paper certificate of incorporation and bylaws (left column) and the rights of a Union Camp shareholder under the current Union Camp articles of incorporation and bylaws (right column). A summary by its nature is not complete. We encourage shareholders to refer to the relevant portions of the International Paper certificate of incorporation and the bylaws, the Union Camp articles of incorporation and bylaws, incorporated in this document by reference, and the relevant provisions of New York and Virginia law. INTERNATIONAL PAPER UNION CAMP GENERAL - - International Paper is a New York corporation - Union Camp is a Virginia corporation subject subject to the provisions of the New York to the provisions of the Virginia Stock Business Corporation Law. Corporation Act. - - The rights of International Paper shareholders - The rights of Union Camp shareholders are are governed by International Paper's governed by Union Camp's articles of certificate of incorporation and bylaws, in incorporation and bylaws, in addition to addition to New York law. Virginia law. - Union Camp shareholders will, upon consummation of the merger, become International Paper shareholders.
AUTHORIZED CAPITAL - - The authorized capital stock of International - The authorized capital stock of Union Camp Paper consists of: consists of: - 400,000,000 International Paper common - 125,000,000 Union Camp common shares, with a shares; par value of $1.00 per share; and - 400,000 shares of cumulative $1.00 preferred - 1,000,000 shares of preferred stock, with a stock, without par value; and par value of $1.00 per share, of which 125,000 shares are designated as Series A Junior - 8,750,000 shares of serial preferred stock, Participating Preferred Stock. $1.00 par value per share.
80 89 AMENDMENT OF GOVERNING DOCUMENTS CHARTER - - Except for the matters specified in the next - The following is required to amend the Union bullet point, to amend the International Paper Camp articles of incorporation: certificate of incorporation, the following is required: (1) an authorization by the board; - an authorization of the Union Camp board, followed by (2) a vote of the majority of followed by the approval of at least all outstanding voting shares. two-thirds of the Union Camp common shares for an amendment to the article of the Union - - An authorization by the board followed by the Camp articles of incorporation providing for approval of at least 80% of the voting shares a classified Union Camp board of directors, is required for an amendment to the establishing criteria for removing directors, International Paper certificate of and granting the Union Camp board of directors incorporation providing for any of the the powers to manage Union Camp and to make following: and amend the Union Camp bylaws; - the classification of the board of - an authorization of the Union Camp board, directors; followed by the approval of more than two-thirds of the Union Camp common shares - the establishment of criteria for the for an amendment to the Union Camp articles removal of directors; of incorporation that changes the more than two-thirds vote required by Virginia law to - an increase or decrease in the size of the approve a merger, statutory share exchange, board of directors; or sale of substantially all of the assets of Union Camp or the dissolution of Union Camp; - the indemnification of directors. and - an authorization by the Union Camp board of directors, followed by the approval of a majority of the Union Camp common shares, or a greater vote if required by Virginia law or the Union Camp articles of incorporation, for all other amendments to the Union Camp articles of incorporation.
81 90 BYLAWS - - The International Paper bylaws may be amended, - The Union Camp bylaws may be amended by: adopted or repealed by: - a majority of the shareholders present and - a majority vote of the shareholders present voting; or and voting; or - the board of directors if the amendment is - a majority vote of the board of directors. approved by a majority of a quorum of the directors, unless the bylaw was adopted by - - Any bylaw adopted by the board of directors shareholders and the bylaw expressly stated without shareholder approval may be amended or that it could not be amended, altered or repealed by a majority vote of the repealed by the Union Camp board of directors. shareholders.
DIRECTORS NUMBER - - The number of directors must be no less than 9 - The number of directors must be no less than 3 and no more than 18, with the actual number to and no more than 15 directors, with the actual be determined by the board of directors. number to be set forth in the bylaws. - - The current number of directors is 12. - The current number of directors is 10, although the bylaws provide for 11.
CLASSIFICATION - - The International Paper board of directors is - The Union Camp board of directors is divided divided into three classes, with one class into three classes, each as nearly equal in being elected annually to a three-year term. number as possible, with one class being elected annually to a three-year term.
NOMINATIONS - - Any nomination for director made by a - Any nomination for director made by a shareholder must be made in writing to the shareholder must be made in writing to the secretary of International Paper at least 90 secretary of Union Camp at least 90 days prior and not more than 120 days prior to any to the anniversary date of the immediately shareholder meeting called for the purpose of preceding annual meeting, with the date of electing directors. required notice being adjusted if the meeting is not held within 30 days of the anniversary - - A shareholder's nomination for director must date. include: - A shareholder's nomination for director must - the name and address of the shareholder, the include: number of shares beneficially owned by the shareholder, and a representation that the - the name and address of the shareholder, the shareholder intends to appear in person or number of shares owned of record and by proxy at the annual meeting to make the beneficially by the shareholder and a nomination; representation that the shareholder is a holder of record of stock of Union Camp - a description of all arrangements or entitled to vote at the annual meeting and understandings between the shareholder intends to
82 91 and each nominee and any other persons appear and bring the nomination before the relating to the nomination; and meeting; - any other information about the shareholder - the name, age business and residence addresses that would be required to be disclosed in a and principal occupation of the shareholder's proxy statement or other filing required to be nominee; made in connection with proxy solicitations for election of directors. - the written consent of the nominee to serve as director if elected; - - as to any nominee who is not an incumbent director; - the class and number of shares of Union Camp stock owned of record and beneficially by the - the name, age, principal occupation and the nominee; business and residential addresses of the nominee; - a description of any arrangement or understanding between the nominee, the - the number of shares of International Paper shareholder and any other persons relating to stock beneficially owned by the nominee; the proposed nomination; - the written consent of the nominee to serve - any material interest of the shareholder in as director if elected; and the nomination; and - any other information about the nominee that - any other information regarding the nominee must be disclosed in proxy solicitations. that would be required to be included in a proxy statement filed pursuant to the proxy rules of the SEC, had the person been nominated by the Union Camp board of directors.
REMOVAL - - Directors may be removed for cause, and only - Any director may be removed for cause, and for cause, with the approval of at least 80% only for cause, with the approval of a of the outstanding shares entitled to vote. majority of the Union Camp common shares entitled to be voted on the matter.
VACANCIES - - Any vacancy which occurs during the year or - A vacancy occurring on the Union Camp board of which occurs as a result of an increase in the directors, including a vacancy resulting from size of the International Paper board of an increase in the number of directors by not directors may be filled by a vote of the board more than 30% of the number of directors last of directors, provided that a quorum is elected by the shareholders, may be filled by present. If there is less than a quorum in the affirmative vote of a majority of the office, the vacancy may be filled by a remaining Union Camp directors, even if less majority vote of the directors then in office, than a quorum. Directors chosen in this manner or by a sole remaining director. shall remain in office until the next annual meeting of shareholders at which directors are elected. No decrease in the number of directors constituting the Union Camp board of directors may shorten the term of any incumbent director.
83 92 FIDUCIARY DUTIES - - Under New York law, a director must perform - Under Virginia law, a director shall discharge his duties in good faith and with the degree his duties as a director in accordance with of care that an ordinarily prudent person in a his good faith business judgment of the best similar position would use under comparable interests of the corporation. A director is circumstances. not liable for any action taken as a director, or any failure to take any action, if he - - A director may rely upon information, performed the duties of his office in opinions, reports or statements, including compliance with the standards of conduct for financial statements and other financial data, directors prescribed by Virginia law. when they are prepared or presented by: - Unless he has knowledge or information - one or more officers or employees of the concerning the matter in question that makes corporation or of any other corporation of reliance unwarranted, a director is entitled which at least 50% of the outstanding shares to rely on information, opinions, reports or of voting stock is directly or indirectly statements, including financial statements owned by the corporation, so long as the and other financial data, if prepared or director believes that the officers or presented by: employees are reliable and competent in the matters presented; - one or more officers or employees of the corporation whom the director believes, in - counsel, public accountants or other persons good faith, to be reliable and competent in as to matters which the director believes to the matters presented; be within such person's professional or expert competence; or - legal counsel, public accountants, or other persons as to matters the director believes, - a committee of the board of directors upon in good faith, are within the person's which he does not serve, duly designated in professional or expert competence; or accordance with the certificate of incorporation or the bylaws, as to matters - a committee of the board of directors of which within its designated authority, so long as he he is not a member if the director believes, relies in good faith and does not have in good faith, that the committee merits knowledge that would cause his reliance to be confidence. unwarranted. - The duties of a director weighing a change of - - In taking action that involves or relates to a control situation are not any different, nor change or potential change of control of the is the standard of care any higher, than corporation, a director may consider a number otherwise provided under Virginia law. In such of factors, including the following: a situation, a director may consider the possibility that the best interests of the - both the long and short-term interests of corporation are best served by its continued the corporation and its shareholders; independence. - the potential effects upon the prospects for potential growth, development, productivity and profitability of the corporation; - the potential effects upon the corporation's current employees, retired employees and other beneficiaries receiving or entitled to receive retirement, welfare or similar benefits; - the potential effects upon the corporation's customers and creditors; and
84 93 - the potential effects upon the corporation's ability to provide goods, services, employment opportunities and employment benefits and otherwise contribute to the communities in which it does business.
LIMITATION ON LIABILITY - - As permitted by New York law, the - Under Virginia law, the liability of a International Paper certificate of director or an officer in a proceeding brought incorporation contains a provision that by or in the right of the corporation or by or eliminates the personal liability of directors on behalf of shareholders of the corporation to the corporation or to its shareholders for may not in any event exceed the greater of damages for breaches of duty, except where a $100,000 or the amount of cash compensation judgment or other final adjudication received by the director from the corporation establishes that the director's acts or during the twelve months preceding the act or omissions: omission for which liability was imposed, except when the director or officer engaged in - were in bad faith; willful misconduct or a knowing violation of the criminal law or any federal or state - involved intentional misconduct or a knowing securities law, including, without violation of the law; limitation, any claim of unlawful insider trading or manipulation of the market for - involved financial profit or some other any security. Although Virginia law allows a advantage to which the director was not corporation to further limit or eliminate legally entitled; or the liability of directors and officers in the articles of incorporation or bylaws - resulted in a violation of a statute adopted by shareholders, neither Union prohibiting particular dividend Camp's articles of incorporation nor its declarations, particular payments to bylaws includes such an exculpation shareholders after dissolution, and provision. particular types of loans. - - This provision does not affect the liability of a director for acts that occurred before the provision was adopted.
INDEMNIFICATION - - The International Paper bylaws provide that - Union Camp is required by its bylaws to the corporation shall indemnify its officers indemnify a director or officer of Union Camp and directors for any liability incurred in who is or was made a party to any proceeding their official capacity to the maximum extent by reason of the fact that he is or was such a permissible under New York law. director or officer or is or was serving any other corporation, partnership, joint venture, - - Under New York law, a corporation may trust, employee benefit plan or other indemnify any person made, or threatened to be enterprise, at the request of Union Camp if: made, a party to any action or proceeding by reason of his position in the corporation. - he believed, in the case of conduct in his This excludes shareholder derivative suits. official capacity, that his conduct was in In order to be indemnified, the director or the best interests of the corporation, and officer must have acted: in all other cases that his conduct was at least not opposed to the corporation's best interests and, in
85 94 - in good faith; the case of any criminal proceeding, he had no reasonable cause to believe his conduct was - for a purpose which he reasonably believed unlawful; to be in the best interests of the corporation; and - in connection with a proceeding by or in the right of Union Camp, he was not adjudged - with no reasonable cause to believe that his liable to Union Camp; and conduct was unlawful. - in connection with any proceeding charging - - In the case of shareholder derivative suits, improper benefit to him, whether or not the corporation may also indemnify if the involving action in his official capacity, he director or officer acted pursuant to the was not adjudged liable on the basis that requirements above. Unless a court finds that personal benefit was improperly received by an individual is fairly and reasonably him. entitled to indemnity for his portion of the settlement amount and expenses, the - Furthermore, the Union Camp bylaws provide corporation cannot indemnify in the case of that each director and officer of Union Camp shareholder derivative suits when there is: shall be indemnified against all costs and expenses reasonably incurred by or imposed - a threatened action, or a pending action upon him in connection with or resulting which is settled or otherwise disposed of; from any action, suit or proceeding to which or he may be made a party by reason of his being or having been a director or officer - any claim, issue or matter as to which the of Union Camp, whether or not he continues individual has been found liable to the to be a director or officer at the time of corporation. incurring such cost or expense, except in relation to matters as to which a recovery - - The indemnification under New York law shall be had against him by reason of his described above is not exclusive of other having been finally adjudged in such action, rights of indemnification which a director or suit or proceeding to have been derelict in officer may be granted by a corporation in its the performance of his duty as a director or certificate of incorporation or bylaws, or by officer. a shareholder or director resolution, or by an agreement. Such rights are valid so long as indemnification is not granted where a judgment or other final adjudication adverse to the director or officer establishes that his acts: - were committed in bad faith and were material to the cause of action; - were the result of active and deliberate dishonesty and were material to the cause of action; or - resulted in a gain of financial profit or other advantage to which he was not legally entitled. - - Under the International Paper certificate of incorporation, any indemnification made pursuant to New York law may be made only if authorized in the specific case and only after a finding that the director or officer met the requisite standard of conduct. The finding is to be made by: - the disinterested directors if a quorum is available; or
86 95 - if a quorum of disinterested directors is not available, by the shareholders or by the board of directors upon the written opinion of legal counsel. The International Paper certificate of incorporation makes an exception for an individual who successfully defends against a civil or criminal action or proceeding and who fulfills the relevant requirements stated above will be entitled to indemnification.
INTERESTED TRANSACTIONS - - Under New York law, no contract or transaction - Virginia law provides that a transaction in that is: which the director has a direct or indirect personal interest is not voidable by the - between a corporation and one or more of its corporation solely because of the director's directors; interest in the transaction if: - between a corporation and another entity in (1) the material facts of the transaction and which one or more of the corporation's the director's interest were disclosed or directors are directors or officers; or known to the board of directors, or any board committee, and the board, or the - between a corporation and another entity in committee, authorized, approved or ratified which one or more of the corporation's the transaction; directors has a material financial interest (2) the material facts of the transaction and is void or voidable because of the relationship the director's interest were disclosed to or interest if one or more of the following is the shareholders entitled to vote and they true: authorized, approved or ratified the transaction; or - if the material facts of the transaction and the director's interest are disclosed to or (3) the transaction was fair to the corporation. known by the board of directors or a - For purposes of clause (1) above, a conflict committee of the board and the board or the of interests transaction is authorized, committee authorizes, approves or ratifies the approved or ratified if it receives the transaction by an affirmative vote of the affirmative vote of a majority of, but not majority of the disinterested directors; less than two, directors or committee members who have no direct or indirect personal - if the material facts of the transaction and interest in the transaction and a quorum is the director's interest are disclosed or deemed present solely for this purpose. The known to the voting shareholders and they presence of, or a vote cast by, a director authorize, approve or ratify the with a direct or indirect personal interest transaction; or does not affect the validity of any action taken under clause (1) above if the - if the transaction is fair to the transaction is otherwise authorized, corporation. approved or ratified pursuant to that clause. - - The International Paper certificate of - For purposes of clause (2) above, a conflict incorporation provides that no contract or of interests transaction is authorized, transaction entered into by the corporation is approved, or ratified if it receives the affected by the fact that a director of affirmative vote of a majority of the shares, International Paper is himself a party, or is other than shares owned by or voted under the in any way interested in or connected to any control of the conflicted director or an party to the transaction. This is true so long entity through which the director's conflict as the contract or transaction is approved by of interest exists, a majority of the directors present at the entitled to vote on the meeting, without counting the vote of any transaction. interested director.
87 96 SHAREHOLDERS ANNUAL MEETINGS OF SHAREHOLDERS - - The annual meeting of stockholders must be - The annual meeting of shareholders must be held on a date and at a place fixed by the held on the last Tuesday of each April, or the International Paper board of directors. next business day if a legal holiday, or on some other date as determined in advance by the Union Camp board of directors.
SPECIAL MEETINGS OF SHAREHOLDERS - - Special meetings may be called at any time and - Special meetings of the Union Camp for any purpose by: shareholders for any purpose(s) may be called at any time by: - the chairman of the International Paper board of directors; - the chairman of the Union Camp board of directors; - International Paper's president; or - Union Camp's president; or - a majority of the International Paper board of directors. - a majority of the Union Camp board of directors.
SHAREHOLDER INSPECTION RIGHTS AND SHAREHOLDER LISTS - - Under New York law, a shareholder has the - Under Virginia law, a shareholder is entitled right to examine and/or copy minutes from to inspect and copy specified books and shareholder meetings and shareholder records, records, including the articles of so long as the shareholder: incorporation and bylaws of the corporation, if he gives the corporation written notice of - has been an International Paper shareholder his demand at least five business days before of record for at least six months; the date on which he wishes to inspect and copy. - is a holder of at least five percent of any class of outstanding shares; or - Additionally, Virginia law entitles a shareholder to inspect and copy specified - has been authorized in writing by the other books and records, including a list of holders of at least five percent of any shareholders, minutes of any meeting of the class of outstanding shares. board of directors, or any committee of the board, and accounting records of the - - The requesting shareholder must: corporation, if: - submit a written demand at least five days - the shareholder has been a shareholder of prior to the proposed date of examination; record for at least six months immediately and preceding his written demand or is the holder of at least 5% of the corporation's - furnish an affidavit stating that the outstanding shares; purpose of the inspection is not in the interest of an entity other than the business - the shareholder's demand is made in good faith of the corporation, and stating that the and for a proper purpose; shareholder has not sold, offered to sell or aided another in the sale of any corporation's - the shareholder describes with reasonable shareholder list. particularity the purpose of the request and the records desired to be inspected;
88 97 - - The materials must be examined during business - the records are directly connected with the hours, and the examination may be done in stated purpose; and person or by an agent or attorney. - he gives the corporation written notice of his demand at least five business days before the date on which he wishes to inspect and copy. - Virginia law also provides that a corporation shall make available for inspection by any shareholder during usual business hours, at least 10 days before each meeting of shareholders, a complete list of the shareholders entitled to vote at that meeting.
SHAREHOLDER PROPOSALS - - A shareholder wishing to bring business before - At any meeting of Union Camp shareholders, in the annual shareholder meeting must provide order to properly bring business before the written notice by first class United States meeting so that it may be presented to and mail, postage pre-paid, to the corporation acted upon by the shareholders, business must secretary at the principal executive offices be brought: of the corporation. The notice must be - by or at the direction of the Union Camp received between 90 and 120 days prior to board of directors; or the annual meeting. - by a shareholder who has given written notice - - The shareholder's written notice must include: of business he expects to bring before the meeting to the secretary of Union Camp at - the name and record address of the least 90 days prior to the anniversary date of shareholder; the immediately preceding annual meeting, with the date of required notice being - the number of shares of stock owned adjusted in some circumstances. A beneficially or of record by the shareholder's notice to the secretary shall shareholder; set forth as to each matter the shareholder proposes to bring before the meeting: - a brief description of the business to be discussed as well as the reasons why it - a brief description of the business to be should be discussed at the annual meeting; brought before the meeting, including the text of any resolution to be presented, and the - a description of all arrangements or reasons for conducting such business at the understandings between the shareholder and meeting; any other person or persons, including names, in connection with the proposal; - the name and address of the shareholder proposing such business and a representation - disclosure of any material interest that the that the shareholder is a record holder of shareholder has in the subject matter of the Union Camp stock entitled to vote at the proposal; and meeting and intends to appear in person or by proxy to bring the business specified in - a representation that the shareholder the notice before the meeting; intends to appear in person or by proxy at the shareholders' meeting to present the - any material interest of the shareholder proposal.
89 98 in such business; and - the class and number of shares of Union Camp stock owned of record and beneficially by the shareholder. The Union Camp bylaws provide that no business shall be conducted except in accordance with these procedures.
PREEMPTIVE RIGHTS In general, preemptive rights allow shareholders whose unlimited dividend rights or voting rights would be adversely affected by the issuance of new stock to purchase, on terms and conditions set by the board of directors, that proportion of the new issue that would preserve the relative dividend or voting rights of those shareholders. - - As permitted by New York law, the - The Union Camp articles of incorporation International Paper certificate of provide that its shareholders do not possess incorporation does not grant its shareholders such preemptive or preferential rights. preemptive rights.
SHAREHOLDER ACTION WITHOUT MEETING - - Under New York law, any shareholder action - Under Virginia law, any shareholder action required or permitted to be taken by required or permitted to be taken by shareholder vote may be taken with the shareholder vote may be taken with the unanimous written consent of shareholders. unanimous written consent of shareholders.
DIVIDENDS AND DISTRIBUTIONS - - Under New York law, a corporation may - Virginia law generally provides that a generally pay dividends out of surplus. A corporation may make a distribution to its board of directors must make the required shareholders unless, after giving effect to disclosures when paying dividends out of any the distribution: account other than earned surplus. - the corporation would not be able to pay its - - Dividends on the International Paper common debts as they become due in the usual course stock are limited by the terms of the of business; or International Paper $4.00 Preferred Stock to the amount of International Paper's retained - the corporation's total assets would be less earnings. No dividends may be declared, paid than the sum of its total liabilities plus the or set aside for payment on the corporation's amount that would be needed, if the common shares unless full cumulative dividends corporation were to be dissolved at the time are paid on the International Paper Preferred of the distribution, to satisfy the Stock and any issued and outstanding Serial preferential rights upon dissolution of Preferred Stock. shareholders whose preferential rights are superior to those receiving the distribution.
90 99 APPRAISAL AND DISSENTERS' RIGHTS Shareholders of a corporation that is proposing to merge or consolidate with another entity are sometimes entitled to appraisal or dissenters' rights in connection with the proposed transaction depending on the circumstances. Most commonly, these rights confer on shareholders who are opposed to the merger or consolidation the right to receive the fair value for their shares as determined in a judicial appraisal proceeding, in lieu of the consideration being offered in the merger. - - New York law allows shareholders to dissent - Virginia law provides shareholders of a from particular corporate reorganizations by Virginia corporation the right to dissent from demanding payment in cash for their shares mergers, statutory share exchanges and equal to the fair value of the shares. The specified other corporate transactions, and to fair value is determined by agreement with the obtain payment of the fair value of their corporation or by an independent court- shares in the event of those transactions. appointed appraiser and excludes any However, Virginia law also provides that appreciation or depreciation caused by the shareholders of a Virginia corporation, like transaction. Union Camp, that has shares listed on a national securities exchange or that has at - - New York law allows dissenters' rights of least 2,000 record shareholders, are not appraisal upon particular mergers, entitled to dissenters' rights except in consolidations, sales and other dispositions particular circumstances, none of which are of assets that require shareholder approval applicable to the merger. Therefore, Union and share exchanges. The merger will not give Camp shareholders do not have the right to any right to International Paper shareholders dissent from the merger. to dissent from the merger.
APPROVAL OF, AND SPECIAL RIGHTS WITH RESPECT TO, MERGERS OR CONSOLIDATIONS AND OTHER TRANSACTIONS - - Under New York law, the holders of two-thirds - Virginia law generally provides that a of the outstanding voting common shares must majority of the board of directors, and the approve a plan adopted by the board of holders of more than two-thirds of all the directors in order to authorize mergers, votes entitled to be cast on the matter in consolidations, share exchanges or the sale, question by each voting group entitled to lease or disposition of all or substantially vote, must approve any plan of merger, plan of all of the corporation's assets. share exchange, sale of substantially all of the assets of the corporation not in the ordinary course of business or the dissolution of the corporation. - Virginia law also specifies additional voting requirements for some types of transactions. For more information on these additional voting requirements, see "State Anti-Takeover Laws -- Union Camp".
91 100 STATE LAWS GOVERNING DISSOLUTION AND LIQUIDATION VOLUNTARY DISSOLUTION - - New York law generally provides that the - Virginia law generally provides that the dissolution of a New York corporation must be dissolution of a Virginia corporation must be approved by the holders of more than recommended by the board of directors to the two-thirds of all votes entitled to be cast by shareholders and approved by the holders of each voting group entitled to vote on the more than two-thirds of all votes entitled to matter in question, unless the articles of be cast by each voting group entitled to vote incorporation of the corporation require a on the matter in question, unless the articles greater or lesser vote. There are no of incorporation of the corporation require a provisions in the International Paper greater or lesser vote. There are no certificate of incorporation that modify New provisions in the Union Camp articles of York law requirements for dissolution. incorporation that modify Virginia law requirements for dissolution.
LIQUIDATION RIGHTS - - Holders of shares of International Paper's - In the event of the liquidation, dissolution $4.00 Preferred Stock are entitled to a or winding-up of the affairs of Union Camp, liquidation preference of: holders of outstanding Union Camp common shares are entitled to share, in proportion to - $105.00 per share, in the event of a their respective interests, in Union Camp's voluntary liquidation, dissolution or assets and funds remaining after payment, or winding-up; or provision for payment, of all debts and other liabilities of Union Camp. - $100.00 per share, if the liquidation, dissolution or winding-up is involuntary. - - In either case, holders are additionally entitled to any amount equal to all dividends accrued and unpaid up to and including the date fixed for distribution, whether or not earned or declared.
STATE ANTI-TAKEOVER LAWS INTERNATIONAL PAPER There are provisions of New York law, the International Paper certificate of incorporation and the International Paper bylaws that may be deemed to have an anti-takeover effect. These provisions are designed to protect shareholders against coercive, unfair or inadequate tender offers and other abusive tactics and to encourage any person contemplating a business combination with International Paper to negotiate with the board of directors for the fair and equitable treatment of all shareholders. Under New York law, the affirmative vote of the holders of two-thirds of all outstanding shares of voting stock is required to approve mergers and consolidations. The affirmative vote of the holders of two-thirds of all outstanding shares of voting stock is also required for sales, leases, exchanges or other dispositions of all or substantially all of the assets of a 92 101 corporation, if not made in the usual or regular course of the business actually conducted by the corporation. Additionally, New York law prohibits any business combination with, involving or proposed by any interested shareholder for a period of five years after the interested shareholder became such. The definition of a "business combination" includes a variety of transactions, including mergers, consolidations, sales or dispositions of assets, issuances of stock, liquidations, reclassifications and the receipt of specific benefits from the corporation, including loans or guarantees. The definition of an "interested shareholder" is any person who directly or indirectly beneficially owns 20% or more of the outstanding voting stock of a resident domestic New York corporation or any person who is an affiliate or associate of the corporation and who at any time within the preceding five years was the beneficial owner of 20% or more of the corporation's stock. After the requisite five-year period, a business combination between a resident domestic New York corporation and an interested shareholder is prohibited unless either the "fair price" provisions are complied with or the business combination is approved by a majority of the outstanding voting stock that is not owned by the interested shareholder or its affiliates or associates. If the business combination, or the stock purchase that would cause a shareholder to become an interested shareholder, was granted prior approval by the board of directors, it is exempt from the prohibition. Provided that at least 10% of the voting stock of International Paper is owned beneficially by residents of New York, or by organizations having their principal offices in New York, International Paper is a resident New York corporation. A resident domestic New York corporation may adopt an amendment to its bylaws expressly electing not to be governed by the provisions described above. The amendment must be adopted by a majority vote of the outstanding voting stock, excluding the voting stock of any interested shareholder and its affiliates. The amendment, however, will not be effective until 18 months after the vote and will not apply to any business combination with an interested shareholder who was such on or prior to the effective date of the amendment. International Paper has not adopted such an amendment. UNION CAMP AFFILIATED TRANSACTIONS. Virginia law contains provisions governing affiliated transactions. These provisions generally require the approval of material acquisition transactions between a Virginia corporation and any interested shareholder, which is generally defined as a shareholder holding more than 10% of the voting shares, by the holders of at least two-thirds of the remaining voting shares, after excluding shares beneficially owned by the interested shareholder. Such affiliated transactions include: - mergers and statutory share exchanges; - material dispositions of corporate assets not in the ordinary course of business; - any dissolution of the corporation proposed by or on behalf of an interested shareholder; or - any reclassification, including a reverse stock split, recapitalization or merger of the corporation with its subsidiaries that increases the percentage of voting shares beneficially owned by an interested shareholder by more than 5%. 93 102 For three years following the time that an interested shareholder becomes an interested shareholder, a Virginia corporation cannot engage in an affiliated transaction with the interested shareholder without approval of two-thirds of the voting shares other than those shares beneficially owned by the interested shareholder and majority approval of the disinterested directors. A "disinterested director" for this purpose means, with respect to a particular interested shareholder, 1. any member of a corporation's board of directors who was a member before the later of January 1, 1988 and the date on which the interested shareholder became an interested shareholder, and 2. any member of a corporation's board of directors who was recommended for election by, or was elected to fill a vacancy and received the affirmative vote of, a majority of the disinterested directors then on the board of directors. At the expiration of the three-year period, the statute requires approval of affiliated transactions by two-thirds of the voting shares other than those beneficially owned by the interested shareholder unless the transaction was approved by a majority of the corporation's disinterested directors or the transaction satisfies the fair-price requirement of Virginia law. In general, the fair-price requirement provides that in a two-step acquisition transaction, the interested shareholder must pay the shareholders in the second step at least the same amount and type of consideration paid to acquire the Virginia corporation's shares in the first step. None of the foregoing limitations and special voting requirements apply to a transaction, such as the merger, with an interested shareholder whose acquisition of shares making such person an interested shareholder was approved in advance by a majority of the Virginia corporation's disinterested directors. CONTROL SHARES. Virginia law also provides that shares acquired in a transaction, known as "control shares," which would cause the acquiring person's voting rights to meet or exceed any of three thresholds (namely, 20%, 33 1/3% or a majority) have no voting rights unless granted by a majority vote of shares not owned by the acquiring person or any officer or employee-director of the Virginia corporation. This provision empowers an acquiring person, at its own expense, to require the Virginia corporation to hold a special meeting of shareholders to consider the matter within 50 days of the receipt of the request. This Virginia law provides that, in the event control shares are accorded voting rights and, as a result, the holder of the control shares has a majority of all voting power for the election of directors, the shareholders, other than such holder, may cause the corporation to redeem their shares at a price that meets specified fair value criteria in accordance with Virginia law. As authorized by Virginia law, Union Camp has elected, by adopting an amendment to its bylaws, not to be governed by this control share provision. SHAREHOLDER RIGHTS PLAN UNION CAMP. On November 28, 1995, the Union Camp board of directors declared a dividend distribution of one right for each outstanding Union Camp common share to shareholders of record at the close of business on February 26, 1996. Each such right entitles the registered holder to purchase from Union Camp one one-thousandth of a share, designated as a unit, of Union Camp Series A Junior Participating Preferred Stock. Each such unit was initially structured to be the economic equivalent of one Union Camp common share. The initial exercise price of each Union Camp right is $175, subject to adjustment in some circumstances. 94 103 Union Camp rights also attach to all Union Camp common shares issued after February 26, 1996, but prior to the date on which the rights separate from the Union Camp common shares with which they are associated, as described below, unless the Union Camp board of directors determines otherwise at the time of issuance. The description and terms of the Union Camp rights are set forth in the Union Camp Rights Agreement. The Union Camp rights are attached to all Union Camp common share certificates currently outstanding, and no separate certificates evidencing the Union Camp rights have been distributed. The Union Camp rights will separate from the Union Camp common shares upon the earlier of: 1. 10 days following a public announcement that a person or group of affiliated or associated persons, but excluding particular persons and entities, such as Union Camp, has acquired, or obtained the right to acquire, beneficial ownership of 15% or more of the outstanding Union Camp common shares; or 2. 10 business days, or such later date as the Union Camp board of directors may determine prior to the event described in paragraph 1. above, following the commencement of a tender offer or exchange offer that would result in a person or group beneficially owning 15% or more of such outstanding Union Camp common shares. Until the Union Camp rights separate from the Union Camp common shares with which they are associated: 1. the Union Camp rights will be evidenced by the Union Camp common share certificates and will be transferred only with such Union Camp common share certificates, 2. new Union Camp common share certificates issued after February 26, 1996, will contain a notation incorporating the Union Camp Rights Agreement by reference, and 3. the surrender for transfer of any certificates for Union Camp common shares outstanding also will constitute the transfer of the Union Camp rights associated with the Union Camp common shares represented by such certificates. The Union Camp rights are not exercisable until after they have separated from the Union Camp common shares with which they are associated and will expire at the close of business on February 26, 2006, unless earlier redeemed by the Union Camp board of directors as described below. If a third party acquires 15% of more of the Union Camp common shares, as described above, thus triggering a separation of the Union Camp rights from the Union Camp common shares, each holder of a Union Camp right will thereafter have the right to receive, upon exercise and payment of the exercise price, Union Camp common shares or, in some circumstances, cash, property or other securities of Union Camp, having a value equal to two times the exercise price. Alternatively, if the Union Camp rights separate from the Union Camp common shares and become exerciseable, Union Camp may provide that each Union Camp right shall be exchanged for one Union Camp common share and without other payment of the exercise price; provided that the Union Camp board of directors may not effect such exchange at any time after any person, other than Union Camp or specified other related parties, together with all affiliates and associates of such 95 104 person, beneficially owns 50% or more of the Union Camp common shares then outstanding. If, at any time after a third party acquires, or obtains the right to acquire beneficial ownership of, 15% of more of the outstanding Union Camp common shares, as described above, 1. Union Camp is acquired in a merger, statutory share exchange, or other business combination in which Union Camp is not the surviving corporation, or 2. 50% or more of Union Camp's assets or earning power is sold or transferred, each holder of a Union Camp right, except as set forth below, shall thereafter have the right to receive, upon exercise and payment of the exercise price, common stock of the acquiring company having a value equal to twice the exercise price. At any time prior to the earlier of the date upon which a third party acquires, or obtains the right to acquire beneficial ownership of, 15% of the outstanding Union Camp common shares, as described above, or February 26, 2006, the Union Camp board of directors may redeem the Union Camp rights in whole, but not in part, at a redemption price of $.001 per Union Camp right. Immediately upon the action of the Union Camp board of directors ordering redemption of the Union Camp rights, the Union Camp rights will terminate and the only right of the holders of Union Camp rights will be to receive the redemption price. The Union Camp rights may have anti-takeover effects. The Union Camp rights will cause substantial dilution to a person or group that acquires more than 15% of the outstanding Union Camp common shares without the Union Camp rights having been redeemed. However, the Union Camp rights should not interfere with any merger or other business combination approved by the Union Camp board of directors and the Union Camp shareholders because the Union Camp rights may be redeemed by the board of directors. In connection with the execution of the merger agreement, the Union Camp board of directors amended the Union Camp Rights Agreement to render the Union Camp rights inapplicable to the transactions contemplated by the merger agreement. INTERNATIONAL PAPER. The International Paper Rights Agreement expired on April 29, 1997. Upon consummation of the merger, Union Camp shareholders who become shareholders of International Paper will not have any such rights as described above under the heading "Shareholder Rights Plan -- Union Camp". DESCRIPTION OF INTERNATIONAL PAPER CAPITAL STOCK The statements set forth under this heading are brief summaries of various provisions of New York law, the International Paper certificate of incorporation and the International Paper bylaws and do not purport to be complete. They are qualified in their entirety by reference to the relevant provisions of New York law, the International Paper certificate of incorporation and the International Paper bylaws, as appropriate. The authorized capital stock of International Paper consists of: - 400,000,000 International Paper common shares; - 400,000 shares of cumulative $4.00 preferred stock, without par value; and - 8,750,000 shares of serial preferred stock, $1.00 par value per share. 96 105 At March 18, 1999, there were outstanding: - 306,851,559 International Paper common shares; - employee stock options to purchase an aggregate of approximately 12,837,150 International Paper common shares; and - 15,696 shares of International Paper $4.00 preferred stock. In addition, at such date, approximately 8,332,000 International Paper common shares were reserved for issuance upon the conversion of the 5 1/4% convertible preferred securities issued by International Paper Capital Trust. INTERNATIONAL PAPER COMMON SHARES Subject to the rights of the holders of any shares of International Paper preferred stock which may at the time be outstanding, holders of International Paper common shares are entitled to receive dividends as may be declared from time to time by International Paper's board of directors out of funds legally available therefor. Dividends on the International Paper common shares are, in effect, limited by the terms of the International Paper $4.00 preferred stock to the amount of International Paper's retained earnings, which at September 30, 1998, were $5.1 billion. In addition, under the International Paper certificate of incorporation, no dividends may be declared, paid, or set aside for payment on the International Paper common shares unless full cumulative dividends are paid on the issued and outstanding International Paper preferred stock. The holders of International Paper common shares are entitled to one vote per share on all matters submitted to a vote of shareholders and do not have cumulative voting rights. If International Paper fails to pay dividends on the International Paper $4.00 preferred stock, holders of International Paper $4.00 preferred stock will have the right to elect one-third, or the nearest whole number thereto, of the total number of directors to be elected at the next annual meeting of shareholders and at each subsequent annual shareholders' meeting until all such dividends have been paid in full. Holders of International Paper common shares are entitled to share pro rata, upon any liquidation or dissolution of International Paper, in all remaining assets available for distribution to shareholders after satisfaction of International Paper's liabilities and payment to the holders of the International Paper $4.00 preferred stock of $100 per share upon involuntary liquidation and $105 per share upon voluntary liquidation. The outstanding International Paper common shares are, and any shares which may be acquired upon conversion of the 5 1/4% convertible preferred securities issued by International Paper Capital Trust will be, fully paid and nonassessable. The holders of International Paper common shares have no preferential, preemptive, conversion or redemption rights. The International Paper common shares are listed on the New York Stock Exchange. The registrar and transfer agent for the International Paper common shares is Chase Mellon Shareholder Services L.L.C. INTERNATIONAL PAPER PREFERRED STOCK The following summary contains a description of some of the principal terms of the International Paper preferred stock. The description of the principal provisions of the International Paper preferred stock does not purport to be complete and is subject to and qualified in its entirety by reference to the applicable provisions of the International Paper certificate of incorporation relating to each particular series of International Paper preferred stock. 97 106 INTERNATIONAL PAPER SERIAL PREFERRED STOCK. Under the International Paper certificate of incorporation, without further shareholder action, International Paper's board of directors is authorized to provide for the issuance of up to 8,750,000 shares of International Paper serial preferred stock. The International Paper serial preferred stock may be issued in one or more series, with such designations of titles, dividend rates, any redemption provisions, special or relative rights in the event of liquidation, dissolution, distribution or winding-up of International Paper, any sinking fund provisions, any conversion provisions, any voting rights, and any other preferences, privileges, powers, rights, qualifications, limitations and restrictions as shall be set forth as and when established by International Paper's board of directors. The shares of any series of International Paper serial preferred stock will be, when issued, fully paid and nonassessable and the holders will have no preemptive rights in connection with the preferred stock. INTERNATIONAL PAPER $4.00 PREFERRED STOCK. The International Paper certificate of incorporation authorizes the issuance of up to 400,000 shares of International Paper $4.00 preferred stock without par value. Pursuant to the applicable provisions of the International Paper certificate of incorporation, the holders of the International Paper $4.00 preferred stock are entitled to receive when, as and if declared by International Paper's board of directors, out of funds legally available for payment, cash dividends at the rate per annum of $4.00 per share. Dividends are cumulative without interest. If dividends in full on all outstanding shares of the International Paper $4.00 preferred stock for all past quarterly dividend periods and the then current quarterly dividend period shall not have been paid, no cash dividends may be paid or distributions made to the holders of any class of stock ranking junior to the International Paper $4.00 preferred stock. Except as expressly provided by law or in the International Paper certificate of incorporation, the holders of shares of International Paper $4.00 preferred stock have no voting rights. If dividends payable on the International Paper $4.00 preferred stock are in arrears in an amount equal to four full quarterly dividends, the holders of the International Paper $4.00 preferred stock will have the right to elect one-third, or the nearest whole number thereto, of the total number of directors to be elected at the next annual meeting of shareholders and at each subsequent annual shareholders' meeting until all such dividends have been paid in full. International Paper must obtain the approval of holders of two-thirds of the shares of the International Paper $4.00 preferred stock in order to: - authorize, create or issue stock of any class ranking prior to the International Paper $4.00 preferred stock; or - amend the certificate of authorization of new shares relating to the International Paper $4.00 preferred stock or any provisions of the International Paper certificate of incorporation in a manner materially prejudicial to such holders. International Paper must obtain the affirmative vote of holders of a majority of the shares of the International Paper $4.00 preferred stock in order to: - increase the number of authorized shares of International Paper $4.00 preferred stock; - authorize, create or issue stock of any class ranking on a parity with the International Paper $4.00 preferred stock; or - sell, lease or dispose of all or substantially all of the assets of International Paper, other than by merger or consolidation. 98 107 In the event of a merger or consolidation of International Paper in which the holders of the International Paper $4.00 preferred stock do not have appraisal rights under New York law, those holders are entitled to receive $105.00 per share of International Paper $4.00 preferred stock, unless by the terms of the merger or consolidation such holders are entitled to shares or securities which have the relative ranking, rights and preferences of the International Paper $4.00 preferred stock prior to such merger or consolidation. Under some circumstances relating to aggregate net earnings of International Paper, approval of holders of a majority of the International Paper $4.00 preferred stock may be required to purchase or redeem or pay cash dividends in respect of stock which is junior to the International Paper $4.00 preferred stock, including International Paper common shares. Shares of International Paper $4.00 preferred stock may be redeemed at the option of International Paper, in whole or in part, at any time or from time to time, out of funds legally available therefor, at $105.00 per share plus an amount equal to accrued and unpaid dividends, if any, to the redemption date, whether or not earned or declared. Holders of shares of International Paper $4.00 preferred stock are entitled to a liquidation preference of $105.00 per share, in the event of a voluntary liquidation, dissolution or winding-up or $100.00 per share, if such liquidation, dissolution or winding-up is involuntary, plus in each case any amount equal to all dividends accrued and unpaid up to and including the date fixed for distribution, whether or not earned or declared. TRANSFER AGENT AND REGISTRAR Chase Mellon Shareholder Services L.L.C. will be the transfer agent and registrar for the International Paper common shares. LISTING OR QUOTATION OF INTERNATIONAL PAPER COMMON SHARES; DELISTING OF UNION CAMP COMMON SHARES It is a condition to the merger that the International Paper common shares issuable in the merger be approved for listing on the New York Stock Exchange on or prior to the effective time of the merger, subject to official notice of issuance. If the merger is consummated, Union Camp common shares will cease to be listed on the New York Stock Exchange. LEGAL MATTERS Davis Polk & Wardwell, special counsel to International Paper, will pass on the validity of the International Paper common shares to be issued to Union Camp shareholders in the merger. It is a condition to the consummation of the merger that Union Camp receive an opinion from Sullivan & Cromwell, special counsel to Union Camp, to the effect that, among other things, the merger will be a reorganization for federal income tax purposes. We describe the conditions for consummation of the merger under the heading "The Merger Agreement -- Conditions to the Merger" and we provide details of the tax opinion under the heading "The Merger -- Material Federal Income Tax Consequences". EXPERTS The consolidated financial statements and schedule of International Paper incorporated by reference herein and included in International Paper's Annual Report on Form 10-K for the year ended December 31, 1997, as amended, and incorporated by reference in this 99 108 document, have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect thereto, and are incorporated by reference herein in reliance upon the authority of said firm as experts in giving said reports. The historical consolidated financial statements of Union Camp incorporated in this document by reference to the Union Camp's Annual Report on Form 10-K for the year ended December 31, 1997, as amended, have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. FUTURE SHAREHOLDER PROPOSALS Shareholder proposals intended to be presented at the 2000 Annual Meeting of Shareholders of International Paper must be received by the Secretary of International Paper not later than: - December 28, 1999 for inclusion in the proxy materials for that meeting pursuant to Rule 14a-8 of the Securities Exchange Act of 1934, or - February 8, 2000 in order to be brought before that meeting pursuant to the bylaws of International Paper. The Union Camp board of directors has set July 27, 1999 as the date for the 1999 Annual Meeting of Shareholders. The deadline for submission of shareholder proposals intended to be presented at the 1999 Annual Meeting of Shareholders of Union Camp is April 28, 1999. If proxy materials are required to be delivered and completion of the merger does not occur, shareholder proposals intended to be presented at the 2000 Annual Meeting of Shareholders of Union Camp must be received by the Secretary of Union Camp for inclusion in the proxy materials for such meeting on or before the date specified in the proxy materials delivered in connection with the 1999 Annual Meeting of Shareholders. WHERE YOU CAN FIND MORE INFORMATION International Paper and Union Camp file annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any reports, statements or other information we file at the SEC's public reference rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. International Paper's and Union Camp's SEC filings are also available to the public from commercial document retrieval services and at the web site maintained by the SEC at "http://www.sec.gov". International Paper filed a Registration Statement on Form S-4 to register with the SEC the International Paper common shares to be issued to Union Camp shareholders in the merger. This document is a part of that Registration Statement and constitutes a prospectus of International Paper in addition to being a proxy statement of International Paper and Union Camp for each company's special meeting. As permitted by SEC rules, this document does not contain all the information that you can find in the Registration Statement or the exhibits to the Registration Statement. The SEC allows International Paper and Union Camp to "incorporate by reference" information into this document. This means that International Paper and Union Camp can disclose important information to you by referring you to another document filed separately 100 109 with the SEC. The information incorporated by reference is deemed to be part of this document, except for any information superseded by information in this document. This document incorporates by reference the documents set forth below that International Paper and Union Camp have previously filed with the SEC. These documents contain important information about International Paper and Union Camp and their financial performance.
INTERNATIONAL PAPER SEC FILINGS (FILE NO. 1-3157) PERIOD ------------------------------- ------ Annual Report on Form 10-K Fiscal year ended December 31, 1997 Amended Annual Report on Form 10-K/A Filed on March 29, 1999 Quarterly Reports on Form 10-Q Quarters ended March 31, 1998, June 30, 1998, and September 30, 1998 Amended Quarterly Reports on Form Filed on March 29, 1999, February 10, 10-Q/A 1999 and August 31, 1998 Current Reports on Form 8-K Filed on March 11, 1999, January 5, 1999, November 30, 1998, October 20, 1998, September 29, 1998, September 10, 1998, June 11, 1998, April 14, 1998, January 20, 1998 and January 14, 1998 Report on Form 8-A Filed on September 29, 1998 Registration Statement on Form S-3 Filed on September 1, 1998 Registration Statement on Form S-4 Filed on March 9, 1998
International Paper is also incorporating by reference additional documents that International Paper files with the SEC between the date of this document and the date of the International Paper special shareholders' meeting.
UNION CAMP'S SEC FILINGS (FILE NO. 1-4001) PERIOD ------------------------ ------ Annual Report on Form 10-K Fiscal year ended December 31, 1997 Amended Annual Reports on Form 10-K/A Filed on March 29, 1999 and May 13, 1998 Quarterly Reports on Form 10-Q Quarters ended March 31, 1998, June 30, 1998, and September 30, 1998 Amended Quarterly Reports on Form Filed on March 29, 1999 and September 10-Q/A 1, 1998 Current Report on Form 8-K Filed on November 27, 1998 Amended and Restated Current Report Filed on November 30, 1998 on Form 8-K/A Amendment to Report on Form 8-A/A Filed on November 27, 1998
Union Camp is also incorporating by reference additional documents that Union Camp files with the SEC between the date of this document and the date of the Union Camp special shareholders' meeting. International Paper has supplied all information contained or incorporated by reference in this document relating to International Paper, and Union Camp has supplied all such 101 110 information contained or incorporated by reference in this document relating to Union Camp. You may already have been sent some of the documents incorporated by reference, but you can obtain any of them from International Paper or Union Camp, as appropriate, or the SEC. Documents incorporated by reference are available from International Paper or Union Camp, as appropriate, without charge, excluding all exhibits unless an exhibit has been specifically incorporated by reference in this document. Shareholders may obtain documents incorporated by reference in this document by International Paper by requesting them in writing or by telephone at the following address: International Paper Company Two Manhattanville Road Purchase, NY 10577 Tel: (914) 397-1625 Shareholders may obtain documents incorporated by reference in this document by Union Camp by requesting them in writing or by telephone at the following address: Union Camp Corporation 1600 Valley Road Wayne, NJ 07470 Tel: (973) 628-2273 If you would like to request documents from International Paper or Union Camp, please do so by April 23, 1999 to receive them before the shareholders' meetings. International Paper or Union Camp will send such documents by first-class mail within one business day of receiving your request. You should rely only on the information contained or incorporated by reference in this document to vote on the International Paper certificate amendment proposal and share issuance proposal and the Union Camp merger agreement proposal. We have not authorized anyone to provide you with information that is different from what is contained in this document. This document is dated March 30, 1999. You should not assume that the information contained in this document is accurate as of any date other than that date, and neither the mailing of this document to shareholders nor the issuance of International Paper common shares in the merger shall create any implication to the contrary. 102 111 ANNEX A AGREEMENT AND PLAN OF MERGER dated as of November 24, 1998 among UNION CAMP CORPORATION, INTERNATIONAL PAPER COMPANY and MAPLE ACQUISITION, INC. 112 TABLE OF CONTENTS -------------- Page ---- ARTICLE 1 Definitions Section 1.1. Definitions.......................................1 ARTICLE 2 The Merger Section 2.1. The Merger........................................6 Section 2.2. Organizational Documents..........................7 Section 2.3. Directors and Officers............................7 ARTICLE 3 Conversion of Securities and Related Matters Section 3.1. Conversion of Capital Stock.......................8 Section 3.2. Exchange Ratio; Fractional Shares; Adjustments....8 Section 3.3. Exchange of Certificates..........................9 Section 3.4. UCC Stock Options................................12 ARTICLE 4 Representations and Warranties of UCC Section 4.1. Corporate Existence and Power....................13 Section 4.2. Corporate Authorization..........................13 Section 4.3. Governmental Authorization.......................14 Section 4.4. Non-Contravention................................14 Section 4.5. Capitalization...................................15 Section 4.6. Subsidiaries.....................................15 Section 4.7. UCC SEC Documents................................16 Section 4.8. Financial Statements; No Material Undisclosed Liabilities......................................17 Section 4.9. Information to Be Supplied.......................17 Section 4.10. Absence of Certain Changes.......................18 Section 4.11. Litigation.......................................18 Section 4.12. Taxes............................................18 Section 4.13. Employee Benefits................................19 Section 4.14. Compliance with Laws; Licenses, Permits and Registrations....................................20 Section 4.15. Title to Properties..............................20 113 Section 4.16. Intellectual Property............................21 Section 4.17. Environmental Matters............................21 Section 4.18. Finders' Fees; Opinions of Financial Advisor.....22 Section 4.19. Required Vote; Board Approval....................22 Section 4.20. State Takeover Statutes; Rights Agreement........22 Section 4.21. Pooling Matters; Tax Treatment...................23 ARTICLE 5 Representations and Warranties of IP Section 5.1. Corporate Existence and Power....................23 Section 5.2. Corporate Authorization..........................24 Section 5.3. Governmental Authorization.......................24 Section 5.4. Non-Contravention................................24 Section 5.5. Capitalization of IP and MergerSub...............25 Section 5.6. IP SEC Documents.................................26 Section 5.7. Financial Statements; No Material Undisclosed Liabilities......................................26 Section 5.8. Information to Be Supplied.......................27 Section 5.9. Absence of Certain Changes.......................27 Section 5.10. Litigation.......................................27 Section 5.11. Taxes............................................27 Section 5.12. Compliance with Laws; Licenses, Permits and Registrations....................................28 Section 5.13. Title to Properties..............................28 Section 5.14. Intellectual Property............................29 Section 5.15. Environmental Matters............................29 Section 5.16. Finders' Fees....................................29 Section 5.17. Required Vote; Board Recommendation..............29 Section 5.18. Pooling Matters..................................30 ARTICLE 6 Covenants of UCC Section 6.1. UCC Interim Operations...........................30 Section 6.2. Shareholder Meeting..............................33 Section 6.3. Acquisition Proposals; Board Recommendation......34 Section 6.4. Transfer Taxes...................................35 ii 114 ARTICLE 7 Covenants of IP Section 7.1. IP Interim Operations............................36 Section 7.2. Shareholder Meeting; Board Recommendation........37 Section 7.3. Director and Officer Liability...................37 Section 7.4. Employee Benefits................................39 Section 7.5. Stock Exchange Listing...........................40 Section 7.6. Conduct of MergerSub.............................40 ARTICLE 8 Covenants of IP and UCC Section 8.1. Reasonable Best Efforts..........................41 Section 8.2. Certain Filings; Cooperation in Receipt of Consents.........................................41 Section 8.3. Public Announcements.............................42 Section 8.4. Access to Information; Notification of Certain Matters..........................................43 Section 8.5. Further Assurances...............................43 Section 8.6. Tax and Accounting Treatment.....................44 Section 8.7. Affiliate Letters................................44 Section 8.8. Confidentiality..................................44 Section 8.9. IP Standstill....................................45 Section 8.10. ASR 135..........................................47 Section 8.11. Integration Committee............................47 ARTICLE 9 Conditions to the Merger Section 9.1. Conditions to the Obligations of Each Party......47 Section 9.2. Conditions to the Obligations of UCC.............48 Section 9.3. Conditions to the Obligations of IP and MergerSub........................................49 ARTICLE 10 Termination Section 10.1. Termination.....................................50 Section 10.2. Effect of Termination...........................51 Section 10.3. Fees and Expenses...............................51 iii 115 ARTICLE 11 Miscellaneous Section 11.1. Notices.........................................53 Section 11.2. Survival of Representations, Warranties and Covenants after the Effective Time.............54 Section 11.3. Amendments; No Waivers..........................54 Section 11.4. Successors and Assigns..........................55 Section 11.5. Governing Law...................................55 Section 11.6. Counterparts; Effectiveness; Third Party Beneficiaries..................................55 Section 11.7. Jurisdiction....................................55 Section 11.8. Waiver of Jury Trial............................56 Section 11.9. Enforcement.....................................56 Section 11.10. Entire Agreement................................56 EXHIBITS Exhibit A-1 -- Affiliate's Letter Relating to Pooling (UCC) Exhibit A-2 -- Affiliate's Letter Relating to Pooling (IP) Exhibit A-3 -- Affiliate's Letter Relating to the Securities Act (UCC) Exhibit B -- Tax Representations of UCC Exhibit C -- Tax Representations of IP and MergerSub SCHEDULES UCC Disclosure Schedule 116 AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER dated as of November 24, 1998 among Union Camp Corporation, a Virginia corporation ("UCC"), International Paper Company, a New York corporation ("IP"), and Maple Acquisition, Inc., a Delaware corporation and a wholly owned IP Subsidiary ("MergerSub"). RECITALS WHEREAS, the Boards of Directors of UCC and IP each have determined that a business combination between UCC and IP is advisable and in the best interests of their respective companies and shareholders and presents an opportunity for their respective companies to achieve long-term strategic and financial benefits, and accordingly have agreed to effect the merger provided for herein upon the terms and subject to the conditions set forth herein; WHEREAS, the parties hereto intend that the merger provided for herein shall qualify for U.S. federal income tax purposes as a reorganization (a "368 Reorganization") within the meaning of Section 368(a) of the U.S. Internal Revenue Code of 1986, as amended (together with the rules and regulations promulgated thereunder, the "Code"); WHEREAS, the parties hereto intend that the merger provided for herein be accounted for as a "pooling-of-interests" for financial reporting purposes; and WHEREAS, by resolutions duly adopted, the respective Boards of Directors of UCC, IP and MergerSub have approved and adopted this Agreement and the transactions contemplated hereby. NOW, THEREFORE, in consideration of the foregoing, and of the representations, warranties, covenants and agreements contained herein, and intending to be legally bound, the parties hereto agree as follows: ARTICLE 1 Definitions Section 1.1. Definitions. (a) As used herein, the following terms have the following meanings: 117 "Acquisition Proposal" means any offer or proposal for, or indication of interest in, a merger, consolidation, share exchange, business combination, reorganization, recapitalization, liquidation, dissolution or other similar transaction involving, or any purchase of 15% or more of the assets or any class of equity securities of, UCC or any Significant Subsidiary of UCC, other than the transactions contemplated by this Agreement. "Affiliate" means, with respect to any Person, any other Person, directly or indirectly, controlling, controlled by, or under common control with, such Person. For purposes of this definition, the term "control" (including the correlative terms "controlling", "controlled by" and "under common control with") means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise. "Business Day" means any day other than a Saturday, Sunday or one on which banks are authorized by law to close in New York, New York. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "Governmental Entity" means any federal, state or local governmental authority, any transgovernmental authority or any court, administrative or regulatory agency or commission or other governmental authority or agency, domestic or foreign. "IP Balance Sheet" means IP's consolidated balance sheet included in the IP 10-K relating to its fiscal year ended on December 31, 1997. "IP Common Share" means one share of common stock of IP, par value $1.00 per share. "IP SEC Documents" means (i) IP's annual reports on Form 10-K for its fiscal years ended December 31, 1996 and December 31, 1997 (the "IP 10-Ks"), (ii) IP's quarterly reports on Form 10-Q (the "IP 10-Qs") for its fiscal quarters ended September 30, June 30 and March 31, of fiscal years 1997 and 1998, (iii) IP's proxy or information statements relating to meetings of, or actions taken without a meeting by, IP's shareholders held since December 31, 1996, and (iv) all other reports filings, registration statements and other documents filed by it with the SEC since December 31, 1996. 2 118 "knowledge" means, with respect to the matter in question, if any of the executive officers of UCC or IP, as the case may be, has actual knowledge of such matter. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, provided, however, that the term "Lien" shall not include (i) liens for water and sewer charges and current taxes not yet due and payable or being contested in good faith and (ii) mechanics', carriers', workers', repairers', materialmen's, warehousemen's and other similar liens arising or incurred in the ordinary course of business. "Material Adverse Effect" means a material adverse effect on the financial condition, business or results of operations of a Person and its Subsidiaries, taken as a whole, but shall exclude any material adverse effect arising out of any change or development relating to (i) U.S. or global economic or industry conditions, (ii) changes in U.S. or global financial markets or conditions, (iii) any generally applicable change in law, rule or regulation or GAAP or interpretation of any thereof and/or (iv) the announcement of this Agreement or the transactions contemplated hereby. "IP Material Adverse Effect" means a Material Adverse Effect in respect of IP and "UCC Material Adverse Effect" means a Material Adverse Effect in respect of UCC. "NYSE" means The New York Stock Exchange. "Person" means an individual, a corporation, a limited liability company, a partnership, an association, a trust or any other entity or organization, including any Governmental Entity. "Proxy Statement/Prospectus" means the joint proxy statement/ prospectus included in the Registration Statement relating to the UCC Shareholder Meeting and the IP Shareholder Meeting, together with any amendments or supplements thereto. "Registration Statement" means the Registration Statement on Form S-4 registering under the Securities Act the IP Common Shares issuable in connection with the Merger. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. 3 119 "Significant Subsidiary" means any Subsidiary that constitutes a "significant subsidiary" of such Person within the meaning of Rule 1-02 of Regulation S-X of the Exchange Act. "Subsidiary" means, with respect to any Person, any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions are directly or indirectly owned by such Person. "IP Subsidiary" means a Subsidiary of IP and "UCC Subsidiary" means a Subsidiary of UCC. "Superior Proposal" means a bona fide, written Acquisition Proposal for at least a majority of the outstanding UCC Common Shares that is on terms that a majority of UCC's Board of Directors determines in good faith (after consultation with an investment bank of nationally recognized reputation and UCC's outside counsel) (i) would result in a transaction, if consummated, that is more favorable to UCC's shareholders (in their capacities as shareholders), from a financial point of view (taking into account, among other things, all legal, financial, regulatory and other aspects of the proposal and the identity of the offeror) than the transactions contemplated hereby (after giving effect to any revised proposal made by or on behalf of IP prior to the end of the five-Business-Day-period referred to in Section 6.3(d)) and (ii) is reasonably capable of being consummated. "UCC Balance Sheet" means UCC's consolidated balance sheet included in the UCC 10-K relating to its fiscal year ended on December 31, 1997. "UCC Common Share" means one share of common stock of UCC, $1.00 par value per share. "UCC SEC Documents" means (i) the annual reports on Form 10-K of UCC (the "UCC 10shall not be-Ks") and Bush Boake Allen Inc., a Virginia corporation ("BBA"), for their respective fiscal years ended December 31, 1996 and December 31, 1997, (ii) the quarterly reports on Form 10-Q of UCC (the "UCC 10-Qs") and BBA for their respective fiscal quarters ended September 30, June 30 and March 31 of fiscal years 1997 and 1998, (iii) UCC's and BBA's proxy or information statements relating to meetings of, or actions taken without a meeting by, the UCC shareholders and the BBA shareholders, respectively, held since December 31, 1996, and (iv) all other reports filings, registration statements and other documents filed by UCC and BBA with the SEC since December 31, 1996; provided that, for the purposes of the representations and warranties made by UCC in Section 4.7 only, the term "UCC SEC Documents" shall not be deemed 4 120 to include any reports, statements, filings or documents filed with the SEC by BBA. "Virginia Code" means the Virginia Stock Corporation Act, as amended. (b) Each of the following terms is defined in the Section set forth opposite such term: Terms Section ----- ------- Advance Notice 7.4(b) Articles of Merger 2.1(b) Average IP Share Price 3.1(a) BBA 1.1(a) Certificates 3.3(a) Closing 2.1(d) Code Recitals Commission 2.1(b) Effective Time 2.1(b) End Date 10.1(b)(i) Environmental Laws 4.17(b) ERISA 4.13(a) ERISA Affiliate 4.13(a) Escrow Account 3.3(h) Escrow Agent 3.3(h) Escrow Agreement 3.3(h) Exchange Agent 3.3(a) Exchange Fund 3.3(a) Exchange Ratio 3.2(a) GAAP 4.8(a) HSR Act 4.3(b) Indemnified Parties 7.3(b) IP Preamble IP Cumulative Preferred 5.5(a) IP Intellectual Property 5.14 IP Material Adverse Effect 1.1(a) IP Recommendation 7.2 IP Returns 5.11 IP Securities 5.5(b) IP Serial Preferred 5.5(a) IP Shareholder Approval 5.17(a) IP Shareholder Meeting 7.2 IP Subsidiary 1.1(a) IP 10-Ks 1.1(a) IP 10-Qs 1.1(a) 5 121 Merger 2.1(a) MergerSub Common Share 3.1(a) Merger Consideration 3.1(b) MergerSub Preamble Multiemployer Plan 4.13(b) Random Trading Days 3.1(a) Retirement Plan 4.13(b) Rights 3.1(b) Rights Agreement 3.1(b) RSPP 7.4(c) Stock Unit Plan 7.4(c) Surviving Corporation 2.1(a) Termination Fee 10.3(b) Third Party Acquisition Event 10.3(c) 368 Reorganization Recitals Transfer Taxes 6.4 UCC Preamble UCC Employee Plans 4.13(a) UCC Intellectual Property 4.16 UCC Material Adverse Effect 1.1(a) UCC Option 3.4(a) UCC Recommendation 6.2 UCC Returns 4.12 UCC Securities 4.5(b) UCC Shareholder Approval 4.19(a) UCC Shareholder Meeting 6.2 UCC Subsidiary 1.1(a) UCC 10-Ks 1.1(a) UCC 10-Qs 1.1(a) ARTICLE 2 The Merger Section 2.1. The Merger. (a) At the Effective Time, MergerSub shall be merged (the "Merger") with and into UCC in accordance with the terms and conditions of this Agreement and of the Virginia Code, at which time the separate existence of MergerSub shall cease and UCC shall continue its existence. In its capacity as the corporation surviving the Merger, this Agreement sometimes refers to UCC as the "Surviving Corporation". 6 122 (b) As soon as practicable after satisfaction or, to the extent permitted hereby, waiver of all conditions to the Merger set forth herein, UCC and MergerSub will file articles of merger (the "Articles of Merger") with the State Corporation Commission of the Commonwealth of Virginia (the "Commission") and make all other filings or recordings required by the Virginia Code in connection with the Merger. The "Effective Time" shall be the date and time that the Certificate of Merger is issued by the Commission in respect of the Merger (unless otherwise agreed upon by the parties and specified in the Articles of Merger, in which case, subject to Section 13.1-606 of the Virginia Code, the Effective Time shall be the date and time so specified). (c) From and after the Effective Time, the Merger shall have the effects set forth in Section 13.1-721 of the Virginia Code. (d) The closing of the Merger (the "Closing") shall be held at the offices of Davis Polk & Wardwell, 450 Lexington Avenue, New York, NY (or such other place as agreed by the parties) on a date to be specified by the parties, which shall be no later than the second Business Day after satisfaction or, to the extent permitted hereby, waiver of the conditions set forth in Article 9, unless the parties hereto agree to another date. Section 2.2. Organizational Documents. The Articles of Merger shall provide that at the Effective Time (i) MergerSub's articles of incorporation in effect immediately prior to the Effective Time shall be the Surviving Corporation's articles of incorporation, provided that the Surviving Corporation shall retain its current name and (ii) MergerSub's bylaws in effect immediately prior to the Effective Time shall be the Surviving Corporation's bylaws, in each case until amended in accordance with applicable law. Section 2.3. Directors and Officers. (a) IP agrees to take all necessary actions so that, on the second Business Day after the Effective Time, IP's Board of Directors shall include W. Craig McClelland and two individuals who are serving on UCC's Board of Directors as of the date hereof. The parties hereto understand and agree that such two individuals must be reasonably acceptable to the nominating committee of IP's Board of Directors, in its sole discretion. The three individuals elected to IP's Board of Directors as contemplated by this Section 2.3 shall be apportioned equally among the three classes of IP's Board of Directors. (b) From and after the Effective Time (until successors are duly elected or appointed and qualified), (i) MergerSub's directors at the Effective Time shall be the Surviving Corporation's directors and (ii) UCC's officers immediately prior to the Effective Time shall be the Surviving Corporation's officers. 7 123 ARTICLE 3 Conversion of Securities and Related Matters Section 3.1. Conversion of Capital Stock. At the Effective Time, by virtue of the Merger: (a) Each share of common stock of MergerSub (each, a "MergerSub Common Share") outstanding immediately prior to the Effective Time shall be converted into and become one share of common stock of the Surviving Corporation. (b) Except as otherwise provided in Section 3.2(b), each UCC Common Share outstanding immediately prior to the Effective Time, together with the rights ("Rights") attached thereto and issued pursuant to the Amended and Restated Rights Agreement dated as of June 25, 1996, between UCC and The Bank of New York, as Rights Agent (the "Rights Agreement"), shall be converted into the right to receive a number of IP Common Shares equal to the Exchange Ratio. This Agreement shall refer to the IP Common Shares required to be issued pursuant to this Section 3.1(b), together with any cash payments required to be made in lieu of fractional IP Common Shares, collectively as the "Merger Consideration." (c) Each UCC Common Share held by UCC as treasury stock or owned by IP or any IP Subsidiary immediately prior to the Effective Time shall be canceled, and no payment shall be made in respect thereof. Section 3.2. Exchange Ratio; Fractional Shares; Adjustments. (a) The "Exchange Ratio" (as the same may be adjusted pursuant to Section 3.2(c)) shall be determined by dividing 71.00 by the Average IP Share Price, provided that, (i) if the Average IP Share Price is less than $43.70, the Exchange Ratio shall be 1.6247 and (ii) if the Average IP Share Price is greater than $48.30, the Exchange Ratio shall be 1.4700. For purposes of this Agreement, (i) "Average IP Share Price" means the average last sales price per IP Common Share on the NYSE Composite Tape for the Random Trading Days and (ii) "Random Trading Days" means the ten trading days selected by lot out of the twenty trading days ending on and including the fifth trading day preceding the Effective Time. The Random 8 124 Trading Days shall be selected by lot by IP and UCC at 5:00 p.m. New York time on the second trading day preceding the Effective Time. (b) No fractional IP Common Shares shall be issued in the Merger. All fractional IP Common Shares that a holder of any UCC Common Shares would otherwise be entitled to receive as a result of the Merger shall be aggregated. If a fractional IP Common Share results from such aggregation, the holder shall be entitled to receive, in lieu thereof, a cash amount, without interest, determined by multiplying the Average IP Share Price by the fraction of an IP Common Share to which such holder would otherwise have been entitled. As promptly as practicable after the determination of the amount of cash, if any, to be paid to holders of fractional share interests, the Exchange Agent (as hereinafter defined) shall so notify IP, and IP shall deposit such amount with the Exchange Agent and shall cause the Exchange Agent to forward payments to such holders of fractional share interests, subject to and in accordance with the terms of Section 3.3. (c) If at any time during the period between the date of this Agreement and the Effective Time, any change in the outstanding shares of capital stock of IP or securities convertible or exchangeable into capital stock of IP shall occur, including by reason of any reclassification, recapitalization, stock split or combination, exchange or readjustment of shares, or any dividend or distribution thereon (other than regular quarterly cash dividends) or a record date with respect to any of the foregoing shall occur during such period, the number of IP Common Shares constituting part of the Merger Consideration shall be appropriately adjusted to provide to the holders of the IP Common Shares and the UCC Common Shares the same economic effect as contemplated by this Agreement prior to the consummation of such event. Section 3.3. Exchange of Certificates. (a) Exchange Agent. Promptly after the date hereof, IP shall appoint a bank or trust company reasonably acceptable to UCC as an agent (the "Exchange Agent") for the benefit of holders of UCC Common Shares for the purpose of exchanging, pursuant to this Article 3, certificates ("Certificates") that immediately prior to the Effective Time represented outstanding UCC Common Shares which were converted into the right to receive the Merger Consideration. IP will make available to the Exchange Agent, as needed, the Merger Consideration, together with any dividends or distributions with respect thereto, if any, to be paid in respect of UCC Common Shares pursuant to this Article 3 (the "Exchange Fund"), and except as contemplated by Section 3.3(f) or Section 3.3(g) hereof, the Exchange Fund shall not be used for any other purpose. 9 125 (b) Exchange Procedures. As promptly as practicable after the Effective Time, IP shall send, or will cause the Exchange Agent to send, to each holder of record of a Certificate or Certificates a letter of transmittal and instructions (which shall be in customary form and specify that delivery shall be effected, and risk of loss and title shall pass, only upon delivery of the Certificates to the Exchange Agent), for use in the exchange contemplated by this Section 3.3. Upon surrender of a Certificate to the Exchange Agent, together with a duly executed letter of transmittal, the holder of such Certificate shall be entitled to receive in exchange therefor the Merger Consideration and unpaid dividends and distributions thereon, if any, as provided in this Article 3 in respect of the UCC Common Shares represented by such Certificate (after giving effect to any required withholding tax). Until surrendered as contemplated by this Section 3.3, each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive the Merger Consideration and unpaid dividends and distributions thereon, if any, as provided in this Article 3. If any portion of the Merger Consideration is to be paid to a Person other than the Person in whose name the Certificate is registered, it shall be a condition to such payment that the Certificate so surrendered shall be properly endorsed or otherwise be in proper form for transfer and that the Person requesting such payment shall pay to the Exchange Agent any transfer or other taxes required as a result of such payment to a Person other than the registered holder of such Certificate or establish to the satisfaction of the Exchange Agent that such tax has been paid or is not payable. If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by IP, the posting by such Person of a bond, in such reasonable amount as IP may direct, as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent will deliver in exchange for such lost, stolen or destroyed Certificate, the proper amount of the Merger Consideration, together with any unpaid dividends and distributions on any such IP Common Shares, as contemplated by this Article 3. (c) Distributions with Respect to Unexchanged Shares. Whenever a dividend or other distribution is declared by IP in respect of the IP Common Shares, the record date for which is at or after the Effective Time, that declaration shall include dividends or other distributions in respect of all IP Common Shares issuable pursuant to this Agreement. No dividends or other distributions declared or made after the Effective Time with respect to IP Common Shares constituting part of the Merger Consideration shall be paid to the holder of any unsurrendered Certificate, and no cash payment in lieu of fractional shares shall be paid to any such holder, until such Certificate is surrendered as provided in this Section 3.3. Following such surrender, there shall be paid, without interest, to the Person in whose name the IP Common Shares have been registered (i) at the time of such surrender, the amount of dividends or other distributions with a record date after 10 126 the Effective Time previously paid or payable on the date of such surrender with respect to such whole IP Common Shares, less the amount of any withholding taxes that may be required thereon, and (ii) at the appropriate payment date subsequent to surrender, the amount of dividends or other distributions with a record date after the Effective Time but prior to surrender and a payment date subsequent to surrender payable with respect to such whole IP Common Shares, less the amount of any withholding taxes which may be required thereon. (d) No Further Ownership Rights in UCC Common Shares. All IP Common Shares issued upon surrender of Certificates in accordance with the terms hereof (including any cash paid pursuant to this Article 3) shall be deemed to have been issued in full satisfaction of all rights pertaining to such UCC Common Shares represented thereby, and, as of the Effective Time, the stock transfer books of UCC shall be closed and there shall be no further registration of transfers on UCC's stock transfer books of UCC Common Shares outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Section 3.3. (e) Return of Merger Consideration. Upon demand by IP, the Exchange Agent shall deliver to IP any portion of the Merger Consideration made available to the Exchange Agent pursuant to this Section 3.3 that remains undistributed to holders of UCC Common Shares one year after the Effective Time. Holders of Certificates who have not complied with this Section 3.3 prior to such demand shall thereafter look only to IP for payment of any claim to the Merger Consideration and dividends or distributions, if any, in respect thereof. (f) No Liability. None of IP, the Surviving Corporation or the Exchange Agent shall be liable to any Person in respect of any UCC Common Shares (or dividends or distributions with respect thereto) for any amounts paid to a public official pursuant to any applicable abandoned property, escheat or similar law. Any amounts remaining unclaimed by any holder of UCC Common Shares immediately prior to such time when such amounts would otherwise escheat to or become the property of any Governmental Entity, shall, to the extent permitted by applicable laws, become the property of IP, free and clear of all claims or interest of any Person previously entitled thereto. (g) Withholding Rights. Each of the Surviving Corporation and IP shall be entitled to deduct and withhold from the Merger Consideration (and any dividends or distributions thereon) otherwise payable hereunder to any Person such amounts as it is required to deduct and withhold with respect to the making of such payment under any provision of federal, state, local or foreign income tax law. To the extent that the Surviving Corporation or IP so withholds those 11 127 amounts, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of UCC Common Shares in respect of which such deduction and withholding was made by the Surviving Corporation or IP, as the case may be. (h) Tax Escrow. Pursuant to an escrow agreement (the "Escrow Agreement") to be entered into by UCC with an escrow agent (the "Escrow Agent") selected mutually by UCC and IP, UCC shall, immediately prior to the Effective Time, deposit in an account (the "Escrow Account") with the Escrow Agent funds sufficient in the aggregate to pay any Transfer Taxes (as defined herein) attributable to the Merger. Upon certification by UCC, these funds will be released from the Escrow Account, (i) to pay any Transfer Taxes that become payable under any applicable state, local, foreign or provincial law, or (ii) to UCC, upon UCC's reasonable determination and certification that UCC's obligations in respect of the amounts specified above in this Section 3.03(h) have at such time been fully satisfied. The Escrow Agreement shall permit the Escrow Agent to invest the funds in the Escrow Account as directed by UCC. The Escrow Agreement shall be, in form and substance, reasonably acceptable to IP. Section 3.4. UCC Stock Options. (a) At the Effective Time, each option to purchase UCC Common Shares (each, a "UCC Option") outstanding under any stock option or compensation plan or arrangement of UCC, whether or not vested or exercisable, shall be deemed to constitute an option to acquire, on the same terms and conditions as were applicable under such UCC Option, the same number of IP Common Shares as the holder of such UCC Option would have been entitled to receive pursuant to this Agreement had such holder exercised such UCC Option in full immediately prior to the Effective Time (rounded up to the nearest whole number), at a price per share (rounded down to the nearest whole cent) equal to (x) the aggregate exercise price for the UCC Common Shares otherwise purchasable pursuant to such UCC Option divided by (y) the number of full IP Common Shares deemed purchasable pursuant to such UCC Option in accordance with the foregoing. The parties hereto agree that this Section 3.4 shall be interpreted in a manner that is consistent with the Merger being treated as a "pooling of interests" as described in the first sentence of Section 4.21(a). (b) Prior to the Effective Time, UCC shall take all actions (including, if appropriate, amending the terms of UCC's stock option or compensation plans or arrangements) that are necessary to give effect to the transactions contemplated by Sections 3.4(a). (c) Effective at the Effective Time, IP shall assume each UCC Option in accordance with the terms of the relevant stock option plan or compensation arrangement under which it was issued and the stock option agreement by which 12 128 it is evidenced. At or prior to the Effective Time, IP shall take all corporate action necessary to reserve for issuance a sufficient number of IP Common Shares for delivery upon exercise of the UCC Options assumed by it in accordance with this Section 3.4(c). As soon as practicable after the Effective Time, IP shall file a registration statement on Form S-3 or Form S-8, as the case may be (or any successor or other appropriate forms), or another appropriate form (or shall cause such UCC Option to be deemed to be an option issued pursuant to an IP stock option or compensation plan for which a sufficient number of IP Common Shares have previously been registered pursuant to an appropriate registration form) with respect to the IP Common Shares subject to such UCC Options, and shall use its reasonable best efforts to maintain the effectiveness of such registration statement(s) (and maintain the current status of the prospectus(es) contained therein) for so long as such UCC Options remain outstanding. ARTICLE 4 Representations and Warranties of UCC Except as disclosed in (i) the UCC Disclosure Schedule attached hereto (which disclosure schedule shall make a specific reference to the particular Section or subsection of this Agreement to which exception is being taken but once made shall be deemed made for all purposes of the UCC Disclosure Schedule) or (ii) the UCC SEC Documents filed or made prior to the date hereof, UCC represents and warrants to IP that: Section 4.1. Corporate Existence and Power. UCC is a corporation duly incorporated, validly existing and in good standing under the laws of the Commonwealth of Virginia, and has all corporate powers required to carry on its business as now conducted. UCC is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where the character of the property owned or leased by it or the nature of its activities makes such qualification necessary, except where the failure to be so qualified, individually or in the aggregate, would not be reasonably likely to have a UCC Material Adverse Effect. UCC has heretofore made available to IP true and complete copies of UCC's articles of incorporation and bylaws as currently in effect. Section 4.2. Corporate Authorization. The execution, delivery and performance by UCC of this Agreement and the consummation by UCC of the transactions contemplated hereby are within UCC's corporate powers and, except for the UCC Shareholder Approval (as defined herein), have been duly authorized by all necessary corporate action. Assuming that this Agreement constitutes the 13 129 valid and binding obligation of IP and MergerSub, this Agreement constitutes a valid and binding agreement of UCC, enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and similar laws, now or hereafter in effect, relating to or affecting creditors' rights and remedies and to general principles of equity. Section 4.3. Governmental Authorization. The execution, delivery and performance by UCC of this Agreement and the consummation by UCC of the transactions contemplated hereby require no action by or in respect of, or filing with, any Governmental Entity other than (a) the filing of (i) an articles of merger in accordance with the Virginia Code, (ii) a certificate of merger in accordance with the Delaware General Corporation Law, and (iii) appropriate documents with the relevant authorities of other states or jurisdictions in which UCC or any UCC Subsidiary is qualified to do business; (b) compliance with any applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"); (c) compliance with, and the filing (if necessary) of a notification with the European Commission under, Council Regulation (EEC) No. 4064/89 and any other foreign filings or approvals; (d) compliance with any applicable requirements of the Securities Act and the Exchange Act; (e) such as may be required under any applicable state securities or blue sky laws; (f) such as may be required under the New Jersey Industrial Site Recovery Act and the regulations promulgated thereunder; (g) such as may be required under the Connecticut Hazardous Waste Establishment Transfer Act and the rules and regulations promulgated thereunder; and (h) such other consents, approvals, actions, orders, authorizations, registrations, declarations and filings which, if not obtained or made, would not, individually or in the aggregate, (x) be reasonably likely to have a UCC Material Adverse Effect or (assuming for this purpose that the Effective Time had occurred) an IP Material Adverse Effect, or (y) prevent or materially impair the ability of UCC to consummate the transactions contemplated by this Agreement. Section 4.4. Non-Contravention. The execution, delivery and performance by UCC of this Agreement and the consummation by UCC of the transactions contemplated hereby do not and will not (a) contravene or conflict with UCC's articles of incorporation or bylaws, (b) assuming compliance with the matters referred to in Section 4.3, contravene or conflict with or constitute a violation of any provision of any law, regulation, judgment, injunction, order or decree binding upon or applicable to UCC or any UCC Subsidiary, (c) constitute a default under or give rise to a right of termination, cancellation or acceleration of any right or obligation of UCC or any UCC Subsidiary or to a loss of any benefit or status to which UCC or any UCC Subsidiary is entitled under any provision of any agreement, contract or other instrument binding upon UCC or any UCC Subsidiary or any license, franchise, permit or other similar authorization held by 14 130 UCC or any UCC Subsidiary, or (d) result in the creation or imposition of any Lien on any asset of UCC or any UCC Subsidiary other than, in the case of each of (b), (c) and (d), any such items that would not, individually or in the aggregate (x) be reasonably likely to have a UCC Material Adverse Effect or (y) prevent or materially impair the ability of UCC to consummate the transactions contemplated by this Agreement. Section 4.5. Capitalization. (a) The authorized capital stock of UCC consists of 125,000,000 UCC Common Shares and 1,000,000 shares of preferred stock, par value $1.00 per share (of which 125,000 have been designated Series A Junior Participating Preferred Stock and reserved for issuance upon exercise of the Rights). As of November 20, 1998, there were outstanding (x) 69,196,486 UCC Common Shares, (y) no shares of UCC preferred stock and (z) (as of November 23, 1998) stock options to purchase an aggregate of 5,151,216 UCC Common Shares (of which options to purchase an aggregate of 3,272,911 UCC Common Shares were exercisable) and approximately 15,000 stock units outstanding under the Stock Unit Plan (as defined in Section 7.4(c)). All outstanding shares of capital stock of UCC have been duly authorized and validly issued and are fully paid and nonassessable. (b) As of the date hereof, except (i) as set forth in this Section 4.5, (ii) the Rights and (iii) for changes since November 20, 1998 resulting from the exercise of stock options or the conversion of stock units and dividend equivalents thereon outstanding on such date, there are no outstanding (x) shares of capital stock or other voting securities of UCC, (y) securities of UCC convertible into or exchangeable for shares of capital stock or voting securities of UCC, and (z) options or other rights to acquire from UCC, and no obligation of UCC to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of UCC (the items in clauses (x), (y) and (z) being referred to collectively as the "UCC Securities"). There are no outstanding obligations of UCC or any UCC Subsidiary to repurchase, redeem or otherwise acquire any UCC Securities. Section 4.6. Subsidiaries. (a) Each Significant Subsidiary of UCC is a corporation duly incorporated or an entity duly organized, and is validly existing and in good standing under the laws of its jurisdiction of incorporation or organization, has all powers and authority and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted and is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where the character of the property owned or leased by it or the nature of its activities makes such qualification necessary, in each case with such exceptions as, individually or in the aggregate, would not be reasonably likely to have, a UCC Material Adverse Effect. The UCC Disclosure 15 131 Schedule sets forth a list of all Significant Subsidiaries of UCC and their respective jurisdictions of incorporation or organization and identifies UCC's (direct or indirect) percentage equity ownership interest therein. (b) All of the outstanding shares of capital stock of, or other ownership interest in, each Significant Subsidiary of UCC has been validly issued and is fully paid and nonassessable. All of the outstanding capital stock of, or other ownership interest, which is owned, directly or indirectly, by UCC in, each of its Significant Subsidiaries is owned free and clear of any Lien and free of any other limitation or restriction (including any limitation or restriction on the right to vote, sell or otherwise dispose of such capital stock or other ownership interests) with such exceptions as, individually or in the aggregate, would not be reasonably likely to have, a UCC Material Adverse Effect. There are no outstanding (i) securities of UCC or any of its Significant Subsidiaries convertible into or exchangeable or exercisable for shares of capital stock or other voting securities or ownership interests in any of its Significant Subsidiaries, (ii) options, warrants or other rights to acquire from UCC or any of its Significant Subsidiaries, and no other obligation of UCC or any of its Significant Subsidiaries to issue, any capital stock, voting securities or other ownership interests in, or any securities convertible into or exchangeable or exercisable for any capital stock, voting securities or ownership interests in, any of its Significant Subsidiaries or (iii) obligations of UCC or any of its Significant Subsidiaries to repurchase, redeem or otherwise acquire any outstanding securities of any of its Significant Subsidiaries or any capital stock of, or other ownership interests in, any of its Significant Subsidiaries. Section 4.7. UCC SEC Documents. (a) UCC has made available to IP the UCC SEC Documents. UCC has filed all reports, filings, registration statements and other documents required to be filed by it with the SEC since December 31, 1996. No UCC Subsidiary is required to file any form, report, registration statement or prospectus or other document with the SEC. (b) As of its filing date, each UCC SEC Document complied as to form in all material respects with the applicable requirements of the Securities Act and/or the Exchange Act, as the case may be. (c) No UCC SEC Document filed pursuant to the Exchange Act contained, as of its filing date, any untrue statement of a material fact or omitted to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. No UCC SEC Document, as amended or supplemented, if applicable, filed pursuant to the Securities Act contained, as of the date such document or amendment became effective, any untrue statement of a material fact or omitted to state any 16 132 material fact required to be stated therein or necessary to make the statements therein not misleading. Section 4.8. Financial Statements; No Material Undisclosed Liabilities. (a) The audited consolidated financial statements and unaudited consolidated interim financial statements of UCC included in the UCC 10-Ks and the UCC 10-Qs fairly present in all material respects, in conformity with generally accepted accounting principles applied on a consistent basis ("GAAP") (except as may be indicated in the notes thereto), the consolidated financial position of UCC and its consolidated Subsidiaries as of the dates thereof and their consolidated results of operations and changes in financial position for the periods then ended (subject to normal year-end adjustments in the case of any unaudited interim financial statements). (b) There are no liabilities of UCC or any UCC Subsidiary of any kind whatsoever, whether accrued, contingent, absolute, determined, determinable or otherwise, in each case, that are required by GAAP to be set forth on a consolidated balance sheet of UCC, other than: (i) liabilities or obligations disclosed or provided for in the UCC Balance Sheet or disclosed in the notes thereto; (ii) liabilities or obligations under this Agreement or incurred in connection with the transactions contemplated hereby; and (iii) other liabilities or obligations, which, individually or in the aggregate, would not be reasonably likely to have a UCC Material Adverse Effect. Section 4.9. Information to Be Supplied. (a) The information to be supplied by UCC expressly for inclusion or incorporation by reference in the Proxy Statement/Prospectus will (i) in the case of the Registration Statement, at the time it becomes effective, not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading and (ii) in the case of the remainder of the Proxy Statement/Prospectus, at the time of the mailing thereof, at the time of the UCC Shareholder Meeting and at the time of the IP Shareholder Meeting, not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Proxy Statement/Prospectus will comply (with respect to information relating to UCC) as to form in all material respects with the provisions of the Securities Act and the Exchange Act. 17 133 (b) Notwithstanding the foregoing, UCC makes no representation or warranty with respect to any statements made or incorporated by reference in the Proxy Statement/Prospectus based on information supplied by IP or MergerSub. Section 4.10. Absence of Certain Changes. Since December 31, 1997, except as otherwise expressly contemplated by this Agreement, UCC and the UCC Subsidiaries have conducted their business in the ordinary course consistent with past practice and there has not been (a) any damage, destruction or other casualty loss (whether or not covered by insurance) affecting the business or assets of UCC or any UCC Subsidiary that, individually or in the aggregate, has had or would be reasonably likely to have a UCC Material Adverse Effect or (b) any action, event, occurrence, development or state of circumstances or facts that, individually or in the aggregate, has had or would be reasonably likely to have a UCC Material Adverse Effect. Section 4.11. Litigation. There is no action, suit, investigation, arbitration or proceeding pending against, or to the knowledge of UCC threatened against, UCC or any UCC Subsidiary or any of their respective assets or properties before any arbitrator or Governmental Entity that, individually or in the aggregate, would be reasonably likely to have, a UCC Material Adverse Effect. Section 4.12. Taxes. Except as set forth in the UCC Balance Sheet (including the notes thereto), (i) all tax returns, statements, reports and forms (collectively, the "UCC Returns") required to be filed with any taxing authority by, or with respect to, UCC and the UCC Subsidiaries have been filed in accordance with all applicable laws; (ii) UCC and the UCC Subsidiaries have timely paid all taxes shown as due and payable on the UCC Returns that have been so filed, and, as of the time of filing, the UCC Returns correctly reflected the facts regarding the income, business, assets, operations, activities and the status of UCC and the UCC Subsidiaries (other than taxes which are being contested in good faith and for which adequate reserves are reflected on the UCC Balance Sheet); (iii) UCC and the UCC Subsidiaries have made provision for all taxes payable by them for which no UCC Return has yet been filed; (iv) the charges, accruals and reserves for taxes with respect to UCC and its Subsidiaries reflected on the UCC Balance Sheet are adequate under GAAP to cover the tax liabilities accruing through the date thereof; (v) there is no action, suit, proceeding, audit or claim now proposed or pending against or with respect to UCC or any of the UCC Subsidiaries in respect of any tax where there is a reasonable possibility of a materially adverse determination; and (vi) neither UCC nor any of the UCC Subsidiaries has been a member of an affiliated, consolidated, combined or unitary group other than one of which UCC was the common parent. 18 134 Section 4.13. Employee Benefits. (a) Schedule 4.13(a) of the UCC Disclosure Schedule contains a correct and complete list identifying each material "employee benefit plan", as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974 ("ERISA"), each employment, severance or similar contract, plan, arrangement or policy and each other plan or arrangement (written or oral) providing for compensation, bonuses, profit-sharing, stock option or other stock related rights or other forms of incentive or deferred compensation, vacation benefits, insurance coverage (including any self-insured arrangements), health or medical benefits, disability benefits, workers' compensation, supplemental unemployment benefits, severance benefits and post-employment or retirement benefits (including compensation, pension, health, medical or life insurance benefits) which is maintained, administered or contributed to by UCC or any ERISA Affiliate (as defined below) and covers any employee or former employee of UCC or any UCC Subsidiary. Copies of such plans (and, if applicable, related trust agreements) and all amendments thereto and written interpretations thereof have been furnished, or will be made available upon request, to IP together with the most recent annual report (Form 5500 including, if applicable, Schedule B thereto) prepared in connection with any such plan. Such plans are referred to collectively herein as the "UCC Employee Plans". For purposes of this Section 4.13, "ERISA Affiliate" of any Person means any other Person which, together with such Person, would be treated as a single employer under Section 414 of the Code. (b) Schedule 4.13(b) of the UCC Disclosure Schedule separately identifies each UCC Employee Plan that constitutes a "multiemployer plan", as defined in Section 3(37) of ERISA (a "Multiemployer Plan"), or any other plan subject to Title IV of ERISA (a "Retirement Plan"). No "accumulated funding deficiency", as defined in Section 412 of the Code, has been incurred with respect to any UCC Employee Plan which is a Retirement Plan, whether or not waived. To the knowledge of UCC, no condition exists and no event has occurred that would be reasonably likely to constitute grounds for termination of any UCC Employee Plan which is a Retirement Plan or, with respect to any UCC Employee Plan which is a Multiemployer Plan, presents a material risk of a complete or partial withdrawal under Title IV of ERISA and neither UCC nor any of its ERISA Affiliates has incurred any liability under Title IV of ERISA arising in connection with the termination of, or complete or partial withdrawal from, any plan covered or previously covered by Title IV of ERISA that would be reasonably likely to have a UCC Material Adverse Effect. To the knowledge of UCC, nothing has been done or omitted to be done and no transaction or holding of any asset under or in connection with any UCC Employee Plan has occurred that will make UCC or any UCC Subsidiary, or any officer or director of UCC or any UCC Subsidiary, subject to any liability under Title I of ERISA or liable for any tax pursuant to Section 4975 of the Code (assuming the taxable period of any 19 135 such transaction expired as of the date hereof) that would be reasonably likely to have a UCC Material Adverse Effect. (c) Each UCC Employee Plan which is intended to be qualified under Section 401(a) of the Code is so qualified and has been so qualified during the period from its adoption to date, and each trust forming a part thereof is exempt from tax pursuant to Section 501(a) of the Code. UCC has furnished, or will make available upon request, to IP copies of the most recent Internal Revenue Service determination letters with respect to each such UCC Employee Plan. Each UCC Employee Plan has been maintained in substantial compliance with its terms and with the requirements prescribed by any and all statutes, orders, rules and regulations, including but not limited to ERISA and the Code, which are applicable to such UCC Employee Plan. (d) There is no contract, agreement, plan or arrangement covering any employee or former employee of UCC that, individually or collectively, would be reasonably likely to give rise to the payment of any amount that would not be deductible pursuant to the terms of Sections 162(m) or 280G of the Code. (e) Except as disclosed in writing to IP prior to the date hereof, there has been no amendment to, written interpretation or announcement (whether or not written) relating to, or change in employee participation or coverage under, any UCC Employee Plan which would increase materially the expense of maintaining such UCC Employee Plan above the level of the expense incurred in respect thereof for the fiscal year ended December 31, 1997. Section 4.14. Compliance with Laws; Licenses, Permits and Registrations. (a) To the knowledge of UCC, neither UCC nor any UCC Subsidiary is in violation of, or has violated, any applicable provisions of any laws, statutes, ordinances, regulations, judgments, injunctions, orders or consent decrees, except for any such violations which, individually or in the aggregate, would not be reasonably likely to have a UCC Material Adverse Effect. (b) Each of UCC and the UCC Subsidiaries has all permits, licenses, approvals, authorizations of and registrations with and under all federal, state, local and foreign laws, and from all Governmental Entities required by UCC and the UCC Subsidiaries to carry on their respective businesses as currently conducted, except where the failure to have any such permits, licenses, approvals, authorizations or registrations, individually or in the aggregate, would not be reasonably likely to have a UCC Material Adverse Effect. Section 4.15. Title to Properties. (a) UCC and each UCC Subsidiary have good and marketable title to, or valid leasehold interests in, all their 20 136 properties and assets except for such as are no longer used or useful in the conduct of their businesses or as have been disposed of in the ordinary course of business and except for defects in title, easements, restrictive covenants and similar Liens, encumbrances or impediments that, in the aggregate, do not materially interfere with the ability of UCC and its Subsidiaries to conduct their business, taken as a whole, as currently conducted. All such assets and properties, other than assets and properties in which UCC or any UCC Subsidiary has leasehold interests, are free and clear of all Liens, except for Liens that, in the aggregate, do not and will not materially interfere with the ability of UCC and the UCC Subsidiaries to conduct their business, taken as a whole, as currently conducted. (b) Except as would not be reasonably likely, individually or in the aggregate, to have a UCC Material Adverse Effect, (i) UCC and each UCC Subsidiary are in compliance with the terms of all leases to which they are a party and under which they are in occupancy, and all such leases are in full force and effect and (ii) UCC and each UCC Subsidiary enjoy peaceful and undisturbed possession under all such leases. Section 4.16. Intellectual Property. Except as would not be reasonably likely to have a UCC Material Adverse Effect, individually or in the aggregate, UCC and the UCC Subsidiaries own or have a valid license to use each trademark, service mark, trade name, mask work, invention, patent, trade secret, copyright, know-how (including any registrations or applications for registration of any of the foregoing) or any other similar type of proprietary intellectual property right (collectively, the "UCC Intellectual Property") necessary to carry on the business of UCC and the UCC Subsidiaries, taken as a whole, as currently conducted. To the knowledge of UCC, neither UCC nor any UCC Subsidiary has received any written notice of infringement of or challenge to, and, to UCC's knowledge, there are no claims pending with respect to the rights of others to the use of, any UCC Intellectual Property that, in any such case, individually or in the aggregate, would be reasonably likely to have a UCC Material Adverse Effect. Section 4.17. Environmental Matters. (a) With such exceptions as, individually or in the aggregate, would not be reasonably likely to have a UCC Material Adverse Effect, to the knowledge of UCC, (i) no written notice, notification, demand, request for information, citations, summons, complaint or order has been received by, and no investigation, action, claim, suit, proceeding or review is pending or threatened by any Person against, UCC or any UCC Subsidiary, with respect to any applicable Environmental Law and (ii) UCC and the UCC Subsidiaries are and have been in compliance with all applicable Environmental Laws. 21 137 (b) For purposes of this Section 4.17 and Section 5.15, the term "Environmental Laws" means any federal, state, local and foreign statutes, laws (including, without limitation, common law), judicial decisions, regulations, ordinances, rules, judgments, orders, codes, injunctions, permits or governmental agreements relating to human health and safety, the environment or to pollutants, contaminants, wastes, or chemicals. Section 4.18. Finders' Fees; Opinions of Financial Advisor. (a) Except for Goldman, Sachs & Co., there is no investment banker, broker, finder or other intermediary which has been retained by, or is authorized to act on behalf of, UCC or any UCC Subsidiary who might be entitled to any fee or commission from IP or any of its Affiliates upon consummation of the transactions contemplated by this Agreement. (b) UCC has received the opinion of Goldman, Sachs & Co., dated as of the date hereof, to the effect that, as of such date, the Exchange Ratio is fair to the holders of UCC Common Shares (other than IP and any IP Subsidiary) from a financial point of view. Section 4.19. Required Vote; Board Approval. (a) The only vote of the holders of any class or series of capital stock of UCC required by law, rule or regulation to approve this Agreement, the Merger and/or any of the other transactions contemplated hereby is the affirmative vote (the "UCC Shareholder Approval") of the holders of more than two-thirds of the outstanding UCC Common Shares in favor of the adoption of this Agreement and the Merger. (b) UCC's Board of Directors has unanimously (a) determined that this Agreement and the transactions contemplated hereby, including the Merger, are in the best interests of UCC and its shareholders, (b) approved this Agreement and the transactions contemplated hereby and (c) resolved to recommend to such shareholders that they vote in favor of adopting and approving this Agreement and the Merger in accordance with the terms hereof. Section 4.20. State Takeover Statutes; Rights Agreement. (a) UCC has taken all actions required to be taken by it in order to exempt this Agreement and the transactions contemplated hereby from the provisions of Sections 13.1-725 through 13.1-728 and 13.1-728.1 through 13.1-728.9 of the Virginia Code, and accordingly, such Sections do not apply to the Merger or any of such transactions. No other "control share acquisition", "fair price" or other anti-takeover laws or regulations enacted under state or federal laws in the United States apply to this Agreement or any of the transactions contemplated hereby. 22 138 (b) UCC has taken all action necessary to (i) render the Rights inapplicable to the Merger and the other transactions contemplated by this Agreement and (ii) ensure that (A) neither IP, MergerSub nor any of their Affiliates will become an Acquiring Person (as defined in the Rights Agreement) as a result of the transactions contemplated hereby and (B) neither a Distribution Date nor an Acquisition Date (each as defined in the Rights Agreement) shall occur by reason of the approval or execution of this Agreement, the announcement or consummation of the Merger or the announcement or consummation of any of the other transactions contemplated by this Agreement. Section 4.21. Pooling Matters; Tax Treatment. (a) UCC intends that the Merger be accounted for under the "pooling of interests" method under the requirements of Opinion No. 16 (Business Combinations) of the Accounting Principles Board of the American Institute of Certified Public Accountants, the Financial Accounting Standards Board, and the rules and regulations of the SEC. UCC will request a letter addressed to it from PricewaterhouseCoopers LLP dated as of a date prior to the Effective Time, and (if and when obtained) a copy of it will be delivered to IP. Such letter shall state that PricewaterhouseCoopers LLP believes that UCC is a pooling candidate for purposes of the transactions contemplated hereby. (b) Neither UCC nor any of its Affiliates has taken or agreed to take any action or is aware of any fact or circumstance that would prevent the Merger from qualifying (i) for "pooling of interests" accounting treatment as described in Section 4.21(a) above or (ii) as a 368 Reorganization. ARTICLE 5 Representations and Warranties of IP Except as disclosed in the IP SEC Documents filed or made prior to the date hereof, IP represents and warrants to UCC that: Section 5.1. Corporate Existence and Power. Each of IP and MergerSub is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all corporate powers required to carry on its business as now conducted. IP is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where the character of the property owned or leased by it or the nature of its activities makes such qualification necessary, except where the failure to be so qualified would not, individually or in the aggregate, be reasonably likely to have 23 139 an IP Material Adverse Effect. IP has heretofore made available to UCC true and complete copies of IP's restated certificate of incorporation and bylaws as currently in effect. Since the date of its incorporation, MergerSub has not engaged in any activities other than in connection with or as contemplated by this Agreement. Section 5.2. Corporate Authorization. The execution, delivery and performance by IP and MergerSub of this Agreement and the consummation by IP and MergerSub of the transactions contemplated hereby are within the corporate powers of IP and MergerSub and, except for the IP Shareholder Approval, have been duly authorized by all necessary corporate action. Assuming that this Agreement constitutes the valid and binding obligation of UCC, this Agreement constitutes a valid and binding agreement of each of IP and MergerSub, enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and similar laws, now or hereafter in effect, relating to or affecting creditors' rights and remedies and to general principles of equity. Section 5.3. Governmental Authorization. The execution, delivery and performance by IP and MergerSub of this Agreement and the consummation by IP and MergerSub of the transactions contemplated hereby require no action by or in respect of, or filing with, any Governmental Entity other than (a) those set forth in clauses (a) through (g) of Section 4.3 and (b) such other consents, approvals, actions, orders, authorizations, registrations, declarations and filings which, if not obtained or made, would not, individually or in the aggregate, (i) be reasonably likely to have an IP Material Adverse Effect or (assuming for this purpose that the Effective Time had occurred) a UCC Material Adverse Effect, or (ii) prevent or materially impair the ability of IP and MergerSub to consummate the transactions contemplated by this Agreement. Section 5.4. Non-Contravention. The execution, delivery and performance by IP and MergerSub of this Agreement and the consummation by IP and MergerSub of the transactions contemplated hereby do not and will not (a) contravene or conflict with the restated certificate of incorporation or bylaws of IP or the articles of incorporation or bylaws of MergerSub, (b) assuming compliance with the matters referred to in Section 5.3, contravene or conflict with any provision of law, regulation, judgment, injunction, order or decree binding upon or applicable to IP or any IP Subsidiary, (c) constitute a default under or give rise to a right of termination, cancellation or acceleration of any right or obligation of IP or any IP Subsidiary or to a loss of any benefit or status to which IP or any IP Subsidiary is entitled under any provision of any agreement, contract or other instrument binding upon IP or any IP Subsidiary or any license, franchise, permit or other similar authorization held by IP or any IP Subsidiary, or (d) result in the creation or imposition of any Lien on any asset of IP or any IP Subsidiary other 24 140 than, in the case of each of (b), (c) and (d), any such items that would not, individually or in the aggregate, (x) be reasonably likely to have an IP Material Adverse Effect or (y) prevent or materially impair the ability of IP or MergerSub to consummate the transactions contemplated by this Agreement. Section 5.5. Capitalization of IP and MergerSub. (a) The authorized capital stock of IP consists of 400,000,000 IP Common Shares, 400,000 shares of Cumulative $1.00 Preferred Stock, no par value per share ("IP Cumulative Preferred") and 8,750,000 shares of Serial Preferred Stock, $1.00 par value per share (the "IP Serial Preferred"). As of September 30, 1998, there were outstanding (i) 307,306,313 IP Common Shares and 15,696 shares of the IP Cumulative Preferred and (ii) stock options to purchase an aggregate of 12,097,455 IP Common Shares (of which options to purchase an aggregate of 5,777,178 IP Common Shares were vested and exercisable). In addition, approximately 8,332,000 IP Common Shares were reserved for issuance upon the conversion of the IP-Obligated-Mandatory-Redeemable-Preferred securities of a Subsidiary trust of IP. All outstanding shares of capital stock of IP have been duly authorized and validly issued and are fully paid and nonassessable. (b) As of the date hereof, except as set forth in this Section 5.5 and except for changes since September 30, 1998 resulting from the exercise of stock options outstanding on such date, there are no outstanding (i) shares of capital stock or other voting securities of IP, (ii) securities of IP convertible into or exchangeable for shares of capital stock or voting securities of IP, and (iii) options or other rights to acquire from IP, and no obligation of IP to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of IP (the items in clauses (i), (ii) and (iii) being referred to collectively as the "IP Securities"). There are no outstanding obligations of IP or any IP Subsidiary to repurchase, redeem or otherwise acquire any IP Securities. (c) The IP Common Shares to be issued as part of the Merger Consideration have been duly authorized and, when issued and delivered in accordance with the terms of this Agreement, will have been validly issued, fully paid and nonassessable and free of any preemptive or other similar right. (d) The authorized capital stock of MergerSub consists solely of 100 MergerSub Common Shares, of which, as of the date hereof, 100 were issued and outstanding. All outstanding MergerSub Common Shares have been duly authorized and validly issued and are fully paid and nonassessable, free of any preemptive or other similar right. Section 5.6. IP SEC Documents. (a) IP has made available to UCC the IP SEC Documents. IP has filed all reports, filings, registration statements and 25 141 other documents required to be filed by it with the SEC since December 31, 1996. No IP Subsidiary is at present required to file any form, report, registration statement or prospectus or other document with the SEC. (b) As of its filing date, each IP SEC Document complied as to form in all material respects with the applicable requirements of the Securities Act and/or the Exchange Act, as the case may be. (c) No IP SEC Document filed pursuant to the Exchange Act contained, as of its filing date, any untrue statement of a material fact or omitted to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. No IP SEC Document, as amended or supplemented, if applicable, filed pursuant to the Securities Act as of the date such document or amendment became effective contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading. Section 5.7. Financial Statements; No Material Undisclosed Liabilities. (a) The audited consolidated financial statements and unaudited consolidated interim financial statements of IP included in the IP 10-Ks and the IP 10-Qs fairly present in all material respects, in conformity with GAAP (except as may be indicated in the notes thereto), the consolidated financial position of IP and its consolidated Subsidiaries as of the dates thereof and their consolidated results of operations and changes in financial position for the periods then ended (subject to normal year-end adjustments in the case of any unaudited interim financial statements). (b) There are no liabilities of IP or any IP Subsidiary of any kind whatsoever, whether accrued, contingent, absolute, determined, determinable or otherwise that are required by GAAP to be set forth on a consolidated balance sheet of IP, other than: (i) liabilities or obligations disclosed or provided for in the IP Balance Sheet (including the notes thereto); (ii) liabilities or obligations under this Agreement or incurred in connection with the transactions contemplated hereby; and (iii) other liabilities or obligations, which, individually or in the aggregate, would not be reasonably likely to have an IP Material Adverse Effect. 26 142 Section 5.8. Information to Be Supplied. (a) The information to be supplied by IP expressly for inclusion or incorporation by reference in the Proxy Statement/Prospectus will (i) in the case of the Registration Statement, at the time it becomes effective, not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading and (ii) in the case of the remainder of the Proxy Statement/Prospectus, at the time of the mailing thereof, at the time of the UCC Shareholder Meeting and at the time of the IP Shareholder Meeting, not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Proxy Statement/Prospectus will comply (with respect to information relating to IP) as to form in all material respects with the provisions of the Securities Act and the Exchange Act. (b) Notwithstanding the foregoing, IP makes no representation or warranty with respect to any statements made or incorporated by reference in the Proxy Statement/Prospectus with respect to information supplied by UCC. Section 5.9. Absence of Certain Changes. Since December 31, 1997, except as otherwise expressly contemplated by this Agreement, IP and the IP Subsidiaries have conducted their business in the ordinary course consistent with past practice and there has not been (a) any damage, destruction or other casualty loss (whether or not covered by insurance) affecting the business or assets of IP or any IP Subsidiary that, individually or in the aggregate, has had or would be reasonably likely to have an IP Material Adverse Effect or (b) any action, event, occurrence, development or state of circumstances or facts that, individually or in the aggregate, has had or would be reasonably likely to have an IP Material Adverse Effect. Section 5.10. Litigation. There is no action, suit, investigation, arbitration or proceeding pending against, or to the knowledge of IP threatened against, IP or any IP Subsidiary or any of their respective assets or properties before any arbitrator or Governmental Entity that, individually or in the aggregate, would be reasonably likely to have an IP Material Adverse Effect. Section 5.11. Taxes. Except as set forth in the IP Balance Sheet (including the notes thereto), (i) all tax returns, statements, reports and forms (collectively, the "IP Returns") required to be filed with any taxing authority by, or with respect to, IP and the IP Subsidiaries have been filed in accordance with all applicable laws; (ii) IP and the IP Subsidiaries have timely paid all taxes shown as due and payable on the IP Returns that have been so filed, and, as of the time of filing, the IP Returns correctly reflected the facts regarding the income, 27 143 business, assets, operations, activities and the status of IP and the IP Subsidiaries (other than taxes which are being contested in good faith and for which adequate reserves are reflected on the IP Balance Sheet); (iii) IP and the IP Subsidiaries have made provision for all taxes payable by them for which no IP Return has yet been filed; (iv) the charges, accruals and reserves for taxes with respect to IP and its Subsidiaries reflected on the IP Balance Sheet are adequate under GAAP to cover the tax liabilities accruing through the date thereof; (v) there is no action, suit, proceeding, audit or claim now proposed or pending against or with respect to IP or any of the IP Subsidiaries in respect of any tax where there is a reasonable possibility of a materially adverse determination; and (vi) neither IP nor any of the IP Subsidiaries has been a member of an affiliated, consolidated, combined or unitary group other than one of which IP was the common parent. Section 5.12. Compliance with Laws; Licenses, Permits and Registrations. (a) To the knowledge of IP, neither IP nor any IP Subsidiary is in violation of, or has violated, any applicable provisions of any laws, statutes, ordinances, regulations, judgments, injunctions, orders or consent decrees, except for any such violations which, individually or in the aggregate, would not be reasonably likely to have, an IP Material Adverse Effect. (b) Each of IP and the IP Subsidiaries has all permits, licenses, approvals, authorizations of and registrations with and under all federal, state, local and foreign laws, and from all Governmental Entities required by IP and the IP Subsidiaries to carry on their respective businesses as currently conducted, except where the failure to have any such permits, licenses, approvals, authorizations or registrations, individually or in the aggregate, would not be reasonably likely to have an IP Material Adverse Effect. Section 5.13. Title to Properties. (a) IP and each IP Subsidiary have good and marketable title to, or valid leasehold interests in, all their properties and assets except for such as are no longer used or useful in the conduct of their businesses or as have been disposed of in the ordinary course of business and except for defects in title, easements, restrictive covenants and similar Liens, encumbrances or impediments that, in the aggregate, do not materially interfere with the ability of IP and the IP Subsidiaries to conduct their business, taken as a whole, as currently conducted. All such assets and properties, other than assets and properties in which IP or any IP Subsidiary has leasehold interests, are free and clear of all Liens, except for Liens that, in the aggregate, do not and will not materially interfere with the ability of IP and the IP Subsidiaries to conduct their business, taken as a whole, as currently conducted. (b) Except as would not be reasonably likely, individually or in the aggregate, to have an IP Material Adverse Effect, (i) IP and each IP Subsidiary are 28 144 in compliance with the terms of all leases to which they are a party and under which they are in occupancy, and all such leases are in full force and effect and (ii) IP and each IP Subsidiary enjoy peaceful and undisturbed possession under all such leases. Section 5.14. Intellectual Property. Except as would not be reasonably likely to have an IP Material Adverse Effect, individually or in the aggregate, IP and the IP Subsidiaries own or have a valid license to use each trademark, service mark, trade name, mask work, invention, patent, trade secret, copyright, know-how (including any registrations or applications for registration of any of the foregoing) or any other similar type of proprietary intellectual property right (collectively, the "IP Intellectual Property") necessary to carry on the business of IP and the IP Subsidiaries, taken as a whole, as currently conducted. To the knowledge of IP, neither IP nor any IP Subsidiary has received any written notice of infringement of or challenge to, and, to IP's knowledge, there are no claims pending with respect to the rights of others to the use of, any IP Intellectual Property that, in either case, individually or in the aggregate, would be reasonably likely to have an IP Material Adverse Effect. Section 5.15. Environmental Matters. With such exceptions as, individually or in the aggregate, would not be reasonably likely to have an IP Material Adverse Effect, to the knowledge of IP, (i) no written notice, notification, demand, request for information, citations, summons, complaint or order has been received by, and no investigation, action, claim, suit, proceeding or review is pending or threatened by any Person against, IP or any IP Subsidiary, with respect to any applicable Environmental Law and (ii) IP and the IP Subsidiaries are and have been in compliance with all applicable Environmental Laws. Section 5.16. Finders' Fees. Except for Credit Suisse First Boston, whose fees will be paid by IP, there is no investment banker, broker, finder or other intermediary who might be entitled to any fee or commission from IP or any of its Affiliates upon consummation of the transactions contemplated by this Agreement. Section 5.17. Required Vote; Board Recommendation. (a) The only votes of the holders of any class or series of capital stock of IP required by law, rule or regulation to approve this Agreement, the Merger and/or any of the other transactions contemplated hereby are the affirmative vote of the holders of a majority of (i) the IP Common Shares present and voting at the IP Shareholder Meeting (as defined in Section 7.2) in favor of the issuance of the IP Common Shares pursuant to the Merger and (ii) all outstanding shares entitled to vote thereon at the IP Shareholder Meeting in favor of an amendment to IP's restated 29 145 certificate of incorporation to increase the number of authorized IP Common Shares (the approvals described in clauses (i) and (ii) are collectively referred to herein as the "IP Shareholder Approval"). (b) IP's Board of Directors has unanimously (i) determined that this Agreement and the transactions contemplated hereby, including the Merger and the issuance of the IP Common Shares pursuant to the Merger, are in the best interests of IP and its shareholders, (ii) approved this Agreement, and the transactions contemplated hereby and (iii) resolved to recommend to such shareholders that they vote in favor of (x) the issuance of the IP Common Shares pursuant to the Merger and (y) an amendment to IP's restated certificate of incorporation to increase the number of authorized IP Common Shares, in accordance with the terms hereof. Section 5.18. Pooling Matters. Neither IP nor any of its Affiliates has taken or agreed to take any action or is aware of any fact or circumstance that would prevent the Merger from qualifying (i) for "pooling of interests" accounting treatment as described in the first sentence of Section 4.21(a) or (ii) as a 368 Reorganization. IP will request a letter addressed to it from Arthur Andersen LLP dated as of a date prior to the Effective Time, and (if and when such letter is obtained) a copy will be delivered to UCC. Such letter shall state that Arthur Andersen LLP believes that the Merger should be accounted for as a "pooling of interests" as described in the first sentence of Section 4.21(a). ARTICLE 6 Covenants of UCC UCC agrees that: Section 6.1. UCC Interim Operations. Except as set forth in the UCC Disclosure Schedule or as otherwise expressly contemplated hereby, without the prior consent of IP (which consent shall not be unreasonably withheld or delayed), from the date hereof until the Effective Time, UCC shall, and shall cause each of the UCC Subsidiaries to, conduct their business in all material respects in the ordinary course consistent with past practice and shall use commercially reasonable efforts to (i) preserve intact its present business organization, (ii) maintain in effect all material foreign, federal, state and local licenses, approvals and authorizations, including, without limitation, all material licenses and permits that are required for UCC or any UCC Subsidiary to carry on its business and (iii) preserve existing relationships with its material customers, lenders, suppliers and 30 146 others having material business relationships with it. Without limiting the generality of the foregoing, except as set forth in the UCC Disclosure Schedule or as otherwise expressly contemplated by this Agreement, from the date hereof until the Effective Time, without the prior consent of IP (which consent shall not be unreasonably withheld or delayed), UCC shall not, nor shall it permit any UCC Subsidiary to: (a) amend UCC's articles of incorporation or by-laws; (b) split, combine or reclassify any shares of capital stock of UCC or any less-than-wholly-owned UCC Subsidiary or declare, set aside or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of its capital stock, or redeem, repurchase or otherwise acquire or offer to redeem, repurchase, or otherwise acquire any of its securities or any securities of any UCC Subsidiary, except (i) for regular quarterly cash dividends (having customary record and payment dates, not in excess of $0.45 per UCC Common Share, and (ii) for regular dividends by less-than-wholly-owned UCC Subsidiaries on a pro rata basis to the equity owners thereof or (iii) pursuant to the existing terms of any UCC Employee Plan; (c) (i) issue, deliver or sell, or authorize the issuance, delivery or sale of, any shares of its capital stock of any class or any securities convertible into or exercisable for, or any rights, warrants or options to acquire, any such capital stock or any such convertible securities, other than in connection with the UCC Employee Plans or benefit plans or arrangements existing on the date hereof and covering the members of UCC's Board of Directors, (A) the issuance of UCC Common Shares upon the exercise of stock options in accordance with their present terms and (B) the granting of options to acquire UCC Common Shares in the ordinary course of business consistent with past practice or (ii) amend in any material respect any material term of any outstanding security of UCC or any UCC Subsidiary; (d) other than in connection with transactions permitted by Section 6.1(e), incur any capital expenditures or any obligations or liabilities in respect thereof, except for those (i) contemplated by the capital expenditure budgets for UCC and the UCC Subsidiaries made available to IP, (ii) incurred in the ordinary course of business of UCC and the UCC Subsidiaries or (iii) not otherwise described in clauses (i) and/or (ii) which, in the aggregate, do not exceed $10 million; (e) acquire (whether pursuant to merger, stock or asset purchase or otherwise) in one transaction or series of related transactions (i) any assets (including any equity interests) having a fair market value in excess of $10 31 147 million, or (ii) all or substantially all of the equity interests of any Person or any business or division of any Person having a fair market value in excess of $5 million; (f) sell, lease, encumber or otherwise dispose of any assets, other than (i) sales in the ordinary course of business consistent with past practice, (ii) equipment and property no longer used in the operation of UCC's business and (iii) assets related to discontinued operations of UCC or any UCC Subsidiary; (g) incur (which shall not be deemed to include entering into credit agreements, lines of credit or similar arrangements until UCC or any UCC Subsidiary becomes liable with respect to any indebtedness for borrowed money or guarantees thereof under such arrangements) any indebtedness for borrowed money or guarantee any such indebtedness or issue or sell any debt securities or warrants or rights to acquire any debt securities of UCC or any UCC Subsidiary or guarantee any debt securities of others, except in the ordinary course of business consistent with past practice (which shall include, without limitation, borrowings under UCC's existing credit agreements and overnight borrowings); (h) (i) enter into any agreement or arrangement that limits or otherwise restricts UCC, any UCC Subsidiary or any of their respective Affiliates or any successor thereto or that would, after the Effective Time, limit or restrict UCC, any UCC Subsidiary, the Surviving Corporation, IP, any IP Subsidiary or any of their respective Affiliates, from engaging or competing in any line of business or in any location, which agreement or arrangement would be material to the business of UCC and the UCC Subsidiaries or the business of IP and the IP Subsidiaries (assuming the Merger had taken place), in either case taken as a whole or (ii) except in the ordinary course of business, amend, modify or terminate any material contract, agreement or arrangement of UCC or any UCC Subsidiary or otherwise waive, release or assign any material rights, claims or benefits of UCC or any UCC Subsidiary thereunder; (i) (i) except in the ordinary course of business consistent with past practice or as required by law or an existing agreement, increase the amount of compensation of any director or executive officer or make any increase in or commitment to increase any employee benefits, (ii) except as required by law, an agreement existing on the date hereof or UCC severance policy as of the date hereof, grant any severance or termination pay to any director, officer or employee of UCC or any UCC Subsidiary, (iii) adopt any additional employee benefit plan or, except in the ordinary course of business, make any contribution to any existing such plan or (iv) except as may be required by law, amend in any material respect any UCC Employee Plan; 32 148 (j) change UCC's (x) methods of accounting in effect at September 30, 1998, except as required by changes in GAAP or by Regulation S-X of the Exchange Act, as concurred in by its independent public accountants or (y) fiscal year; (k) (i) settle, or propose to settle, any litigation, investigation, arbitration, proceeding or other claim that is material to the business of UCC and the UCC Subsidiaries, taken as a whole, other than the payment, discharge or satisfaction, in the ordinary course of business consistent with past practice of liabilities (x) recognized or disclosed in the most recent consolidated financial statements (or the notes thereto) of UCC included in the UCC SEC Documents or (y) incurred since the date of such financial statements in the ordinary course of business consistent with past practice, or (ii) other than in the ordinary course of business consistent with past practice, make any tax election or enter into any settlement or compromise of any tax liability that in either case is material to the business of UCC and the UCC Subsidiaries, taken as a whole; or (l) agree, resolve or commit to do any of the foregoing; provided that the limitations set forth in clauses 6.1(a) through 6.1(l) shall not apply to any action, transaction or event occurring exclusively between UCC and any wholly-owned UCC Subsidiary or between any wholly-owned UCC Subsidiaries. Section 6.2. Shareholder Meeting. UCC shall cause a meeting of its shareholders (the "UCC Shareholder Meeting") to be duly called and held as soon as reasonably practicable for the purpose of obtaining the UCC Shareholder Approval. Unless otherwise required by its fiduciary duties (as determined in good faith by a majority of its members on the basis of the written advice of its outside legal counsel), (i) UCC's Board of Directors shall recommend approval and adoption by its shareholders of this Agreement (the "UCC Recommendation"), (ii) neither UCC's Board of Directors nor any committee thereof shall amend, modify, withdraw, condition or qualify the UCC Recommendation in a manner adverse to IP or take any action or make any statement inconsistent with the UCC Recommendation and (iii) UCC shall take all lawful action to solicit the UCC Shareholder Approval. Section 6.3. Acquisition Proposals; Board Recommendation. (a) UCC agrees that it shall not, nor shall it permit any UCC Subsidiary to, nor shall it authorize or knowingly permit any officer, director, employee, investment banker, attorney, accountant, agent or other advisor or representative of UCC or any UCC Subsidiary, directly or indirectly, to (i) solicit, initiate or knowingly facilitate or encourage the submission of any Acquisition Proposal, (ii) participate in any 33 149 discussions or negotiations regarding, or furnish to any Person any information with respect to, or take any other action knowingly to facilitate any inquiries or the making of any proposal that constitutes, or may be reasonably expected to lead to, any Acquisition Proposal, (iii) grant any waiver or release under any standstill or similar agreement with respect to any class of UCC's equity securities or (iv) enter into any agreement with respect to any Acquisition Proposal, other than in the manner contemplated by Section 6.3(d); provided, however, that UCC may take any action(s) described in the foregoing clauses (i), (ii), (iii), or (iv) in respect of any Person, but only if (A) such Person delivers a bona fide written Acquisition Proposal that, in the reasonable judgment of UCC's Board of Directors (after consultation with an investment bank of nationally recognized reputation) could be reasonably likely to lead to the delivery to UCC of a Superior Proposal and (B) UCC's Board of Directors determines in good faith, on the basis of written advice from its outside legal counsel, that it is required to take such action(s) in order to comply with its fiduciary duties under applicable law; provided, further, that, (x) prior to UCC taking any such action(s) in respect of such Person, such Person shall have entered into a confidentiality agreement with UCC on customary terms, and UCC shall provide the notice contemplated by Section 6.3(c) and (y) UCC shall not enter into any agreement with respect to any Acquisition Proposal without first complying with Section 6.3(d). Without limiting the foregoing, it is understood that any violation of the restrictions set forth in the preceding sentence by any officer, director, investment banker, attorney, accountant, agent or other advisor or representative of UCC or any UCC Subsidiary, whether or not such individual is purporting to act on behalf of UCC or any UCC Subsidiary or otherwise, shall be deemed to be a breach of this Section 6.3 by UCC. UCC shall cease and cause to be terminated immediately all existing discussions or negotiations with any Persons conducted heretofore with respect to, or that could be reasonably expected to lead to, any Acquisition Proposal. (b) Unless UCC's Board of Directors has previously withdrawn, or is concurrently therewith withdrawing, the UCC Recommendation in accordance with Section 6.2, neither UCC's Board of Directors nor any committee thereof shall recommend any Acquisition Proposal to UCC shareholders. Notwithstanding the foregoing, nothing contained in this Section 6.3(b) or elsewhere in this Agreement shall prevent UCC's Board of Directors from complying with Rule 14e-2 under the 1934 Act with respect to any Acquisition Proposal or making any disclosure required by applicable law. (c) UCC shall notify IP promptly (but in no event later than 24 hours) after receipt by UCC or any UCC Subsidiary (or any of their respective directors, officers, agents or advisors), of any Acquisition Proposal or any negotiations, discussions or contacts concerning, or any request for nonpublic information or for access to the properties, books or records of UCC or any UCC Subsidiary or 34 150 any request for a waiver or release under any standstill or similar agreement, by any Person that has made an Acquisition Proposal. Such notice to IP shall be made orally and in writing and shall indicate the identity of the offeror and the terms and conditions of such proposal, inquiry, contact or request. UCC shall keep IP informed, on a reasonably current basis, of the status and details (including amendments or proposed amendments) of any such Acquisition Proposal or request and the status of any negotiations or discussions. (d) Pursuant to the terms of Section 10.1, either IP or UCC may terminate this Agreement if UCC's Board of Directors shall have determined, pursuant to the terms of this Section 6.3, (i) to approve or recommend an Acquisition Proposal after concluding that such Acquisition Proposal constitutes a Superior Proposal and (ii) to enter into a binding agreement concerning such Acquisition Proposal; provided that UCC may not exercise its right to terminate under this Section 6.3(d) and Section 10.1(c)(iii) (and may not enter into a binding written agreement with respect to such an Acquisition Proposal) unless (1) UCC shall have provided to IP at least five Business Days' prior written notice that its Board of Directors has authorized and intends to terminate this Agreement pursuant to this Section 6.3(d) and Section 10.1(c)(iii), specifying the material terms and conditions of such Acquisition Proposal and providing the most current version of the agreement relating thereto, if any, (2) IP does not make, within five Business Days of receiving such notice, an offer such that a majority of UCC's Board of Directors determines that (A) the foregoing Acquisition Proposal no longer constitutes a Superior Proposal or (B) its fiduciary duties no longer require it to take such action(s), and (3) on or prior to such termination, UCC shall have paid to IP the Termination Fee (as defined in Section 10.3(b)); provided, further, that IP may exercise its right to terminate under this Section 6.3(d) and Section 10.1(d)(iii) five Business Days after receiving the notice contemplated by this Section 6.3(d). In connection with the foregoing, UCC agrees that it will (x) not enter into a binding agreement with respect to such an Acquisition Proposal until at least the sixth Business Day after it has provided the notice to IP required hereby, (y) negotiate in good faith with IP, and consider in good faith any offer made by IP, during that period and (z) notify IP promptly if its intention to enter into such an agreement shall change at any time after such notification. Section 6.4. Transfer Taxes. All state, local, foreign or provincial sales, use, real property transfer, stock transfer or similar taxes (including any interest or penalties with respect thereto) attributable to the Merger (collectively, the "Transfer Taxes") shall be timely paid by UCC, which payments, if any, shall be made from the Escrow Account as and if required by 3.3(h). 35 151 ARTICLE 7 Covenants of IP IP agrees that: Section 7.1. IP Interim Operations. Except as set forth in the IP Disclosure Schedule or as otherwise expressly contemplated hereby, without the prior consent of UCC (which consent shall not be unreasonably withheld or delayed), from the date hereof until the Effective Time, IP shall and shall cause each of the IP Subsidiaries to, conduct their business in all material respects in the ordinary course consistent with past practice and shall use commercially reasonable efforts to (i) preserve intact its present business organization, (ii) maintain in effect all material foreign, federal, state and local licenses, approvals and authorizations, including, without limitation, all material licenses and permits that are required for IP or any IP Subsidiary to carry on its business and (iii) preserve existing relationships with its material customers, lenders, suppliers and others having material business relationships with it. Without limiting the generality of the foregoing, except as otherwise expressly contemplated by this Agreement, from the date hereof until the Effective Time, without the prior consent of UCC (which consent shall not be unreasonably withheld or delayed), IP shall not, not shall it permit any IP Subsidiary to: (a) make any amendment to IP's restated certificate of incorporation that changes any material term or provision of the IP Common Shares; (b) make any material changes to MergerSub's certificate of incorporation; (c) engage in any material repurchase at a premium, recapitalization, restructuring or reorganization with respect to IP's capital stock, including, without limitation, by way of any extraordinary dividend on, or other extraordinary distributions with respect to, IP's capital stock; (d) acquire by merging or consolidating with, or by purchasing a substantial portion of the assets of or equity in, or by any other manner, any Person or any business or division thereof, or otherwise acquire any assets, unless IP concludes in good faith that such acquisition or the entering into of a definitive agreement relating to or the consummation of such transaction would not (i) impose any material delay in the obtaining of, or significantly increase the risk of not obtaining, any authorizations, consents, orders, declarations or approvals of any Governmental Entity necessary to consummate the Merger or the expiration or termination of any applicable waiting period, (ii) significantly increase the risk 36 152 of any Governmental Entity entering an order prohibiting the consummation of the Merger or (iii) significantly increase the risk of not being able to remove any such order on appeal or otherwise; or (e) agree, resolve or otherwise commit to do any of the foregoing. Section 7.2. Shareholder Meeting; Board Recommendation. IP shall cause a meeting of its shareholders (the "IP Shareholder Meeting") to be duly called and held as soon as reasonably practicable for the purpose of obtaining the IP Shareholder Approval. Unless otherwise required by its fiduciary duties (as determined in good faith by a majority of its members on the basis of the written advice of its outside legal counsel), (i) IP's Board of Directors shall recommend (the "IP Recommendation") approval and adoption by its shareholders of (x) the issuance of IP Common Shares pursuant to the Merger and (y) an amendment to IP's restated certificate of incorporation to increase the number of authorized IP Common Shares, (ii) neither IP's Board of Directors nor any committee thereof shall amend, modify, withdraw, condition or qualify the IP Recommendation in a manner adverse to UCC or take any action or make any statement inconsistent with the IP Recommendation and (iii) IP shall take all lawful action to solicit the IP Shareholder Approval. Section 7.3. Director and Officer Liability. (a) IP and the Surviving Corporation agree that the indemnification obligations set forth in UCC's articles of incorporation, as amended, and UCC's bylaws, in each case as of the date of this Agreement, shall survive the Merger and shall not be amended, repealed or otherwise modified for a period of six years after the Effective Time in any manner that would adversely affect the rights thereunder of the individuals who on or prior to the Effective Time were directors, officers, employees or agents of UCC or the UCC Subsidiaries. (b) To the fullest extent permitted under applicable law and regardless of whether the Merger becomes effective, UCC shall indemnify and hold harmless, and, after the Effective Time, IP shall, and shall cause the Surviving Corporation to, indemnify and hold harmless, to the fullest extent permitted under applicable law, each present and former director or officer of UCC and each UCC Subsidiary and each such person who served at the request of UCC or any UCC Subsidiary as a director, officer, trustee, partner or fiduciary of another Person, pension or other employee benefit plan or enterprise (collectively, the "Indemnified Parties") against all costs and expenses (including reasonable attorneys' fees), judgments, fines, losses, claims, damages, liabilities and settlement amounts paid in connection with any claim, action, suit, proceeding or investigation (whether arising before or after the Effective Time), whether civil, administrative or investigative, arising out of or pertaining to any action or omission in their 37 153 capacity as an officer or director, in each case occurring before the Effective Time (including the transactions contemplated by this Agreement). Without limiting the foregoing, in the event of any such claim, action, suit, proceeding or investigation, (i) UCC or IP and the Surviving Corporation, as the case may be, shall pay the reasonable fees and expenses of one counsel selected by each Indemnified Party, which one counsel shall be reasonably satisfactory to UCC or to IP and the Surviving Corporation, as the case may be, promptly after statements therefor are received (unless the Surviving Corporation shall elect to defend such action) and (ii) UCC or IP and the Surviving Corporation, as applicable, shall cooperate in the defense of any such matter; provided, however, that neither UCC nor IP or the Surviving Corporation shall be liable for any settlement effected without its prior written consent (which consent shall not be unreasonably withheld). (c) For six years from the Effective Time, the Surviving Corporation shall provide to UCC's current directors and officers liability insurance protection of the same kind and scope as that provided by UCC's directors' and officers' liability insurance policies as of the date hereof; provided, however, that in no event shall the Surviving Corporation be required to expend in any one year an amount in excess of 200% of the annual premiums currently paid by UCC for such insurance; and, provided, further, that if the annual premiums of such insurance coverage exceed such amount, the Surviving Corporation shall be obligated to obtain a policy with the greatest coverage available for a cost not exceeding such amount. (d) If UCC or the Surviving Corporation or any of their respective successors or assigns (i) consolidates with or merges into any other person or shall not be the continuing or surviving corporation or entity in such consolidation or merger or (ii) transfers all or substantially all its properties and assets to any Person, then, and in each case, proper provision shall be made so that the successors and assigns of UCC or the Surviving Corporation, as the case may be, honor the indemnification obligations set forth in this Section 7.3. (e) The obligations of UCC, the Surviving Corporation, and IP under this Section 7.3 shall not be terminated or modified in such a manner as to adversely affect any director, officer, employee, agent or other person to whom this Section 7.3 applies without the consent of such affected director, officer, employees, agents or other persons (it being expressly agreed that each such director, officer, employee, agent or other person to whom this Section 7.3 applies shall be third-party beneficiaries of this Section 7.3). Section 7.4. Employee Benefits. (a) During the period commencing on the Effective Time and ending on the first anniversary thereof, IP shall provide (or 38 154 shall cause the Surviving Corporation to provide) employees of UCC and the UCC Subsidiaries with salary and benefits under employee benefit plans that are no less favorable in the aggregate than those currently provided by UCC and the UCC Subsidiaries to such employees (including, without limitation, benefits pursuant to qualified and nonqualified retirement plans, savings plans, medical, dental, disability and life insurance plans and programs, deferred compensation arrangements, bonus and incentive compensation plans, and retiree benefit plans, policies and arrangements). For purposes of any employee benefit plan or arrangement maintained by IP, the Surviving Corporation or any IP Subsidiary, IP shall recognize (or cause to be recognized) service with UCC and the UCC Subsidiaries and any predecessor entities (and any other service credited by UCC under similar benefit plans) for all purposes (including, without limitation, for vesting, eligibility to participate, severance, and benefit accrual, provided, however, that solely to the extent necessary to avoid duplication of benefits, amounts payable under employee benefit plans provided by IP, the Surviving Corporation or an IP Subsidiary may be reduced by amounts payable under similar UCC Employee Plans with respect to the same periods of service). Any benefits accrued by employees of UCC or any UCC Subsidiary prior to the Effective Time under any defined benefit pension plan of UCC or any UCC Subsidiary that employ a final average pay formula shall be calculated based on such employees' final average pay with IP, the Surviving Corporation or any IP Subsidiary or other Affiliate employing such employees. From and after the Effective Time, IP shall, and shall cause the IP Subsidiaries to, waive any pre-existing condition limitations and credit any deductibles and out-of-pocket expenses that are applicable and/or covered under the UCC Employee Plans, and are incurred by the employees and their beneficiaries during the portion of the calendar year prior to participation in the benefit plans provided by IP, the Surviving Corporations and the IP Subsidiaries. The provisions of this Section 7.4 shall not create in any employee or former employee of UCC or any UCC Subsidiary any rights to employment or continued employment with IP or UCC or any of their respective Subsidiaries or Affiliates. (b) IP shall, and shall cause the Surviving Corporation and the IP Subsidiaries to, provide at least 30 days' advance written notice of termination of employment ("Advance Notice") of any employees or former employees of UCC or any UCC Subsidiary. (c) (i) Notwithstanding anything to the contrary in UCC's Deferred Stock Unit Plan for Outside Directors (the "Stock Unit Plan"), the amounts payable to participants pursuant to Section 9(c) of the Stock Unit Plan shall be paid in IP Common Shares. The number of IP Common Shares payable to any participant in the Stock Unit Plan shall be an amount equal to (i) the number of 39 155 stock units credited to such participant's account under the Stock Unit Plan immediately prior to the Closing Date multiplied by (ii) the Exchange Ratio; and (ii) Notwithstanding anything to the contrary in UCC's Restricted Stock Performance Plan (the "RSPP"), any amounts payable to participants pursuant to Article X of the RSPP shall be paid in IP Common Shares. The number of IP Common Shares payable to any participant in the RSPP shall be an amount equal to (i) the amount payable to such participant determined in accordance with Article X of the RSPP, divided by (ii) the Average IP Share Price; provided that, in the case of each of clauses (c)(i) and (c)(ii) of this Section 7.4, UCC shall take any necessary steps to obtain the consent of each participant under both the Stock Unit Plan and the RSPP to the matters contemplated by such respective clauses. (d) From and after the Effective Time, subject to Section 7.4(c), IP shall honor, and shall cause the Surviving Corporation and the IP Subsidiaries to honor, in accordance with its terms, UCC's severance programs in effect as of the Closing Date (including, without limitation, the Severance Policy for Key Employees, the Severance Policy for Certain Bonus Eligible Employees and the Severance Policy for Salaried Employees), and each existing UCC employment, change of control, severance and termination agreement between UCC or any UCC Subsidiary, and any officer, director or employee of UCC or any UCC Subsidiary, including without limitation all legal and contractual obligations pursuant to existing benefit compensation plans of UCC in effect as of the Effective Time (including any UCC employee benefit plan providing for payments or other obligations as a result of a change in control of UCC). Section 7.5. Stock Exchange Listing. IP shall use its best efforts to cause the IP Common Shares to be issued in connection with the Merger to be listed on the NYSE, subject to official notice of issuance. Section 7.6. Conduct of MergerSub. IP will take all action necessary to cause MergerSub to perform its obligations under this Agreement and to consummate the Merger on the terms and conditions set forth in this Agreement. 40 156 ARTICLE 8 Covenants of IP and UCC The parties hereto agree that: Section 8.1. Reasonable Best Efforts. Subject to the terms and conditions hereof, each party will use reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate the transactions contemplated by this Agreement as promptly as practicable; provided that, for these purposes, reasonable best efforts of UCC, the Surviving Corporation, IP and/or MergerSub shall be deemed to include (i) offering to enter into, and entering into, any settlement, undertaking, consent decree, stipulation or agreement or agreeing to any order regarding antitrust matters in connection with any objections of any Governmental Entity to the transactions contemplated hereby and (ii) offering to divest to others and/or hold separate, and divesting or otherwise holding separate (including by establishing a trust or otherwise), or taking any other action (or otherwise agreeing to do any of the foregoing) with respect to, any portion of its and/or its Subsidiaries' business, assets or properties, other than any such action pursuant to clause(s) (i) and/or (ii) requiring any divestiture, holding separate (including by establishing a trust or otherwise) or sale (by whatever means) of (or any agreement to do any of the foregoing) any of the facilities described in Section 8.01 of the UCC Disclosure Schedule. Section 8.2. Certain Filings; Cooperation in Receipt of Consents. (a) Promptly after the date hereof, IP and UCC shall prepare and IP shall file with the SEC the Registration Statement, in which the Proxy Statement/Prospectus will be included as IP's prospectus. Each of UCC and IP shall use all reasonable efforts to have the Registration Statement declared effective under the Securities Act as promptly as practicable after such filing and to keep the Registration Statement effective as long as is necessary to consummate the Merger. Each of UCC and IP shall mail the Proxy Statement/Prospectus to their respective shareholders as promptly as practicable after the Registration Statement is declared effective under the Securities Act and, if necessary, after the Proxy Statement/Prospectus shall have been so mailed, promptly circulate amended, supplemental or supplemented proxy material, and, if required in connection therewith, resolicit proxies. IP shall also take any action required to be taken under any applicable state securities or blue sky laws in connection with the issuance of IP Common Shares in the Merger. (b) No amendment or supplement to the Proxy Statement/Prospectus will be made by UCC or IP without the approval of the other party, which will not 41 157 be unreasonably withheld or delayed. Each party will advise the other party, promptly after it receives notice thereof, of the time when the Registration Statement has become effective or any supplement or amendment has been filed, the issuance of any stop order, the suspension of the qualification of the IP Common Shares issuable in connection with the Merger for offering or sale in any jurisdiction, or any request by the SEC for amendment of the Proxy Statement/Prospectus or comments thereon and responses thereto or requests by the SEC for additional information. If at any time prior to the Effective Time, UCC or IP discovers any information relating to either party, or any of their respective Affiliates, officers or directors, that should be set forth in an amendment or supplement to the Proxy Statement/Prospectus, so that such document would not include any misstatement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, the party that discovers such information shall promptly notify the other parties hereto and an appropriate amendment or supplement describing such information shall be promptly filed with the SEC and, to the extent required by law or regulation, disseminated to the shareholders of UCC and IP. (c) UCC and IP shall cooperate with one another in (i) determining whether any other action by or in respect of, or filing with, any Governmental Entity is required, or any actions, consents, approvals or waivers are required to be obtained from parties to any material contracts, in connection with the consummation of the transactions contemplated hereby, (ii) seeking any such other actions, consents, approvals or waivers or making any such filings, furnishing information required in connection therewith and seeking promptly to obtain any such actions, consents, approvals or waivers and (iii) setting a mutually acceptable date for the UCC Shareholder Meeting and the IP Shareholder Meeting, so as to enable them to occur, to the extent practicable, on the same date. Each party shall permit the other party to review any communication given by it to, and consult with each other in advance of any meeting or conference with, any Governmental Entity or, in connection with any proceeding by a private party, with any other Person, and to the extent permitted by the applicable Governmental Entity or other Person, give the other party the opportunity to attend and participate in such meetings and conferences, in each case in connection with the transactions contemplated hereby. Section 8.3. Public Announcements. The parties shall consult with each other before issuing any press release or making any public statement with respect to this Agreement and the transactions contemplated hereby and, except as may be required by applicable law or any listing agreement with any national securities exchange, will not issue any such press release or make any such public statement prior to such consultation. 42 158 Section 8.4. Access to Information; Notification of Certain Matters. (a) From the date hereof until the Effective Time and subject to applicable law, UCC and IP shall (i) give to the other party, its counsel, financial advisors, auditors and other authorized representatives reasonable access to the offices, properties, books and records of such party, (ii) furnish or make available to the other party, its counsel, financial advisors, auditors and other authorized representatives such financial and operating data and other information as such Persons may reasonably request and (iii) instruct its employees, counsel, financial advisors, auditors and other authorized representatives to cooperate with the reasonable requests of the other party in its investigation. Any investigation pursuant to this Section shall be conducted in such manner as not to interfere unreasonably with the conduct of the business of the other party. Unless otherwise required by law, each of UCC and IP will hold, and will cause its respective officers, employees, counsel, financial advisors, auditors and other authorized representatives to hold, any nonpublic information obtained in any such investigation in confidence in accordance with Section 8.8. No information or knowledge obtained in any investigation pursuant to this Section 8.4 shall affect or be deemed to modify any representation or warranty made by any party hereunder. (b) Each party hereto shall give prompt notice to each other party hereto of: (i) any communication received by such party from, or given by such party to, any Governmental Entity in connection with any of the transactions contemplated hereby; and (ii) any actions, suits, claims, investigations or proceedings commenced or, to its knowledge, threatened against, relating to or involving or otherwise affecting such party or any of its Subsidiaries that, if pending on the date of this Agreement, would have been required to have been disclosed pursuant to Section 4.11, 4.12, 4.13, 4.14, 4.18 or 5.10, as the case may be, or that relate to the consummation of the transactions contemplated by this Agreement provided, however, that the delivery of any notice pursuant to this Section 8.4(b) shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice. Section 8.5. Further Assurances. At and after the Effective Time, the officers and directors of the Surviving Corporation will be authorized to execute and deliver, in the name and on behalf of UCC or MergerSub, any deeds, bills of sale, assignments or assurances and to take and do, in the name and on behalf of UCC or MergerSub, any other actions and things to vest, perfect or confirm of 43 159 record or otherwise in the Surviving Corporation any and all right, title and interest in, to and under any of the rights, properties or assets of UCC acquired or to be acquired by the Surviving Corporation as a result of, or in connection with, the Merger. Section 8.6. Tax and Accounting Treatment. (a) Prior to the Effective Time, each party shall use its best efforts to cause the Merger to qualify as a 368 Reorganization, and will not take any action reasonably likely to cause the Merger not so to qualify. IP shall not take, or cause the Surviving Corporation to take, any action after the Effective Time reasonably likely to cause the Merger not to qualify as a 368 Reorganization. (b) Each party will use its best efforts to cause the Merger to qualify for "pooling of interest" accounting treatment as described in Section 4.21(a), and will not take any action reasonably likely to cause the Merger not so to qualify. (c) Each party shall use its best efforts to obtain the opinions referred to in Sections 9.1(f) and 9.02(b). Section 8.7. Affiliate Letters. (a) UCC shall use its best efforts to deliver to IP, within 45 days of the date hereof, a letter agreement substantially in the form of Exhibit A-1 hereto executed by each Person who may be deemed to be an "affiliate" of UCC under the Securities Act. (b) IP shall use its best efforts to obtain, within 45 days of the date hereof, a letter agreement substantially in the form of Exhibit A-2 hereto executed by each Person who may be deemed to be an "affiliate" of IP under the Securities Act. (c) Within 30 days following the date hereof, UCC shall cause to be delivered to IP a letter identifying, to the best of UCC's knowledge, all Persons who may be deemed to be "affiliates" of UCC for purposes of Rule 145(c) under the Securities Act. UCC shall use commercially reasonable efforts to cause each such Person who is so identified to deliver to IP on or prior to the Effective Time a letter agreement substantially in the form of Exhibit A-3 to this Agreement. Section 8.8. Confidentiality. Prior to the Effective Time and after any termination of this Agreement each party hereto will hold, and will use its best efforts to cause its officers, directors, employees, accountants, counsel, consultants, advisors and agents to hold, in confidence, unless compelled to disclose by judicial or administrative process or by other requirements of law, all confidential documents and information concerning the other parties hereto and the Subsidiaries furnished to such party in connection with the transactions 44 160 contemplated by this Agreement, except to the extent that such information can be shown to have been (a) previously known on a nonconfidential basis by such party, (b) in the public domain through no fault of such party or (c) later lawfully acquired by such party from sources other than any of the other parties hereto; provided that such party may disclose such information to its officers, directors, employees, accountants, counsel, consultants, advisors and agents in connection with the transactions contemplated by this Agreement so long as such Persons are informed by such party of the confidential nature of such information and are directed by such party to treat such information confidentially. Each party hereto's obligation to hold any such information in confidence shall be satisfied if it exercises the same care with respect to such information as it would take to preserve the confidentiality of its own similar information. If this Agreement is terminated, each party hereto will, and will use its best efforts to cause its officers, directors, employees, accountants, counsel, consultants, advisors and agents to, destroy or deliver to the party from whom such material was obtained, upon request, all documents and other materials, and all copies thereof, obtained by such party or on its behalf from any such other parties in connection with this Agreement that are subject to such confidence. Section 8.9. IP Standstill. If this Agreement is terminated, then, for two years after the date of such termination, IP and each of its successors or assigns will not, and will cause its Affiliates not to: (i) acquire, offer or propose or otherwise seek to acquire, or agree to acquire, directly or indirectly, by merger, purchase or otherwise, beneficial ownership of any assets or in excess of 1% of any class of securities of UCC or its Affiliates or any direct rights or options to acquire (through purchase, exchange, conversion or otherwise) any assets or in excess of 1% of any class of securities of UCC or its Affiliates; (ii) make, or in any way participate in, directly or indirectly, any "solicitation" of "proxies" (as such terms are defined in Rule 14a-1 of Regulation 14A promulgated by the SEC as of the date hereof, disregarding clause (iv) of Rule 14a-1(1)(2), but including any solicitation exempted pursuant to Rule 14a-2(b)(1) to vote (including by the execution of actions by written consent), or seek to advise, encourage or influence any person or entity with respect to the voting of, any voting securities of UCC; (iii) call, or in any way participate in a call for, any meeting of shareholders of UCC (or take any action with respect to shareholders acting by written consent); 45 161 (iv) form, join or in any way participate in a "group" (within the meaning of Section 13(d)(3) of the Exchange Act) with respect to any voting securities of UCC; or (v) otherwise act to control or influence, or seek to control or influence, UCC or the management, Board of Directors, policies or affairs of UCC, including without limitation, (A) making any offer or proposal to acquire any securities or assets of UCC or any of its Affiliates or soliciting or proposing to effect or negotiate any form of business combination, restructuring, recapitalization or other extraordinary transaction involving UCC, its Affiliates or any of their respective securities or assets, (B) seeking board representation or the removal of any directors or a change in the composition or size of the Board of Directors of UCC, (C) making any request to amend or waive any provision of this Section 8.9, (D) disclosing any intent, purpose, plan or proposal with respect to matters covered by this Section 8.9 or UCC, its Affiliates or the boards of directors, management, policies or affairs or securities or assets of UCC or its Affiliates that is inconsistent with this Section 8.9, including an intent, purpose, plan or proposal that is conditioned on, or would require, waiver, amendment, nullification or invalidation of any provision of this Section 8.9, or take any action that could require UCC or any of its Affiliates to make any public disclosure relating to any such intent, purpose, plan, proposal or condition, or (E) assisting, advising or encouraging any person with respect to, or seeking to do, any of the foregoing; provided, however, that this Section 8.9 shall not apply if UCC does not pay any portion of the Termination Fee when due or if IP terminates this Agreement as a result of a willful breach of this Agreement by UCC; provided, further, that, if this Section 8.9 is effective against IP (and each of its successors and their respective Affiliates) during any such two-year period after the date of any such termination, and either (x) UCC shall have entered into an agreement with respect to any transaction that constitutes an Acquisition Proposal (assuming for this purpose that this Agreement had been effective at such time) for at least a majority of either the voting securities of UCC then outstanding or the assets of UCC and the UCC Subsidiaries, taken as a whole or (y) any Person or "group" (as defined in Section 13(d)(3) of the Exchange Act) (other than UCC or any of its Affiliates (excluding, for this purpose, UCC's management acting independently of UCC)) shall have commenced any tender or exchange offer that constitutes an Acquisition Proposal (assuming for this purpose that this Agreement had been effective at such time) for at least a majority of the voting securities of UCC then outstanding which offer is recommended by UCC's Board of Directors to its shareholders, then at the time of the public announcement of such agreement or of the commencement of such offer, as applicable, this Section 8.9 shall terminate 46 162 and have no further force or effect and there shall be no rights, liabilities or obligations under this Section 8.09 on the part of IP, UCC, MergerSub, or any of their respective officers, directors, shareholders, agents or Affiliates. Section 8.10. ASR 135. IP shall use its best efforts to publish as promptly as reasonably practical, but in no event later than 90 days after the end of the first month after the Effective Time in which there are at least 30 days of post-Merger combined operations (which month may be the month in which the Effective Time occurs), combined sales and net income figures as contemplated by and in accordance with the terms of SEC Accounting Series Release No. 135. Section 8.11. Integration Committee. IP recognizes that UCC has a talented group of officers and employees that will be important to the future growth of the combined companies. In recognition of the foregoing, promptly after the date hereof, IP will establish an Integration Committee composed of senior executive officers of both IP and UCC, as selected by IP's Chairman, who will have direct access to him and will be responsible for proposing alternatives and recommendations to him regarding the matters and issues arising in connection with the integration of the two companies and their respective businesses, assets and organizations (including, without limitation, matters arising in connection with the matters contemplated by Section 7.4). ARTICLE 9 Conditions to the Merger Section 9.1. Conditions to the Obligations of Each Party. The obligations of UCC, IP and MergerSub to consummate the Merger are subject to the satisfaction of the following conditions: (a) each of the UCC Shareholder Approval and the IP Shareholder Approval shall have been obtained. (b) the IP Common Shares to be issued in the Merger shall have been authorized for listing on the NYSE, subject to official notice of issuance. (c) (i) the Proxy Statement/Prospectus shall have become effective in accordance with the provisions of the Securities Act, no stop order suspending the effectiveness of the Proxy Statement/Prospectus shall have been issued by the SEC and no proceedings for that purpose shall have been initiated by the SEC and not concluded or withdrawn and (ii) all state securities or blue sky authorizations 47 163 necessary to carry out the transactions contemplated hereby shall have been obtained and be in effect; (d) (i) any applicable waiting period under the HSR Act relating to the Merger shall have expired or been earlier terminated and (ii) if required by applicable law, the parties shall have received a decision from the European Commission under Regulation 4064/89 that the proposed Merger and any matters arising therefrom fall within either Article 6.1(a) or Article 6.1(b) of such Regulation and that, in any event, the Merger will not be referred to any competent authority or dealt with by the European Commission pursuant to Article 9.3 of such Regulation; (e) no Governmental Entity of competent authority or jurisdiction shall have issued any order, injunction or decree, or taken any other action, which permanently restrains, enjoins or otherwise prohibits the consummation of the Merger; (f) (i) IP shall have received a letter from Arthur Andersen LLP dated as of the Closing Date and addressed to IP, stating that Arthur Andersen LLP believes that the acquisition of UCC by IP should be treated as a "pooling of interests" in conformity with GAAP as described in Accounting Principles Board Opinion No. 16 and applicable rules and regulations of the SEC and such letter shall not have been withdrawn or modified in any material respect and (ii) UCC shall have received a letter from PricewaterhouseCoopers LLP dated as of the Closing Date and addressed to UCC, stating that PricewaterhouseCoopers LLP believes that UCC is a pooling candidate for purposes of the transactions contemplated in conformity with GAAP as described in Accounting Principles Board Opinion No. 16 and applicable rules and regulations of the SEC and such letter shall not have been withdrawn or modified in any material respect. Section 9.2. Conditions to the Obligations of UCC. The obligations of UCC to consummate the Merger are subject to the satisfaction of the following further conditions: (a) (i) IP and MergerSub each shall have performed in all material respects all of its obligations hereunder required to be performed by it at or prior to the time of the filing of the Articles of Merger, (ii) (A) the representations and warranties of IP contained in this Agreement that are qualified by reference to an IP Material Adverse Effect shall be true and correct when made and at and as of the time of filing the Articles of Merger, as if made at and as of such time and (B) all other representations and warranties of IP shall have been true and correct when made and at and as of the time of the filing of the Articles of Merger as if made at and as of such time, except for such inaccuracies as are not reasonably 48 164 likely, individually or in the aggregate, to have an IP Material Adverse Effect, and (iii) UCC shall have received a certificate signed by the Chief Executive Officer or Chief Financial Officer of IP to the foregoing effect; (b) UCC shall have received an opinion of Sullivan & Cromwell in form and substance reasonably satisfactory to UCC, on the basis of certain facts, representations and assumptions set forth in such opinion, dated as of the date of the filing of the Articles of Merger, to the effect that the Merger will be treated for federal income tax purposes as a 368 Reorganization and that each of IP, MergerSub and UCC will be a party to the reorganization within the meaning of Section 368(b) of the Code. In rendering such opinion, such counsel shall be entitled to rely upon representations of officers of UCC and IP substantially to the effect of Exhibits B and C hereto respectively, with such modifications as shall be reasonably necessary; and (c) The parties shall have obtained or made all consents, approvals, actions, orders, authorizations, registrations, declarations, announcements and filings contemplated by Sections 4.3 and 5.3 which if not obtained or made (i) would render consummation of the Merger illegal or (ii) (assuming the Effective Time had occurred) would be reasonably likely to have an IP Material Adverse Effect. Section 9.3. Conditions to the Obligations of IP and MergerSub. The obligations of IP and MergerSub to consummate the Merger are subject to the satisfaction of the following further conditions: (a) (i) UCC shall have performed in all material respects all of its obligations hereunder required to be performed by it at or prior to the Effective Time, (ii) (A) the representations and warranties of UCC contained in this Agreement that are qualified by reference to a UCC Material Adverse Effect shall be true and correct when made and at and as of the time of the filing of the Articles of Merger, as if made at and as of such time and (B) all other representations and warranties of UCC shall have been true and correct when made and at and as of the time of filing of the Articles of Merger, as if made as of such time, except for such inaccuracies as are not reasonably likely, individually or in the aggregate, to have a UCC Material Adverse Effect, and (iii) IP shall have received a certificate signed by the Chief Executive Officer, President or Chief Financial Officer of UCC to the foregoing effect; and (b) The parties shall have obtained or made all consents, approvals, actions, orders, authorizations, registrations, declarations, announcements and filings contemplated by Sections 4.3 and 5.3 which if not obtained or made (i) would render consummation of the Merger illegal or (ii) (assuming the Effective 49 165 Time had occurred) would be reasonably likely to have an IP Material Adverse Effect or a UCC Material Adverse Effect. ARTICLE 10 Termination Section 10.1. Termination. This Agreement may be terminated at any time prior to the Effective Time by written notice by the terminating party to the other party (except if such termination is pursuant to Section 10.1(a)), whether before or after the UCC Shareholder Approval and/or the IP Shareholder Approval shall have been obtained: (a) by mutual written agreement of IP and UCC. (b) by either IP or UCC, if (i) the Merger shall not have been consummated by September 30, 1999 (the "End Date"); provided, however, that the right to terminate this Agreement under this Section 10.1(b)(i) shall not be available to any party whose breach of any provision of this Agreement has resulted in the failure of the Merger to occur on or before the End Date; (ii) there shall be any law or regulation that makes consummation of the Merger illegal or otherwise prohibited or any judgment, injunction, order or decree of any Governmental Entity having competent jurisdiction enjoining UCC, IP or MergerSub from consummating the Merger is entered and such judgment, injunction, judgment or order shall have become final and nonappealable and, prior to such termination, the parties shall have used reasonable best efforts to resist, resolve or lift, as applicable, such law, regulation, judgment, injunction, order or decree; (iii) at the IP Shareholder Meeting (including any adjournment or postponement thereof), the IP Shareholder Approval shall not have been obtained; or (iv) at the UCC Shareholder Meeting (including any adjournment or postponement thereof), the UCC Shareholder Approval shall not have been obtained. 50 166 (c) by UCC, (i) if IP's Board of Directors shall have amended, modified, withdrawn, conditioned or qualified the IP Recommendation in a manner adverse to UCC; (ii) if a breach of any representation, warranty, covenant or agreement on the part of IP or MergerSub set forth in this Agreement shall have occurred which would cause the condition set forth in Section 9.2(a) not to be satisfied, and such condition shall be incapable of being satisfied by the End Date; or (iii) as contemplated by Section 6.3(d). (d) by IP, (i) if UCC's Board of Directors shall have (A) amended, modified, withdrawn, conditioned or qualified the UCC Recommendation in a manner adverse to IP and/or (B) recommended any Acquisition Proposal to UCC's shareholders; (ii) if there shall have occurred a willful and material breach of Section 6.3 by UCC, any UCC Subsidiary or any of their respective officers, directors, employees, advisors or other agents; (iii) pursuant to the terms of Section 6.3(d); or (iv) if a breach of or failure to perform any representation, warranty, covenant or agreement on the part of UCC set forth in this Agreement shall have occurred which would cause the condition set forth in Section 9.3(a) not to be satisfied, and such condition is incapable of being satisfied by the End Date. Section 10.2. Effect of Termination. If this Agreement is terminated pursuant to Section 10.1 (including any such termination by way of Section 6.3(d)), there shall be no liability or obligation on the part of IP, UCC, MergerSub, or any of their respective officers, directors, shareholders, agents or Affiliates, except as set forth in Section 10.3 which (without limiting in any respect the respective rights and obligations of the parties set forth in Section 11.9 prior to any termination in accordance with the terms of this Agreement) shall be the sole and exclusive remedy of the parties hereto in the event of such termination; provided that the provisions of Sections 8.8, 8.9 (except as noted therein and, solely in connection with Section 8.9, Section 11.9), 10.2, 10.3, 11.1, 11.4, 11.5, 11.7, 11.8 and 11.10 of this Agreement shall remain in full force and effect and survive any termination of this Agreement. Section 10.3. Fees and Expenses. (a) Except as set forth in this Section 10.3, all fees and expenses incurred in connection herewith and the transactions contemplated hereby shall be paid by the party incurring such expenses, whether or not the Merger is consummated. (b) If this Agreement is terminated pursuant to Section 10.1(c)(iii), Section 10.1(d)(i)(B), Section 10.1(d)(ii) or Section 10.01(d)(iv) (but only if the failure to satisfy the condition specified therein results from a willful breach by UCC of any of its representations, warranties, covenants or agreements contained 51 167 herein), UCC shall (i) pay to IP a termination fee equal to $150 million (the "Termination Fee") and (ii) reimburse IP for its actual, documented out-of-pocket expenses incurred to third parties in connection with the transactions contemplated hereby not to exceed $10 million. (c) If this Agreement is terminated by either party pursuant to Section 10.1(b)(iv) and (x) prior to the UCC Shareholder Meeting, any Person or "group" (as defined in Section 13(d)(3) of the Securities Act) shall have publicly announced an intention (whether or not conditional) to make an Acquisition Proposal and (y) concurrently with or within 12 months after such termination, a Third Party Acquisition Event occurs with the party that had publicly announced such Acquisition Proposal or any Affiliate thereof, UCC shall (i) (A) pay to IP 50% of the Termination Fee within one Business Day of the entering into of any agreement constituting such a Third Party Acquisition Event and (B) reimburse IP at such time for IP's actual, documented out-of-pocket expenses incurred to third parties in connection with the transactions contemplated hereby not to exceed $10 million and (ii) within one Business Day of any consummation of the transaction contemplated by such Third Party Acquisition Event (including any revisions or amendments thereto) pay to IP 50% of the Termination Fee. A "Third Party Acquisition Event" means (i) the consummation of an Acquisition Proposal involving the purchase of a majority of either the equity securities of UCC or of the consolidated assets of UCC and the UCC Subsidiaries, taken as a whole, or any such transaction that, if it had been proposed prior to the termination of this Agreement would have constituted an Acquisition Proposal or (ii) the entering into by UCC or any of the UCC Subsidiaries of a definitive agreement with respect to any such transaction. (d) If this Agreement is terminated pursuant to Section 10.01(d)(i)(A), (i) UCC shall (A) pay to IP 50% of the Termination Fee and (B) reimburse IP for IP's actual, documented out-of-pocket expenses incurred to third parties in connection with the transaction contemplated by this Agreement not to exceed $10 million and (ii) if concurrently with or within 12 months after such termination a Third Party Acquisition Event occurs, then UCC shall pay to IP 50% of the Termination Fee within one Business Day of the consummation of the transaction contemplated by such Third Party Acquisition Event. (e) If this Agreement is terminated pursuant to Section 10.1(b)(iii) or 10.01(c)(ii) (but only if the failure to satisfy the condition specified therein results from a willful breach by IP or MergerSub of any of its representations, warranties, covenants or agreements contained herein), IP shall (i) pay to UCC the Termination Fee and (ii) reimburse UCC for its actual, documented out-of-pocket 52 168 expenses incurred to third parties in connection with the transactions contemplated hereby not to exceed $10 million. (f) If this Agreement is terminated pursuant to Section 10.01(c)(i), then IP shall (i) pay to UCC 50% of the Termination Fee and (ii) reimburse UCC for UCC's actual, documented out-of-pocket expenses incurred to third parties in connection with the transactions contemplated by this Agreement not to exceed $10 million. (g) Any payment of the Termination Fee (and reimbursement of expenses) pursuant to this Section 10.3 shall be made within one Business Day after termination of this Agreement (or as otherwise expressly set forth in this Agreement). If one party fails to pay to (or reimburse) the other promptly any fee or expense due hereunder (including the Termination Fee), the defaulting party shall pay the costs and expenses (including legal fees and expenses) in connection with any action, including the filing of any lawsuit or other legal action, taken to collect payment, together with interest on the amount of any unpaid fee and/or expense at the publicly announced prime rate of Citibank, N.A. from the date such fee was required to be paid to the date it is paid. ARTICLE 11 Miscellaneous Section 11.1. Notices. Except as otherwise expressly set forth in Section 6.3(c), all notices, requests and other communications to any party hereunder shall be in writing (including facsimile or similar writing) and shall be given, if to IP or MergerSub, to: International Paper Company Two Manhattanville Road Purchase, NY 10577 Attention: William B. Lytton Facsimile: (914) 397-1909 53 169 with a copy to: Davis Polk & Wardwell 450 Lexington Avenue New York, NY 10017 Attention: Dennis S. Hersch Facsimile: (212) 450-4800 if to UCC, to: Union Camp Corporation 1600 Valley Road Wayne, NJ 07470 Attention: Dirk R. Soutendijk Facsimile: (973) 628-2640 with a copy to: Sullivan & Cromwell 125 Broad Street New York, NY 10004 Attention: James C. Morphy Facsimile: (212) 558-3588 or such other address or facsimile number as such party may hereafter specify for the purpose by notice to the other parties hereto. Each such notice, request or other communication shall be effective (a) if given by facsimile, when such facsimile is transmitted to the facsimile number specified in this Section and the appropriate facsimile confirmation is received or (b) if given by any other means, when delivered at the address specified in this Section. Section 11.2. Survival of Representations, Warranties and Covenants after the Effective Time. The representations and warranties contained herein and in any certificate or other writing delivered pursuant hereto shall not survive the Effective Time or the termination of this Agreement. The covenants contained in Articles 2 and 3 and Sections 6.04, 7.03, 7.04, 8.10, 8.11, 11.02, 11.04, 11.05, 11.06, 11.07 and 11.10 shall survive the Effective Time. Section 11.3. Amendments; No Waivers. (a) Any provision of this Agreement may be amended or waived prior to the Effective Time if, and only if, such amendment or waiver is in writing and signed, in the case of an amendment, by UCC, IP and MergerSub or in the case of a waiver, by the party against whom the waiver is to be effective; provided that (i) after the UCC Shareholder 54 170 Approval, no such amendment or waiver shall, without the further approval of such shareholders, be made that would require such approval under any applicable law, rule or regulation and (ii) after the IP Shareholder Approval, no such amendment or waiver shall, without the further approval of such shareholders, be made that would require such approval under any applicable law, rule or regulation. (b) No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. Section 11.4. Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, provided that no party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of the other parties hereto, except that IP or MergerSub may transfer or assign to any wholly owned IP Subsidiary the right to enter into the transactions contemplated by this Agreement, provided that no such assignment shall be permitted if it would delay or impede the Merger or any of the other transactions contemplated by this Agreement, and any such transfer or assignment will not relieve IP or MergerSub of its obligations hereunder. Any purported assignment in violation hereof shall be null and void. Section 11.5. Governing Law. Except to the extent that the laws of the State of New York, the Commonwealth of Virginia, the State of Delaware or any other jurisdiction are mandatorily applicable to the matters arising under or in connection with this Agreement, this Agreement shall be construed in accordance with and governed by the internal laws of the State of New York. Section 11.6. Counterparts; Effectiveness; Third Party Beneficiaries. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received counterparts hereof signed by all of the other parties hereto. Except as set forth in Sections 3.4, 7.3 and 7.4(b), no provision of this Agreement is intended to confer upon any Person other than the parties hereto any rights or remedies hereunder. Section 11.7. Jurisdiction. Except as otherwise expressly provided in this Agreement, the parties hereto agree that any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in 55 171 connection with, this Agreement or the transactions contemplated hereby shall be brought in the United States District Court for the Southern District of New York or any other New York State court sitting in New York City, and each of the parties hereby consents to the exclusive jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 11.1 shall be deemed effective service of process on such party. Section 11.8. Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. Section 11.9. Enforcement. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms. It is accordingly agreed that the parties shall be entitled to specific performance of the terms hereof, this being in addition to any other remedy to which they are entitled at law or in equity. Section 11.10. Entire Agreement. This Agreement (together with the exhibits and schedules hereto) constitutes the entire agreement between the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both oral and written, between the parties with respect to the subject matter hereof. 56 172 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. UNION CAMP CORPORATION By: /s/ W. Craig McClelland -------------------------------- Name: W. Craig McClelland Title: Chief Executive Officer INTERNATIONAL PAPER COMPANY By: /s/ James P. Melican -------------------------------- Name: James P. Melican Title: Executive Vice President MAPLE ACQUISITION, INC. By: /s/ James P.Melican -------------------------------- Name: James P. Melican Title: President 57 173 [LETTERHEAD OF GOLDMAN, SACHS & CO.] PERSONAL & CONFIDENTIAL ANNEX B November 24, 1998 Board of Directors Union Camp Corporation 1600 Valley Road Wayne, NJ 07470 Ladies and Gentlemen: You have requested our opinion as to the fairness from a financial point of view to the holders (other than International Paper Company ("IP") or any of its subsidiaries) ("Holders") of the outstanding shares of Common Stock, par value $1.00 per share (the "Shares"), of Union Camp Corporation (the "Company") of the Exchange Ratio (as defined below) pursuant to the Agreement and Plan of Merger, dated as of November 24, 1998 (the "Agreement"), among IP, Maple Acquisition, Inc., a wholly-owned subsidiary of IP ("MergerSub"), and the Company. Pursuant to the Agreement, the Company will be merged with MergerSub and each outstanding Share will be converted into the right to receive a certain number (the "Exchange Ratio") of shares of Common Stock, par value $1.00 per share (the "IP Shares"), of IP. The Exchange Ratio shall be determined by dividing $71.00 by the Average IP Share Price (as defined in the Agreement), provided that, (i) if the Average IP Share Price is less than $43.70, the Exchange Ratio shall be 1.6247 and (ii) if the Average IP Share Price is greater that $48.30, the Exchange Ratio shall be 1.4700. Goldman, Sachs & Co., as part of its investment banking business, is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. We are familiar with the Company having provided certain investment banking services to the Company from time to time, including having acted as lead manager of a public offering of $150 million of 6.50% Notes due November 15, 2007 in November 1997 and as lead manager of a public offering of $150 million of 7% Notes due August 15, 2006 in August 1996; having acted as co-dealer on the Company's commercial paper program; and having acted as its financial advisor in connection with, and having participated in certain of the negotiations leading to, the Agreement. We also have provided certain investment 174 banking services to IP from time to time, including acting as sole dealer for IP's commercial paper program, and may provide investment banking services to IP in the future. Goldman Sachs provides a full range of financial advisory and securities services and, in the course of its normal trading activities may from time to time effect transactions and hold securities, including derivative securities, of the Company or IP for its own account and for the accounts of customers. In connection with this opinion, we have reviewed, among other things, the Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of the Company and IP for the five years ended December 31, 1997; certain interim reports to stockholders and Quarterly Reports on Form 10-Q of the Company and IP; certain other communications from the Company and IP to their respective stockholders; and certain internal financial analyses and forecasts for the Company prepared by its management, including certain cost savings and operating synergies projected by the management of the Company to result from the transaction contemplated by the Agreement (the "Synergies"). We also have held discussions with members of the senior management of the Company and IP regarding the strategic rationale for, and the potential benefits of, the transaction contemplated by the Agreement and the past and current business operations, financial condition and future prospects of their respective companies. In addition, we have reviewed the reported price and trading activity for the Shares and IP Shares, compared certain financial and stock market information for the Company and IP with similar information for certain other companies the securities of which are publicly traded, reviewed the financial terms of certain recent business combinations in the paper and forest products industry specifically and in other industries generally, and performed such other studies and analyses as we considered appropriate. We have relied upon the accuracy and completeness of all of the financial and other information reviewed by us and have assumed such accuracy and completeness for purposes of rendering this opinion. In that regard, we have assumed with your consent that the Synergies prepared by the management of the Company have been reasonably prepared on a basis reflecting the best currently available estimates and judgments of the Company. As you are aware, we were informed by the senior management of IP that internal financial projections for IP were not available. Accordingly, our review of IP's future financial performance for purposes of rendering our opinion was limited to discussions with the management of IP of certain research analysts' estimates of IP's future financial performance. In addition, we have not made an independent evaluation or appraisal of the assets and liabilities of the Company or IP or any of their subsidiaries and we have not been furnished with any such evaluation or appraisal. We also have assumed with your consent that the transaction contemplated by the Agreement will be accounted for as a pooling-of-interests under generally accepted accounting principles. Our advisory services and the opinion expressed herein are provided for the information and assistance of the 175 Board of Directors of the Company in connection with its consideration of the transaction contemplated by the Agreement and such opinion does not constitute a recommendation as to how any holder of Shares should vote with respect to such transaction. Based upon and subject to the foregoing and based upon such other matters as we consider relevant, it is our opinion that as of the date hereof the Exchange Ratio pursuant to the Agreement is fair from a financial point of view to the Holders of Shares. Very truly yours, /s/ Goldman, Sachs & Co. 176 [LETTERHEAD OF CREDIT SUISSE FIRST BOSTON CORPORATION] Annex C November 24, 1998 Board of Directors International Paper Company Two Manhattanville Road Purchase, NY 10577 Members of the Board: You have asked us to advise you with respect to the fairness to International Paper Company ("IP") from a financial point of view of the Exchange Ratio (as defined below) set forth in the Agreement and Plan of Merger, dated as of November 24, 1998 (the "Merger Agreement"), by and among Union Camp Corporation (the "Company"), IP and Maple Acquisition, Inc., a wholly owned subsidiary of IP ("Sub"). The Merger Agreement provides for, among other things, the merger (the "Merger") of Sub with and into the Company pursuant to which each outstanding share of common stock, par value $1.00 per share, of the Company (the "Company Common Shares") will be converted into the right to receive that number of shares of the common stock, par value $1.00 per share, of IP (the "IP Common Shares") equal to a fraction, (x) the numerator of which will be $71.00 and (y) the denominator of which will be the Average IP Share Price (as defined below) (the aggregate number of shares of IP Common Shares into which the Company Common Shares will be so converted, the "Exchange Ratio"), provided, that (i) if the Average IP Share Price is less than $43.70, the Exchange Ratio shall be 1.6247 and (ii) if the Average IP Share Price is greater than $48.30, the Exchange Ratio shall be 1.4700. As defined in the Merger Agreement, (i) "Average IP Share Price" means the average closing price per IP Common Share on the New York Stock Exchange, Inc. (the "NYSE") Composite Tape for the Random Trading Days and (ii) "Random Trading Days" means the ten trading days selected by lot out of the twenty trading days ending on and including the fifth trading day preceding the effective time of the Merger. In arriving at our opinion, we have reviewed the Merger Agreement and certain publicly available business and financial information relating to IP and the Company. We have also reviewed certain other information relating to IP and the Company, including financial forecasts from publicly available sources, and have met with management of IP and the Company to discuss the businesses and prospects of IP and the Company. We have also considered certain financial and stock market data of IP and the Company, and we have compared those data with similar data for other publicly held companies in businesses similar to IP and the Company and we have considered, to the extent publicly available, the financial terms of certain other business combinations and other transactions which have recently been effected. We also considered such other information, financial studies, analyses and investigations and financial, economic and market criteria which we deemed relevant. In connection with our review, we have not assumed any responsibility for independent verification of any of the foregoing information and have relied on it being complete and accurate in all material respects. With respect to the publicly available financial forecasts, IP management has reviewed such forecasts and has 177 informed us that it believes that such forecasts represent reasonable estimates and judgements of the future financial performance of IP and the Company. With respect to the cost savings and other potential synergies (including the amount, timing and achievability thereof) anticipated to result from the Merger IP management has informed us, and we have assumed, that such estimates represent the best currently available estimates of the management of IP and the Company. IP management has informed us, and we have assumed, that the Merger will be treated as a tax-free reorganization for federal income tax purposes and accounted for as a pooling of interests in accordance with generally accepted accounting principles. In addition, we have not been requested to make, and have not made, an independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of IP or the Company, nor have we been furnished with any such evaluations or appraisals. Our opinion is necessarily based upon information available to us and financial, economic, market and other conditions as they exist and can be evaluated on the date hereof. We are not expressing any opinion as to what the value of the IP Common Shares actually will be when issued pursuant to the Merger or the prices at which the IP Common Shares will trade subsequent to Merger. We have acted as financial advisor to IP in connection with the Merger and will receive a fee for our services, a significant portion of which is contingent upon the consummation of the Merger. We have provided in the past, and are currently providing, financial services to IP and its affiliates unrelated to the proposed Merger, for which services we have received compensation. In the ordinary course of business, Credit Suisse First Boston and its affiliates may actively trade the debt and equity securities of IP and the Company for their own accounts and for the accounts of customers and, accordingly, may at any time hold long or short positions in such securities. It is understood that this letter is for the information of the Board of Directors of IP in connection with its evaluation of the Merger, does not constitute a recommendation to any stockholder as to how such stockholder should vote with respect to any matter relating to the Merger, and is not to be quoted or referred to, in whole or in part, in any registration statement, prospectus or proxy statement, or in any other document used in connection with the offering or sale of securities, nor shall this letter be used for any other purposes, without our prior written consent. Based upon and subject to the foregoing, it is our opinion that, as of the date hereof, the Exchange Ratio is fair to IP from a financial point of view. Very truly yours, CREDIT SUISSE FIRST BOSTON CORPORATION By: /s/ Jeffrey Salzman ------------------- 178 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. INDEMNIFICATION. Section 721 of the New York Business Corporation Law ("NYBCL") provides that, in addition to indemnification provided in Article 7 of the NYBCL, a corporation may indemnify a director or officer by a provision contained in the certificate of incorporation or by-laws or by a duly authorized resolution of its shareholders or directors or by agreement, provided that no indemnification may be made to or on behalf of any director or officer if a judgment or other final adjudication adverse to the director or officer establishes that his acts were committed in bad faith or were the result of active and deliberate dishonesty and material to the cause of action, or that such director or officer personally gained in fact a financial profit or other advantage to which he was not legally entitled. Section 722(a) of the NYBCL provides that a corporation may indemnify a director or officer made, or threatened to be made, a party to any action other than a derivative action, whether civil or criminal, against judgments, fines, amounts paid in settlement and reasonable expenses actually and necessarily incurred as a result of such action, if such director or officer acted, in good faith, for a purpose which he reasonably believed to be in, or not opposed to, the best interests of the corporation and, in criminal actions or proceedings, in addition, has no reasonable cause to believe that his conduct was unlawful. Section 722(c) of the NYBCL provides that a corporation may indemnify a director or officer, made or threatened to be made a party in a derivative action, against amounts paid in settlement and reasonable expenses actually and necessarily incurred by him in connection with the defense or settlement of such action or in connection with an appeal therein if such director or officer acted, in good faith, for a purpose which he reasonably believed to be in, or not opposed to, the best interests of the corporation, except that no indemnification will be available under Section 722(c) of the NYBCL in respect of a threatened or pending action which is settled or otherwise disposed of or any claim as to which such director or officer shall have been adjudged liable to the corporation, unless and only to the extent that the court in which the action was brought, or, if no action was brought, any court of competent jurisdiction, determines, upon application, that, in view of all the circumstances of the case, the director or officer is fairly and reasonably entitled to indemnity for such portion of the settlement amount and expenses as the court deems proper. Section 723 of the NYBCL specifies the manner in which payment of indemnification under Section 722 of the NYBCL or indemnification permitted under Section 721 of the NYBCL may be authorized by the corporation. It provides that indemnification may be authorized by the corporation. It provides that indemnification by a corporation is mandatory in any case in which the director or officer has been successful, whether on the merits or otherwise, in defending an action. In the event that the director or officer has not been successful or the action is settled, indemnification must be authorized by the appropriate corporate action as set forth in Section 723. Section 724 of the NYBCL provides, that, upon application by a director or officer, indemnification may be awarded by a court to the extent authorized under Section 722 and Section 723 of the NYBCL contains certain other miscellaneous provisions affecting the indemnification of directors and officers. II-1 179 Section 726 of the NYBCL authorizes the purchase and maintenance of insurance to indemnify (1) a corporation for any obligation which it incurs as a result of the indemnification of directors and officers under the above section, (2) directors and officers in instances in which they may be indemnified by a corporation under such section, and (3) directors and officers in instances in which they may not otherwise be indemnified by a corporation under such section, provided the contract of insurance covering such directors and officers provides, in a manner acceptable to the New York State Superintendent of Insurance, for a retention amount and for co-insurance. Article VII of the Restated Certificate of Incorporation of International Paper provides in part as follows: "Each Director of the Corporation shall be indemnified by the Corporation against expenses actually and necessarily incurred by him in connection with the defense of any action, suit or proceeding in which he is made a party by reason of his being or having been a Director of the Corporation, except in relation to matters as to which he shall be adjudged in such action, suit or proceeding to be liable for negligence or misconduct in the performance of his duties as such Director, provided that such right of indemnification shall not be deemed exclusive of any other rights to which a Director of the Corporation may be entitled, under any by-law, agreement, vote of stockholders or otherwise." Article IX of the By-laws, as amended, of International Paper provides as follows: "The Corporation shall indemnify each Officer or Director who is made, or threatened to be made, a party to any action by reason of the fact that he or she is or was an Officer or Director of the Corporation, or is or was serving at the request of the Corporation in any capacity for the Corporation or any other enterprise, to the fullest extent permitted by applicable law. The Corporation may, so far as permitted by law, enter into an agreement to indemnify and advance expenses to any Officer or Director who is made, or threatened to be made, a party to any such action." INSURANCE. International Paper has purchased certain liability insurance for its officers and directors as permitted by Section 727 of the NYBCL and has entered into indemnity agreements with its directors and certain officers providing indemnification in addition to that provided under the NYBCL as permitted by Section 721 of the NYBCL. UNION CAMP DIRECTORS AND OFFICERS. The merger agreement provides that Union Camp's indemnification provisions shall survive the merger and shall not be modified for at least six years after the Effective Time in any manner that would adversely affect the rights of persons indemnified thereunder. The Union Camp bylaws provide that Union Camp shall indemnify a director or officer of Union Camp who is or was made a party to any proceeding by reason of the fact that he is or was such a director or officer or is or was serving any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, at the request of Union Camp if: - he believed, in the case of conduct in his official capacity, that his conduct was in the best interests of the corporation, and in all other cases that his conduct was at least not opposed to the corporation's best interests and, in the case of any criminal proceeding, he had no reasonable cause to believe his conduct was unlawful; - in connection with a proceeding by or in the right of Union Camp, he was not adjudged liable to Union Camp; and II-2 180 - in connection with any proceeding charging improper benefit to him, whether or not involving action in his official capacity, he was not adjudged liable on the basis that personal benefit was improperly received by him. Furthermore, the Union Camp bylaws provide that each director and officer of Union Camp shall be indemnified against all costs and expenses reasonably incurred by or imposed upon him in connection with or resulting from any action, suit or proceeding to which he may be made a party by reason of his being or having been a director or officer of Union Camp, whether or not he continues to be a director or officer at the time of incurring such cost or expense, except in relation to matters as to which a recovery shall be had against him by reason of his having been finally adjudged in such action, suit or proceeding to have been derelict in the performance of his duty as a director or officer. The merger agreement also provides that Union Camp shall indemnify and hold harmless, and, after the effective time of the merger, International Paper shall, and shall cause the surviving corporation to, indemnify and hold harmless, to the fullest extent permitted under applicable law, each present and former director or officer of Union Camp and each Union Camp subsidiary against all liabilities and expenses, including reasonable attorneys' fees, arising out of or pertaining to any action or omission in their capacity as an officer or director, in each case occurring before the Effective Time (including the transactions contemplated by the merger agreement). For six years from the effective time of the merger, the surviving corporation shall provide to Union Camp's current directors and officers liability insurance protection of the same kind and scope as that provided by Union Camp's directors' and officers' liability insurance policies as of the date hereof; provided, however, that in no event shall the surviving corporation be required to expend in any one year an amount in excess of 200% of the annual premiums currently paid by Union Camp for such insurance; and, provided, further, that if the annual premiums of such insurance coverage exceed such amount, the surviving corporation shall be obligated to obtain a policy with the greatest coverage available for a cost not exceeding such amount. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) List of Exhibits
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 2 Agreement and Plan of Merger dated as of November 24, 1998 among International Paper Company, Union Camp Corporation and Maple Acquisition, Inc. (included as Annex A to the Joint Proxy Statement/Prospectus contained in this Registration Statement). 3(a) Form of Restated Certificate of Incorporation of International Paper (incorporated by reference to International Paper's registration statement on Form 8-K dated November 20, 1990). 3(b) Form of Restated Bylaws of International Paper (incorporated by reference to International Paper's registration statement on Form 8-K dated September 10, 1998). 4 Specimen Common Stock Certificate (incorporated by reference to Exhibit 2-A to the International Paper's registration statement on Form S-7, no. 2-56588, dated June 10, 1976).
II-3 181
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 5 Opinion of Davis Polk & Wardwell regarding the validity of the securities being registered.* 8 Opinion of Sullivan & Cromwell regarding certain federal income tax consequences relating to the merger.* 8(a) Opinion of Hunton & Williams regarding the validity of the merger under Virginia law.* 23(a) Consent of Arthur Andersen LLP.* 23(b) Consent of PricewaterhouseCoopers LLP.* 23(c) Consent of Davis Polk & Wardwell (included in the opinion filed as Exhibit 5 to this Registration Statement). 23(d) Consent of Sullivan & Cromwell (included in the opinion filed as Exhibit 8 to this Registration Statement). 24 Power of Attorney.* 99(a) Consent of Goldman, Sachs & Co.* 99(b) Consent of Credit Suisse First Boston Corporation.* 99(c) Form of International Paper Proxy Card and related materials.* 99(d) Form of Union Camp Proxy Card and related materials.* 99(e) Consent of W. Craig McClelland to Become a Director of International Paper Company.*
* Filed previously with Registration Statement on Form S-4 (No. 333-75235) on March 30, 1999. (b) Not applicable. (c) The opinions of Goldman, Sachs & Co. and Credit Suisse First Boston Corporation are included as Annex B and Annex C, respectively, to the Joint Proxy Statement/Prospectus contained in this Registration Statement. ITEM 22. UNDERTAKINGS. The undersigned registrant hereby undertakes: (a) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1993; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than II-4 182 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned registrant hereby undertakes: (1) That prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (2) That every prospectus (i) that is filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Securities Act of 1933 and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) That, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (4) To respond to requests for information that is incorporated by reference into the Joint Proxy Statement/Prospectus pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. II-5 183 (5) To supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. (c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-6 184 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 1 to Registration Statement Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the County of Westchester, State of New York, on March 30, 1999. INTERNATIONAL PAPER COMPANY (Registrant) Date: March 30, 1999 By: /s/ JAMES W. GUEDRY --------------------------------------- James W. Guedry, Vice President and Secretary POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints James W. Guedry and Barbara Smithers, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) and supplements to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and hereby grants to such attorneys-in-fact and agents, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- * Chairman, Chief Executive March 30, 1999 - --------------------------------------------------- Officer and Director (Principal (John T. Dillon) Executive Officer) * Executive Vice President and March 30, 1999 - --------------------------------------------------- Director (C. Wesley Smith) * Senior Vice President and Chief March 30, 1999 - --------------------------------------------------- Financial Officer (Principal (Marianne M. Parrs) Financial Officer) * Vice President and Controller March 30, 1999 - --------------------------------------------------- (Principal Accounting Officer) (Andrew R. Lessin) * Director March 30, 1999 - --------------------------------------------------- (Peter I. Bijur)
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