SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 28, 1997 or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ________
Commission File Number 1-4825
WEYERHAEUSER COMPANY
A Washington Corporation (IRS Employer Identification
No. 91-0470860)
Tacoma, Washington 98477
Telephone (253) 924-2345
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
- ------------------------------- --------------------------
Common Shares ($1.25 par value) Chicago Stock Exchange
New York Stock Exchange
Pacific Stock Exchange
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes
_X_ No___.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K. [ ].
As of February 27, 1998, 198,568,139 shares of the registrant's common
stock ($1.25 par value) were outstanding and the aggregate market
value of the registrant's voting shares held by non-affiliates was
approximately $9,915,996,441.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the fiscal year
ended December 28, 1997 are incorporated by reference into Parts I, II and
IV.
Portions of the Notice of 1998 Annual Meeting of Shareholders and
Proxy Statement are incorporated by reference into Part III.
<PAGE>
Weyerhaeuser Company and Subsidiaries
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I Page
----
<S> <C>
Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market Price of and Dividends on the Registrant's
Common Equity and Related Stockholder Matters 13
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 8. Financial Statements and Supplementary Information 13
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 13
PART III
Item 10. Directors and Executive Officers of the Registrant 14
Item 11. Executive Compensation 14
Item 12. Security Ownership of Certain Beneficial Owners
and Management 14
Item 13. Certain Relationships and Related Transactions 14
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 15
Signatures 16
Report of Independent Public Accountants on Financial
Statement Schedules 17
Schedule II Valuation and Qualifying Accounts 18
</TABLE>
2
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART I
Item 1. Business
- -----------------
Weyerhaeuser Company (the company) was incorporated in the state of
Washington in January 1900 as Weyerhaeuser Timber Company. It is
principally engaged in the growing and harvesting of timber and the
manufacture, distribution and sale of forest products, real estate
development and construction, and other real estate related
activities. Its business segments are timberlands and wood products;
pulp, paper and packaging; and real estate and related assets.
Information with respect to the description and general development of the
company's business, included on pages 30 through 34, Description of the
Business of the Company, contained in the company's 1997 Annual Report to
Shareholders, is incorporated herein by reference.
Financial information with respect to industry segments, included in Note
19 of Notes to Financial Statements contained in the company's 1997
Annual Report to Shareholders, is incorporated herein by reference.
Timberlands and Wood Products
The company is engaged in the management of 5.2 million acres of
company-owned and .2 million acres of leased commercial forestland in the
United States (60% in the South and 40% in the Pacific Northwest), most of
it highly productive and located extremely well to serve both domestic and
international markets. The company has, additionally, long-term license
arrangements in Canada covering approximately 23.7 million acres (of
which 16.5 million acres are considered to be productive forestland). The
combined total timber inventory on these U.S. and Canadian lands is
approximately 273 million cunits (a cunit is 100 cubic feet of solid
wood), of which approximately 75% is softwood species. The relationship
between cubic measurement and the quantity of end products that may be
produced from timber varies according to the species, size and quality
of timber, and will change through time as the mix of these variables
changes. To sustain the timber supply from its fee timberlands, the
company is engaged in extensive planting, suppression of
nonmerchantable species, precommercial and commercial thinning,
fertilization and operational pruning, all of which increase the yield
from its fee timberland acreage.
<TABLE>
<CAPTION>
Inventory Thousands of Acres at December 28, 1997
--------- -------------------------------------------
Millions Fee Long-term License
of Cunits Ownership Leases Arrangements Total
--------- --------- --------- ------------ -------
<S> <C> <C> <C> <C> <C>
Geographic Area
United States
West 57 2,048 -- -- 2,048
South 36 3,123 237 -- 3,360
--------- --------- --------- ------------ -------
Total United States 93 5,171 237 -- 5,408
--------- --------- --------- ------------ -------
Canada
Alberta 91 -- -- 7,453 7,453
British Columbia 10 38 -- 3,800 3,838
Saskatchewan 79 -- -- 12,462 12,462
--------- --------- --------- ------------ -------
Total Canada 180 38 -- 23,715 23,753
--------- --------- --------- ------------ -------
TOTAL 273 5,209 237 23,715 29,161
========= ========= ========= ============ =======
</TABLE>
<TABLE>
<CAPTION>
Thousands of Acres
Thousands of Acres Millions of -----------------------
------------------ Seedlings Stocking
Harvested Planted Planted Control Fertilization
--------- ------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C>
1997 Activity
West 35.6 32.3 17.2 5.3 73.2
South 55.2 55.4 31.2 -- 200.0
--------- ------- ----------- --------- -------------
Total United States 90.8 87.7 48.4 5.3 273.2
========= ======= =========== ========= =============
</TABLE>
3
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART I
Item 1. Business - Continued
- -----------------------------
The company's wood products businesses produce and sell softwood
lumber, plywood and veneer; composite panels; oriented strand board;
hardwood lumber and plywood; doors; treated products; logs; chips and
timber. These products are sold primarily through the company's own
sales organizations. Building materials are sold to wholesalers,
retailers and industrial users.
Sales volumes by major product class are as follows (millions):
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Raw materials - cubic ft. 584 577 535 564 547
Softwood lumber - board ft. 4,869 4,745 4,515 4,402 4,230
Softwood plywood and veneer -
sq. ft. (3/8") 2,042 2,172 2,324 2,685 2,435
Composite panels - sq. ft. (3/4") 551 604 648 660 626
Oriented strand board -
sq. ft. (3/8") 2,462 2,083 1,931 1,803 1,672
Hardboard - sq. ft. (7/16") -- 193 201 167 140
Hardwood lumber - board ft. 362 349 293 254 240
Engineered wood products - lineal ft. 137 116 128 71 47
Hardwood doors (thousands) 730 652 648 617 556
</TABLE>
Selected product prices:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Export logs (#2 sawlog-bark on) -$/MBF
Cascade - Douglas fir $1,065 $1,330 $1,365 $1,168 $1,224
Coastal - Hemlock 628 611 750 804 831
Coastal - Douglas fir 981 1,246 1,217 1,085 1,104
Lumber (common) - $/MBF
2x4 Douglas fir (kiln dried) 418 422 332 408 418
2x4 Douglas fir (green) 381 386 308 364 383
2x4 Southern yellow pine
(kiln dried) 453 422 364 419 397
2x4 Spruce-pine-fir (kiln dried) 354 351 251 343 334
Plywood (1/2" CDX) - $/MSF
West 312 307 331 334 321
South 261 256 301 298 282
Oriented strand board (7/16"-24/16)
North Central price - $/MSF 142 184 245 265 236
</TABLE>
4
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART I
Item 1. Business - Continued
- -----------------------------
Pulp, Paper and Packaging
The company's pulp, paper and packaging businesses include: Pulp,
which manufactures chemical wood pulp for world markets; Newsprint,
which manufactures newsprint at the company's North Pacific Paper
Corporation mill and markets it to West Coast and Japanese newspaper
publishers; Paper, which manufactures and markets a range of both
coated and uncoated fine papers through paper merchants and printers;
Containerboard Packaging, which manufactures linerboard and
corrugating medium, which is primarily used in the production of
corrugated packaging, and manufactures and markets industrial and
agricultural packaging; Paperboard, which manufactures and markets
bleached paperboard, used for production of liquid containers, to West
Coast and Pacific Rim customers; Recycling, which operates an
extensive wastepaper collection system and markets it to company mills and
worldwide customers; and Chemicals, which produces chlorine, caustic
and tall oil, which are used principally by the company's pulp, paper
and packaging operations.
Sales volumes by major product class are as follows (thousands):
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Pulp - air-dry metric tons 1,982 1,868 2,060 2,068 1,886
Newsprint - metric tons 684 629 663 638 609
Paper - tons 1,146 1,007 1,006 998 990
Paperboard - tons 243 205 230 201 222
Containerboard - tons 389 346 259 254 290
Packaging - MSF 44,508 42,323 34,342 34,483 31,386
Recycling - tons 2,229 2,011 1,467 985 851
</TABLE>
Selected product prices (per ton):
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Pulp - NBKP-air-dry metric-U.S. $ 566 $ 579 $ 883 $ 566 $ 445
Newsprint - metric-West Coast U.S. 550 636 662 460 435
Paper - uncoated free sheet-U.S. 740 745 946 617 627
Linerboard - 42 lb.-Eastern U.S. 326 367 505 367 295
Recycling - old corrugated containers 76 53 128 78 27
Recycling - old newsprint 15 18 99 46 16
</TABLE>
5
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART I
Item 1. Business - Continued
- -----------------------------
Real Estate and Related Assets
The company's real estate and related assets businesses are
principally engaged in real estate development and construction
through the company's real estate subsidiary, Weyerhaeuser Real Estate
Company, and in other real estate related activities through the
company's financial services subsidiary, Weyerhaeuser Financial
Services, Inc. Development and construction consists of developing
single-family housing and residential lots for sale, including the
development of master-planned communities.
In May 1997, the company's wholly owned subsidiary, Weyerhaeuser
Mortgage Company (WMC), was sold. WMC was the principal business
within the financial services segment. GNA Corporation, a subsidiary that
specialized in the sale of life insurance annuities and mutual funds to
the customers of financial institutions, was sold in April 1993.
With the sale of WMC, the financial services segment is no longer
material to the results of the company. Beginning with the third
quarter, the remaining real estate activities in financial services have
been combined with real estate into one segment entitled real estate and
related assets.
Volume information:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Units sold:
Single-family units (1) 2,914 2,773 3,114 3,934 3,879
Multi-family units (1) 324 234 117 475 1,141
Lots (1) 1,988 2,522 1,628 2,157 1,372
Commercial space
(thousand sq. ft.) 615 569 -- 389 88
Amounts in millions
Loan servicing portfolio $ -- $4,354 $10,952 $11,300 $8,400
Single-family loan originations $1,168 $3,436 $ 2,196 $ 2,763 $4,405
</TABLE>
(1) Includes one-half of joint venture sales.
6
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART I
Item 2. Properties
- -------------------
Timberlands and Wood Products
Facilities and annual production are summarized by major product class as
follows (millions):
<TABLE>
<CAPTION>
Number
Production of
Capacity Facilities 1997 1996 1995 1994 1993
---------- ---------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Logs - cubic ft. -- -- 995 912 914 671 673
Softwood lumber -
board ft. 3,790 27 3,992 3,701 3,419 3,249 3,135
Softwood plywood
and veneer -
sq. ft. (3/8") 1,008 5 1,092 1,243 1,292 1,249 1,188
Composite panels -
sq. ft. (3/4") 600 5 478 535 583 594 564
Oriented strand
board - sq. ft.
(3/8") 2,195 6 2,041 1,687 1,654 1,568 1,443
Hardboard - sq. ft.
(7/16") -- -- -- 86 124 122 120
Hardwood lumber -
board ft. 413 12 345 333 278 229 221
Hardwood doors
(thousands) 850 1 740 646 643 597 522
</TABLE>
Principal manufacturing facilities are located as follows:
Softwood lumber and plywood Hardwood lumber
Alabama, Arkansas, Georgia, Arkansas, Michigan, Oklahoma,
Louisiana, Mississippi, Oregon, Pennsylvania,
North Carolina, Oklahoma, Oregon, Washington and Wisconsin
Washington and Alberta,
British Columbia and Hardwood doors
Saskatchewan, Canada Wisconsin
Composite panels
Georgia, North Carolina, Oregon
and Wisconsin
Oriented strand board
Michigan, North Carolina,
West Virginia and Alberta, Canada
7
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART I
Item 2. Properties - Continued
- -------------------------------
Pulp, Paper and Packaging
Facilities and annual production are summarized by major product class as
follows (thousands):
<TABLE>
<CAPTION>
Number
Production of
Capacity Facilities 1997 1996 1995 1994 1993
---------- ---------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Pulp - air-dry
metric tons 2,180 8 2,063 2,004 2,159 2,041 2,096
Newsprint - metric
tons 715 1 704 631 687 651 618
Paper - tons 1,126 5 1,128 1,034 1,060 982 1,007
Paperboard - tons 230 1 231 206 229 189 217
Containerboard -
tons 2,480 4 2,381 2,331 2,329 2,357 2,269
Packaging - MSF 50,000 46 46,488 44,471 36,041 36,020 32,795
Recycling - tons -- 28 3,655 3,428 2,754 2,042 1,847
</TABLE>
Principal manufacturing facilities are located as follows:
Pulp Containerboard
Georgia, Mississippi, North North Carolina, Oklahoma and Oregon
Carolina, Washington and Alberta,
British Columbia and Packaging
Saskatchewan, Canada Arizona, California, Colorado,
Connecticut, Florida, Georgia,
Newsprint Hawaii, Illinois, Indiana, Iowa,
Washington Kentucky, Maryland, Michigan,
Minnesota, Mississippi, Missouri,
Paper Nebraska, New Jersey, New York,
Mississippi, North Carolina, North Carolina, Ohio, Oregon,
Washington, Wisconsin and Tennessee, Texas, Virginia,
Saskatchewan, Canada Washington and Wisconsin
Paperboard Recycling
Washington Arizona, California, Colorado,
Georgia, Illinois, Iowa, Kansas,
Maryland, Minnesota, Nebraska,
North Carolina, Oklahoma, Oregon,
Tennessee, Texas, Utah, Virginia,
Washington and West Virginia
Chemicals
Georgia, Mississippi, North
Carolina, Oklahoma, Oregon and
Washington
8
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART I
Item 2. Properties - Continued
- -------------------------------
Real Estate and Related Assets
Single-family housing Commercial development
California, Maryland, Nevada, California, Florida, Maryland
Texas, Virginia and Washington and Washington
Residential land development Real estate investments
Arkansas, California, Florida, Arizona, California, Colorado,
Georgia, Maryland, Nevada, North Nevada, Oregon and Washington
Carolina, Texas, Virginia and
Washington
Mortgage securities
California
9
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART I
Item 3. Legal Proceedings
- --------------------------
Trial began in May 1992 in a federal income tax refund case that the
company filed in July 1989 in the United States Claims Court. The
complaint contended that the company overpaid federal income taxes in 1977
through 1983. The alleged overpayments resulted from the
disallowance of certain timber casualty losses and certain deductions
claimed by the company arising from export transactions. The refund
sought was approximately $29 million, plus statutory interest from the
dates of the alleged overpayments. The company settled the portion of the
case relating to export transactions and received a tax refund of
approximately $10 million, plus statutory interest. In September
1994, the United States Court of Federal Claims (successor to the
United States Claims Court) issued an opinion on the casualty loss
issues which resulted in the allowance of additional tax refunds of
approximately $2 million, plus statutory interest. Both the company and
the government appealed the decision. On August 2, 1996, the Court of
Appeals for the Federal Circuit issued its opinion on the remaining
timber casualty loss issues, ruling in favor of the company on both the
company's appeal and the government's appeal. The United States Supreme
Court denied the government's request for certiorari on January 21, 1997.
On October 23, 1997, the United States Court of Federal Claims entered a
judgment in favor of the company for refund of taxes in the amount of
$9 million plus statutory interest. The company has received a partial
refund of $7 million in tax plus statutory interest. The government
filed an appeal on the remaining $2 million tax refund plus statutory
interest, but such appeal was withdrawn in January 1998. The remaining
refund is being processed by the government.
On March 6, 1992, the company filed a complaint in the Superior Court for
King County, Washington, against a number of insurance companies. The
complaint sought a declaratory judgment that the insurance companies
were obligated to defend the company and to pay, on the company's
behalf, certain claims relating to alleged environmental damage from
toxic substances to sites owned by third parties and the company. The
company subsequently agreed to settlements with all but one of the
defendants. The remaining defendant provided first layer excess coverage
during a three year period. That defendant's liability on groups
of sites is being tried in three phases. Two trials against the
remaining defendant, affecting nine sites, began in October 1994 and
February 1996, respectively, and resulted in verdicts assigning 100
percent clean-up responsibility to the defendant on three sites,
partial responsibility on three others and a finding of no liability as to
the remaining three. With respect to the remaining sites, a voluntary
dismissal was taken on 6 sites, and on the final 10 sites the defendant's
offer of judgment was accepted in June 1997. Final judgment for $7.8
million on the sites covered by the two trials was received on December 19,
1997.
The company conducted a review of its 10 major pulp and paper
facilities to evaluate the facilities' compliance with federal
Prevention of Significant Deterioration (PSD) regulations. The
results of the reviews were disclosed to seven state agencies and the
Environmental Protection Agency (EPA) during 1994 and 1995. At the
Cosmopolis, Washington, Columbus, Mississippi, and Flint River,
Georgia, facilities, the state regulatory agencies agreed with the
company's conclusions regarding the status of each facility. For the
Cosmopolis facility, the Washington Department of Ecology agreed the
changes made at the facility did not require PSD review. For the
Columbus and Flint River facilities, the states concluded the original PSD
permits issued to the facilities require updating. The company will
update emissions data for the Columbus and Flint River facilities as part
of the Title V permitting process. No penalties were assessed for the
issues identified at Columbus and Flint River. Agreements resolving the
alleged PSD issues have been reached with the states of Washington,
Oklahoma and North Carolina, as noted below. No issues were identified
at the company's Rothschild, Wisconsin, facility. In April 1995, EPA
Region X issued a Notice of Violation (NOV) to the company and to North
Pacific Paper Corporation (NORPAC), a joint venture in which the
company currently has a 50 percent ownership interest. The NOV
addresses alleged PSD violations at NORPAC's Longview, Washington,
newsprint manufacturing facility. A settlement resolving alleged PSD
issues at the Longview/NORPAC complex was reached with the State of
Washington on January 26, 1996. On November 14, 1995, the company
entered into a settlement with the State of Oklahoma to resolve alleged
PSD violations at the company's Valliant, Oklahoma, containerboard
manufacturing facility. The company also entered into Special Orders by
Consent with the State of North Carolina to resolve alleged PSD issues at
the New Bern, North Carolina, pulp mill and the Plymouth, North
Carolina, pulp and paper complex. No decision has been made by the
Lane County Oregon Regional Air Pollution Control Authority concerning
alleged PSD and permit violations at the company's Springfield, Oregon,
containerboard manufacturing facility.
10
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART I
Item 3. Legal Proceedings - Continued
- --------------------------------------
The Washington Department of Ecology issued a $10 thousand penalty to the
company because of three accidental chlorine releases which occurred
at the company's pulp mill in Longview on March 18, 1996, which has been
paid. The EPA is also investigating.
The Washington Department of Ecology has issued a NOV and a $40
thousand penalty because of an accidental spill of an estimated
8,700 gallons of crude sulfate turpentine on January 27, 1997, at the
company's pulp and paper operations in Longview. The penalty was
paid. The EPA investigated the January incident. EPA and the company are
negotiating a possible settlement of an EPA enforcement action.
On June 20, 1996, the Wisconsin Department of Natural Resources (WDNR)
issued a NOV for alleged air violations at the Marshfield, Wisconsin, wood
products manufacturing facility. No penalty was assessed in the NOV. The
NOV was referred to the Wisconsin Department of Justice (WDOJ) for
enforcement action on July 2, 1996. The company settled with WDNR in
September 1997 and paid a $65 thousand penalty.
On October 2, 1996, the WDNR conducted an inspection of a building
demolition project at the company's Marshfield, Wisconsin facility. The
WDNR noted several potential non-compliance issues in the work performed
by the asbestos abatement subcontractor retained for the project. Upon
learning of the issues observed by WDNR, the company removed the asbestos
abatement subcontractor from the plantsite. The WDNR and EPA Region V
are reviewing the work performed to evaluate whether an enforcement
action should be brought against the asbestos abatement subcontractor, the
general contractor, and/or the company.
In November 1996, an action was filed against the company in Superior
Court for King County, Washington, on behalf of a purported class of all
individuals and entities that own property in the United States on which
exterior hardboard siding manufactured by the company has been installed
since 1980. The action alleges the company has manufactured and
distributed defective hardboard siding and has breached express
warranties and consumer protection statutes in its sale of hardboard
siding. The action seeks compensatory damages, including prejudgment
interest, and seeks damages for the cost of replacing siding that rots
subsequent to the entry of any judgment. In January 1997, an action was
filed, also in Superior Court for King County, Washington, on behalf
of a purported class of all individuals, proprietorships,
partnerships, corporations, and other business entities in the United
States on whose homes, condominiums, apartment complexes or commercial
buildings hardboard siding manufactured by the company has been
installed. The action alleges the company has breached express and
implied warranties in its sale of hardboard siding and also has
violated the Consumer Protection Act of the State of Washington. The
action seeks damages, prejudgment interest, costs and reasonable
attorney fees. In December 1997, the two cases were consolidated for the
purpose of discovery and resolution of the class certification issue.
Also, in December 1997, the plaintiffs in the first of the two cases filed
a motion to change the trial date and for leave to move for class
certification. In January 1998, the court denied this motion. This
case was settled for approximately $11 thousand and dismissed in March
1998. The second case is currently set for trial in May 1998 without class
certification. The company is a defendant in approximately eighteen other
hardboard siding cases, two of which purport to be class actions on behalf
of purchasers of single- or multi-family residences that contain the
company's hardboard siding, one in Nebraska and one in Iowa.
On August 7, 1997, the company entered a plea of guilty to a
misdemeanor violation of the Migratory Bird Treaty Act in the U.S.
District Court, Western District of Washington, at Tacoma. The
misdemeanor violation involved the accidental poisoning of a hawk and an
owl in the course of starling pest control at the company's
Longview, Washington, pulp mill. The company and the Department of
Justice agreed to a disposition of the misdemeanor which involved an
undertaking by the company to conduct a starling control research
project at its Longview mill.
In December 1997, the Oklahoma Department of Environmental Quality
issued a NOV for alleged failure to comply with audit requirements for a
bark boiler at the company's Valliant, Oklahoma, containerboard
manufacturing facility. No penalty was specified.
11
<PAGE>
Weyerhaueser Company and Subsidiaries
PART I
Item 3. Legal Proceedings - Continued
- --------------------------------------
The company is also a party to various proceedings relating to the
clean-up of hazardous waste sites under the Comprehensive
Environmental Response Compensation and Liability Act, commonly known as
"Superfund," and similar state laws. The EPA and/or various state agencies
have notified the company that it may be a potentially responsible
party with respect to other hazardous waste sites as to which no
proceedings have been instituted against the company. The company is
also a party to other legal proceedings generally incidental to its
business. Although the final outcome of any legal proceeding is subject
to a great many variables and cannot be predicted with any degree of
certainty, the company presently believes that any ultimate outcome
resulting from the legal proceedings discussed herein, or all of them
combined, would not have a material effect on the company's current
financial position, liquidity or results of operations; however, in any
given future reporting period, such legal proceedings could have a
material effect on results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
There were no matters submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 28, 1997.
12
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART II
Item 5. Market Price of and Dividends on the Registrant's Common
- ----------------------------------------------------------------------
Equity and Related Stockholder Matters
- --------------------------------------
Information with respect to market information, stockholders and
dividends included in Notes 20 and 21 of Notes to Financial Statements in
the company's 1997 Annual Report to Shareholders, is incorporated herein
by reference.
Item 6. Selected Financial Data
- --------------------------------
Information with respect to selected financial data included in Note
21 of Notes to Financial Statements in the company's 1997 Annual Report to
Shareholders, is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
- --------------------------------------------------------------------------
Results of Operations
- ---------------------
Information with respect to Management's Discussion and Analysis
included on pages 1 and 18-40 contained in the company's 1997 Annual
Report to Shareholders, is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Information
- -----------------------------------------------------------
Financial statements and supplementary information, contained in the
company's 1997 Annual Report to Shareholders are incorporated herein by
reference:
<TABLE>
<CAPTION>
Page(s) in
Annual Report
to
Shareholders
-------------
<S> <C>
Report of Independent Public Accountants 40
Consolidated Statement of Earnings 41
Consolidated Balance Sheet 42, 43
Consolidated Statement of Cash Flows 44, 45
Consolidated Statement of Shareholders' Interest 46
Notes to Financial Statements 47-65
Selected Quarterly Financial Information (Unaudited) 63
</TABLE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
- --------------------------------------------------------------------------
Financial Disclosure
- --------------------
Not applicable.
13
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
Information with respect to Directors of the company included on pages 1
through 4 of the Notice of 1998 Annual Meeting of Shareholders and
Proxy Statement dated March 9, 1998 is incorporated herein by
reference.
The executive officers of the company are as follows:
<TABLE>
<CAPTION>
Name Title Age
- --------------------- ------------------------- ---
<S> <C> <C>
William R. Corbin Executive Vice President 56
Richard C. Gozon Executive Vice President 59
Steven R. Hill Senior Vice President 50
Mack L. Hogans Senior Vice President 49
Norman E. Johnson Senior Vice President 64
Thomas M. Luthy Senior Vice President 60
Steven R. Rogel President 55
William C. Stivers Senior Vice President 59
</TABLE>
Item 11. Executive Compensation
- --------------------------------
Information with respect to executive compensation included on pages 5
through 16 of the Notice of 1998 Annual Meeting of Shareholders and
Proxy Statement dated March 9, 1998 is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and
- ----------------------------------------------------------------------
Management
- ----------
Information with respect to security ownership of certain beneficial
owners and management included on pages 5 and 6 of the Notice of 1998
Annual Meeting of Shareholders and Proxy Statement dated March 9, 1998 is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
Information with respect to certain relationships and related
transactions included on pages 20 and 21 of the Notice of 1998 Annual
Meeting of Shareholders and Proxy Statement dated March 9, 1998 is
incorporated herein by reference.
14
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- --------------------------------------------------------------------------
Financial Statements
The consolidated financial statements of the company, together with the
report of independent public accountants, contained in the company's
1997 Annual Report to Shareholders, are incorporated in Part II, Item 8
of this Form 10-K by reference.
<TABLE>
<CAPTION>
Page Number(s)
Financial Statement Schedules in Form 10-K
-------------
<S> <C>
Report of Independent Public Accountants on Financial
Statement Schedules 17
Schedule II - Valuation and Qualifying Accounts 18
</TABLE>
All other financial statement schedules have been omitted because they are
not applicable or the required information is included in the
consolidated financial statements, or the notes thereto, contained in the
company's 1997 Annual Report to Shareholders and incorporated herein by
reference.
Exhibits:
3 - (i) Articles of Incorporation
(ii) Bylaws
10 - Material Contracts
(a) Agreement with N. E. Johnson (incorporated by reference
to 1992 Form 10-K filed with the Securities and Exchange
Commission on March 12, 1993-Commission File Number
1-4825)
(b) Agreement with W. R. Corbin (incorporated by reference to
1992 Form 10-K filed with the Securities and Exchange
Commission on March 12, 1993-Commission File Number
1-4825)
(c) Agreement with R. C. Gozon (incorporated by reference to
1995 Form 10-K filed with the Securities and Exchange
Commission on March 15, 1996-Commission File Number
1-4825)
(d) Agreement with S. R. Rogel
11 - Statement Re: Computation of Per Share Earnings
(incorporated by reference to Note 2 of the 1997
Weyerhaeuser Company Annual Report to Shareholders)
13 - Portions of the 1997 Weyerhaeuser Company Annual
Report to Shareholders specifically incorporated by
reference herein
22 - Subsidiaries of the Registrant
23 - Consent of Independent Public Accountants
27 - Financial Data Schedules
Reports on Form 8-K
The registrant filed reports on Form 8-K dated January 22,
February 24, April 15, May 23, June 19, July 1, July 9, July 11, July
17, September 4, and October 15, 1997 and January 23, 1998,
respectively, reporting information under Item 5, Other Events.
15
<PAGE>
Weyerhaeuser Company and Subsidiaries
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized on
March 13, 1998.
Weyerhaeuser Company
/s/ Steven R. Rogel
---------------------
Steven R. Rogel
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities indicated on March 13, 1998.
/s/ Steven R. Rogel /s/ P. M. Hawley
- ------------------------------ ---------------------------
Steven R. Rogel Philip M. Hawley
President, Principal Executive Director
Officer and Director
/s/ Martha R. Ingram
---------------------------
/s/ George H. Weyerhaeuser Martha R. Ingram
- ------------------------------ Director
George H. Weyerhaeuser
Chairman of the Board and /s/ John Kieckhefer
Director ---------------------------
John I. Kieckhefer
/s/ William C. Stivers Director
- ------------------------------
William C. Stivers /s/Donald F. Mazankowski
Principal Financial Officer ---------------------------
Donald F. Mazankowski
/s/ Kenneth J. Stancato Director
- ------------------------------
Kenneth J. Stancato /s/ William D. Ruckelshaus
Principal Accounting Officer ---------------------------
William D. Ruckelshaus
/s/ John W. Creighton, Jr. Director
- ------------------------------
John W. Creighton, Jr. /s/ Richard H. Sinkfield
Director ----------------------------
Richard H. Sinkfield
/s/ W. John Driscoll Director
- ------------------------------
W. John Driscoll /s/ James N. Sullivan
Director ----------------------------
James N. Sullivan
Director
16
<PAGE>
Weyerhaeuser Company and Subsidiaries
FINANCIAL STATEMENT SCHEDULES
Report of Independent Public Accountants on Financial Statement
Schedules
To Weyerhaeuser Company:
We have audited in accordance with generally accepted auditing
standards, the financial statements included in Weyerhaeuser
Company's annual report to shareholders incorporated by reference in this
Form 10-K, and have issued our report thereon dated February 11,
1998. Our audit was made for the purpose of forming an opinion on those
statements taken as a whole. The schedule listed on page 15 is the
responsibility of the company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has
been subjected to the auditing procedures applied in the audit of the
basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Seattle, Washington,
February 11, 1998
17
<PAGE>
Weyerhaeuser Company and Subsidiaries
FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Schedule II - Valuation
and Qualifying Accounts
For the three years ended
December 28, 1997
Dollar amounts in millions
Deductions
Balance at from/ Balance at
Beginning Charged Additions (to) End of
Description of Period to Income Reserve Period
- ----------- ---------- --------- -------------- ----------
<S> <C> <C> <C> <C>
Weyerhaeuser
Reserve deducted from
related asset accounts:
Doubtful accounts -
Accounts receivable
1997 $ 7 $ 5 $ 6 $ 6
========== ========== ============= ==========
1996 $ 9 $ 4 $ 6 $ 7
========== ========== ============= ==========
1995 $ 10 $ 2 $ 3 $ 9
========== ========== ============= ==========
Real Estate and Related
Assets
Reserves and allowances
deducted from related
asset accounts:
Receivables
1997 $ 9 $ -- $ 3 $ 6
========== ========== ============= ==========
1996 $ 7 $ 3 $ 1 $ 9
========== ========== ============= ==========
1995 $ 4 $ 1 $ (2)(1) $ 7
========== ========== ============= ==========
Mortgage-related
financial
instruments
1997 $ 7 $ 13 $ (7)(2) $ 27
========== ========== ============= ==========
1996 $ 2 $ -- $ (5)(2) $ 7
========== ========== ============= ==========
1995 $ 8 $ -- $ 6 $ 2
========== ========== ============= ==========
Investment in and
advances to joint
ventures and
limited partnerships
1997 $ 27 $ -- $ 21 $ 6
========== ========== ============= ==========
1996 $ 38 $ -- $ 11 $ 27
========== ========== ============= ==========
1995 $ 49 $ -- $ 11 $ 38
========== ========== ============= ==========
(1) Includes allowances transferred in on partnership notes that were
consolidated.
(2) Includes allowances transferred in from other liabilities.
</TABLE>
18
<PAGE>
Weyerhaeuser Company and Subsidiaries
Exhibits Index
Exhibits:
3 - (i) Articles of Incorporation
(ii) Bylaws
10 - Material Contracts
(a) Agreement with N. E. Johnson (incorporated by reference
to 1992 Form 10-K filed with the Securities and Exchange
Commission on March 12, 1993-Commission File Number
1-4825)
(b) Agreement with W. R. Corbin (incorporated by reference to
1992 Form 10-K filed with the Securities and Exchange
Commission on March 12, 1993-Commission File Number
1-4825)
(c) Agreement with R. C. Gozon (incorporated by reference to
1995 Form 10-K filed with the Securities and Exchange
Commission on March 15, 1996-Commission File Number
1-4825)
(d) Agreement with S. R. Rogel
11 - Statement Re: Computation of Per Share Earnings
(incorporated by reference to Note 2 of the 1997
Weyerhaeuser Company Annual Report to Shareholders)
13 - Portions of the 1997 Weyerhaeuser Company Annual
Report to Shareholders specifically incorporated by
reference herein
22 - Subsidiaries of the Registrant
23 - Consent of Independent Public Accountants
27 - Financial Data Schedules
19
<PAGE>
Weyerhaeuser Company and Subsidiaries
Exhibit 22
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
Percentage
State or Ownership of
Country of Immediate
Name Incorporation Parent
---- ----------------- -------------
<S> <C> <C>
Columbia & Cowlitz Railway Company Washington 100%
DeQueen and Eastern Railroad Company Arkansas 100
Dynetherm, Inc. Alabama 100
Fisher Lumber Company California 100
Golden Triangle Railroad Mississippi 100
Green Arrow Motor Express Company Delaware 100
Gryphon Asset Management, Inc. Delaware 100
J.H. Hamlen & Son, Inc. Arkansas 100
Mississippi & Skuna Valley Railroad
Company Mississippi 100
Mountain Tree Farm Company Washington 50
North Pacific Paper Corporation Delaware 50
NORPAC Sales Corporation Guam 100
Norpac Resources Inc. Delaware 100
Pacific Veneer, Ltd. Washington 90
SCA Weyerhaeuser Packaging Holding Company British Virgin
Asia Limited Islands 50
Texas, Oklahoma & Eastern Railroad Company Oklahoma 100
United Structures, Inc. California 100
Westwood Shipping Lines, Inc. Washington 100
Weycomp Claims Management Service, Inc. Texas 100
Weyerhaeuser Company of Nevada Nevada 100
Weyerhaeuser Construction Company Washington 100
Weyerhaeuser Financial Services, Inc. Delaware 100
CMO Finance Corp. Nevada 100
MJ Finance Corporation California 100
Mortgage Securities III Corporation Nevada 100
R4 Participant Corporation Nevada 100
ver Bes' Insurance Company Vermont 100
de Bes' Insurance Ltd. Bermuda 100
Weyerhaeuser Financial Investments, Inc. Nevada 100
Abfall Finance Corp. California 100
Brookview, Inc. Nevada 100
The Giddings Mortgage Investment
Company California 100
Gudig Abfall, Inc. California 100
Kachura Finance Corp. California 100
McGNT Finance Corp. California 100
Pass-Through Finance Corp. California 100
</TABLE>
1
<PAGE>
Weyerhaeuser Company and Subsidiaries
Exhibit 22
Subsidiaries of the Registrant - Continued
<TABLE>
<CAPTION>
Percentage
State or Ownership of
Country of Immediate
Name Incorporation Parent
---- ----------------- -------------
<S> <C> <C>
RFS Finance Corp. California 100%
Trimark Development Company California 100
Trimark Realty Advisors, Inc. California 100
WFI Servicing Company Nevada 100
Woodland Hills Properties-W., Inc. Nevada 100
Monthill, Inc. California 100
WVC II, Inc. Nevada 100
Weyerhaeuser Venture Company Nevada 100
Las Positas Land Co. California 100
WAMCO, Inc. Nevada 100
Weyerhaeuser Realty Investors, Inc. Washington 100
Weyerhaeuser Forestlands International,
Inc. Washington 100
Weyerhaeuser International, Inc. Washington 100
Weyerhaeuser Canada Ltd. Canada 100
Weyerhaeuser Barbados SRL Barbados 100
Marlborough Capital Corp. SRL Barbados 100
Weyerhaeuser (BVI) Ltd. British Virgin
Islands 100
Weyerhaeuser New Zealand
Holdings, Inc. New Zealand 100
Nelson Forest Products Company New Zealand 100
Weyerhaeuser New Zealand, Inc. New Zealand 100
Weyerhaeuser de Mexico, S.A. de C.V. Mexico 100
Weyerhaeuser Saskatchewan Ltd. Canada 100
Weyerhaeuser China, Ltd. Washington 100
Weyerhaeuser GMBH Germany 100
Weyerhaeuser (Asia) Limited Hong Kong 100
Weyerhaeuser Italia, S.r.l. Italy 100
Weyerhaeuser Japan Ltd. Japan & Delaware 100
Weyerhaeuser Korea Ltd. Korea 100
Weyerhaeuser, S.A. Panama 100
Weyerhaeuser Taiwan Ltd. Delaware 100
Weyerhaeuser International Sales Corp. Guam 100
Weyerhaeuser (Mexico) Inc. Washington 100
Weyerhaeuser Midwest, Inc. Washington 100
Weyerhaeuser Overseas Finance Co. Delaware 100
Weyerhaeuser International
Finance Company Delaware 100
Weyerhaeuser Company Nova Scotia Canada 100
Weyerhaeuser Raw Materials, Inc. Delaware 100
</TABLE>
2
<PAGE>
Weyerhaeuser Company and Subsidiaries
Exhibit 22
Subsidiaries of the Registrant - Continued
<TABLE>
<CAPTION>
Percentage
State or Ownership of
Country of Immediate
Name Incorporation Parent
---- ----------------- -------------
<S> <C> <C>
Weyerhaeuser Real Estate Company Washington 100%
Centennial Homes, Inc. Texas 100
Midway Properties, Inc. North Carolina 100
Pardee Construction Company California 100
Marmont Realty Company California 100
Pardee Construction Company
of Nevada Nevada 100
Pardee Investment Company California 100
Parvada, Inc. Nevada 100
The Quadrant Corporation Washington 100
Quadrant Real Estate Services, Inc. Washington 100
South Jersey Assets, Inc. New Jersey 100
Scarborough Constructors, Inc. Florida 100
Silverthorn Country Club, Inc. Florida 100
TMI, Inc. Texas 100
Weyerhaeuser Real Estate Company
of Nevada Nevada 100
Winchester Homes, Inc. Delaware 100
SC-WHI, Inc. Delaware 100
Weyerhaeuser Sales Company Nevada 100
The Wray Company Arizona 100
</TABLE>
3
<PAGE>
Weyerhaeuser Company and Subsidiaries
Exhibit 23
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the
incorporation of our reports included and incorporated by reference in this
Form 10-K, into Weyerhaeuser Company's previously filed Registration
Statement No. 333-36753 on Form S-3 and Nos. 33-60527, 33-60529, 33-60521,
33-60525, 33-25928, 33-24979, 33-47392, 333-10165, 33-41414, 2-88109, 2-27929,
2-58498, 2-81463 and 333-01565 on Form S-8.
ARTHUR ANDERSEN LLP
Seattle, Washington,
March 13, 1998
1
HIGHLIGHTS
<TABLE>
<CAPTION>
Dollar amounts in millions except per-share figures 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
Net sales and revenues $11,210 $11,114
- ---------------------------------------------------------------------------
Net earnings before special items 351 463
Effect of special items (1) (9) --
- ---------------------------------------------------------------------------
Net earnings 342 463
- ---------------------------------------------------------------------------
Cash flow from operations, before working capital changes 1,099 1,257
Capital expenditures (excluding acquisitions) 656 879
Total assets 13,075 13,596
Shareholders' interest 4,649 4,604
- ---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------
Before Effect of
Special Special
Items Items (1) Net
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic earnings per common share (2):
First quarter $ .22 $(0.12) $ .10 $ .72
Second quarter .47 .09 .56 .52
Third quarter .53 .04 .57 .60
Fourth quarter .54 (.05) .49 .50
- ---------------------------------------------------------------------------
$1.76 $(0.04) $1.72 $2.34
===========================================================================
</TABLE>
(1) The 1997 special items are the net of gains on the sale of Weyerhaeuser
Mortgage Company and Saskatoon Chemicals, Ltd., and interest income from a
favorable federal income tax decision offset by the loss on the sale of
Shemin Nurseries; the consolidation, closure or disposition of certain
recycling facilities; and closure of two plywood facilities, an export
lumber mill and a corrugated medium machine.
(2) Diluted earnings per common share by quarter for 1997 and 1996 were
$0.10, $0.55, $0.57 and $0.49; and $0.71, $0.52, $0.60 and $0.49,
respectively.
<TABLE>
<CAPTION>
Market prices - high/low 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
First quarter $50 5/8 - 44 1/2 $49 1/2 - 39 15/16
Second quarter 55 1/4 - 42 5/8 49 7/8 - 41 3/4
Third quarter 63 15/16 - 51 5/8 48 1/4 - 39 1/2
Fourth quarter 60 3/4 - 46 1/16 48 1/8 - 43 7/8
- ---------------------------------------------------------------------------
Year $63 15/16 - 42 5/8 $49 7/8 - 39 1/2
- ---------------------------------------------------------------------------
</TABLE>
The consolidated financial statements include: (1) Weyerhaeuser Company
(Weyerhaeuser), principally engaged in the growing and harvesting of timber
and the manufacture, distribution and sale of forest products, and (2) Real
estate and related assets, principally engaged in real estate development
and construction, and other real estate related activities.
1
<PAGE>
PULP, PAPER AND PACKAGING
<TABLE>
<CAPTION>
STATISTICAL DATA
- ---------------------------------------------------------------------------
NET SALES 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------
(Millions of dollars)
<S> <C> <C> <C> <C> <C>
Pulp $ 986 $ 954 $ 1,616 $ 1,012 $ 823
Newsprint 416 451 508 356 322
Paper 842 803 1,001 664 648
Paperboard and containerboard 301 281 325 240 255
Packaging 1,781 1,921 1,863 1,495 1,302
Recycling 189 140 266 121 77
Chemicals 57 63 63 45 32
Miscellaneous products 37 35 40 133 120
- ---------------------------------------------------------------------------
$ 4,609 $ 4,648 $ 5,682 $ 4,066 $ 3,579
===========================================================================
</TABLE>
<TABLE>
<CAPTION>
SALES VOLUMES 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------
(Thousands)
<S> <C> <C> <C> <C> <C>
Pulp - air-dry metric tons 1,982 1,868 2,060 2,068 1,886
Newsprint - metric tons 684 629 663 638 609
Paper - tons 1,146 1,007 1,006 998 990
Paperboard - tons 243 205 230 201 222
Containerboard - tons 389 346 259 254 290
Packaging - MSF 44,508 42,323 34,342 34,483 31,386
Recycling - tons 2,229 2,011 1,467 985 851
</TABLE>
<TABLE>
<CAPTION>
ANNUAL PRODUCTION Capacity 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------
(Thousands)
<S> <C> <C> <C> <C> <C> <C>
Pulp - air-dry
metric tons 2,180 2,063 2,004 2,159 2,041 2,096
Newsprint - metric tons 715 704 631 687 651 618
Paper - tons 1,126 1,128 1,034 1,060 982 1,007
Paperboard - tons 230 231 206 229 189 217
Containerboard - tons 2,480 2,381 2,331 2,329 2,357 2,269
Packaging - MSF 50,000 46,488 44,471 36,041 36,020 32,795
Recycling - tons -- 3,655 3,428 2,754 2,042 1,847
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MANUFACTURING FACILITIES
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Pulp 8 Containerboard 4
Newsprint 1 Packaging 46
Paper 5 Recycling 28
Paperboard 1 Chemicals 7
</TABLE>
18
<PAGE>
PULP, PAPER AND PACKAGING
Over the past seven years, we've followed a course to improve our
operations and apply discipline to our capital spending. This has involved
making sure that we focus on what we do best, continually improving the
performance of our business, and investing prudently to upgrade the quality
of our assets. Through these efforts, we've strengthened the ability of
this sector to meet increased global competition and grow shareholder
returns.
The market conditions we experienced during 1997 demonstrate the
importance of continuing to improve our operations. The slow recovery in
pulp and paper prices resulted in operating earnings of $192 million
compared with $307 million in 1996. Operating earnings for 1997 exclude
special items associated with closures and disposition of certain
facilities that were offset, in part, by the gain on the sale of the
Canadian chemical business. Net sales were $4.6 billion, unchanged from the
prior year. While this performance did not meet our expectations, we saw
indications that our efforts are producing results.
For example, we've reduced our capital spending to depreciation levels. We
did this by aligning our capital spending to the levels we need to sustain
our current operations and achieve our long-range strategic goals. We also
implemented a systematic capital investment process to better foster
accountability for major capital projects. As a result, this year we spent
$315 million on capital projects, excluding acquisitions, the lowest in 10
years. It also allowed our sector to generate its third consecutive year of
positive cash flows despite the general industry downturn. And because
we've completed our major modernization projects, we believe we can
maintain, or even lower, our levels of capital spending in the future.
We've made significant progress in improving the efficiency of our
operations by engaging our employees in the design and implementation of
better work systems. These improvements have reduced reportable accidents
by 65 percent since 1991 and significantly increased production capability
at our existing pulp and paper facilities. In 1997 alone, this helped
increase our production by 300,000 tons.
We're improving operations by continually evaluating our businesses and
operating units to ensure they fit our core competencies and serve
attractive markets. Through this discipline, we channel our energies and
resources on areas capable of producing the returns we seek over the
business cycle. During 1997, we:
> Negotiated the restructuring of our NORPAC joint venture that produces
high-quality newsprint for publishers and printers in the western United
States and Japan. Under the new structure that takes effect in 1998,
Weyerhaeuser and Nippon Paper Industries Co., Ltd., each will
19
<PAGE>
own 50 percent of NORPAC. The new arrangement more closely reflects the
operating relationship of this joint venture.
> Closed the sale of our Saskatoon chemical facility to a subsidiary of
Sterling Chemicals Holdings, Inc.
> Realigned our Recycling business to meet the key raw material needs of
our mill customers. Through this effort, we improved efficiencies and
reduced costs by focusing on those locations most important to our
customers. During 1997, our Recycling business collected and processed 7
percent more recycled paper with 30 percent fewer facilities than we had in
1996.
During the year, we also improved the quality of our asset base to serve
the needs of customers in growth markets. Domestically, our strategy
involves expanding through acquisitions rather than building new capacity.
For example, in 1997 we acquired Union Camp Corporation's Denver box plant
to expand market coverage into the Rocky Mountain Region.
To serve the international needs of existing customers, we develop
strategic alliances to limit risk, conserve capital and gain access to
local market information and distribution channels. In 1996, we formed a
joint venture with SCA Packaging Europe BV to meet corrugated packaging
needs in the People's Republic of China. During 1997, this venture - SCA
Weyerhaeuser Packaging Holding Company Asia Limited - began construction of
plants in Shanghai and Wuhan. We expect both to begin operation in 1998.
During 1997, we also continued to focus on differentiating our products
and services in ways that our customers recognize and value.
This includes expanding our entire line of high-quality uncoated free
sheet paper to capture higher returns generated by these products. We've
already seen the contribution of fine papers to our earnings more than
double over the past five years. One reason for such growth - created by
the growth in home offices - is the increased use of high-quality business
papers. During 1997, we introduced our SOHO (Small Office/ Home Office)
retail program. In addition to developing higher quality papers for small
and home office needs, we made it easier for customers to select the right
paper for their specific requirements by developing easy-to-use product
guides.
We're also differentiating other parts of our product line. Our
Containerboard Packaging business began exploring new packaging solutions
for customers, while our Pulp operation is working on new absorbency
fibers. Both efforts will help us develop higher value products capable of
producing new growth opportunities and higher margins. New absorbency
fibers, for example, improve product function and provide manufacturers
with greater flexibility and speed in commercializing their product
upgrades. We believe this will allow providers to develop a greater range
of products and increase demand for our product.
As we've upgraded our mills to run more efficiently, we've also seen
significant environmental improvements.
20
<PAGE>
These improvements include:
> Shifting our entire bleached-kraft pulp mill system to the use of
elemental chlorine-free (ECF) bleaching processes, a major step to
improving the quality of our water discharges.
> Recycling 98 percent of pulping chemicals used to manufacture pulp.
> Supplying two-thirds of the energy needed at our pulp mills to reduce
the use of fossil fuels.
> Reducing water consumption by 65 percent.
These efforts have not gone unnoticed. During 1997, the Environmental
Protection Agency and McGraw-Hill honored our Flint River, Georgia,
facility for meeting or exceeding voluntary waste-elimination or pollution-
prevention programs in conjunction with the EPA's Project XL. An initiative
of the Clinton Administration, Project XL - eXellence and Leadership -
seeks to provide regulatory flexibility in exchange for superior
environmental performance. And because our mills already substantially meet
the water quality standards outlined in the EPA's new Cluster Rules, we've
reduced the need for future capital investments in this area.
These are some of the actions we've taken to build the foundation for
future growth. Looking ahead, we will build on this progress by continuing
to reduce costs, narrowing our focus, and differentiating our products in
ways customers recognize and value. The improvements we've made and the
results they've produced demonstrate we are on the right course.
PULP, PAPER AND PACKAGING
<TABLE>
<CAPTION>
PRODUCTS PRINCIPAL LOCATIONS
- ---------------------------------------------------------------------------
<S> <C>
MARKET PULP manufactures wood pulp Georgia, Mississippi,
for global markets. North Carolina, Washington,
Alberta, British Columbia,
Saskatchewan
- ---------------------------------------------------------------------------
FINE PAPER manufactures a range of both Mississippi, North Carolina,
coated and uncoated fine papers and markets Washington, Wisconsin,
its products through paper merchants. Saskatchewan
- ---------------------------------------------------------------------------
NEWSPRINT manufactured at the North Pacific Washington
Paper Corporation (NORPAC) mill is marketed
to customers in the western United States
and Japan.
- ---------------------------------------------------------------------------
BLEACHED PAPERBOARD produces and markets Washington
bleached paperboard to West Coast and
Pacific Rim customers for production of
liquid containers such as milk and juice
cartons.
- ---------------------------------------------------------------------------
CONTAINERBOARD PACKAGING manufactures Arizona, California,
linerboard corrugating medium and produces Colorado, Connecticut,
industrial and agricultural packaging (boxes). Florida, Georgia, Hawaii,
Illinois, Indiana, Iowa,
Kentucky, Maryland,
Michigan, Minnesota,
Mississippi, Missouri
Nebraska, New Jersey,
New York, North Carolina,
Ohio, Oklahoma, Oregon,
Tennessee, Texas, Virginia,
Washington, Wisconsin
- ---------------------------------------------------------------------------
RECYCLING operates an extensive wastepaper Arizona, California,
collection system to supply company mills Colorado, Georgia,
and national and international customers. Illinois, Iowa, Kansas,
Maryland, Minnesota,
Nebraska, North Carolina,
Oklahoma, Oregon, Tennessee,
Texas, Utah, Virginia,
Washington, West Virginia
- ---------------------------------------------------------------------------
CHEMICALS produces chemicals used in pulp Georgia, Mississippi,
and paper manufacturing processes and other North Carolina, Oklahoma,
products like tall oil and turpentine. Oregon, Washington
- ---------------------------------------------------------------------------
WESTWOOD SHIPPING provides ocean Washington
transportation for Weyerhaeuser and other
selected markets.
- ---------------------------------------------------------------------------
</TABLE>
21
<PAGE>
TIMBERLANDS AND WOOD PRODUCTS
STATISTICAL DATA
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET SALES 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------
(Millions of dollars)
<S> <C> <C> <C> <C> <C>
Raw materials (logs, chips
and timber) $ 1,008 $ 1,066 $ 1,102 $ 1,091 $ 1,021
Softwood lumber 2,094 1,988 1,648 1,880 1,704
Softwood plywood and veneer 502 519 591 636 567
Oriented strand board,
composite and other
panel products 594 667 752 750 623
Hardwood lumber 272 235 193 175 154
Engineered wood products 284 233 207 157 100
Miscellaneous products 620 532 438 303 299
- ---------------------------------------------------------------------------
$ 5,374 $ 5,240 $ 4,931 $ 4,992 $ 4,468
===========================================================================
</TABLE>
<TABLE>
<CAPTION>
SALES VOLUMES 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------
(Millions)
<S> <C> <C> <C> <C> <C>
Raw materials - cubic feet 584 577 535 564 547
Softwood lumber - board feet 4,869 4,745 4,515 4,402 4,230
Softwood plywood and veneer -
square feet (3/8") 2,042 2,172 2,324 2,685 2,435
Composite panels -
square feet (3/4") 551 604 648 660 626
Oriented strand board -
square feet (3/8") 2,462 2,083 1,931 1,803 1,672
Hardboard - square feet (7/16") -- 193 201 167 140
Hardwood lumber - board feet 362 349 293 254 240
Engineered wood products -
lineal feet 137 116 128 71 47
Hardwood doors (thousands) 730 652 648 617 556
</TABLE>
<TABLE>
<CAPTION>
ANNUAL PRODUCTION Capacity 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------
(Millions)
<S> <C> <C> <C> <C> <C> <C>
Logs - cubic feet -- 995 912 914 671 673
Softwood lumber -
board feet 3,790 3,992 3,701 3,419 3,249 3,135
Softwood plywood
and veneer -
square feet (3/8") 1,008 1,092 1,243 1,292 1,249 1,188
Composite panels -
square feet (3/4") 600 478 535 583 594 564
Oriented strand board
- square feet (3/8") 2,195 2,041 1,687 1,654 1,568 1,443
Hardboard -
square feet (7/16") -- -- 86 124 122 120
Hardwood lumber -
board feet 413 345 333 278 229 221
Hardwood doors
(thousands) 850 740 646 643 597 522
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MANUFACTURING FACILITIES
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Softwood lumber, plywood and veneer 32 Hardwood lumber 12
Composite panels 5 Hardwood doors 1
Oriented strand board 6
</TABLE>
22
<PAGE>
TIMBERLANDS AND WOOD PRODUCTS
For nearly 100 years, we've been a leader in forest management and the
production of high-quality wood products. It's a position you'd expect from
the world's largest private owner of merchantable softwood timber and North
America's largest producer of softwood lumber. Although we're proud of our
leadership status, we also know that it takes continual improvement to
maintain this position. That's why we've spent the past seven years
upgrading our portfolio, improving our production capabilities, and
focusing on customer service. As a result, we've positioned our Timberlands
and Wood Products sector to perform better, produce higher quality products
and operate with greater safety than ever before.
During 1997, market conditions tested us. Weak demand for logs and wood
products in the last half of the year resulted in operating earnings of
$747 million, excluding the effect of charges related to the closure of
three manufacturing facilities, compared with $805 million in 1996. Net
sales in 1997 were $5.4 billion compared with $5.2 billion the
previous year. Despite the effect of market conditions on our results, we
fared better than we would have previously under similar circumstances. We
also did better than others in our industry. This level of performance
under difficult market conditions is a direct result of the maturing of our
timber portfolio and our focus the past seven years. For example, by
improving work systems and eliminating redundancy and waste, Timberlands
has reduced overhead costs. We've also benefited from the Business
Improvement Plans we've had in place since 1991. Meanwhile, our Wood
Products business is now capable of producing, on a same-facility basis, 21
percent more lumber, 40 percent more plywood and 18 percent more oriented
strand board than we did in 1991. To achieve further improvements, we're
applying what we've learned from our 1996 acquisition of the highly
efficient Cavenham properties in Mississippi and Louisiana to our other
lumber businesses.
We're also seeking to continually improve our outstanding timber base. In
1997, this resulted in expansion of our portfolio outside North America. We
purchased a 51 percent interest in the Nelson Forests Joint Venture,
previously owned by a subsidiary of Fletcher Challenge Forests. The Nelson
Forests Joint Venture manages more than 193,000 acres of forestland in New
Zealand and is one of the world's first forestry operations to achieve ISO
14001 status. Created by the International Standards Organization in
Geneva, ISO certification recognizes companies that integrate environmental
responsibility into daily operations. During the year, we also began
purchasing private agricultural land in Uruguay for establishing fast-
growing managed forests. This is the
23
<PAGE>
first investment we've made through the World Timberfund - a joint venture
with institutional investors represented by UBS Resource Investments
International. Uruguay features good tree-growing soils and climate and a
history of economic and political stability. We expect the first thinning
of these managed forests to occur in 11 years, with final harvests expected
in 20 to 25 years. Our investments in New Zealand and Uruguay are part of
the company's strategies to better serve international customers.
As with all of our timberlands, we'll manage our properties in the
Southern Hemisphere in ways that protect the environment and produce
sustainable sources of high-quality wood. This includes applying the core
competencies we've developed in High Yield Forestry over the past 30 years.
In North America, we're about to begin to see the first harvests of trees
grown using these practices. Our first harvests will begin within the next
five years in the South, with similar harvests in the West occurring in
about 10 years. Over the next 15 years, the harvest of high-yield timber
will gradually increase by approximately 70 percent from 1995 levels due
to High Yield Forestry. In addition to increasing our harvests and cash
flow, these forests will produce more knot-free wood for use in appearance-
grade lumber and other higher-value products due to our practice of pruning
selected trees.
To develop products, markets and customers for these future harvests, our
Building Materials Distribution businesses have steadily enhanced their
lines of appearance-grade products. During 1997, we placed additional
emphasis on this growth area by introducing appearance-grade products from
a variety of domestic and international sources.
Meeting the demand for higher-quality products also has resulted in the
use of new technologies. For example, our Marshfield, Wisconsin, door
business now uses the industry's most effective enterprise resource
planning system - DoorBuilder (TM) - to reduce order cycle time by 50
percent. This new system links all of the business' computerized
information processing systems to electronically track ordering, production
and billing of the more than 700,000 custom doors we make each year. Not
only does this system improve our efficiency, customers benefit from the
reliable delivery rate it provides. For the past two years, we've delivered
virtually all of our door orders on time and complete.
Meanwhile, our Wood Products businesses continue to improve their
manufacturing capabilities and provide added value to customers.
In 1997, this included announcing plans to close two plywood plants. The
closures of plywood plants in Plymouth, North Carolina, and Philadelphia,
Mississippi, are part of our effort to strengthen lumber-producing facilities.
As a result of modernization and expansion plans, we'll increase our annual
lumber-producing capabilities by 15 percent by the end of 1999. These
modernization efforts also significantly
24
<PAGE>
improve our ability to more effectively use our raw materials while
enhancing overall product value. The use of curved sawing techniques, for
example, allows us to increase the amount of lumber per log and produce
straighter lumber.
We've also improved the way we work by involving our employees and
incorporating their ideas into our practices. Their ideas help remove
production bottlenecks and reduce unscheduled downtime in existing
facilities while helping reduce start-up costs at new facilities. Our
oriented strand board mill in Sutton, West Virginia, for example, just
completed its first year of operation and is ahead of the projected start-
up curve due to our capital planning and work systems improvement
practices. We also see an improvement in safety as we increase the
productivity and efficiency of our facilities. To help deploy these
practices throughout our system, we're working closely with our two major
unions to identify additional opportunities for improvement.
As we look to the future, our Timberlands and Wood Products segment will
continue its focus on improving operations through process reliability and
a focus on delivering value to the customer. Through these efforts, we
believe we will create increased value for our shareholders.
<TABLE>
<CAPTION>
TIMBERLANDS AND WOOD PRODUCTS
PRINCIPAL LOCATIONS
- ---------------------------------------------------------------------------
<S> <C>
WESTERN TIMBERLANDS: Acres owned 2,048,000 Oregon, Washington
- ---------------------------------------------------------------------------
SOUTHERN TIMBERLANDS: Acres owned 3,123,000 Alabama, Arkansas,
Acres leased 237,000 Georgia, Louisiana,
--------- Mississippi, North
3,360,000 Carolina, Oklahoma
- ---------------------------------------------------------------------------
CANADIAN TIMBERLANDS: Acres licensed 23,715,000 Alberta,
British Columbia,
Saskatchewan
- ---------------------------------------------------------------------------
SOFTWOOD LUMBER produces dimension lumber. Western Lumber:
Oregon, Washington
Southern Lumber:
Alabama, Arkansas,
Georgia, Louisiana,
Mississippi, North
Carolina, Oklahoma
Canadian Lumber:
Alberta,
British Columbia,
Saskatchewan
- ---------------------------------------------------------------------------
PLYWOOD manufactures softwood structural and Alabama, Arkansas,
"appearance" panels for home remodelers, Oklahoma,
builders and industrial users. Washington (veneer)
- ---------------------------------------------------------------------------
ORIENTED STRAND BOARD produces structural sheathing, Michigan, North
sub-flooring, underlayment and other panels for Carolina, West
residential and commercial construction. Virginia; Alberta,
Canada
- ---------------------------------------------------------------------------
COMPOSITE PRODUCTS manufactures particleboard and Georgia, North
medium density fiberboard used primarily in Carolina, Oregon,
furniture, laminating, countertops, millwork and Wisconsin
door manufacturing.
- ---------------------------------------------------------------------------
HARDWOOD LUMBER is the world's leading producer Arkansas, Michigan,
of hardwood lumber and components for use in Oklahoma, Oregon,
manufacturing cabinets and furniture. Pennsylvania,
Washington,
Wisconsin
- ---------------------------------------------------------------------------
ARCHITECTURAL DOORS is the top door manufacturer in Wisconsin
the United States and produces architectural doors
used mainly in offices, schools and hospitals.
- ---------------------------------------------------------------------------
BUILDING MATERIALS DISTRIBUTION provides Alabama, Arizona,
chain/regional lumber accounts, industrial/home California,
improvement warehouse retailers, and millwork and Colorado, Florida,
manufactured-housing customers with Georgia, Idaho,
marketing, sales and logistics support. Illinois, Indiana,
Iowa, Kansas,
Kentucky, Louisiana,
Michigan, Minnesota,
Missouri, Nevada,
New Jersey, New
York, North
Carolina, Ohio,
Oklahoma, Oregon,
Pennsylvania,
Tennessee, Texas,
Utah, Virginia,
Washington,
Wisconsin; Alberta,
British Columbia,
Manitoba, Nova
Scotia, Ontario and
Quebec, Canada.
- ---------------------------------------------------------------------------
</TABLE>
25
<PAGE>
REAL ESTATE AND RELATED ASSETS
Strong real estate markets, an increased focus on the home-building and
land development business, and improved operating efficiencies combined to
increase earnings for our Real Estate and Related Assets sector in 1997.
For the year, the sector reported earnings of $66 million before a gain
associated with the sale of Weyerhaeuser Mortgage Company. This compares
with $43 million in 1996.
The Real Estate and Related Assets sector has continually reviewed its
portfolio to ensure it targets markets and businesses capable of producing
competitive returns. As a result, the sector has exited a number of smaller
markets and secondary businesses.
In addition to narrowing its focus, the sector has made significant
improvements in operations. Sales revenues were up slightly from 1996,
reaching $1.1 billion in 1997. Home sales increased 17 percent and housing
inventory turnover has improved. Significantly more homes were presold
prior to completion than in prior years. We go into 1998 with the best
backlog of home sales since the late 1980s.
With home building and land development activities in Southern California,
Las Vegas, Houston, Maryland, Virginia and the Puget Sound area, the
company continues to be one of the top 20 home builders in the United
States.
REAL ESTATE & RELATED ASSETS
<TABLE>
<CAPTION>
OPERATIONS PRINCIPAL LOCATIONS
- --------------------------------------------------------------------
<S> <C>
Land Management Arkansas, Georgia, North Carolina,
Washington
Pardee Construction Company Nevada, Southern California
Quadrant Corporation Washington
Trendmaker Homes Texas
Winchester Homes Maryland, Virginia
Weyerhaeuser Realty Investors California, Washington
- --------------------------------------------------------------------
</TABLE>
1997 FINANCIAL REPORT
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
30 Description of the Business of the Company
35 Financial Review
40 Report of Independent Public Accountants
41 Consolidated Statement of Earnings
42 Consolidated Balance Sheet
44 Consolidated Statement of Cash Flows
46 Consolidated Statement of Shareholders' Interest
47 Notes to Financial Statements
64 Historical Summary
</TABLE>
This annual report may contain statements concerning the company's future
results and performance that are forward looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. The
accuracy of such statements is subject to a number of risks, uncertainties
and assumptions that may cause actual results to differ materially from
those projected, including, but not limited to, the effect of general
economic conditions, including the level of interest rates and housing
starts; market demand for the company's products; the effect of forestry,
land use, environmental and other governmental regulations; and the risk of
losses from fires, floods and other natural disasters. The company is also
a large exporter and is affected by changes in economic activity in Europe
and Asia, particularly Japan, and by changes in currency exchange rates and
restrictions on international trade. These and other factors that could
cause or contribute to actual results differing materially from such
forward looking statements are discussed in greater detail in the company's
Securities and Exchange Commission filings.
29
<PAGE>
DESCRIPTION OF THE BUSINESS OF THE COMPANY
Weyerhaeuser Company (the company) was incorporated in the state of
Washington in January 1900 as Weyerhaeuser Timber Company. It is
principally engaged in the growing and harvesting of timber and the
manufacture, distribution and sale of forest products, real estate
development and construction, and other real estate related activities.
The company has 35,800 employees, of whom 34,900 are employed in its timber-
based businesses, and of this number, approximately 17,400 are covered by
collective bargaining agreements, which generally are negotiated on a multi-
year basis.
Approximately 900 of the company's employees are involved in the activities
of its real estate and related assets segment.
The major markets, both domestic and foreign, in which the company sells
its products are highly competitive, with numerous strong sellers competing
in each. Many of the company's products also compete with substitutes for
wood and wood fiber products. The company's subsidiaries in the real estate
and related assets segment operate in highly competitive markets, competing
with numerous regional and national firms in real estate development and
construction and other real estate related activities.
In 1997, the company's sales to customers outside the United States totaled
$2.2 billion (including exports of $1.5 billion from the United States and
$.7 billion of Canadian export and domestic sales), or 20 percent of total
consolidated sales and revenues, compared with 22 percent in 1996. The
company believes these sales contributed a higher proportion of aggregate
operating profits (see Note 3 of Notes to Financial Statements). All sales
to customers outside the United States are subject to risks related to
international trade and to political, economic and other factors that vary
from country to country.
BUSINESS SEGMENTS
TIMBERLANDS AND WOOD PRODUCTS
The company is engaged in the management of 5.2 million acres of company-
owned and .2 million acres of leased commercial forestland in the United
States (60 percent in the South and 40 percent in the Pacific Northwest),
most of it highly productive and located extremely well to serve both
domestic and international markets. The company has, additionally, long-term
license arrangements in Canada covering approximately 23.7 million acres
(of which 16.5 million acres are considered to be productive forestland).
The combined total timber inventory on these U.S. and Canadian lands is
approximately 273 million cunits (a cunit is 100 cubic feet of solid wood),
of which approximately 75 percent is softwood species. The relationship
between cubic measurement and the quantity of end products that may be
produced from timber varies according to the species, size and quality of
timber, and will change through time as the mix of these variables changes.
To sustain the timber supply from its fee timberlands, the company is
engaged in extensive planting, suppression of nonmerchantable species,
precommercial and commercial thinning, fertilization and operational
pruning, all of which increase the yield from its fee timberland acreage.
The company's wood products businesses produce and sell softwood lumber,
plywood and veneer; composite panels; oriented strand board; hardwood
lumber and plywood; doors; treated products; logs; chips and timber. These
products are sold primarily through the company's own sales organizations.
Building materials are sold to wholesalers, retailers and industrial users.
The company, through its wholly owned subsidiary, Weyerhaeuser Forestlands
International, is in a joint-venture partnership with institutional
investors represented by UBS Resource Investments International, a unit of
UBS Asset Management (New York) Inc., which makes investments in
timberlands and related assets outside the United States. The primary focus
of this partnership is in pine forests in the Southern Hemisphere. The
company is a 50 percent owner of the joint venture, the total size of which
is expected to be approximately $400 million. The joint venture will be
capitalized over time through equal cash contributions by the company and
the investor group.
During the year, the company purchased a 51 percent interest in an existing
New Zealand joint venture located on the northern end of the South Island.
The company paid $190 million for timber, land, related assets and net
working capital. The forested area of the joint venture consists of 148,000
acres of Crown Forest License cutting rights and approximately 45,000 acres
of freehold land. The company will be responsible for the management and
marketing activities of the joint venture. RII New Zealand Forests I Inc.
continues to hold the remaining 49 percent in the joint venture.
30
<PAGE>
The company closed an export lumber mill at Coos Bay, Oregon, and plywood
facilities located at Philadelphia, Mississippi, and Plymouth, North
Carolina, in 1997. These closures were part of the company's long-term
strategy to align its wood products manufacturing facilities with changing
future sources of raw materials.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
Dollar amounts in millions 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales:
Raw materials (logs, chips
and timber) $ 1,008 $ 1,066 $ 1,102 $ 1,091 $ 1,021
Softwood lumber 2,094 1,988 1,648 1,880 1,704
Softwood plywood and veneer 502 519 591 636 567
Oriented strand board,
composite and other panels 594 667 752 750 623
Hardwood lumber 272 235 193 175 154
Engineered wood products 284 233 207 157 100
Miscellaneous products 620 532 438 303 299
- -----------------------------------------------------------------------
$ 5,374 $ 5,240 $ 4,931 $ 4,992 $ 4,468
=======================================================================
Approximate contributions
to earnings (1) $ 707 $ 805 $ 808 $ 1,034 $ 891
=======================================================================
</TABLE>
(1) After special charges totaling $40 million associated with the closure
of a lumber mill and two plywood facilities in 1997.
PULP, PAPER AND PACKAGING
The company's pulp, paper and packaging businesses include: Pulp, which
manufactures chemical wood pulp for world markets; Newsprint, which
manufactures newsprint at the company's North Pacific Paper Corporation
mill and markets it to West Coast and Japanese newspaper publishers; Paper,
which manufactures and markets a range of both coated and uncoated fine
papers through paper merchants and printers; Containerboard Packaging,
which manufactures linerboard and corrugating medium, which is primarily
used in the production of corrugated packaging, and manufactures and
markets industrial and agricultural packaging; Paperboard, which
manufactures and markets bleached paperboard, used for production of liquid
containers, to West Coast and Pacific Rim customers; Recycling, which
operates an extensive wastepaper collection system and markets it to
company mills and worldwide customers; and Chemicals, which produces
chlorine, caustic and tall oil, which are used principally by the company's
pulp, paper and packaging operations.
During 1997, the company sold its Saskatoon, Saskatchewan, Canada, chemical
operation, closed its Longview, Washington, corrugated medium machine, and
restructured its recycling business through consolidation, closure or
disposition of certain facilities.
The SCA Weyerhaeuser Packaging Holding Company Asia Ltd. joint venture,
formed in 1996 to pursue opportunities to build or buy containerboard
packaging facilities to serve manufacturers of consumer and industrial
products in Asia, commenced construction on two facilities in China in
1997.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
Dollar amounts in millions 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales:
Pulp $ 986 $ 954 $ 1,616 $ 1,012 $ 823
Newsprint 416 451 508 356 322
Paper 842 803 1,001 664 648
Paperboard and
containerboard 301 281 325 240 255
Packaging 1,781 1,921 1,863 1,495 1,302
Recycling 189 140 266 121 77
Chemicals 57 63 63 45 32
Miscellaneous products 37 35 40 133 120
- -----------------------------------------------------------------------
$ 4,609 $ 4,648 $ 5,682 $ 4,066 $ 3,579
=======================================================================
Approximate contributions
to earnings(1) $ 164 $ 307 $ 1,181 $ 211 $ 61
=======================================================================
</TABLE>
(1) After the gain of $21 million on the sale of Saskatoon Chemicals, Ltd.,
and charges totaling $49 million for the closure of a corrugated medium
machine and the restructuring of the recycling business in 1997.
REAL ESTATE AND RELATED ASSETS
The company, through its subsidiary, Weyerhaeuser Real Estate Company
(WRECO), is engaged in developing single-family housing and residential lots
for sale, including development of master-planned communities. Operations
are concentrated mainly in selected metropolitan areas in Southern
California, Nevada, Washington, Texas, Maryland and Virginia.
31
<PAGE>
With the sale of Weyerhaeuser Mortgage Company in the second quarter of
1997, the financial services segment is no longer material to the company.
Therefore, the remaining real estate activities of Weyerhaeuser Financial
Services, Inc. (WFS), have been combined with WRECO into one segment
entitled real estate and related assets.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
Dollar amounts in millions 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales and revenues:
Single-family units $ 688 $ 573 $ 563 $ 686 $ 615
Multi-family units 29 12 -- 26 30
Residential lots 91 76 60 65 43
Commercial lots 57 50 29 7 41
Commercial buildings 68 43 4 35 3
Acreage 41 25 36 20 27
Interest (1) 35 70 76 84 110
Investment income (1) 2 1 3 2 116
Loan origination and
servicing fees (1) 35 100 84 88 127
Other 47 59 64 104 118
- ------------------------------------------------------------------------
$ 1,093 $ 1,009 $ 919 $ 1,117 $ 1,230
========================================================================
Approximate contributions
to earnings (2) $ 111 $ 43 $ (277) $ 18 $ 94
========================================================================
</TABLE>
(1) Interest, investment income, and loan origination and servicing fees
relate principally to the company's operations in financial services
through its subsidiaries Weyerhaeuser Mortgage Company, sold in the second
quarter of 1997, and GNA Corporation, sold in 1993.
(2) After a $45 million gain on the sale of Weyerhaeuser Mortgage Company
in 1997, a special charge of $290 million to dispose of certain real estate
assets in 1995, and a $42 million gain on the sale of GNA Corporation in
1993.
CORPORATE AND OTHER
Corporate and other includes marine transportation and general corporate
expense.
The company sold its wholly owned wholesale nursery and garden supply
products subsidiary, Shemin Nurseries, Inc., in the first quarter of 1997.
Revenues and operating earnings of this operation were not material to the
company.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
Dollar amounts in millions 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 134 $ 217 $ 256 $ 223 $ 269
=======================================================================
Approximate contributions
to earnings (1) $ (186) $ (183) $ (217) $ (142) $ (46)
=======================================================================
</TABLE>
(1) After a $10 million gain, which is the net effect of interest income
from a favorable federal income tax decision and the loss incurred in the
sale of Shemin Nurseries in 1997, and a $70 million gain on disposal of the
infant diaper business in 1993.
ENVIRONMENTAL MATTERS
In 1990 the northern spotted owl was listed as a threatened species under
the Endangered Species Act (ESA). In 1992 the marbled murrelet was listed
as a threatened species under the ESA, and in 1996 the Umpqua River
Cutthroat Trout was listed as a threatened species. Certain Snake River
salmon runs have been listed as threatened or endangered under the ESA, and
coho salmon have been listed as threatened in California and parts of
southwest Oregon. Petitions have been filed to list certain Pacific
Northwest salmon runs, steelhead trout, bull trout and other fish
populations as threatened or endangered under the ESA. A consequence of
these listings has been, and a consequence of future listings may be,
reductions in the sale and harvest of timber on federal timberlands in the
Pacific Northwest. Requirements to protect habitat for threatened and
endangered species on non-federal timberlands has resulted, and may in the
future result, in restrictions on timber harvest on some non-federal
timberlands in the Pacific Northwest, including some timberlands of the
company. The listing of the red-cockaded woodpecker as an endangered
species under the ESA had some effect on the harvest of public and private
timber in the southeastern United States, but has had little effect on the
company's operations. Other ESA-listed species (e.g., American burying
beetle and gopher tortoise) occur on or near some of the company's southern
timberlands, but have had little effect on the company's operations. Other
federal ESA listings, or designations of fish and wildlife species as
endangered, threatened or otherwise sensitive under various state laws,
could affect future timber harvests on some of the company's timberlands
and could affect timber supply and prices in some regions. In addition,
statutory requirements with respect to the protection of wetlands
32
<PAGE>
may affect future harvest and forest management practices on some of the
company's timberlands, particularly in southeastern states.
In April 1994, the Clinton administration (the administration) adopted its
plan with respect to management of federal timberlands in the Pacific
Northwest. This plan has reduced timber sales from certain federal lands in
western Washington, western Oregon and northern California by more than 75
percent from harvest levels in the 1980s. Subsequently, the administration
has begun similar planning efforts and adopted interim timber sale policies
for federal timberlands in the intermountain west and certain other
regions. These reductions in federal timber sales have seriously reduced
log supplies to many independent sawmills that have been important
suppliers of wood chips to the company's pulp and paper mills in Washington
and Oregon. Alternative sources of wood chips and recycled fiber have
become available, and some companies have reduced manufacturing capacity or
production levels in response to reduced federal timber harvests. The
company does not anticipate that reductions in federal timber harvests will
require significant curtailments of capacity or production at its current
manufacturing facilities.
The administration also has stated that reduced timber harvest on federal
lands will provide the opportunity to clarify the uncertainty surrounding
federal policies for protection of northern spotted owls on some private
lands. On February 7, 1995, the administration proposed a special rule to
clarify federal harvest restrictions on some private lands in Washington
and California. The company believes that the regulatory changes might
ultimately allow it to harvest fee timber in some areas where it has not
been operating because of uncertainties regarding regulations intended to
protect the northern spotted owl. Whether those regulatory changes will be
implemented is uncertain. If those regulatory changes are not implemented,
the company might not harvest some timber that it otherwise might harvest
in 1998 and 1999.
Because those regulatory changes may not be implemented, and in order to
avoid existing uncertainty under the ESA, the company, in February 1995,
developed a Habitat Conservation Plan (HCP) and obtained from the U.S.
Fish and Wildlife Service an Incidental Take Permit with respect to
northern spotted owls on approximately 209,000 acres of its Oregon coastal
timberlands. That HCP establishes a protocol for the harvest of timber and
the protection of the northern spotted owl on those timberlands and is
expected to remain in effect for at least 50 years. In December 1996, the
company applied for an Incidental Take Permit covering approximately
400,000 acres of company timberlands in western Oregon. If the related HCP
and Implementation Agreement are approved and that permit is issued by the
U.S. Fish and Wildlife Service and the National Marine Fisheries Service,
the company would be authorized to "take" all species currently listed or
proposed for listing under the ESA (including the northern spotted owl),
and all or most species that may become listed in the future, in the course
of conducting timber harvest and other forest management and land use
activities on those lands. Pursuant to both of those HCPs, there are limits
on the amount of land covered by the HCPs that can be transferred unless
the U.S. Fish and Wildlife Service approves the transfer or the new owner
agrees to be bound by the HCP and related documents.
In 1996 the company obtained from the U.S. Fish and Wildlife Service an
Incidental Take Permit for the American burying beetle covering
approximately 25,000 acres of lands in Oklahoma that it acquired from
the United States in an exchange with the U.S. Forest Service and certain
nearby lands that the company already owned. The company also has entered
into agreements with the U.S. Fish and Wildlife Service to reduce
uncertainties under the ESA with respect to red-cockaded woodpeckers on
some of its timberlands in North Carolina and northern spotted owls on some
of its timberlands in Washington.
The company believes the most effective way to manage its timberlands for
the growth and harvest of timber and the protection of wildlife and fish
habitat is to develop plans for the management of timber and other
resources on those lands and obtain approval of those plans from the
appropriate federal or state agencies. Accordingly, the company is seeking
to develop HCPs or other arrangements with federal and state fish and
wildlife agencies for some other parts of its Pacific Northwest timberlands
that would address the protection of wildlife and fish habitat for both
listed and non-listed species.
Forest practice acts in some of the states in which the company has timber
increasingly affect present or future harvest and forest management
activities. For example, forest practice acts in Washington and Oregon
limit the size of clearcuts, require that some timber be left unharvested
in riparian areas and sometimes in other areas to protect water quality,
fish habitat and wildlife, regulate construction of forest roads and
conduct of other forest management activities, require reforestation
following timber harvest, and contain procedures for state agencies to
review and approve proposed forest practice activities. Other states and
some local governments regulate certain forest practices through various
permit programs. Each of the states in which the company owns timberlands
has developed "best management practices" (BMPs) to reduce the effects of
forest practices on water quality and aquatic habitats. Additional and more
stringent regulations and regulatory programs may be adopted by various
state and local governments to achieve water quality standards under the
Clean Water Act or to preserve aquatic habitats. These current or future
forest practice acts, BMPs and other programs may reduce the volumes of
timber that can be harvested, increase operating and administrative costs,
and make it more difficult to respond to rapid changes in markets,
33
<PAGE>
extreme weather or other unexpected circumstances. However, the company
does not anticipate that it will be disproportionately affected by these
programs as compared with typical owners of comparable timberlands or that
these programs will significantly disrupt its planned operations over large
areas or for extended periods.
In addition, the company participates in the Sustainable Forestry
Initiative(R) sponsored by the American Forest & Paper Association, a code
of conduct designed to supplement government regulatory programs with
voluntary landowner initiatives to further protect certain public resources
and values. Compliance with the Sustainable Forestry Initiative(R) may
require some increases in operating costs.
The combination of the forest management and harvest restrictions and
effects described in the preceding paragraphs has increased operating
costs, resulted in changes in the value of timber and logs from the
company's Pacific Northwest timberlands, and contributed to increases in
the prices paid for wood products and wood chips during periods of high
demand. The company does not know whether these effects will continue. One
additional effect may be the continuation of some reduced usage of, and
some substitution of other products for, lumber and plywood.
The company does not believe that the restrictions and effects described in
the above paragraphs have had, or in 1998 or 1999 will have, a significant
effect on the company's total harvest of timber, although they may have
such an effect in the future.
In addition to the foregoing, the company is subject to federal, state or
provincial and local air, water and land pollution control, solid and
hazardous waste management, disposal and remediation laws and regulations
in all areas in which it has operations, and to market demands with respect
to chemical content of some products and use of recycled fiber. Compliance
with these laws, regulations and demands usually involves capital
expenditures as well as operating costs. The company cannot easily quantify
future amounts of capital expenditures required to comply with these laws,
regulations and demands, or the effects on operating costs, because in some
instances compliance standards have not been developed or have not become
final or definitive. In addition, compliance with standards frequently
serves other purposes such as extension of facility life, increase in
capacity, changes in raw material requirements, or increase in economic
value of assets or products. While it is difficult to isolate the
environmental component of most manufacturing capital projects, the com-
pany estimates that capital expenditures for environmental compliance were
approximately $41 million (6 percent of total capital expenditures
excluding acquisitions) in 1997. Based on its understanding of current
regulatory requirements, the company expects that expenditures will range
from $75 million to $85 million (10 to 11 percent of total capital
expenditures) in 1998 and 1999.
The company is involved in the environmental investigation or remediation
of numerous sites, including 43 superfund sites where the company has been
named as a potentially responsible party. Some of the sites are on property
presently or formerly owned by the company where the company has the sole
obligation to remediate the site or shares that obligation with one or more
parties, and others are third-party sites involving several parties who
have a joint and several obligation to remediate the site. The company's
liability with respect to these sites ranges from insignificant at some
sites to substantial at others, depending on the quantity, toxicity and
nature of materials deposited by the company at the site and, with respect
to some sites, the number and economic viability of the other responsible
parties.
The company spent approximately $21 million in 1997 and expects to spend
$15 million in 1998 on environmental remediation of these sites. It is the
company's policy to accrue for environmental remediation costs when it is
determined that it is probable that such an obligation exists and the
amount of the obligation can be reasonably estimated. Based on currently
available information and analysis, the company believes that it is
reasonably possible that costs associated with all identified sites may
exceed current accruals by amounts that may prove insignificant or that
could range, in the aggregate, up to approximately $100 million over
several years. This estimate of the upper end of the range of reasonably
possible additional costs is much less certain than the estimates upon
which accruals are currently based and utilizes assumptions less favorable
to the company among the range of reasonably possible outcomes.
An Environmental Protection Agency (EPA) regulation under Title 5 of the
Clean Air Act requires updated comprehensive operating permits at many of
the company's manufacturing operations. The company will continue to
prepare the permit applications in 1998 and anticipates that it will be
able to obtain the necessary permits.
The EPA published proposed regulations on December 17, 1993, known as the
"cluster rules," which would establish maximum achievable control
technology standards for non-combustion sources under the Clean Air Act,
and revised wastewater effluent limitations under the Clean Water Act. The
original proposal has been modified on two occasions. The final rule was
approved by the administrator of the EPA in November 1997 and will go into
effect in early 1998. The cluster rules will require the company to commit
approximately $80 million of additional capital to further reduce air
emissions and wastewater discharges over the next several years.
34
<PAGE>
FINANCIAL REVIEW
RESULTS OF OPERATIONS
1997 COMPARED WITH 1996
During 1997, the company's consolidated net sales and revenues were $11.2
billion compared with $11.1 billion in the prior year. Sales were
relatively even from year to year in all the operating segments, with
increased volumes in most product lines offsetting unfavorable price
variances. While the real estate and related assets segment included only
four months of revenues from Weyerhaeuser Mortgage Company due to the sale
of this business in May, the lost revenues were more than offset by
increased revenues from real estate activity.
Net earnings for the year were $342 million, or $1.72 basic earnings per
share, compared with $463 million, or $2.34 basic earnings per share, in
1996. The current year's earnings included after-tax special items of $9
million, or 4 cents per common share, related to the charges incurred for
closures of operating facilities, offset in part by the gain on sale of
businesses. Diluted earnings per share, which is based upon the weighted
average number of shares outstanding plus shares the company may be
obligated to issue to satisfy stock options, were $1.71 and $2.33 for 1997
and 1996, respectively.
1997 operating earnings in the timberlands and wood products segment were
$707 million, net of charges totaling $40 million for the closure of two
plywood facilities and an export sawmill. Excluding these charges, the
segment earned $747 million compared with $805 million in 1996. The
decrease from year to year is the combination of weak export demand for
logs and lumber and lower domestic structural panel prices, offset somewhat
by a stronger domestic lumber market.
The pulp, paper and packaging segment had operating earnings of $164
million in 1997, which includes special items netting to a charge of $28
million. This includes a $49 million charge for the consolidation, closure
or disposition of certain recycling facilities, the closure of a corrugated
medium machine, and a gain of $21 million from the sale of a chemical
facility in Saskatoon, Saskatchewan, Canada. Before these special items,
the segment earned $192 million compared with $307 million in the previous
year. Volume increases in all product lines were more than offset by weaker
average prices when compared with 1996, although pulp, paper and packaging
markets improved each quarter in 1997. The paper and packaging markets
continued this improvement through the fourth quarter; however, pulp
markets began to weaken during the quarter due to a decline in demand in
Asia.
The real estate and related assets segment earned $111 million for the
year, including a $45 million gain on the sale of the company's wholly
owned subsidiary, Weyerhaeuser Mortgage Company. The $66 million operating
earnings, excluding this gain, when compared with $43 million in 1996,
reflects stronger real estate markets, an increased focus on the home
building and land development businesses, and improved operating
efficiencies.
The increase in Weyerhaeuser's costs of products sold, as a percentage of
sales, to 78 percent in 1997 compared with last year's 75 percent can be
attributed to the price weaknesses described above. The product
inventory turnover rate was 12.1 turns for the year compared with 10.3
turns in 1996. Charges of $89 million incurred for the closure of
production facilities were a factor in the increase in costs and expenses
for 1997 over the prior year.
The increase in costs and operating expenses in the real estate and related
assets segment is consistent with the increased revenues from the strong
real estate markets. Reduced selling, general and administrative expenses,
compared with the prior year, are due primarily to the sale of the mortgage
banking business.
Other income (expense) is an aggregation of both recurring and occasional
income and expense items and, as a result, can fluctuate from year to year.
Individual items significant in relation to net earnings in 1997 were: a
gain of $45 million from the sale of the mortgage banking business,
interest income of $18 million from the favorable federal income tax
decision related to timber casualty losses incurred in the eruption of
Mount St. Helens in 1980, a loss of $8 million from the sale of the
wholesale nursery business, and a gain of $21 million from the sale of the
Saskatoon chemical facility. There were no significant individual items in
1996.
1996 COMPARED WITH 1995
Consolidated net sales and revenues were $11.1 billion in 1996, a decrease
of 6 percent from the record $11.8 billion posted in 1995. This decrease is
the net of a $1 billion decrease in the pulp, paper and packaging segment
and an increase of $309 million for timberlands and wood products. Pulp,
paper, corrugated packaging and recycled products experienced material
unfavorable price variances offset, in part, by favorable volume variances
in the packaging business related to the acquisition of nine facilities in
late 1995. Wood products benefited from favorable price and volume
variances in lumber.
35
<PAGE>
Net earnings for 1996 were $463 million, or $2.34 per common share,
compared with record earnings of $799 million, or $3.93 per common share,
in 1995. The 1995 earnings were net of an after-tax special charge of $184
million ($290 million pretax), or 90 cents per common share, in the real
estate and related assets segment. Lower prices in the pulp, paper and
packaging segment, which were in sharp contrast with the record 1995
levels, accounted for the decline in 1996 earnings.
The timberlands and wood products segment operating earnings were $805
million, comparable to 1995 earnings of $808 million, as it benefited from
strong demand in the United States and Japan. Tight supplies and
disruptions related to countervailing duties on imports from Canada
contributed to strong lumber results. The panel markets were negatively
impacted by the excess capacity of oriented strand board as new facilities
came on line in 1996.
The pulp, paper and packaging segment reported operating earnings of $307
million in 1996 compared with a record performance of $1.2 billion in 1995.
The downturn in pulp and paper prices, which began in the fourth quarter of
1995 as customers cut back on purchases in order to reduce excess
inventories, continued as prices were significantly lower than the prior
year.
The real estate and related assets segment earned $43 million from
operations in 1996 compared with $13 million, before the special charge, in
1995. Real estate benefited from several major commercial project closings
and increased residential property sales along with reduced costs as the
result of the disposition of certain impaired properties. Improved
financial services results reflected the sale of capitalized servicing
rights and increased loan originations in the company's mortgage banking
business.
Weyerhaeuser's cost of products sold, as a percentage of sales, increased
to 75 percent in 1996 compared with 69 percent in 1995, reflecting the
significant decline in pulp, paper and packaging pricing. Additionally,
inventory turnover rates were lower in 1996 compared with the higher rates
experienced in the peak price periods of 1995.
The real estate and related assets segment costs and operating expenses in
1996 rose 7 percent over the 1995 level, consistent with the 10 percent
increase in revenues from year to year. The decline in depreciation and
amortization was directly related to the disposition of certain impaired
assets and sale of substantially all of the capitalized servicing rights in
the mortgage banking business. Selling, general and administrative expenses
increased over 1995 primarily due to the opening of additional branch
offices in 1996 by the mortgage banking business.
Other income (expense) is an aggregation of both recurring and occasional
non-operating income and expense items and, as a result, may fluctuate from
period to period. No individual income or expense item in 1996 was
significant in relation to net earnings.
1995 COMPARED WITH 1994
The company's consolidated net sales and revenues increased 13 percent to a
record $11.8 billion in 1995 compared with $10.4 billion in 1994. The pulp,
paper and packaging segment accounted for $5.7 billion of this record
performance, 40 percent over its sales of $4.1 billion in 1994, with strong
year-to-year improvement in all product lines. These markets weakened in
the fourth quarter, and this weakness persisted in 1996 as customers
continued to reduce inventories. The timberlands and wood products segment
sales of $4.9 billion approximated 1994's. The real estate and related
assets segment had combined sales of $919 million, down from the prior
year's $1.1 billion, largely attributable to declines in single-family home
sales.
The company also achieved record earnings of $799 million, or $3.93 per
common share, in 1995, which was 36 percent over the $589 million, or $2.86
per common share, recorded in 1994. The 1995 earnings were net of an after-
tax charge of $184 million ($290 million pretax), or 90 cents per common
share, in the real estate and related assets segment. The 1994 earnings
included a net contribution of $.03 per common share for the return of
countervailing duty by the U.S. government against Canadian lumber imports
and the expected cost of postretirement benefits for Canadian employees.
Operating earnings in the timberlands and wood products segment were $808
million, down from the record $1 billion for the previous year. This was
attributable to price declines primarily in softwood lumber, caused by a
drop in domestic housing starts.
The pulp, paper and packaging segment posted record operating earnings of
$1.2 billion in 1995 compared with $211 million earned in 1994. Significant
price improvement over the prior year and ongoing improvements in
operations were the key factors in recovery in this segment.
The company's real estate and related assets segment recorded an operating
loss of $277 million for the year after reflecting a $290 million charge to
operations. The majority of the charge was a direct result of the company's
decision to accelerate the disposition of certain real estate assets
previously held for development and use. The remainder of the charge
resulted from the application of those provisions of Statement of Financial
36
<PAGE>
Accounting Standards (SFAS) No. 121 relating to the valuation of assets
held for future use where estimated undiscounted future cash flows from
those assets did not exceed the carrying value of those assets. Before
these actions, the combined segments earned $13 million compared with $18
million in 1994.
Weyerhaeuser's cost of products sold as a percentage of net sales decreased
to 69 percent in 1995 compared with 73 percent in 1994. The company
continued to benefit from its mill modernization program and implementation
of its business improvement plans, offset in part by the costs associated
with higher sales activity, principally in the pulp, paper and packaging
segment. Depreciation expense increased over the prior year as a result of
the completion and start-up of several mill modernization projects in late
1994 in the pulp, paper and packaging segment. The expansion of the
company's Performance Share Plan to include all employees was the major
contributor to the $109 million increase in selling, general and
administrative expenses. Contributions made by the company into this plan
are invested in company stock on behalf of each employee. The size of the
contribution, if any, is decided by the board of directors each year on the
basis of that year's profits and the company's performance relative to its
competition.
Excluding the revaluation charge, the decrease in costs and operating
expenses of the real estate and related assets segment are in line with the
reduced sales activity.
Other income (expense) is an aggregation of both recurring and occasional
non-operating income and expense items and, as a result, may fluctuate from
period to period. No individual income or expense item in 1995 was
significant in relation to net earnings.
Weyerhaeuser's interest expense incurred was up $34 million over the prior
year as a result of prefunding 1995 debt maturities that were due late in
the year as well as an increase in the company's combined long- and short-
term debt levels. Capitalized interest was $16 million less than the prior
year as mill modernization projects at Longview, Washington, and Plymouth,
North Carolina, were completed.
SUBSEQUENT EVENT
In February 1998, the company and Nippon Paper Industries Co., Ltd. (NPI),
completed the restructuring of their North Pacific Paper Corporation
(NORPAC) joint venture. Through this restructuring, the ownership of NORPAC
changed from 80 percent company ownership and 20 percent NPI ownership to
50 percent for each shareholder. The company, either directly or through a
wholly owned subsidiary, will continue to provide marketing, support
services, raw materials and staffing to the joint venture.
BUSINESS IMPROVEMENT PLANS
In 1994 business improvement plans were developed to improve the annual
pretax earnings of the company by $600 million by the end of 1997. Given
the volatility of prices in many of the company's product lines and
changing material and labor costs, the improvement plans were developed,
stated and are being tracked in 1994 dollars. The year-to-year impact of
these plans will obviously vary as prices and costs change each year.
These plans were developed by each unit of the company and did not require
major capital investment. They focused on the manageable variables at each
operating unit that have the greatest impact on profitability, i.e.,
production volume, manufacturing cost, product mix and controllable
overhead.
The company achieved annualized improvements totaling $224 million, $120
million and $276 million, as measured in 1994 dollars, in 1997, 1996 and
1995, respectively, with 1998 as the first full year of benefits. The rate
of improvement increased in 1997 compared with 1996. The company exceeded
its goal in Pulp, Paper and Packaging. Wood Products and Timberlands fell
slightly short of its goal as four facilities were sold and three were
closed permanently that were included in the original plan.
The annualized improvements realized over the 1995 to 1997 period, in 1994
dollars, are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Dollar amounts in millions 1997 1996 1995 Total
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Pulp, paper and packaging $ 129 $ 49 $ 146 $ 324
Timberlands and wood products 95 71 130 296
- ----------------------------------------------------------------
$ 224 $ 120 $ 276 $ 620
================================================================
</TABLE>
37
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
The company is committed to the maintenance of a sound, conservative
capital structure. This commitment is based upon two considerations: the
obligation to protect the under lying interests of its shareholders and
lenders, and the desire to have access, at all times, to major financial
markets.
The important elements of the policy governing the company's capital
structure are as follows:
. To view separately the capital structures of Weyerhaeuser Company,
Weyerhaeuser Real Estate Company and related subsidiaries, given the very
different nature of their assets and business activities. The amount of
debt and equity associated with the capital structure of each will reflect
the basic earnings capacity, real value and unique liquidity
characteristics of the assets dedicated to that business.
. The combination of maturing short-term debt and the structure of long-
term debt will be managed judiciously to minimize liquidity risk. Long-term
debt maturities are shown in Note 13 of Notes to Financial Statements.
OPERATIONS
Weyerhaeuser's net cash provided by operations in 1997 was $1 billion,
essentially all from cash flow from operations before changes in net
working capital. This was down slightly from the $1.1 billion provided in
1996. These funds were provided by net income of $271 million, down from
last year's $434 million; depreciation, amortization and fee stumpage of
$616 million comparable to the prior year; and deferred taxes of $88
million compared to $121 million in 1996. In addition, in 1997 funds were
provided from $89 million in non-cash charges for the closure or
disposition of facilities.
Working capital, net of the effects of the sale or acquisition of
businesses and facilities, increased by $44 million in 1997, slightly
higher than the $41 million increase a year earlier. This net increase in
the current year was due primarily to an increase in receivables and a
decrease in accounts payable and accrued liabilities.
Net cash provided by operations in the real estate and related assets
segment was $13 million compared with $155 million in 1996. Cash flow from
operations of $23 million before changes in working capital was provided by
net income of $71 million, of which $45 million was from the gain on the
sale of the mortgage banking business. The segment's working capital
increased by $10 million in 1997 compared with a decrease of $82 million in
the prior year from decreases in real estate inventories and mortgages held
for sale.
Cash flow from operations before changes in working capital by business
segment was as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Dollar amounts in millions 1997 1996 1995
- ----------------------------------------------------------
<S> <C> <C> <C>
Timberlands and wood products $ 993 $ 1,045 $ 1,026
Pulp, paper and packaging 556 665 1,567
Real estate and related assets 23 73 67
Corporate and other (473) (526) (792)
- ----------------------------------------------------------
$ 1,099 $ 1,257 $ 1,868
==========================================================
</TABLE>
INVESTING
Capital expenditures, excluding acquisitions, were $656 million in 1997
compared with $879 million in 1996. They are currently expected to
approximate $750 million, excluding acquisitions, in 1998; however, these
expenditures could be increased or decreased as a consequence of future
economic conditions.
Recent capital spending, excluding acquisitions, has been in the following
areas:
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Dollar amounts in millions 1997 1996 1995
- ----------------------------------------------------------
<S> <C> <C> <C>
Timberlands and wood products $ 314 $ 418 $ 446
Pulp, paper and packaging 315 415 501
Corporate and other 27 46 49
- ----------------------------------------------------------
$ 656 $ 879 $ 996
==========================================================
</TABLE>
Acquisitions of plant, property and equipment amounted to $13 million in
1997. Also, during the year, the company expended $190 million to acquire
51 percent of a forestry joint venture in New Zealand.
The cash needed to meet these and other company needs was generated
from internal cash flow, issuance of debt, sale of businesses and short-term
borrowing.
Proceeds from the sale of the wholesale nursery business and the Saskatoon
chemical facility provided $76 million of cash to Weyerhaeuser in 1997
while the sale of the mortgage banking business provided $192 million of
cash in the real estate and related assets segment.
38
<PAGE>
FINANCING
During the year, Weyerhaeuser reduced its interest-bearing debt by $117
million, bringing the debt to total capital ratio down to 36.3 percent at
year-end compared with 37.9 percent at the end of 1996. New borrowings
included two $300 million, 6.95 percent debentures, one for 20 years and
the other for 30 years. In addition, $38 million of industrial revenue
bonds were sold. Long-term debt was reduced by a pay-down of $695 million
in commercial paper and $78 million in scheduled debt.
The company paid $317 million in cash dividends on common shares in both
1997 and 1996. Although common share dividends have exceeded the company's
target ratio in recent years, the intent, over time, is to pay dividends to
common shareholders in the range of 35 to 45 percent of common share
earnings. Weyerhaeuser also received an intercompany dividend from
Weyerhaeuser Financial Services, Inc., which has been eliminated on a
consolidated basis.
During the year, the company repurchased 496,000 common shares for $22
million as part of the 11 million share repurchase program implemented in
1995. This repurchase program was completed in January 1998.
The real estate and related assets segment used $299 million in funds for
financing activities in the year. An increase in commercial paper
borrowings provided $118 million while funds were used for the $150 million
intercompany dividend and $281 million in debt reductions.
To ensure its ability to meet future commitments, Weyerhaeuser Company and
Weyerhaeuser Real Estate Company have established unused bank lines of
credit in the maximum aggregate sum of $825 million. Neither of the
entities is a guarantor of the borrowings of the other under any of these
credit facilities.
MARKET RISK OF FINANCIAL INSTRUMENTS
The company has exposure to market risk including changes in interest rates
and currency exchange rates. To manage the volatility relating to these
exposures, the company has entered into limited derivative transactions to
manage well-defined interest rate and foreign exchange risks. The company
does not hold or issue derivative financial instruments for trading. The
majority of the company's derivative instruments are "pay fixed, receive
variable" interest rate swaps with highly rated counterparties in which the
interest payments are calculated on a notional amount. The notional amounts
do not represent amounts exchanged by the parties and, thus, are not a
measure of exposure to the company through its use of derivatives. The
company is exposed to credit-related gains or losses in the event of
non-performance by counterparties to these financial instruments; however,
the company does not expect any counterparties to fail to meet their
obligations. Interest rate swaps are described as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
Dollar amounts in millions Variable Rate at December 28, 1997
- -----------------------------------------------------------------------
Notional Maturity Fixed Fair Value
Amount Date Rate % % Based On of Swap(1)
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 150 1/1/98 9.38 6.00 30 day commercial paper $ ---
40 3/23/98 8.72 6.00 30 day commercial paper (0.2)
150 5/17/98 6.36 5.90 90 day LIBOR (0.4)
50 6/8/98 (2) 5.54 5.90 90 day LIBOR 0.1
27 5/1/99 6.70 8.25 11.95% - Kenny index 0.5
75 12/6/99 (3) 6.85 5.90 30 day LIBOR (2.1)
- -----------------------------------------------------------------------
$ 492 $ (2.1)
- -----------------------------------------------------------------------
</TABLE>
(1) The amount of the obligation under each swap is based on the assumption
that such swap had terminated at the end of the fiscal period, and provides
for the netting of amounts payable by and to the counterparty. In each
case, the amount of such obligation is the net amount so determined.
(2) Includes the value of an option, by the counterparty, to extend for
one year at maturity date.
(3) Includes the value of an option, by the counterparty, to extend for two
years at maturity date.
CONTINGENCIES
The company is a party to legal proceedings and environmental matters
generally incidental to its business. Although the final outcome of any
legal proceeding or environmental matter is subject to a great many
variables and cannot be predicted with any degree of certainty, the company
presently believes that the ultimate outcome resulting from these
proceedings and matters would not have a material effect on the company's
current financial position, liquidity or results of operations; however, in
any given future reporting period, such proceedings or matters could have a
material effect on results of operations.
39
<PAGE>
YEAR 2000
Weyerhaeuser, like all other companies using computers and microprocessors,
is faced with the task of addressing the Year 2000 problem over the next
two years. The Year 2000 challenge arises from the nearly universal
practice in the computer industry of using two digits rather than four
digits to designate the calendar year (e.g., DD/MM/YY). This can lead to
incorrect results when computer software performs arithmetic operations,
comparisons or data field sorting involving years later than 1999. The
company has embarked on a comprehensive approach to identify where this
problem may occur in its information technology, manufacturing and
facilities systems. The company plans to modify or replace its affected
systems in a manner that will minimize any detrimental effects on
operations. While it is not possible at present to quantify the overall
cost of this work, the company presently believes that the ultimate outcome
resulting from this work will not have a material effect on the company's
current financial position, liquidity or results of operations; however, in
any given future reporting period, such costs could have a material effect
on results of operations.
ACCOUNTING MATTERS
PROSPECTIVE PRONOUNCEMENTS
During the year, the FASB issued the following pronouncements that will be
effective in periods after the close of the company's 1997 fiscal year:
. SFAS No. 130, "Reporting Comprehensive Income."
. SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information."
These statements are described in Note 1, Summary of Significant Accounting
Policies, of Notes to Financial Statements.
ACCOUNTING AND REPORTING STANDARDS COMMITTEE
During the year, the Accounting and Reporting Standards Committee,
comprised of four outside directors, reviewed with the company's management
and with its independent public accountants the scope and results of the
company's internal and external audit activities and the adequacy of the
company's internal accounting controls. The committee also reviewed current
and emerging accounting and reporting requirements and practices affecting
the company.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS OF WEYERHAEUSER COMPANY:
We have audited the accompanying consolidated balance sheets of
Weyerhaeuser Company (a Washington corporation) and subsidiaries as of
December 28, 1997, and December 29, 1996, and the related consolidated
statements of earnings, cash flows and shareholders' interest for each of
the three years in the period ended December 28, 1997. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Weyerhaeuser Company
and subsidiaries as of December 28, 1997, and December 29, 1996, and the
results of their operations and their cash flows for each of the three
years in the period ended December 28, 1997, in conformity with generally
accepted accounting principles.
Seattle, Washington,
February 11, 1998 ARTHUR ANDERSEN LLP
40
<PAGE>
CONSOLIDATED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
For the three-year period
ended December 28, 1997
Dollar amounts in millions
except per-share figures 1997 1996 1995
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Net sales and revenues:
Weyerhaeuser $ 10,117 $ 10,105 $ 10,869
Real estate and related assets 1,093 1,009 919
- ----------------------------------------------------------------------
Total net sales and revenues 11,210 11,114 11,788
- ----------------------------------------------------------------------
Costs and expenses:
Weyerhaeuser:
Costs of products sold 7,866 7,610 7,516
Depreciation, amortization and
fee stumpage 616 601 580
Selling, general and administrative
expenses 647 702 724
Research and development expenses 56 54 51
Taxes other than payroll and
income taxes 142 151 155
Charges for closure or disposition
of facilities 89 -- --
- -----------------------------------------------------------------------
9,416 9,118 9,026
- -----------------------------------------------------------------------
Real estate and related assets:
Costs and operating expenses 909 726 681
Depreciation and amortization 12 16 41
Selling, general and administrative
expenses 96 173 139
Taxes other than payroll and
income taxes 8 11 8
Charge for impairment of long-lived
assets (Note 1) -- -- 290
- -----------------------------------------------------------------------
1,025 926 1,159
- -----------------------------------------------------------------------
Total costs and expenses 10,441 10,044 10,185
- -----------------------------------------------------------------------
Operating income 769 1,070 1,603
Interest expense and other:
Weyerhaeuser:
Interest expense incurred 271 273 271
Less interest capitalized 15 21 20
Other income (expense), net (Note 4) (17) (58) (71)
Real estate and related assets:
Interest expense incurred 110 132 140
Less interest capitalized 69 65 76
Other income (expense), net (Note 4) 84 27 27
- -----------------------------------------------------------------------
Earnings before income taxes 539 720 1,244
Income taxes (Note 5) 197 257 445
- -----------------------------------------------------------------------
Net earnings $ 342 $ 463 $ 799
=======================================================================
Per common share (Note 2):
Basic net earnings $ 1.72 $ 2.34 $ 3.93
=======================================================================
Diluted net earnings $ 1.71 $ 2.33 $ 3.91
=======================================================================
Dividends paid $ 1.60 $ 1.60 $ 1.50
=======================================================================
</TABLE>
See notes on pages 47 through 65.
41
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
December 28, December 29,
Dollar amounts in millions 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C>
ASSETS
Weyerhaeuser
Current assets:
Cash and short-term investments (Note 1) $ 100 $ 33
Receivables, less allowances
of $6 and $7 913 902
Inventories (Note 8) 983 1,001
Prepaid expenses 298 289
- ----------------------------------------------------------------------
Total current assets 2,294 2,225
Property and equipment (Note 9) 6,974 7,007
Construction in progress 313 417
Timber and timberlands at cost, less
fee stumpage charged to disposals 996 1,073
Investments in joint ventures 249 35
Other assets and deferred charges 245 211
- ----------------------------------------------------------------------
11,071 10,968
- ----------------------------------------------------------------------
Real estate and related assets
Cash and short-term investments,
including restricted deposits
of $16 and $18 22 38
Receivables, less discounts and allowances
of $6 and $9 62 99
Mortgage-related financial instruments,
less discounts and allowances of $27 and $7
(Notes 1 and 14) 173 621
Real estate in process of development and
for sale (Note 10) 593 680
Land being processed for development 845 719
Investments in and advances to joint ventures
and limited partnerships, less reserves
of $6 and $27 116 115
Other assets 193 356
- ----------------------------------------------------------------------
2,004 2,628
- ----------------------------------------------------------------------
Total assets $ 13,075 $ 13,596
======================================================================
</TABLE>
See notes on pages 47 through 65.
42
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
December 28, December 29,
Dollar amounts in millions 1997 1996
- -------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' INTEREST
Weyerhaeuser
Current liabilities:
Notes payable $ 25 $ 16
Current maturities of long-term debt 17 80
Accounts payable (Note 1) 694 725
Accrued liabilities (Note 11) 648 662
- -------------------------------------------------------------------------
Total current liabilities 1,384 1,483
Long-term debt (Notes 13 and 14) 3,483 3,546
Deferred income taxes (Note 5) 1,418 1,324
Deferred pension and other
liabilities (Notes 6 and 7) 498 493
Minority interest in subsidiaries 121 113
Commitments and contingencies (Note 15)
- -------------------------------------------------------------------------
6,904 6,959
- -------------------------------------------------------------------------
Real estate and related assets
Notes payable and commercial paper (Note 12) 228 245
Long-term debt (Notes 13 and 14) 1,032 1,537
Other liabilities 262 251
Commitments and contingencies (Note 15)
- -------------------------------------------------------------------------
1,522 2,033
- -------------------------------------------------------------------------
Total liabilities 8,426 8,992
- -------------------------------------------------------------------------
Shareholders' interest (Note 17):
Common shares: authorized 400,000,000
shares, issued 206,072,890 shares,
$1.25 par value 258 258
Other capital 407 407
Cumulative translation adjustment (123) (93)
Retained earnings 4,397 4,372
Treasury common shares,
at cost: 6,586,939 and 7,736,601 (290) (340)
- -------------------------------------------------------------------------
Total shareholders' interest 4,649 4,604
- -------------------------------------------------------------------------
Total liabilities and shareholders' interest $ 13,075 $ 13,596
==========================================================================
</TABLE>
43
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
For the three-year period Consolidated
ended December 28, 1997 ----------------------------
Dollar amounts in millions 1997 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Cash provided by (used for) operations:
Net earnings (loss) $ 342 $ 463 $ 799
Non-cash charges to income:
Depreciation, amortization and fee stumpage 628 617 621
Deferred income taxes, net 75 181 103
Charges for closure or disposition
of facilities 89 -- --
Charge for impairment of long-lived assets -- -- 290
Decrease (increase) in working capital:
Accounts receivable (9) 67 (33)
Inventories, prepaid expenses, real estate
and land (23) 68 (159)
Mortgage notes held for sale and mortgage
loans receivable (64) 19 (18)
Accounts payable and accrued liabilities 42 (113) (102)
(Gain) loss on disposition of assets 5 1 43
(Gain) loss on disposition of businesses (58) -- --
Other 18 (5) 12
- --------------------------------------------------------------------------
Net cash provided by operations 1,045 1,298 1,556
- --------------------------------------------------------------------------
Cash provided by (used for) investing
activities:
Property and equipment (610) (829) (928)
Timber and timberlands (46) (50) (68)
Investments in joint ventures (189) (12) 38
Property and equipment and timber and
timberlands from acquisitions (13) (448) (77)
Proceeds from sale of:
Property and equipment (Note 16) 85 74 19
Businesses 268 -- --
Mortgage and investment securities 55 106 25
Other (23) (5) 153
- --------------------------------------------------------------------------
Net cash provided by (used for) investing
activities (473) (1,164) (838)
- --------------------------------------------------------------------------
Cash provided by (used for) financing
activities:
Issuances of debt 632 142 723
Sale of industrial revenue bonds 38 33 150
Notes and commercial paper borrowings, net (577) 534 (439)
Cash dividends (317) (317) (306)
Intercompany cash dividends -- -- --
Payments on debt (359) (513) (661)
Purchase of treasury common shares (22) (45) (379)
Exercise of stock options 61 20 19
Other 23 (1) (4)
- --------------------------------------------------------------------------
Net cash provided by (used for) financing
activities (521) (147) (897)
- --------------------------------------------------------------------------
Net increase (decrease) in cash and
short-term investments 51 (13) (179)
Cash and short-term investments at
beginning of year 71 84 263
- --------------------------------------------------------------------------
Cash and short-term investments at
end of year $ 122 $ 71 $ 84
==========================================================================
Cash paid during the year for:
Interest, net of amount capitalized $ 287 $ 322 $ 302
============================
Income taxes $ 21 $ 168 $ 332
==========================================================================
</TABLE>
See notes on pages 47 through 65.
44
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Real Estate and
Weyerhaeuser Company Related Assets
- ------------------------------------------------------------
1997 1996 1995 1997 1996 1995
- ------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$ 271 $ 434 $ 981 $ 71 $ 29 $ (182)
616 601 580 12 16 41
88 121 183 (13) 60 (80)
89 -- -- -- -- --
-- -- -- -- -- 290
(17) 75 (60) 8 (8) 27
5 (30) (148) (28) 98 (11)
-- -- -- (64) 19 (18)
(32) (86) (82) 74 (27) (20)
13 8 43 (8) (7) --
(13) -- -- (45) -- --
12 20 14 6 (25) (2)
- ------------------------------------------------------------
1,032 1,143 1,511 13 155 45
- ------------------------------------------------------------
(607) (820) (915) (3) (9) (13)
(46) (50) (68) -- -- --
(214) (8) (19) 25 (4) 57
(13) (448) (77) -- -- --
39 61 19 46 13 --
76 -- -- 192 -- --
-- -- -- 55 106 25
22 (44) (31) (45) 39 184
- ------------------------------------------------------------
(743) (1,309) (1,091) 270 145 253
- ------------------------------------------------------------
618 12 583 14 130 140
38 33 150 -- -- --
(695) 637 (159) 118 (103) (280)
(317) (317) (306) -- -- --
150 -- -- (150) -- --
(78) (174) (480) (281) (339) (181)
(22) (45) (379) -- -- --
61 20 19 -- -- --
23 (1) (4) -- -- --
- ------------------------------------------------------------
(222) 165 (576) (299) (312) (321)
- ------------------------------------------------------------
67 (1) (156) (16) (12) (23)
33 34 190 38 50 73
- ------------------------------------------------------------
$ 100 $ 33 $ 34 $ 22 $ 38 $ 50
============================================================
$ 244 $ 255 $ 236 $ 43 $ 67 $ 66
============================================================
$ 54 $ 188 $ 346 $ (33) $ (20) $ (14)
============================================================
</TABLE>
45
<PAGE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' INTEREST
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
For the three-year period ended
December 28, 1997
Dollar amounts in millions 1997 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Common stock issued:
Balance at end of year $ 258 $ 258 $ 258
- --------------------------------------------------------------------------
Other capital:
Balance at beginning of year 407 415 416
Stock options exercised (11) (8) (3)
Other transactions (net) 11 -- 2
- --------------------------------------------------------------------------
Balance at end of year 407 407 415
- --------------------------------------------------------------------------
Cumulative translation adjustment:
Balance at beginning of year (93) (90) (107)
Translation adjustment (30) (3) 17
- --------------------------------------------------------------------------
Balance at end of year (123) (93) (90)
- --------------------------------------------------------------------------
Retained earnings:
Balance at beginning of year 4,372 4,226 3,733
Net earnings 342 463 799
Cash dividends on common shares (317) (317) (306)
- --------------------------------------------------------------------------
Balance at end of year 4,397 4,372 4,226
- --------------------------------------------------------------------------
Common stock held in treasury:
Balance at beginning of year (340) (323) (10)
Purchases of treasury common shares (22) (45) (379)
Stock options exercised 72 28 22
Used in acquisition of capital assets -- -- 44
- --------------------------------------------------------------------------
Balance at end of year (290) (340) (323)
- --------------------------------------------------------------------------
Total shareholders' interest:
Balance at end of year $ 4,649 $ 4,604 $ 4,486
==========================================================================
Shares of common stock (in thousands):
Issued at end of year 206,073 206,073 206,073
- --------------------------------------------------------------------------
In treasury:
Balance at beginning of year 7,737 7,303 455
Purchases of treasury common shares 496 1,086 8,494
Stock options exercised (1,646) (642) (648)
Used in acquisition of capital assets -- (10) (998)
- --------------------------------------------------------------------------
Balance at end of year 6,587 7,737 7,303
- --------------------------------------------------------------------------
Outstanding at end of year 199,486 198,336 198,770
==========================================================================
</TABLE>
See notes on pages 47 through 65.
46
<PAGE>
NOTES TO FINANCIAL STATEMENTS
For the three-year period ended December 28, 1997
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of Weyerhaeuser
Company and all of its majority-owned domestic and foreign subsidiaries.
Significant intercompany transactions and accounts are eliminated.
Certain of the consolidated financial statements and notes to financial
statements are presented in two groupings: (1) Weyerhaeuser (the
company), principally engaged in the growing and harvesting of timber and
the manufacture, distribution and sale of forest products, and (2) Real
estate and related assets, principally engaged in real estate development
and construction and other real estate related activities.
NATURE OF OPERATIONS
The company's principal business segments, which account for the majority
of sales, earnings and the asset base, are:
. Timberlands and wood products, which is engaged in the management of 5.2
million acres of company-owned and .2 million acres of leased commercial
forestland in the United States (60 percent in the South and 40 percent in
the Pacific Northwest) and 23.7 million acres of forestland in Canada under
long-term licensing arrangements (of which 16.5 million acres are
considered to be productive forestland) and the production of a full line
of solid wood products that are sold primarily through the company's own
sales organizations to wholesalers, retailers and industrial users in North
America, the Pacific Rim and Europe.
. Pulp, paper and packaging, which manufactures and sells pulp, newsprint,
paper, paperboard and containerboard in North American, Pacific Rim and
European markets, and packaging products for the domestic markets, and
which operates an extensive wastepaper recycling system that serves company
mills and worldwide markets.
FISCAL YEAR-END
The company's fiscal year ends on the last Sunday of the year. Fiscal years
1997 and 1996 had 52 weeks, and fiscal year 1995 had 53 weeks.
ACCOUNTING PRONOUNCEMENTS IMPLEMENTED
In 1997, the company implemented the following pronouncements of the
Financial Accounting Standards Board (FASB):
. Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings
per Share," that establishes standards for computing and presenting
earnings per share (EPS). It simplifies the standards in APB Opinion No. 15
(Earnings per Share) for computing EPS by replacing primary earnings per
share with basic earnings per share and by altering the calculation of
diluted EPS, which replaces fully diluted EPS.
. SFAS No. 129, "Disclosure of Information about Capital Structure," that
continues the existing requirements to disclose pertinent rights and
privileges of all securities other than common stock, but expands the
number of companies subject to portions of its requirements. The company's
current capital structure does not require any additional disclosures as a
result of this pronouncement.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," to
provide accounting and reporting guidance for transfers and servicing of
financial assets and extinguishments of liabilities. The statement uses the
"financial-components approach" in which, after a transfer of financial
assets, an entity would recognize all financial assets and services it
controls and all liabilities it has incurred and remove financial assets
and liabilities from the balance sheet when control is surrendered or when
they are extinguished, respectively. It is to be applied to transfers and
servicing of financial assets and extinguishment of liabilities occurring
after December 31, 1996. This statement supersedes several previous
statements, including SFAS No. 122, "Accounting for Mortgage Servicing
Rights -- an amendment of FASB Statement No. 65," which the company had
implemented in 1995. In 1996, the FASB issued SFAS No. 127, "Deferral of
the Effective Date of Certain Provisions of FASB Statement No. 125 -- an
amendment of FASB Statement No. 125," which deferred for one year the
effective date of certain provisions. The adoption of these statements did
not have a significant impact on results of operations or financial
position.
PROSPECTIVE ACCOUNTING PRONOUNCEMENTS
In 1997, the FASB issued the following pronouncements that will be
effective in periods after the close of the company's 1997 fiscal year:
. SFAS No. 130, "Reporting Comprehensive Income," that establishes
standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of
financial statements. This statement will require that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. This statement
47
<PAGE>
is effective for fiscal years beginning after December 15, 1997.
. SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," that will require companies to determine segments based on
how management makes decisions about allocating resources to segments and
measuring their performance. Disclosures for each segment are similar to
those required under current standards, with the addition of certain
quarterly requirements. This statement will also require entity-wide
disclosure about products and services, the countries in which the company
holds material assets and reports material revenues, and its significant
customers. This statement is effective for fiscal years beginning after
December 15, 1997; however, no interim reporting is required in the initial
year. Management is evaluating the effect of this statement on reported
segment information.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
FINANCIAL INSTRUMENTS
The company has, where appropriate, estimated the fair value of financial
instruments. These fair value amounts may be significantly affected by the
assumptions used, including the discount rate and estimates of cash flow.
Accordingly, the estimates presented are not necessarily indicative of the
amounts that could be realized in a current market exchange. Where these
estimates approximate carrying value, no separate disclosure of fair value
is shown.
Financial instruments that potentially subject the company to
concentrations of credit risk consist of real estate and related assets
receivables and mortgage-related financial instruments, of which $119
million and $417 million are in the western geographical region of the
United States at December 28, 1997, and December 29, 1996, respectively.
DERIVATIVES
The company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to
manage well-defined interest rate and foreign exchange risks. These
include:
. Foreign exchange contracts, which are hedges for foreign denominated
accounts receivable and accounts payable, have gains or losses recognized
at settlement date.
. Interest rate swaps entered into with major banks or financial
institutions in which the company pays a fixed rate and receives a floating
rate with the interest payments being calculated on a notional amount. The
premiums received by the company on the sale of these swaps are treated as
deferred income and amortized against interest expense over the term of the
agreements.
The company is exposed to credit-related gains or losses in the event of
nonperformance by counterparties to financial instruments but does not
expect any counterparties to fail to meet their obligations. The company
deals only with highly rated counterparties.
The notional amounts of these derivative financial instruments are $492
million and $807 million at December 28, 1997, and December 29, 1996,
respectively. These notional amounts do not represent amounts exchanged by
the parties and, thus, are not a measure of exposure to the company through
its use of derivatives. The exposure in a derivative contract is the net
difference between what each party is required to pay based on the
contractual terms against the notional amount of the contract, such as
interest rates or exchange rates. The use of derivatives does not have a
significant effect on the company's results of operations or its financial
position.
CASH AND SHORT-TERM INVESTMENTS
For purposes of cash flow and fair value reporting, short-term investments
with original maturities of 90 days or less are considered as cash
equivalents. Short-term investments are stated at cost, which approximates
market.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost includes labor,
materials and production overhead. The last-in, first-out (LIFO) method is
used to cost approximately half of domestic raw materials, in process and
finished goods inventories. LIFO inventories were $250 million and $296
million at December 28, 1997, and December 29, 1996, respectively. The
balance of domestic raw material and product inventories, all materials and
supplies inventories, and all foreign inventories is costed at either the
first-in, first-out (FIFO) or moving average cost methods. Had the FIFO
method been used to cost all inventories, the amounts at which product
inventories are stated would have been $234 million and $239 million
greater at December 28, 1997, and December 29, 1996, respectively.
PROPERTY AND EQUIPMENT
The company's property accounts are maintained on an individual asset
basis. Betterments and replacements of major units are capitalized.
Maintenance, repairs and minor replacements are expensed. Depreciation is
provided generally on the straight-line or unit-of-production method at
rates based on estimated service lives. Amortization of logging railroads
and truck roads is provided
48
<PAGE>
generally as timber is harvested and is based upon rates determined with
reference to the volume of timber estimated to be removed over such
facilities.
The cost and related depreciation of property sold or retired is removed
from the property and allowance for depreciation accounts and the gain or
loss is included in earnings.
TIMBER AND TIMBERLANDS
Timber and timberlands are carried at cost less fee stumpage charged to
disposals. Fee stumpage is the cost of standing timber and is charged to
fee timber disposals as fee timber is harvested, lost as the result of
casualty or sold. Depletion rates used to relieve timber inventory are
determined with reference to the net carrying value of timber and the
related volume of timber estimated to be recoverable. Timber carrying costs
are expensed as incurred. The cost of timber harvested is included in the
carrying values of raw material and product inventories, and in the cost of
products sold as these inventories are disposed of.
INVESTMENTS IN JOINT VENTURES
The company accounts for its investments in joint ventures under the equity
method and provides for taxes on undistributed earnings.
ACCOUNTS PAYABLE
The company's banking system provides for the daily replenishment of major
bank accounts as checks are presented for payment. Accordingly, there were
negative book cash balances of $185 million and $164 million at December
28, 1997, and December 29, 1996, respectively. Such balances result from
outstanding checks that had not yet been paid by the bank and are reflected
in accounts payable in the consolidated balance sheets.
INCOME TAXES
Deferred income taxes are provided to reflect temporary differences between
the financial and tax bases of assets and liabilities using presently
enacted tax rates and laws.
PENSION PLANS
The company has pension plans covering most of its employees. The U.S. plan
covering salaried employees provides pension benefits based on the
employee's highest monthly earnings for five consecutive years during the
final 10 years before retirement. Plans covering hourly employees generally
provide benefits of stated amounts for each year of service. Contributions
to U.S. plans are based on funding standards established by the Employee
Retirement Income Security Act of 1974 (ERISA).
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In addition to providing pension benefits, the company provides certain
health care and life insurance benefits for some retired employees and
accrues the expected future cost of these benefits for its current eligible
retirees and some employees. All of the company's salaried employees and
some hourly employees may become eligible for these benefits when they
retire.
RECLASSIFICATIONS
Certain reclassifications have been made to conform prior years' data to
the current format.
REAL ESTATE AND RELATED ASSETS
With the sale of the mortgage banking business in the second quarter of
1997, the financial services segment is no longer material to the results
of the company. Therefore, the remaining activities in financial services
that are principally real estate related have been combined with real
estate into one segment entitled real estate and related assets.
Real estate held for sale is stated at the lower of cost or fair value. The
determination of fair value is based on appraisals and market pricing of
comparable assets, when available, or the discounted value of estimated
future cash flows from these assets. Real estate held for development is
stated at cost to the extent it does not exceed the estimated undiscounted
future net cash flows, in which case, it is carried at fair value.
Mortgage notes held for sale (see Note 14) that were outstanding at
December 29, 1996, were stated at the lower of cost or market, which was
computed by the aggregate method (unrealized losses were offset by
unrealized gains). As a result of the sale of the company's mortgage
banking business during the year, there were no mortgage notes held for
sale outstanding at December 28, 1997.
Mortgage-backed certificates (see Note 14) are carried at par value,
adjusted for any unamortized discount or premium. These certificates and
other financial instruments are pledged as collateral for the
collateralized mortgage obligation (CMO) bonds and are held by banks as
trustees. Principal and interest collections are used to meet the interest
payments and reduce the outstanding principal balance of the bonds. Related
CMO bonds are the obligation of the issuer, and neither the company nor any
affiliated company has guaranteed or is otherwise obligated with respect to
the bonds.
In 1995, the company implemented SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," which requires companies to change their method of valuing long-lived
assets. The company's decision to accelerate the disposition of certain
real estate assets previously held for development and use along with the
implementation of this pronouncement resulted in a $290 million charge to
operations in the third quarter of 1995. The majority of the charge was a
direct result of the company's decision to accelerate the disposition of
those assets. The remainder of the charge resulted from the application of
49
<PAGE>
those provisions of SFAS No. 121 relating to the valuation of assets
held for future use where estimated undiscounted future cash flows from
those assets did not exceed the carrying value of those assets.
The company's evaluation of each asset first considered the availability of
appraisal information, then comparable sales information, and finally
discounted estimated cash flows. Because appraisal information was very
limited for the assets evaluated, the majority of the assets were valued
based upon comparable sales data or discounted estimated cash flows. The
discount rate considered applicable market conditions and risks associated
with each asset. In those cases where a discount rate was used, it was 20
percent. Subsequent sales have demonstrated that the valuation assumptions
used were reasonable. The carrying value of the affected assets at December
28, 1997, and December 29, 1996, was approximately $94 million and $141
million, respectively.
NOTE 2. NET EARNINGS PER COMMON SHARE
Basic net earnings per common share are based on the weighted average
number of common shares outstanding during the respective periods. Diluted
net earnings per common share are based on the weighted average number of
common shares outstanding and stock options outstanding at the beginning of
or granted during the respective periods.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Dollar amounts in millions Net Weighted Average Per-Share
except per-share figures Earnings Shares (000) Amount
- --------------------------------------------------------------------------
<S> <C> <C> <C>
1997:
Basic $ 342 198,967 $ 1.72
==========
Stock options granted -- 902
---------------------------
Diluted $ 342 199,869 $ 1.71
=========================================
1996:
Basic $ 463 198,318 $ 2.34
==========
Stock options granted -- 756
---------------------------
Diluted $ 463 199,074 $ 2.33
=========================================
1995:
Basic $ 799 203,525 $ 3.93
==========
Stock options granted -- 836
---------------------------
Diluted $ 799 204,361 $ 3.91
==========================================================================
</TABLE>
Options for which the exercise price was greater than the average market
price of common shares for the period were not included in the computation
of diluted earnings per share. These options to purchase shares were as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------
Year Options to Purchase Exercise Price
- ---------------------------------------------------
<S> <C> <C>
1997 150,000 $53.06
1996 1,216,400 $45.94
4,700 $47.13
1,178,400 $48.13
1995 1,180,400 $48.13
- ---------------------------------------------------
</TABLE>
50
<PAGE>
NOTE 3. FOREIGN OPERATIONS AND EXPORT SALES
The following net assets, net sales and earnings before income taxes,
related to operations outside the United States, principally Canada, are
included in the company's consolidated financial statements:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Dollar amounts in millions December 28, 1997 December 29, 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Net assets:
Working capital $ 123 $ 160
Timber-cutting rights 3 5
Property and equipment, net 900 930
Other assets 259 35
- --------------------------------------------------------------------------
1,285 1,130
Other liabilities (434) (262)
- --------------------------------------------------------------------------
Net assets $ 851 $ 868
==========================================================================
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Dollar amounts in millions 1997 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 1,382 $ 1,354 $ 1,614
- --------------------------------------------------------------------------
Earnings before income taxes:
Foreign entities $ 107 $ 106 $ 392
U.S. entities with foreign activity 2 5 18
- --------------------------------------------------------------------------
</TABLE>
The company is engaged in the sale of products for export from the United
States. These sales consist principally of pulp, newsprint, paperboard,
containerboard, logs, lumber and wood chips to Japan; pulp, containerboard,
lumber and plywood to Europe; and logs to China and Korea. The following
table compares the company's export sales from the United States to
customers in Japan and elsewhere with its total net sales and revenues.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Dollar amounts in millions 1997 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Export sales from the United States:
Customers in Japan $ 893 $ 1,185 $ 1,173
Customers outside Japan 634 573 763
- --------------------------------------------------------------------------
Total export sales 1,527 1,758 1,936
- --------------------------------------------------------------------------
Total net sales and revenues $ 11,210 $ 11,114 $ 11,788
==========================================================================
</TABLE>
NOTE 4. OTHER INCOME (EXPENSE), NET
Other income (expense) is an aggregation of both recurring and occasional
income and expense items and, as a result, fluctuates from period to
period. Individual income (expense) items significant in 1997 in relation
to net earnings were:
Weyerhaeuser:
. The interest income of $18 million from the favorable federal income tax
decision related to timber casualty losses incurred in the eruption of
Mount St. Helens in 1980.
. The loss of $8 million from the sale of the wholesale nursery business.
. The gain of $21 million from the sale of the Saskatoon chemical facility.
Real estate and related assets:
. The gain of $45 million from the sale of the mortgage banking business.
There were no significant other income (expense) items in 1996 or 1995.
51
<PAGE>
NOTE 5. INCOME TAXES
Earnings before income taxes are comprised of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Dollar amounts in millions 1997 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic earnings $ 432 $ 614 $ 852
Foreign earnings 107 106 392
- --------------------------------------------------------------------------
$ 539 $ 720 $ 1,244
==========================================================================
</TABLE>
Provisions for income taxes include the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Dollar amounts in millions 1997 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Federal:
Current $ 65 $ 41 $ 177
Deferred 86 166 92
- --------------------------------------------------------------------------
151 207 269
- --------------------------------------------------------------------------
State:
Current 6 2 31
Deferred 3 16 4
- --------------------------------------------------------------------------
9 18 35
- --------------------------------------------------------------------------
Foreign:
Current 45 33 134
Deferred (8) (1) 7
- --------------------------------------------------------------------------
37 32 141
- --------------------------------------------------------------------------
$ 197 $ 257 $ 445
==========================================================================
</TABLE>
A reconciliation between the federal statutory tax rate and the company's
effective tax rate follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax on income 35.0% 35% 35%
State income taxes, net of federal tax benefit 1.3 2 2
All other, net .2 (1) (1)
- --------------------------------------------------------------------------
Effective income tax rate 36.5% 36% 36%
==========================================================================
</TABLE>
The net deferred income tax (liabilities) assets include the following
components:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Dollar amounts in millions December 28, 1997 December 29, 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Current (included in prepaid expenses) $ 90 $ 84
Noncurrent (1,418) (1,324)
Real estate and related assets
(included in other assets) 28 12
- --------------------------------------------------------------------------
Total $ (1,300) $ (1,228)
==========================================================================
</TABLE>
The deferred tax (liabilities) assets are comprised of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Dollar amounts in millions December 28, 1997 December 29, 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Depreciation $ (1,352) $ (1,303)
Depletion (176) (143)
Capitalized interest and taxes --
real estate development (71) (68)
Other (189) (186)
- --------------------------------------------------------------------------
Total deferred tax (liabilities) (1,788) (1,700)
- --------------------------------------------------------------------------
Pension and retiree health care 128 125
Charges for impairment of
long-lived assets 43 56
Alternative minimum tax credit
carryforward 63 46
Other 254 245
- --------------------------------------------------------------------------
Total deferred tax assets 488 472
- --------------------------------------------------------------------------
$ (1,300) $ (1,228)
==========================================================================
</TABLE>
52
<PAGE>
As of December 28, 1997, the company has available approximately $63
million of alternative minimum tax credit carryforward, which does not
expire, and foreign tax credit carryforwards of $4 million, $1 million, $1
million and $1 million expiring in 1999, 2000, 2001 and 2002, respectively.
The company intends to reinvest undistributed earnings of certain foreign
subsidiaries; therefore, no U.S. taxes have been provided. These earnings
totaled approximately $827 million at the end of 1997. While it is not
practicable to determine the income tax liability that would result from
repatriation, it is estimated that withholding taxes payable upon
repatriation would approximate $41 million.
NOTE 6. PENSION PLANS
Net annual pension cost (income) includes the following components:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Dollar amounts in millions 1997 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 54 $ 49 $ 37
Interest cost on projected benefit obligation 122 111 104
Actual return on plan assets (584) (414) (466)
Net amortization and deferrals 399 254 323
Pension expense due to sales, closures and other 1 2 --
- --------------------------------------------------------------------------
$ (8) $ 2 $ (2)
==========================================================================
</TABLE>
The assumptions used were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.75% 7.75% 7.75%
Rate of increase in compensation levels 4.5% 4.5% 4.5%
Expected long-term rate of return on plan assets 11.5% 11.5% 11.5%
- --------------------------------------------------------------------------
</TABLE>
The following table sets forth the plans' funded status and amounts
recognized in the company's consolidated balance sheet for its U.S. and
Canadian pension plans:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
December 28, 1997 December 29, 1996
- ---------------------------------------------------------------------------
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Dollar amounts Accumulated Exceed Accumulated Exceed
in millions Benefits Assets Total Benefits Assets Total
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Accumulated
benefit
obligation:
Vested $ 1,307 $ 23 $1,330 $ 1,337 $ 17 $1,354
Non-vested 155 -- 155 29 -- 29
- ---------------------------------------------------------------------------
$ 1,462 $ 23 $1,485 $ 1,366 $ 17 $1,383
===========================================================================
Projected
benefit
obligation $ 1,621 $ 39 $1,660 $ 1,498 $ 30 $1,528
Fair value of
plan assets (2,391) (27) (2,418) (1,933) (22) (1,955)
Unrecognized prior
service cost (84) (9) (93) (58) (10) (68)
Unrecognized net
gain (loss) 891 (4) 887 539 2 541
Unrecognized net
transition asset 22 (1) 21 27 (1) 26
Additional minimum
liability -- 2 2 -- -- --
- ---------------------------------------------------------------------------
Accrued/(prepaid)
pension cost $ 59 $ -- $ 59 $ 73 $ (1) $ 72
===========================================================================
</TABLE>
The assets of the U.S. and Canadian pension plans, as of December 28, 1997,
and December 29, 1996, consist of a highly diversified mix of equity, fixed
income and real estate securities.
Approximately 1,600 employees are covered by union-administered multi-
employer pension plans to which the company makes negotiated contributions
based generally on fixed amounts per hour per employee. Contributions to
these plans were $7 million in 1997, $5 million in 1996 and $7 million in
1995.
53
<PAGE>
NOTE 7. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The company sponsors defined benefit postretirement plans for its U.S.
employees that provide medical and life insurance coverage as follows:
. Two salaried retiree medical plans that cover substantially all salaried
employees who retire under the company's retirement plan and their spouses.
Plan I covers those retired or eligible to retire as of January 1, 1990,
and provides full health coverage. Plan II includes those salaried
employees not eligible for Plan I, under which the company provides a fixed
dollar amount per year of service toward the premium, with the retiree
paying the remainder. The company reserves the right to revise the fixed
dollar amount.
. An hourly retiree medical plan that covers approximately 3,500 active
hourly employees and their spouses. For some, the coverage stops at age 65,
while others have lifetime coverage. In some units the retiree must pay a
portion of the premium, while in others the company pays the full cost.
There are approximately 1,900 retired hourly employees and their spouses
currently covered under these programs.
. A salaried retiree life insurance plan that starts at 80 percent of
salary at retirement and reduces to six thousand dollars in 20 percent
increments. Approximately 4,000 persons who are retired or were eligible to
retire as of December 31, 1991, are subject to a different schedule.
. An hourly retiree life insurance plan in which approximately 12,400
active hourly employees are eligible and approximately 2,600 hourly
retirees have coverage. Most of these are covered by fixed dollar amount
coverage that is graded down after retirement. Some units have pay-related
insurance on which the company pays the full cost.
Weyerhaeuser sponsors various defined contribution plans for U.S. salaried
and hourly employees. The basis for determining plan contributions varies
by plan. The amounts charged to operations and contributed to the plans for
participating employees were $34 million, $32 million and $28 million in
1997, 1996 and 1995, respectively.
The company sponsors four defined benefit postretirement plans for its
Canadian employees that provide medical and life insurance benefits.
Approximately 300 retired employees are covered and 2,300 active employees
are eligible for coverage in these four plans as of year-end 1997.
The following table sets forth the U.S. and Canadian plans' combined
accrued postretirement benefit obligation as of December 28, 1997, and
December 29, 1996:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Dollar amounts in millions December 28, 1997 December 29, 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees:
Health $ 98 $ 102
Life 24 25
Fully eligible and other active plan
participants:
Health 76 86
Life 15 14
- --------------------------------------------------------------------------
213 227
Unrecognized actuarial gain 53 31
- --------------------------------------------------------------------------
Accrued postretirement
benefit obligation $ 266 $ 258
==========================================================================
</TABLE>
Net annual postretirement benefit costs included the following components:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Dollar amounts in millions 1997 1996 1995
- --------------------------------------------------------------------
<S> <C> <C> <C>
Service cost benefits attributed
to service during the period:
Health $ 4 $ 4 $ 3
Life 1 1 --
Interest cost on accumulated postretirement
benefit obligation:
Health 13 13 16
Life 3 3 3
Amortization of gain -- health (2) (1) (1)
- ---------------------------------------------------------------------
Net postretirement benefit cost $ 19 $ 20 $ 21
=====================================================================
</TABLE>
54
<PAGE>
For measurement purposes, an 8.5, 8.0 and 7.5 percent annual rate of
increase in the per capita cost of covered health care benefits was assumed
for 1995, 1996 and 1997, respectively. Beginning in 1998, the rate is
assumed to decrease by 0.5 percent annually to a level of 5.5 percent for
the year 2001 and all years thereafter. The effect of a one percent
increase in the assumed health care cost trend rates would increase the
accumulated post-retirement benefit obligation as of December 28, 1997, by
10.3 percent, and the aggregate of the service and interest cost components
of net annual postretirement benefit cost for 1997 by 13 percent.
Other assumptions used were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.75% 7.75% 7.75%
Rate of increase in compensation levels:
Salaried 4.5% 4.5% 4.5%
Hourly 3.0% 3.0% 3.0%
- --------------------------------------------------------------------------
</TABLE>
NOTE 8. INVENTORIES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Dollar amounts in millions December 28, 1997 December 29, 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Logs and chips $ 103 $ 120
Lumber, plywood and panels 154 148
Pulp, newsprint and paper 185 202
Containerboard, paperboard and
packaging 107 108
Other products 152 134
Materials and supplies 282 289
- --------------------------------------------------------------------------
$ 983 $ 1,001
==========================================================================
</TABLE>
NOTE 9. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Dollar amounts in millions December 28, 1997 December 29, 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Property and equipment, at cost:
Land $ 158 $ 158
Buildings and improvements 1,721 1,686
Machinery and equipment 9,954 9,713
Rail and truck roads and other 599 596
- --------------------------------------------------------------------------
12,432 12,153
Less allowance for depreciation
and amortization 5,458 5,146
- --------------------------------------------------------------------------
$ 6,974 $ 7,007
==========================================================================
</TABLE>
55
<PAGE>
NOTE 10. REAL ESTATE IN PROCESS OF DEVELOPMENT AND FOR SALE
Properties held by the company's real estate and related assets segment
include:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Dollar amounts in millions December 28, 1997 December 29, 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Dwelling units $ 207 $ 198
Residential lots 223 264
Commercial lots 79 135
Commercial projects 56 31
Acreage 27 49
Other inventories 1 3
- --------------------------------------------------------------------------
$ 593 $ 680
==========================================================================
</TABLE>
NOTE 11. ACCRUED LIABILITIES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Dollar amounts in millions December 28, 1997 December 29, 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Payroll -- wages and salaries,
incentive awards, retirement
and vacation pay $ 268 $ 279
Taxes -- Social Security and real
and personal property 53 57
Interest 91 79
Income taxes 42 51
Other 194 196
- --------------------------------------------------------------------------
$ 648 $ 662
==========================================================================
</TABLE>
NOTE 12. SHORT-TERM DEBT
BORROWINGS
Real estate and related assets segment short-term borrowings were $228
million with a weighted average interest rate of 5.7 percent at December
28, 1997, and $245 million with a weighted average interest rate of 4.7
percent at December 29, 1996.
LINES OF CREDIT
The company has short-term bank credit lines that provide for borrowings of
up to the total amount of $425 million, all of which could be availed of by
the company and Weyerhaeuser Real Estate Company (WRECO) at December 28,
1997, and borrowings of up to the total amount of $375 million, all of
which could be availed of by the company, WRECO and Weyerhaeuser Mortgage
Company (WMC) at December 29, 1996. No portions of these lines have been
availed of by the company or WRECO at December 28, 1997, and none were
availed of by the company, WRECO or WMC at December 29, 1996. None of the
entities referred to herein is a guarantor of the borrowings of the others.
At December 29, 1996, WMC had $54 million outstanding against short-term
special credit lines that provided for borrowings of up to $230 million.
With the sale of WMC in 1997, this credit line has been repaid and
cancelled.
56
<PAGE>
NOTE 13. LONG-TERM DEBT
DEBT
Weyerhaeuser long-term debt, including the current portion, is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
December 28, December 29,
Dollar amounts in millions 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
8 3/8% debentures due 2007 $ 150 $ 150
7.50% debentures due 2013 250 250
7.25% debentures due 2013 250 250
7 1/8% debentures due 2023 250 250
9.05% notes due 2003 200 200
8 1/2% debentures due 2025 300 300
7.95% debentures due 2025 250 250
6.95% debentures due 2017 300 --
6.95% debentures due 2027 300 --
Industrial revenue bonds, rates from 2.5%
(variable) to 9.85% (fixed), due 1998-2028 784 746
Medium-term notes, rates from 6.43% to 8.91%,
due 1999-2005 246 313
Commercial paper/credit agreements 194 889
Other 26 28
- --------------------------------------------------------------------------
$ 3,500 $ 3,626
==========================================================================
</TABLE>
<TABLE>
- --------------------------------------------------------------------------
<S> <C> <C>
Portion due within one year $ 17 $ 80
==========================================================================
</TABLE>
Long-term debt maturities during the next five years are (millions):
<TABLE>
- --------------------------------------------------------------------------
<S> <C>
1998 $ 17
1999 86
2000 295
2001 78
2002 7
- --------------------------------------------------------------------------
</TABLE>
Real estate and related assets segment long-term debt, including the
current portion, is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
December 28, December 29,
Dollar amounts in millions 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Notes payable, unsecured; weighted average
interest rates are approximately 7.0% and 6.4% $ 652 $ 735
Bank and other borrowings, unsecured; weighted
average interest rates are approximately
5.9% and 5.5% 250 380
Notes payable, secured; weighted average
interest rates are approximately 8.2% and 8.5% 30 41
Collateralized mortgage obligation bonds 100 133
Commercial paper/credit agreements -- 248
- --------------------------------------------------------------------------
$ 1,032 $ 1,537
==========================================================================
</TABLE>
<TABLE>
- --------------------------------------------------------------------------
<S> <C> <C>
Portion due within one year $ 350 $ 723
==========================================================================
</TABLE>
Long-term debt maturities during the next five years are (millions):
<TABLE>
- --------------------------------------------------------------------------
<S> <C>
1998 $ 350
1999 116
2000 199
2001 162
2002 81
- --------------------------------------------------------------------------
</TABLE>
57
<PAGE>
LINES OF CREDIT
The company's lines of credit include a five-year revolving credit facility
agreement entered into in 1997 with a group of banks that provides for
borrowings of up to the total amount of $400 million, all of which is
available to the company. Borrowings are at LIBOR plus a spread or other
such interest rates mutually agreed to between the borrower and lending
banks.
At December 29, 1996, WMC had $25 million outstanding against a one-year
evergreen credit commitment. With the sale of WMC in 1997, this credit
commitment has been repaid and cancelled.
Weyerhaeuser Financial Services, Inc. (WFS), a wholly owned subsidiary, has
a revolving/term credit agreement that provides for: (1) borrowings of up
to $75 million at December 28, 1997, and $450 million at December 29, 1996,
at LIBOR or other such rates as may be agreed upon by WFS and the banks,
and (2) a commitment fee on the unused portion of the credit. $75 million
and $355 million were outstanding under this facility at December 28, 1997,
and December 29, 1996, respectively.
To the extent that these credit commitments expire more than one year after
the balance sheet date and are unused, an equal amount of commercial paper
is classifiable as long-term debt. Amounts so classified are shown in the
tables in this note.
No portion of these lines has been availed of by the company, WRECO or WFS
at December 28, 1997, and none was availed of by the company, WRECO, WMC or
WFS at December 29, 1996, except as noted above.
The company's compensating balance agreements were not significant.
NOTE 14. FAIR VALUE OF FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
December 28, 1997 December 29, 1996
----------------- ----------------
Carrying Fair Carrying Fair
Dollar amounts in millions Value Value Value Value
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weyerhaeuser:
Financial liabilities:
Long-term debt (including current
maturities) $3,500 $3,859 $3,626 $3,809
- --------------------------------------------------------------------------
Real estate and related assets:
Financial assets:
Mortgage notes held for sale -- -- 334 335
Mortgage loans receivable 64 74 133 126
Mortgage-backed certificates and
other pledged financial instruments 109 117 154 165
-----------------------------------
Total financial assets 173 191 621 626
-----------------------------------
Financial liabilities:
Long-term debt (including current
maturities) 1,032 1,044 1,537 1,553
- --------------------------------------------------------------------------
</TABLE>
The methods and assumptions used to estimate fair value of each class of
financial instruments for which it is practicable to estimate that value
are as follows:
. Long-term debt, including the real estate and related assets segment, is
estimated based on quoted market prices for the same issues or on the
discounted value of the future cash flows expected to be paid using
incremental rates of borrowing for similar liabilities.
. Mortgage notes held for sale were estimated using the quoted market
prices for securities backed by similar loans adjusted for differences in
loan characteristics. The estimated fair value was net of related hedge
instruments, which were estimated based upon quoted market prices for
securities.
. Mortgage loans receivable are estimated based on the discounted value of
estimated future cash flows using current rates for loans with similar
terms and risks.
. Mortgage-backed certificates and other pledged financial instruments
(pledged to secure collateralized mortgage obligations) are estimated using
the quoted market prices for securities backed by similar loans and
restricted deposits held at cost.
58
<PAGE>
NOTE 15. LEGAL PROCEEDINGS, COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
In November 1996, an action was filed against the company in Superior Court
for King County, Washington, on behalf of a purported class of all
individuals and entities that own property in the United States on which
exterior hardboard siding manufactured by the company has been installed
since 1980. The action alleges the company has manufactured and distributed
defective hardboard siding and has breached express warranties and consumer
protection statutes in its sale of hardboard siding. The action seeks
compensatory damages, including prejudgment interest, and seeks damages for
the cost of replacing siding that rots subsequent to the entry of any
judgment. In January 1997, an action was filed, also in Superior Court for
King County, Washington, on behalf of a purported class of all individuals,
proprietorships, partnerships, corporations and other business entities in
the United States on whose homes, condominiums, apartment complexes or
commercial buildings hardboard siding manufactured by the company has been
installed. The action alleges the company has breached express and implied
warranties in its sale of hardboard siding and also has violated the
Consumer Protection Act of the state of Washington. The action seeks
damages, prejudgment interest, costs and reasonable attorney fees. In
December 1997, the two cases were consolidated for the purpose of discovery
and resolution of the class certification issue. Also, in December 1997,
the plaintiffs in the first of the two cases filed a motion to change the
trial date and for leave to move for class certification. In January 1998,
the court denied this motion. The two cases are currently set for trial in
March 1998 and May 1998, respectively, without class certification. The
company is a defendant in approximately eighteen other hardboard siding
cases, two of which purport to be class actions on behalf of purchasers of
single- or multi-family residences that contain the company's hardboard
siding, one in Nebraska and one in Iowa.
ENVIRONMENTAL
It is the company's policy to accrue for environmental remediation costs
when it is determined that it is probable that such an obligation exists
and the amount of the obligation can be reasonably estimated. Based on
currently available information and analysis, the company believes that it
is reasonably possible that costs associated with all identified sites may
exceed current accruals by amounts that may prove insignificant or that
could range, in the aggregate, up to approximately $100 million over
several years. This estimate of the upper end of the range of reasonably
possible additional costs is much less certain than the estimates upon
which accruals are currently based, and utilizes assumptions less favorable
to the company among the range of reasonably possible outcomes. In
estimating both its current accruals for environmental remediation and the
possible range of additional future costs, the company has assumed that it
will not bear the entire cost of remediation of every site to the exclusion
of other known potentially responsible parties who may be jointly and
severally liable. The ability of other potentially responsible parties to
participate has been taken into account, based generally on each party's
financial condition and probable contribution on a per-site basis. No
amounts have been recorded for potential recoveries from insurance
carriers.
The company is a party to legal proceedings and environmental matters
generally incidental to its business. Although the final outcome of any
legal proceeding or environmental matter is subject to a great many
variables and cannot be predicted with any degree of certainty, the company
presently believes that the ultimate outcome resulting from these
proceedings and matters, including those described in this note, would not
have a material effect on the company's current financial position,
liquidity or results of operations; however, in any given future reporting
period, such proceedings or matters could have a material effect on results
of operations.
OTHER ITEMS
The company's 1997 capital expenditures, excluding acquisitions, were $656
million and are expected to approximate $750 million in 1998; however, the
1998 expenditure level could be increased or decreased as a consequence of
future economic conditions.
During the normal course of business, the company's subsidiaries included
in its real estate and related assets segment have entered into certain
financial commitments comprised primarily of guarantees made on $42 million
of partnership borrowings and limited recourse obligations associated with
$162 million of sold mortgage loans. The fair value of the recourse on
these loans is estimated to be $3 million, which is based upon market
spreads for sales of similar loans without recourse or estimates of the
credit risk of the associated recourse obligation.
59
<PAGE>
NOTE 16. PROCEEDS FROM SALE OF PROPERTY AND EQUIPMENT
In 1996, the company sold its Klamath Falls, Oregon, hardboard,
particleboard and plywood manufacturing operations; 600,000 acres of
predominantly pine timberlands; and its nursery and seed orchard
facilities. Proceeds from the sale of the property and equipment in this
transaction amounted to $33 million. The resulting gain on this transaction
was not material to the company's pretax income. The timberlands portion of
this transaction involved a like-kind exchange for other timberlands,
primarily private commercial timberlands in southeastern Louisiana and
southern Mississippi previously owned by Cavenham Forest Industries.
NOTE 17. SHAREHOLDERS' INTEREST
PREFERRED AND PREFERENCE SHARES
The company is authorized to issue:
. 7,000,000 preferred shares having a par value of $1.00 per share, of
which none were issued and outstanding at December 28, 1997, and December
29, 1996; and
. 40,000,000 preference shares having a par value of $1.00 per share, of
which none were issued and outstanding at December 28, 1997, and December
29, 1996.
The preferred and preference shares may be issued in one or more series
with varying rights and preferences including dividend rates, redemption
rights, conversion terms, sinking fund provisions, values in liquidation
and voting rights. When issued, the outstanding preferred and preference
shares rank senior to outstanding common shares as to dividends and assets
available on liquidation.
NOTE 18. STOCK-BASED COMPENSATION PLAN
The company's Long-Term Incentive Compensation Plan (the "Plan") was
approved at the 1992 Annual Meeting of Shareholders. The Plan provides for
the purchase of the company's common stock at its market price on the date
of grant by certain key officers and other employees of the company and its
subsidiaries who are selected from time to time by the Compensation
Committee of the Board of Directors. No more than 10 million shares may be
issued under the Plan. The term of options granted under the Plan may not
exceed 10 years from the grant date. Grantees are 25 percent vested after
one year, 50 percent after two years, 75 percent after three years, and 100
percent after four years.
The company accounts for all options under APB Opinion No. 25 and related
interpretations, under which no compensation has been recognized. Had
compensation costs for the Plan been determined consistent with SFAS No.
123, "Accounting for Stock-Based Compensation," net income and earnings per
share would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
- -------------------------------------------------------
1997 1996
- -------------------------------------------------------
<S> <C> <C>
Net income (in millions):
As reported $ 342 $ 463
Pro forma 332 454
Basic earnings per share:
As reported $ 1.72 $ 2.34
Pro forma 1.67 2.29
Diluted earnings per share:
As reported $ 1.71 $ 2.33
Pro forma 1.66 2.28
- -------------------------------------------------------
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to fiscal year 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in
future years.
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option pricing model with the following weighted
average assumptions used for grants:
<TABLE>
<CAPTION>
- ---------------------------------------------------------
1997 1996
- ---------------------------------------------------------
<S> <C> <C>
Risk-free interest rate 6.42% 5.81%
Expected life 4.9 years 6.4 years
Expected volatility 26.21% 25.61%
Expected dividend yield 3.44% 3.48%
- ----------------------------------------------------------
</TABLE>
60
<PAGE>
Changes in the number of shares subject to option are summarized as
follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------
<S> <C> <C> <C>
Shares (in thousands):
Outstanding, beginning of year 6,243 5,972 5,687
Granted 1,563 1,222 1,155
Exercised 1,864 925 859
Forfeited 91 26 11
Expired 3 -- --
- -----------------------------------------------------------------
Outstanding, end of year 5,848 6,243 5,972
- -----------------------------------------------------------------
Exercisable, end of year 4,309 5,022 4,817
- -----------------------------------------------------------------
Weighted average exercise price:
Outstanding, beginning of year $40.56 $38.17 $36.27
Granted 46.54 45.94 39.47
Exercised 36.70 32.11 27.34
Forfeited 44.68 43.46 40.10
Expired 37.75 -- --
Outstanding, end of year 43.32 40.56 38.17
Weighted average grant date
fair value of options 11.26 11.40 10.41
- ------------------------------------------------------------------
</TABLE>
334 of the 5,848 options outstanding at December 28, 1997, have exercise
prices between $20 and $35, with a weighted average exercise price of
$25.29 and a weighted average remaining contractual life of 2.59 years. All
of these options are exercisable. The remaining 5,514 options have exercise
prices between $36 and $54, with a weighted average exercise price of
$44.41 and a weighted average remaining contractual life of 7.35 years.
3,975 of these options are exercisable with a weighted average exercise
price of $43.59.
NOTE 19. BUSINESS SEGMENTS
The company is principally engaged in the growing and harvesting of timber
and the manufacture, distribution and sale of forest products. The business
segments are timberlands and wood products (including softwood lumber,
plywood and veneer; composite panels; oriented strand board; logs; chips;
timber; doors; hardwood lumber and plywood; and treated products); pulp,
paper and packaging (including pulp, newsprint, paper, containerboard,
paperboard, packaging, recycling and chemicals); and real estate and
related assets.
The timber-based businesses involve a high degree of integration among
timber operations; building materials conversion facilities; and pulp,
newsprint, paper, containerboard and paperboard primary manufacturing and
secondary conversion facilities, including extensive transfers of raw
materials, semi-finished materials and end products between and among these
groups. Accounting for segment profitability involves allocations of joint
raw materials and conversion costs and the use of transfer prices that
attempt to approximate current market values.
61
<PAGE>
The following table sets forth an analysis of the company's operations by
business segments:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Dollar amounts in millions 1997 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Sales to and revenues from
unaffiliated customers:
Timberlands and wood products $ 5,374 $ 5,240 $ 4,931
Pulp, paper and packaging 4,609 4,648 5,682
Real estate and related assets 1,093 1,009 919
Corporate and other 134 217 256
- --------------------------------------------------------------------------
11,210 11,114 11,788
-------------------------------
Intersegment sales and revenues:
Timberlands and wood products 248 322 558
Pulp, paper and packaging 95 88 168
Corporate and other 35 35 33
- --------------------------------------------------------------------------
378 445 759
-------------------------------
Total sales and revenues 11,588 11,559 12,547
Eliminations (378) (445) (759)
- --------------------------------------------------------------------------
$ 11,210 $ 11,114 $ 11,788
==========================================================================
Approximate contribution (charge) to
earnings (1)(2)(3):
Timberlands and wood products $ 707 $ 805 $ 808
Pulp, paper and packaging 164 307 1,181
Real estate and related assets 111 43 (277)
Corporate and other (186) (183) (217)
- --------------------------------------------------------------------------
796 972 1,495
Interest expense (3) (341) (338) (347)
Less capitalized interest 84 86 96
- --------------------------------------------------------------------------
Earnings before income taxes 539 720 1,244
Income taxes (197) (257) (445)
- --------------------------------------------------------------------------
$ 342 $ 463 $ 799
==========================================================================
Depreciation, amortization and
fee stumpage:
Timberlands and wood products $ 243 $ 227 $ 211
Pulp, paper and packaging 353 355 350
Real estate and related assets 12 16 41
Corporate and other 20 19 19
- --------------------------------------------------------------------------
$ 628 $ 617 $ 621
==========================================================================
Capital expenditures (including
acquisitions):
Timberlands and wood products $ 315 $ 866 $ 508
Pulp, paper and packaging 327 415 562
Real estate and related assets 3 9 13
Corporate and other 24 37 36
- --------------------------------------------------------------------------
$ 669 $ 1,327 $ 1,119
==========================================================================
Assets:
Timberlands and wood products $ 3,804 $ 3,658 $ 2,940
Pulp, paper and packaging 6,589 6,721 6,797
Real estate and related assets 2,004 2,628 2,905
Corporate and other 1,160 1,184 1,151
- --------------------------------------------------------------------------
13,557 14,191 13,793
Eliminations (482) (595) (540)
- --------------------------------------------------------------------------
$ 13,075 $ 13,596 $ 13,253
==========================================================================
</TABLE>
(1) 1997 results reflect special items of $14 million, which are the net of
charges incurred for closures of operating facilities, offset in part by
gains on sales of businesses.
(2) 1995 "approximate contribution to earnings" includes special charges of
$290 million for real estate and related assets to dispose of certain real
estate assets.
(3) Interest expense of $40 million, $67 million and $64 million in 1997,
1996 and 1995, respectively, is included in the determination of
"approximate contribution to earnings" and excluded from "interest expense"
for financial services businesses.
62
<PAGE>
NOTE 20. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Dollar amounts in millions First Second Third Fourth
except per-share figures Quarter Quarter Quarter Quarter Year
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales:
1997 $ 2,608 $ 2,909 $ 2,823 $ 2,870 $11,210
1996 2,605 2,886 2,852 2,771 $11,114
Operating income:
1997 104 212 233 220 769
1996 287 265 286 232 1,070
Earnings before
income taxes:
1997 33 172 180 154 539
1996 222 161 187 150 720
Net earnings:
1997 21 109 114 98 342
1996 142 103 120 98 463
Net earnings per
common share:
Basic
1997 .10 .56 .57 .49 1.72
1996 .72 .52 .60 .50 2.34
Diluted
1997 .10 .55 .57 .49 1.71
1996 .71 .52 .60 .49 2.33
Dividends per
common share:
1997 .40 .40 .40 .40 1.60
1996 .40 .40 .40 .40 1.60
Market prices --
high/low:
1997 50 5/8 - 44 1/2
55 1/4 - 42 5/8
63 15/16 - 51 5/8
60 3/4 - 46 1/16
63 15/16 - 42 5/8
1996 49 1/2 - 39 15/16
49 7/8 - 41 3/4
48 1/4 - 39 1/2
48 1/8 - 43 7/8
49 7/8 - 39 1/2
- --------------------------------------------------------------------------
</TABLE>
63
<PAGE>
NOTE 21. HISTORICAL SUMMARY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Dollar amounts in millions except
per-share figures 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER COMMON SHARE:
Basic net earnings (loss) from
continuing operations, before
extraordinary item and effect of
accounting changes $ 1.72 2.34 3.93 2.86 2.58
Extraordinary item(3) $ -- -- -- -- .25
Effect of accounting changes $ -- -- -- -- --
---------------------------------------
Basic net earnings (loss) $ 1.72 2.34 3.93 2.86 2.83
=======================================
Diluted net earnings (loss) from
continuing operations, before
extraordinary item and
effect of accounting changes $ 1.71 2.33 3.91 2.85 2.56
Extraordinary item(3) $ -- -- -- -- .25
Effect of accounting changes $ -- -- -- -- --
---------------------------------------
Diluted net earnings (loss) $ 1.71 2.33 3.91 2.85 2.81
=======================================
Dividends paid $ 1.60 1.60 1.50 1.20 1.20
Shareholders' interest
(end of year) $ 23.30 23.21 22.57 20.86 19.34
FINANCIAL POSITION:
Total assets:
Weyerhaeuser $11,071 10,968 10,359 9,750 9,087
Real estate and related assets $ 2,004 2,628 2,894 3,408 3,670
---------------------------------------
$13,075 13,596 13,253 13,158 12,757
=======================================
Long-term debt (net of current
portion):
Weyerhaeuser:
Long-term debt $ 3,483 3,546 2,983 2,713 2,998
Capital lease obligations $ 2 2 2 -- --
Convertible subordinated
debentures $ -- -- -- -- --
Limited recourse income
debenture $ -- -- -- -- --
---------------------------------------
$ 3,485 3,548 2,985 2,713 2,998
=======================================
Real estate and related assets:
Long-term debt $ 682 814 1,608 1,873 2,086
=======================================
Shareholders' interest $ 4,649 4,604 4,486 4,290 3,966
Percent earned on
shareholders' interest 7.4% 10.2% 18.2% 14.3% 15.2%
OPERATING RESULTS:
Net sales and revenues:
Weyerhaeuser $10,117 10,105 10,869 9,281 8,315
Real estate and related assets $ 1,093 1,009 919 1,117 1,230
---------------------------------------
$11,210 11,114 11,788 10,398 9,545
=======================================
Net earnings (loss) from
continuing operations before
extraordinary item and effect of
accounting changes:
Weyerhaeuser $ 271 434 981 576 459
Real estate and related assets $ 71 29 (182)(2) 13 68
---------------------------------------
$ 342(1) 463 799 589 527
Extraordinary item(3) $ -- -- -- -- 52
Effect of accounting changes $ -- -- -- -- --
---------------------------------------
Net earnings (loss) $ 342 463 799 589 579
=======================================
STATISTICS (UNAUDITED):
Number of employees 35,778 39,020 39,558 36,665 36,748
Salaries and wages $ 1,706 1,781 1,779 1,610 1,585
Employee benefits $ 355 370 408 357 347
Total taxes $ 478 557 736 618 577
Timberlands (thousands of acres):
U.S. fee ownership 5,171 5,326 5,302 5,587 5,512
Long-term license arrangements 23,715 22,863 22,866 17,849 17,845
Number of shareholder accounts
at year-end:
Common 20,981 22,528 23,446 24,131 25,282
Preferred -- -- -- -- --
Preference -- -- -- -- --
Average common and common
equivalent shares outstanding
(thousands) 198,967 198,318 203,525 205,543 204,866
- --------------------------------------------------------------------------
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
1992 1991 1990 1989 1988 1987
- --------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
1.83 (.50) 1.87 1.56 2.68 2.12
-- -- -- -- -- --
-- (.30) -- -- -- --
- ---------------------------------------------------------
1.83 (.80) 1.87 1.56 2.68 2.12
=========================================================
1.82 (.50) 1.87 1.56 2.68 2.10
-- -- -- -- -- --
-- (.30) -- -- -- --
- ---------------------------------------------------------
1.82 (.80) 1.87 1.56 2.68 2.10
=========================================================
1.20 1.20 1.20 1.20 1.15 .90
17.85 17.25 19.21 18.55 18.14 16.54
8,566 7,551 7,556 7,371 6,983 6,418
9,720 9,435 8,800 8,605 8,401 6,499
- ---------------------------------------------------------
18,286 16,986 16,356 15,976 15,384 12,917
=========================================================
2,659 2,195 2,168 1,502 1,644 1,540
-- -- 7 23 37 51
193 193 193 -- -- --
188 204 204 204 198 181
- ---------------------------------------------------------
3,040 2,592 2,572 1,729 1,879 1,772
=========================================================
2,411 2,421 2,637 2,006 2,318 2,130
=========================================================
3,646 3,489 3,864 4,148 4,044 3,714
10.4% (4.4)% 9.8% 8.3% 14.6% 12.8%
7,744 7,167 7,447 8,355 7,861 6,988
1,522 1,606 1,619 1,826 1,467 1,397
- ---------------------------------------------------------
9,266 8,773 9,066 10,181 9,328 8,385
=========================================================
332 (25) 340 377 516 379
40 (76) 54 (36) 50 68
- ---------------------------------------------------------
372 (101)(4) 394 341(5) 566 447
-- -- -- -- -- --
-- (61) -- -- -- --
- ---------------------------------------------------------
372 (162) 394 341 566 447
=========================================================
39,022 38,669 40,621 45,214 46,976 45,123
1,580 1,476 1,531 1,563 1,423 1,277
323 321 318 325 292 250
443 173 446 403 511 467
5,592 5,488 5,592 5,664 5,775 5,813
18,828 13,491 13,491 13,324 13,324 12,064
26,334 26,937 28,187 29,847 30,379 32,535
-- -- -- 12 25 26
-- -- -- 443 351 106
203,373 201,578 203,673 204,331 207,785 202,544
- --------------------------------------------------------------------------
</TABLE>
(1) 1997 results reflect net special items charges of $14 million less
related tax effect of $5 million, or $9 million.
(2) 1995 results reflect a special charge for disposal of certain real
estate assets of $290 million less related tax effect of $106 million, or
$184 million.
(3) 1993 results reflect an extraordinary net gain as a result of
extinguishing certain debt obligations of $86 million less related tax
effect of $34 million, or $52 million.
(4) 1991 results reflect restructuring and other charges of $445 million
less related tax effect of $162 million, or $283 million.
(5) 1989 results reflect net special items charges of $401 million less
related tax effect of $141 million, or $260 million.
65
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-END> DEC-28-1997
<CASH> 122
<SECURITIES> 0
<RECEIVABLES> 987
<ALLOWANCES> 12
<INVENTORY> 983
<CURRENT-ASSETS> 2,294
<PP&E> 12,432
<DEPRECIATION> 5,458
<TOTAL-ASSETS> 13,075
<CURRENT-LIABILITIES> 1,384
<BONDS> 4,515
<COMMON> 258
0
0
<OTHER-SE> 4,391
<TOTAL-LIABILITY-AND-EQUITY> 13,075
<SALES> 11,210
<TOTAL-REVENUES> 11,210
<CGS> 8,775
<TOTAL-COSTS> 8,775
<OTHER-EXPENSES> 867
<LOSS-PROVISION> 6
<INTEREST-EXPENSE> 297
<INCOME-PRETAX> 539
<INCOME-TAX> 197
<INCOME-CONTINUING> 342
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 342
<EPS-PRIMARY> 1.72
<EPS-DILUTED> 1.71
</TABLE>
November 12, 1997
Mr. Steven R. Rogel
2600 SW Georgian Place
Portland, Oregon 97201
Dear Steve:
This summarizes and confirms our agreement concerning your employment
as President and Chief Executive Officer of Weyerhaeuser Company (the
"Company"). You will also be elected to the Company's Board of Directors.
As President and Chief Executive Officer, your duties and responsibilities
shall be those normally and traditionally associated with such a position
and you shall not be required to perform other duties or engage in other
activities without your consent. Your office shall be located at the
Company's headquarters and you shall be provided with the usual and
customary administrative support and assistance.
Your employment with the Company will commence on a mutually agreeable
date no later than January 5, 1998 at an annual base salary of $925,000,
payable no less frequently than monthly in equal installments. Salary
reviews are currently done on a 12-month cycle and the Compensation
Committee of the Board will review your salary in February of 1999 (based
on a 16-month review).
You will be a participant in the incentive compensation plan for
Company senior executives. In this plan your target bonus will be 60% of
your base salary. Actual bonus amounts for the Chief Executive Officer are
determined by the Board of Directors and can range from 0 to 3 times target
in total. The Board will base your incentive compensation on three
components, each to be given equal weight in the total calculation and each
of which can range from 0 - 1 times your target bonus: (1) a short-term
incentive calculated as shown on Attachment A, based on the Company's
annual return on net assets compared to industry competitors; (2) an
intermediate-term incentive, calculated as shown on Attachment A, based on
total shareholder return compared to industry competitors and the S&P 500;
and (3) the Board's evaluation of your performance as Chief Executive
Officer based on quantifiable and measurable annual goals or targets agreed
to in advance with the Compensation Committee. You will, however, receive a
bonus for 1998 at no less than target (60% of base salary) which will be
payable in 1999.
<PAGE>
Mr. Steven Rogel
November 12, 1997
Page 2
On your date of hire you will be entitled to a non-forfeitable payment
of up to $1,400,000 to compensate you for your losses due to any forfeiture
of the following items under your current employment:
. Deferred compensation
. Stock options (i.e., unvested options that cannot be exercised after
your current employment ends)
. Restricted stock (i.e., unvested shares of restricted stock that
cannot be sold by you after your current employment ends)
Your loss for deferred compensation will be determined based on the
actual amount forfeited in your deferred compensation account on the date
your current employment ends. The value of forfeited stock options and
restricted stock will be calculated using $33 as your current employer's
share price. The amount of the payment for your losses for the three items
shown above will be determined by Milliman & Robertson or other mutually
agreeable independent actuary or financial consultant within 30 days after
your employment begins, will not be reduced to account for income taxes,
and will not exceed $1,400,000. You agree to defer this payment into a
"Share Equivalents" account under the Company's deferred compensation plan
and to elect payment at a date or event that is at least five years from
your date of hire. The Weyerhaeuser share price used for this Share
Equivalents deferral will be the closing price for the Company's shares as
reported in the Wall Street Journal on your first day of employment with
the Company and the payment, when made, shall reflect the increase, if any,
in the value of the Share Equivalents due to reinvested dividends and/or
share price increase occurring during the period of deferral as provided in
the deferred compensation plan.
You will be a participant in the Company's long-term incentive
compensation plan. The Board of Directors will approve a 150,000 share
initial option grant to you under the plan. This stock option will be
granted to you on your first day of employment with the Company. You will
receive a stock option grant in 1998 which will be determined by our
regular granting process. You will be eligible for stock option grants in
subsequent years, also determined by the regular process. The current stock
option target for the CEO position is 75,000 shares each year with a range
of 0 to 112,500 shares.
<PAGE>
Mr. Steven Rogel
November 12, 1997
Page 3
You will be eligible for the regular salaried benefits outlined in the
employee handbook provided to you under separate cover. You will also be a
member of Weyerhaeuser's key group and eligible for the benefits accorded
this group. The enclosed Attachment B summarizes the current program.
The Board of Directors reserves the right to terminate your employment
at any time with or without cause. In the event that your employment is
terminated, you will be entitled to a special severance benefit which will
decrease based on the number of months you are employed by the Company.
This benefit will be equal to 36 months base pay during your first 24
months of employment with the Company. The amount of this benefit will then
decrease by one month for each additional month you are employed (e.g.,
after 29 months, your severance would be 31 months of base pay) until it
reaches 24 months after 36 months of employment. Thereafter, your severance
benefit would be 24 months of base pay.
The severance benefit described above will not be paid if you resign,
retire, die or are terminated for gross or willful misconduct, deliberate
refusal or failure to perform your duties, conviction of a felony or for
gross negligence in job performance. The severance benefit will commence
after 30 days notification of termination and will be paid on a monthly
basis. This benefit will be in lieu of any other notice policy or severance
plan offered by the Company.
You will be entitled to a Supplemental Retirement Benefit described in
the enclosed Attachment C, the "Supplemental Retirement Agreement for
Steven R. Rogel."
The Company will reimburse your relocation expenses in accordance with
its standard "Weyerhaeuser Relocation Program," and the "Optional
Relocation Programs," copies of which are enclosed as Attachment D. You
will also be reimbursed for your attorney fees incurred in connection with
this agreement.
This agreement shall bind any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially
all of the business and/or assets of the Company, in the same manner and to
the same extent that the Company would be obligated under this agreement if
no succession had taken place. The level of benefits, plans, programs and
compensation described or referred to in this agreement, and as they exist
on this date, shall not, as applied to you, be reduced during your
employment by the Company without your prior written consent.
<PAGE>
Mr. Steven Rogel
November 12, 1997
Page 4
If the foregoing reflects your understanding of our agreement, please
indicate by signing and returning the enclosed copy of this letter.
Sincerely,
WEYERHAEUSER COMPANY
/s/ John W. Creighton, Jr.
John W. Creighton, Jr.
President
Agreed to and accepted this 20th day of
----
November, 1997.
/s/ Steven R. Rogel
- -------------------
Steven R. Rogel
<PAGE>
Attachment A
Short-term incentive
Funding for this portion of the CEO's annual bonus is based on company
performance relative to 13 competitors (see next page), measured by
one-year EBIT-RONA:
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Relative ranking Funding multiple
- -----------------------------------------------------------
<S> <C>
1 1.00x target bonus
2 0.90
3 0.80
4 0.70
5 0.60
6 0.50
7 0.40
8 0.30
9 0.20
10 0.10
11 through 14 0.00
- -----------------------------------------------------------
</TABLE>
Example: If Weyerhaeuser's EBIT-RONA ranking is No. 3 in the industry, the
short-term component would be 0.80x target bonus.
Note: Weyerhaeuser's EBIT-RONA must be at least 8 percent for funding to
occur under the short-term incentive component.
Intermediate-term
This second portion of the annual bonus is based on company performance
relative to 13 competitors (see next page) and to the S&P 500, measured by
Total Shareholder Return (TSR) over a three-year period:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Industry Comparison - S&P Comparison -
70% Weighting 30% Weighting
- --------------------------------- ----------------------------------
Peer-group Funding S&P 500 Funding
ranking multiple percentile multiple
- ----------------------------------------------------------------------
<S> <C> <C> <C>
#1-2 1.00x target bonus 75 1.00xtarget bonus
3 0.83 70 0.83
4 0.66 65 0.66
5 0.49 60 0.49
6 0.33 55 0.33
7 0.16 50 0.16
8-14 0.00 <50 0.00
- ---------------------------------------------------------------------
</TABLE>
Example: If Weyerhaeuser's three-year TSR is No. 6 in the industry peer
group, and in the 60th percentile compared to the S&P 500, then the funding
for this component would be (0.33 x 70%) + (0.49 x 30%) = 0.23 + 0.14 = 0.37x
target bonus.
Note: If Weyerhaeuser's three-year TSR is a negative number, then the above
funding levels for the intermediate-term component will be reduced by 50
percent.
<PAGE>
Attachment A
Page 2
Determination of Performance Factors: The EBIT-RONA, TSR and Company
rankings established each year for the short-term and intermediate-term
incentives will be the same as those established for the management
incentive plan that applies to other senior managers of the Company.
The 13 competitor companies:
. Boise Cascade
. Bowater
. Champion
. Georgia-Pacific
. International Paper
. Louisiana Pacific
. MacMillian Bloedel
. Potlatch
. Stone
. Temple-Inland
. Union Camp
. Westvaco
. Willamette
<PAGE>
Attachment B
Summary of Supplemental Benefits and
Stock Ownership Expectations
for the
Top Management Team
Supplemental Benefits
- ---------------------
In addition to the benefit package described in the Weyerhaeuser Handbook
for Salaried Employees, the following additional benefits are provided to
you as a member of the Top Management Team.
1. Weyerhaeuser "Stock Equivalents" - effective 1995
Under the executive compensation salary and bonus deferral plan, you are
eligible for an additional bonus deferral option which allows you to invest
in Weyerhaeuser "stock equivalents." Under this option, the company will
increase the value of the deferral by 15 percent.
A minimum five-year deferral period applies to the stock equivalents
account. If you leave the company in less than five years (for reasons
other than retirement, disability or death), the added 15 percent is
forfeited. If you retire, you must hold the account for at least five years
before receiving payment.
Account growth is based on the appreciation (or depreciation) of
Weyerhaeuser stock. Dividends are reinvested in additional share
equivalents.
2. Supplemental Life Insurance - effective July 1, 1989
In addition to your company-provided basic life insurance of one times
salary, you will receive supplemental life insurance in an amount 2-1/2
times your basic life insurance amount. The maximum coverage is $500,000
when combined with your basic life amount. All costs for this coverage will
be paid by the company.
The beneficiary you designate under your basic life insurance is
automatically assigned as beneficiary under this program. Your human
resources manager will help you make a change at any time.
Tax Implications
- ----------------
The value of company-provided life insurance in excess of $50,000 is
considered taxable income to you. The Internal Revenue Service provides tax
tables which consider the premium, the amount of coverage, and your age in
order to arrive at the taxable value ("imputed income") of the insurance to
you. Your annual W-2 statement will reflect this calculation of your
imputed income. Because of these potential tax implications, if you decide
that the value of your insurance to you is less than its imputed income,
you have the right to decline participation in these programs.
<PAGE>
Attachment B
Page 2
When You Leave the Company
- --------------------------
The insurance section of your benefits handbook will explain what happens
to your coverage when you retire or leave the company.
3. Vacations
You are immediately eligible for five weeks vacation per year without
regard to length of service. There is no provision for banking or saving
vacation from year to year.
4. Financial Counseling
To assist you in managing your financial affairs, the company contracts
with several firms that provide comprehensive financial planning and
investment advisory services. One of these firms will contact you directly
to begin their services. The company pays the cost of your first year in
this program. After the initial year, the company pay approximately one
half of the cost and you will be responsible for the remaining charges if
you elect to continue.
Stock Ownership Requirements
- ----------------------------
In order to strengthen the commitment and alignment of top leaders with
company interests, members of the Top Management Team are expected to hold
the following multiples of base pay in Weyerhaeuser stock:
<TABLE>
<CAPTION>
Salary Level Multiple of Salary
------------ -----------------
<S> <C>
CEO 3.0x
56, 57 2.0x
53-55 1.5x
< 52 1.0x
-
</TABLE>
Transition Period
Current members have until December 31, 2000 to meet the requirement. New
TMT members must meet the requirement by the later of: December 31, 2000 or
four years from their date of hire.
Tracking and Reporting
You will be asked periodically to report your level of stock ownership to
the Corporate Compensation Department. Summary information will be prepared
for review by the CEO and board of directors. (Individual levels of
ownership will be kept confidential.)
<PAGE>
Attachment B
Page 3
Ways to Fulfill the Expectation
Your ownership level includes stock acquired through:
. Company stock account in the Investment Growth Plan (401(k)). Both the
company match and your allocation of salary deferrals will apply.
. Performance Share Plan.
. "Stock equivalents" bonus deferral.
. Stock received through exercising stock options (unexercised stock
options will not apply).
. Direct purchases of Weyerhaeuser stock through a broker.
<PAGE>
Attachment C
SUPPLEMENTAL RETIREMENT AGREEMENT
For Steven R. Rogel
In consideration of your employment with Weyerhaeuser
Company (the "Company"), the Company will provide you with
the Supplemental Retirement Benefit ("SRB") described below.
TARGET BENEFIT PAYABLE AT AGE 65
The SRB, when combined with the vested accrued benefits
payable at age 65 from each of the following plans: the
Weyerhaeuser Company Retirement Plan for Salaried Employees;
the Weyerhaeuser Supplemental Retirement Plan; the
Willamette Industries Retirement Plan and Supplemental
Retirement Plan (the "Current Employer Plans"), is
approximately equal to the retirement benefit you would have
earned if you had been employed by Weyerhaeuser since June
, 1972 (your "Original Hire Date").
- -----
Consistent with this approach, your SRB will be equal to
your:
. Weyerhaeuser Target Benefit less
----
. Current Employer Retirement Benefit less
----
. Weyerhaeuser Salaried Retirement Benefit less
----
. Weyerhaeuser Supplemental Retirement Benefit
For purposes of this Agreement, the above benefits are
described as follows:
. Weyerhaeuser Target Benefit- The single annuity
retirement benefit payable at age 65 under the Weyerhaeuser
Company Retirement plan for Salaried Employees and the
Weyerhaeuser Supplemental Retirement Plan (the "Weyerhaeuser
Plans"), assuming that your service for both benefit and
eligibility purposes of this Agreement began on your
Original Hire Date and ends on the date of termination of
employment from the Company.
The terms of the Weyerhaeuser Plans in effect at the time of
your termination from the Company will apply in the
calculation of this target benefit, with the exception that
the "Rule of 85" provisions will not apply.
. Current Employer Retirement Benefit - Your vested single
annuity payable at age 65 retirement benefit from your
Current Employer Plans earned to your date of termination
from Willamette Industries.
. Weyerhaeuser Salaried Retirement Benefit - Your vested
single annuity payable at age 65 retirement benefit from
your Weyerhaeuser Company Retirement Plan for Salaried
Employees (if any).
. Weyerhaeuser Supplemental Retirement Benefit - Your
vested single annuity payable at age 65 retirement benefit
from your Weyerhaeuser Company Supplemental Retirement Plan
(if any).
<PAGE>
Attachment C
Page 2
PAYMENT PRIOR TO AGE 65
. If payment of the SRB begins prior to age 65, the benefit
amount otherwise payable at age 65 will be reduced using the
early retirement reduction factors in the Weyerhaeuser
Company Plan for Salaried Plans at the time of your
termination from Weyerhaeuser. For purposes of determining
eligibility for the reduction, your service with your
current employer will be considered.
While the SRB will first be calculated as a single annuity,
you can elect to have your SRB paid in any form of payment
available from the Weyerhaeuser Company Retirement Plan for
Salaried Employees at the time of your termination from
employment with Weyerhaeuser Company. Your SRB is an
unfunded commitment by the Company to pay you these amounts
out of the general assets of the Company.
This Agreement does not in any way guarantee that you will
qualify for a benefit under the Weyerhaeuser Company
Retirement Plan for Salaried Employees or the Weyerhaeuser
Company Supplemental Retirement Plan. You must independently
meet the benefit eligibility requirements outlined in that
plan on the date you actually terminate from the Company.
For eligibility and benefit purposes, your service with your
current employer will be considered for the Salaried Retiree
Health Plan in effect at the time your employment
terminates. This plan will likely include cost sharing by
you and the Company. If the Company's portion of the cost
share is based on service, then the service used for this
calculation will be the same as the service used in
calculating the Weyerhaeuser Target Benefit in this
Agreement.
The above terms and conditions are agreed to this
20th day of November, 1997.
- ---- --------
/s/ Steven R. Rogel
- -------------------
by Steven R. Rogel
/s/ Steven R. Hill
- ------------------
Steven R. Hill, Senior Vice President,
Human Resources & Information Technology
Weyerhaeuser Company
<PAGE>
Attachment D
Weyerhaeuser
Relocation
Program
<PAGE>
Attachment D
Page 2
Sometime in your career, you may have the opportunity to take a job in a
different city, county or state. The prospect may be exciting, but what
about the move?
Weyerhaeuser's Relocation Program can help.
Through this program, Employee Relocation Services (ERS) offers
professional assistance with your move, helping you understand the
company's relocation policy, matching your moving needs with available
resources, helping you solve any problems you may encounter to get the most
out of your relocation program.
After your supervisor approves your move, ERS will give you a call to
explain your relocation package options and discuss your individual needs.
We'll then send you a relocation package and help you throughout the move.
The program's core package, outlined below, is offered to full-time,
salaried employees newly hired or already working with the company.
Depending on the situation, your hiring supervisor may add optional
programs to meet your unique moving needs.
Since your new supervisor decides if your new job requires a change in
residence, you must get his or her approval before incurring move-related
expenses.
The Core Package
Destination Services/House Hunting
An important step in relocating is an orientation to the new community and
finding a place to live. ERS can help you make the best possible choice by
referring you to a good home-finding service. This service connects you to
a real estate or rental agency in your new town that will give you
individual attention and expert advice about the new location. Reasonable
meal, lodging and transportation expenses will be covered for you and your
spouse.
En Route
Weyerhaeuser will cover the cost of transporting your family by your own
car or by air, rail or bus, and will reimburse you for you and your
family's meals and lodging en route.
Temporary Living
Weyerhaeuser understands how difficult and frustrating it is to be
separated from your family or to wait for your new home. The company will
reimburse meal and lodging expenses for up to 30 days before your family
arrives; trips back to visit your family must be approved in advance by
your new supervisor.
If you need more than 30 days of temporary living, ERS helps you develop a
plan to meet your needs while considering cost containment.
If your new residence isn't vacant or ready after your family arrives,
Weyerhaeuser will reimburse you for lodging and meals for an additional 10
days.
Household Goods Transportation
ERS will choose a van line when your move is authorized, and you can
discuss your special needs with the van line representative. Weyerhaeuser
will handle all arrangements to pack, transport and unpack your household
goods, and will pay the van line directly for all aspects of the move. All
shipments are insured to a maximum of $100,000 by Weyerhaeuser Company.
If needed, 30 days' storage is available at your destination.
Relocation Allowance
If you've moved before, you're probably familiar with the expenses involved
in a transfer. In order to help, Weyerhaeuser has established a Relocation
Allowance. You'll be paid an amount equivalent to one month's salary at
your new job - up to $4,000 (less taxes) - to meet special needs as you
relocate.
Income Tax Protection
Under current law, the money you receive from Weyerhaeuser to assist you in
your move must be reported as income. You may, however, be able to claim a
tax deduction for some of it (check with the IRS to find out what you can
deduct). Weyerhaeuser will also add a payment to offset the extra taxes
you'll incur from nondeductible reimbursements that are considered income
by the IRS.
<PAGE>
Attachment D
Page 3
Optional Relocation Programs
Depending on the situation, your new supervisor will determine your
eligibility for optional programs.
Home Marketing Assistance
Weyerhaeuser encourages you to market your home - which must be your
primary residence - through a Realtor. The company offers marketing
assistance to improve your chances of getting the best price for your home.
This program provides expert direction in Realtor selection and management,
and in marketing strategy development. Weyerhaeuser will refer you to a
relocation company whose counselors have years of experience in real
estate, relocation and home financing.
Home Sale Closing Costs
Through this program, Weyerhaeuser covers many of the expenses involved in
the sale of your home, including real estate commission, documentary
stamps, attorney's fees related to the title transfer, transfer taxes
related to the sale, and settlement fees.
Home Buy-Out Program
If you or your Realtor's home-marketing efforts are unsuccessful,
Weyerhaeuser offers the Home Buy-Out Program through an outside relocation
company. In addition to relieving you of the burden of selling your home,
the program releases your equity, allowing you to close promptly on your
new home.
<PAGE>
Attachment D
Page 4
This program is offered to salaried employees who own single-family homes
or condominiums that are their primary residence. To qualify, a home must
not be difficult to market, have a value greater than $400,000, or be on
more than five acres.
New Home Purchase Closing Costs
This program covers many of the costs associated with the transfer of
ownership and financing of your new home and can direct you to mortgage
companies that offer special financing packages for transferees with direct
billing to Weyerhaeuser. Weyerhaeuser will reimburse you for closing costs
such as mortgage origination and/or discount points, title transfer and
insurance charges, appraisal and credit report.
Renters Assistance
As a renter, you are bound by your lease. Weyerhaeuser will reimburse you
for penalties associated with breaking your lease. At your new location,
the company will pay finder's fees to locate housing for you and your
family.
Mobile and Manufactured Home Sale Closing Costs
Weyerhaeuser will reimburse you for typical selling and closing costs for
your unit and the land on which it's located, provided the two are sold
together. ERS can help you in selecting an agent or broker experienced in
mobile home sales.
All benefits outlined above have limitations; please make no decisions
until you speak with ERS.
RESTATED ARTICLES OF INCORPORATION OF
WEYERHAEUSER COMPANY
ARTICLE I
The name of this corporation shall be "Weyerhaeuser Company."
ARTICLE II
The purposes for which this corporation is organized are:
1. To engage in any form of mining, manufacturing, mercantile,
financial, transportation, real estate, recreation or service enterprise
not contrary to law.
2. Without limiting the generality of the foregoing, to engage in:
(a) The construction, maintenance and operation of logging
roads, chutes, flumes, and artificial watercourses or waterways and other
ways for the transportation of logs and other timber products;
(b) Catching, booming, sorting, rafting and holding logs, lumber
or other timber products;
(c) Clearing out and improvement of rivers and streams and
driving, sorting, holding and delivering logs and other timber products;
(d) Constructing, operating or maintaining telegraph, telephone
and other communication or electronic facilities; and
(e) Building, equipping and operating railway, road or bridge,
canal, airport or other forms of land, water and air transportation
facilities.
ARTICLE III
1. The aggregate number of shares which this corporation is
authorized to issue shall be 447,000,000, consisting of 7,000,000 preferred
shares having a par value of $1.00 per share, 40,000,000 preference shares
having a par value of $1.00 per share, and 400,000,000 common shares having
a par value of $1.25 per share. Shares redeemed, purchased or otherwise
reacquired, or surrendered to the corporation on conversion, shall have the
status of authorized and unissued shares of the class of which they were a
part when initially issued and may be reissued as part of the same or a
different series of the same class of which they were a part when initially
issued; unless, as part of the action of the Board of Directors taken to
create any series, the Board of Directors restricts the right of
reissuance, in which case such restricted right will be operative. Each
two common shares having a par value of $1.875 per share heretofore
authorized and issued is hereby changed into three common shares having a
par value of $1.25 per share.
2. The Board of Directors is expressly vested with authority to
divide the preferred shares and the preference shares into series, each of
which shall be so designated as to distinguish the shares thereof from the
shares of all other series and classes. All preferred shares shall be
identical and all preference shares shall be identical, except in each case
as to the following relative rights and preferences, as to which the Board
of Directors may fix and determine variations among the different series of
each class:
1
<PAGE>
(a) The rate of dividend;
(b) Whether shares may be redeemed and, if so, the redemption
price and the terms and conditions of redemption;
(c) The amount payable upon shares in the event of voluntary and
involuntary liquidation, provided that the aggregate amount so payable with
respect to all series of preferred shares shall not exceed $350,000,000;
(d) Sinking fund provisions, if any, for the redemption or
purchase of shares;
(e) The terms and conditions, if any, on which shares may be
converted;
(f) If permitted by the laws of the State of Washington, voting
rights, if any.
3. The preferences, limitations and relative rights of the preferred
shares of each series, the preference shares of each series and the common
shares are as follows:
(a) Out of the funds of the corporation legally available for
payment of dividends, the holders of the preferred shares of each series
and the preference shares of each series shall be entitled to receive, when
and as declared by the Board of Directors, cumulative dividends at the rate
determined by the Board of Directors for such series, and no more.
Dividends on the preferred shares and the preference shares shall accrue on
a daily basis from such date as may be fixed by the Board of Directors for
any series. Unless dividends at the rate prescribed for each series of
preferred shares shall have been declared and paid or set apart for payment
in full on all outstanding preferred shares for all past dividend periods
and the current dividend period, no dividends shall be declared or paid
upon any class of shares ranking as to dividends subordinate to the
preferred shares, and no sum or sums shall be set aside for the redemption
of preferred shares of any series (including any sinking fund payment
therefor) or for the purchase, redemption (including any sinking fund
payment therefor) or other acquisition for value of any class or series of
shares ranking as to dividends or assets on a parity with or subordinate to
any such series of preferred shares. Unless dividends at the rate
prescribed for each series of preference shares shall have been declared
and paid or set apart for payment in full on all outstanding preference
shares for all past dividend periods and the current dividend period, no
dividends shall be declared or paid upon any class of shares ranking as to
dividends subordinate to the preference shares, and no sum or sums shall be
set aside for the redemption of preference shares of any series (including
any sinking fund payment therefor) or for the purchase, redemption
(including any sinking fund payment therefor) or other acquisition for
value of any class or series of shares ranking as to dividends or assets on
a parity with or subordinate to any such series of preference shares.
Accrued and unpaid dividends on the preferred shares and on the preference
shares shall not bear interest.
(b) Out of any funds of the corporation legally available for
dividends and remaining after full cumulative dividends upon all series of
preferred shares and preference shares then outstanding shall have been
paid or set apart for payment for all past dividend periods and the current
dividend period, then, and not otherwise, the Board of Directors may
declare and pay or set apart for payment dividends on the common shares,
and the holders of preferred shares and preference shares shall not be
entitled to share therein.
2
<PAGE>
(c) In the event of voluntary or involuntary liquidation of the
corporation, before any distribution of the assets shall be made to the
holders of any class of shares ranking as to assets subordinate to the
preferred shares, the holders of the preferred shares of each series shall
be entitled to receive out of the assets of the corporation available for
distribution to its shareholders the sum of (i) the amount per share
determined by the Board of Directors as provided in paragraph 2(c) of this
Article III, and (ii) the amount per share equal to all accrued and unpaid
dividends thereon, such sum constituting the "preferential amount" for the
preferred shares. If, in the event of such liquidation, the assets of the
corporation available for distribution to its shareholders shall be
insufficient to permit full payment to the holders of the preferred shares
of each series of their respective preferential amounts, then such assets
shall be distributed ratably among such holders in proportion to their
respective preferential amounts. In the event of such liquidation, subject
to such right of the holders of the preferred shares of each series, but
before any distribution of the assets shall be made to the holders of any
class of shares ranking as to assets subordinate to the preference shares,
the holders of the preference shares of each series shall be entitled to
receive out of the assets of the corporation available for distribution to
its shareholders the sum of (i) the amount per share determined by the
Board of Directors as provided in paragraph 2(c) of this Article III, and
(ii) the amount per share equal to all accrued and unpaid dividends
thereon, such sum constituting the "preferential amount" for the preference
shares. If, in the event of such liquidation, after full payment of the
preferential amounts of the preferred shares of each series, the assets of
the corporation available for distribution to its shareholders shall be
insufficient to permit full payment to the holders of the preference shares
of each series of their respective preferential amounts, then such assets
shall be distributed ratably among such holders in proportion to their
respective preferential amounts. If, in the event of such liquidation, the
holders of the preferred shares of each series and the preference shares of
each series shall have received full payment of their respective
preferential amounts, the holders of the common shares shall be entitled,
to the exclusion of the holders of the preferred shares of each series and
the preference shares of each series, to share ratably in all remaining
assets of the corporation available for distribution to shareholders.
Neither the consolidation nor merger of the corporation with or into any
other corporation or corporations, the sale or lease of all or
substantially all of the assets of the corporation, nor the merger or
consolidation of any other corporation into and with the corporation, shall
be deemed to be a voluntary or involuntary liquidation.
(d) Each outstanding preferred share shall be entitled to one
vote, not as a class, on each matter submitted to a vote at a meeting of
shareholders, and the holders of preference shares shall have no voting
rights except as provided in this Article III, provided, however, that if
the Board of Directors is permitted by law to vary voting rights as between
series of a class, and does in fact do so, then the voting rights of any
series of either class shall be those determined by the Board of Directors
under paragraph 2(f) of this Article III. Notwithstanding the foregoing:
(i) as long as any preferred shares shall be outstanding, the corporation
will not, without the affirmative vote or consent in writing of at least
two-thirds of the outstanding preferred shares, amend these Articles of
Incorporation for the purpose of, or take any other action to, (A) increase
the aggregate number of preferred shares or shares of any other class
ranking as to dividends or assets on a parity with or prior to the
preferred shares, (B) change the designations, preferences, limitations,
voting or other relative rights of the preferred shares or of any
outstanding series of preferred shares, (C) effect an exchange,
reclassification or cancellation of all or part of the preferred shares,
(D) change the preferred shares into the same or a different number of
shares, with or without par value of the same or any other class, or (E)
cancel or otherwise affect dividends on the shares of any series of
preferred shares which have accrued but have not been declared, and (ii)
3
<PAGE>
as long as any preference shares shall be outstanding, the corporation will
not, without the affirmative vote or consent in writing of at least two-
thirds of the outstanding preference shares, amend these Articles of
Incorporation for the purpose of, or take any other action to, (A) increase
the aggregate number of preferred or preference shares or shares of any
other class ranking as to dividends or assets on a parity with or prior to
the preference shares, (B) change the designations, preferences,
limitations, voting or other relevant rights of the preference shares or of
any outstanding series of preference shares, (C) effect an exchange,
reclassification or cancellation of all or part of the preference shares,
(D) change the preference shares into the same or a different number of
shares, with or without par value, of the same or another class, or (E)
cancel or otherwise affect dividends on the shares of any series of
preference shares which have accrued but have not been declared.
(e) Whenever dividends on the preferred shares shall be in
arrears in an aggregate amount equal to at least six quarterly dividends
thereon, whether or not consecutive, then the holders of the preferred
shares, voting as a class, shall be exclusively entitled to elect two
additional directors beyond the number specified in the bylaws to be
elected from time to time by all shareholders and beyond the number
specified in this paragraph (e) to be elected by holders of the preference
shares. Whenever dividends on the preference shares shall be in arrears in
an aggregate amount equal to at least six quarterly dividends thereon,
whether or not consecutive, then the holders of the preference shares,
voting as a class, shall be exclusively entitled to elect two additional
directors beyond the number specified in the bylaws to be elected from time
to time by all shareholders and beyond the number specified in this
paragraph (e) to be elected by holders of the preferred shares.
(f) At any time when the holders of a class of shares become
entitled as a class to elect additional directors pursuant to paragraph
3(e) of this Article III (the "special voting rights"), the maximum
authorized number of members of the Board of Directors shall automatically
be increased by the number of such directors specified in such paragraph
3(e) and the vacancies so created shall be filled only by vote of the
holders of such class as hereinafter set forth. Whenever the special
voting rights of a class shall have vested, such rights may be exercised
initially either at a special meeting of the holders of such class called
as hereinafter provided or at any annual meeting of shareholders held for
the purpose of electing directors, and thereafter at such annual meetings.
If, at the time of the vesting of the special voting rights of a class, the
date fixed for the next annual meeting of shareholders is not within 90
days of such time, the president of the corporation shall call a special
meeting of the holders of such class. Such special meeting shall be held
at the earliest practicable date upon the notice required and at the place
designated for annual meetings of shareholders. If such special meeting
shall not be called by the president within 20 days after the special
voting rights of such class shall have vested, holders of not less than one-
tenth of the shares of such class entitled to vote at such special meeting
may call such special meeting at the expense of the corporation. Any
holder of shares of a class, the special voting rights for which shall have
vested, shall have access to the appropriate share ledger of the
corporation for the purpose of causing such special meeting to be so
called. At any annual meeting of shareholders or at any special meeting at
which the holders of a class of shares shall have special voting rights,
20% of the shares of such class entitled to special voting rights,
represented in person or by proxy, shall constitute a quorum for such
class. At any such meeting or adjournment thereof, (i) the absence of a
quorum of a class of shares having special voting rights shall not prevent
the election of directors, if any, to be elected pursuant to other special
voting rights or pursuant to other than special voting rights, and the
absence of a quorum of shares for the election of directors pursuant to
other than special voting rights shall not prevent the election of
directors
4
<PAGE>
pursuant to special voting rights, and (ii) in the absence of one or more
of such quorums, a majority of the holders, represented in person or by
proxy, of each class of shares which lacks a quorum shall have power to
adjourn the meeting for the election of directors which they are entitled
to elect, from time to time, without notice other than announcement at the
meeting, until a quorum shall be present. If the office of any director
elected pursuant to the special voting rights of a class becomes vacant by
reason of death, resignation, retirement, disqualification, removal from
office, or otherwise, the remaining director or directors elected pursuant
to the special voting rights of such class shall choose a successor who
shall hold office for the unexpired term in respect of which such vacancy
occurred. The special voting rights of a class shall continue until all
arrears in payment of quarterly dividends on such class shall have been
paid and the dividends thereon for the current quarter shall have been
declared and paid or set apart for payment. Upon any termination of the
special voting rights of a class, the term of office of the directors then
in office elected pursuant thereto shall terminate immediately and the
maximum authorized number of members of the Board of Directors shall
automatically be reduced accordingly.
(g) Subject to any applicable provision of law or this Article
III, the corporation shall have the right to purchase, or otherwise
reacquire, at public or private sale or otherwise any shares of any class,
except that no preferred shares shall be purchased unless dividends on all
preferred shares have been declared and paid or set apart for payment in
full for all past dividend periods and no preference shares shall be
purchased unless dividends on all preference shares have been declared and
paid or set apart for payment in full for all past dividend periods.
4. The Board of Directors may from time to time authorize the
issuance of shares of this corporation, whether now or hereafter
authorized, without first offering such shares to the shareholders of this
corporation.
5. The initial series of preferred shares shall be designated $2.80
Convertible Cumulative Preferred Shares, First Series ("First Series
Preferred Shares") and shall initially consist of 4,000,000 shares. The
relative rights and preferences of First Series Preferred Shares shall be
as follows:
(a) The dividend rate for the First Series Preferred Shares
shall be $2.80 per share per annum. Subject to the provisions of Section 3
of this Article III, the first dividend on the First Series Preferred
Shares shall be paid on March 15, 1976 in respect of the period from the
date of issuance to March 15, 1976, and thereafter dividends on First
Series Preferred Shares shall be paid quarterly on June 15, September 15,
December 15, and March 15 in each instance to holders of record of First
Series Preferred Shares on such dates as may be fixed by the Board of
Directors from time to time. The dividend payment on each payment date
except the aforementioned first payment date shall be in respect of the
quarterly period ending with such payment date. Dividends on the first
issued First Series Preferred Shares shall accrue on a daily basis from and
after the date of issuance thereof. Dividends on any reissued First Series
Preferred Shares shall accrue on a daily basis from and after the payment
date therefor to which dividends have been paid in full next preceding the
date of reissuance of such shares, provided, however, that dividends on any
subsequently reissued First Series Preferred Shares reissued after the
record date fixed for the payment of a current dividend on such shares but
before the date of payment of such dividend, shall accrue on a daily basis
from and after such payment date or, if such dividend shall not be paid in
full on such payment date then from and after the next preceding payment
date on which dividends on such shares have been paid in full. Dividends
on First Series Preferred Shares reissued on any dividend payment date for
such shares shall accrue on a daily basis from and after such payment date.
5
<PAGE>
(b) (1) Pursuant to resolution of the Board of Directors and
subject to the provisions of paragraph 3(a) of this Article III, the
corporation may redeem the whole or from time to time any part of the First
Series Preferred Shares at any time on or after December 15, 1978, at the
following redemption prices per share for the respective periods indicated:
<TABLE>
<CAPTION>
Date Fixed for
Redemption Within Price Per
The Period (Inclusive) Share
---------------------- ---------
<S> <C>
December 15, 1978 - December 14, 1980 $52.00
December 15, 1980 - December 14, 1982 51.00
December 15, 1982 - December 14, 1984 50.50
December 15, 1984 and thereafter 50.00
</TABLE>
plus, in each case, an amount equal to all accrued and unpaid dividends on
the shares being redeemed to and including the date fixed for such
redemption.
(2) Notice of redemption shall be mailed by the
corporation, not less than 30 or more than 60 days before the date fixed
for redemption, to each transfer agent for the shares to be redeemed and to
each holder of record of such shares addressed to such holder at his
address appearing on the books of the corporation. Such notice of
redemption shall set forth the date fixed for redemption, the redemption
price and the place or places (including a place in the Borough of
Manhattan, the City of New York) at which the shareholders may obtain
payment of the redemption price plus accrued dividends upon the surrender
of the certificates representing their shares, and shall set forth in
respect to such shares the then current conversion rate and date on which
conversion rights expire, all as determined in accordance with paragraph
5(e) of this Article III.
(3) On or after the date fixed for redemption and stated
in such notice, each holder of shares that are called for redemption shall,
upon surrender of the certificates representing such shares to the
corporation at the place or places designated in such notice, be entitled
to receive payment of the redemption price of such shares, plus an amount
equal to all accrued and unpaid dividends thereon to and including the date
fixed for redemption. In case less than all of the shares represented by
any such surrendered certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares.
(4) If less than all the outstanding shares are to be
redeemed, the number of shares of First Series Preferred Shares to be
redeemed and the method of effecting such redemption, whether by lot or pro
rata, shall be as determined by the Board of Directors.
(5) At any time after a notice of redemption has been given
in the manner prescribed herein and prior to the date fixed for redemption,
the corporation may deposit in trust, with a bank or trust company having
capital, surplus and undistributed profits aggregating at least
$50,000,000, an aggregate amount of funds sufficient for such redemption,
for immediate payment in the appropriate amounts upon surrender of
certificates for such shares. Upon the deposit of such funds or, if no
such deposit is made, upon the date fixed for redemption (unless the
corporation shall default in making payment of the appropriate amount),
whether or not certificates for shares so called for redemption have been
surrendered for cancellation, the shares to be redeemed shall be
6
<PAGE>
deemed to be no longer outstanding and the holders thereof shall cease to
be shareholders with respect to such shares and shall have no rights with
respect thereto, except for the right to receive the amount payable upon
redemption, but without interest, and, up to the close of business on the
date fixed for such redemption, the right to convert such shares as set
forth in paragraph 5(e) of this Article III. Such deposit in trust shall
be irrevocable except that any funds deposited by the corporation which
shall not be required for the redemption for which they were deposited
because of the exercise of rights of conversion subsequent to the date of
deposit shall be returned to the corporation forthwith, and any funds
deposited by the corporation which are unclaimed at the end of one year
from the date fixed for such redemption shall be paid over to the
corporation upon its request, and upon such repayment the holders of the
shares so called for redemption shall look only to the corporation for
payment of the appropriate amount. Any such unclaimed amounts paid over to
the corporation shall, for a period of six years after the date fixed for
such redemption, be set apart and held by the corporation in trust for the
benefit of the holders of such shares, but no such holder shall be entitled
to receive interest thereon. At the expiration of such six-year period,
all right, title, interest and claim of such holders in or to such
unclaimed amounts shall be extinguished, terminated and discharged, and
such unclaimed amounts shall become part of the general funds of the
corporation free of any claim of such holders.
(c) The amount referred to in paragraph 2(c) of this Article III
as payable in the event of voluntary or involuntary liquidation of the
corporation shall be $50 per First Series Preferred Share.
(d) The First Series Preferred Shares shall not be entitled to
the benefit of any sinking fund for the redemption or purchase of such
shares.
(e) (1) Subject to the provisions for adjustment set forth in
subparagraph (2) below, each First Series Preferred Share shall be
convertible at any time at the election of the holder thereof into 1.2121
common shares (such rate, as adjusted from time to time, is referred to as
the "conversion rate"). Certificates representing shares that a holder
thereof has elected to convert shall be surrendered to any transfer agent
of such shares duly endorsed to the corporation or in blank, or accompanied
by proper instruments of transfer, together with written notice of the
election to convert setting forth the denominations of common share
certificates desired and the names in which such certificates shall be
issued. As soon as practicable after such surrender of such certificates
and the receipt of such notice, the corporation shall issue and deliver at
the office of such transfer agent to the person who surrendered such
certificates a certificate or certificates for the number of common shares
issuable upon the conversion of such shares, and a check or cash in respect
of any fraction of a share. Such conversion shall be deemed to have been
effected on the date on which such notice and such certificates shall have
been received, and each person in whose name any certificate for common
shares shall be issuable upon such conversion shall be deemed to have
become on such date the holder of record of the common shares represented
thereby. The right to convert shares called for redemption shall terminate
at the close of business on the date fixed for such redemption, unless the
corporation shall default in making payment of the amount payable upon such
redemption. The corporation shall make no payment or allowance for unpaid
dividends, whether or not in arrears, on converted shares or for dividends
on the common shares issued upon such conversion.
(2) The conversion rate for First Series Preferred Shares
shall be subject to adjustment from time to time only as follows:
7
<PAGE>
(i) If the corporation shall (A) pay to holders of
common shares a dividend in shares of its capital stock (including
common shares), or (B) combine into a smaller number or subdivide its
common shares, or issue by reclassification of its common shares any
shares of the corporation, the conversion rate for First Series
Preferred Shares in effect immediately prior thereto shall be adjusted
so that the holder of a First Series Preferred Share surrendered for
conversion after the record date fixing shareholders to be affected by
such event shall be entitled to receive the number of shares of the
corporation which he would have owned or have been entitled to receive
after the happening of any of the events described above, had such
share been converted immediately prior to such record date. Such
adjustment shall be made whenever any such events shall happen, but
shall also be effective retroactively as to any such share converted
between such record date and the date of the happening of any such
events.
(ii) If the corporation shall issue rights or warrants to
holders of common shares entitling them to subscribe for or purchase
common shares at a price per share less than the current market price
per common share (as defined in part (iv) of this subparagraph (2)) as
of the record date specified below, the number of common shares into
which each First Series Preferred Share shall thereafter be
convertible shall be determined by multiplying the number of common
shares into which such share was theretofore convertible by a
fraction, the numerator of which shall be the number of common shares
outstanding on the date of issuance of such rights or warrants plus
the number of additional common shares offered for subscription or
purchase, and the denominator of which shall be the number of common
shares outstanding on the date of issuance of such rights or warrants
plus the number of common shares which the aggregate offering price of
the total number of common shares so offered would purchase at such
current market price. Such adjustment shall be made whenever such
rights or warrants are issued, but shall also be effective
retroactively as to any share converted between the record date for
the determination of shareholders entitled to receive such rights or
warrants and the date such rights or warrants are issued.
(iii) If the corporation shall distribute to holders of
common shares evidences of its indebtedness or assets (excluding cash
or cash distributions) or rights or warrants to subscribe other than
as set forth in part (ii) above, the number of common shares into
which each First Series Preferred Share shall thereafter be
convertible shall be determined by multiplying the number of common
shares into which such share was theretofore convertible by a
fraction, the numerator of which shall be the current market price per
common share (as defined in part (iv) of this subparagraph (2)) as of
the date of such distribution, and the denominator of which shall be
such current market price per common share less the then fair market
value (as determined by the Board of Directors, whose determination
shall be conclusive) of the portion of the assets or evidences of
indebtedness so distributed or such subscription rights or warrants
applicable to one common share. Such adjustment shall be made
whenever any such distribution is made, but shall also be effective
retroactively as to any share converted between the record date for
the determination of shareholders entitled to recieve such
distribution and the date such distribution is made.
(iv) For the purpose of any computation under parts (ii) and
(iii) of this subparagraph (2), the current market price per common
share as of any date shall be deemed to be the average of the daily
closing prices for the thirty consecutive business days commencing on
the forty-fifth business day before the date in question. The closing
price for each business day shall be the last reported
8
<PAGE>
sales price regular way or, if no such sale takes place on such
business day, the average of the reported closing bid and asked prices
regular way, in either case on the New York Stock Exchange or, if the
common shares are not listed or admitted to trading on such exchange,
the average of the closing bid and asked prices as furnished by any
member of the New York Stock Exchange selected by the Board of
Directors for that purpose.
(v) The conversion rate for First Series Preferred Shares
shall always be calculated to the nearest one one-hundredth of a
share. No adjustment in the conversion rate for First Series
Preferred Shares shall be made unless the conversion rate for such
shares after such adjustment would differ from the conversion rate
prior to such adjustment by one one-hundredth of a common share or
more, provided that any adjustments for First Series Preferred Shares
not made by reason of this part (v) of subparagraph (2) shall be
carried forward and taken into account in calculating subsequent
adjustments.
(vi) Whenever any adjustment in the conversion rate for
First Series Preferred Shares is made, the corporation shall forthwith
(A) file with each transfer agent for such shares a statement
describing the adjustment and the method of calculation used, together
with an opinion rendered by an independent firm of public accountants
of recognized standing, who may be the corporation's regularly engaged
auditors, that such adjustment was properly calculated in accordance
with the provisions of this subparagraph (2), and (B) cause a copy of
such statement to be published in a daily newspaper of general
circulation in the Borough of Manhattan, the City of New York, and to
be mailed to the holders of record of such shares.
(3) If the corporation shall consolidate with or merge into
another corporation, or if the corporation shall sell, lease or transfer to
any other person or persons all or substantially all of the assets of the
corporation, holders of First Series Preferred Shares shall have the right
after such event to convert each share held into the kind and amount of
shares of stock, other securities, cash and property receivable upon such
event by a holder of the number of common shares into which such shares
might have been converted immediately prior to such event. In any such
event, effective provisions shall be made in the certificate or articles of
incorporation of the resulting or surviving corporation, in any contract of
sale, conveyance, lease or transfer, or otherwise so that the provisions
set forth herein for the protection of the conversion rights of First
Series Preferred Shares shall thereafter continue to be applicable; and any
such resulting or surviving corporation shall expressly assume the
obligation to deliver, upon conversion, such shares of stock, other
securities, cash and property. The provisions of this subparagraph (3)
shall similarly apply to successive consolidations, mergers, sales, leases
or transfers.
(f) The holders of First Series Preferred Shares shall not be
entitled to vote except as provided by Washington statutes or by this
Article III.
6. The initial series of preference shares shall be designated
Convertible Cumulative Preference Shares, First Series ("First Series
Preference Shares") and shall initially consist of 272,159 shares. The
relative rights and preferences of First Series Preference Shares shall be
as follows:
(a) Dividends on the First Series Preference Shares shall be
payable in cash at the rate per share which from time to time shall be the
greater of (i) one cent per annum and (ii) the per share amount of cash
dividends paid or set apart for payment on the common shares for the same
annual period in respect to which dividends on the First
9
<PAGE>
Series Preference Shares are to be paid, and no more. Subject to the
provisions of paragraph 3 of this Article III, the first dividend on the
First Series Preference Shares shall be paid on the payment date for
dividends payable on the common shares (the "common shares dividend payment
date") next following the date of initial issuance of First Series
Preference Shares in respect of the period from the date of issuance to
such common shares dividend payment date, and thereafter dividends on First
Series Preference Shares shall be paid quarterly on the corresponding
quarterly common shares dividend payment dates, in each instance to holders
of record of First Series Preference Shares on such record dates as may be
fixed by the Board of Directors from time to time. The dividend payment on
each payment date, except the aforementioned first payment date, shall be
in respect of the quarterly period ending with such payment date. Dividends
on the first issued First Series Preference Shares shall accrue at the rate
of one cent per share per annum on a daily basis from and after the date of
issuance thereof. Dividends on any reissued First Series Preference Shares
shall accrue at the rate of one cent per share per annum on a daily basis
from and after the payment date therefor to which dividends have been paid
in full next preceding the date of reissuance of such shares, provided,
however, that dividends on any subsequently reissued First Series
Preference Shares reissued after the record date fixed for the payment of a
current dividend on such shares but before the date of payment of such
dividend, shall accrue at the one cent per share per annum rate on a daily
basis from and after such payment date or, if such dividend shall not be
paid in full on such payment date then from and after the next preceding
payment date on which dividends on such shares have been paid in full.
Dividends on First Series Preference Shares reissued on any dividend
payment date for such shares shall accrue at the one cent per share per
annum rate on a daily basis from and after such payment date.
(b) (1) Pursuant to resolution of the Board of Directors and
subject to the provisions of paragraph 3(a) of this Article III, the
corporation may redeem the whole or from time to time any part of the First
Series Preference Shares at any time on or after September 1, 1984, at the
redemption price per share which is the greater of (X) the closing price
per common share (as defined below in the second sentence of (iv) of
paragraph 6(e)(2) of this Article III) on the third business day
immediately preceding the date on which the notice of redemption is mailed
pursuant to subparagraph (2) below, and (Y) $25, plus an amount equal to
all accrued and unpaid dividends on the shares being redeemed to and
including the date fixed for redemption.
(2) Notice of redemption shall be mailed by the
corporation, not less than 30 or more than 60 days before the date fixed
for redemption, to each holder of record of the shares to be redeemed
addressed to such holder at his address appearing on the books of the
corporation. Such notice of redemption shall set forth the date fixed for
redemption, the redemption price and the place at which the shareholders
may obtain payment of the redemption price plus accrued dividends upon the
surrender of the certificates representing their shares, and shall set
forth in respect to such shares the then current conversion rate and date
on which conversion rights expire, all as determined in accordance with
paragraph 6(e) of this Article III.
(3) On or after the date fixed for redemption and stated in
such notice, each holder of shares that are called for redemption shall,
upon surrender of the certificates representing such shares to the
corporation at the place or places designated in such notice, be entitled
to receive payment of the redemption price of such shares, plus an amount
equal to all accrued and unpaid dividends theron to and including the date
fixed for redemption. In case less than all of the shares represented by
any such surrendered certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares.
10
<PAGE>
(4) If less than all of the outstanding shares are to be
redeemed, the number of shares of First Series Preference Shares to be
redeemed and the method of effecting such redemption, whether by lot or pro
rata, shall be as determined by the Board of Directors.
(5) At any time after a notice of redemption has been given
in the manner prescribed herein and prior to the date fixed for redemption,
the corporation may deposit in trust, with a bank, trust company, or other
financial institution an aggregate amount of funds sufficient for such
redemption, for immediate payment in the appropriate amounts upon surrender
of certificates for such shares. Upon the deposit of such funds or, if no
such deposit is made, upon the date fixed for redemption (unless the
corporation shall default in making payment of the appropriate amount),
whether or not certificates for shares so called for redemption have been
surrendered for cancellation, the shares to be redeemed shall be deemed to
be no longer outstanding and the holders thereof shall cease to be
shareholders with respect to such shares and shall have no rights with
respect thereto, except for the right to receive the amount payable upon
redemption, but without interest, and, up to the close of business on the
date fixed for such redemption, the right to convert such shares as set
forth in paragraph 6(e) of this Article III. Such deposit in trust shall
be irrevocable except that any funds deposited by the corporation which
shall not be required for the redemption for which they were deposited
because of the exercise of rights of conversion subsequent to the date of
deposit shall be returned to the corporation forthwith; and any funds
deposited by the corporation which are unclaimed at the end of one year
from the date fixed for such redemption shall be paid over to the
corporation upon its request, and upon such repayment the holders of the
shares so called for redemption shall look only to the corporation for
payment of the appropriate amount. Any such unclaimed amounts paid over
the to corporation shall, for a period of six years after the date fixed
for such redemption, be set apart and held by the corporation in trust for
the benefit of the holders of such shares, but no such holder shall be
entitled to receive interest thereon. At the expiration of such six-year
period, all right, title, interest and claim of such holders in or to such
unclaimed amounts shall be extinguished, terminated and discharged, and
such unclaimed amounts shall become part of the general funds of the
corporation free of any claim of such holders.
(c) The amount referred to in paragraph 2(c) of this Article III
as payable in the event of voluntary or involuntary liquidation of the
corporation shall be $25 per First Series Preference Share.
(d) The First Series Preference Shares shall not be entitled to
the benefit of any sinking fund for the redemption or purchase of such
shares.
(e) (1) Subject to the provisions for adjustment set forth in
subparagraph (2) below, each First Series Preference Share shall be
convertible at any time at the election of the holder thereof into one
common share (such rate, as adjusted from time to time, is referred to as
the "conversion rate"). Certificates representing shares that a holder
therof has elected to convert shall be surrendered to the corporation duly
endorsed to the corporation or in blank, or accompanied by proper
instruments of transfer, together with written notice of the election to
convert setting forth the denominations of common share certificates
desired and the names in which such certificates shall be issued. As soon
as practicable after such surrender of such certificates and the receipt of
such notice, the corporation shall issue and deliver at the place
designated in the notice referred to in paragraph 6(b)(2) of this Article
III to the person who surrendered such certificates a certificate or
certificates for the number of
11
<PAGE>
common shares issuable upon the conversion of such shares, and a check or
cash in respect of any fraction of a share. Such conversion shall be deemed
to have been effected on the date on which such notice and such
certificates shall have been received, and each person in whose name any
certificate for common shares shall be issuable upon such conversion shall
be deemed to have become on such date the holder of record of the common
shares represented thereby. The right to convert shares called for
redemption shall terminate at the close of business on the date fixed for
such redemption, unless the corporation shall default in making payment of
the amount payable upon such redemption. The corporation shall make no
payment or allowance for unpaid dividends, whether or not in arrears, on
converted shares or for dividends on the common shares issued upon such
conversion.
(2) The conversion rate for First Series Preference Shares
shall be subject to adjustment from time to time only as follows:
(i) If the corporation (A) pay to holders of common
shares a dividend in shares of its capital stock (including common
shares), and not pay to holders of First Series Preference Shares an
equivalent share dividend or (B) combine into a smaller number or
subdivide its common shares, or issue by reclassification of its
common shares any shares of the corporation, the conversion rate for
First Series Preference Shares in effect immediately prior thereto
shall be adjusted so that the holder of a First Series Preference
Share surrendered for conversion after the record date fixing
shareholders to be affected by such event shall be entitled to receive
the number of shares of the corporation which he would have owned or
have been entitled to receive after the happening of any of the events
described above, had such share been converted immediately prior to
such record date. Such adjustment shall be made whenever any of such
events shall happen, but shall also be effective retroactively as to
any such share converted between such record date and the date of the
happening of any such events.
(ii) If the corporation shall issue rights or warrants
to holders of common shares entitling them to subscribe for or
purchase common shares at a price per share less than the current
market price per common share (as defined in part (iv) of this
subparagraph (2)) as of the record date specified below, the number of
common shares into which each First Series Preference Share shall
thereafter be convertible shall be determined by multiplying the
number of common shares into which such share was theretofore
convertible by a fraction, the numerator of which shall be the number
of common shares outstanding on the date of issuance of such rights or
warrants plus the number of additional common shares offered for
subscription or purchase, and the denominator of which shall be the
number of common shares outstanding on the date of issuance of such
rights or warrants plus the number of common shares which the
aggregate offering price of the total number of common shares so
offered would purchase at such current market price. Such adjustment
shall be made whenever such rights or warrants are issued, but shall
also be effective retroactively as to any share converted between the
record date for the determination of shareholders entitled to receive
such rights or warrants and the date such rights or warrants are
issued.
(iii) If the corporation shall distribute to
holders of common shares evidences of its indebtedness or assets
(excluding cash dividends or cash distributions) or rights or warrants
to subscribe other than as set forth in part (ii) above, the number of
common shares into which each First Series Preference Share shall
thereafter be convertible shall be determiend by multiplying the
number of common shares into which such share was theretofore
convertible by a fraction, the numerator of which shall be the current
market price per common share (as defined in part (iv) of this
12
<PAGE>
subparagraph (2)) as of the date of such distribution, and the
denominator of which shall be such current market price per common
share less the then fair market value (as determined by the Board of
Directors, whose determination shall be conclusive) of the portion of
the assets or evidences of indebtedness so distributed or such
subscription rights or warrants applicable to one common share. Such
adjustment shall be made whenever any such distribution is made, but
shall also be effective retroactively as to any share converted
between the record date for the determination of shareholders entitled
to receive such distribution and the date such distribution is made.
(iv) For the purpose of any computation under parts
(ii) and (iii) of this subparagraph (2), the current market price per
common share as of any date shall be deemed to be the average of the
daily closing prices for the thirty consecutive business days
commencing on the forty-fifth business day before the date in
question. The closing price per common share for each business day
shall be the last sales price regular way or, if no such sale takes
place on such business day, the average of the reported closing bid
and asked prices regular way, in either case as reported in a
composite list that includes stocks traded on the New York Stock
Exchange or, if the common shares are not listed or admitted to
trading on such exchange, the average of the closing bid and asked
prices as furnished by any member of the New York Stock Exchange
selected by the Board of Directors for that purpose.
(v) The conversion rate for First Series Preference
Shares shall always be calculated to the nearest one one-hundredth of
a share. No adjustment in the conversion rate for First Series
Preference Shares shall be made unless the conversion rate for such
shares after such adjustment would differ from the conversion rate
prior to such adjustment by one one-hundredth of a common share or
more, provided that any adjustments for First Series Preference Shares
not made by reason of this part (v) of subparagraph (2) shall be
carried forward and taken into account in calculating subsequent
adjustments.
(vi) Whenever any adjustment in the conversion rate for
First Series Preference Shares is made, the corporation shall make
available to any holder of First Series Preference Shares at the
holder's request a statement describing the adjustment and the method
of calculation used, together with an opinion rendered by an
independent firm of public accountants of recognized standing, who may
be the corporation's regularly engaged auditors, that such adjustment
was properly calculated in accordance with the provisions of this
subparagraph (2).
(3) If the corporation shall consolidate with or merge into
another corporation, or if the corporation shall sell, lease or transfer to
any other person or persons all or substantially all of the assets of the
corporation, holders of First Series Preference Shares shall have the right
after such event to convert each share held into the kind and amount of
shares of stock, other securities, cash and property receivable upon such
event by a holder of the number of common shares into which such shares
might have been converted immediately prior to such event. In any such
event, effective provisions shall be made in the certificate or articles of
incorporation of the resulting or surviving corporation, in any contract of
sale, conveyance, lease or transfer, or otherwise so that the provisions
set forth herein for the protection of the conversion rights of First
Series Preference Shares shall thereafter continue to be applicable; and
any such resulting or surviving corporation shall expressly assume the
obligation to deliver, upon conversion, such shares of stock, other
securities, cash and property. The provisions of this subparagraph (3)
shall similarly apply to successive consolidations, mergers, sales, leases
or transfers.
13
<PAGE>
(f) The holders of First Series Preference Shares shall not be
entitled to vote except as provided by Washington statutes or by this
Article III.
7. The second series of preference shares shall be designated $4.50
Convertible Cumulative Preference Shares, Series A ("Series A Preference
Shares") and shall initially consist of 3,300,000 shares. The relative
rights and preferences of Series A Preference Shares shall be as follows:
(a) The dividend rate for the Series A Preference Shares shall
be $4.50 per share per annum. Subject to the provisions of Section 3 of
this Article III, the first dividend on the Series A Preference Shares
shall be paid on June 15, 1981 in respect of the period from the date of
issuance to June 15, 1981, and thereafter dividends on Series A Preference
Shares shall be paid quarterly on September 15, December 15, March 15 and
June 15 in each instance to holders of record of Series A Preference Shares
on such dates as may be fixed by the Board of Directors from time to time.
The dividend payment on each payment date except the aforementioned first
payment date shall be in respect of the quarterly period ending with such
payment date. Dividends on the first issued Series A Preference Shares
shall accrue on a daily basis from and after the date of issuance thereof.
Dividends on any reissued Series A Preference Shares shall accrue on a
daily basis from and after the payment date therefor to which dividends
have been paid in full next preceding the date of reissuance of such
shares, provided, however, that dividends on any subsequently reissued
Series A Preference Shares reissued after the record date fixed for the
payment of a current dividend on such shares but before the date of payment
of such dividend, shall accrue on a daily basis from and after such payment
date or, if such dividend shall not be paid in full on such payment date
then from and after the next preceding payment date on which dividends on
such shares have been paid in full. Dividends on Series A Preference
Shares reissued on any dividend payment date for such shares shall accrue
on a daily basis from and after such payment date.
(b) (1) Pursuant to resolution of the Board of Directors and
subject to the provisions of paragraph 3(a) of this Article III, the
corporation may redeem the whole or from time to time any part of the
Series A Preference Shares at any time on or after March 15, 1984, at the
following redemption prices per share for the respective periods indicated:
<TABLE>
<CAPTION>
Date Fixed for
Redemption Within Price Per
The Period (Inclusive) Share
---------------------- ---------
<S> <C>
March 15, 1984 - March 14, 1985 $53.00
March 15, 1985 - March 14, 1986 52.50
March 15, 1986 - March 14, 1987 52.00
March 15, 1987 - March 14, 1988 51.50
March 15, 1988 - March 14, 1989 51.00
March 15, 1989 - March 14, 1990 50.50
March 15, 1990 and thereafter 50.00
</TABLE>
plus, in each case, an amount equal to all accrued and unpaid dividends on
the shares being redeemed to and including the date fixed for such
redemption.
(2) Notice of redemption shall be mailed by the
corporation, not less than 30 or more than 60 days before the date fixed
for redemption, to each transfer
14
<PAGE>
agent for the shares to be redeemed and to each holder of record of such
shares addressed to such holder at his address appearing on the books of
the corporation. Such notice of redemption shall set forth the date fixed
for redemption, the redemption price and the place or places (including a
place in the Borough of Manhattan, the City of New York) at which the
shareholders may obtain payment of the redemption price plus accrued
dividends upon the surrender of the certificates representing their shares,
and shall set forth in respect to such shares the then current conversion
rate and date on which conversion rights expire, all as determined in
accordance with paragraph 7(e) of this Article III.
(3) On or after the date fixed for redemption and stated in
such notice, each holder of shares that are called for redemption shall,
upon surrender of the certificates representing such shares to the
corporation at the place or places designated in such notice, be entitled
to receive payment of the redemption price of such shares, plus an amount
equal to all accrued and unpaid dividends thereon to and including the date
fixed for redemption. In case less than all of the shares represented by
any such surrendered certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares.
(4) If less than all the outstanding shares are to be
redeemed, the number of shares of Series A Preference Shares to be redeemed
and the method of effecting such redemption, whether by lot or pro rata,
shall be as determined by the Board of Directors.
(5) At any time after a notice of redemption has been given
in the manner prescribed herein and prior to the date fixed for redemption,
the corporation may deposit in trust, with a bank or trust company having
capital, surplus and undistributed profits aggregating at least
$50,000,000, an aggregate amount of funds sufficient for such redemption,
for immediate payment in the appropriate amounts upon surrender of
certificates for such shares. Upon the deposit of such funds or, if no
such deposit is made, upon the date fixed for redemption (unless the
corporation shall default in making payment of the appropriate amount),
whether or not certificates for shares so called for redemption have been
surrendered for cancellation, the shares to be redeemed shall be deemed to
be no longer outstanding and the holders thereof shall cease to be
shareholders with respect to such shares and shall have no rights with
respect thereto, except for the right to receive the amount payable upon
redemption, but without interest, and, up to the close of business on the
date fixed for such redemption, the right to convert such shares as set
forth in paragraph 7(e) of this Article III. Such deposit in trust shall
be irrevocable except that any funds deposited by the corporation which
shall not be required for the redemption for which they were deposited
because of the exercise of rights of conversion subsequent to the date of
deposit shall be returned to the corporation forthwith, and any funds
deposited by the corporation which are unclaimed at the end of one year
from the date fixed for such redemption shall be paid over to the
corporation upon its request, and upon such repayment the holders of the
shares so called for redemption shall look only to the corporation for
payment of the appropriate amount. Any such unclaimed amounts paid over to
the corporation shall, for a period of six years after the date fixed for
such redemption, be set apart and held by the corporation in trust for the
benefit of the holders of such shares, but no such holder shall be entitled
to receive interest thereon. At the expiration of such six- year period,
all right, title, interest and claim of such holders in or to such
unclaimed amounts shall be extinguished, terminated and discharged, and
such unclaimed amounts shall become part of the general funds of the
corporation free of any claim of such holders.
15
<PAGE>
(c) The amount referred to in paragraph 2(c) of this Article III
as payable in the event of voluntary or involuntary liquidation of the
corporation shall be $50 per Series A Preference Share.
(d) The Series A Preference Shares shall not be entitled to the
benefit of any sinking fund for the redemption or purchase of such shares.
(e) (1) Subject to the provisions for adjustment set forth in
subparagraph (2) below, each Series A Preference Share shall be convertible
at any time at the election of the holder thereof into 1.1111 common shares
(such rate, as adjusted from time to time, is referred to as the
"conversion rate"). Certificates representing shares that a holder thereof
has elected to convert shall be surrendered to any transfer agent of such
shares duly endorsed to the corporation or in blank, or accompanied by
proper instruments of transfer, together with written notice of the
election to convert setting forth the denominations of common share
certificates desired and the names in which such certificates shall be
issued. As soon as practicable after such surrender of such certificates
and the receipt of such notice, the corporation shall issue and deliver at
the office of such transfer agent to the person who surrendered such
certificates a certificate or certificates for the number of common shares
issuable upon the conversion of such shares, and a check or cash in respect
of any fraction of a share. Such conversion shall be deemed to have been
effected on the date on which such notice and such certificates shall have
been received, and each person in whose name any certificate for common
shares shall be issuable upon such conversion shall be deemed to have
become on such date the holder of record of the common shares represented
thereby. The right to convert shares called for redemption shall terminate
at the close of business on the date fixed for such redemption, unless the
corporation shall default in making payment of the amount payable upon such
redemption. The corporation shall make no payment or allowance for unpaid
dividends, whether or not in arrears, on converted shares or for dividends
on the common shares issued upon such conversion.
(2) The conversion rate for Series A Preference Shares
shall be subject to adjustment from time to time only as follows:
(i) If the corporation shall (A) pay to holders of
common shares a dividend in shares of its capital stock (including
common shares), or (B) combine into a smaller number or subdivide its
common shares, or issue by reclassification of its common shares any
shares of the corporation, the conversion rate for Series A Preference
Shares in effect immediately prior thereto shall be adjusted so that
the holder of a Series A Preference Share surrendered for conversion
after the record date fixing shareholders to be affected by such event
shall be entitled to receive the number of shares of the corporation
which he would have owned or have been entitled to receive after the
happening of any of the events described above, had such share been
converted immediately prior to such record date. Such adjustment
shall be made whenever any such events shall happen, but shall also be
effective retroactively as to any such share converted between such
record date and the date of the happening of any such events.
(ii) If the corporation shall issue rights or warrants
to holders of common shares entitling them to subscribe for or
purchase common shares at a price per share less than the current
market price per common share (as defined in part (iv) of this
subparagraph (2)) as of the record date specified below, the number of
common shares into which each Series A Preference Share shall
thereafter be convertible shall be determined by multiplying the
number of common shares into which such share was theretofore
convertible by a fraction, the numerator of which
16
<PAGE>
shall be the number of common shares outstanding on the date of
issuance of such rights or warrants plus the number of additional
common shares offered for subscription or purchase, and the
denominator of which shall be the number of common shares outstanding
on the date of issuance of such rights or warrants plus the number of
common shares which the aggregate offering price of the total number
of common shares so offered would purchase at such current market
price. Such adjustment shall be made whenever such rights or warrants
are issued, but shall also be effective retroactively as to any share
converted between the record date for the determination of
shareholders entitled to receive such rights or warrants and the date
such rights or warrants are issued.
(iii) If the corporation shall distribute to
holders of common shares evidences of its indebtedness or assets
(excluding cash dividends or cash distributions) or rights or warrants
to subscribe other than as set forth in part (ii) above, the number of
common shares into which each Series A Preference Share shall
therafter be convertible shall be determined by multiplying the number
of common shares into which such share was thertofore convertible by a
fraction, the numerator of which shall be the current market price per
common share (as defined in part (iv) of this subparagraph (2)) as of
the date of such distribution, and the denominator of which shall be
such current market price per common share less the then fair market
value (as determined by the Board of Directors, whose determination
shall be conclusive) of the portion of the assets or evidences of
indebtedness so distributed or such subscription rights or warrants
applicable to one common share. Such adjustment shall be made
whenever any such distribution is made, but shall also be effective
retroactively as to any share converted between the record date for
the determination of shareholders entitled to receive such
distribution and the date such distribution is made.
(iv) For the purpose of any computation under parts
(ii) and (iii) of this subparagraph (2), the current market price per
common share as of any date shall be deemed to be the average of the
daily closing prices for the thirty consecutive business days
commencing on the forty-fifth business day before the date in
question. The closing price for each business day shall be the last
reported sales price regular way or, if no such sale takes place on
such business day, the average of the reported closing bid and asked
prices regular way, in either case on the New York Stock Exchange or,
if the common shares are not listed or admitted to trading on such
exchange, the average of the closing bid and asked prices as furnished
by any member of the New York Stock Exchange selected by the Board or
Directors for that purpose.
(v) The conversion rate for Series A Preference Shares
shall always be calculated to the nearest one one-hundredth of a
share. No adjustment in the conversion rate for Series A Preference
Shares shall be made unless the conversion rate for such shares after
such adjustment would differ from the conversion rate prior to such
adjustment by one one-hundredth of a common share or more, provided
that any adjustments for Series A Preference Shares not made by reason
of this part (v) of subparagraph (2) shall be carried forward and
taken into account in calculating subsequent adjustments.
(vi) Whenever any adjustment in the conversion rate for
Series A Preference Shares is made, the corporation shall forthwith
(A) file with each transfer agent for such shares a statement
describing the adjustment and the method of calculation used, together
with an opinion rendered by an independent firm of public accountants
of recognized standing, who may be the corporation's regularly
17
<PAGE>
engaged auditors, that such adjustment was properly calculated in
accordance with the provisions of this subpara graph (2), and (B)
cause a copy of such statement to be published in a daily newspaper of
general circulation in the Borough of Manhattan, the City of New York,
and to be mailed to the holders of record of such shares.
(3) If the corporation shall consolidate with or merge into
another corporation, or if the corporation shall sell, lease or transfer to
any other person or persons all or substantially all of the assets of the
corporation, holders of Series A Preference Shares shall have the right
after such event to convert each share held into the kind and amount of
shares of stock, other securities, cash and property receivable upon such
event by a holder of the number of common shares into which such shares
might have been converted immediately prior to such event. In any such
event, effective provisions shall be made in the certificate or articles of
incorporation of the resulting or surviving corporation, in any contract of
sale, conveyance, lease or transfer, or otherwise so that the provisions
set forth herein for the protection of the conversion rights of Series A
Preference Shares shall thereafter continue to be applicable; and any such
resulting or surviving corporation shall expressly assume the obligation to
deliver, upon conversion, such shares of stock, other securities, cash and
property. The provisions of this subparagraph (3) shall similarly apply to
successive consolidations, mergers, sales, leases or transfers.
(f) The holders of Series A Preference Shares shall not be
entitled to vote except as provided by Washington statutes or by this
Article III.
8. An additional series of preference shares shall be designated
Convertible Cumulative Preference Shares, Second Series ("Second Series
Preference Shares") and shall initially consist of 32,000 shares. The
relative rights and preferences of Second Series Preference Shares shall be
as follows:
(a) The dividend rate for the Second Series Preference Shares
shall be $2.80 per share per annum. Subject to the provisions of paragraph
3 of this Article III, the first dividend on the Second Series Preference
Shares shall be paid on March 15, 1981 in respect of the period from the
date of issuance to March 15, 1981, and thereafter dividends on Second
Series Preference Shares shall be paid quarterly on June 15, September 15,
December 15 and March 15 in each instance to holders of record of Second
Series Preference Shares on such dates as may be fixed by the Board of
Directors from time to time. The dividend payment on each payment date
except the aforementioned first payment date shall be in respect of the
quarterly period ending with such payment date. Dividends on the first
issued Second Series Preference Shares shall accrue on a daily basis from
and after the date of issuance thereof. Dividends on any reissued Second
Series Preference Shares shall accrue on a daily basis from and after the
payment date therefor to which dividends have been paid in full next
preceding the date of reissuance of such shares, provided, however, that
dividends on any subsequently reissued Second Series Preference Shares
reissued after the record date fixed for the payment of a current dividend
on such shares but before the date of payment of such dividend, shall
accrue on a daily basis from and after such payment date or, if such
dividend shall not be paid in full on such payment date, then from and
after the next preceding payment date on which dividends on such shares
have been paid in full. Dividends on Second Series Preference Shares
reissued on any dividend payment date for such shares shall accrue on a
daily basis from and after such payment date.
(b) (1) Pursuant to resolution of the Board of Directors and
subject to the provisions of paragraph 3(a) of this Article III, the
corporation may redeem the whole or from time to time any part of the
Second Series Preference Shares at any time at the following redemption
prices per share for the respective periods indicated:
18
<PAGE>
<TABLE>
<CAPTION>
Date Fixed for
Redemption Within Price Per
The Period (Inclusive) Share
---------------------- ---------
<S> <C>
Date of first issue - December 14, 1980 $52.00
December 15, 1980 - December 14, 1982 51.00
December 15, 1982 - December 14, 1984 50.50
December 15, 1984 and thereafter 50.00
</TABLE>
plus, in each case, an amount equal to all accrued and unpaid dividends on
the shares being redeemed to and including the date fixed for such
redemption.
(2) Notice of redemption shall be mailed by the
corporation, not less than 30 or more than 60 days before the date fixed
for redemption, to each transfer agent for the shares to be redeemed and to
each holder of record of such shares addressed to such holder at his
address appearing on the books of the corporation. Such notice of
redemption shall set forth the date fixed for redemption, the redemption
price and the place or places at which the shareholders may obtain payment
of the redemption price plus accrued dividends upon the surrender of the
certificates representing their shares, and shall set forth in respect to
such shares the then current conversion rate and date on which conversion
rights expire, all as determined in accordance with paragraph 8(e) of this
Article III.
(3) On or after the date fixed for redemption and stated in
such notice, each holder of shares that are called for redemption shall,
upon surrender of the certificates representing such shares to the
corporation at the place or places designated in such notice, be entitled
to receive payment of the redemption price of such shares, plus an amount
equal to all accrued and unpaid dividends thereon to and including the date
fixed for redemption. In case less than all of the shares represented by
any such surrendered certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares.
(4) If less than all the outstanding shares are to be
redeemed, the number of shares of Second Series Preference Shares to be
redeemed and the method of effecting such redemption, whether by lot or pro
rata, shall be as determined by the Board of Directors.
(5) At any time after a notice of redemption has been given
in the manner prescribed herein and prior to the date fixed for redemption,
the corporation may deposit in trust, with a bank, trust company or other
financial institution an aggregate amount of funds sufficient for such
redemption, for immediate payment in the appropriate amounts upon surrender
of certificates for such shares. Upon the deposit of such funds, or if no
such deposit is made, upon the date fixed for redemption (unless the
corporation shall default in making payment of the appropriate amount),
whether or not certificates for shares so called for redemption have been
surrendered for cancellation, the shares to be redeemed shall be deemed to
be no longer outstanding and the holders thereof shall cease to be
shareholders with respect to such shares and shall have no rights with
respect thereto, except for the right to receive the amount payable upon
redemption, but without interest, and, up to the close of business on the
date fixed for such redemption, the right to convert such shares as set
forth in paragraph 8(e) of this Article III. Such deposit in trust shall
be irrevocable except that any funds deposited by the corporation which
shall not be required for the redemption for which they were deposited
because of the exercise of rights of conversion subsequent to the date of
19
<PAGE>
deposit shall be returned to the corporation forthwith; and any funds
deposited by the corporation which are unclaimed at the end of one year
from the date fixed for such redemption shall be paid over to the
corporation upon its request, and upon such repayment the holders of the
shares so called for redemption shall look only to the corporation for
payment of the appropriate amount. Any such unclaimed amounts paid over to
the corporation shall, for a period of six years after the date fixed for
such redemption, be set apart and held by the corporation in trust for the
benefit of the holders of such shares, but no such holder shall be entitled
to receive interest thereon. At the expiration of such six-year period,
all right, title, interest and claim of such holders in or to such
unclaimed amounts shall be extinguished, terminated and discharged, and
such unclaimed amounts shall become part of the general funds of the
corporation free of any claim of such holders.
(c) The amount referred to in paragraph 2(c) of this Article III
as payable in the event of voluntary or involuntary liquidation of the
corporation shall be $50 per Second Series Preference Share.
(d) The Second Series Preference Shares shall not be entitled to
the benefit of any sinking fund for the redemption or purchase of such
shares.
(e) (1) Subject to the provisions for adjustment set forth in
subparagraph (2) below, each Second Series Preference Share shall be
convertible at any time at the election of the holder thereof into 1.2121
common shares (such rate, as adjusted from time to time, is referred to as
the "conversion rate"). Certificates representing shares that a holder
thereof has elected to convert shall be surrendered to any transfer agent
of such shares duly endorsed to the corporation or in blank, or accompanied
by proper instruments of transfer, together with written notice of the
election to convert setting forth the denominations of common share
certificates desired and the names in which such certificates shall be
issued. As soon as practicable after such surrender of such certificates
and the receipt of such notice, the corporation shall issue and deliver at
the office of such transfer agent to the person who surrendered such
certificates a certificate or certificates for the number of common shares
issuable upon the conversion of such shares, and a check or cash in respect
of any fraction of a share. Such conversion shall be deemed to have been
effected on the date on which such notice and such certificates shall have
been received, and each person in whose name any certificate for common
shares shall be issuable upon such conversion shall be deemed to have
become on such date the holder of record of the common shares represented
thereby. The right to convert shares called for redemption shall terminate
at the close of business on the date fixed for such redemption, unless the
corporation shall default in making payment of the amount payable upon such
redemption. The corporation shall make no payment or allowance for unpaid
dividends, whether or not in arrears, on converted shares or for dividends
on the common shares issued upon such conversion.
(2) The conversion rate for Second Series Preference Shares
shall be subject to adjustment from time to time only as follows:
(i) If the corporation shall (A) pay to holders of
common shares a dividend in shares of its capital stock (including
common shares), or (B) combine into a smaller number or subdivide its
common shares, or issue by reclassification of its common shares any
shares of the corporation, the conversion rate for Second Series
Preference Shares in effect immediately prior thereto shall be
adjusted so that the holder of a Second Series Preference Share
surrendered for conversion after the record date fixing shareholders
to be affected by such event shall be entitled to receive the number
of shares of the corporation which he would have owned or have
20
<PAGE>
been entitled to receive after the happening of any of the events
described above, had such share been converted immediately prior to
such record date. Such adjustment shall be made whenever any of such
events shall happen, but shall also be effective retroactively as to
any such share converted between such record date and the date of the
happening of any such events.
(ii) If the corporation shall issue rights or warrants
to holders of common shares entitling them to subscribe for or
purchase common shares at a price per share less than the current
market price per common share (as defined in part (iv) of this
subparagraph (2)) as of the record date specified below, the number of
common shares into which each Second Series Preference Share shall
thereafter be convertible shall be determined by multiplying the
number of common shares into which such share was theretofore
convertible by a fraction, the numerator of which shall be the number
of common shares outstanding on the date of issuance of such rights or
warrants plus the number of additional common shares offered for
subscription or purchase, and the denominator of which shall be the
number of common shares outstanding on the date of issuance of such
rights or warrants plus the number of common shares which the
aggregate offering price of the total number of common shares so
offered would purchase at such current market price. Such adjustment
shall be made whenever such rights or warrants are issued, but shall
also be effective retroactively as to any share converted between the
record date for the determination of shareholders entitled to receive
such rights or warrants and the date such rights or warrants are
issued.
(iii) If the corporation shall distribute to
holders of common shares evidences of its indebtedness or assets
(excluding cash dividends or cash distributions) or rights or warrants
to subscribe other than as set forth in part (ii) above, the number of
common shares into which each Second Series Preference Share shall
thereafter be convertible shall be determined by multiplying the
number of common shares into which such share was theretofore
convertible by a fraction, the numerator of which shall be the current
market price per common share (as defined in part (iv) of this
subparagraph (2)) as of the date of such distribution, and the
denominator of which shall be such current market price per common
share less the then fair market value (as determined by the Board of
Directors, whose determination shall be conclusive) of the portion of
the assets or evidences of indebtedness so distributed or such
subscription rights or warrants applicable to one common share. Such
adjustment shall be made whenever any such distribution is made, but
shall also be effective retroactively as to any share converted
between the record date for the determination of shareholders entitled
to receive such distribution and the date such distribution is made.
(iv) For the purpose of any computation under parts
(ii) and (iii) of this subparagraph (2), the current market price per
common share as of any date shall be deemed to be the average of the
daily closing prices for the thirty consecutive business days
commencing on the forty-fifth business day before the date in
question. The closing price for each business day shall be the last
reported sales price regular way or, if no such sale takes place on
such business day, the average of the reported closing bid and asked
prices regular way, in either case on the New York Stock Exchange or,
if the common shares are not listed or admitted to trading on such
exchange, the average of the closing bid and asked prices as furnished
by any member of the New York Stock Exchange selected by the Board of
Directors for that purpose.
21
<PAGE>
(v) The conversion rate for Second Series Preference
Shares shall always be calculated to the nearest one one-hundredth of
a share. No adjustment in the conversion rate for Second Series
Preference Shares shall be made unless the conversion rate for such
shares after such adjustment would differ from the conversion rate
prior to such adjustment by one one-hundredth of a common share or
more, provided that any adjustments for Second Series Preference
Shares not made by reason of this part (v) of subparagraph (2) shall
be carried forward and taken into account in calculating subsequent
adjustments.
(vi) Whenever any adjustment in the conversion rate for
Second Series Preference Shares is made, the corporation shall cause
to mailed to each holder of Second Series Preference Shares a
statement describing the adjustment and the method of calculation used
and, at the holder's request, shall furnish a copy of an opinion
rendered by an independent firm of public accountants of recognized
standing, who may be the corporation's regularly engaged auditors,
that such adjustment was properly calculated in accordance with the
provisions of this subparagraph (2).
(3) If the corporation shall consolidate with or merge into
another corporation, or if the corporation shall sell, lease or transfer to
any other person or persons all or substantially all of the assets of the
corporation, holders of Second Series Preference Shares shall have the
right after such event to convert each share held into the kind and amount
of shares of stock, other securities, cash and property receivable upon
such event by a holder of the number of common shares into which such
shares might have been converted immediately prior to such event. In any
such event, effective provisions shall be made in the certificate or
articles of incorporation of the resulting or surviving corporation, in any
contract of sale, conveyance, lease or transfer, or otherwise so that the
provisions set forth herein for the protection of the conversion rights of
Second Series Preference Shares shall thereafter continue to be applicable;
and any such resulting or surviving corporation shall expressly assume the
obligation to deliver, upon conversion, such shares of stock, other
securities, cash and property. The provisions of this subparagraph (3)
shall similarly apply to successive consolidations, mergers, sales, leases
or transfers.
(f) Each outstanding share of Second Series Preference Shares
shall be entitled to one vote, not as a class, on each matter submitted to
a vote at a meeting of shareholders.
9. The third series of preference shares shall be designated "$11.00
Cumulative Preference Shares, Third Series" (the "Third Series Preference
Shares"), and the number of shares constituting such series shall be
147,000. The relative rights and preferences of the Third Series
Preference Shares shall be as follows:
(a) The holders of Third Series Preference Shares shall be
entitled to receive, when and as declared by the Board of Directors, out of
any funds lawfully available therefor, cash dividends thereon at the annual
rate of $11.00 per share, and no more, payable quarterly, from the date of
issuance thereof, upon the 15th day of March, June, September and December
in each year. Dividends on the Third Series Preference Shares shall
commence to accrue from the date of issuance thereof and shall be
cumulative.
(b) The amount referred to in paragraph 2(c) of this Article III
as payable in the event of voluntary or involuntary liquidation of the
corporation shall be $100 per share. Accordingly, in the event of the
voluntary or involuntary liquidation of
22
<PAGE>
the corporation the "preferential amount" which the holders of the Third
Series Preference Shares shall be entitled to receive out of the assets of
the corporation pursuant to paragraph 3(c) of this Article III is $100 per
share plus all accrued and unpaid dividends thereon.
(c) (1) The corporation shall redeem 29,400 Third Series
Preference Shares on December 15, 1988 and on each December 15 thereafter
until the Third Series Preference Shares originally issued shall have been
fully redeemed. Third Series Preference Shares redeemed pursuant to the
provisions of this subparagraph (1) shall be redeemed in the manner, upon
the notice and with the effect set forth in subparagraph (4) of this
paragraph (c) and at a redemption price equal to $100 per share plus all
dividends accrued and unpaid thereon to the date of redemption.
(2) In addition to the redemption of Third Series
Preference Shares required to be made pursuant to the foregoing
subparagraph (1) of this paragraph (c), the corporation may concurrently
with any such mandatory redemption, redeem a number of Third Series
Preference Shares (in units of 1,000 shares or integral multiples of 1,000
in excess thereof) not exceeding the number of Third Series Preference
Shares being redeemed on such date pursuant to the foregoing subparagraph
(1) hereof. Third Series Preference Shares to be redeemed pursuant to the
provisions of this subparagraph (2) shall be redeemed in the manner, upon
the notice and with the effect provided in subparagraph (4) of this
paragraph (c) and at a redemption price equal to $100 per share plus the
amount of all dividends accrued and unpaid thereon to the date of
redemption.
The right of the corporation to redeem Third Series
Preference Shares pursuant to this subparagraph (2) is subject to the
following limitations: (i) such right shall be noncumulative and the
failure of the corporation to exercise such right on any date shall not
increase the number of Third Series Preference Shares which it may redeem
under this subparagraph (2) on any other date; (ii) Third Series Preference
Shares redeemed pursuant to the provisions of this subparagraph (2) shall
be credited, pro tanto, against the obligation of the corporation to redeem
Third Series Preference Shares pursuant to the provisions of the foregoing
subparagraph (1) hereof in the inverse order of the dates on which such
redemptions are required to be made; and (iii) the number of Third Series
Preference Shares redeemed by the corporation from time to time pursuant to
the provisions of this subparagraph (2) shall not exceed a cumulative total
of 44,100 shares.
(3) In addition to redemption of Third Series Preference
Shares required to be made pursuant to the foregoing subparagraph (1) of
this paragraph (c) and permitted to be made pursuant to the foregoing
subparagraph (2) of this paragraph (c), the Third Series Preference Shares
shall be subject to redemption at any time or from time to time on or after
but not before December 15, 1987, in whole or in part (but if in part then
in units of 1,000 shares or integral multiples of 1,000 shares in excess
thereof) at the option of the corporation upon payment of a redemption
price of $100 per share together with all dividends accrued and unpaid
thereon to the date of redemption and together with a premium per share
determined in accordance with the applicable provisions of the following
table:
<TABLE>
<CAPTION>
Date Fixed for
Redemption Within Price Per
The Period (Inclusive) Share
---------------------- ----------
<S> <C>
December 15, 1987 - December 14, 1988 $5.00
December 15, 1988 - December 14, 1989 3.00
23
<PAGE>
December 15, 1989 - December 14, 1990 1.00
December 15, 1990 and thereafter None
</TABLE>
Third Series Preference Shares redeemed pursuant to the
provisions of this subparagraph (3) shall be credited pro tanto, against the
---------
obligation of the corporation to redeem Third Series Preference Shares
pursuant to the provisions of the foregoing subparagraph (1) hereof, in the
inverse order of the dates on which such redemptions are required to be
made.
(4) (i) Notice of every redemption pursuant to this
paragraph (c) shall be mailed at least 30 but not more than 90 days
prior to the date fixed for redemption to the holders of record of
Third Series Preference Shares so to be redeemed at their respective
addresses as the same shall appear on the books of the corporation.
Each such notice of redemption shall set forth the redemption price
applicable to the Third Series Preference Shares being redeemed, and
that the redemption is pursuant to subparagraph (1), (2) or (3) of
this paragraph (c). In case of the redemption of less than all of the
outstanding Third Series Preference Shares, the number of shares to be
redeemed shall in the case of each holder of record on the date of
such selection of at least 100 Third Series Preference Shares be as
nearly as practicable in the same proportion as the number of such
shares held by such holder bears to the total number of such shares
then outstanding (except as above provided in this paragraph (c)) and
in the case of any other holder shall be determined in such manner as
the Board of Directors of the corporation deems appropriate and fair.
(ii) If, on the redemption date specified in the notice
of redemption, the funds necessary for such redemption shall have been
set aside by the corporation separate and apart from its other funds
in trust for the pro rata benefit of the holders of the shares so
called for redemption, then (unless the corporation shall default in
making payment of the appropriate amount), notwithstanding that any
certificates for Third Series Preference Shares so called for
redemption shall not have been surrendered for cancellation, the
shares represented thereby which are to be redeemed shall no longer be
deemed outstanding, the right to receive dividends thereon shall cease
to accrue from and after the date of redemption so specified and all
rights of holders of Third Series Preference Shares so called for
redemption shall forthwith, after such redemption date, cease and
terminate excepting only the right of the holders thereof to receive
the redemption price therefor (but without interest) and any other
rights of the holders thereof which by the express terms of the
agreement or instrument creating such rights survive the redemption of
any or all of the Third Series Preference Shares. At the expiration of
six years from the date fixed for redemption, all right, title,
interest and claim of the holders of the Third Series Preference
Shares called for redemption in or to unclaimed moneys so set aside by
the corporation shall be extinguished, terminated and discharged, and
such unclaimed moneys shall become part of the general funds of the
corporation free of any claim of such holders.
(iii) At any time after notice of redemption has
been given in the manner prescribed herein and prior to the date fixed
for redemption, the corporation may deposit in trust, with a bank or
trust company having capital, surplus and undistributed profits
aggregating at least $50,000,000, an aggregate amount of funds
sufficient for such redemption, for immediate payment in the
appropriate amounts upon surrender of certificates for the Third
Series Preference Shares so called for redemption. Upon the deposit
of such funds or, if no such deposit is made, upon the date fixed for
redemption (unless the corporation shall default in making payment of
the appropriate amount), whether or not certificates for Third Series
Preference Shares so called for redemption have been surrendered for
cancellation, the Third Series Preference Shares to be
24
<PAGE>
redeemed shall be deemed to be no longer outstanding and the holders
thereof shall cease to be shareholders with respect to such Third
Series Preference Shares and shall have no rights with respect
thereto, except for the right to receive the amount payable upon
redemption (but without interest) and any other rights of the holders
thereof which by the express terms of the agreement or instrument
creating such rights survive the redemption of any or all of the Third
Series Preference Shares. Any funds deposited by the corporation
which are unclaimed at the end of one year from the date fixed for
such redemption shall be paid over to the corporation upon its
request, and upon such repayment the holders of the Third Series
Preference Shares so called for redemption shall look only to the
corporation for payment of the appropriate amount. Any such unclaimed
amounts paid over to the corporation shall, for a period of six years
after the date fixed for such redemption, be set apart and held by the
corporation in trust for the benefit of the holders of such Third
Series Preference Shares, but no such holder shall be entitled to
receive interest thereon. At the expiration of such six-year period,
all right, title, interest and claim of such holders in or to such
unclaimed amounts shall be extinguished, terminated and discharged,
and such unclaimed amounts shall become part of the general funds of
the corporation free of any claim of such holders.
(iv) All Third Series Preference Shares which shall
have been redeemed, purchased or otherwise acquired by or surrendered
to the corporation shall have the status specified in paragraph 1 of
this Article III and may be reissued as specified in such paragraph 1
except that such shares shall not be reissued as Third Series
Preference Shares.
(v) The corporation shall not declare or pay any
dividends upon, or set aside any sum or sums for the purchase,
redemption (including any sinking fund payment therefor) or other
acquisition for value of, any class or series of shares ranking on a
parity with or subordinate to the Third Series Preference Shares with
respect to either the payment of dividends or rights upon dissolution,
liquidation or winding up of the affairs of the corporation unless all
redemptions of the Third Series Preference Shares required to be made
pursuant to subparagraph (1) of this paragraph (c) shall have been
made.
(d) (1) The holders of Third Series Preference Shares shall
have no voting rights except as provided by Washington statutes or by this
Article III.
(2) So long as any Third Series Preference Shares shall be
outstanding, and in addition to any other approvals or consents required by
law, without the consent of the holders of 66-2/3% of all preference shares
outstanding as of a record date fixed by the Board of Directors, given
either by their affirmative vote at a special meeting called for that
purpose, or, if permitted by law, in writing without a meeting:
(i) The corporation shall not sell, transfer or lease
all or substantially all the properties and assets of the corporation
provided, however, that nothing herein shall require the consent of
the holders of preference shares for or in respect of the creation of
any mortgage, pledge, or other lien upon all or any part of the assets
of the corporation.
(ii) The corporation shall not effect a merger or
consolidation with any other corporation or corporations unless as a
result of such merger or consolidation and after giving effect thereto
(1) either (A) the corporation shall be the surviving corporation or
(B) if the corporation is not the surviving corporation, the successor
corporation shall be a corporation duly organized and existing under
the laws of any state of the United States of America or the District
of Columbia, and all obligations
25
<PAGE>
of the corporation with respect to the Third Series Preference Shares
shall be assumed by such successor corporation, (2) the Third Series
Preference Shares then outstanding shall continue to be outstanding,
and (3) there shall be no alteration or change in the designation or
the preferences, relative rights or limitations applicable to
outstanding Third Series Preference Shares prejudicial to the holders
thereof.
(iii) The corporation shall not amend, alter or
repeal any of the provisions of its Articles of Incorporation in any
manner which adversely affects the relative rights, preferences or
limitations of the Third Series Preference Shares or the holders
thereof; provided, however, that the corporation shall not amend,
alter or repeal the provisions of paragraph (a), (b) or (c) of this
paragraph 9 of this Article III or the provisions of this clause
(iii), without the consent of the holders of all preference shares
outstanding as of a record date fixed by the Board of Directors, given
either by the affirmative vote of such holders at a special meeting
called for that purpose or, if permitted by law, in writing without a
meeting.
10.(A) The second series of preferred shares shall be designated
"Market Auction Preferred Shares, Series A" (hereinafter referred to as
"Series A MAPS"), and the number of authorized shares constituting Series A
MAPS is 750. The relative rights and preferences of Series A MAPS shall be
as follows:
(a) The Holders (as defined in subparagraph (d) of this
paragraph 10(A)) shall be entitled to receive, when and as declared by the
Board of Directors out of funds legally available therefor, cash dividends
thereon at the Applicable Rate (as defined in subparagraph (2)(i) of this
paragraph 10(A)(a)) and no more, determined as set forth below, payable on
the respective dates set forth below.
(1) (i) Dividends on Series A MAPS, at the Applicable
Rate, shall accrue from the Date of Original Issue (as defined in
subparagraph (d) of this paragraph 10(A)). The first and second
dividend payment dates on the Series A MAPS will be December 31, 1985
and February 20, 1986, respectively. Following such second dividend
payment date, dividends will be payable on each day thereafter which
is the seventh Thursday after Thursday, February 20, 1986 (each such
date being herein referred to as the "Normal Dividend Payment Date")
except that (A) if such Normal Dividend Payment Date is not a Business
Day, then the Dividend Payment Date (as hereinafter defined) shall be
the preceding Tuesday if both such Tuesday and the following Wednesday
are Business Days; (B) or if the Friday following such Normal Dividend
Payment Date is not a Business Day, then the Dividend Payment Date
shall be the Wednesday preceding such Normal Dividend Payment Date if
both such Wednesday and such Normal Dividend Payment Date are Business
days; or (C) if such Normal Dividend Payment Date and either such
preceding Tuesday or Wednesday are not Business Days or if such Friday
and such Wednesday are not Business Days, then the Dividend Payment
Date shall be the first Business Day preceding the Normal Dividend
Payment Date that is next succeeded by a day that is also a Business
Day. Although any particular Dividend Payment Date shall not occur on
the originally scheduled Normal Dividend Payment Date because of the
exceptions discussed above, the next succeeding Dividend Payment Date
shall be, subject to such exceptions, the seventh Thursday following
the originally designated Normal Dividend Payment Date for the prior
Dividend Period (as defined in subparagraph (2)(i) of this paragraph
10(A)); provided that the Board of Directors, in the event of a change
in law lengthening the minimum holding period (currently found in
Section 246(c) of the Code (as defined in subparagraph (d) of this
paragraph 10(A)) required for taxpayers to be entitled to the
dividends received deduction on preferred stock held by non-affiliated
corporations (currently found in Section 243(a) of the Code), shall
adjust the period of time between Dividend Payment Dates so as,
subject to clauses (A) through (C) of this subparagraph
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<PAGE>
(a)(1)(i), to adjust uniformly the number of days (such number of
days without giving effect to such clauses (A) through (C) being
hereinafter referred to as "dividend period days") in Dividend Periods
commencing after the date of such change in law to equal or exceed the
then current minimum holding period; provided that the number of
dividend period days shall not exceed by more than nine days the
length of such then current minimum holding period and shall be evenly
divisible by seven, and the maximum number of dividend period days in
no event shall exceed 98 days (each date of payment of dividends being
herein referred to as a "Dividend Payment Date" and the first Dividend
Payment Date being herein referred to as the "Initial Dividend Payment
Date"). Upon any such change in the number of dividend period days as
a result of a change in law, the corporation shall publish notice of
such change in a newspaper of general circulation in The City of New
York, New York, which carries financial news and shall mail notice of
such change by first class mail, postage prepaid, to each Holder at
such Holder's address as the same appears on the stock transfer books
of the corporation.
(ii) As long as the Applicable Rate is based on the
results of an Auction (as defined in subparagraph (d) of this
paragraph 10(A), the corporation shall pay to the Auction Agent (as
defined in subparagraph (d) of this paragraph 10(A)) not later than
12:00 Noon, New York City time, on the Business Day next preceding
each Dividend Payment Date, an aggregate amount of funds available on
the next Business Day in The City of New York, New York, equal to the
dividends to be paid to all Holders on such Dividend Payment Date.
All such moneys shall be held in trust for the payment of dividends on
shares of Series A MAPS for the benefit of the Holders by the Auction
Agent and paid as set forth in subparagraph (1)(iii) of this paragraph
10(A)(a).
(iii) For purposes of determining to whom dividends
shall be paid, each dividend shall be payable to the Holders as their
names appear on the stock transfer books of the corporation on the
Business Day next preceding the Dividend Payment Date thereof.
Dividends in arrears for any past Dividend Period may be declared and
paid at any time, without reference to any regular Dividend Payment
Date, to the Holders as their names appear on the stock transfer books
of this corporation on such date, not exceeding 15 days preceding the
payment date thereof, as may be fixed by the Board of Directors.
(2) (i) The dividend rate on Series A MAPS shall be 5.625%
per annum during the period from and after the Date of Original Issue
to and including the Initial Dividend Payment Date (the "Initial
Dividend Period"). Commencing on the Initial Dividend Payment Date,
the dividend rate on Series A MAPS for each subsequent dividend period
(herein referred to as a "Subsequent Dividend Period" and collectively
as "Subsequent Dividend Periods"; and the Initial Dividend Period or
any Subsequent Dividend Period being herein referred to as a "Dividend
Period" and collectively as "Dividend Periods") thereafter, which
subsequent Dividend Periods shall commence on the day that is the last
day of the preceding Dividend Period and shall end on and include the
next succeeding Dividend Payment Date, shall be equal to the rate per
annum that results from implementation of the Auction Procedures (as
defined in subparagraph (d) of this paragraph 10(A)); provided that if
an Auction Termination Event (as defined in subparapraph (d) of this
parapraph 10(A)) shall have occurred prior to the first day of such
Subsequent Dividend Period, the dividend rate for each Subsequent
Dividend Period shall be a rate per annum (the "Alternate Rate") equal
to 150% of the "AA" Composite Commercial Paper Rate (as defined in
subparagraph (d) of this paragraph 10(A)) on the first day of such
Subsequent Dividend Period. The rate per annum at which dividends are
payable on shares of Series A MAPS for any Dividend Period is herein
referred to as the "Applicable Rate".
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<PAGE>
(ii) The amount of dividends per share payable on
Series A MAPS for any Dividend Period or part thereof shall be
computed by multiplying the Applicable Rate for such Dividend Period
by a fraction the numerator of which shall be the number of days in
such Dividend Period or part thereof (calculated by counting the first
day thereof but excluding the last day thereof) such share was
outstanding and the denominator of which shall be 360 and applying the
rate obtained against $100,000 per share of Series A MAPS. For
purposes of this subparagraph (2)(ii), shares of Series A MAPS shall
be treated as outstanding from the Date of Original Issue.
(iii) The Applicable Rate for each Subsequent
Dividend Period shall be published not later than the fifth Business
Day next succeeding the first day of such Subsequent Dividend Period
in a newspaper of general circulation in The City of New York, New
York, which carries financial news.
(b) (1)(i)(A) Series A MAPS may be redeemed, at the option
of the corporation, as a whole or from time to time in part, on the
second Business Day preceding any Dividend Payment Date at a
redemption price of:
(I) $101,500 per share if redeemed during
the twelve months ending November 14, 1986;
(II) $101,000 per share if redeemed during
the twelve months ending November 14, 1987;
(III) $100,500 per share if redeemed
during the twelve months ending November 14, 1988; and
(IV) $100,000 per share if redeemed
thereafter;
plus, in each case, an amount equal to accrued and unpaid dividends
thereon (whether or not earned or declared) to the date fixed for
redemption.
(B) If fewer than all of the outstanding Series A
MAPS are to be redeemed pursuant to this subparagraph (b)(1)(i), the
number of shares to be redeemed shall be determined by the Board of
Directors, and such shares shall be redeemed pro rata from the Holders
in proportion to the number of such shares held by such Holders (with
adjustments to avoid redemption of fractional shares).
(ii) Series A MAPS may be redeemed, at the option of
the corporation, as a whole but not in part, on any Dividend Payment
Date at a redemption price of $100,000 per share, plus an amount equal
to accrued and unpaid dividends thereon (whether or not earned or
declared) to the date fixed for redemption, if the Applicable Rate
fixed for the Dividend Period ending on such Dividend Payment Date
shall equal or exceed the "AA" Composite Commercial Paper Rate on the
date of determination of such Applicable Rate.
(2) If the corporation shall redeem Series A MAPS pursuant
to this paragraph 10(A)(b), notice of such redemption shall be mailed by
first class mail, postage prepaid, to each Holder of the shares to be
redeemed, at such Holder's address as the same appears on the stock
transfer books of the corporation. Such notice shall be so mailed not less
than 30 or more than 45 days prior to the date fixed for redemption. Each
such notice shall state: (v) the redemption date, (w) the number of shares
of Series A MAPS to be redeemed, (x) the redemption price, (y) the place or
places where certificates for such shares of Series A MAPS are to be
surrendered for payment of the redemption price
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<PAGE>
and (z) that dividends on the shares to be redeemed will cease to accrue on
such redemption date. If fewer than all shares held by any Holder are to
be redeemed, the notice mailed to such Holder shall also specify the number
of shares to be redeemed from such Holder.
(3) If notice of redemption has been given under
subparagraph (2) of this paragraph 10(A)(b), from and after the redemption
date for the shares of Series A MAPS called for redemption (unless default
shall be made by the corporation in providing money for the payment of the
redemption price of the shares so called for redemption) dividends on
Series A MAPS so called for redemption shall cease to accrue and said
shares shall no longer be deemed to be outstanding, and all rights of the
Holders thereof as shareholders of the corporation (except the right to
receive the redemption price) shall cease. Upon surrender in accordance
with said notice of the certificates for any shares so redeemed (properly
endorsed or assigned for transfer, if the Board of Directors shall so
require and the notice shall so state), the redemption price set forth
above shall be payable by the Auction Agent to the Holders of shares of
Series A MAPS subject to redemption on the redemption date. In case fewer
than all of the shares represented by any such certificate are redeemed, a
new certificate shall be issued representing the unredeemed shares without
cost to the Holder thereof.
(4) On the Business Day next preceding a redemption date,
the corporation shall irrevocably deposit with the Auction Agent for each
share of Series A MAPS to be redeemed on such date an amount equal to the
applicable redemption price plus an amount equal to accrued and unpaid
dividends (whether or not earned or declared) on such share to the date
fixed for redemption, in funds available on the redemption date in The City
of New York, New York. All such moneys shall be irrevocably deposited for
the payment of the redemption price of shares of Series A MAPS to be so
redeemed and shall be held in trust for the benefit of the Holders whose
shares are to be redeemed by the Auction Agent and applied as set forth
herein.
(5) Any monies held in trust for payment of the appropriate
redemption price to be paid to Holders of shares of Series A MAPS subject
to redemption on any redemption date remaining unclaimed at the end of
three years from such redemption date shall be repaid to the corporation
upon the written request of the corporation, after which the Holders of
shares of Series A MAPS so called for redemption but for which moneys
remain unclaimed shall look only to the corporation for the payment
thereof.
(6) Shares of Series A MAPS redeemed, purchased or
otherwise reacquired, or surrendered to the corporation shall be retired
and not reissued as Series A MAPS, but shall have the status of authorized
and unissued preferred shares of the corporation that may be reissued as
part of a new or different series of preferred shares.
(c) (1) The amount referred to in paragraph 2(c) of this
Article III as payable in the event of voluntary or involuntary liquidation
of the corporation shall be $100,000 per share of Series A MAPS.
Accordingly, in the event of the voluntary or involuntary liquidation of
the corporation the "preferential amount" which the Holders of Series A
MAPS shall be entitled to receive out of the assets of the corporation
pursuant to paragraph 3(c) of this Article III is $100,000 per share plus
all accrued and unpaid dividends thereon.
(2) The Holders of Series A MAPS shall have no voting
rights except as provided by Washington statutes or by this Article III.
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<PAGE>
(3) For so long as any shares of Series A MAPS are
outstanding, the Auction Agent, duly appointed by the corporation to so
act, shall be in each case a commercial bank, trust company or other
financial institution independent of the corporation and its affiliates
(which, however, may engage or have engaged in business transactions with
the corporation or its affiliates) and at no time shall the corporation or
its affiliates act as the Auction Agent in connection with the Auction
Procedures. If the Auction Agent resigns or for any reason its appointment
is terminated during any period that any shares of Series A MAPS are
outstanding, the Board of Directors of the corporation shall promptly
thereafter appoint another qualified commercial bank, trust company or
financial institution to act as the Auction Agent.
(d) As used in this paragraph 10(A) of Article III, the
following terms shall have the following meanings (with terms defined in
the singular having comparable meanings when used in the plural and vice
versa), unless the context otherwise requires:
(1) "`AA' Composite Commercial Paper Rate", on any date,
shall mean (i) the interest equivalent of the 60-day rate on commercial
paper placed on behalf of issuers whose corporate bonds are rated "AA" by
Standard & Poor's Corporation or its successor, or the equivalent of such
rating by another rating agency, as made available on a discount basis or
otherwise by the Federal Reserve Bank of New York for the immediately
preceding Business Day prior to such date; or (ii) in the event that the
Federal Reserve Bank of New York does not make available such a rate, then
the arithmetic average of the interest equivalent of the 60-day rate on
commercial paper placed on behalf of such issuers, as quoted on a discount
basis or otherwise by the Commercial Paper Dealers to the Auction Agent for
the close of business of the immediately preceding Business Day prior to
such date. If any Commercial Paper Dealer does not quote a rate required
to determine the "AA" Composite Commercial Paper Rate, the "AA" Composite
Commercial Paper Rate shall be determined on the basis of the quotation or
quotations furnished by the remaining Commercial Paper Dealer and any
Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers
selected by the corporation to provide such rate or rates not being
supplied by any Commercial Paper Dealer or, if the corporation does not
select any such Substitute Commercial Paper Dealer or Substitute Commercial
Paper Dealers, by the remaining Commercial Paper Dealer. If the Board of
Directors shall make the adjustment referred to in the proviso of the first
sentence of subparagraph (1)(i) of paragraph 10(A)(a), then (i) if the
dividend period days shall be 70 or more days but fewer than 85 days, such
rate shall be the arithmetic average of the interest equivalent of the 60-
day and 90-day rates on such commercial paper, and (ii) if the dividend
period days shall be 85 or more days but 98 or fewer days, such rate shall
be the interest equivalent of the 90-day rate on such commercial paper.
For purposes of this definition, the "interest equivalent" of a rate stated
on a discount basis (a "discount rate") for commercial paper of a given
days' maturity shall be equal to the quotient (rounded upwards to the next
higher one-thousandth (.001) of 1%) of (A) the discount rate divided by (B)
the difference between (x) 1.00 and (y) a fraction the numerator of which
shall be the product of the discount rate times the number of days in which
such commercial paper matures and the denominator of which shall be 360.
(2) "Alternate Rate" shall have the meaning specified in
subparagraph (a)(2)(i) of this paragraph 10(A).
(3) "Applicable Rate" shall have the meaning specified in
subparagraph (a)(2)(i) of this paragraph 10(A).
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<PAGE>
(4) "Auction" shall mean each periodic operation of the
Auction Procedures.
(5) "Auction Agent" shall mean a bank or trust company
appointed as such by the corporation.
(6) "Auction Procedures" shall mean the procedures for
conducting Auctions set forth in paragraph 10(B) hereof.
(7) "Auction Termination Event" shall mean the first
failure by the corporation to pay to the Auction Agent, not later than
12:00 Noon, New York City time, (A) on the Business Day next preceding any
Dividend Payment Date, in funds available on such Dividend Payment Date in
The City of New York, New York, the full amount of any dividend (whether or
not earned or declared) to be paid on such Dividend Payment Date on any
Series A MAPS or (B) on the Business Day next preceding any redemption date
in the case of a redemption pursuant to subparagraph (b) of this paragraph
10(A), in funds available on such redemption date in The City of New York,
New York, the redemption price to be paid on such redemption date of any
Series A MAPS after notice of redemption is given pursuant to subparagraph
(b) of this paragraph 10(A).
(8) "Business Day" shall mean a day on which the New York
Stock Exchange is open for trading and which is neither a Saturday, Sunday
or other day on which banks in The City of New York, New York are
authorized or required by law to close.
(9) "Code" shall mean the Internal Revenue Code of 1954, as
amended.
(10) "Commercial Paper Dealers" shall mean Goldman, Sachs &
Co. and Morgan Stanley & Co. Incorporated, or, in lieu of any thereof,
their respective affiliates or successors.
(11) "Date of Original Issue" shall mean the date on which
the corporation initially issues the Series A MAPS.
(12) "Dividend Payment Date" shall have the meaning
specified in subparagraph (a)(1)(i) of this paragraph 10(A).
(13) "Dividend Period" and "Dividend Periods" shall have the
respective meanings specified in subparagraph (a)(2)(i) of this paragraph
10(A).
(14) "Holder" shall mean the holder of shares of Series A
MAPS as the same appears on the stock transfer books of the corporation.
(15) "Initial Dividend Payment Date" shall have the meaning
specified in subparagraph (a)(1)(i) of this paragraph 10(A).
(16) "Initial Dividend Period" shall have the meaning
specified in subparagraph (a)(2)(i) of this paragraph 10(A).
(17) "Normal Dividend Payment Date" shall have the meaning
specified in subparagraph (a)(1)(i) of this paragraph 10(A).
(18) "Series A MAPS" shall mean the series of the Preferred
Shares, liquidation preference $100,000 per share, of the corporation
designated as its "Market Auction Preferred Shares, Series A."
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(19) "Subsequent Dividend Period" and "Subsequent Dividend
Periods" shall have the respective meanings specified in subparagraph
(a)(2)(i) of this paragraph 10(A).
(20) "Substitute Commercial Paper Dealer" shall mean any
commercial paper dealer that is a leading dealer in the commercial paper
market provided that neither such dealer nor any of its affiliates shall be
a Commercial Paper Dealer.
(B) (a) Certain Definitions. Capitalized terms not defined in this
subparagraph (a) shall have the respective meanings specified in paragraph
10(A) of this Article III. As used in this paragraph 10(B), the following
terms shall have the following meanings, unless the context otherwise
requires:
(1) "`AA' Rate Multiple", on any Auction Date, shall mean
the percentage determined as set forth below based on the prevailing rating
of Series A MAPS in effect at the close of business on the Business Day
immediately preceding such Auction Date:
<TABLE>
<CAPTION>
Prevailing Rating Percentage
----------------- ----------
<S> <C>
AA/aa or above 110%
A/a 120%
BBB/baa 130%
Below BBB/baa (includes no rating) 150%
</TABLE>
For purposes of this definition, the "prevailing
rating" of Series A MAPS shall be (i) AA/aa or Above, if Series A MAPS then
have a rating of AA or better by Standard & Poor's Corporation or its
successor ("S&P") or aa3 or better by Moody's Investors Service, Inc. or
its successor ("Moody's"), or the equivalent of either or both of such
ratings by such agencies or a substitute rating agency or substitute rating
agencies selected as provided below, (ii) if not AA/aa or Above, then A/a
if Series A MAPS then have a rating of A or better and lower than AA by S&P
or a3 or better and lower than aa3 by Moody's or the equivalent of either
or both of such ratings by such agencies or a substitute rating agency or
substitute rating agencies selected as provided below, (iii) if not AA/aa
or Above or A/a, then BBB/baa if Series A MAPS then have a rating of BBB or
better and lower than A by S&P or baa3 or better and lower than a3 by
Moody's or the equivalent of either or both of such ratings by such
agencies or a substitute rating agency or substitute rating agencies
selected as provided below, and (iv) if not AA/aa or Above, A/a or BBB/baa,
then Below BBB/baa. The corporation shall take all reasonable action
necessary to enable S&P and Moody's to provide a rating for Series A MAPS.
If either or both S&P or Moody's shall not make such a rating available,
Morgan Stanley & Co. Incorporated or its successor shall select a
nationally recognized statistical rating organization or two nationally
recognized statistical rating organizations (as that term is used in the
rules and regulations of the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended) to act as substitute rating
agency or substitute rating agencies, as the case may be.
(2) "Affiliate" shall mean any Person known to the Auction
Agent to be controlled by, in control of or under common control with the
corporation.
(3) "Agent Member" shall mean the member of the Securities
Depository that will act on behalf of a Bidder and is identified as such in
such Bidder's Purchaser's Letter.
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(4) "Auction" shall mean the periodic operation of the
procedures set forth in this paragraph 10(B).
(5) "Auction Date" shall mean the Business Day next
preceding a Dividend Payment Date.
(6) "Available Series A MAPS" shall have the meaning
specified in subparagraph (d)(1) of this paragraph 10(B).
(7) "Bid" and "Bids" shall have the respective meanings
specified in subparagraph (b)(1) of this paragraph 10(B).
(8) "Bidder" and "Bidders" shall have the respective
meanings specified in subparagraph (b)(1) of this paragraph 10(B).
(9) "Broker-Dealer" shall mean any broker-dealer, or other
entity permitted by law to perform the functions required of a Broker-
Dealer in this paragraph 10(B), that is a member of, or a participant in,
the Securities Depository, has been selected by the corporation and has
entered into a Broker-Dealer Agreement with the Auction Agent that remains
effective.
(10) "Broker-Dealer Agreement" shall mean an agreement
between the Auction Agent and a Broker-Dealer pursuant to which such Broker-
Dealer agrees to follow the procedures specified in this paragraph 10(B).
(11) "Existing Holder", when used with respect to Series A
MAPS, shall mean a Person who has signed a Purchaser's Letter and is listed
as the beneficial owner of such Series A MAPS in the records of the Auction
Agent.
(12) "Hold Order" and "Hold Orders" shall have the
respective meanings specified in subparagraph (b)(1) of this paragraph
10(B).
(13) "Maximum Rate", on any Auction Date, shall mean the
product of the "AA" Composite Commercial Paper Rate and the "AA" Rate
Multiple.
(14) "Order" and "Orders" shall have the respective meanings
specified in subparagraph (b)(1) of this paragraph 10(B).
(15) "Outstanding" shall mean, as of any date, Series A MAPS
theretofore issued by the corporation except, without duplication, (i) any
Series A MAPS theretofore cancelled or delivered to the Auction Agent for
cancellation or redeemed by the corporation or as to which a notice of
redemption shall have been given by the corporation, (ii) any Series A MAPS
as to which the corporation or any Affiliate thereof shall be an Existing
Holder and (iii) any Series A MAPS represented by any certificate in lieu
of which a new certificate has been executed and delivered by the
corporation.
(16) "Person" shall mean and include an individual, a
partnership, a corporation, a trust, an unincorporated association, a joint
venture or other entity or a government or any agency or political
subdivision thereof.
(17) "Potential Holder" shall mean any Person, including any
Existing Holder, (i) who shall have executed a Purchaser's Letter and (ii)
who may be interested in acquiring shares of Series A MAPS (or, in the case
of an Existing Holder, additional shares of Series A MAPS).
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<PAGE>
(18) "Purchaser's Letter" shall mean a letter addressed to
the corporation, the Auction Agent, a Broker-Dealer and an Agent Member in
which a Person agrees, among other things, to offer to purchase, purchase,
offer to sell and/or sell shares of Series A MAPS as set forth in this
paragraph 10(B).
(19) "Securities Depository" shall mean The Depository Trust
Company and its successors and assigns or any other securities depository
selected by the corporation which agrees to follow the procedures required
to be followed by such securities depository in connection with Series A
MAPS.
(20) "Sell Order" and "Sell Orders" shall have the
respective meanings specified in subparagraph (b)(1) of this paragraph
10(B).
(21) "Submission Deadline" shall mean 12:30 P.M., New York
City time, on any Auction Date or such other time on any Auction Date by
which Broker-Dealers are required to submit Orders to the Auction Agent as
specified by the Auction Agent from time to time.
(22) "Submitted Bid" shall have the meaning specified in
subparagraph (d)(1) of this paragraph 10(B).
(23) "Submitted Hold Order" shall have the meaning specified
in subparagraph (d)(1) of this paragraph 10(B).
(24) "Submitted Order" shall have the meaning specified in
subparagraph (d)(1) of this paragraph 10(B).
(25) "Submitted Sell Order" shall have the meaning specified
in subparagraph (d)(1) of this paragraph 10(B).
(26) "Sufficient Clearing Bids" shall have the meaning
specified in subparagraph (d)(1) of this paragraph 10(B).
(27) "Winning Bid Rate" shall have the meaning specified in
subparagraph (d)(1) of this paragraph 10(B).
(b) Orders by Existing Holders and Potential Holders. (1) On or
prior to the Submission Deadline on each Auction Date:
(i) each Existing Holder may submit to a Broker-Dealer
information as to:
(A) the number of Outstanding Series A MAPS, if any,
held by such Existing Holder which such Existing Holder desires to
continue to hold without regard to the Applicable Rate for the next
succeeding Dividend Period;
(B) the number of Outstanding Series A MAPS, if any,
that such Existing Holder desires to continue to hold if the
Applicable Rate for the next succeeding Dividend Period shall not be
less than the rate per annum specified by such Existing Holder; and/or
(C) the number of Outstanding Series A MAPS, if any,
held by such Existing Holder which such Existing Holder offers to sell
without regard to the Applicable Rate for the next succeeding Dividend
Period; and
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(ii) one or more Broker-Dealers, using lists of Potential
Holders, shall in good faith for the purpose of conducting a
competitive Auction in a commercially reasonable manner, contact
Potential Holders, including Persons that are not Existing Holders, on
such lists to determine the number of shares, if any, of Series A MAPS
which each such Potential Holder offers to purchase if the Applicable
Rate for the next succeeding Dividend Period shall not be less than
the rate per annum specified by such Potential Holder.
For the purposes hereof, the communication to a Broker-
Dealer of information referred to in clause (i)(A), (i)(B), (i)(C) or
(ii) of this subparagraph (1) is hereinafter referred to as an "Order"
and collectively as "Orders" and each Existing Holder and each
Potential Holder placing an Order is hereinafter referred to as a
"Bidder" and collectively as "Bidders"; an Order containing the
information referred to in clause (i)(A) of this subparagraph (1) is
hereinafter referred to as a "Hold Order" and collectively as "Hold
Orders"; an Order containing the information referred to in clause
(i)(B) or (ii) of this subparagraph (1) is hereinafter referred to as
a "Bid" and collectively as "Bids"; and an Order containing the
information referred to in clause (i)(C) of this subparagraph (1) is
hereinafter referred to as a "Sell Order" and collectively as "Sell
Orders".
(2) (i) A Bid by an Existing Holder shall constitute an
irrevocable offer to sell:
(A) the number of Outstanding Series A MAPS
specified in such Bid if the Applicable Rate determined on such
Auction Date shall be less than the rate specified therein; or
(B) such number or a lesser number of Outstanding
Series A MAPS to be determined as set forth in clause (iv) of
subparagraph (e)(l) of this paragraph 10(B) if the Applicable Rate
determined on such Auction Date shall be equal to the rate specified
therein; or
(C) a lesser number of Outstanding Series A MAPS
to be determined as set forth in clause (iii) of subparagraph (e)(2)
of this paragraph 10(B) if the rate specified therein shall be higher
than the Maximum Rate and Sufficient Clearing Bids do not exist.
(ii) a Sell Order by an Existing Holder shall
constitute an irrevocable offer to sell:
(A) the number of Outstanding Series A MAPS
specified in such Sell Order; or
(B) such number or a lesser number of Outstanding
Series A MAPS as set forth in clause (iii) of subparagraph (2)(e) of
this paragraph 10(B) if Sufficient Clearing Bids do not exist.
(iii) A Bid by a Potential Holder shall constitute
an irrevocable offer to purchase:
(A) the number of Outstanding Series A MAPS
specified in such Bid if the Applicable Rate determined on such
Auction Date shall be higher than the rate specified therein; or
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(B) such number or a lesser number of Outstanding
Series A MAPS as set forth in clause (v) of subparagraph (e)(1) of
this paragraph 10(B) if the Applicable Rate determined on such Auction
Date shall be equal to the rate specified therein.
(c) Submission of Orders by Broker-Dealers to Auction Agent.
(1) Each Broker-Dealer shall submit in writing to the Auction Agent prior
to the Submission Deadline on each Auction Date all Orders obtained by such
Broker-Dealer and specifying with respect to each Order:
(i) the name of the Bidder placing such Order;
(ii) the aggregate number of shares of Series A MAPS
that are the subject of such Order;
(iii) to the extent that such Bidder is an Existing
Holder:
(A) the number of shares, if any, of Series A
MAPS subject to any Hold Order placed by such Existing Holder;
(B) the number of shares, if any, of Series A
MAPS subject to any Bid placed by such Existing Holder and the rate
specified in such Bid; and
(C) the number of shares, if any, of Series A
MAPS subject to any Sell Order placed by such Existing Holder; and
(iv) to the extent such Bidder is a Potential Holder,
the rate and number of shares specified in such Potential Holder's
Bid.
(2) If any rate specified in any Bid contains more than
three figures to the right of the decimal point, the Auction Agent shall
round such rate up to the next highest one thousandth (.001) of 1%.
(3) If an Order or Orders covering all of the Outstanding
Series A MAPS held by an Existing Holder is not submitted to the Auction
Agent prior to the Submission Deadline, the Auction Agent shall deem a Hold
Order to have been submitted on behalf of such Existing Holder covering the
number of Outstanding Series A MAPS held by such Existing Holder and not
subject to Orders submitted to the Auction Agent.
(4) If one or more Orders covering in the aggregate more
than the number of Outstanding Series A MAPS held by an Existing Holder are
submitted to the Auction Agent, such Orders shall be considered valid as
follows and in the following order of priority:
(i) all Hold Orders shall be considered valid, but
only up to and including in the aggregate the number of Outstanding
Series A MAPS held by such Existing Holder, and, solely for purposes
of allocating compensation among the Broker-Dealers submitting Hold
Orders, if the number of Series A MAPS subject to such Hold Orders
exceeds the number of Outstanding Series A MAPS held by such Existing
Holder, the number of shares subject to each such Hold Order shall be
reduced pro rata to cover the number of Outstanding Series A MAPS held
by such Existing Holder;
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(ii) (A) any Bid shall be considered valid up to and
including the excess of the number of Outstanding Series A MAPS held
by such Existing Holder over the number of Series A MAPS subject to
any Hold Orders referred to in clause (i) above;
(B) subject to subclause (A), if more than one
Bid with the same rate is submitted on behalf of such Existing Holder
and the number of Outstanding Series A MAPS subject to such Bids is
greater than such excess, such Bids shall be considered valid up to
and including the amount of such excess, and, solely for purposes of
allocating compensation among the Broker-Dealers submitting Bids with
the same rate, the number of Series A MAPS subject to each Bid with
the same rate shall be reduced pro rata to cover the number of Series
A MAPS equal to such excess;
(C) subject to subclause (A), if more than one
Bid with different rates is submitted on behalf of such Existing
Holder, such Bids shall be considered valid in the ascending order of
their respective rates up to the amount of such excess; and
(D) in any such event the number, if any, of such
Outstanding Series A MAPS subject to Bids not valid under this clause
(ii) shall be treated as the subject of a Bid by a Potential Holder at
the rate specified therein; and
(iii) all Sell Orders shall be considered valid up
to and including the excess of the number of Outstanding Series A MAPS
held by such Existing Holder over the sum of the shares of Series A
MAPS subject to Hold Orders referred to in clause (i) above and valid
Bids by such Existing Holder referred to in clause (ii) above.
(5) If more than one Bid is submitted on behalf of any
Potential Holder, each Bid submitted shall be a separate Bid with the rate
and number of shares therein specified.
(d) Determination of Sufficient Clearing Bids, Winning Bid Rate
and Applicable Rate. (1) Not earlier than the Submission Deadline on each
Auction Date, the Auction Agent shall assemble all Orders submitted or
deemed submitted to it by the Broker-Dealers (each such Order as submitted
or deemed submitted by a Broker-Dealer being hereinafter referred to as a
"Submitted Hold Order", a "Submitted Bid" or a "Submitted Sell Order", as
the case may be, or as a "Submitted Order") and shall determine:
(i) the excess of the total number of Outstanding
Series A MAPS over the number of Outstanding Series A MAPS that are
the subject of Submitted Hold Orders (such excess being hereinafter
referred to as the "Available Series A MAPS");
(ii) from the Submitted Orders whether:
(A) the number of Outstanding Series A MAPS that
are the subject of Submitted Bids by Potential Holders specifying one
or more rates equal to or lower than the Maximum Rate;
exceeds or is equal to the sum of:
(B) the number of Outstanding Series A MAPS that
are the subject of Submitted Bids by Existing Holders specifying one
or more rates higher than the Maximum Rate, and
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(C) the number of Outstanding Series A MAPS that
are subject to Submitted Sell Orders
(in the event of such excess or such equality (other than because
the number of Series A MAPS in subclauses (B) and (C) above is zero
because all of the Outstanding Series A MAPS are the subject of
Submitted Hold Orders), such Submitted Bids in clause (A) above being
hereinafter referred to collectively as "Sufficient Clearing Bids");
and
(iii) if Sufficient Clearing Bids exist, the lowest
rate specified in the Submitted Bids (the "Winning Bid Rate") which
if:
(A) (I) each Submitted Bid from Existing Holders
specifying such lowest rate and
(II) all other Submitted Bids from Existing
Holders specifying lower rates were rejected, thus entitling such
Existing Holders to continue to hold the shares of Series A MAPS that
are the subject of such Submitted Bids; and
(B) (I) each Submitted Bid from Potential
Holders specifying such lowest rate and
(II) all other Submitted Bids from Potential
Holders specifying lower rates were accepted,
would result in such Existing Holders continuing to hold an aggregate
number of Outstanding Series A MAPS which, when added to the number of
Outstanding Series A MAPS to be purchased by such Potential Holders,
would equal not less than the Available Series A MAPS.
(2) Promptly after the Auction Agent has made the
determinations pursuant to subparagraph (1) of this paragraph 10(B)(d), the
Auction Agent shall advise the corporation of the "AA" Composite Commercial
Paper Rate and the Maximum Rate on the Auction Date and, based on such
determinations, the Applicable Rate for the next succeeding Dividend Period
as follows:
(i) if Sufficient Clearing Bids exist, that the
Applicable Rate for the next succeeding Dividend Period shall be equal
to the Winning Bid Rate so determined;
(ii) if Sufficient Clearing Bids do not exist (other
than because all of the Outstanding Series A MAPS are the subject of
Submitted Hold Orders), that the Applicable Rate for the next
succeeding Dividend Period shall be equal to the Maximum Rate; or
(iii) if all of the Outstanding Series A MAPS are
the subject of Submitted Hold Orders, that the Applicable Rate for the
next succeeding Dividend Period therefor shall be equal to 59% of the
"AA" Composite Commercial Paper Rate.
(e) Acceptance and Rejection of Submitted Bids and Submitted
Sell Orders and Allocation of Shares. Existing Holders shall continue to
hold Series A MAPS that are the subject of Submitted Hold Orders, and,
based on the determinations made pursuant to subparagraph (d)(1) of this
paragraph 10(B), the Submitted Bids and Submitted Sell Orders shall be
accepted or rejected and the Auction Agent shall take such other action as
set forth below:
(1) If Sufficient Clearing Bids have been made, all
Submitted Sell Orders shall be accepted and, subject to the provisions of
subparagraphs (4) and (5) of this paragraph 10(B)(e), Submitted Bids shall
be accepted or rejected as follows in the following order of priority and
all other Submitted Bids shall be rejected:
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(i) Existing Holders' Submitted Bids specifying any
rate that is higher than the Winning Bid Rate shall be accepted, thus
requiring each such Existing Holder to sell the Series A MAPS that are
the subject of such Submitted Bids;
(ii) Existing Holders' Submitted Bids specifying any
rate that is lower than the Winning Bid Rate shall be rejected, thus
entitling each such Existing Holder to continue to hold the shares of
Series A MAPS that are the subject of such Submitted Bids;
(iii) Potential Holders' Submitted Bids specifying
any rate that is lower than the Winning Bid Rate shall be accepted;
(iv) Each Existing Holder's Submitted Bid specifying a
rate that is equal to the Winning Bid Rate shall be rejected, thus
entitling such Existing Holder to continue to hold the Series A MAPS
that are the subject of such Submitted Bid, unless the number of
Outstanding Series A MAPS subject to all such Submitted Bids shall be
greater than the number of Series A MAPS ("remaining shares") equal to
the excess of the Available Series A MAPS over the number of Series A
MAPS subject to Submitted Bids described in clauses (ii) and (iii) of
this subparagraph (1), in which event the Submitted Bid of such
Existing Holder shall be accepted in part, and such Existing Holder
shall be required to sell Series A MAPS subject to such Submitted Bid,
but only in an amount equal to the difference between (A) the number
of Outstanding Series A MAPS then held by such Existing Holder subject
to such Submitted Bid and (B) the number of Series A MAPS obtained by
multiplying the number of remaining shares by a fraction the numerator
of which shall be the number of Outstanding Series A MAPS held by such
Existing Holder subject to such Submitted Bids and the denominator of
which shall be the aggregate number of Outstanding Series A MAPS
subject to such Submitted Bids made by all such Existing Holders that
specified a rate equal to the Winning Bid Rate; and
(v) Each Potential Holder's Submitted Bid specifying a
rate that is equal to the Winning Bid Rate shall be accepted but only
in an amount equal to the number of Series A MAPS obtained by
multiplying the difference between the Available Series A MAPS and the
number of Series A MAPS subject to Submitted Bids described in clauses
(ii), (iii) and (iv) of this subparagraph (1) by a fraction the
numerator of which shall be the number of Outstanding Series A MAPS
subject to such Submitted Bid and the denominator of which shall be
the sum of the number of Outstanding Series A MAPS subject to such
Submitted Bids made by all such Potential Holders that specified rates
equal to the Winning Bid Rate.
(2) If Sufficient Clearing Bids have not been made (other
than because all of the Outstanding Series A MAPS are the subject of
Submitted Hold Orders), subject to the provisions of subparagraphs (4) and
(5) of this paragraph 10(B)(e), Submitted Orders shall be accepted or
rejected as follows in the following order of priority and all other
Submitted Bids shall be rejected:
(i) Existing Holders' Submitted Bids specifying any
rate that is equal to or lower than the Maximum Rate shall be
rejected, thus entitling such Existing Holder to continue to hold the
Series A MAPS that are the subject of such Submitted Bids;
(ii) Potential Holders' Submitted Bids specifying any
rate that is equal to or lower than the Maximum Rate shall be
accepted; and
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(iii) Each Existing Holder's Submitted Bid
specifying any rate that is higher than the Maximum Rate and the
Submitted Sell Order of each Existing Holder shall be accepted, but in
both cases only in an amount equal to the difference between (A) the
number of Outstanding Series A MAPS then held by such Existing Holder
subject to such Submitted Bid or Submitted Sell Order and (B) the
number of Series A MAPS obtained by multiplying the difference between
the Available Series A MAPS and the aggregate number of Series A MAPS
subject to Submitted Bids described in clauses (i) and (ii) of this
subparagraph (2) by a fraction the numerator of which shall be the
number of Outstanding Series A MAPS held by such Existing Holder
subject to such Submitted Bid or Submitted Sell Order and the
denominator of which shall be the number of Outstanding Series A MAPS
subject to all such Submitted Bids and Submitted Sell Orders.
(3) If all of the Outstanding Series A MAPS are the subject
of Submitted Hold Orders, all Submitted Bids shall be rejected.
(4) If, as a result of the procedures described in
subparagraph (1) or (2) of this paragraph 10(B)(e), any Existing Holder
would be entitled or required to sell, or any Potential Holder would be
entitled or required to purchase, a fraction of a Series A MAPS on any
Auction Date, the Auction Agent shall, in such manner as, in its sole
discretion, it shall determine, round up or down the number of Series A
MAPS to be purchased or sold by any Existing Holder or Potential Holder on
such Auction Date so that the number of shares purchased or sold by each
Existing Holder or Potential Holder on such Auction Date shall be whole
shares of Series A MAPS.
(5) If, as a result of the procedures described in
subparagraph (1) of this paragraph 10(B)(e), any Potential Holder would be
entitled or required to purchase less than a whole share of Series A MAPS
on any Auction Date, the Auction Agent shall, in such manner as, in its
sole discretion, it shall determine, allocate shares for purchase among
Potential Holders so that only whole shares of Series A MAPS are purchased
on such Auction Date by any Potential Holder, even if such allocation
results in one or more of such Potential Holders not purchasing shares of
Series A MAPS on such Auction Date.
(6) Based on the results of each Auction, the Auction Agent
shall determine the aggregate number of Series A MAPS to be purchased and
the aggregate number of Series A MAPS to be sold by Potential Holders and
Existing Holders on whose behalf each Broker-Dealer submitted Bids or Sell
Orders and, with respect to each Broker-Dealer, to the extent that such
aggregate number of shares to be purchased and such aggregate number of
shares to be sold differ, determine to which other Broker-Dealer or Broker-
Dealers acting for one or more purchasers such Broker-Dealer shall deliver,
or from which other Broker-Dealer or Broker-Dealers acting for one or more
sellers such Broker-Dealer shall receive, as the case may be, shares of
Series A MAPS.
(f) Miscellaneous. (1) The Board of Directors may interpret the
provisions of this paragraph 10(B) to resolve any inconsistency or
ambiguity which may arise or be revealed in connection with the Auction
Procedures provided for herein.
(2) During the Initial Dividend Period and so long as the
Applicable Rate is based on the results of an Auction, an Existing Holder
(i) may sell, transfer or otherwise dispose of shares of Series A MAPS only
pursuant to a Bid or Sell Order in accordance with the procedures described
in this paragraph 10(B) or to or through a Broker-Dealer (who shall only
sell Series A MAPS to a Person that has delivered a signed copy of a
Purchaser's Letter to the Auction Agent) or to a Person that has delivered
a signed copy of a Purchaser's Letter to the Auction Agent, provided that
in the case of all transfers other than pursuant to Auctions such Existing
Holder or its Broker-Dealer
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advises the Auction Agent of such transfer, and (ii) shall have the
ownership of the Series A MAPS held by it maintained in book entry form by
the Securities Depository in the account of its Agent Member, which in turn
will maintain records of such Existing Holder's beneficial ownership.
(3) Neither the corporation nor any affiliate thereof may
submit an Order in any Auction except as set forth in the next sentence.
Any Broker-Dealer that is an affiliate of the corporation may submit Orders
in Auctions but only if such Orders are not for its own account, except
that if such affiliated Broker- Dealer holds Series A MAPS for its own
account, it must submit a Sell Order in the next Auction with respect to
such shares.
(4) Commencing with the first day of the first Dividend
Period after an Auction Termination Event has occurred, the corporation, at
its option, may perform any of the functions to be performed by the Auction
Agent set forth in paragraph 10(A) of this Article III.
11.(A) The third series of preferred shares shall be designated
"Market Auction Preferred Shares, Series B" (hereinafter referred to as
"Series B MAPS"), and the number of authorized shares constituting Series B
MAPS is 750. The relative rights and preferences of Series B MAPS shall be
as follows:
(a) The Holders (as defined in subparagraph (d) of this
paragraph 11(A)) shall be entitled to receive, when and as declared by the
Board of Directors out of funds legally available therefor, cash dividends
thereon at the Applicable Rate (as defined in subparagraph (2)(i) of this
paragraph 11(A)(a)) per annum and no more, determined as set forth below,
payable on the respective dates set forth below.
(1) (i) Dividends on Series B MAPS, at the Applicable
Rate, shall accrue from the Date of Original Issue (as defined in
subparagraph (d) of this paragraph 11(A)), and shall be payable
commencing on Thursday, January 9, 1986 and on each day thereafter
which is the seventh Thursday after Thursday, January 9, 1986 (each
such date being herein referred to as the "Normal Dividend Payment
Date") except that (A) if such Normal Dividend Payment Date is not a
Business Day, then the Dividend Payment Date (as hereinafter defined)
shall be the preceding Tuesday if both such Tuesday and the following
Wednesday are Business Days; (B) or if the Friday following such
Normal Dividend Payment Date is not a Business Day, then the Dividend
Payment Date shall be the Wednesday preceding such Normal Dividend
Payment Date if both such Wednesday and such Normal Dividend Payment
Date are Business days; or (C) if such Normal Dividend Payment Date
and either such preceding Tuesday or Wednesday are not Business Days
or if such Friday and such Wednesday are not Business Days, then the
Dividend Payment Date shall be the first Business Day preceding the
Normal Dividend Payment Date that is next succeeded by a day that is
also a Business Day. Although any particular Dividend Payment Date
shall not occur on the originally scheduled Normal Dividend Payment
Date because of the exceptions discussed above, the next succeeding
Dividend Payment Date shall be, subject to such exceptions, the
seventh Thursday following the originally designated Normal Dividend
Payment Date for the prior Dividend Period (as defined in subparagraph
(2)(i) of this paragraph 11(A)); provided that the Board of Directors,
in the event of a change in law lengthening the minimum holding period
(currently found in Section 246(c) of the Code (as defined in
subparagraph (d) of this paragraph 11(A)) required for taxpayers to be
entitled to the dividends received deduction on preferred stock held
by non-affiliated corporations (currently found in Section 243(a) of
the Code), shall adjust the period of time between Dividend Payment
Dates so as, subject to clauses (A) through (C) of this subparagraph
(a)(1)(i), to adjust
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uniformly the number of days (such number of days without giving
effect to such clauses (A) through (C) being hereinafter referred to
as "dividend period days") in Dividend Periods commencing after the
date of such change in law to equal or exceed the then current minimum
holding period; provided that the number of dividend period days shall
not exceed by more than nine days the length of such then current
minimum holding period and shall be evenly divisible by seven, and the
maximum number of dividend period days in no event shall exceed 98
days (each date of payment of dividends being herein referred to as a
"Dividend Payment Date" and the first Dividend Payment Date being
herein referred to as the "Initial Dividend Payment Date"). Upon any
such change in the number of dividend period days as a result of a
change in law, the corporation shall publish notice of such change in
a newspaper of general circulation in The City of New York, New York,
which carries financial news and shall mail notice of such change by
first class mail, postage prepaid, to each Holder at such Holder's
address as the same appears on the stock transfer books of the
corporation.
(ii) As long as the Applicable Rate is based on the
results of an Auction (as defined in subparagraph (d) of this
paragraph 11(A), the corporation shall pay to the Auction Agent (as
defined in subparagraph (d) of this paragraph 11(A)) not later than
12:00 Noon, New York City time, on the Business Day next preceding
each Dividend Payment Date, an aggregate amount of funds available on
the next Business Day in The City of New York, New York, equal to the
dividends to be paid to all Holders on such Dividend Payment Date.
All such moneys shall be held in trust for the payment of dividends on
shares of Series B MAPS for the benefit of the Holders by the Auction
Agent and paid as set forth in subparagraph (1)(iii) of this paragraph
11(A)(a).
(iii) For purposes of determining to whom dividends
shall be paid, each dividend shall be payable to the Holders as their
names appear on the stock transfer books of the corporation on the
Business Day next preceding the Dividend Payment Date thereof.
Dividends in arrears for any past Dividend Period may be declared and
paid at any time, without reference to any regular Dividend Payment
Date, to the Holders as their names appear on the stock transfer books
of this corporation on such date, not exceeding 15 days preceding the
payment date thereof, as may be fixed by the Board of Directors.
(2) (i) The dividend rate on Series B MAPS shall be 5.625%
per annum during the period from and after the Date of Original Issue
to and including the Initial Dividend Payment Date (the "Initial
Dividend Period"). Commencing on the Initial Dividend Payment Date,
the dividend rate on Series B MAPS for each subsequent dividend period
(herein referred to as a "Subsequent Dividend Period" and collectively
as "Subsequent Dividend Periods"; and the Initial Dividend Period or
any Subsequent Dividend Period being herein referred to as a "Dividend
Period" and collectively as "Dividend Periods") thereafter, which
subsequent Dividend Periods shall commence on the day that is the last
day of the preceding Dividend Period and shall end on and include the
next succeeding Dividend Payment Date, shall be equal to the rate per
annum that results from implementation of the Auction Procedures (as
defined in subparagraph (d) of this paragraph 11(A)); provided that if
an Auction Termination Event (as defined in subparagraph (d) of this
paragraph 11(A)) shall have occurred prior to the first day of each
Subsequent Dividend Period, the dividend rate for each Subsequent
Dividend Period shall be a rate per annum (the "Alternate Rate") equal
to 150% of the "AA" Composite Commercial Paper Rate (as defined in
subparagraph (d) of this paragraph 11(A)) on the first day of such
Subsequent Dividend Period. The rate per annum at which dividends are
payable on shares of Series B MAPS for any Dividend Period is herein
referred to as the "Applicable Rate".
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(ii) The amount of dividends per share payable on
Series B MAPS for any Dividend Period or part thereof shall be
computed by multiplying the Applicable Rate for such Dividend Period
by a fraction the numerator of which shall be the number of days in
such Dividend Period or part thereof (calculated by counting the first
day thereof but excluding the last day thereof) such share was
outstanding and the denominator of which shall be 360 and applying the
rate obtained against $100,000 per share of Series B MAPS. For
purposes of this subparagraph (2)(ii), shares of Series B MAPS shall
be treated as outstanding from the Date of Original Issue.
(iii) The Applicable Rate for each Subsequent
Dividend Period shall be published not later than the fifth Business
Day next succeeding the first day of such Subsequent Dividend Period
in a newspaper of general circulation in The City of New York, New
York, which carries financial news.
(b) (1)(i)(A) Series B MAPS may be redeemed, at the option
of the corporation, as a whole or from time to time in part, on the
second Business Day preceding any Dividend Payment Date at a
redemption price of:
(I) $101,500 per share if redeemed during
the twelve months ending November 14, 1986;
(II) $101,000 per share if redeemed during
the twelve months ending November 14, 1987;
(III) $100,500 per share if redeemed
during the twelve months ending November 14, 1988; and
(IV) $100,000 per share if redeemed
thereafter;
plus, in each case, an amount equal to accrued and unpaid dividends
thereon (whether or not earned or declared) to the date fixed for
redemption.
(B) If fewer than all of the outstanding Series B
MAPS are to be redeemed pursuant to this subparagraph (b)(1)(i), the
number of shares to be redeemed shall be determined by the Board of
Directors, and such shares shall be redeemed pro rata from the Holders
in proportion to the number of such shares held by such Holders (with
adjustments to avoid redemption of fractional shares).
(ii) Series B MAPS may be redeemed, at the option of
the corporation, as a whole but not in part, on any Dividend Payment
Date at a redemption price of $100,000 per share, plus an amount equal
to accrued and unpaid dividends thereon (whether or not earned or
declared) to the date fixed for redemption, if the Applicable Rate
fixed for the Dividend Period ending on such Dividend Payment Date
shall equal or exceed the "AA" Composite Commercial Paper Rate on the
date of determination of such Applicable Rate.
(2) If the corporation shall redeem Series B MAPS pursuant
to this paragraph 11(A)(b), notice of such redemption shall be mailed by
first class mail, postage prepaid, to each Holder of the shares to be
redeemed, at such Holder's address as the same appears on the stock
transfer books of the corporation. Such notice shall be so mailed not less
than 30 or more than 45 days prior to the date fixed for redemption. Each
such notice shall state: (v) the redemption date, (w) the number of shares
of Series B MAPS to be redeemed, (x) the redemption price, (y) the place or
places where certificates for such
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shares of Series B MAPS are to be surrendered for payment of the redemption
price and (z) that dividends on the shares to be redeemed will cease to
accrue on such redemption date. If fewer than all shares held by any
Holder are to be redeemed, the notice mailed to such Holder shall also
specify the number of shares to be redeemed from such Holder.
(3) If notice of redemption has been given under
subparagraph (2) of this paragraph 11(A)(b), from and after the redemption
date for the shares of Series B MAPS called for redemption (unless default
shall be made by the corporation in providing money for the payment of the
redemption price of the shares so called for redemption) dividends on
Series B MAPS so called for redemption shall cease to accrue and said
shares shall no longer be deemed to be outstanding, and all rights of the
Holders thereof as shareholders of the corporation (except the right to
receive the redemption price) shall cease. Upon surrender in accordance
with said notice of the certificates for any shares so redeemed (properly
endorsed or assigned for transfer, if the Board of Directors shall so
require and the notice shall so state), the redemption price set forth
above shall be payable by the Auction Agent to the Holders of shares of
Series B MAPS subject to redemption on the redemption date. In case fewer
than all of the shares represented by any such certificate are redeemed, a
new certificate shall be issued representing the unredeemed shares without
cost to the Holder thereof.
(4) On the Business Day next preceding a redemption date,
the corporation shall irrevocably deposit with the Auction Agent for each
share of Series B MAPS to be redeemed on such date an amount equal to the
applicable redemption price plus an amount equal to accrued and unpaid
dividends (whether or not earned or declared) on such share to the date
fixed for redemption, in funds available on the redemption date in The City
of New York, New York. All such moneys shall be irrevocably deposited for
the payment of the redemption price of shares of Series B MAPS to be so
redeemed and shall be held in trust for the benefit of the Holders whose
shares are to be redeemed by the Auction Agent and applied as set forth
herein.
(5) Any moneys held in trust for payment of the appropriate
redemption price to be paid to Holders of shares of Series B MAPS subject
to redemption on any redemption date remaining unclaimed at the end of
three years from such redemption date shall be repaid to the corporation
upon the written request of the corporation, after which the Holders of
shares of Series B MAPS so called for redemption but for which moneys
remain unclaimed shall look only to the corporation for the payment
thereof.
(6) Shares of Series B MAPS redeemed, purchased or
otherwise reacquired, or surrendered to the corporation shall be retired
and not reissued as Series B MAPS, but shall have the status of authorized
and unissued preferred shares of the corporation that may be reissued as
part of a new or different series of preferred shares.
(c) (1) The amount referred to in paragraph 2(c) of this
Article III as payable in the event of voluntary or involuntary liquidation
of the corporation shall be $100,000 per share of Series B MAPS.
Accordingly, in the event of the voluntary or involuntary liquidation of
the corporation the "preferential amount" which the Holders of Series B
MAPS shall be entitled to receive out of the assets of the corporation
pursuant to paragraph 3(c) of this Article III is $100,000 per share plus
all accrued and unpaid dividends thereon.
(2) The Holders of Series B MAPS shall have no voting
rights except as provided by Washington statutes or by this Article III.
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(3) For so long as any shares of Series B MAPS are
outstanding, the Auction Agent, duly appointed by the corporation to so
act, shall be in each case a commercial bank, trust company or other
financial institution independent of the corporation and its affiliates
(which, however, may engage or have engaged in business transactions with
the corporation or its affiliates) and at no time shall the corporation or
its affiliates act as the Auction Agent in connection with the Auction
Procedures. If the Auction Agent resigns or for any reason its appointment
is terminated during any period that any shares of Series B MAPS are
outstanding, the Board of Directors of the corporation shall promptly
thereafter appoint another qualified commercial bank, trust company or
financial institution to act as the Auction Agent.
(d) As used in this paragraph 11(A) of Article III, the
following terms shall have the following meanings (with terms defined in
the singular having comparable meanings when used in the plural and vice
versa), unless the context otherwise requires:
(1) "`AA' Composite Commercial Paper Rate", on any date,
shall mean (i) the interest equivalent of the 60-day rate on commercial
paper placed on behalf of issuers whose corporate bonds are rated "AA" by
Standard & Poor's Corporation or its successor, or the equivalent of such
rating by another rating agency, as made available on a discount basis or
otherwise by the Federal Reserve Bank of New York for the immediately
preceding Business Day prior to such date; or (ii) in the event that the
Federal Reserve Bank of New York does not make available such a rate, then
the arithmetic average of the interest equivalent of the 60-day rate on
commercial paper placed on behalf of such issuers, as quoted on a discount
basis or otherwise by the Commercial Paper Dealers to the Auction Agent for
the close of business of the immediately preceding Business Day prior to
such date. If any Commercial Paper Dealer does not quote a rate required
to determine the "AA" Composite Commercial Paper Rate, the "AA" Composite
Commercial Paper Rate shall be determined on the basis of the quotation or
quotations furnished by the remaining Commercial Paper Dealer and any
Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers
selected by the corporation to provide such rate or rates not being
supplied by any Commercial Paper Dealer or, if the corporation does not
select any such Substitute Commercial Paper Dealer or Substitute Commercial
Paper Dealers, by the remaining Commercial Paper Dealer. If the Board of
Directors shall make the adjustment referred to in the proviso of the first
sentence of subparagraph (1)(i) of paragraph 11(A)(a), then (i) if the
dividend period days shall be 70 or more days but fewer than 85 days, such
rate shall be the arithmetic average of the interest equivalent of the 60-
day and 90-day rates on such commercial paper, and (ii) if the dividend
period days shall be 85 or more days but 98 or fewer days, such rate shall
be the interest equivalent of the 90-day rate on such commercial paper.
For purposes of this definition, the "interest equivalent" of a rate stated
on a discount basis (a "discount rate") for commercial paper of a given
days' maturity shall be equal to the quotient (rounded upwards to the next
higher one-thousandth (.001) of 1%) of (A) the discount rate divided by (B)
the difference between (x) 1.00 and (y) a fraction the numerator of which
shall be the product of the discount rate times the number of days in which
such commercial paper matures and the denominator of which shall be 360.
(2) "Alternate Rate" shall have the meaning specified in
subparagraph (a)(2)(i) of this paragraph 11(A).
(3) "Applicable Rate" shall have the meaning specified in
subparagraph (a)(2)(i) of this paragraph 11(A).
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(4) "Auction" shall mean each periodic operation of the
Auction Procedures.
(5) "Auction Agent" shall mean a bank or trust company
appointed as such by the corporation.
(6) "Auction Procedures" shall mean the procedures for
conducting Auctions set forth in paragraph 11(B) hereof.
(7) "Auction Termination Event" shall mean the first
failure by the corporation to pay to the Auction Agent, not later than
12:00 Noon, New York City time, (A) on the Business Day next preceding any
Dividend Payment Date, in funds available on such Dividend Payment Date in
The City of New York, New York, the full amount of any dividend (whether or
not earned or declared) to be paid on such Dividend Payment Date on any
Series B MAPS or (B) on the Business Day next preceding any redemption date
in the case of a redemption pursuant to subparagraph (b) of this paragraph
10(A), in funds available on such redemption date in The City of New York,
New York, the redemption price to be paid on such redemption date of any
Series B MAPS after notice of redemption is given pursuant to subparagraph
(b) of this paragraph 11(A).
(8) "Business Day" shall mean a day on which the New York
Stock Exchange is open for trading and which is neither a Saturday, Sunday
or other day on which banks in The City of New York, New York are
authorized or required by law to close.
(9) "Code" shall mean the Internal Revenue Code of 1954, as
amended.
(10) "Commercial Paper Dealers" shall mean Goldman, Sachs &
Co. and Morgan Stanley & Co. Incorporated, or, in lieu of any thereof,
their respective affiliates or successors.
(11) "Date of Original Issue" shall mean the date on which
the corporation initially issues the Series B MAPS.
(12) "Dividend Payment Date" shall have the meaning
specified in subparagraph (a)(1)(i) of this paragraph 11(A).
(13) "Dividend Period" and "Dividend Periods" shall have the
respective meanings specified in subparagraph (a)(2)(i) of this paragraph
11(A).
(14) "Holder" shall mean the holder of shares of Series B
MAPS as the same appears on the stock transfer books of the corporation.
(15) "Initial Dividend Payment Date" shall have the meaning
specified in subparagraph (a)(1)(i) of this paragraph 11(A).
(16) "Initial Dividend Period" shall have the meaning
specified in subparagraph (a)(2)(i) of this paragraph 11(A).
(17) "Normal Dividend Payment Date" shall have the meaning
specified in subparagraph (a)(1)(i) of this paragraph 11(A).
(18) "Series B MAPS" shall mean the series of the Preferred
Shares, liquidation preference $100,000 per share, of the corporation
designated as its "Market Auction Preferred Shares, Series B."
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(19) "Subsequent Dividend Period" and "Subsequent Dividend
Periods" shall have the respective meanings specified in subparagraph
(a)(2)(i) of this paragraph 11(A).
(20) "Substitute Commercial Paper Dealer" shall mean any
commercial paper dealer that is a leading dealer in the commerical paper
market; provided that neither such dealer nor any of its affiliates shall
be a Commercial Paper Dealer.
(B) (a) Certain Definitions. Capitalized terms not defined in this
subparagraph (a) shall have the respective meanings specified in paragraph
11(A) of this Article III. As used in this paragraph 11(B), the following
terms shall have the following meanings, unless the context otherwise
requires:
(1) "Rate Multiple", on any Auction Date, shall mean the
percentage determined as set forth below based on the prevailing rating of
Series B MAPS in effect at the close of business on the Business Day
immediately preceding such Auction Date:
<TABLE>
<CAPTION>
Prevailing Rating Percentage
----------------- -----------
<S> <C>
AA/aa or Above 110%
A/a 120%
BBB/baa 130%
Below BBB/baa (includes no rating) 150%
</TABLE>
For purposes of this definition, the "prevailing rating" of
Series B MAPS shall be (i) AA/aa or Above, if Series B MAPS then have a
rating of AA or better by Standard & Poor's Corporation or its successor
("S&P") or aa3 or better by Moody's Investors Service, Inc. or its
successor ("Moody's"), or the equivalent of either or both of such ratings
by such agencies or a substitute rating agency or substitute rating
agencies selected as provided below, (ii) if not AA/aa or Above, then A/a
if Series B MAPS then have a rating of A or better and lower than AA-by S&P
or a3 or better and lower than aa3 by Moody's or the equivalent of either
or both of such ratings by such agencies or a substitute rating agency or
substitute rating agencies selected as provided below, (iii) if not AA/aa
or Above or A/a, then BBB/baa if Series B MAPS then have a rating of BBB or
better and lower than A- by S&P or baa3 or better and lower than a3 by
Moody's or the equivalent of either or both of such ratings by such
agencies or a substitute rating agency or substitute rating agencies
selected as provided below, and (iv) if not AA/aa or Above, A/a or BBB/baa,
then Below BBB/baa. The corporation shall take all reasonable action
necessary to enable S&P and Moody's to provide a rating for Series B MAPS.
If either or both S&P or Moody's shall not make such a rating available,
Morgan Stanley & Co. Incorporated or its successor shall select a
nationally recognized statistical rating organization or two nationally
recognized statistical rating organizations (as that term is used in the
rules and regulations of the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended) to act as substitute rating
agency or substitute rating agencies, as the case may be.
(2) "Affiliate" shall mean any Person known to the Auction
Agent to be controlled by, in control of or under common control with the
corporation.
(3) "Agent Member" shall mean the member of the Securities
Depository that will act on behalf of a Bidder and is identified as such in
such Bidder's Purchaser's Letter.
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(4) "Auction" shall mean the periodic operation of the
procedures set forth in this paragraph 11(B).
(5) "Auction Date" shall mean the Business Day next
preceding a Dividend Payment Date.
(6) "Available Series B MAPS" shall have the meaning
specified in subparagraph (d)(1) of this paragraph 11(B).
(7) "Bid" and "Bids" shall have the respective meanings
specified in subparagraph (b)(1) of this paragraph 11(B).
(8) "Bidder" and "Bidders" shall have the respective
meanings specified in subparagraph (b)(1) of this paragraph 11(B).
(9) "Broker-Dealer" shall mean any broker-dealer, or other
entity permitted by law to perform the functions required of a Broker-
Dealer in this paragraph 11(B), that is a member of, or a participant in,
the Securities Depository, has been selected by the corporation and has
entered into a Broker-Dealer Agreement with the Auction Agent that remains
effective.
(10) "Broker-Dealer Agreement" shall mean an agreement
between the Auction Agent and a Broker-Dealer pursuant to which such Broker-
Dealer agrees to follow the procedures specified in this paragraph 11(B).
(11) "Existing Holder", when used with respect to Series B
MAPS, shall mean a Person who has signed a Purchaser's Letter and is listed
as the beneficial owner of such Series B MAPS in the records of the Auction
Agent.
(12) "Hold Order" and "Hold Orders" shall have the
respective meanings specified in subparagraph (b)(1) of this paragraph
11(B).
(13) "Maximum Rate", on any Auction Date, shall mean the
product of the "AA" Composite Commercial Paper Rate and the "AA" Rate
Multiple.
(14) "Order" and "Orders" shall have the respective meanings
specified in subparagraph (b)(1) of this paragraph 11(B).
(15) "Outstanding" shall mean, as of any date, Series B MAPS
theretofore issued by the corporation except, without duplication, (i) any
Series B MAPS theretofore cancelled or delivered to the Auction Agent for
cancellation or redeemed by the corporation or as to which a notice of
redemption shall have been given by the corporation, (ii) any Series B MAPS
as to which the corporation or any Affiliate thereof shall be an Existing
Holder and (iii) any Series B MAPS represented by any certificate in lieu
of which a new certificate has been executed and delivered by the
corporation.
(16) "Person" shall mean and include an individual, a
partnership, a corporation, a trust, an unincorporated association, a joint
venture or other entity or a government or any agency or political
subdivision thereof.
(17) "Potential Holder" shall mean any Person, including any
Existing Holder, (i) who shall have executed a Purchaser's Letter and (ii)
who may be interested in acquiring shares of Series B MAPS (or, in the case
of an Existing Holder, additional shares of Series B MAPS).
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<PAGE>
(18) "Purchaser's Letter" shall mean a letter addressed to
the corporation, the Auction Agent, a Broker-Dealer and an Agent Member in
which a Person agrees, among other things, to offer to purchase, purchase,
offer to sell and/or sell shares of Series B MAPS as set forth in this
paragraph 11(B).
(19) "Securities Depository" shall mean The Depository Trust
Company and its successors and assigns or any other securities depository
selected by the corporation which agrees to follow the procedures required
to be followed by such securities depository in connection with Series B
MAPS.
(20) "Sell Order" and "Sell Orders" shall have the
respective meanings specified in subparagraph (b)(1) of this paragraph
11(B).
(21) "Submission Deadline" shall mean 12:30 P.M., New York
City time, on any Auction Date or such other time on any Auction Date by
which Broker-Dealers are required to submit Orders to the Auction Agent as
specified by the Auction Agent from time to time.
(22) "Submitted Bid" shall have the meaning specified in
subparagraph (d)(1) of this paragraph 11(B).
(23) "Submitted Hold Order" shall have the meaning specified
in subparagraph (d)(1) of this paragraph 11(B).
(24) "Submitted Order" shall have the meaning specified in
subparagraph (d)(1) of this paragraph 11(B).
(25) "Submitted Sell Order" shall have the meaning specified
in subparagraph (d)(1) of this paragraph 11(B).
(26) "Sufficient Clearing Bids" shall have the meaning
specified in subparagraph (d)(1) of this paragraph 11(B).
(27) "Winning Bid Rate" shall have the meaning specified in
subparagraph (d)(1) of this paragraph 11(B).
(b) Orders by Existing Holders and Potential Holders. (1) On or
prior to the Submission Deadline on each Auction Date:
(i) each Existing Holder may submit to a Broker-Dealer
information as to:
(A) the number of Outstanding Series B MAPS, if
any, held by such Existing Holder which such Existing Holder desires
to continue to hold without regard to the Applicable Rate for the next
succeeding Dividend Period;
(B) the number of Outstanding Series B MAPS, if
any, that such Existing Holder desires to continue to hold if the
Applicable Rate for the next succeeding Dividend Period shall not be
less than the rate per annum specified by such Existing Holder; and/or
(C) the number of Outstanding Series B MAPS, if
any, held by such Existing Holder which such Existing Holder offers to
sell without regard to the Applicable Rate for the next succeeding
Dividend Period; and
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<PAGE>
(ii) one or more Broker-Dealers, using lists of
Potential Holders, shall in good faith for the purpose of conducting a
competitive Auction in a commercially reasonable manner, contact
Potential Holders, including Persons that are not Existing Holders, on
such lists to determine the number of shares, if any, of Series B MAPS
which each such Potential Holder offers to purchase if the Applicable
Rate for the next succeeding Dividend Period shall not be less than
the rate per annum specified by such Potential Holder.
For the purposes hereof, the communication to a Broker-Dealer of
information referred to in clause (i)(A), (i)(B), (i)(C) or (ii) of this
subparagraph (1) is hereinafter referred to as an "Order" and collectively
as "Orders" and each Existing Holder and each Potential Holder placing an
Order is hereinafter referred to as a "Bidder" and collectively as
"Bidders"; an Order containing the information referred to in clause (i)(A)
of this subparagraph (1) is hereinafter referred to as a "Hold Order" and
collectively as "Hold Orders"; an Order containing the information referred
to in clause (i)(B) or (ii) of this subparagraph (1) is hereinafter
referred to as a "Bid" and collectively as "Bids"; and an Order containing
the information referred to in clause (i)(C) of this subparagraph (1) is
hereinafter referred to as a "Sell Order" and collectively as "Sell
Orders".
(2) (i) A Bid by an Existing Holder shall constitute an
irrevocable offer to sell:
(A) the number of Outstanding Series B MAPS
specified in such Bid if the Applicable Rate determined on such
Auction Date shall be less than the rate specified therein; or
(B) such number or a lesser number of Outstanding
Series B MAPS to be determined as set forth in clause (iv) of
subparagraph (e)(1) of this paragraph 11(B) if the Applicable Rate
determined on such Auction Date shall be equal to the rate specified
therein; or
(C) a lesser number of Outstanding Series B MAPS
to be determined as set forth in clause (iii) of subparagraph (e)(2)
of this paragraph 11(B) if the rate specified therein shall be higher
than the Maximum Rate and Sufficient Clearing Bids do not exist.
(ii) a Sell Order by an Existing Holder shall
constitute an irrevocable offer to sell:
(A) the number of Outstanding Series B MAPS
specified in such Sell Order; or
(B) such number or a lesser number of Outstanding
Series B MAPS as set forth in clause (iii) of subparagraph (e)(2) of
paragraph (e) of this paragraph 11(B) if Sufficient Clearing Bids do
not exist.
(iii) A Bid by a Potential Holder shall constitute
an irrevocable offer to purchase:
(A) the number of Outstanding Series B MAPS
specified in such Bid if the Applicable Rate determined on such
Auction Date shall be higher than the rate specified therein; or
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<PAGE>
(B) such number or a lesser number of Outstanding
Series B MAPS as set forth in clause (v) of subparagraph (e)(1) of
this paragraph 11(B) if the Applicable Rate determined on such Auction
Date shall be equal to the rate specified therein.
(c) Submission of Orders by Broker-Dealers to Auction Agent.
(1) Each Broker-Dealer shall submit in writing to the Auction Agent prior
to the Submission Deadline on each Auction Date all Orders obtained by such
Broker-Dealer and specifying with respect to each Order:
(i) the name of the Bidder placing such Order;
(ii) the aggregate number of shares of Series B MAPS
that are the subject of such Order;
(iii) to the extent that such Bidder is an Existing
Holder:
(A) the number of shares, if any, of Series B
MAPS subject to any Hold Order placed by such Existing Holder;
(B) the number of shares, if any, of Series B
MAPS subject to any Bid placed by such Existing Holder and the rate
specified in such Bid; and
(C) the number of shares, if any, of Series B
MAPS subject to any Sell Order placed by such Existing Holder; and
(iv) to the extent such Bidder is a Potential Holder,
the rate and number of shares specified in such Potential Holder's
Bid.
(2) If any rate specified in any Bid contains more than
three figures to the right of the decimal point, the Auction Agent shall
round such rate up to the next highest one thousandth (.001) of 1%.
(3) If an Order or Orders covering all of the Outstanding
Series B MAPS held by an Existing Holder is not submitted to the Auction
Agent prior to the Submission Deadline, the Auction Agent shall deem a Hold
Order to have been submitted on behalf of such Existing Holder covering the
number of Outstanding Series B MAPS held by such Existing Holder and not
subject to Orders submitted to the Auction Agent.
(4) If one or more Orders covering in the aggregate more
than the number of Outstanding Series B MAPS held by an Existing Holder are
submitted to the Auction Agent, such Orders shall be considered valid as
follows and in the following order of priority:
(i) all Hold Orders shall be considered valid, but
only up to and including in the aggregate the number of Outstanding
Series B MAPS held by such Existing Holder, and, solely for purposes
of allocating compensation among the Broker-Dealers submitting Hold
Orders, if the number of Series B MAPS subject to such Hold Orders
exceeds the number of Outstanding Series B MAPS held by such Existing
Holder, the number of shares subject to each such Hold Order shall be
reduced pro rata to cover the number of Outstanding Series B MAPS held
by such Existing Holder;
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(ii) (A) any Bid shall be considered valid up to and
including the excess of the number of Outstanding Series B MAPS held
by such Existing Holder over the number of Series B MAPS subject to
any Hold Orders referred to in clause (i) above;
(B) subject to subclause (A), if more than one
Bid with the same rate is submitted on behalf of such Existing Holder
and the number of Outstanding Series B MAPS subject to such Bids is
greater than such excess, such Bids shall be considered valid up to
and including the amount of such excess, and, solely for purposes of
allocating compensation among the Broker-Dealers submitting Bids with
the same rate, the number of Series B MAPS subject to each Bid with
the same rate shall be reduced pro rata to cover the number of Series
B MAPS equal to such excess;
(C) subject to subclause (A), if more than one
Bid with different rates is submitted on behalf of such Existing
Holder, such Bids shall be considered valid in the ascending order of
their respective rates up to the amount of such excess; and
(D) in any such event the number, if any, of such
Outstanding Series B MAPS subject to Bids not valid under this clause
(ii) shall be treated as the subject of a Bid by a Potential Holder at
the rate specified therein; and
(iii) all Sell Orders shall be considered valid up
to and including the excess of the number of Outstanding Series B MAPS
held by such Existing Holder over the sum of the shares of Series B
MAPS subject to Hold Orders referred to in clause (i) above and valid
Bids by such Existing Holder referred to in clause (ii) above.
(5) If more than one Bid is submitted on behalf of any
Potential Holder, each Bid submitted shall be a separate Bid with the rate
and number of shares therein specified.
(d) Determination of Sufficient Clearing Bids, Winning Bid Rate
and Applicable Rate. (1) Not earlier than the Submission Deadline on each
Auction Date, the Auction Agent shall assemble all Orders submitted or
deemed submitted to it by the Broker-Dealers (each such Order as submitted
or deemed submitted by a Broker-Dealer being hereinafter referred to as a
"Submitted Hold Order", a "Submitted Bid" or a "Submitted Sell Order", as
the case may be, or as a "Submitted Order") and shall determine:
(i) the excess of the total number of Outstanding
Series B MAPS over the number of Outstanding Series B MAPS that are
the subject of Submitted Hold Orders (such excess being hereinafter
referred to as the "Available Series B MAPS");
(ii) from the Submitted Orders whether:
(A) the number of Outstanding Series B MAPS that
are the subject of Submitted Bids by Potential Holders specifying one
or more rates equal to or lower than the Maximum Rate;
exceeds or is equal to the sum of:
(B) the number of Outstanding Series B MAPS that
are the subject of Submitted Bids by Existing Holders specifying one
or more rates higher than the Maximum Rate, and
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(C) the number of Outstanding Series B MAPS that
are subject to Submitted Sell Orders
(in the event of such excess or such equality (other than because the
number of Series B MAPS in subclauses (B) and (C) above is zero
because all of the Outstanding Series B MAPS are the subject of
Submitted Hold Orders), such Submitted Bids in clause (A) above being
hereinafter referred to collectively as "Sufficient Clearing Bids");
and
(iii) if Sufficient Clearing Bids exist, the lowest
rate specified in the Submitted Bids (the "Winning Bid Rate") which
if:
(A) (I) each Submitted Bid from Existing Holders
specifying such lowest rate and
(II) all other Submitted Bids from Existing
Holders specifying lower rates were rejected, thus entitling such
Existing Holders to continue to hold the shares of Series B MAPS that
are the subject of such Submitted Bids; and
(B) (I) each Submitted Bid from Potential
Holders specifying such lowest rate and
(II) all other Submitted Bids from Potential
Holders specifying lower rates were accepted,
would result in such Existing Holders continuing to hold an aggregate
number of Outstanding Series B MAPS which, when added to the number of
Outstanding Series B MAPS to be purchased by such Potential Holders,
would equal not less than the Available Series B MAPS.
(2) Promptly after the Auction Agent has made the
determinations pursuant to subparagraph (i) of this paragraph 11(B)(d), the
Auction Agent shall advise the corporation of the "AA" Composite Commercial
Paper Rate and the Maximum Rate on the Auction Date and, based on such
determinations, the Applicable Rate for the next succeeding Dividend Period
as follows:
(i) if Sufficient Clearing Bids exist, that the
Applicable Rate for the next succeeding Dividend Period shall be equal
to the Winning Bid Rate so determined;
(ii) if Sufficient Clearing Bids do not exist (other
than because all of the Outstanding Series B MAPS are the subject of
Submitted Hold Orders), that the Applicable Rate for the next
succeeding Dividend Period shall be equal to the Maximum Rate; or
(iii) if all of the Outstanding Series B MAPS are
the subject of Submitted Hold Orders, that the Applicable Rate for the
next succeeding Dividend Period therefor shall be equal to 59% of the
"AA" Composite Commercial Paper Rate.
(e) Acceptance and Rejection of Submitted Bids and Submitted
Sell Orders and Allocation of Shares. Existing Holders shall continue to
hold Series B MAPS that are the subject of Submitted Hold Orders, and,
based on the determinations made pursuant to subparagraph (d)(1) of this
paragraph 11(B), the Submitted Bids and Submitted Sell Orders shall be
accepted or rejected and the Auction Agent shall take such other action as
set forth below:
(1) If Sufficient Clearing Bids have been made, all
Submitted Sell Orders shall be accepted and, subject to the provisions of
subparagraphs (4) and (5) of this
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paragraph 11(B)(e), Submitted Bids shall be accepted or rejected as follows
in the following order of priority and all other Submitted Bids shall be
rejected:
(i) Existing Holders' Submitted Bids specifying any
rate that is higher than the Winning Bid Rate shall be accepted, thus
requiring each such Existing Holder to sell the Series B MAPS that are
the subject of such Submitted Bids;
(ii) Existing Holders' Submitted Bids specifying any
rate that is lower than the Winning Bid Rate shall be rejected, thus
entitling each such Existing Holder to continue to hold the shares of
Series B MAPS that are the subject of such Submitted Bids;
(iii) Potential Holders' Submitted Bids specifying
any rate that is lower than the Winning Bid Rate shall be accepted;
(iv) Each Existing Holder's Submitted Bid specifying a
rate that is equal to the Winning Bid Rate shall be rejected, thus
entitling such Existing Holder to continue to hold the Series B MAPS
that are the subject of such Submitted Bid, unless the number of
Outstanding Series B MAPS subject to all such Submitted Bids shall be
greater than the number of Series B MAPS ("remaining shares") equal to
the excess of the Available Series B MAPS over the number of Series B
MAPS subject to Submitted Bids described in clauses (ii) and (iii) of
this subparagraph (1), in which event the Submitted Bid of such
Existing Holder shall be accepted in part, and such Existing Holder
shall be required to sell Series B MAPS subject to such Submitted Bid,
but only in an amount equal to the difference between (A) the number
of Outstanding Series B MAPS then held by such Existing Holder subject
to such Submitted Bid and (B) the number of Series B MAPS obtained by
multiplying the number of remaining shares by a fraction the numerator
of which shall be the number of Outstanding Series B MAPS held by such
Existing Holder subject to such Submitted Bids and the denominator of
which shall be the aggregate number of Outstanding Series B MAPS
subject to such Submitted Bids made by all such Existing Holders that
specified a rate equal to the Winning Bid Rate; and
(v) Each Potential Holder's Submitted Bid specifying a
rate that is equal to the Winning Bid Rate shall be accepted but only
in an amount equal to the number of Series B MAPS obtained by
multiplying the difference between the Available Series B MAPS and the
number of Series B MAPS subject to Submitted Bids described in clauses
(ii), (iii) and (iv) of this subparagraph (1) by a fraction the
numerator of which shall be the number of Outstanding Series B MAPS
subject to such Submitted Bid and the denominator of which shall be
the sum of the number of Outstanding Series B MAPS subject to such
Submitted Bids made by all such Potential Holders that specified rates
equal to the Winning Bid Rate.
(2) If Sufficient Clearing Bids have not been made (other
than because all of the Outstanding Series B MAPS are the subject of
Submitted Hold Orders), subject to the provisions of subparagraphs (4) and
(5) of this paragraph 11(B)(e), Submitted Orders shall be accepted or
rejected as follows in the following order of priority and all other
Submitted Bids shall be rejected:
(i) Existing Holders' Submitted Bids specifying any
rate that is equal to or lower than the Maximum Rate shall be
rejected, thus entitling such Existing Holder to continue to hold the
Series B MAPS that are the subject of such Submitted Bids;
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(ii) Potential Holders' Submitted Bids specifying any
rate that is equal to or lower than the Maximum Rate shall be
accepted; and
(iii) Each Existing Holder's Submitted Bid
specifying any rate that is higher than the Maximum Rate and the
Submitted Sell Order of each Existing Holder shall be accepted, but in
both cases only in an amount equal to the difference between (A) the
number of Outstanding Series B MAPS then held by such Existing Holder
subject to such Submitted Bid or Submitted Sell Order and (B) the
number of Series B MAPS obtained by multiplying the difference between
the Available Series B MAPS and the aggregate number of Series B MAPS
subject to Submitted Bids described in clauses (i) and (ii) of this
subparagraph (2) by a fraction the numerator of which shall be the
number of Outstanding Series B MAPS held by such Existing Holder
subject to such Submitted Bid or Submitted Sell Order and the
denominator of which shall be the number of Outstanding Series B MAPS
subject to all such Submitted Bids and Submitted Sell Orders.
(3) If all of the Outstanding Series B MAPS are the subject
of Submitted Hold Orders, all Submitted Bids shall be rejected.
(4) If, as a result of the procedures described in
subparagraph (1) or (2) of this paragraph 11(B)(e), any Existing Holder
would be entitled or required to sell, or any Potential Holder would be
entitled or required to purchase, a fraction of a Series B MAPS on any
Auction Date, the Auction Agent shall, in such manner as, in its sole
discretion, it shall determine, round up or down the number of Series B
MAPS to be purchased or sold by any Existing Holder or Potential Holder on
such Auction Date so that the number of shares purchased or sold by each
Existing Holder or Potential Holder on such Auction Date shall be whole
shares of Series B MAPS.
(5) If, as a result of the procedures described in
subparagraph (1) of this paragraph 11(B)(e), any Potential Holder would be
entitled or required to purchase less than a whole share of Series B MAPS
on any Auction Date, the Auction Agent shall, in such manner as, in its
sole discretion, it shall determine, allocate shares for purchase among
Potential Holders so that only whole shares of Series B MAPS are purchased
on such Auction Date by any Potential Holder, even if such allocation
results in one or more of such Potential Holders not purchasing shares of
Series B MAPS on such Auction Date.
(6) Based on the results of each Auction, the Auction Agent
shall determine the aggregate number of Series B MAPS to be purchased and
the aggregate number of Series B MAPS to be sold by Potential Holders and
Existing Holders on whose behalf each Broker-Dealer submitted Bids or Sell
Orders and, with respect to each Broker-Dealer, to the extent that such
aggregate number of shares to be purchased and such aggregate number of
shares to be sold differ, determine to which other Broker-Dealer or Broker-
Dealers acting for one or more purchasers such Broker-Dealer shall deliver,
or from which other Broker-Dealer or Broker-Dealers acting for one or more
sellers such Broker-Dealer shall receive, as the case may be, shares of
Series B MAPS.
(f) Miscellaneous. (1) The Board of Directors may interpret the
provisions of this paragraph 11(B) to resolve any inconsistency or
ambiguity which may arise or be revealed in connection with the Auction
Procedures provided for herein.
(2) During the Initial Dividend Period and so long as the
Applicable Rate is based on the results of an Auction, an Existing Holder
(i) may sell, transfer or otherwise dispose of shares of Series B MAPS only
pursuant to a Bid or Sell Order in accordance with the procedures described
in this paragraph 11(B) or to or
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through a Broker-Dealer (who shall only sell Series B MAPS to a Person that
has delivered a signed copy of a Purchaser's Letter to the Auction Agent)
or to a Person that has delivered a signed copy of a Purchaser's Letter to
the Auction Agent, provided that in the case of all transfers other than
pursuant to Auctions such Existing Holder or its Broker-Dealer advises the
Auction Agent of such transfer, and (ii) shall have the ownership of the
Series B MAPS held by it maintained in book entry form by the Securities
Depository in the account of its Agent Member, which in turn will maintain
records of such Existing Holder's beneficial ownership.
(3) Neither the corporation nor any affiliate thereof may
submit an Order in any Auction except as set forth in the next sentence.
Any Broker-Dealer that is an affiliate of the corporation may submit Orders
in Auctions but only if such Orders are not for its own account, except
that if such affiliated Broker-Dealer holds Series B MAPS for its own
account, it must submit a Sell Order in the next Auction with respect to
such shares.
(4) Commencing with the first day of the first Dividend
Period after an Auction Termination Event has occurred, the corporation, at
its option, may perform any of the functions to be performed by the Auction
Agent set forth in paragraph 11(A) of this Article III.
12. A series of preference shares shall be designated Cumulative
Preference Shares, Fourth Series ("Fourth Series Preference Shares") and
shall initially consist of 2,000,000 shares. The relative rights and
preferences of the Fourth Series Preference Shares shall be as follows:
(a) (1) Dividends on the Fourth Series Preference Shares shall
be payable quarterly in cash on the 15th day of March, June, September and
December (each date being referred to herein as a "Quarterly Dividend
Payment Date"), to holders of record of Fourth Series Preference Shares on
such record dates as may be fixed by the Board of Directors from time to
time, in an amount per share (rounded to the nearest cent) equal to the
greater of (i) ten dollars and (ii) subject to the provision for adjustment
hereinafter set forth, one hundred times the aggregate per share amount of
all cash dividends, and one hundred times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions, other
than a dividend payable in Common Shares or a subdivison of the outstanding
Common Shares (by reclassification or otherwise), declared on the Common
Shares, $1.875 par value, of this corporation (the "Common Shares") since
the immediately preceding Quarterly Dividend Payment Date, or, with respect
to the first Quarterly Dividend Payment Date, since the first issuance of
Fourth Series Preference Shares, and no more. Subject to the provisions of
paragraph 3 of this Article III, the first dividend on the Fourth Series
Preference Shares shall be paid on the Quarterly Dividend Payment Date next
following the date of initial issuance of Fourth Series Preference Shares
in respect of the period from the date of issuance to such Quarterly
Dividend Payment Date, and thereafter dividends on Fourth Series Preference
Shares shall be paid on each succeeding Quarterly Dividend Payment Date.
The dividend payment on each Quarterly Dividend Payment Date, except the
aforementioned first Quarterly Dividend Payment Date, shall be in respect
of the quarterly period ending with such payment date. In the event this
corporation shall at any time after December 9, 1986 (the "Rights
Declaration Date") (A) declare any dividend on Common Shares payable in
Common Shares, (B) subdivide the outstanding Common Shares, or (C) combine
the outstanding Common Shares into a smaller number of shares, then in each
case the amount to which holders of Fourth Series Preference Shares were
entitled immediately prior to such event under clauses (i) and (ii) of the
preceding first sentence shall be adjusted by multiplying such amount by a
fraction the
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numerator of which is the number of Common Shares outstanding immediately
after such event and the denominator of which is the number of Common
Shares that were outstanding immediately prior to such event. This
corporation shall declare a dividend or distribution on the Fourth Series
Preference Shares, as provided above, immediately after it declares a
dividend or distribution on Common Shares (other than a dividend payable in
Common Shares); provided that, in the event no dividend or distribution
shall have been declared on the Common Shares during the period between any
Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend
Payment Date, a dividend of $10.00 per share on the Fourth Series
Preference Shares shall nevertheless be payable on such Quarterly Dividend
Date. Dividends on the first issued Fourth Series Preference Shares shall
accrue and be cumulative on a daily basis from and after the date of
issuance thereof. Dividends on any reissued Fourth Series Preference
Shares shall accrue on a daily basis from and after the Quarterly Dividend
Payment Date to which dividends have been paid in full next preceding the
date of reissuance of such shares, provided, however, that dividends on any
subsequently reissued Fourth Series Preference Shares reissued after the
record date fixed for the payment of a current dividend on such shares but
before the date of payment of such dividend, shall accrue and be cumulative
on a daily basis from and after such payment date or if such dividend shall
not be paid in full on such payment date then from and after the next
preceding payment date on which dividends on such shares have been paid in
full. Dividends on Fourth Series Preference Shares reissued on any dividend
payment date for such shares shall accrue and be cumulative on a daily
basis from and after such payment date.
(b) (1) Pursuant to resolution of the Board of Directors and
subject to the provisions of paragraph 3(a) of this Article III, this
corporation may redeem the whole or from time to time any part of the
Fourth Series Preference Shares at any time when Fourth Series Preference
Shares are outstanding, at the redemption price per share of one hundred
times $105, plus an amount equal to all accrued and unpaid dividends on the
shares being redeemed to and including the date fixed for redemption.
(2) Notice of redemption shall be mailed by the
corporation, not less than 30 or more than 60 days before the date fixed
for redemption, to each holder of record of the shares to be redeemed
addressed to such holder at his address appearing on the books of the
corporation. Such notice of redemption shall set forth the date fixed for
redemption, the redemption price and the place at which the shareholders
may obtain payment of the redemption price plus accrued dividends upon the
surrender of the certificates representing their shares.
(3) On or after the date fixed for redemption and stated in
such notice, each holder of shares that are called for redemption shall,
upon surrender of the certificates representing such shares to the
corporation at the place or places designated in such notice, be entitled
to receive payment of the redemption price of such shares, plus an amount
equal to all accrued and unpaid dividends thereon to and including the date
fixed for redemption. In case less than all of the shares represented by
any such surrendered certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares.
(4) If less than all of the outstanding shares are to be
redeemed, the number of shares of Fourth Series Preference Shares to be
redeemed and the method of effecting such redemption, whether by lot or pro
rata, shall be as determined by the Board of Directors.
(5) At any time after a notice of redemption has been given
in the manner prescribed herein and prior to the date fixed for redemption,
the corporation may
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<PAGE>
deposit in trust, with a bank, trust company, or other financial
institution an aggregate amount of funds sufficient for such redemption,
for immediate payment in the appropriate amounts upon surrender of
certificates for such shares. Upon the deposit of such funds or, if no
such deposit is made, upon the date fixed for redemption (unless the
corporation shall default in making payment of the appropriate amount),
whether or not certificates for shares so called for redemption have been
surrendered for cancellation, the shares to be redeemed shall be deemed to
be no longer outstanding and the holders thereof shall cease to be
shareholders with respect to such shares and shall have no rights with
respect thereto, except for the right to receive the amount payable upon
redemption, but without interest. Such deposit in trust shall be
irrevocable except that any funds deposited by the corporation which shall
not be required for the redemption for which they were deposited subsequent
to the date of deposit shall be returned to the corporation forthwith; and
any funds deposited by the corporation which are unclaimed at the end of
one year from the date fixed for such redemption shall be paid over to the
corporation upon its request, and upon such repayment the holders of the
shares so called for redemption shall look only to the corporation for
payment of the appropriate amount. Any such unclaimed amounts paid over to
the corporation shall, for a period of six years after the date fixed for
such redemption, be set apart and held by the corporation in trust for the
benefit of the holders of such shares, but no such holder shall be entitled
to receive interest thereon. At the expiration of such six-year period,
all right, title, interest and claim of such holders in or to such
unclaimed amounts shall be extinguished, terminated and discharged, and
such unclaimed amounts shall become part of the general funds of the
corporation free of any claim of such holders.
(c) The amount referred to in paragraph 2(c) of this Article III
as payable in the event of voluntary or involuntary liquidation of the
corporation shall be one hundred times $105 per Fourth Series Preference
Share.
(d) In case this corporation shall enter into any consolidation,
merger, combination or other transaction in which Common Shares are
exchanged for or changed into other stock or securites, cash and/or any
other property, then in any such case the shares of Fourth Series
Preference Shares shall at the same time be similarly exchanged or changed
in an amount per share (subject to the provision for adjustment hereinafter
set forth) equal to 100 times the aggregate amount of stock, securities,
cash and/or any other property (payable in kind), as the case may be, into
which or for which each Common Share is changed or exchanged. In the event
the corporation shall at any time declare or pay any dividend on Common
Shares payable in Common Shares, or effect a subdivision or combination or
consolidation of the outstanding Common Shares (by reclassification or
otherwise) into a greater or lesser number of Common Shares, then in each
such case the amount set forth in the preceding sentence with respect to
the exchange or change of shares of Fourth Series Preference Shares shall
be adjusted by multiplying such amount by a fraction, the numerator of
which is the number of Common Shares outstanding immediately after such
event, and the denominator of which is the number of Common Shares that
were outstanding immediately prior to such event.
(e) This corporation may issue fractions and certificates
representing fractions of a share of Fourth Series Preference Shares in
integral multiples of 1/100th of a share of Fourth Series Preference
Shares, or in lieu thereof, at the election of the Board of Directors of
this corporation at the time of the first issue of any Fourth Series
Preference Shares, evidence such fractions by depositary receipts pursuant
to an appropriate agreement between the corporation and a depositary
selected by it, provided that such agreement shall provide that the holders
of such depositary receipts shall have all rights, privileges and
preferences to which they would be entitled as beneficial owners of Fourth
Series Preference Shares. In the event that fractional shares of Fourth
Series
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Preference Shares are issued, the holders thereof shall have all the rights
provided herein for holders of full shares of Fourth Series Preference
Shares in the proportion which such fraction bears to a full share.
(f) The holders of Fourth Series Preference Shares shall not be
entitled to vote except as provided by Washington statutes or by this
Article III.
13. The fifth series of preference shares shall be designated $2.625
Convertible Exchangeable Preference Shares ("$2.625 Convertible
Exchangeable Preference Shares"), and shall initially consist of 5,000,000
shares. The relative rights and preferences of the $2.625 Convertible
Exchangeable Preference Shares shall be as follows:
(a) The dividend rate for the $2.625 Convertible Exchangeable
Preference Shares shall be $2.625 per share per annum. Subject to the
provisions of Section 3 of this Article III, the first dividend on the
$2.625 Convertible Exchangeable Preference Shares shall be paid on June 15,
1987 in respect of the period from the date of issuance to June 15, 1987,
and thereafter dividends on $2.625 Convertible Exchangeable Preference
Shares shall be paid quarterly on September 15, December 15, March 15 and
June 15 in each instance to holders of record of $2.625 Convertible
Exchangeable Preference Shares on such dates as may be fixed by the Board
of Directors from time to time. The dividend payment on each payment date
except the aforementioned first payment date shall be in respect of the
quarterly period ending with such payment date. Dividends on the first
issued $2.625 Convertible Exchangeable Preference Shares shall accrue on a
daily basis from and after the date of issuance thereof.
(b) (1) Pursuant to resolution of the Board of Directors and
subject to the provisions of paragraph 3(a) of this Article III, the
corporation may at any time redeem the whole or from time to time any part
of the $2.625 Convertible Exchangeable Preference Shares at the following
redemption prices per share for the respective periods indicated:
<TABLE>
<CAPTION>
Date Fixed for
Redemption Within Price Per
The Period (Inclusive) Share
---------------------- ---------
<S> <C>
Date of issuance - June 14, 1988 $52.6250
June 15, 1988 - June 14, 1989 $52.3625
June 15, 1989 - June 14, 1990 $52.1000
June 15, 1990 - June 14, 1991 $51.8375
June 15, 1991 - June 14, 1992 $51.5750
June 15, 1992 - June 14, 1993 $51.3125
June 15, 1993 - June 14, 1994 $51.0500
June 15, 1994 - June 14, 1995 $50.7875
June 15, 1995 - June 14, 1996 $50.5250
June 15, 1996 - June 14, 1997 $50.2625
June 15, 1997 and thereafter $50.0000
</TABLE>
plus, in each case, an amount equal to all accrued and unpaid dividends on
the shares being redeemed to and including the date fixed for such
redemption provided, however, that $2.625 Convertible Exchangeable
Preference Shares may not be redeemed on or prior to June 15, 1989 unless
the Closing Price (which term shall mean with respect to the common shares
of the corporation on any day, (i) the closing price as reported on the New
York Stock Exchange Composite Tape, or (ii) if the common shares are not
listed or admitted for trading on such Exchange, the last reported sales
price regular way, or in
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case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices regular way, on the principal
national securities exchange on which the common shares are listed or
admitted for trading, or (iii) if clauses (i) and (ii) above are not
applicable, the last reported sales price on the National Market System of
the National Association of Securities Dealers, Inc., Automated Quotation
System, or any similar system of automated dissemination of quotations of
securities prices then in common use, if so quoted, or (iv) if the common
shares are not listed or admitted for trading on any national securities
exchange or any such system, the average of the closing bid and asked
prices as furnished by any New York Stock Exchange member firm selected
from time to time by the corporation for that purpose) of the common shares
has equaled or exceeded 150 percent of the then effective conversion price
(determined as set forth in subparagraph (e)(1)) per common share for at
least 20 trading days within 30 consecutive trading days ending not more
than five trading days prior to notice of redemption. For the purposes of
this subparagraph, the term "trading days" shall mean trading days on such
exchanges or systems as will determine the Closing Price as defined above.
(2) Notice of redemption shall be mailed by the
corporation, not less than 30 or more than 60 days before the date fixed
for redemption, to each transfer agent for the shares to be redeemed and to
each holder of record of such shares addressed to such holder at his
address appearing on the books of the corporation. Such notice of
redemption shall set forth the date fixed for redemption, the redemption
price and the place or places (including a place in the Borough of
Manhattan, the City of New York) at which the shareholders may obtain
payment of the redemption price plus accrued dividends upon the surrender
of the certificates representing their shares, and shall set forth in
respect to such shares the then current conversion rate and date on which
conversion rights expire, all as determined in accordance with paragraph
13(e) of this Article III.
(3) On or after the date fixed for redemption and stated in
such notice, each holder of shares that are called for redemption shall,
upon surrender of the certificates representing such shares to the
corporation at the place or places designated in such notice, be entitled
to receive payment of the redemption price of such shares, plus an amount
equal to all accrued and unpaid dividends thereon to and including the date
fixed for redemption. In case less than all of the shares represented by
any such surrendered certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares.
(4) If less than all the outstanding shares are to be
redeemed, the number of shares of $2.625 Convertible Exchangeable
Preference Shares to be redeemed and the method of effecting such
redemption, whether by lot or pro rata, shall be as determined by the Board
of Directors.
(5) At any time after a notice of redemption has been given
in the manner prescribed herein and prior to the date fixed for redemption,
the corporation may deposit in trust, with a bank or trust company having
capital, surplus and undistributed profits aggregating at least $50,000,000
an aggregate amount of funds sufficient for such redemption, for immediate
payment in the appropriate amounts upon surrender of certificates for such
shares. Upon the deposit of such funds or, if no such deposit is made,
upon the date fixed for redemption (unless the corporation shall default in
making payment of the appropriate amount), whether or not certificates for
shares so called for redemption have been surrendered for cancellation, the
shares to be redeemed shall be deemed to be no longer outstanding and the
holders thereof shall cease to be shareholders with respect to such shares
and shall have no rights with respect thereto, except for the
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right to receive the amount payable upon redemption, but without interest,
and, up to the close of business on the date fixed for such redemption, the
right to convert such shares as set forth in paragraph 13(e) of this
Article III. Such deposit in trust shall be irrevocable except that any
funds deposited by the corporation which shall not be required for the
redemption for which they were deposited because of the exercise of rights
of conversion shall be returned to the corporation forthwith, and any funds
deposited by the corporation which are unclaimed at the end of one year
from the date fixed for such redemption shall be paid over to the
corporation upon its request, and upon such repayment the holders of the
shares so called for redemption shall look only to the corporation for
payment of the appropriate amount. Any such unclaimed amounts paid over to
the corporation shall, for a period of six years after the date fixed for
such redemption, be set apart and held by the corporation in trust for the
benefit of the holders of such shares, but no such holder shall be entitled
to receive interest thereon. At the expiration of such six-year period,
all right, title, interest and claim of such holders in or to such
unclaimed amounts shall be extinguished, terminated and discharged, and
such unclaimed amounts shall become part of the general funds of the
corporation free of any claim of such holders.
(6) (A) Pursuant to resolution of the Board of Directors
and subject to the provisions of paragraph 3 of this Article III, the
corporation may also redeem the $2.625 Convertible Exchangeable
Preference Shares, as a whole but not in part, on any March 15, June
15, September 15 or December 15 commencing June 15, 1990 to and
including March 15, 2017, through the issuance, in redemption of and
in exchange for the $2.625 Convertible Exchangeable Preference Shares,
of the corporation's 5 1/4% Convertible Subordinated Debentures due
2017 (hereinafter referred to as the "Debentures") described in the
Company's Registration Statement on Form S-3 (Registration No. 33-
12744), as amended, in the manner provided in this subparagraph (b)(6)
at the rate of $50.00 principal amount of Debentures for each $2.625
Convertible Exchangeable Preference Share outstanding on the Exchange
Date (as defined below) plus an amount equal to all accrued and unpaid
dividends to and including the Exchange Date.
(B) Notice of redemption shall be mailed by the
corporation, not less than 30 nor more than 60 days before the date
fixed for the issue of Debentures in redemption of and in exchange for
$2.625 Convertible Exchangeable Preference Shares to each transfer
agent for the $2.625 Convertible Exchangeable Preference Shares and to
each holder of record of such shares addressed to such holder at his
address appearing on the books of the corporation. Such notice of
redemption shall set forth the effective date of the exchange (the
"Exchange Date") and the place or places (including a place in the
Borough of Manhattan, the City of New York) at which certificates for
$2.625 Convertible Exchangeable Preference Shares are to be
surrendered for Debentures and stating that dividends on $2.625
Convertible Exchangeable Preference Shares will cease to accrue on the
Exchange Date. On and after the Exchange Date, each holder of shares
to be redeemed and exchanged shall, upon surrender of the certificates
representing such shares to the corporation at the place or places
designated in such notice, be entitled to receive (i) Debentures at
the rate of $50 principal amount of Debentures for each Preference
Share, provided that the Debentures will be issuable only in
denominations of $1,000 and integral multiples thereof, and an amount
in cash will be paid equal to any excess principal amount otherwise
issuable, and (ii) an amount in cash equal to all accrued and unpaid
dividends to and including the Exchange Date. Upon the Exchange Date
(unless the corporation shall default in issuing the Debentures in
redemption of and in exchange for the $2.625 Convertible Exchangeable
Preference Shares or shall fail to pay such accrued and unpaid
dividends on such shares), whether or not certificates for shares so
called for redemption have been surrendered for cancellation, the
shares to be redeemed and exchanged shall be deemed to be no longer
outstanding and the holders
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thereof shall cease to be shareholders with respect to such shares and
shall have no rights with respect thereto, except for the right to
receive Debentures and accrued and unpaid dividends in exchange
therefor, but without interest. Notwithstanding the foregoing, if
notice of redemption and exchange has been given pursuant to this
subparagraph (b)(6) and any holder of $2.625 Convertible Exchangeable
Preference Shares shall, prior to the close of business on the
Exchange Date, give written notice to the corporation pursuant to
paragraph 13(e) below of the conversion of any or all of the shares to
be redeemed and exchanged held by such holder (accompanied by a
certificate or certificates for such shares, duly endorsed or assigned
to the corporation), then such redemption and exchange shall not
become effective as to such shares to be converted and such conversion
shall become effective as provided in paragraph 13(e) below.
(c) The amount referred to in paragraph 2(c) of this Article III
as payable in the event of voluntary or involuntary liquidation of the
corporation shall be $50 per $2.625 Convertible Exchangeable Preference
Share.
(d) The $2.625 Convertible Exchangeable Preference Shares shall
not be entitled to the benefit of any sinking fund for the redemption or
purchase of such shares.
(e) (1) Subject to the provisions for adjustment set forth in
subparagraph (2)(A) below, each $2.625 Convertible Exchangeable Preference
Share shall be convertible at any time at the election of the holder
thereof into .6944 common shares (such rate, as adjusted from time to time,
is referred to as the "conversion rate"). (The "conversion price" is equal
to the result of dividing liquidation value by the conversion rate.)
Certificates representing shares that a holder thereof has elected to
convert shall be surrendered to any transfer agent of such shares duly
endorsed to the corporation or in blank, or accompanied by proper
instruments of transfer, together with written notice of the election to
convert setting forth the denominations of common share certificates
desired and the names in which such certificates shall be issued. As soon
as practicable after such surrender of such certificates and the receipt of
such notice, the corporation shall issue and deliver at the office of such
transfer agent to the person who surrendered such certificates a
certificate or certificates for the number of common shares issuable upon
the conversion of such shares, and a check or cash in respect of any
fraction of a share. Such conversion shall be deemed to have been effected
on the date on which such notice and such certificates shall have been
received, and each person in whose name any certificate for common shares
shall be issuable upon such conversion shall be deemed to have become on
such date the holder of record of the common shares represented thereby.
The right to convert shares called for redemption shall terminate at the
close of business on the date fixed for such redemption, unless the
corporation shall default in making payment of the amount payable upon such
redemption. The holders of $2.625 Convertible Exchangeable Preference
Shares at the close of business on a dividend payment record date shall be
entitled to receive the dividend payable on such shares (except that
holders of shares called for redemption on a redemption date between such
record date and the dividend payment date shall not be entitled to receive
such dividend on such dividend payment date) on the corresponding dividend
payment date notwithstanding the conversion thereof or the corporation's
default on payment of the dividend due on such dividend payment date.
However, $2.625 Convertible Exchangeable Preference Shares surrendered for
conversion during the period between the close of business on any record
date for the payment of dividends on such $2.625 Convertible Exchangeable
Preference Shares and the opening of business on the corresponding dividend
payment date (except shares called for redemption on a redemption date
during such period) must be accompanied by payment of an amount equal to
the dividend payable on such shares on such dividend payment date. A
holder of $2.625 Convertible Exchangeable Preference Shares on a dividend
payment record date who (or whose
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transferee) tenders $2.625 Convertible Exchangeable Preference Shares for
conversion into common shares on a dividend payment date will receive the
dividend payable on such shares by the corporation on such date, and the
converting holder need not include payment in the amount of such dividend
upon surrender of $2.625 Convertible Exchangeable Preference Shares for
conversion. Except as provided above, the corporation shall make no
payment or allowance for unpaid dividends whether or not in arrears, on
converted shares or for dividends on the common shares issued upon such
conversion.
(2) (A) The conversion rate for $2.625 Convertible
Exchangeable Preference Shares shall be subject to adjustment from
time to time only as follows:
(i) If the corporation shall (A) pay to holders
of common shares a dividend in shares of its capital stock (including
common shares), or (B) combine into a smaller number or subdivide its
common shares, or issue by reclassification of its common shares any
shares of the corporation, the conversion rate for $2.625 Convertible
Exchangeable Preference Shares in effect immediately prior thereto
shall be adjusted so that the holder of a $2.625 Convertible
Exchangeable Preference Share surrendered for conversion after the
record date fixing shareholders to be affected by such event shall be
entitled to receive the number of shares of the corporation which he
would have owned or have been entitled to receive after the happening
of any of the events described above, had such share been converted
immediately prior to such record date. Such adjustment shall be made
whenever any such events shall happen, but shall also be effective
retroactively as to any such share converted between such record date
and the date of the happening of any such events.
(ii) If the corporation shall issue rights or
warrants to holders of common shares entitling them to subscribe for
or purchase common shares at a price per share less than the current
market price per common share (as defined in part (iv) of this
subparagraph (2)) as of the record date specified below, the number of
common shares into which each $2.625 Convertible Exchangeable
Preference Share shall thereafter be convertible shall be determined
by multiplying the number of common shares into which such share was
theretofore convertible by a fraction, the numerator of which shall be
the number of common shares outstanding on the date of issuance of
such rights or warrants plus the number of additional common shares
offered for subscription or purchase, and the denominator of which
shall be the number of common shares outstanding on the date of
issuance of such rights or warrants plus the number of common shares
which the aggregate offering price of the total number of common
shares so offered would purchase at such current market price. Such
adjustment shall be made whenever such rights or warrants are issued,
but shall also be effective retroactively as to any share converted
between the record date for the determination of shareholders entitled
to receive such rights or warrants and the date such rights or
warrants are issued.
(iii) If the corporation shall distribute to
holders of common shares evidences of its indebtedness or assets
(excluding cash dividends or cash distributions) or rights or warrants
to subscribe other than as set forth in part (ii) above, the number of
common shares into which each $2.625 Convertible Exchangeable
Preference Share shall thereafter be convertible shall be determined
by multiplying the number of common shares into which such share was
theretofore convertible by a fraction, the numerator of which shall be
the current market price per common share (as defined in part (iv) of
this subparagraph (2)) as of the date of such distribution, and the
denominator of which shall be such current market price
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per common share less the then fair market value (as determined by the
Board of Directors, whose determination shall be conclusive) of the
portion of the assets or evidences of indebtedness so distributed or
such subscription rights or warrants applicable to one common share.
Such adjustment shall be made whenever any such distribution is made,
but shall also be effective retroactively as to any share converted
between the record date for the determination of shareholders entitled
to receive such distribution and the date such distribution is made.
(iv) For the purpose of any computation under
parts (ii) and (iii) of this subparagraph (2), the current market
price per common share as of any date shall be deemed to be the
average of the daily closing prices for the thirty consecutive
business days commencing on the forty-fifth business day before the
date in question. The closing price for each business day shall be
the last reported sales price regular way or, if no such sale takes
place on such business day, the average of the reported closing bid
and asked prices regular way, in either case on the New York Stock
Exchange or, if the common shares are not listed or admitted to
trading on such exchange, the average of the closing bid and asked
prices as furnished by any member of the New York Stock Exchange
selected by the Board of Directors for that purpose.
(v) The conversion rate for $2.625 Convertible
Exchangeable Preference Shares shall always be calculated to the
nearest one one-thousandth of a share. No adjustment in the
conversion rate for $2.625 Convertible Exchangeable Preference Shares
shall be made unless the conversion rate for such shares after such
adjustment would differ from the conversion rate prior to such
adjustment by one one-hundredth of a common share or more, provided
that any adjustments for $2.625 Convertible Exchangeable Preference
Shares not made by reason of this part (v) of subparagraph (2) shall
be carried forward and taken into account in calculating subsequent
adjustments.
(vi) Whenever any adjustment in the conversion
rate for $2.625 Convertible Exchangeable Preference Shares is made,
the corporation shall forthwith (A) file with each transfer agent for
such shares a statement describing the adjustment and the method of
calculation used, together with an opinion rendered by an independent
firm of public accountants of recognized standing, who may be the
corporation's regularly engaged auditors, that such adjustment was
properly calculated in accordance with the provisions of this
subparagraph (2), and (B) cause a copy of such statement to be
published in a daily newspaper of general circulation in the Borough
of Manhattan, the City of New York, and to be mailed to the holders of
record of such shares.
(3) If the corporation shall consolidate with or merge into
another corporation, or if the corporation shall sell, lease or transfer to
any other person or persons all or substantially all of the assets of the
corporation, holders of $2.625 Convertible Exchangeable Preference Shares
shall have the right after such event to convert each share held into the
kind and amount of shares of stock, other securities, cash and property
receivable upon such event by a holder of the number of common shares into
which such shares might have been converted immediately prior to such
event. In any such event, effective provisions shall be made in the
certificate or articles of incorporation of the resulting or surviving
corporation, in any contract of sale, conveyance, lease or transfer, or
otherwise so that the provisions set forth herein for the protection of the
conversion rights of $2.625 Convertible Exchangeable Preference Shares
shall thereafter continue to be applicable; and any such resulting or
surviving corporation shall expressly assume the obligation to deliver,
upon conversion, such shares
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of stock, other securities, cash and property. The provisions of this
subparagraph (3) shall similarly apply to successive consolidations,
mergers, sales, leases or transfers.
(f) The holders of $2.625 Convertible Exchangeable Preference
Shares shall not be entitled to vote except as provided by Washington
statutes or by this Article III.
ARTICLE IV
The time of the existence of this corporation shall be perpetual.
ARTICLE V
1. The business and affairs of the corporation shall be managed
under the direction of a Board of Directors consisting of not fewer than
nine (9) nor more than thirteen (13) directors, the exact number to be
fixed from time to time by resolution adopted by the affirmative vote of a
majority of the entire Board of Directors. Whenever used in these Articles
of Incorporation, the phrase "entire Board of Directors" shall mean that
number of directors fixed by the most recent resolution adopted pursuant to
the preceding sentence prior to the date as of which a determination of the
number of directors then constituting the entire Board of Directors shall
be relevant for any purpose under these Articles of Incorporation. The
directors shall be classified, with respect to the term for which they
severally hold office, into three classes, each class to be as nearly equal
in number as possible, one class to hold office initially for a term
expiring at the annual meeting of shareholders to be held in 1986, another
class to hold office initially for a term expiring at the annual meeting of
shareholders to be held in 1987, and another class to hold office initially
for a term expiring at the annual meeting of shareholders to be held in
1988, with the members of each class to hold office until their successors
are elected and qualified. At each annual meeting of shareholders of the
corporation, the successors to the class of directors whose term expires at
that meeting shall be elected to hold office for a term expiring at the
annual meeting of shareholders held in the third year following the year of
their election.
2. Any vacancy occurring in the Board of Directors and any newly
created directorship resulting from any increase in the number of directors
shall be filled solely by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of the
Board of Directors. No decrease in the number of directors constituting
the Board of Directors shall shorten the term of any incumbent director.
3. Any director may be removed from office with cause only by the
affirmative vote of the holders of a majority of the voting capital stock
and may be removed from office without cause only by the affirmative vote
of the holders of 67% of the voting capital stock or, in either case, such
other percentage as may be required by applicable law; provided, however,
that if applicable law permits to be required a higher percentage of the
votes of the holders of the voting capital stock to approve any such
removal, then the directors may be removed, with or without cause, as the
case may be, only by the affirmative vote of the holders of the lesser of
(i) 80% of the voting capital stock and (ii) the maximum percentage of such
voting capital stock permitted to be required for such approval.
4. Advance notice of nominations for the election of directors,
other than by the Board of Directors or a committee thereof, shall be given
within the time and in the manner provided in the bylaws.
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5. Notwithstanding the foregoing, whenever the holders of any one or
more classes or series of preferred or preference shares or of any other
class or series of shares issued by the corporation shall have the right,
voting separately by class or series, to elect directors under specified
circumstances, the election, term of office, filling of vacancies and other
features of such directorships shall be governed by the terms of these
Articles of Incorporation applicable thereto, and such directors so elected
shall not be classified pursuant to this Article V unless expressly
provided by such terms.
ARTICLE VI
In all elections for directors, every shareholder shall have the right
to vote in person or by proxy the number of shares of stock held by him for
as many persons as there are directors to be elected. No cumulative voting
for directors shall be permitted.
ARTICLE VII
1. Bylaws may be adopted, altered, amended or repealed or new bylaws
enacted by the affirmative vote of a majority of the entire Board of
Directors (if notice thereof is contained in the notice of the meeting at
which such vote is taken or if all directors are present) or at any regular
meeting of the shareholders (or at any special meeting thereof duly called
for that purpose) by the affirmative vote of a majority of the shares
represented and entitled to vote at such meeting (if notice thereof is
contained in the notice of such meeting).
2. Notwithstanding anything contained in paragraph 1 of this Article
VII to the contrary, either (i) the affirmative vote of the holders of at
least 80% of the votes entitled to be cast by the holders of all shares of
the corporation entitled to vote generally in the election of directors,
voting together as a single class, or (ii) the affirmative vote of a
majority of the entire Board of Directors with the concurring vote of a
majority of the Continuing Directors, voting separately and as a subclass
of directors, shall be required to alter, amend or repeal, or adopt any
provision inconsistent with, Sections 1 and 2 of Article II, Section 1 of
Article III, Article XII and Section 2 of Article XIII of the bylaws. For
purposes of this Article VII and Article VIII, the term "Continuing
Director" shall mean any member of the Board of Directors who was a member
of the Board of Directors on August 13, 1985 or who is elected to the Board
of Directors after August 13, 1985 upon the recommendation of a majority of
the Continuing Directors, voting separately and as a subclass of directors
on such recommendation.
ARTICLE VIII
Notwithstanding any other provisions of law, these Articles of
Incorporation (except as hereinafter provided) or the bylaws of the
corporation, the affirmative vote of a majority of the entire Board of
Directors and the affirmative vote of the holders of at least 80% of the
votes entitled to be cast by the holders of all shares of the corporation
entitled to vote generally in the election of directors, voting together as
a single class, shall be required to alter, amend or repeal, or adopt any
provision inconsistent with, Articles V, VI, VIII and IX and paragraph 2 of
Article VII of these Articles of Incorporation or any provision of such
Articles; provided, however, that the affirmative vote of the holders of 66-
2/3% of the votes entitled to be cast by the holders of all shares entitled
to vote generally in the election of directors, voting together as a single
class, shall be sufficient to approve any alteration, amendment or repeal
of, or adoption of any provision inconsistent with, Articles V, VI, VIII
and IX and paragraph 2 of Article VII of these Articles of Incorporation
that is approved by the affirmative vote of a
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majority of the entire Board of Directors with the concurring vote of a
majority of the Continuing Directors, voting separately and as a subclass
of directors.
ARTICLE IX
Except as otherwise required by law and subject to the rights of the
holders of any class of shares having a preference over the common shares
as to dividends or upon liquidation, special meetings of shareholders of
the corporation may be called only by the Board of Directors pursuant to a
resolution adopted by the affirmative vote of a majority of the entire
Board of Directors.
ARTICLE X
1. (a) From and after the time that the corporation is made aware
of the existence of an Interested Shareholder (as hereinafter defined) and
so long as there continues to be an Interested Shareholder, in addition to
any affirmative vote required by law or these Articles of Incorporation,
and except as otherwise expressly provided in paragraph 2 of this Article
X:
(i) any merger or consolidation of the corporation or any
Subsidiary (as hereinafter defined) or any exchange of shares of the
corporation or any Subsidiary pursuant to a plan of exchange;
(ii) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition (in one transaction or a series of transactions)
to or with the corporation or any Subsidiary of any assets, securities
or commitments of any person having an aggregate Fair Market Value (as
hereinafter defined) of Fifty Million Dollars ($50,000,000) or more;
(iii) any reclassification of securities (including any
combination of shares or reverse stock split), or recapitalization or
reorganization of the corporation, or any merger or consolidation of
the corporation with any of its Subsidiaries;
(iv) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition of, or any security arrangement, investment,
loan, advance, guarantee, agreement to purchase, agreement to pay,
extension of credit, joint- venture participation or other arrangement
involving, any assets, securities or commitments of the corporation or
any Subsidiary, or any issuance, transfer or sale of any securities of
the corporation or any Subsidiary, or any combination of the foregoing
(whether in one transction or a series of transactions), having an
aggregate Fair Market Value of, and/or involving an aggregate amount
of, Fifty Million Dollars ($50,000,000) or more, and/or constituting
substantially all, or an integral part of, the assets or business of
an industry segment (as that term is commonly used with reference to
the business of publicly-owned corporations) of the business of the
corporation or any Subsidiary, and/or involving aggregate commitments
of Fifty Million Dollars ($50,000,000) or more;
(v) the adoption of any plan or proposal for the
liquidation or dissolution (or revocation thereof) of the corporation;
or
(vi) any agreement, contract or other arrangement providing
for any one or more of the actions specified in the foregoing clauses
(i) to (v);
shall require the affirmative vote of the holders of at least 80% of the
votes entitled to be cast by the holders of all shares of the corporation
entitled to vote generally in the
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election of directors (the "Voting Stock"), voting together as a single
class. Such affirmative vote shall be required notwithstanding the fact
that no vote may be required, or that a lesser percentage may be specified,
by law or in any agreement with any national securities exchange or
otherwise.
(b) The term "Business Transaction" used in this Article X shall
mean any transaction which is referred to in any one or more of clauses (i)
through (vi) of paragraph 1(a) of this Article X.
(c) This paragraph 1 of this Article X shall not apply with
respect to purchases and/or sales of goods, services, and products other
than timber, made in the ordinary course of the corporation's business,
consistent with its past practice.
2. The provisions of paragraph 1 of this Article X shall not be
applicable to any Business Transaction, and such Business Transaction shall
require only such affirmative vote as is required by law or any other
provision of these Articles of Incorporation, if the Business Transaction
shall have been approved by a majority of the Continuing Directors (as
hereinafter defined), voting separately and as a subclass of directors.
3. For the purposes of this Article X:
(a) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as in effect on July 22, 1985 (the term "registrant" in
said Rule 12b-2 meaning, in this case, the corporation).
(b) "beneficially owned" shall have the meaning ascribed to such
term in Rule 13d-3 of the General Rules and Regulations under the Exchange
Act, as in effect on July 22, 1985.
(c) "Continuing Director" means any member of the Board of
Directors who was a member of the Board of Directors on August 13, 1985 or
who is elected to the Board of Directors after August 13, 1985 upon the
recommendation of a majority of the Continuing Directors, voting separately
and as a subclass of directors on such recommendation.
(d) "Fair Market Value" means: (x) in the case of stock, the
highest closing sale price during the 30-day period immediately preceding
the date in question of a share of such stock on the Composite Tape for New
York Stock Exchange-Listed Stocks, or, if such stock is not quoted on the
Composite Tape, on the New York Stock Exchange, or if such stock is not
listed on such exchange, on the principal United States securities exchange
registered under the Exchange Act on which such stock is listed, or, if
such stock is not listed on any such exchange, the highest closing bid
quotation with respect to a share of such stock during the 30-day period
preceding the date in question on the National Association of Securities
Dealers, Inc. Automated Quotations System or any system then in use or if
no such quotations are available, the fair market value on the date in
question of a share of such stock as determined in good faith by majority
vote of the Continuing Directors; and (y) in the case of property other
than cash or stock, the fair market value of such property on the date in
question as determined in good faith by majority vote of the Continuing
Directors.
(e) "Interested Shareholder" at any particular time means any
person (other than the corporation or any Subsidiary and other than any
pension, profit-sharing, employee stock ownership or other employee benefit
plan of the corporation or any
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Subsidiary or any trustee of or fiduciary with respect to any such plan
when acting in such capacity) who or which:
(i) is at such time the beneficial owner, directly or
indirectly, of shares of the corporation having ten percent (10%) or
more of the votes entitled to be cast by the holders of all
outstanding shares of Voting Stock;
(ii) at any time within the two-year period immediately
prior to such time was the beneficial owner, directly or indirectly,
of shares of the corporation having ten percent (10%) or more of the
votes entitled to be cast by the holders of all outstanding shares of
Voting Stock; or
(iii) is at such time an assignee of or has otherwise
succeeded to the beneficial ownership of any shares of Voting Stock
which were at any time within the two-year period immediately prior to
such time beneficially owned by any Interested Shareholder, if such
assignment or succession shall have occurred in the course of a
transaction or series of transactions not involving a public offering
within the meaning of the Securities Act of 1933;
provided, however, that "Interested Shareholder" shall not mean any person
who or which, as of July 22, 1985, met any of the conditions set forth in
clauses (i), (ii) or (iii).
(f) "person" means an individual, a corporation, a partnership,
an association, a joint stock company, a trust, any unincorporated
organization, or a government or political subdivision thereof.
(g) "Subsidiary" means any corporation of which a majority of
any class or series of equity security is owned, directly or indirectly, by
the corporation; provided, however, that for the purposes of the definition
of Interested Shareholder set forth in paragraph 3(e) of this Article X,
the term "Subsidiary" shall mean only a corporation of which a majority of
each class or series of equity security is owned, directly or indirectly,
by the corporation.
(h) A person shall be a "beneficial owner" of any shares of
Voting Stock:
(i) which are beneficially owned, directly or indirectly,
by such person or any of its Affiliates or Associates;
(ii) which such person or any of its Affiliates or
Associates has (x) the right to acquire (whether or not such right is
exercisable immediately) pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights, exchange
rights, warrants or options, or otherwise, or (y) the right to vote
pursuant to any agreement, arrangement or understanding; or
(iii) which are beneficially owned, directly or
indirectly, by any other person with which such person or any of its
Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing of any shares of Voting Stock.
(i) For the purposes of determining whether a person is an
Interested Shareholder pursuant to paragraph 3 (e) of this Article X, the
number of shares of Voting Stock deemed to be outstanding shall include
shares deemed owned by an Interested Shareholder through application of
paragraph 3 (h) of this Article X but shall not include any other shares of
Voting Stock which may be issuable pursuant to any agreement,
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arrangement or understanding, or upon the exercise of conversion rights,
exchange rights, warrants or options, or otherwise.
4. For the purposes of this Article X, the Continuing Directors
shall have the power and duty to determine, by majority vote, on the basis
of information known to them after reasonable inquiry, whether any
transaction specified in paragraphs 1 (a) (ii) and 1 (a) (iv) meets the
monetary tests set forth therein.
5. The provisions of this Article X shall not be construed to impose
any fiduciary duty, obligation or responsibility on the Board of Directors,
or any member thereof, to approve such Business Transaction or recommend
its adoption or approval to the shareholders, nor shall any provision of
this Article X be construed as limiting, prohibiting or otherwise
restricting in any manner the Board of Directors, or any member thereof,
with respect to evaluations of or actions and responses taken with respect
to such Business Transaction.
6. No action taken by, or omission of, a Continuing Director in the
exercise (or non-exercise) of the authority and discharge of the
responsibilities conferred or imposed upon Continuing Directors by this
Article X shall be deemed to be, or involve, a breach of the fiduciary duty
of such Continuing Director to the shareholders of the corporation unless
it can be demonstrated by the person asserting such breach that the
Continuing Director acted (or failed to act) in bad faith and in a manner
inconsistent with the provisions and spirit of this Article X.
7. Notwithstanding any other provisions of law, these Articles of
Incorporation (except as hereinafter provided) or the bylaws of the
corporation, the affirmative vote of a majority of the entire Board of
Directors and the affirmative vote of the holders of at least 80% of the
votes entitled to be cast by the holders of all outstanding shares of
Voting Stock, voting together as a single class, shall be required to
alter, amend or repeal, or to adopt any provision inconsistent with, this
Article X or any provision hereof; provided, however, that the affirmative
vote of the holders of 66 2/3% of all outstanding shares of Voting Stock,
voting together as a single class, shall be sufficient to approve any
alteration, amendment or repeal of, or adoption of any provision
inconsistent with, this Article X or any provision hereof that is approved
by the affirmative vote of a majority of the entire Board of Directors with
the concurring vote of a majority of the Continuing Directors, voting
separately and as a subclass of directors. The phrase "entire Board of
Directors" shall mean that number of directors fixed by the most recent
resolution adopted by the Board of Directors prior to the date as of which
a determination of the number of directors then constituting the entire
Board of Directors shall be relevant for any purpose under this Article X.
8. All reasonable expenses (including, without limitation,
attorneys' fees and disbursements) incurred by the Continuing Directors in
the exercise of the authority, and discharge of the responsibilities,
conferred or imposed upon them by this Article X (or incurred by reason or
as a consequence of the exercise of such authority or the discharge of such
responsibilities, including, without limitation, all attorneys' fees and
disbursements incurred in asserting or defending any claim arising out of
such exercise) shall be paid by the corporation. The provisions of this
paragraph 8 of this Article X shall be deemed to be a contract between the
corporation and the Continuing Directors, and it shall be the duty of the
Chief Financial Officer of the corporation to make prompt payment thereof
on the written request of a majority of the Continuing Directors,
accompanied by appropriate vouchers and invoices. The rights conferred
upon the Continuing Directors, and the obligations imposed upon the
corporation, by this paragraph 8 of this Article X shall be in addition to
the rights of the Continuing
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Directors, as directors, to indemnification under the bylaws of the
corporation; provided, however, that the corporation shall not, by reason
of this sentence, be obliged to make duplicate payments of any item of
expense incurred by a Continuing Director.
ARTICLE XI
To the full extent the Washington Business Corporation Act permits the
limitation or elimination of liability of directors, a director of this
corporation shall not be personally liable to this corporation or its
shareholders for monetary damages for conduct as a director, provided that,
except as provided in the next succeeding sentence, this provision shall
not eliminate or limit liability of the director (i) for acts or omissions
that involve intentional misconduct by the director or a knowing violation
of law by the director, (ii) for conduct violating Section 23A.08.450 of
the Washington Business Corporation Act, or (iii) for any transaction from
which the director will personally receive a benefit in money, property or
service to which the director is not legally entitled. If the Washington
Business Corporation Act is amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the
liability of a director of this corporation shall be eliminated or limited
to the fullest extent permitted by the Washington Business Corporation Act,
as so amended. Any repeal or modification of this Article by the
shareholders of this corporation shall not adversely affect any right or
protection of a director of this corporation, for or with respect to any
action or omission of such director occurring prior to such amendment or
repeal, existing at the time of such repeal or modification.
ARTICLE XII
This corporation may indemnify, including the making of advances of
expenses and the making of contracts with directors with respect to
indemnity, and may purchase and maintain insurance for, its directors,
officers, trustees, employees, and other persons and agents, and (without
limiting the generality of the foregoing) shall indemnify its directors
against all liability, damage and expenses arising from or in connection
with service for, employment by, or other affiliation with this corporation
or other firms or entities to the maximum extent and under all
circumstances permitted by law as then in effect.
Dated at Federal Way, Washington, this 29th day of April, 1988.
/s/ Alan P. Vandevert
---------------------------------------
Secretary of
Weyerhaeuser Company
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ALAN P. VANDEVERT, being first duly sworn, on oath deposes and says:
1. That he is the Secretary, and in such capacity an officer, of
Weyerhaeuser Company, a Washington corporation.
2. That he has been authorized by a resolution of the Board of
Directors of said corporation, dated April 21, 1988 to execute Restated
Articles of Incorporation under the provisions of RCW 23A.16.075.
3. That the Restated Articles of Incorporation as hereinabove set
forth do correctly set forth without change the text of the Articles of
Incorporation of said corporation as amended through the date of said
Restated Articles of Incorporation.
4. That the said Restated Articles of Incorporation supersede the
original Articles of Incorporation of said corporation and all amendments
thereto.
/s/ Alan P. Vandevert
--------------------------
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I, Vicki A. Merrick, a notary public, do hereby certify that on this
29th day of April, 1988, personally appeared before me Alan P. Vandevert,
who, being by me first duly sworn, declared that he is the Secretary of
Weyerhaeuser Company, that he signed the foregoing document as an officer
of the corporation, and that the statements therein contained are true.
/s/ Vicki A. Merrick
------------------------------------
Notary Public in and for the State
of Washington, residing at Puyallup.
My commission expires: June 16,1998
------------
BYLAWS
OF
WEYERHAEUSER COMPANY
(as amended through August 15, 1995)
ARTICLE I
PRINCIPAL OFFICE
----------------
The principal office of this corporation, and its registered office in
the State of Washington, is the Weyerhaeuser Headquarters Building, 33663
Weyerhaeuser Way South, Federal Way, Washington.
The registered agent of the corporation is the Secretary of the
corporation.
ARTICLE II
SHAREHOLDERS' MEETINGS
----------------------
1. (a) The annual meeting of shareholders at which the Directors
are elected shall be held at 9:00 a.m. on the third Tuesday in April at the
registered office of the corporation, or at such other time or place within
or without the State of Washington as may be designated by the Board of
Directors, for the purpose of electing directors, and for the transaction
only of such other business as is properly brought before the meeting, in
accordance with these bylaws."
(b) To be properly brought before the meeting, business must be
of a nature that is appropriate for consideration at an annual meeting and
must be (i) specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the Board of Directors, (ii) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors, or (iii) otherwise properly brought before the meeting by a
shareholder. In addition to any other applicable requirements, for
business to be properly brought before the annual meeting by a shareholder,
the shareholder must have given timely notice thereof in writing to the
Secretary of the corporation. To be timely, each such notice must be
given, either by personal delivery or by United States mail, postage
prepaid, to the Secretary of the corporation, not less than 50 days nor
more than 75 days prior to the meeting; provided, however, that in the
event that less than 60 days' notice or prior public disclosure of the date
of the meeting is given or made to shareholders, notice by the shareholder
to be timely must be so received not later than the close of business on
the 10th day following the day on which such notice of the date of the
annual meeting was mailed or such public disclosure was made, whichever
first occurs. Each such notice to the Secretary shall set forth as to each
matter the shareholder proposes to bring before the annual meeting (w) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting,
(x) the name and address of record of the
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shareholder proposing such business, (y) the class or series and number of
shares of the corporation which are owned by the shareholder, and (z) any
material interest of the shareholder in such business.
(c) Notwithstanding anything in these bylaws to the contrary, no
business shall be transacted at the annual meeting except in accordance
with the procedures set forth in this Section; provided, however, that
nothing in this Section shall be deemed to preclude discussion by any
shareholder of any business properly brought before the annual meeting, in
accordance with these bylaws.
2. Special meetings of shareholders shall be held at such time and
place as shall be stated in the notice of special meeting solely for such
purpose or purposes as may be stated in the notice of said meeting. Except
as otherwise specifically required by law and subject to the rights of the
holders of any class or series of stock having a preference over the common
shares as to dividends or upon liquidation, special meetings of
shareholders may be called only by the Board of Directors pursuant to a
resolution adopted by the affirmative vote of a majority of the entire
Board of Directors (as defined in Section 1 of Article III).
3. The record date for the determination of shareholders entitled to
notice of and to vote at each annual or special meeting of shareholders
shall be the close of business on the eighth Friday preceding each such
meeting, provided, however, that the Board of Directors may by resolution
fix a different record date for any particular meeting of shareholders.
4. Every shareholder shall furnish in writing to the principal
transfer agent, his post office address at which notice of shareholders'
meetings and any other notices or communications pertaining to the
corporation's affairs or business may be served upon or mailed to him; and
every shareholder shall forthwith advise the principal transfer agent in
writing of any change of address.
ARTICLE III
DIRECTORS
---------
1. The business and affairs of this corporation shall be managed
under the direction of a Board of Directors consisting of not fewer than
nine (9) nor more than thirteen (13) directors, the exact number to be
determined from time to time by resolution adopted by the affirmative vote
of a majority of the entire Board of Directors, each director to hold
office until his successor shall have been elected and qualified. Whenever
used in these bylaws, the phrase "entire Board of Directors" shall mean
that number of directors fixed by the most recent resolution adopted
pursuant to the preceding sentence prior to the date as of which a
determination of the number of directors then constituting the entire Board
of Directors shall be relevant for any purpose under these bylaws. Subject
to the rights of holders of any class or series of stock having a
preference over the common shares as to dividends or upon liquidation,
nominations for the election of directors may be made by the Board of
Directors or a committee appointed by the Board of Directors or by any
shareholder entitled to vote generally in the election of directors.
However, any shareholder entitled to vote generally in the election of
directors may nominate one or more persons for election as directors at a
meeting only if written notice of such shareholder's intent to make such
nomination or nominations has been given, either by personal delivery or by
United
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States mail, postage prepaid, to the Secretary of the corporation not less
than 50 days nor more than 75 days prior to the meeting; provided, however,
that in the event that less than 60 days' notice or prior public disclosure
of the date of the meeting is given or made to shareholders, notice by the
shareholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date
of meeting was mailed or such public disclosure was made, whichever first
occurs. Each such notice to the Secretary shall set forth: (i) the name
and address of record of the shareholder who intends to make the
nomination; (ii) a representation that the shareholder is a holder of
record of shares of the corporation entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice; (iii) the name, age, business
and residence addresses, and principal occupation or employment of each
nominee; (iv) a description of all arrangements or understandings between
the shareholder and each nominee and any other person or persons (naming
such person or persons) pursuant to which the nomination or nominations are
to be made by the shareholder; (v) such other information regarding each
nominee proposed by such shareholder as would be required to be included in
a proxy statement filed pursuant to the proxy rules of the Securities and
Exchange Commission; and (vi) the consent of each nominee to serve as a
director of the corporation if so elected. The corporation may require any
proposed nominee to furnish such other information as may reasonably be
required by the corporation to determine the eligibility of such proposed
nominee to serve as a director of the corporation. The presiding officer
of the meeting may, if the facts warrant, determine that a nomination was
not made in accordance with the foregoing procedure, and if he should so
determine, he shall so declare to the meeting and the defective nomination
shall be disregarded.
2. Meetings of the Board of Directors, regular or special, may be
held at any place within or without the State of Washington. The times and
places for holding meetings of the Board of Directors may be fixed from
time to time by resolution of the Board of Directors or (unless contrary to
a resolution of the Board of Directors) in the notice of the meeting.
3. The annual meeting of the Board of Directors may be held
immediately following the adjournment of the annual meeting of shareholders
at the place at which the annual meeting of shareholders is held or at such
other time or place fixed by resolution of the Board of Directors.
4. Special meetings of the Board of Directors shall be held whenever
called by the Chairman of the Board, the President or the Secretary or by
any two or more directors. Notice of each special meeting of the Board
shall, if mailed, be addressed to each director at the address designated
by him for that purpose or, if none is designated, at his last known
address and be mailed on or before the third day before the date on which
the meeting is to be held; or such notice shall be sent to each director at
such address by telegraph, cable, wireless, telex or other electronic means
of transmission, or be delivered to him personally, not later than the day
before the date on which such meeting is to be held. Every such notice
shall state the time and place of the meeting but need not state the
purposes of the meeting, except to the extent required by law. If mailed,
each notice shall be deemed given when deposited, with postage thereon
prepaid, in a post office or official depository under the exclusive care
and custody of the United States Postal Service. Such mailing shall be by
first class mail.
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ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
------------------------------
1. (a) The Board of Directors may, by resolution passed by a
majority of the whole Board, designate three or more of their number to
constitute an Executive Committee, and shall include therein the Chairman
of the Board. The Executive Committee, except to the extent limited in the
aforesaid resolution or by law, shall have and exercise, in the interval
between meetings of the Board of Directors, the authority and powers of the
Board of Directors in the management of the business of the corporation.
(b) Meetings of the Executive Committee may be held at any time
and at any place upon call of the Chairman of the Board or the Secretary or
any two members of the Committee. Notice, which need not state the purpose
of the meeting, shall be given orally, in writing or by telegraph not less
than twenty-four hours prior to the time of the holding of said meeting,
except that if a meeting is held at a time and place fixed in a resolution
of the Executive Committee or the Board of Directors, no notice shall be
required.
(c) Three of the members of the Executive Committee shall
constitute a quorum for the transaction of business and the act of three of
the members of the Executive Committee present at a meeting shall be the
act of the Executive Committee. All action taken by the Executive
Committee shall be reported to the next meeting of the Board of Directors,
unless before such meeting a copy of said minutes shall have been given to
each Director.
2. (a) The Board of Directors may, by resolution passed by a
majority of the whole Board, define the powers, authority, and functions
of, designate the number of members and name the Chairmen and other members
of such other committees of the Board of Directors as the Board shall from
time to time determine.
(b) Meetings of such a committee may be had at any time and at
any place upon call of the Chairman of the committee, the Chairman of the
Board or any other two members of the committee. Notice, which need not
state the purpose of the meeting, shall be given orally, in writing or by
telegraph not less than twenty-four hours prior to the time of the holding
of said meeting, except that if a meeting is held at a time and place fixed
in a resolution of the Committee, or the Board of Directors, no notice
shall be required.
(c) Two of the members of such a committee shall constitute a
quorum of the committee for the transaction of its business and the act of
two of the members of the committee present at a meeting shall be the act
of the committee. All action taken by such a committee shall be reported
to the next meeting of the Board of Directors, unless before such meeting a
copy of the minutes of the committee meeting shall have been given to each
Director.
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ARTICLE V
OFFICERS
--------
1. The officers of this corporation shall include those elected by
the Board of Directors and those appointed by the chief executive officer.
The officers of this corporation to be elected by the Board of Directors
shall be: a Chairman of the Board of Directors; a President; one or more
Executive Vice Presidents; one or more Senior Vice Presidents; a Secretary;
a Treasurer; a General Counsel; a Controller; and a Director of Taxes. The
officers of this corporation which may from time to time be appointed by
the chief executive officer shall be the Vice Presidents and such
additional officers and assistant officers of this corporation as he may
determine.
2. At its annual meeting the Board of Directors shall elect such of
the officers of this corporation as are to be elected by it and each such
officer shall hold office until the next such annual meeting or until a
successor shall have been duly elected and qualified or until his death,
resignation, retirement or removal by the Board of Directors. A vacancy in
any such office may be filled for the unexpired portion of the term at any
meeting of the Board of Directors. Such of the officers of this
corporation as are appointed by the chief executive officer shall serve for
such periods of time as he may determine or until a successor shall have
been appointed or until his death, resignation, retirement or removal from
office.
3. Any Director or officer may resign his office at any time. Such
resignation shall be made in writing and delivered to and filed with the
Secretary, except that a resignation of the Secretary shall be delivered to
and filed with the chief executive officer. A resignation so made shall be
effective upon its delivery unless some other time be fixed in the
resignation, and then from the date so fixed.
4. The Board of Directors may appoint and remove at will such agents
and committees as the business of the corporation shall require, each of
whom shall exercise such powers and perform such duties as may from time to
time be prescribed or assigned by the chief executive officer, the Board of
Directors or by other provisions of these bylaws.
ARTICLE VI
POWERS AND DUTIES OF OFFICERS
-----------------------------
1. The Chairman of the Board of Directors shall, when present,
preside at all meetings of the Board of Directors, the Executive Committee,
and the shareholders. The Chairman shall advise with and assist the
President in any possible way, and shall perform such duties as may be
assigned to him by the Board or the President.
2. The President shall be the chief executive officer of the
corporation and shall be vested with general authority and control of its
affairs, and over the officers, agents and employees of the corporation,
subject to the Board of Directors. He shall, in the absence of the
Chairman of the Board, preside at all meetings of the Board of Directors,
the Executive Committee and the shareholders, and shall perform all the
duties devolving upon him by law as
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the chief executive officer of the corporation. He shall from time to time
report to the Board of Directors any information and recommendations
concerning the business or affairs of the corporation which may be proper
or needed, and shall see that all orders and resolutions of the Board of
Directors are carried into effect, and shall perform such other duties and
services, not inconsistent with law or these bylaws, as pertain to his
office, or as are required by the Board of Directors.
3. (a) The Executive Vice Presidents, the Senior Vice Presidents
and the Vice Presidents shall have and exercise such powers and discharge
such duties as may from time to time be conferred upon and delegated to
them respectively, by the chief executive officer, or by these bylaws, or
by the Board of Directors.
(b) In the absence of the chief executive officer or in the case
of his inability to act, the President, or in the absence of the President
or in the case of his inability to act, the most senior Executive Vice
President present, or in the absence or inability to act of any Executive
Vice President, the most senior Senior Vice President present, shall be
vested with all the powers and shall perform all the duties of said chief
executive officer during his absence or inability to act, or until his
successor shall have been elected.
4. (a) The Treasurer shall attend to the collection, receipt and
disbursement of all moneys belonging to the corporation. He shall have
authority to endorse, on behalf of the corporation, all checks, notes,
drafts, warrants and orders, and he shall have custody over all securities
of the corporation. He shall have such additional powers and such other
duties as he may from time to time be assigned or directed to perform by
these bylaws or by the Board of Directors or by the chief executive
officer.
(b) The Assistant Treasurers, in the order of their seniority,
shall have all of the powers and shall perform the duties of the Treasurer
in case of the absence of the Treasurer or his inability to act, and shall
have such other powers and duties as they may from time to time be assigned
or directed to perform.
5. (a) The Secretary shall have the care and custody of the
corporate and stock books and the corporate seal of the corporation. He
shall attend all meetings of the shareholders, and, when possible, all
meetings of the Board of Directors and of the Executive Committee, and
shall record all votes and the minutes of all proceedings in books kept for
that purpose. He shall sign such instruments in behalf of the corporation
as he may be authorized by the Board of Directors or by law to do, and
shall countersign, attest and affix the corporate seal to all certificates
and instruments where such countersigning or such sealing and attestation
are necessary to the true and proper execution thereof. He shall see that
proper notice is given of all meetings of the shareholders of which notice
is required to be given, and shall have such powers and duties as he may
from time to time be assigned or directed to perform by these bylaws, by
the Board of Directors or the chief executive officer.
(b) The Assistant Secretaries, in the order of their seniority,
shall have all of the powers and shall perform the duties of the Secretary
in case of the absence of the Secretary or his inability to act, and shall
have such other powers and duties as they may from time to time be assigned
or directed to perform.
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6. The General Counsel shall attend all meetings of the shareholders
and, upon request, meetings of the Board of Directors and the Executive
Committee of the corporation, and act as advisor thereof, and shall have
general supervision of all legal matters of the corporation, and at all
times be subject to the direction of the chief executive officer and the
Board of Directors of the corporation.
7. (a) The Controller shall be the chief accounting officer of the
corporation with authority over and custody of the financial and property
books and records of the corporation. He shall maintain adequate records
of all assets, liabilities and transactions of the corporation; and shall
have such additional powers and duties as he may from time to time be
assigned or directed to perform by these bylaws or by the Board of
Directors or by the chief executive officer.
(b) The Assistant Controllers, in the order of their seniority,
shall have all of the powers and shall perform the duties of the Controller
in case of the absence of the Controller or his inability to act, and shall
have such other powers and duties as they may from time to time be assigned
or directed to perform.
ARTICLE VII
CERTIFICATES OF STOCK
1. All certificates of stock shall be in such form as shall be
approved by the Board of Directors, shall be numbered in the order of their
issue, shall be dated, shall be signed by the Chairman of the Board, the
President, an Executive Vice President, a Senior Vice President, or a Vice
President, and by the Secretary or an Assistant Secretary, provided, that
where any such certificate is manually countersigned by a Registrar, other
than the corporation or its employee, the signatures of the Chairman of the
Board, President, Executive Vice President, Senior Vice President, Vice
President, Secretary, or Assistant Secretary, and the Transfer Agent upon
such certificates may be facsimiles. In case any officer or officers who
shall have signed or whose facsimile signature or signatures shall have
been used on any such certificate or certificates shall cease to be such
officer or officers of the corporation, whether because of death,
resignation, or otherwise, before such certificate or certificates shall
have been delivered by the corporation, such certificate or certificates
may nevertheless be issued and delivered by the corporation as though the
person or persons who signed such certificate or certificates or whose
facsimile signature or signatures were used thereon had not ceased to be
such officer or officers of the corporation.
2. The corporation shall, if and whenever the Board of Directors so
determines, maintain one or more transfer offices each in charge of a
Transfer Agent designated by the Board of Directors where the shares of the
corporation shall be directly transferable; and likewise, one or more
registration offices each in charge of a Registrar designated by the Board
of Directors where such certificates shall be registered. One person or
corporation may be designated as both Transfer Agent and Registrar. When
any such transfer and registration office or offices are maintained and the
Transfer Agent or Agents and Registrar or Registrars shall have been
designated for such office or offices, no certificate for shares of the
corporation shall be valid unless countersigned by a Transfer Agent so
designated and by a Registrar so designated.
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3. Except as otherwise provided in the articles of incorporation or
a resolution of the Board of Directors of this corporation, transfer of
fractional shares shall not be made upon the records or books of the
corporation, nor shall certificates for fractional shares be issued by the
corporation.
4. The corporation may issue a new certificate in place of any
certificate theretofore issued by it alleged to have been lost or
destroyed. The Board of Directors shall require the owner of the lost,
destroyed or mutilated certificate, or his legal representative, to give
the corporation a bond in such sum and with such surety or sureties as it
may direct, to indemnify the corporation against any claim that shall be
made against it on account of the alleged loss or destruction of such
certificate.
5. The Board of Directors may make such additional rules and
regulations, not contrary to law or these bylaws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares
of the corporation.
ARTICLE VIII
CONTRACTS
---------
The Board of Directors may authorize any officer or officers, agent or
agents, to enter into any contract or to execute and deliver any instrument
in the name and on behalf of the corporation, and such authority may be
general or confined to specific instances; and unless so authorized by the
Board of Directors or by these bylaws, no officer, agent or employee shall
have any power or authority to bind the corporation by any contract or
undertaking, or to pledge its credit or to render it liable for any purpose
or on any account.
ARTICLE IX
FISCAL YEAR
-----------
The fiscal year of this corporation shall be the period beginning with
the opening of business on the first Monday following the last Sunday of
the preceding fiscal year, and ending with the close of business for the
last Sunday of the following December.
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ARTICLE X
CORPORATE SEAL
--------------
The corporate seal shall be the one of which an impression is affixed
in the left hand margin hereof, bearing the words:
"WEYERHAEUSER COMPANY
CORPORATE SEAL
STATE OF WASHINGTON"
ARTICLE XI
NOTICES AND WAIVERS
-------------------
1. Whenever notice is required under these bylaws or by statute, and
such notice is given by mail, the time of giving such notice shall be
deemed to be the time when the same is placed in the United States mail,
postage prepaid, and addressed to the party to be notified, at his last
known address.
2. Any shareholder, officer, director or member of the Executive
Committee may waive at any time any notice required to be given under these
bylaws, either by separate writing or directly upon the face of the
records.
ARTICLE XII
INDEMNIFICATION
---------------
1. This corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that the person is or was a director,
officer or employee, or who is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee or agent of
another foreign or domestic corporation, partnership, joint venture, trust,
other enterprise, or employee benefit plan against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by the person
in connection with such action, suit or proceeding to the fullest extent
and in the manner set forth in and permitted by the Business Corporation
Act of the State of Washington, and any other applicable law, as from time
to time in effect. Such right of indemnification shall not be deemed
exclusive of any other rights to which the person may be entitled apart
from the foregoing provisions. For purposes of this Article "director,
officer or employee" shall include persons who hold such positions in this
corporation or in a wholly owned subsidiary, or hold, at the written
request of an officer of this corporation, an equivalent position in
another enterprise. The rights granted by this Article shall apply whether
or not the person continues to be a director, officer or employee at the
time liability or expense is incurred.
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2. This corporation shall have power to the fullest extent permitted
by the Business Corporation Act of the State of Washington to purchase and
maintain insurance on behalf of any person who is, or was, a director,
officer, employee or agent of this corporation or is or was serving at the
request of this corporation as on officer, director, employee or agent of
another corporation, partnership, joint venture, trust, other enterprise,
or employee benefit plan against any liability asserted against him or
incurred by him in any such capacity or arising out of his status as such,
whether or not this corporation would have the power to indemnify the
person against such liability under the provisions of Section 1 of this
Article XII or under the Business Corporation Act of the State of
Washington or any other provision of law.
ARTICLE XIII
1. These bylaws may be altered, amended or repealed or new bylaws
enacted by the affirmative vote of a majority of the entire Board of
Directors (if notice of the proposed alteration or amendment is contained
in the notice of the meeting at which such vote is taken or if all
directors are present) or at any regular meeting of the shareholders (or at
any special meeting thereof duly called for that purpose) by the
affirmative vote of a majority of the shares represented and entitled to
vote at such meeting (if notice of the proposed alteration or amendment is
contained in the notice of such meeting).
2. Notwithstanding anything contained in Section 1 of this Article
XIII to the contrary, either (i) the affirmative vote of the holders of at
least 80% of the votes entitled to be cast by the holders of all shares of
the corporation entitled to vote generally in the election of directors,
voting together as a single class, or (ii) the affirmative vote of a
majority of the entire Board of Directors with the concurring vote of a
majority of the Continuing Directors, voting separately and as a subclass
of directors, shall be required to alter, amend or repeal, or adopt any
provision inconsistent with, Sections 1 and 2 of Article II, Section 1 of
Article III, Article XII and this Section 2 of this Article XIII. For
purposes of this Article XIII, the term "Continuing Director" shall mean
any member of the Board of Directors who was a member of the Board of
Directors on August 13, 1985 or who is elected to the Board of Directors
after August 13, 1985 upon the recommendation of a majority of the
Continuing Directors, voting separately and as a subclass of directors on
such recommendation.
