<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission
Only (as permitted by Rule 14a-6(e)(2)
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
Champion International Corporation
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
<PAGE> 2
LOGO
One Champion Plaza
Stamford, Connecticut 06921
NOTICE OF 1999 ANNUAL MEETING OF SHAREHOLDERS
AND PROXY STATEMENT
<PAGE> 3
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 20, 1999
- --------------------------------------------------------------------------------
The Annual Meeting of Shareholders of Champion International Corporation
will be held at One Champion Plaza, Stamford, Connecticut, on Thursday, May 20,
1999 at 9:30 a.m., for the following purposes:
1. To elect five directors, two to serve until the 2000 Annual Meeting of
Shareholders and three to serve until the 2002 Annual Meeting of
Shareholders.
2. To consider and act upon a proposal to approve the appointment of
Arthur Andersen LLP as independent auditors for 1999.
3. To consider and act upon a proposal to approve the 1999 Stock Option
Plan.
4. To consider and act upon the shareholder proposal set forth in the
following Proxy Statement.
5. To transact such other business as may properly come before the meeting
or any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on April 1, 1999 as
the record date for the determination of the holders of Common Stock entitled to
notice of and to vote at the meeting.
Please mark, sign and return promptly the accompanying proxy so that your
shares may be represented at the meeting. A return envelope, which requires no
postage if mailed in the United States, is enclosed for your convenience.
By order of the Board of Directors,
Lawrence A. Fox
Vice President and Secretary
Champion International Corporation
One Champion Plaza
Stamford, Connecticut 06921
April 15, 1999
<PAGE> 4
CHAMPION INTERNATIONAL CORPORATION
PROXY STATEMENT
SOLICITATION AND REVOCATION OF PROXIES
The accompanying proxy is being solicited by the Board of Directors of
Champion International Corporation (the "Company") for use at the Annual Meeting
of Shareholders to be held on May 20, 1999. A shareholder giving a proxy may
revoke it at any time before it is voted at the meeting by executing a
later-dated proxy, by voting by ballot at the meeting or by filing a revocation
with the inspectors of election.
The Company will pay the cost of this solicitation of proxies for the
meeting. In addition to using the mails, officers and other employees may
solicit proxies in person and by telephone and other methods of
telecommunication. The Company will reimburse brokers, banks and others who are
record holders of the Company's stock for their reasonable expenses incurred in
obtaining voting instructions from the beneficial owners of such stock. In
addition, Morrow & Co., Inc., which will assist the Company in soliciting
proxies, will be paid a fee estimated at $15,000.
This Proxy Statement and the accompanying proxy are scheduled to be sent to
shareholders commencing on April 15, 1999.
VOTING RIGHTS
Only holders of record of the Company's Common Stock at the close of
business on April 1, 1999 are entitled to notice of and to vote at the meeting
or any adjournment thereof. At the close of business on the record date, there
were outstanding 95,659,847 shares of Common Stock. Each share of Common Stock
is entitled to one vote.
Voting is on a confidential basis except in certain limited circumstances.
The Company's confidential voting policy provides that all proxies, ballots,
voting instructions from employee benefit plan participants and voting
tabulations that identify the particular vote of a shareholder or benefit plan
participant be held permanently in confidence from the Company except (i) as
necessary to meet legal requirements or to pursue or defend legal actions; (ii)
to allow the inspectors of election to certify the results of the vote; (iii)
when expressly requested by a shareholder or benefit plan participant; or (iv)
in the event of a contested proxy solicitation. The Company's transfer agent,
ChaseMellon Shareholder Services, L.L.C., will tabulate the vote, and employees
of the transfer agent will serve as inspectors of election.
The election of directors requires a plurality of the votes cast. Approval
of each of the other proposals requires the affirmative vote of a majority of
the votes cast. Under the law of New York, the Company's state of incorporation,
only votes cast "for" the election of directors will be counted in determining
whether a nominee has been elected, and only votes cast "for" or "against" each
of the other proposals will be counted in determining whether such proposal has
been approved. Abstentions, broker non-votes and withheld votes will not be
treated as votes cast and, accordingly, will have no effect on the outcome of
the vote.
If the accompanying proxy is properly executed and returned, the shares
represented thereby will be voted in accordance with the specifications, if any,
made in the proxy. If not otherwise specified in the proxy, the shares will be
voted in the election of directors for the nominees referred to below under "The
Board of Directors," for the approval of the appointment of Arthur Andersen LLP
as independent auditors for 1999, for the approval of the 1999 Stock Option Plan
and against the shareholder proposal set forth below.
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The Board of Directors is not aware of any other matters to be presented
for action at the meeting. If any other matters shall properly come before the
meeting, the persons named in the accompanying proxy will vote the shares
represented thereby in accordance with their best judgment.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of December 31, 1998
with respect to each person who is known to the Company to be the beneficial
owner of more than 5% of the Company's Common Stock, which is the only
outstanding class of voting securities of the Company.
<TABLE>
<CAPTION>
Name and Address Amount and Nature Percent
of Beneficial Owner of Beneficial Ownership of Class
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sanford C. Bernstein & Co., Inc.
767 Fifth Avenue
New York, New York 10153(1)
13,614,607 shares(1) 14.2%
Oppenheimer Capital
Oppenheimer Tower
World Financial Center
New York, New York 10281(2)
8,815,927 shares(2) 9.2%
Dodge & Cox
One Sansome St.
San Francisco, California 94104(3)
6,149,680 shares(3) 6.4%
----------------------------------------------------------------------
</TABLE>
The information that is footnoted in the table above and set forth in the notes
below is based upon a Schedule 13G filed with the Securities and Exchange
Commission by each respective shareholder.
(1) In its Schedule 13G, Sanford C. Bernstein & Co., Inc. stated that (i) such
shares are held for the accounts of various clients, and (ii) it has sole
voting power with respect to 7,672,596 of such shares, shared voting power
with respect to 1,427,687 of such shares and sole dispositive power with
respect to all of such shares.
(2) In its Schedule 13G, Oppenheimer Capital stated that, in its capacity as
investment advisor, it has shared voting and shared dispositive power with
respect to all of such shares.
(3) In its Schedule 13G, Dodge & Cox stated that (i) such shares are held for
the accounts of various clients, and (ii) it has sole voting power with
respect to 5,537,380 of such shares, shared voting power with respect to
66,700 of such shares and sole dispositive power with respect to all of such
shares.
- --------------------------------------------------------------------------------
- -- PROPOSAL 1: ELECTION OF DIRECTORS
THE BOARD OF DIRECTORS
GENERAL
The Board of Directors, which is divided into three classes normally
elected for three-year terms, presently consists of 10 directors.
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Eight regular meetings and one special meeting of the Board were held in
1998. Eight regular meetings are scheduled for 1999. All directors attended at
least 75% of the Board meetings and meetings of committees on which they served
during 1998. The average attendance by directors at Board meetings and meetings
of committees on which they served was more than 98%.
THE NOMINEES
In accordance with the recommendation of its Committee on Board Affairs,
the Board of Directors has chosen five persons as nominees for election to the
Board.
Lawrence A. Bossidy, Robert A. Charpie and Allan E. Gotlieb, who previously
were elected by the shareholders and whose terms expire at the 1999 Annual
Meeting of Shareholders, are nominees for re-election to the Board. Mr. Bossidy
has been nominated for a regular three-year term expiring at the 2002 Annual
Meeting. In accordance with the Company's By-Laws, Messrs. Charpie and Gotlieb
have been nominated for one-year terms expiring at the 2000 Annual Meeting. It
is expected that Messrs. Charpie and Gotlieb, whose election will ensure that
the Board continues to satisfy the minimum-size requirements of the By-Laws,
will retire at next year's Annual Meeting.
Henrique C. Meirelles was elected by the Board of Directors since the last
Annual Meeting. He is a nominee for election by the shareholders for a regular
three-year term expiring at the 2002 Annual Meeting.
Richard E. Olson, who previously was elected by the shareholders, also is a
nominee for re-election to the Board. His present term is due to expire at the
2000 Annual Meeting. He has been nominated for a three-year term expiring at the
2002 Annual Meeting in order to apportion the directors among the three classes
so as to make all classes as nearly equal in number as possible, as required by
the New York Business Corporation Law.
If, for any reason, any of the nominees should not be a candidate for
election at the meeting, the proxies may be voted for another person nominated
by the Board of Directors or the number of directors may be reduced accordingly.
The Committee on Board Affairs does not anticipate that any of the nominees will
be unavailable.
INFORMATION ON THE NOMINEES AND DIRECTORS
The following table sets forth the names of the nominees and the directors
continuing in office after the 1999 Annual Meeting, their terms of office, the
years in which they first became directors of the Company and their ages.
<TABLE>
<CAPTION>
Name Term Will Expire First Elected a Director Age
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lawrence A. Bossidy 2002 1995 64
Robert A. Charpie 2000 1975 73
H. Corbin Day 2001 1997 61
Alice F. Emerson 2001 1993 67
Allan E. Gotlieb 2000 1989 71
Henrique C. Meirelles 2002 1999 53
Kenwood C. Nichols 2001 1989 59
Richard E. Olson 2002 1996 61
Walter V. Shipley 2000 1983 63
Richard E. Walton 2000 1987 67
- --------------------------------------------------------------------------------------
</TABLE>
Mr. Bossidy has been Chief Executive Officer of AlliedSignal Inc., a
manufacturer of aerospace and automotive products and engineered materials,
since 1991 and Chairman of the Board of AlliedSignal since 1992. From 1957 to
1991, he served in various executive and financial positions, including Vice
Chairman and Executive Officer, at
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<PAGE> 7
General Electric Company, a diversified services and manufacturing company. He
also is a director of J.P. Morgan & Co. Incorporated and Merck & Co., Inc.
Mr. Charpie served as President of Cabot Corporation, a producer of
chemicals, metals, oil and gas, from 1969 to 1986 and as Chairman of the Board
of Cabot from 1986 to 1988. He is Chairman of Ampersand Venture Management
Corporation, a venture capital investment management firm.
Mr. Day has been Chairman of the Board of Jemison Investment Co., Inc., a
diversified holding company and venture capital firm, since 1988. He is a
limited partner and former general partner of Goldman, Sachs & Co., which
provides investment banking and financial advisory services to the Company. He
also is a director of American Heritage Life Investment Corporation, Blount
International, Inc., European Investors Holding Company, Inc. and Hughes Supply,
Inc.
Ms. Emerson is a Senior Advisor at The Andrew W. Mellon Foundation, a
philanthropic institution. From 1975 until joining the Mellon Foundation in
1991, she served as President of Wheaton College in Norton, Massachusetts. She
also is a director of AES Corporation, BankBoston Corporation and Eastman Kodak
Company.
Mr. Gotlieb served as Canada's Ambassador to the United States from 1981 to
1989 and as Chairman of Burson-Marsteller Canada, a public relations firm, from
1991 to 1995. He is a director of Alcan Aluminium Limited, Hollinger Inc. and
Livent Inc.
Mr. Meirelles has been President and Chief Operating Officer and a director
of BankBoston Corporation since 1996. He has served BankBoston Corporation and
its subsidiaries in various positions since 1974, including as Regional Manager
of Brazil from 1994 to 1996. He also is a director of Bestfoods and Raytheon
Company.
Mr. Nichols was elected Vice Chairman and Executive Officer of the Company
in 1996. He has been Vice Chairman and a director of the Company since 1989.
Mr. Olson was elected Chairman and Chief Executive Officer of the Company
in 1996. He had been an Executive Vice President of the Company since 1987.
Mr. Shipley is Chairman and Chief Executive Officer of The Chase Manhattan
Corporation. From 1982 to 1996, he served as Chairman and Chief Executive
Officer or as President of Chemical Banking Corporation, which merged with and
changed its name to The Chase Manhattan Corporation in 1996. He also is a
director of Bell Atlantic Corporation and Exxon Corporation.
Mr. Walton was a professor at the Harvard University Graduate School of
Business Administration, specializing in organizational development and work
innovation in industry, from 1968 to 1997.
COMMITTEES
The Board of Directors has four standing committees, each of which is
composed entirely of outside directors. The membership and principal
responsibilities of the Board committees are presented below.
<TABLE>
<S> <C>
Audit Committee Compensation and Stock Option Committee
Richard E. Walton, Chair Lawrence A. Bossidy, Chair
H. Corbin Day Robert A. Charpie
Alice F. Emerson H. Corbin Day
Allan E. Gotlieb
Committee on Board Affairs Pension Funding and Investment Committee
Robert A. Charpie, Chair Alice F. Emerson, Chair
Lawrence A. Bossidy Allan E. Gotlieb
Walter V. Shipley Richard E. Walton
</TABLE>
The Audit Committee recommends to the Board of Directors the firm of
independent auditors to be engaged to audit the annual consolidated financial
statements of the Company; reviews the annual audit plan as proposed by
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<PAGE> 8
the independent auditors and the fees to be paid for such services; reviews
management's engagement of independent auditors to perform non-audit services
and determines whether such engagement unduly influences the auditors'
independence; reviews and evaluates with the independent auditors the results of
the audit process; reviews and evaluates the organization, scope of activity and
effectiveness of the Company's internal audit function; discusses with senior
management, the independent auditors and the internal audit department their
observations with respect to the Company's system of internal control; performs
other activities deemed by the committee to provide necessary oversight of the
Company's public financial reporting process; and performs other duties assigned
by the Board of Directors. The Audit Committee held two meetings in 1998.
The Committee on Board Affairs advises the Board of Directors on possible
director nominees and on policy matters concerning the composition,
organization, work and affairs of the Board and its committees. Shareholders are
invited to submit matters of interest relating to the Company, including
possible director nominees, for the consideration of this committee by writing
to it at the Company's principal executive office. The Committee on Board
Affairs held two meetings in 1998.
The Compensation and Stock Option Committee has responsibility for the
compensation of officers and other senior managers. This committee determines
general management compensation policies; makes awards under the Company's
incentive compensation plans; reviews the Company's management succession plan;
and authorizes the holding of outside directorships by Company executives. The
Compensation and Stock Option Committee held four meetings in 1998.
The Pension Funding and Investment Committee approves the actuarial methods
and assumptions used in funding the Company's pension plans, approves the
investment policy and guidelines of the plans and reviews the plans' investment
performance. In addition, it establishes policies with respect to and monitors
the voting of stock owned by the Company's pension plans. This committee also
reviews and makes recommendations on pension and employee benefit matters
submitted to the Board of Directors. The Pension Funding and Investment
Committee held two meetings in 1998.
DIRECTORS' COMPENSATION
Each director who is not an employee of the Company receives an annual
retainer of $22,500 for services as a director and a fee of $1,500 for each
Board meeting attended. Each committee chair receives an annual retainer of
$5,000, and committee members, including chairs, receive a fee of $1,000 for
each committee meeting attended. At each director's election, these fees are
paid quarterly in cash or are deferred quarterly in the form of units equivalent
to shares of the Company's Common Stock; such units accrue dividend equivalents
and are paid in cash following retirement from the Board in the same manner as
the stock units described in the next paragraph.
The Board believes that, in order to further align the interests of outside
directors with the interests of shareholders, directors' compensation should
include a significant component of Company equity. Accordingly, each director
who is not an employee of the Company receives quarterly grants of Common Stock
equivalent units with an annual value of $22,500. These units accrue amounts
equal to dividends paid on the Common Stock, which are credited in the form of
additional units. The value of all of a director's Common Stock equivalent units
(whether received pursuant to the grants described in this paragraph or pursuant
to any elective deferral of fees as described in the previous paragraph) is paid
in cash following his or her retirement from the Board, in accordance with a
schedule selected by the director, based upon the price of the Common Stock at
the time of payment.
The Company provides $50,000 of group term life insurance and $200,000 of
travel accident insurance to the outside directors as well as directors
liability insurance for all directors.
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<PAGE> 9
STOCK OWNERSHIP BY DIRECTORS, NOMINEES AND
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
shares and equivalent units of the Company's Common Stock beneficially owned, as
of March 31, 1999, by each director and nominee, by each of the executive
officers included in the Summary Compensation Table presented later in this
Proxy Statement and by all directors, nominees and executive officers as a
group. The number of shares beneficially owned by all directors, nominees and
executive officers as a group represents less than 1% of the outstanding Common
Stock.
<TABLE>
<CAPTION>
Name Number of Shares(1)
- -------------------------------------------------
<S> <C> <C>
L. Scott Barnard 85,631 (2),(3)
Lawrence A. Bossidy 4,490 (4)
Robert A. Charpie 49,955 (4)
H. Corbin Day 5,458 (4)
Alice F. Emerson 1,550 (4)
Allan E. Gotlieb 2,120 (4)
Thomas L. Griffin 42,008 (2),(3)
Henrique C. Meirelles 2,136 (4)
Kenwood C. Nichols 287,474 (2),(3)
Richard E. Olson 155,630 (2),(3)
Richard L. Porterfield 78,629 (2),(3)
Walter V. Shipley 8,474 (4)
Richard E. Walton 8,010 (4)
All directors, nominees
and executive
officers as a group 870,759 (2),(3),(4)
- -------------------------------------------------
</TABLE>
(1) Certain directors and executive officers share voting or investment power
with other persons with respect to 31,791 of such shares.
(2) The amounts reported include shares of Common Stock that executive officers
have the right to acquire pursuant to stock options that are exercisable or
will become exercisable within 60 days, as follows: Mr. Barnard - 58,000
shares; Mr. Griffin - 28,300 shares; Mr. Nichols - 237,500 shares; Mr.
Olson - 102,000 shares; Mr. Porterfield - 60,300 shares; and all executive
officers as a group - 586,100 shares. The table does not include shares
underlying performance share units and unvested restricted stock units held
by executive officers.
(3) The amounts reported include shares of Common Stock that have been earned
out under certain compensation plans and the receipt of which has been
deferred until retirement, as follows: Mr. Barnard - 12,034 shares; Mr.
Griffin - 4,438 shares; Mr. Nichols - 13,538 shares; Mr. Olson - 15,278
shares; Mr. Porterfield - 9,419 shares; and all executive officers as a
group - 65,054 shares.
The amounts reported also include Common Stock equivalent units held under
the deferral arrangements of certain compensation and savings plans which
entitle participants to receive a cash payment for each unit equal to the
price of a share of Common Stock at the time of payment, as follows: Mr.
Barnard - 9,004 units; Mr. Griffin - 5,472 units; Mr. Nichols - 4,576 units;
Mr. Olson - 17,251 units; Mr. Porterfield - 7,188 units; and all executive
officers as a group - 54,248 units.
(4) The amounts reported include Common Stock equivalent units, as follows: Mr.
Bossidy - 2,490 units; Mr. Charpie - 42,297 units; Mr. Day - 2,458 units;
Ms. Emerson - 1,120 units; Mr. Gotlieb - 1,120 units;
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<PAGE> 10
Mr. Meirelles - 136 units; Mr. Shipley - 7,474 units; Mr. Walton - 6,110
units; and all directors as a group - 63,205 units. These Common Stock
equivalent units consist of the units discussed above under "Directors'
Compensation" and, in the case of certain directors, similar units
representing the settlement of their accrued pension benefit as of January
1, 1997 under the Company's former retirement plan for outside directors.
- --------------------------------------------------------------------------------
EXECUTIVE COMPENSATION
REPORT ON 1998 EXECUTIVE COMPENSATION BY THE COMPENSATION AND STOCK OPTION
COMMITTEE OF THE BOARD OF DIRECTORS
General
The Compensation and Stock Option Committee of the Board of Directors (the
"Committee") administers the Company's executive compensation program and
determines the compensation of senior management. The Committee is composed
entirely of outside directors.
The objective of the Company's executive compensation program is to attract
and retain outstanding senior managers and to provide meaningful incentives for
them to maximize shareholder value. Accordingly, a substantial portion of each
executive's compensation is dependent upon Company financial performance and
appreciation in the price of the Company's Common Stock. In addition, senior
managers are required to own specified minimum amounts of Company stock.
The decisions of the Committee with regard to executive compensation are
made in the context of competitive conditions. The Committee reviews summaries
of surveys prepared by outside compensation consultants with respect to the
compensation levels of approximately 15 other large companies in the forest
products industry (the "Forest Products Group") and approximately 300 large
industrial companies (the "General Industrial Group"). Since the Company
competes for executive talent with companies other than its principal business
competitors, the comparative groups for executive compensation purposes are
broader than the principal business competitor group represented in the
Comparison of Five-Year Cumulative Total Return Graph below.
The principal components of the Company's executive compensation program in
1998 were salary; annual incentive compensation; and longer-term, equity-based,
incentive compensation, primarily stock options. As discussed below, each of
these components serves a somewhat different purpose in motivating executives to
maximize shareholder value.
Salary
Salary is intended to provide a competitive base level of compensation.
Salary ranges for executive officers are targeted to approximate the 75th
percentile of the Forest Products Group and the median of the General Industrial
Group for substantially similar positions.
Reflecting the emphasis on incentive compensation, beginning in 1998
executive officers no longer are eligible for salary increases on an annual
basis unless their salary levels are below the targeted position in their
respective salary ranges. For this reason, no salary increases were granted to
certain executive officers, including Messrs. Olson and Nichols, in 1998. The
salary increase for each of the other executive officers in 1998 was based upon
his individual performance and position in his salary range. The Committee's
evaluation of individual performance included an assessment of, among other
factors, the executive's managerial skills, leadership qualities and strategic
planning capabilities. In addition, Mr. Griffin received a special salary
increase in 1998 to reflect his election as an Executive Vice President.
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<PAGE> 11
Annual Incentive Compensation
The primary purpose of annual incentive compensation is to motivate senior
managers, through short-term (one-year) incentives and rewards, to maximize
shareholder value by maximizing the Company's financial performance.
Annual incentive compensation for executive officers is designed so that,
upon the attainment of targeted performance levels, total annual cash
compensation for substantially similar positions approximates the 75th
percentile of the Forest Products Group and the median of the General Industrial
Group. Actual incentive award amounts each year are at, above or below the
designed level depending upon whether performance in that year is at, above or
below targeted levels. In 1998, the incentive award for each executive officer
was based upon two performance measures: (i) the Company's return on capital
employed ("ROCE") in relation to objectives established at the beginning of the
year; and (ii) the executive's individual performance. At targeted ROCE and
individual performance levels, the ROCE performance measure has substantially
greater weight than the individual performance measure in determining annual
incentive awards.
The performance criteria described above resulted in the incentive awards
for 1998 set forth in the Incentive Award column of the Summary Compensation
Table below for Mr. Olson and each of the other four most highly compensated
executive officers. The Company's ROCE in 1998 was higher than in 1997. However,
it was below the targeted level for 1998, mainly due to low prices for pulp and
paper. As a result, the incentive awards for all of the executive officers
increased from 1997 but were below targeted levels for 1998.
As an incentive for senior managers to increase their equity interest in
the Company, the Committee authorized a 10% increase in the amount of any
incentive awards for 1998 that were deferred until retirement by the recipients
in the form of units equivalent to shares of the Company's Common Stock. Certain
executive officers, including Messrs. Olson, Barnard and Griffin, made such
deferral elections for 1998. The resulting increase in the annual incentive
compensation for Messrs. Olson, Barnard and Griffin is set forth in the Deferral
Premium column of the Summary Compensation Table below.
Longer-Term, Equity-Based, Incentive Compensation
The primary purpose of longer-term, equity-based, incentive compensation is
to motivate senior managers to maximize shareholder value by linking a portion
of their compensation directly to shareholder return. In 1998, the Company's
equity-based compensation for executive officers consisted principally of stock
options. Options provide value to executives only when the Company's
shareholders benefit from appreciation in the price of the Company's Common
Stock.
In 1997, the Committee authorized grants of performance share units to
executive officers and other senior managers. As described under "Long-Term
Incentive Plan Awards Table" below, performance share units will be earned out
only if a very aggressive total shareholder return ("TSR") goal is achieved
before March 19, 2000. If the TSR goal is not achieved, there will be no
earn-out, and the performance share units will be forfeited. In 1998, the
Committee authorized additional pro rata grants of performance share units to
certain executive officers, including Messrs. Porterfield and Griffin, to
reflect their respective promotions and assumption of new responsibilities.
These additional grants have the same TSR goal as the 1997 grants.
Equity-based, incentive compensation for executive officers is targeted at
the median of the Forest Products Group and the General Industrial Group for
substantially similar positions. In order to maintain the value of such
compensation at the targeted level, fewer options are granted to senior managers
in years in which they receive grants of performance share units. For this
reason, all of the executive officers in 1997 and certain executive officers,
including Messrs. Porterfield and Griffin, in 1998 received option grants in an
amount less than that normally specified for their respective grade levels.
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<PAGE> 12
From time to time, restricted stock units are granted to selected senior
managers, including certain executive officers. The purpose of these awards is
to promote the retention of these key executives and to further tie their
compensation to shareholder return. The units vest in installments over a
multi-year period, provided the executive remains in the Company's employ until
each vesting date. In 1998, the Committee granted restricted stock units to one
executive officer, who had not received any previous grant and who is not one of
the named executives included in the Summary Compensation Table below, in
connection with his assumption of additional responsibilities.
Equity-based compensation is granted as an incentive for the future rather
than as a reward for the past. Consequently, the size of the award generally is
a function of the executive's grade level and does not vary with Company
performance. The size of the award is not affected by the amount of equity-based
compensation previously granted to, or held at the time by, an executive.
Stock Ownership Program
Upon the recommendation of the Committee, a stock ownership program was
adopted by the Board of Directors in 1997 in order to more closely link the
interests of management with the interests of shareholders. The program applies
to the executive officers and approximately 90 other senior managers.
Executive officers are required to attain specified minimum levels of
ownership of Company stock or stock units within a three-year period. The
ownership requirement is equal to three times salary for the Chairman and Vice
Chairman and, depending upon their responsibilities, one or two times salary for
the other executive officers. Depending upon their responsibilities, the other
senior managers covered by the program are required within a three-year or
five-year period to own Company stock or stock units equal to their salary or
half of their salary.
Deductibility of Executive Compensation
For federal income tax purposes, a public company may not deduct
compensation in excess of $1 million paid in any year to its Chief Executive
Officer or any of its other four most highly compensated executive officers.
However, compensation that is deferred until retirement or is paid solely on
account of the attainment of objective performance goals is not subject to the
$1 million deduction limit.
Compensation attributable to the exercise of outstanding stock options is
fully deductible by the Company. This also will be true with respect to options
granted under the proposed 1999 Stock Option Plan if it is approved by the
shareholders at the meeting. In addition, as the result of the deferral
provisions of outstanding performance share unit and restricted stock unit
awards, no loss of deductions is anticipated upon the vesting of those units.
Since annual incentive compensation awards are not paid solely upon the
attainment of objective performance goals, the deduction limit does apply to
such awards unless they are deferred until retirement. The Committee believes
that the purposes of the Company's executive compensation program are better
served by basing annual incentive compensation on the combination of an
objective Company performance goal (ROCE) and individual performance evaluations
rather than exclusively on mechanistic criteria that allow no opportunity for
Committee judgment regarding important intangible factors.
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<PAGE> 13
Compensation paid to the Company's executive officers in 1998 was fully
deductible. In view of the anticipated compensation levels for the executive
officers in 1999, it is expected that compensation paid to the executive
officers this year also will be fully deductible.
* * *
Compensation and Stock Option Committee
Lawrence A. Bossidy, Chair
Robert A. Charpie
H. Corbin Day
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Day is one of the three outside directors who comprise the Compensation
and Stock Option Committee of the Board of Directors. He is a limited partner
and former general partner of Goldman, Sachs & Co., which provides investment
banking and financial advisory services to the Company.
Mr. Day retired as a general partner of Goldman Sachs in 1986. Since then,
he has had no role in the management of and has not shared in the profits of
Goldman Sachs. As a limited partner, his financial interest in Goldman Sachs
consists solely of the receipt of a fixed rate of return on the capital
contribution that he made to the firm prior to his retirement as a general
partner. This return is not dependent upon or affected in any way by the
services that Goldman Sachs performs for the Company.
10
<PAGE> 14
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation for
1996, 1997 and 1998 of the Company's Chief Executive Officer and each of the
other four most highly compensated executive officers of the Company in 1998
(collectively, the "named executives").
Summary Compensation Table
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Long-Term
Annual Compensation Compensation Awards
------------------------------------------------------ --------------------------------
Bonus Other Securities
----------------------------- Annual Restricted Underlying
Name and Incentive Deferral Compen- Stock Options/
Principal Salary(4) Award(4) Premium(5) sation(6) Units(7) SARs(8)
Position Year ($) ($) ($) ($) ($) (#)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard E. Olson, 1998 $800,000 $475,000 $47,500 $ -- $ 0 55,000
Chairman and 1997 800,000 300,000 N/A 1,071 0 23,000
Chief Executive Officer(1) 1996 587,500 700,000 N/A 10,338 2,212,500 12,000
- ---------------------------------------------------------------------------------------------------------------------------------
Kenwood C. Nichols, 1998 665,000 320,000 0 -- 0 40,000
Vice Chairman and 1997 665,000 250,000 N/A 843 0 15,500
Executive Officer(2) 1996 600,000 550,000 N/A 1,198 1,991,250 28,000
- ---------------------------------------------------------------------------------------------------------------------------------
L. Scott Barnard, 1998 441,000 180,000 18,000 -- 0 20,000
Executive Vice 1997 424,000 140,000 N/A 420 0 8,000
President 1996 366,667 261,400 N/A 14,736 1,770,000 10,000
- ---------------------------------------------------------------------------------------------------------------------------------
Richard L. Porterfield, 1998 386,000 160,000 0 -- 0 18,500
Executive Vice 1997 371,000 135,000 N/A 352 0 6,800
President 1996 350,000 229,400 N/A 669 1,416,000 10,000
- ---------------------------------------------------------------------------------------------------------------------------------
Thomas L. Griffin, 1998 281,580 175,000 17,500 -- 0 15,800
Executive Vice
President(3)
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
--------------
All
Other
Name and Compen-
Principal sation(9)
Position ($)
- ------------------------------- --------------
<S> <C>
Richard E. Olson, $233,786
Chairman and 167,777
Chief Executive Officer(1) 167,502
- ----------------------------------------------
Kenwood C. Nichols, 204,307
Vice Chairman and 152,186
Executive Officer(2) 163,542
- ----------------------------------------------
L. Scott Barnard, 102,559
Executive Vice 100,167
President 99,102
- ----------------------------------------------
Richard L. Porterfield, 76,035
Executive Vice 69,575
President 87,921
- ----------------------------------------------
Thomas L. Griffin, 51,088
Executive Vice
President(3)
- ----------------------------------------------
</TABLE>
(1) Mr. Olson was elected Chairman and Chief Executive Officer in 1996.
(2) Mr. Nichols was elected Vice Chairman and Executive Officer in 1996.
(3) Mr. Griffin was elected an Executive Vice President in 1998.
(4) The amounts reported in the Salary and Incentive Award columns,
respectively, include all salary and annual incentive compensation for the
applicable years, whether paid currently in cash or deferred until
retirement at the election of the named executive.
(5) As an incentive for senior managers to increase their equity interest in the
Company, the Compensation and Stock Option Committee of the Board of
Directors authorized a 10% increase in the amount of any annual incentive
compensation awards for 1998 that were deferred until retirement by the
recipients in the form of units equivalent to shares of the Company's Common
Stock. Messrs. Olson, Barnard and Griffin made such deferral elections. The
resulting increase in their annual incentive compensation for 1998 is set
forth in the Deferral Premium column. The total annual incentive
compensation for 1998 for Messrs. Olson, Barnard and Griffin is equal to the
sum of the amounts set forth in the Incentive Award and Deferral Premium
columns.
(6) In 1998, the value of personal benefits provided was less than the minimum
amount required to be reported. The amounts reported for 1997 and 1996
represent certain tax payments made by the Company on behalf of the named
executives.
11
<PAGE> 15
(7) The amounts reported represent the market value of the restricted stock
units as of the date of grant in 1996. Each unit entitles the holder, upon
vesting, to receive one share of Common Stock. The number of restricted
stock units granted to each of the named executives was as follows: Mr.
Olson - 50,000 units; Mr. Nichols - 45,000 units; Mr. Barnard - 40,000
units; and Mr. Porterfield - 32,000 units. Thirty percent of the restricted
stock units vested on August 15, 1998. If the named executive is employed by
the Company on the applicable vesting date, an additional 30% of the grant
will vest on August 15, 2000, and the remaining 40% of the grant will vest
on August 15, 2002.
Performance share units were granted to each of the named executives in
1997, and an additional pro rata grant was made to certain named executives
in 1998. For a description of the terms of the performance share units, see
"Long-Term Incentive Plan Awards Table" below.
As of year-end 1998, the number and market value of the unvested restricted
stock units and of the performance share units in the aggregate held by each
of the named executives were as follows: Mr. Olson - 80,600 units
($3,264,300); Mr. Nichols - 66,500 units ($2,693,250); Mr. Barnard - 48,000
units ($1,944,000); Mr. Porterfield - 40,600 units ($1,644,300); and Mr.
Griffin - 14,800 units ($599,400). The information in the preceding sentence
reflects an assumed target performance level for the performance share
units, although in fact they are subject to forfeiture in their entirety if
the total shareholder return goal is not achieved before March 19, 2000.
Dividend equivalents are not paid or credited with respect to unvested
restricted stock units or performance share units.
(8) The amounts reported represent shares underlying options to purchase Common
Stock. Options granted in 1996 have tandem stock appreciation rights
("SARs"). To the extent that a stock option or an SAR is exercised, the
tandem grant is canceled. Options granted in 1997 and 1998 do not have
tandem SARs.
(9) The amounts reported for 1998 include matching contributions by the Company
to accounts under the Savings Plan for Salaried Employees and the
Nonqualified Supplemental Savings Plan, as follows: Mr. Olson - $33,000; Mr.
Nichols - $27,450; Mr. Barnard - $17,430; Mr. Porterfield - $15,630; and Mr.
Griffin - $11,565. Company contributions are invested in shares of the
Company's Common Stock under the Savings Plan for Salaried Employees, which
is funded, and are made in units equivalent to shares of the Company's
Common Stock under the Nonqualified Supplemental Savings Plan, which is
unfunded.
The balance of the amounts reported for 1998 represents premiums paid by the
Company under the Company's Executive Life Insurance Plan. All employees who
are above a certain compensation grade level, including all of the executive
officers, participate in this plan.
12
<PAGE> 16
OPTION GRANT TABLE
The following table sets forth information concerning the grant of stock
options to each of the named executives in 1998. The potential realizable values
included in the table represent hypothetical gains from the stock options
granted in 1998 as well as the corresponding hypothetical gains for all
shareholders in the market value of the Company's Common Stock. These
hypothetical gains are based upon assumed annual stock price appreciation rates
of 5% and 10% over the full 10-year term of the options in accordance with
Securities and Exchange Commission regulations. At the end of the term of the
options granted in 1998, the price of a share of the Common Stock would be
$94.07 at an assumed annual appreciation rate of 5% and $149.79 at an assumed
annual appreciation rate of 10%.
Option Grants in 1998
<TABLE>
<CAPTION>
Potential Realizable
Value
at Assumed Annual
Rates of
Stock Price Appreciation
Individual Grants(1) for Option Term
------------------------------------------------------ -------------------------
Number of
Securities % of Total
Underlying Options Exercise
Options Granted to or Base
Granted Employees Price(2) Expiration 5% 10%
Name (#) in 1998 ($/Sh) Date ($) ($)
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
Richard E. Olson 55,000 5.7% $57.75 April 15, 2008 $1,997,529 $5,062,123
Kenwood C. Nichols 40,000 4.2% 57.75 April 15, 2008 1,452,748 3,681,544
L. Scott Barnard 20,000 2.1% 57.75 April 15, 2008 726,374 1,840,772
Richard L. Porterfield 18,500 1.9% 57.75 April 15, 2008 671,896 1,702,714
Thomas L. Griffin 15,800 1.6% 57.75 April 15, 2008 573,835 1,454,210
- --------------------------------------------------------------------------------------------------------------
All Shareholders N/A N/A N/A N/A $3.5 billion $8.8 billion
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All of the stock options awarded to the named executives last year were
granted on April 15, 1998 and became exercisable on April 15, 1999, provided
the optionee remained in the Company's employ until that date. Although the
Compensation and Stock Option Committee of the Board of Directors had the
authority to permit the exercise of those stock options at any time prior to
April 15, 1999 upon its determination of the existence of a special or
extraordinary situation, it did not exercise this authority.
Reference is made to "Employment and Severance Agreements" below for a
description of the cash settlement of stock options held by certain named
executives upon any termination of employment without cause within three
years after a change in control of the Company.
(2) The exercise price is 100% of the fair market value of a share of the
Company's Common Stock on the date of grant. The exercise price may be paid
in cash or in shares of the Company's Common Stock valued at their fair
market value on the date of exercise.
13
<PAGE> 17
OPTION/SAR EXERCISE AND YEAR-END VALUES TABLE
The following table sets forth information with respect to each of the
named executives concerning the exercise of stock options and tandem SARs in
1998 and concerning unexercised stock options and tandem SARs held at December
31, 1998.
Aggregated Option/SAR Exercises in 1998
and Year-End Option/SAR Values
<TABLE>
<CAPTION>
Number of Value of Unexercised
Securities Number of Securities In-the-Money
Underlying Underlying Unexercised Options/SARs
Options/SARs Value Options/SARs at Year-End at Year-End(1)
Exercised Realized (#) ($)
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Richard E. Olson 0 0 47,000 55,000 $ 16,500 0
Kenwood C. Nichols 0 0 197,500 40,000 1,554,000 0
L. Scott Barnard 0 0 38,000 20,000 132,000 0
Richard L. Porterfield 0 0 41,800 18,500 165,000 0
Thomas L. Griffin 0 0 12,500 15,800 44,625 0
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The amounts in these columns are based upon the $40.50 closing price of a
share of the Company's Common Stock on December 31, 1998 on the New York
Stock Exchange Composite Transactions.
14
<PAGE> 18
LONG-TERM INCENTIVE PLAN AWARDS TABLE
The following table sets forth information with respect to each of the
named executives concerning the grant of performance share units in 1998 and the
potential earn-out of shares of the Company's Common Stock pursuant to such
grant.
Long-Term Incentive Plan Awards in 1998
<TABLE>
<CAPTION>
Estimated Future Payouts
Number of (Number of Shares)
Performance Performance ----------------------------
Name Share Units Period Threshold Target Maximum
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------
Richard E. Olson 0 N/A 0 0 0
Kenwood C. Nichols 0 N/A 0 0 0
L. Scott Barnard 0 N/A 0 0 0
Richard L. Porterfield 3,600 3/19/97-3/18/00 2,880 3,600 6,120
Thomas L. Griffin 10,400 3/19/97-3/18/00 8,320 10,400 17,680
- ------------------------------------------------------------------------------------
</TABLE>
In 1997, performance share units were granted to the named executives and
other senior managers in lieu of a portion of normal stock option awards in
order to tie a significant part of equity-based compensation to a very
aggressive goal relating to total shareholder return (stock price appreciation
plus dividend yield) ("TSR"). These units entitle the executives, upon earn-out,
to receive shares of the Company's Common Stock. The earn-out of shares is
dependent upon TSR increasing, at any time before March 19, 2000, to a value
equivalent to approximately 15% per annum compounded for three years. If the TSR
goal is achieved, then, depending upon the Company's TSR during the performance
period relative to an industry peer group, the number of shares earned out will
range from 80% to 170% of the number of performance share units granted. If the
TSR goal is not achieved, no shares will be earned out, and the performance
share units will be forfeited.
As reported in the table above, in 1998, additional pro rata grants of
performance share units in lieu of a portion of normal stock option awards were
made to Messrs. Porterfield and Griffin to reflect their respective promotions
and assumption of new responsibilities. These additional grants have the same
TSR goal as the 1997 grants. In the table above, the threshold, target and
maximum potential payouts correspond to earn-out levels equal to 80%, 100% and
170%, respectively, of the number of performance share units granted.
15
<PAGE> 19
PENSION PLAN TABLE
The Company's retirement program consists of (i) a tax-qualified, funded
pension plan for all non-represented salaried employees, including executive
officers, and (ii) for executive officers and other key employees, a non-
qualified, unfunded supplemental retirement income plan that provides benefits
which, but for certain limits imposed by the Internal Revenue Code on
tax-qualified plans, would be provided under the Company's qualified pension
plan. The retirement program provides non-contributory benefits based upon years
of service and average annual earnings for, in the case of executive officers,
the highest three consecutive years in the 10 years preceding retirement.
Average annual earnings covered by the program consist of (1) the average of the
salaries reported in the Summary Compensation Table for the applicable years,
plus (2) the higher of (a) the average of the bonuses reported in the Summary
Compensation Table for such years or (b) the average of the bonuses paid in such
years but earned in, and reported in the Summary Compensation Table for, the
immediately preceding years.
The following table sets forth, for various income and service levels, the
annual benefits payable to executive officers under the Company's retirement
program for life, commencing at normal retirement at age 65 or upon early
retirement after age 62. These benefits are presented on a straight-life annuity
basis and before deducting the portion of Social Security payments attributable
to Company contributions as provided by the retirement program.
Pension Plan Table
<TABLE>
<CAPTION>
Approximate Annual Retirement Benefits
Average ---------------------------------------------------------------------------
Annual 10 Years 15 Years 20 Years 25 Years 30 Years 35 Years
Earnings of Service of Service of Service of Service of Service of Service
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 250,000 $ 41,667 $ 62,500 $ 83,333 $104,167 $ 125,000 $ 145,833
500,000 83,333 125,000 166,667 208,333 250,000 291,667
750,000 125,000 187,500 250,000 312,500 375,000 437,500
1,000,000 166,667 250,000 333,333 416,667 500,000 583,333
1,250,000 208,333 312,500 416,667 520,833 625,000 729,167
1,500,000 250,000 375,000 500,000 625,000 750,000 875,000
1,750,000 291,667 437,500 583,333 729,167 875,000 1,020,833
2,000,000 333,333 500,000 666,667 833,333 1,000,000 1,166,667
- ----------------------------------------------------------------------------------------
</TABLE>
Average annual earnings for the highest three consecutive years in the last
10 years and presently credited years of service for the named executives are as
follows: Mr. Olson - $1,304,500 / 32 years; Mr. Nichols - $1,259,667 / 26 years;
Mr. Barnard - $756,689 / 30 years; Mr. Porterfield - $702,800 / 20 years; and
Mr. Griffin - $383,304 / 8 years.
Messrs. Nichols and Olson have agreements with the Company which provide
for annual retirement benefits of 60% of average annual earnings (salary and
bonus) for the highest three consecutive years in the 10 years preceding
retirement, provided in the case of Mr. Nichols that he remains employed by the
Company until July 19, 1999. The retirement benefit for Mr. Olson will increase
to 65% of average annual earnings if he remains employed by the Company until
August 10, 1999. These contractual retirement benefits are payable only to the
extent that they exceed the retirement benefits paid under the Company's
retirement program, described above, plus the portion of Social Security
payments attributable to Company contributions. The agreements also provide a
survivor retirement benefit for the wives of Messrs. Nichols and Olson equal to
60% of the retirement benefit payable thereunder to the respective executives
during their lifetime. Under the agreements, upon retirement Messrs. Nichols and
Olson may elect to receive the present value of all of their retirement
benefits, other than the portion attributable to the qualified pension plan, in
a lump sum, subject to the approval of the Company's Board of Directors.
16
<PAGE> 20
EMPLOYMENT AND SEVERANCE AGREEMENTS
The Company has employment agreements with Messrs. Nichols and Olson which
provide for minimum annual salaries of $375,000 and $800,000, respectively. If
employment is terminated by the Company without cause, Messrs. Nichols and Olson
are entitled to severance pay for two years (but not beyond age 65) at annual
rates of $1,549,000 and $1,322,500, respectively, as well as the continuation
for two years (but not beyond age 65) of certain employee benefits, including
medical, dental and disability coverages. These agreements also provide certain
retirement benefits, as discussed above under "Pension Plan Table".
The Company has agreements with Messrs. Barnard and Porterfield which
provide that, if employment is terminated by the Company without cause, they are
entitled to severance pay for two years (but not beyond age 65) at annual rates
of $912,000 and $937,000, respectively, as well as the continuation for two
years (but not beyond age 65) of certain employee benefits, including medical,
dental and disability coverages.
All these agreements also provide that, if employment is terminated without
cause within three years after a change in control of the Company: (i) severance
amounts, medical, dental and disability coverages for two years and the present
value of any contractual retirement benefits will become payable in a lump sum;
and (ii) absent notice to the contrary from the named executive, the Company
will settle his stock options and tandem SARs for cash equal to the difference
between the fair market value of the option shares at the time of termination
(or, if applicable and if higher, the change in control tender offer price) and
the exercise price. In addition, provision is made for the payment of legal
expenses if the Company refuses to make required payments under the agreements
and for the funding of certain of such payments by a trust when a potential
change in control occurs.
The Company's obligation to make the payments provided for in these
agreements is subject to certain conditions. Such conditions require, among
other things, that following termination of employment the named executive
provide such assistance in litigation as may reasonably be requested by the
Company and refrain from actions, such as competition against the Company and
disclosure of confidential information relating to the Company, that would be
materially detrimental to the Company.
For the purpose of these agreements, "termination" means actual discharge
as well as specified types of constructive discharge, including diminution of
title, responsibility or salary below the specified minimum. "Cause" means (i) a
breach by the named executive of his agreement which results in material injury
to the Company, or (ii) an act of dishonesty constituting a felony and resulting
or intended to result in personal gain at the expense of the Company. "Change in
control" means (a) the acquisition by any person of securities representing 30%
or more of the combined voting power of the Company's securities, (b) a change
in the composition of a majority of the Board of Directors under certain
circumstances within any two-year period, or (c) approval by shareholders of the
liquidation of the Company or the disposition of all or substantially all of its
assets.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN GRAPH
The following graph presents a five-year comparison of cumulative total
returns for the Common Stock of the Company, an index of peer companies (the
"Peer Group") and the Standard & Poor's 500 Stock Index (the "S&P 500 Index").
The Peer Group consists of the following major forest products companies: Boise
Cascade
17
<PAGE> 21
Corporation, Georgia-Pacific Corporation (including both the Georgia-Pacific
Group Common Stock and the Georgia-Pacific Timber Group Common Stock),
International Paper Company, Stone Container Corporation (until its merger with
Jefferson Smurfit Corporation on November 18, 1998), Union Camp Corporation and
Weyerhaeuser Company. The graph assumes that $100 was invested on December 31,
1993 in Champion Common Stock, Peer Group Common Stock and the S&P 500 Index.
Total return assumes the quarterly reinvestment of dividends.
[FIVE-YEAR CUMULATIVE TOTAL RETURN COMPARISON GRAPH]
<TABLE>
<CAPTION>
CHAMPION PEER GROUP S&P 500
-------- ---------- -------
<S> <C> <C> <C>
1993 $100.00 $100.00 $100.00
1994 110.00 103.80 101.30
1995 127.10 110.40 139.40
1996 131.50 120.10 171.40
1997 138.30 130.70 228.50
1998 124.20 140.20 293.80
</TABLE>
TRANSACTIONS
The Company and its subsidiaries have transactions in the ordinary course
of business with organizations with which certain of the Company's directors are
associated. In 1998, none of those transactions was sufficiently significant to
be reportable, and management believes that all were on substantially the same
terms as those prevailing at the time for comparable transactions with other
persons. It is expected that similar transactions with such organizations will
take place in the future.
DIRECTORS AND OFFICERS LIABILITY INSURANCE
In October 1998, the Company renewed its directors and officers liability
insurance policies. The policy issued by National Union Fire Insurance Company
of Pittsburgh, Pa. was renewed for a three-year term at an annual premium rate
of $270,000. The policies issued by Federal Insurance Company and Great American
Insurance Company were renewed for one-year terms at premiums aggregating
$204,000.
18
<PAGE> 22
- -- PROPOSAL 2: APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors, pursuant to the recommendation of its Audit
Committee, has appointed Arthur Andersen LLP, certified public accountants, as
independent auditors for the Company for 1999, subject to approval by the
shareholders at the Annual Meeting.
Representatives of Arthur Andersen LLP are expected to be present at the
Annual Meeting and will be given the opportunity to make a statement, if they
desire, and to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS APPROVE THE
APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITORS FOR 1999.
- -- PROPOSAL 3: APPROVAL OF 1999 STOCK OPTION PLAN
In accordance with the recommendation of its Compensation and Stock Option
Committee, the Board of Directors adopted the Champion International Corporation
1999 Stock Option Plan (the "1999 Plan") on February 18, 1999, subject to
approval by the shareholders at the Annual Meeting. The purposes of the 1999
Plan are to attract to and retain in the employ of the Company and its
subsidiaries and affiliates individuals of outstanding competence; to further
the identity of the interests of such employees with the interests of the
Company's shareholders; and to enhance the incentive for such employees to
promote the success of the Company's business and to maximize shareholder value.
If approved by the shareholders, the 1999 Plan will become effective on May 20,
1999 (the "Effective Date").
SUMMARY OF PRINCIPAL PROVISIONS OF THE 1999 STOCK OPTION PLAN
The principal provisions of the 1999 Plan are summarized below. The summary
is qualified in its entirety by reference to the specific provisions of the 1999
Plan, a copy of which is attached hereto as Exhibit A.
Common Stock Subject to the 1999 Plan. The number of shares of Common
Stock, par value $0.50 per share, of the Company (the "Common Stock") reserved
for issuance under the 1999 Plan is equal to 7,000,000 plus the number of shares
of Common Stock remaining available for issuance under the Company's 1986 Stock
Option Plan, as amended (the "1986 Plan"), immediately prior to the Effective
Date. As of March 31, 1999, there were 222,870 shares of Common Stock remaining
available for issuance under the 1986 Plan, although such number may change
prior to May 20, 1999 by reason of, for example, terminations of employment. If
the 1999 Plan is approved by the shareholders, no further grants will be made
under the 1986 Plan. The number of shares reserved for issuance under the 1999
Plan, as well as the number of shares and the exercise or grant price applicable
to then-outstanding awards under the 1999 Plan, are subject to equitable
adjustment upon the occurrence of any dividend or other distribution (whether in
the form of cash, Common Stock or other property), recapitalization, stock
split, reverse split, reorganization, merger, consolidation, spin-off,
combination, repurchase or share exchange, or other similar corporate
transaction or event.
The market value of the shares of Common Stock issuable under the 1999 Plan
(assuming that 7,222,870 shares will be reserved for issuance) as of March 31,
1999, based upon the closing sales price of Common Stock on that date ($41.0625
per share), is equal to $296,589,099.
If any award granted under the 1999 Plan ("Award") is forfeited, canceled,
exchanged or surrendered or if an Award otherwise terminates or expires without
having been exercised, the shares of Common Stock with respect to such Award
will, to the extent of any such forfeiture, cancellation, exchange, surrender,
termination or expiration, again be available for issuance under the 1999 Plan.
If the exercise price of a stock option granted under the 1999 Plan is paid for
by the surrender of previously owned shares of Common Stock, the number of
shares of Common Stock available for issuance under the 1999 Plan will be
increased by the number of previously owned shares of Common Stock so
surrendered.
19
<PAGE> 23
Administration. The 1999 Plan will be administered by the Compensation and
Stock Option Committee of the Board of Directors (the "Committee"). The
Committee has the authority to exercise all the powers and authorities either
specifically granted to it under the 1999 Plan or necessary or advisable in the
administration of the 1999 Plan, including, without limitation, the authority to
grant Awards; to determine the persons to whom and the time or times at which
Awards will be granted; to determine the type and number of Awards to be
granted; to determine the number of shares of Common Stock to which an Award may
relate and the terms and conditions relating to any Award; to determine whether,
to what extent and under what circumstances an Award may be settled, canceled,
forfeited, exchanged or surrendered; to make adjustments in the terms and
conditions applicable to Awards; to construe and interpret the 1999 Plan and any
Award; to prescribe, amend and rescind rules and regulations relating to the
1999 Plan; to determine the terms and provisions of the agreements evidencing
Awards; and to make all other determinations deemed necessary or advisable for
the administration of the 1999 Plan. All decisions, determinations and
interpretations of the Committee shall be final and binding on all persons,
including, without limitation, the Company.
Form of Awards. Awards may be granted in the form of "incentive stock
options" ("ISOs") pursuant to Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"); options that do not qualify as ISOs ("nonqualified
options" and, together with ISOs, "stock options"); and stock appreciation
rights.
Eligibility. Awards may be granted to any employee of the Company and its
present and future subsidiaries and affiliates, in the discretion of the
Committee. In determining the persons to whom Awards shall be granted and the
type of any Award (including the number of shares to be covered by such Award),
the Committee will take into account such factors as the Committee deems
relevant in connection with accomplishing the purposes of the 1999 Plan. No
single individual may receive Awards with respect to more than 500,000 shares of
Common Stock in a given calendar year, which number is subject to equitable
adjustment as described above.
Vesting and Exercisability of Awards. Awards will become exercisable at
the times and upon the conditions that the Committee may determine, as reflected
in the applicable agreement. The exercise period will be determined by the
Committee but may not exceed 10 years from the date of grant. The Committee has
the authority to accelerate the vesting and/or exercisability of any outstanding
Awards at such times and under such circumstances as it, in its sole discretion,
deems appropriate.
Stock Options. The exercise price per share of Common Stock subject to a
stock option will be determined by the Committee but may not be less than the
closing sales price per share of Common Stock on the date of grant of such stock
option. The exercise price may be paid in cash, by the surrender of shares of
Common Stock previously owned by the holder of the stock option (the "Grantee")
(provided that any shares of Common Stock so surrendered must have been held by
the Grantee for such period of time as may be prescribed by the Committee), or a
combination of cash and shares. A Grantee also may elect to pay all or a portion
of the exercise price by (A) having shares of Common Stock with a fair market
value on the date of exercise equal to all or the applicable portion of the
exercise price withheld by the Company or (B) causing a broker-dealer to sell
all or a portion of the shares of Common Stock acquired upon exercise and
remitting to the Company a portion of the sale proceeds equal to the exercise
price plus applicable payroll withholding taxes in respect of the exercise.
Award agreements evidencing stock options may contain such other terms and
conditions, including, but not limited to, restrictions on transferability of
all or a portion of the shares of Common Stock acquired upon exercise,
forfeiture of all or a portion of the shares of Common Stock acquired upon
exercise (or the proceeds from the disposition thereof) and deferral of delivery
of all or a portion of the shares of Common Stock acquired upon exercise, as the
Committee may prescribe in its discretion and as are contained in the Award
agreement or as may be required by applicable law.
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A stock option may not be exercised unless the Grantee is then employed by
the Company or a subsidiary or affiliate (or a company or a parent or subsidiary
company of such company issuing or assuming the stock option in a transaction to
which Section 424(a) of the Code applies), and unless the Grantee has remained
continuously so employed since the date of grant of the stock option. However,
the Award agreement may contain provisions extending the exercisability of a
stock option, in the event of specified terminations, to a date not later than
the expiration date of such Award.
Stock Appreciation Rights. Stock appreciation rights may be granted alone
or in tandem with stock options. A stock appreciation right is a right to be
paid an amount equal to the excess of the fair market value of a share of Common
Stock on the date the stock appreciation right is exercised over (A) such price
as the Committee may determine but not less than the closing sales price per
share of Common Stock on the date of grant, in the case of a free-standing stock
appreciation right, or (B) the exercise price of the related stock option, in
the case of a tandem stock appreciation right. Such amount will be payable in
cash, Common Stock or a combination thereof, as specified in the Award agreement
or determined by the Committee. Stock appreciation rights will otherwise be
subject to the terms and conditions applicable to stock options granted under
the 1999 Plan.
Payment of Taxes. The Company is authorized to withhold from any Award
granted or any payment relating to an Award under the 1999 Plan, including from
a distribution of Common Stock, amounts for withholding and other taxes due in
connection with any transaction involving an Award, and to take such other
action as the Committee may deem advisable to enable the Company and Grantees to
satisfy obligations for the payment of withholding taxes and other tax
obligations relating to any Award. This authority includes authority to withhold
or receive Common Stock or other property and to make cash payments in respect
thereof in satisfaction of a Grantee's tax obligations.
Amendment or Termination. The Board of Directors may at any time and from
time to time alter, amend, suspend or terminate the 1999 Plan in whole or in
part. However, any such amendment will be subject to shareholder approval if and
to the extent such shareholder approval is required by applicable law or the
rules of the national securities exchange on which the Common Stock is
principally traded. Under the current law of New York, the Company's state of
incorporation, shareholder approval would be required for any amendment of the
material terms and conditions of the 1999 Plan. Notwithstanding the foregoing,
no amendment, suspension or termination may affect adversely any of the rights
of any Grantee, without such Grantee's consent, under any Award previously
granted under the 1999 Plan. Unless earlier terminated by the Board pursuant to
the provisions of the 1999 Plan, the 1999 Plan will terminate on the tenth
anniversary of the Effective Date. No Awards may be granted under the 1999 Plan
after such termination date.
Transferability. Awards may not be transferred by a Grantee except by will
or the laws of descent and distribution, may be exercised during the lifetime of
a Grantee only by such Grantee or his or her guardian or legal representative
and may not be subject to any encumbrance, claim or charge of any kind.
INFORMATION CONCERNING STOCK OPTION GRANTS MADE ON FEBRUARY 17, 1999
Since the 1999 Plan will not become effective until approved by the
shareholders, no grants have been made under the 1999 Plan. If the 1999 Plan is
approved by the shareholders, grants to be made thereunder will be in the
discretion of the Committee and, accordingly, are not determinable.
For information relating to the grant under the 1986 Plan of stock options
and stock appreciation rights to the named executives in 1996, 1997 and 1998,
see the Summary Compensation Table and the Option Grants in 1998 Table above. On
February 17, 1999, the Committee approved the grant under the 1986 Plan of stock
options to acquire an aggregate of 970,700 shares of Common Stock to a total of
423 employees at an exercise price per
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share of $33.625, the closing sales price per share of the Common Stock on that
date. No stock appreciation rights were granted on February 17, 1999. The
following table sets forth the number of stock options granted on February 17,
1999 to each of the named executives and to each of the other groups specified
below.
<TABLE>
<CAPTION>
Name and Position Number of Options
- --------------------------------------------------------------------------------
<S> <C>
Richard E. Olson, 55,000
Chairman and Chief Executive Officer
Kenwood C. Nichols, 40,000
Vice Chairman and Executive Officer
L. Scott Barnard, 20,000
Executive Vice President
Richard L. Porterfield, 20,000
Executive Vice President
Thomas L. Griffin, 20,000
Executive Vice President
Executive Officer Group 211,000
All Employees as a Group 970,700
- --------------------------------------------------------------------------------
</TABLE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF AWARDS
The following discussion is a brief summary of the principal United States
federal income tax consequences under current federal income tax laws relating
to stock options and stock appreciation rights granted under the 1999 Plan. This
summary is not intended to be exhaustive and, among other things, does not
describe state, local or foreign income and other tax consequences.
Nonqualified Stock Options. An optionee will not recognize any taxable
income upon the grant of a nonqualified stock option, and the Company will not
be entitled to a tax deduction with respect to the grant of a nonqualified stock
option. Upon exercise, the excess of the fair market value of a share of Common
Stock on the exercise date over the option exercise price will be taxable as
ordinary income to the optionee and will be subject to applicable withholding
taxes. The Company will generally be entitled to a tax deduction at such time in
the amount of such ordinary income.
In the event of a sale of a share of Common Stock received upon the
exercise of a nonqualified stock option, any appreciation or depreciation after
the exercise date will be taxed as capital gain or loss and will be long-term
capital gain or loss if the requisite long-term capital gains holding period for
such Common Stock has been satisfied.
Incentive Stock Options. An optionee will not recognize any taxable income
at the time of grant or timely exercise of an incentive stock option, and the
Company will not be entitled to a tax deduction with respect to such grant or
exercise. Exercise of an incentive stock option will, however, give rise to
taxable income subject to applicable withholding taxes, and a tax deduction for
the Company, if the incentive stock option is not exercised on a timely basis
(generally, while the optionee is employed by the Company or within 90 days
after termination of employment) or if the optionee engages in a "disqualifying
disposition," as described below. The amount by which the fair market value of
the Common Stock on the exercise date of an incentive stock option exceeds the
exercise price generally will increase the optionee's "alternative minimum
taxable income."
A sale or exchange by an optionee of shares acquired upon the exercise of
an incentive stock option more than one year after the transfer of the shares to
such optionee and more than two years after the date of grant of the option will
result in any difference between the net sale proceeds and the exercise price
being treated as capital gain (or loss) to the optionee. If such sale or
exchange takes place within two years after the date of grant of the
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<PAGE> 26
incentive stock option or within one year from the date of transfer of the
incentive stock option shares to the optionee, such sale or exchange will
constitute a "disqualifying disposition" of such shares that will have the
following results: any excess of (i) the lesser of (a) the fair market value of
the shares at the time of exercise and (b) the amount realized on such
"disqualifying disposition" of the shares over (ii) the option exercise price of
such shares will be ordinary income to the optionee, subject to applicable
withholding taxes, and the Company will be entitled to a tax deduction in the
amount of such income. Any further gain or loss after the date of exercise
generally will qualify as capital gain or loss and will not result in any
deduction for the Company.
Stock Appreciation Rights. The grant of a stock appreciation right, in
tandem with or in addition to a stock option or independent of any stock option,
will not result in any taxable income to the holder or a tax deduction for the
Company. The exercise of a stock appreciation right should generally result in
compensation taxable as ordinary income to the holder and in a corresponding
deduction for the Company, in each case in the amount of the cash received by
the holder and the fair market value on the date of exercise of any shares
issued or transferred. The amount of ordinary income resulting from the exercise
of a stock appreciation right would be subject to applicable withholding taxes.
The holder's tax basis in any shares received on the exercise of a stock
appreciation right will be equal to the fair market value of such shares on the
exercise date. On any subsequent sale of such shares, any appreciation or
depreciation after the exercise date should qualify as capital gain or loss and
will be long-term capital gain or loss if the requisite long-term capital gains
holding period for such Common Stock has been satisfied.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO APPROVE THE
1999 STOCK OPTION PLAN.
* * *
- -- PROPOSAL 4: SHAREHOLDER PROPOSAL -
LINK EXECUTIVE COMPENSATION TO ENVIRONMENTAL CRITERIA
The General Board of Pension and Health Benefits of the United Methodist
Church, the Adrian Dominican Sisters, the Sisters of St. Dominic of Caldwell,
NJ, the Sisters of Charity of the Incarnate Word Retirement Trust, the Green
Century Balanced Fund and the Foundation for Deep Ecology have notified the
Company that the following proposal will be presented at the Annual Meeting. The
addresses and shareholdings of the proponents will be furnished promptly upon
oral or written request to the Secretary of the Company.
The preamble and resolution are as follows:
"WHEREAS: Nationwide, increases in executive compensation continue to
outpace wage increases enjoyed by employees. Between 1990 and 1997:
- Average CEO cash compensation rose 86%
- Average CEO total compensation (including stock options) rose 298%
This vastly exceeds a 22% increase in factory wages, and S&P earnings
growth of 110% (Business Week Survey of Executive Compensation; Bureau of Labor
Statistics);
At the same time, industrial output and detrimental environmental impacts
of production and waste disposal have increased dramatically;
CEO Richard Olson received aggregate cash compensation for the two years of
1996 and 1997 totaling $2,734,188. He also received an aggregate of (i) 35,000
stock options and (ii) 50,000 restricted stock units, with a value on the date
of grant of $2,212,500, that vest over a six-year period if he remains in the
Company employ;
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Though U.S. corporations increasingly see themselves as global companies,
the U.S. ratio of executive pay to average-worker pay far surpasses the
corresponding ratio that prevails in Europe and Asia;
Corporate executives themselves believe CEO pay is too high. When corporate
executives nationwide were asked: 'How would you assess compensation of top
officers of large U.S. corporations?' 47% responded 'too much.' (Business Week;
May 12, 1997);
Business leaders and thinkers ranging from J.P. Morgan to Peter Drucker
argue against wide pay gaps and call for limits on executive pay;
Many leading thinkers believe new types of corporate environmental
awareness must occur in order to remain economically and environmentally viable;
Despite having a cleaner manufacturing record than some within the
industry, Champion's Toxic Release Inventory (TRI) reports that our company
created over 90.9-Million pounds of chemical Production-Related Waste in 1996
alone;
TRI data covers less than 1% of commercial chemicals, which means that a
staggering amount of waste not reported on the Toxic Release Inventory was
produced and released into the environment. Because it seems apparent that waste
can be equated with lost profits, executive compensation should be linked to
reducing such waste;
RESOLVED: Shareholders request that the Board of directors address the
issues of executive compensation and environmental accountability by:
1) Linking executive compensation to progressive industry benchmarks of
environmental progress, and
2) Preparing a report for shareholders explaining the criteria used to
determine these benchmarks."
The supporting statement is as follows:
"Links between executive compensation and environmental performance do not
impose arbitrary limits. Instead, they address issues of:
- The lost profitability which it seems apparent is represented by waste
by-products released into the environment instead of being utilized in
production processes.
- The increasingly detrimental and unsustainable environmental impacts
of operating waste and output.
By joining executive compensation with environmental progress, our company
can establish environmental accountability as an integral business goal that
positively impacts the bottom line and helps to reverse global trends of waste
and degradation.
VOTE YES to bring greater sensibility and foresight to our company's
executive compensation and environmental programs."
STATEMENT BY THE BOARD OF DIRECTORS IN OPPOSITION TO THE PROPOSAL
The Company's executive compensation program is administered by a committee
of the Board of Directors that is composed entirely of outside directors. The
criteria used by the committee to make determinations regarding executive
compensation are described above in the Report on 1998 Executive Compensation by
the Compensation and Stock Option Committee of the Board of Directors. As
discussed in the committee's report, a significant portion of executive
compensation is tied to performance measures, such as return on capital employed
and stock price appreciation, that are designed to provide meaningful incentives
for senior managers to maximize shareholder value. The Board believes that
linking a substantial portion of executive compensation to shareholder value is
appropriate and consistent with the wishes of most of the Company's
shareholders.
In addition to the governing objective of maximizing shareholder value, the
Company is committed to complying with all applicable laws and regulations
relating to the environment as well as with the environmental policies of the
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<PAGE> 28
American Forest & Paper Association and of the Company itself. The senior
managers and all other employees of the Company are required to adhere to this
commitment. Failure to do so would, at a minimum, be considered in connection
with compensation determinations.
The Company is proud of its record with respect to the environment. Over
the last decade, the Company has invested approximately $800 million to purchase
and install systems to control the discharge of pollutants into the air and
water and to dispose of solid waste. In this regard, it is important to note
that the TRI waste referred to in the proposal represents waste manufactured,
processed or otherwise used -- not waste released into the environment -- by the
Company. In fact, only a small portion of such waste was released, and such
releases were in accordance with applicable federal and state permits.
In view of the Company's strong commitment to the environment, the Board
does not believe that adopting the executive compensation criteria requested by
the proponents is necessary. Rather, the Board believes that the Company's
shareholders are best served by a program that to a significant extent ties
executive compensation to shareholder value.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
In order to be considered for inclusion in the Proxy Statement for the 2000
Annual Meeting of Shareholders, shareholder proposals must be received by the
Company not later than December 17, 1999. Proposals should be directed to the
attention of the Secretary, Champion International Corporation, One Champion
Plaza, Stamford, Connecticut 06921.
Under the Company's By-Laws, shareholder proposals intended to be
introduced at the 2000 Annual Meeting of Shareholders but not included in the
Proxy Statement, as well as shareholder nominations for director, also must be
received by the Company not later than December 17, 1999 at the address set
forth above. The By-Law procedure (the full provisions of which govern) requires
that such proposals and nominations be accompanied by a notice that sets forth
the shareholder's name and address and the number of shares of the capital stock
of the Company beneficially owned by the shareholder, together, in the case of a
nomination for director, with such information about the candidate as would be
required in a proxy statement as well as the candidate's written consent to be
nominated and to serve as a director if elected.
By order of the Board of Directors,
Lawrence A. Fox
Vice President and Secretary
Stamford, Connecticut
April 15, 1999
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<PAGE> 29
EXHIBIT A
CHAMPION INTERNATIONAL CORPORATION
1999 STOCK OPTION PLAN
1. PURPOSES.
The purposes of the 1999 Stock Option Plan (the "Plan") are to attract to
and retain in the employ of Champion International Corporation (the "Company")
and its Subsidiaries and Affiliates individuals of outstanding competence; to
further the identity of the interests of such employees with the interests of
the Company's shareholders; and to enhance the incentive for such employees to
promote the success of the Company's business and to maximize shareholder value.
2. DEFINITIONS.
For purposes of the Plan, the following terms shall be defined as set forth
below:
(a) "Affiliate" means an affiliate of the Company, as defined in Rule
12b-2 under the Exchange Act.
(b) "Award" means any Option or SAR.
(c) "Award Agreement" means any written agreement, contract or other
instrument or document evidencing an Award.
(d) "Board" means the Board of Directors of the Company.
(e) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(f) "Committee" means the committee established by the Board to
administer the Plan.
(g) "Company" means Champion International Corporation, a corporation
organized under the laws of the State of New York, or any successor
corporation.
(h) "Effective Date" means the date that the Plan is approved by the
shareholders of the Company.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and as now or hereafter construed, interpreted
and applied by regulations, rulings and cases.
(j) "Fair Market Value" per share of Stock as of a particular date
shall mean (i) the closing sales price per share of Stock on such date on
the national securities exchange on which the Stock is principally traded
or, if there were no sales of such Stock on such exchange on such date, on
the last preceding date on which there was a sale of such Stock on such
exchange, (ii) if the shares of Stock are not then listed on a national
securities exchange, but are traded in an over-the-counter market, the
average of the closing bid and asked prices for the shares of Stock in such
over-the-counter market on such date or on the last preceding date on which
there was a sale of such Stock in such market or (iii) if the shares of
Stock are not then listed on a national securities exchange or traded in an
over-the-counter market, such value as the Committee, in its sole
discretion, shall determine.
(k) "Grantee" means a person who, as an employee of the Company, a
Subsidiary or an Affiliate, has been granted an Award under the Plan.
(l) "ISO" means any Option intended to be and designated as an
incentive stock option within the meaning of Section 422 of the Code.
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<PAGE> 30
(m) "NQSO" means any Option that is designated as a nonqualified stock
option.
(n) "Option" means a right, granted to a Grantee under Section 6(a),
to purchase shares of Stock. An Option may be either an ISO or an NQSO.
(o) "Plan" means this Champion International Corporation 1999 Stock
Option Plan, as amended from time to time.
(p) "Stock" means shares of the common stock, par value $0.50 per
share, of the Company.
(q) "SAR" or "Stock Appreciation Right" means the right, granted to a
Grantee under Section 6(b), to be paid an amount measured by the
appreciation in the Fair Market Value of Stock from the date of grant to
the date of exercise of the right, with payment to be made in cash and/or
Stock, as specified in the Award or determined by the Committee.
(r) "Subsidiary" means any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations (other
than the last corporation in the unbroken chain) owns stock possessing more
than 50% of the total combined voting power of all classes of stock in one
of the other corporations in the chain.
3. ADMINISTRATION.
The Plan shall be administered by the Committee. The Committee shall have
the authority in its discretion, subject to and not inconsistent with the
express provisions of the Plan, to administer the Plan and to exercise all the
powers and authorities either specifically granted to it under the Plan or
necessary or advisable in the administration of the Plan, including, without
limitation, the authority to grant Awards; to determine the persons to whom and
the time or times at which Awards shall be granted; to determine the type and
number of Awards to be granted; to determine the number of shares of Stock to
which an Award may relate and the terms and conditions relating to any Award; to
determine whether, to what extent and under what circumstances an Award may be
settled, cancelled, forfeited, exchanged or surrendered; to make adjustments in
the terms and conditions applicable to Awards; to designate Affiliates; to
construe and interpret the Plan and any Award; to prescribe, amend and rescind
rules and regulations relating to the Plan; to determine the terms and
provisions of the Award Agreements; and to make all other determinations deemed
necessary or advisable for the administration of the Plan. All decisions,
determinations and interpretations of the Committee shall be final and binding
on all persons, including the Company, any Subsidiary, Affiliate or Grantee (or
any person claiming any rights under the Plan from or through any Grantee) and
any shareholder. No member of the Board or Committee shall be liable for any
action taken or determination made in good faith with respect to the Plan or any
Award granted hereunder.
4. ELIGIBILITY.
Awards may be granted to any employees of the Company and its present and
future Subsidiaries and Affiliates, in the discretion of the Committee. In
determining the persons to whom Awards shall be granted and the type of any
Award (including the number of shares to be covered by such Award), the
Committee shall take into account such factors as the Committee shall deem
relevant in connection with accomplishing the purposes of the Plan.
5. STOCK SUBJECT TO THE PLAN.
The maximum number of shares of Stock reserved for issuance under the Plan
shall be 7,000,000, plus the number of shares available for issuance under the
Champion International Corporation 1986 Stock Option Plan, as amended,
immediately prior to the Effective Date, subject to adjustment as provided
herein. Awards with respect to no more than 500,000 shares of Stock may be made
to a single individual in a given calendar year, which number shall be subject
to adjustment as provided herein. For the purpose of the two immediately
preceding sentences, Awards granted in tandem with any other Awards shall be
deemed to have been granted with respect to the same shares of Stock. Shares of
Stock issued or transferred upon the exercise of Awards may, in whole or in
part, be authorized but unissued shares or shares that shall have been or may be
reacquired by the Company in the open
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<PAGE> 31
market, in private transactions or otherwise. If any Award is forfeited,
cancelled, exchanged or surrendered or if an Award otherwise terminates or
expires without having been exercised, the shares of Stock with respect to such
Award shall, to the extent of any such forfeiture, cancellation, exchange,
surrender, termination or expiration, again be available for issuance under the
Plan. If the exercise price of an Option granted hereunder is paid for by the
surrender of previously owned shares of Stock, the number of shares of Stock
available for issuance under the Plan shall be increased by the number of
previously owned shares of Stock so surrendered.
In the event that the Committee shall determine that any dividend or other
distribution (whether in the form of cash, Stock or other property),
recapitalization, Stock split, reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase or share exchange, or other
similar corporate transaction or event, affects the Stock such that an
adjustment is appropriate in order to prevent dilution or enlargement of the
rights of Grantees under the Plan, then the Committee shall make such equitable
changes or adjustments as it deems necessary or appropriate to any or all of (i)
the number and kind of shares of Stock or other property (including cash) that
may thereafter be issued in connection with Awards, (ii) the number and kind of
shares of Stock or other property (including cash) issued or issuable in respect
of outstanding Awards, (iii) the exercise price or grant price relating to any
Award and (iv) the maximum number of shares with respect to which Awards may be
made to a single individual in a given calendar year; provided that, with
respect to ISOs, such adjustments shall be made in accordance with Section
424(h) of the Code.
6. SPECIFIC TERMS OF AWARDS.
The Committee is authorized to grant to Grantees the following Awards, as
deemed by the Committee to be consistent with the purposes of the Plan. The
Committee shall determine the terms and conditions of such Awards at the date of
grant or thereafter. The Committee may, in addition to the terms and conditions
specified below, impose such additional terms and conditions, not inconsistent
with the provisions of the Plan, as the Committee may determine.
(a) Options. The Committee is authorized to grant Options to Grantees
on the following terms and conditions:
(i) Type of Award. The Award Agreement evidencing the grant of an
Option under the Plan shall designate the Option as an ISO or an NQSO.
(ii) Exercise Price. The exercise price per share of Stock subject
to an Option shall be determined by the Committee, provided that such
exercise price shall be not less than the Fair Market Value per share of
Stock on the date of grant of such Option. The exercise price for Stock
subject to an Option may be paid in cash or by the surrender of Stock
previously owned by the Grantee (provided that any shares of Stock so
surrendered must have been held by the Grantee for such period of time
as may be prescribed by the Committee), or a combination of both, in an
amount having a combined value equal to such exercise price. A Grantee
also may elect to pay all or a portion of the aggregate exercise price
by (A) having shares of Stock with a Fair Market Value on the date of
exercise equal to all or the applicable portion of the exercise price
withheld by the Company or (B) causing a broker-dealer to sell all or a
portion of the shares of Stock acquired upon the exercise of an Option
and remitting to the Company a portion of the sale proceeds equal to the
aggregate exercise price plus applicable payroll withholding taxes in
respect of such exercise.
(iii) Term and Exercisability of Options. Options shall be
exercisable over such exercise period (which shall not exceed 10 years
from the date of grant), at such times and upon such conditions as the
Committee may determine, as reflected in the Award Agreement; provided
that, the Committee shall have the authority to accelerate the vesting
and/or exercisability of any outstanding Option at such time and under
such circumstances as it, in its sole discretion, deems appropriate. An
Option may be exercised to the extent of any or all full shares of Stock
as to which the Option has become exercisable, by giving written notice
of such exercise to the Company.
(iv) Termination of Employment, etc. An Option may not be
exercised unless the Grantee is then in the employ of the Company or a
Subsidiary or an Affiliate (or a company or a parent or subsidiary
company
A-3
<PAGE> 32
of such company issuing or assuming the Option in a transaction to which
Section 424(a) of the Code applies), and unless the Grantee has remained
continuously so employed since the date of grant of the Option; provided
that, the Award Agreement may contain provisions extending the
exercisability of an Option, in the event of specified terminations, to
a date not later than the expiration date of such Option.
(v) Other Provisions. Options may contain such other terms and
conditions, including, but not limited to, restrictions on
transferability of all or a portion of the shares of Stock acquired upon
exercise, forfeiture of all or a portion of the shares of Stock acquired
upon exercise (or the proceeds from the disposition thereof) and
deferral of delivery of all or a portion of the shares of Stock acquired
upon exercise, as the Committee may prescribe in its discretion and as
are contained in the Award Agreement or as may be required by applicable
law.
(b) SARs. The Committee is authorized to grant SARs to Grantees on
the following terms and conditions:
(i) In General. An SAR (A) granted in tandem with an NQSO may be
granted at the time of grant of the related NQSO or at any time
thereafter or (B) granted in tandem with an ISO may be granted only at
the time of grant of the related ISO. An SAR granted in tandem with an
Option shall be exercisable only to the extent the related Option is
exercisable and shall be subject to the other terms and conditions
applicable to the related Option. An SAR not granted in tandem with an
Option shall be exercisable at such times and upon such terms and
conditions as the Committee may determine, as reflected in the Award
Agreement, and shall otherwise be subject to the terms and conditions
described in subsections (iii) through (v) of Section 6(a) above with
respect to Options.
(ii) Payment. An SAR shall confer on the Grantee a right to
receive an amount with respect to each share subject thereto, upon
exercise thereof, equal to the excess of (A) the Fair Market Value of
one share of Stock on the date of exercise over (B) the grant price of
the SAR (which in the case of an SAR granted in tandem with an Option
shall be equal to the exercise price of the related Option, and which in
the case of any other SAR shall be such price as the Committee may
determine but in no event less than the Fair Market Value per share of
Stock on the date of grant). Such amount shall be payable in cash and/or
shares of Stock, as specified in the Award Agreement or determined by
the Committee.
7. GENERAL PROVISIONS.
(a) Nontransferability. Awards shall not be transferable by a Grantee
except by will or the laws of descent and distribution and shall be
exercisable during the lifetime of a Grantee only by such Grantee or his
guardian or legal representative and shall not be subject to any
encumbrance, claim or charge of any kind.
(b) No Right to Continued Employment, etc. Nothing in the Plan, any
Award or any Award Agreement or other agreement entered into pursuant
hereto shall confer upon any Grantee the right to continue in the employ of
the Company, any Subsidiary or any Affiliate or to be entitled to any
remuneration or benefits not set forth in the Plan or such Award, Award
Agreement or other agreement or to interfere with or limit in any way the
right of the Company or any such Subsidiary or Affiliate to terminate such
Grantee's employment at any time.
(c) Taxes. The Company or any Subsidiary or Affiliate is authorized
to withhold from any Award granted or any payment relating to an Award
under the Plan, including from a distribution of Stock, amounts for
withholding and other taxes due in connection with any transaction
involving an Award, and to take such other action as the Committee may deem
advisable to enable the Company and Grantees to satisfy obligations for the
payment of withholding taxes and other tax obligations relating to any
Award. This authority shall include authority to withhold or receive Stock
or other property and to make cash payments in respect thereof in
satisfaction of a Grantee's tax obligations.
(d) Amendment and Termination. The Plan shall take effect on the
Effective Date. The Board may at any time and from time to time alter,
amend, suspend or terminate the Plan in whole or in part; provided,
however, that any such amendment shall be subject to shareholder approval,
if and to the extent such shareholder approval is required by applicable
law or in accordance with the applicable rules of the national securities
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exchange on which the Stock is principally traded. Notwithstanding the
foregoing, no amendment, suspension or termination shall affect adversely
any of the rights of any Grantee, without such Grantee's consent, under any
Award theretofore granted under the Plan. Unless earlier terminated by the
Board pursuant to the provisions of the Plan, the Plan shall terminate on
the tenth anniversary of the Effective Date. No Awards shall be granted
under the Plan after such termination date.
(e) No Rights to Awards; No Shareholder Rights. No employee of the
Company, a Subsidiary or an Affiliate shall have any claim to be granted
any Award under the Plan, and there is no obligation for uniformity of
treatment of Grantees. A Grantee or a transferee of an Award, as permitted
pursuant to Section 7(a) hereof, shall have no rights as a shareholder with
respect to any shares covered by the Award until the date of the issuance
of a stock certificate to him for such shares.
(f) Unfunded Status of Awards. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to
any payments not yet made to a Grantee pursuant to an Award, nothing
contained in the Plan or any Award shall give any such Grantee any rights
that are greater than those of a general creditor of the Company.
(g) No Fractional Shares. No fractional shares of Stock shall be
issued or delivered pursuant to the Plan or any Award. The Committee shall
determine whether cash or other property shall be issued or paid in lieu of
such fractional shares or whether such fractional shares or any rights
thereto shall be forfeited or otherwise eliminated.
(h) Regulations and Other Approvals.
(i) The obligation of the Company to sell or deliver Stock with
respect to any Award granted under the Plan shall be subject to all
applicable laws, rules and regulations, including all applicable federal
and state securities laws, and the obtaining of all such approvals by
governmental agencies as may be deemed necessary or appropriate by the
Committee.
(ii) Each Award is subject to the requirement that, if at any time
the Committee determines, in its absolute discretion, that the listing,
registration or qualification of Stock issuable pursuant to the Plan is
required by any securities exchange or under any state or federal law,
or the consent or approval of any governmental regulatory body is
necessary or desirable as a condition of, or in connection with, the
grant of an Award or the issuance of Stock, no such Award shall be
granted or payment made or Stock issued, in whole or in part, unless
listing, registration, qualification, consent or approval has been
effected or obtained free of any conditions not acceptable to the
Committee.
(iii) In the event that the disposition of Stock acquired pursuant
to the Plan is not covered by a then-current registration statement
under the Securities Act of 1933, as amended (the "Securities Act"), and
is not otherwise exempt from such registration, such Stock shall be
subject to restrictions on transfer to the extent required by the
Securities Act or regulations thereunder, and the Committee may require
a Grantee or transferee of an Award, as permitted pursuant to Section
7(a) hereof, receiving Stock pursuant to the Plan, as a condition
precedent to receipt of such Stock, to represent to the Company in
writing that the Stock acquired by such Grantee or transferee of an
Award, as permitted pursuant to Section 7(a) hereof, is acquired for
investment only and not with a view to distribution.
(i) Governing Law. The Plan and all determinations made and actions
taken pursuant hereto shall be governed by the laws of the State of New
York, without giving effect to the conflict of laws principles thereof.
(j) Usage. Use of the masculine shall include the feminine, use of
the singular shall include the plural (and, in each case, vice versa) and
references to the Exchange Act, the Securities Act or the Code or any
sections thereof or rules and regulations promulgated thereunder shall be
deemed to include all successors thereto.
A-5
<PAGE> 34
[Champion Incorporated Logo]
One Champion Plaza
Stamford, Connecticut 06921
This document is printed on Champion(R) Register Bond/18 lb.
<PAGE> 35
TO ALL PARTICIPANTS IN
SAVINGS PLAN #077 AND SAVINGS PLAN FOR HOURLY EMPLOYEES #158
- --------------------------------------------------------------------------------
The Annual Meeting of Champion Shareholders will be held on May 20, 1999.
At this meeting, shareholders will vote on four items which are described in the
Proxy Statement.
As a participant in one or both of these plans, you have the right to
instruct the Trustee how to vote your equivalent shares at the Annual Meeting.
We urge you to exercise this right. In order to instruct the Trustee how to
vote, you must complete and return the accompanying voting instruction card. The
number of equivalent shares you can vote is shown on the reverse side of the
card.
Please review the Proxy Statement before completing the voting instruction
card. The card must be returned as soon as possible but not later than May 13,
1999. A postage-paid return envelope is enclosed for your convenience. It is
important to remember that, if you do not return the voting instruction card in
timely fashion or if you return the card unsigned, your equivalent shares will
not be voted by the Trustee.
Plan participants should let their voices be heard by exercising their
right to vote on matters submitted to the shareholders. We strongly urge you to
participate this year by instructing the Trustee how to vote your equivalent
shares.
Please contact the Benefits Department in Hamilton, Ohio (Chamcon
8-868-5441 or 513-868-5441) if you have any questions.
Kenwood C. Nichols
Chairman, Pension and Employee Benefits Committee
Vice Chairman and Executive Officer, Champion International Corporation
April 15, 1999
<PAGE> 36
PROXY
CHAMPION INTERNATIONAL CORPORATION
PROXY SOLICITED BY BOARD OF DIRECTORS FOR ANNUAL
MEETING OF SHAREHOLDERS -- MAY 20, 1999
The undersigned constitutes and appoints LAWRENCE A. FOX, KENWOOD C. NICHOLS and
RICHARD E. OLSON, and each of them, attorneys and proxies, each with full power
of substitution and revocation, to vote all shares of Common Stock which the
undersigned would be entitled to vote if personally present at the Annual
Meeting of Shareholders of Champion International Corporation, called to be held
on May 20, 1999 at 9:30 a.m. at One Champion Plaza, Stamford, Connecticut, and
at any adjournment or adjournments thereof, as set forth on the reverse side of
this card:
(Continued and to be SIGNED on the reverse side)
<PAGE> 37
Please mark
your votes
like this [X]
in black
or blue ink.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2 AND 3.
- --------------------------------------------------------------------------------
Item 1 - ELECTION OF DIRECTORS
WITHHOLD FOR ALL EXCEPT
Nominees: Lawrence A. Bossidy, FOR ALL FROM ALL AS NOTED*
Robert A. Charpie, [ ] [ ] [ ]
Allan E. Gotlieb,
Henrique C. Meirelles
and Richard E. Olson.
*Withhold from following
individual nominees (if any):
-----------------------------
FOR AGAINST ABSTAIN
Item 2 - Appointment of Arthur Andersen LLP [ ] [ ] [ ]
as independent auditors for 1999.
FOR AGAINST ABSTAIN
Item 3 - Approval of 1999 Stock Option Plan. [ ] [ ] [ ]
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST ITEM 4.
- --------------------------------------------------------------------------------
Item 4 - Shareholder proposal to link FOR AGAINST ABSTAIN
executive compensation to [ ] [ ] [ ]
environmental criteria.
- --------------------------------------------------------------------------------
In their discretion, to vote upon such other business as may come before the
meeting. THIS PROXY WILL BE VOTED AS SPECIFIED AND, IN THE ABSENCE OF ANY
SPECIFICATION, WILL BE VOTED FOR THE ELECTION OF THE DESIGNATED DIRECTOR
NOMINEES, FOR ITEMS 2 AND 3, AND AGAINST ITEM 4.
Signature(s):__________________________________ Dated:___________________ , 1999
Note: Please sign as name appears hereon. Joint owners all should sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
<PAGE> 38
CHAMPION INTERNATIONAL CORPORATION
VOTING INSTRUCTIONS TO TRUSTEE OF
Savings Plan #077
and
Savings Plan for Hourly Employees #158
The undersigned hereby directs State Street Bank and Trust Company, as Trustee
of the Champion International Corporation Savings Plan #077 and the Champion
International Corporation Savings Plan for Hourly Employees #158, to vote at the
Annual Meeting of Shareholders of Champion International Corporation, called to
be held on May 20, 1999, and at any adjournment or adjournments thereof, as set
forth on the reverse side of this card:
(Continued and to be SIGNED on the reverse side)
<PAGE> 39
Please mark
your votes
like this [X]
in black
or blue ink.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2 AND 3.
- --------------------------------------------------------------------------------
Item 1 - ELECTION OF DIRECTORS
WITHHOLD FOR ALL EXCEPT
Nominees: Lawrence A. Bossidy, FOR ALL FROM ALL AS NOTED*
Robert A. Charpie, [ ] [ ] [ ]
Allan E. Gotlieb,
Henrique C. Meirelles
and Richard E. Olson.
*Withhold from following
individual nominees (if any):
-----------------------------
FOR AGAINST ABSTAIN
Item 2 - Appointment of Arthur Andersen LLP [ ] [ ] [ ]
as independent auditors for 1999.
FOR AGAINST ABSTAIN
Item 3 - Approval of 1999 Stock Option Plan. [ ] [ ] [ ]
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST ITEM 4.
- --------------------------------------------------------------------------------
Item 4 - Shareholder proposal to link FOR AGAINST ABSTAIN
executive compensation to [ ] [ ] [ ]
environmental criteria.
- --------------------------------------------------------------------------------
I understand that this card must be returned no later than May 13, 1999 in
the enclosed envelope, if my voting instructions are to be honored. If it is not
received by May 13, 1999 or if it is received but the voting instructions are
invalid, my equivalent shares will not be voted.
Please complete, date and sign below exactly as your name appears on the
card.
Signature of Participant:_____________________________ Dated:____________, 1999
