<PAGE>
- -------------------------------------------------------------------------------
SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
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
[X]Definitive Proxy Statement Commission Only (as permitted by
[_]Definitive Additional Materials Rule 14a-6(e)(2))
[_]Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
FEDERAL PAPER BOARD COMPANY, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER AND PERSON FILING PROXY
STATEMENT)
Payment of Filing Fee (Check the appropriate box):
[_]$125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[_]$500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[X]Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Federal Paper Board Company, Inc. Common Stock, par value $5.00 per
share.
(2) Aggregate number of securities to which transaction applies:
47,301,262 shares of Federal Paper Board Company, Inc. Common Stock, par
value $5.00 per share.
(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):
Federal Paper Board Company, Inc., International Paper Company and
Focus Merger Co., Inc. have entered into a Restated and Amended
Agreement and Plan of Merger, dated as of November 6, 1995 and amended
as of February 8, 1996 (the "Merger Agreement"). The filing fee has
been calculated in accordance with Rule 0-11 under the Exchange Act and
is equal to 1/50 of 1% of the sum of the following: (a) $55.00
multiplied by the product of (i) .49 and (ii) 47,301,262 (the number of
shares of Federal Paper Board common stock, par value $5.00 per share
("Federal Common Stock"), known to be outstanding on December 19,
1995), and (b) $51.1875 (the average of the high and low prices per
share of Federal Common Stock on December 20, 1995, as quoted on the
New York Stock Exchange Composite tape) multiplied by the product of
(i) .51 and (iii) 47,301,262 (the number of shares of Federal Common
Stock known to be outstanding on December 19, 1995). It is expected,
pursuant to the Merger Agreement, that in the merger contemplated
thereby (x) approximately 49% of the outstanding shares of Federal
Common Stock will be converted into the right to receive $55.00 cash
per share of Federal Common Stock and (y) approximately 51% of the
outstanding shares of Federal Common Stock will be converted into the
right to receive shares of common stock of International Paper Company.
(4) Proposed maximum aggregate value of transaction: $2,509,548,019
(5) Total fee paid: $501,919.60 (Fee paid by wire transfer on December 22,
1995. Federal Paper Board Company, Inc.'s account number for fees is
0000034891).
[X]Fee paid previously with preliminary materials.
[X]Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1)Amount Previously Paid: $501,919.60 paid by wire transfer on
December 22, 1995
(2)Form, Schedule or Registration Statement No.: Schedule 14A
(3)Filing Party: Federal Paper Board Company, Inc.
(4)Date Filed: December 22, 1995
- -------------------------------------------------------------------------------
<PAGE>
FEDERAL
Federal Paper Board Company, Inc. John R. Kennedy
President
Executive Offices
February 9, 1996
Dear Federal Paper Board Company Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Federal Paper Board Company, Inc. ("Federal Paper Board"), which will be held
on March 12, 1996, at Shearman & Sterling, 599 Lexington Avenue, 2nd Floor
Conference Center, New York, New York 10022, at 9:30 a.m., local time (the
"Special Meeting").
At the Special Meeting, you will be asked to approve the Restated and Amended
Agreement and Plan of Merger, dated as of November 6, 1995 and amended as of
February 8, 1996 (the "Merger Agreement"), among Federal Paper Board,
International Paper Company ("International Paper"), and Focus Merger Co.,
Inc., a wholly owned subsidiary of International Paper ("Merger Sub"). The
Merger Agreement provides for the merger of Federal Paper Board with and into
Merger Sub (the "Merger"), pursuant to which Federal Paper Board would become a
wholly owned subsidiary of International Paper.
Pursuant to the terms of the Merger Agreement, each outstanding share of
Federal Paper Board common stock ("FPB Common Stock"), other than shares as to
which dissenters' rights may have been properly exercised and shares held in
treasury by Federal Paper Board or by any of its subsidiaries, shall be
converted into, at the election of the holder of such share, the right to
receive one of the following (or a combination of both as determined under the
Merger Agreement): (i) the number of shares of International Paper common stock
("IP Common Stock") determined by dividing $55.00 by the average of the last
sales price of IP Common Stock on the New York Stock Exchange, Inc. Composite
Tape for the 20 consecutive trading days ending on the trading day which is
five days prior to the closing of the Merger, subject to the limitation that
not more than 1.612 nor fewer than 1.275 shares of IP Common Stock will be
issued per share of FPB Common Stock so converted; or (ii) $55.00 in cash. The
election to receive cash or IP Common Stock will be subject to adjustment so
that approximately 49% of the outstanding shares of FPB Common Stock will be
exchanged for cash, and 51% will be exchanged for shares of IP Common Stock.
Federal Paper Board shareholders will have the right to elect to receive for
each of their shares of FPB Common Stock either IP Common Stock or cash, but
may receive a combination thereof based upon the foregoing adjustments. A
yellow form of election which you can use to elect whether you wish to receive
IP Common Stock or cash in exchange for your shares of FPB Common Stock will be
sent to you shortly in a separate envelope.
THE BOARD OF DIRECTORS OF FEDERAL PAPER BOARD HAS DETERMINED THAT THE MERGER,
UPON THE TERMS AND CONDITIONS SET FORTH IN THE MERGER AGREEMENT, IS FAIR TO,
AND IN THE BEST INTERESTS OF, FEDERAL PAPER BOARD AND ITS SHAREHOLDERS.
ACCORDINGLY, THE BOARD HAS UNANIMOUSLY ADOPTED THE MERGER AGREEMENT AND
UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE IN FAVOR OF APPROVAL OF THE
MERGER AGREEMENT AT THE SPECIAL MEETING.
In view of the importance of the action to be taken at the Special Meeting,
we urge you to review carefully the accompanying Notice of Special Meeting of
Shareholders and the Proxy Statement/Prospectus, which contains information
about Federal Paper Board and International Paper and describes in detail the
Merger and certain related matters, including the procedures and deadline for
submitting a properly completed form of election.
75 Chestnut Ridge Road Montvale New Jersey 07645 201 391-1776 Fax 201 307-6132
<PAGE>
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU ARE ABLE TO ATTEND THE SPECIAL
MEETING, PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED WHITE PROXY CARD
AS SOON AS POSSIBLE. A POSTAGE-PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
IF YOU ATTEND THE SPECIAL MEETING, YOU MAY REVOKE YOUR PROXY AND, IF YOU WISH,
VOTE YOUR SHARES OF FPB COMMON STOCK IN PERSON.
We look forward to seeing you at the Special Meeting.
Sincerely yours,
/s/ John R. Kennedy
John R. Kennedy
President and Chief Executive Officer
YOUR VOTE IS IMPORTANT.
PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY.
HOLDERS OF FPB COMMON STOCK SHOULD NOT SEND
STOCK CERTIFICATES WITH THEIR WHITE PROXY CARDS.
<PAGE>
FEDERAL
FEDERAL PAPER BOARD COMPANY, INC.
75 CHESTNUT RIDGE ROAD, MONTVALE, NEW JERSEY 07645
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 12, 1996
To the Common Shareholders of Federal Paper Board Company, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Federal
Paper Board Company, Inc. ("Federal Paper Board") will be held on March 12,
1996, at 9:30 a.m., local time, at Shearman & Sterling, 599 Lexington Avenue,
2nd Floor Conference Center, New York, New York 10022, for the following
purposes:
1. To consider and vote upon a proposal to approve the Restated and
Amended Agreement and Plan of Merger, dated as of November 6, 1995 and
amended as of February 8, 1996, a copy of which is attached as Annex I to
the Proxy Statement/Prospectus that accompanies this notice (the "Merger
Agreement"), among Federal Paper Board, International Paper Company
("International Paper"), and Focus Merger Co., Inc., a wholly owned
subsidiary of International Paper ("Merger Sub"). Pursuant to the Merger
Agreement, Federal Paper Board will be merged with and into Merger Sub (the
"Merger"). If the Merger Agreement is approved and the Merger is
consummated, each outstanding share of Federal Paper Board common stock,
par value $5.00 per share ("FPB Common Stock"), other than shares as to
which dissenters' rights may have been properly exercised and shares held
in treasury by Federal Paper Board or by any of its subsidiaries, shall be
converted into, at the election of the holder thereof, the right to receive
one of the following (or a combination of both as determined under the
Merger Agreement): (i) the number of shares of International Paper common
stock, par value $1.00 per share ("IP Common Stock"), determined by
dividing $55.00 by the average of the last sales price per share of IP
Common Stock on the New York Stock Exchange, Inc. Composite Tape for the 20
consecutive trading days ending on the trading day which is five days prior
to the closing of the Merger, subject to the limitation that not more than
1.612 nor fewer than 1.275 shares of IP Common Stock will be issued per
share of FPB Common Stock so converted; or (ii) $55.00 in cash. The
election to receive cash or IP Common Stock will be subject to adjustment
so that approximately 49% of the outstanding shares of FPB Common Stock
will be exchanged for cash, and 51% will be exchanged for shares of IP
Common Stock, provided that the amount of FPB Common Stock to be exchanged
for cash may be decreased and the amount of FPB Common Stock to be
exchanged for IP Common Stock may be correspondingly increased under
certain circumstances. Federal Paper Board shareholders will have the right
to elect to receive for each of their shares of FPB Common Stock either IP
Common Stock or cash, but may receive a combination thereof based upon the
foregoing adjustments.
2. To transact such other business as may properly come before the
meeting, or any adjournments or postponements thereof.
Shareholders of record of FPB Common Stock at the close of business on
February 7, 1996 (the "Meeting Record Date") will be entitled to notice of and
to vote at the Special Meeting or any adjournment thereof. The affirmative
vote of the holders of a majority of the shares of FPB Common Stock
outstanding and entitled to vote at the Special Meeting is required to approve
the Merger Agreement. In the event that there are not sufficient
<PAGE>
votes to approve the Merger Agreement, it is expected that the Special Meeting
of shareholders will be postponed or adjourned in order to permit further
solicitation of proxies by Federal Paper Board. Shareholders of record of
Federal Paper Board $1.20 convertible preferred stock, par value $1.00 per
share, at the Meeting Record Date will be entitled to notice of the Special
Meeting but will not be entitled to vote at the Special Meeting or any
adjournment thereof. See "CERTAIN PROVISIONS OF THE MERGER AGREEMENT--Other
Agreements--Redemption of FPB Convertible Preferred Stock."
Federal Paper Board common shareholders have the right to dissent from the
proposed Merger and to demand payment of the fair value of their shares in the
event the Merger Agreement is approved and the Merger is consummated. The
right of Federal Paper Board common shareholders to receive such payment is
contingent upon strict compliance with the requirements set forth in Article
13 of the North Carolina Business Corporation Act (the "NCBCA"). THE FIRST
STEP IN PERFECTING THE RIGHT TO DISSENT MUST BE TAKEN PRIOR TO THE TIME THE
VOTE ON THE MERGER AGREEMENT IS TAKEN AT THE SPECIAL MEETING. The full text of
Article 13 of the NCBCA is set forth as Annex IV to the accompanying Proxy
Statement/Prospectus. For a summary of these requirements, see "THE SPECIAL
MEETING--Dissenting Federal Paper Board Shareholders' Appraisal Rights" in the
accompanying Proxy Statement/Prospectus.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU ARE ABLE TO ATTEND THE SPECIAL
MEETING, PLEASE COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING WHITE PROXY
CARD AS SOON AS POSSIBLE. A POSTAGE-PAID ENVELOPE IS ENCLOSED FOR YOUR
CONVENIENCE. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY REVOKE YOUR PROXY AND,
IF YOU WISH, VOTE YOUR SHARES OF FPB COMMON STOCK IN PERSON.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF
APPROVAL OF THE MERGER AGREEMENT AT THE SPECIAL MEETING.
By Order of the Board of Directors
John T. Flynn, Jr.
Assistant Secretary
DO NOT SEND IN ANY STOCK CERTIFICATES WITH YOUR WHITE PROXY CARD.
Montvale, New Jersey
February 9, 1996
<PAGE>
FEDERAL PAPER BOARD COMPANY, INC.
PROXY STATEMENT
----------------
INTERNATIONAL PAPER COMPANY
PROSPECTUS
This Proxy Statement/Prospectus ("Proxy Statement/Prospectus") is being
furnished to common shareholders of Federal Paper Board Company, Inc.
("Federal Paper Board") in connection with the solicitation of proxies by the
Board of Directors of Federal Paper Board (the "FPB Board") for use at the
special meeting of shareholders (including any adjournments or postponements
thereof) (the "Special Meeting") to be held at Shearman & Sterling, 599
Lexington Avenue, 2nd Floor Conference Center, New York, New York 10022, on
March 12, 1996 at 9:30 a.m., local time. At the Special Meeting, common
shareholders of Federal Paper Board will consider and vote upon a proposal to
approve the Restated and Amended Agreement and Plan of Merger, dated as of
November 6, 1995 and amended as of February 8, 1996, by and among
International Paper Company ("International Paper"), Focus Merger Co., Inc., a
wholly owned subsidiary of International Paper ("Merger Sub"), and Federal
Paper Board, a copy of which is attached hereto as Annex I (the "Merger
Agreement"). The Merger Agreement provides, subject to the satisfaction or
waiver of certain conditions, that Federal Paper Board will be merged with and
into Merger Sub (the "Merger"), with Merger Sub surviving the Merger as a
wholly owned subsidiary of International Paper and changing its name to that
of Federal Paper Board. SEE "RISK FACTORS" COMMENCING ON PAGE 14 FOR A
DESCRIPTION OF CERTAIN MATTERS WHICH SHOULD BE CONSIDERED BY SHAREHOLDERS OF
FEDERAL PAPER BOARD PRIOR TO VOTING.
This Proxy Statement/Prospectus also constitutes a prospectus of
International Paper filed as part of a Registration Statement on Form S-4
(together with any amendment thereto, the "Registration Statement") with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to shares of
International Paper Common Stock, par value $1.00 per share ("IP Common
Stock"), to be issued in the Merger, as well as shares of IP Common Stock
issuable pursuant to certain employee stock options of Federal Paper Board
assumed by International Paper under the Merger Agreement. At the Effective
Time (as defined herein) of the Merger, each share of Federal Paper Board
Common Stock, par value $5.00 per share ("FPB Common Stock"), will be
converted into the right to receive $55.00 in cash or the Stock Consideration
(as defined below), at the election of the holder thereof, subject to
adjustment as described herein so that approximately 49% of the FPB Common
Stock will be exchanged for cash and 51% will be exchanged for shares of IP
Common Stock. Shareholders will receive cash in lieu of fractional shares of
IP Common Stock. The "Stock Consideration" is the number of shares of IP
Common Stock approximately equal to the quotient determined by dividing $55.00
by the Average IP Share Price, provided that the Stock Consideration will not
be more than 1.612 nor fewer than 1.275 shares of IP Common Stock. The
"Average IP Share Price" is the average of the last sales price per share of
IP Common Stock on the New York Stock Exchange, Inc. ("NYSE") Composite Tape
for the 20 consecutive trading days ending on the trading day which is five
days prior to the closing of the Merger. The aggregate number of shares of IP
Common Stock issued in the Merger is expected to be approximately equal to the
product of (i) 51% of the number of outstanding shares of FPB Common Stock as
of the Effective Time of the Merger and (ii) the Stock Consideration.
IP Common Stock is listed for trading under the symbol "IP" on the NYSE. FPB
Common Stock is listed for trading under the symbol "FBO" on the NYSE. On
November 3, 1995, the last trading day prior to the execution of the Merger
Agreement, the last reported sale prices of IP Common Stock and FPB Common
Stock, as reported on the NYSE Composite Tape, were $37.125 per share and
$45.50 per share, respectively. On February 8, 1996, the date prior to the
printing of this Proxy Statement/Prospectus, the last reported sales prices of
IP Common Stock and FPB Common Stock, as reported on the NYSE Composite Tape,
were $40.625 per share and $54.25 per share, respectively.
This Proxy Statement/Prospectus and the accompanying form of proxy are first
being mailed to common shareholders of Federal Paper Board on or about
February 12, 1996.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------
The date of this Proxy Statement/Prospectus is February 9, 1996.
<PAGE>
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS
IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES
MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY FEDERAL PAPER BOARD, INTERNATIONAL
PAPER OR MERGER SUB. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES, OR THE
SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT
IS NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION
OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF FEDERAL PAPER
BOARD OR INTERNATIONAL PAPER SINCE THE DATE HEREOF OR THAT THE INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THE INFORMATION CONTAINED (OR INCORPORATED BY REFERENCE) HEREIN WITH RESPECT
TO FEDERAL PAPER BOARD AND ITS SUBSIDIARIES HAS BEEN PROVIDED BY FEDERAL PAPER
BOARD. THE INFORMATION CONTAINED (OR INCORPORATED BY REFERENCE) HEREIN WITH
RESPECT TO INTERNATIONAL PAPER AND ITS SUBSIDIARIES HAS BEEN PROVIDED BY
INTERNATIONAL PAPER. NEITHER INTERNATIONAL PAPER NOR FEDERAL PAPER BOARD
WARRANTS THE ACCURACY OF INFORMATION RELATING TO THE OTHER PARTY.
AVAILABLE INFORMATION
Federal Paper Board and International Paper are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith file reports, proxy statements and other
information with the Commission. The reports, proxy statements and other
information filed by Federal Paper Board and International Paper with the
Commission can be inspected and copied at the public reference facilities of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and should
be available at the Commission's Regional Offices at Seven World Trade Center,
13th Floor, New York, New York 10048 and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and copies of such
materials may be obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In
addition, material filed by Federal Paper Board and International Paper may be
inspected at the offices of the NYSE, 20 Broad Street, New York, New York
10005.
International Paper has filed with the Commission a Registration Statement
under the Securities Act, with respect to the IP Common Stock to be issued
pursuant to the Merger Agreement. This Proxy Statement/Prospectus does not
contain all the information set forth in the Registration Statement and the
exhibits thereto. Such additional information may be obtained from the
Commission's principal office in Washington, D.C. Statements contained in this
Proxy Statement/Prospectus, or in any document incorporated in this Proxy
Statement/Prospectus by reference, as to the contents of any contract or other
document referred to herein or therein are not necessarily complete, and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement or such other document, each
such statement being qualified in all respects by such reference.
ii
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
International Paper (File No. 1-3157) incorporates by reference herein the
following documents filed pursuant to the Exchange Act:
1. International Paper's Annual Report on Form 10-K for the year ended
December 31, 1994;
2. International Paper's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1995, June 30, 1995 and Form 10-Q for the quarter ended
September 30, 1995, as amended by Form 10-Q/A filed on November 16, 1995;
3. International Paper's Current Reports on Form 8-K filed January 10,
1995, March 6, 1995, April 11, 1995, April 21, 1995, July 11, 1995, August
30, 1995, November 13, 1995, December 5, 1995 and February 2, 1996;
4. International Paper's registration statement on Form 8-A, dated April
17, 1987, as amended December 14, 1989 (relating to the Rights (as defined
herein)), and the related Current Report on Form 8-K, filed April 17, 1987;
and
5. The description of International Paper's capital stock which is
contained in International Paper's registration statement on Form 8-A,
dated July 20, 1976, as amended.
Federal Paper Board (File No. 1-3838) incorporates by reference herein the
following documents filed pursuant to the Exchange Act:
1. Federal Paper Board's Annual Report on Form 10-K for the year ended
December 31, 1994, as amended by Form 10-K/A filed on June 1, 1995;
2. Federal Paper Board's Quarterly Reports on Form 10-Q for the twelve
weeks ended March 25, 1995, as amended by Form 10-Q/A filed on May 9, 1995,
the twenty-four weeks ended June 17, 1995 and the thirty-six weeks ended
September 9, 1995;
3. Federal Paper Board's Current Reports on Form 8-K filed November 16,
1995 and February 5, 1996; and
4. The description of FPB Common Stock which is contained in Federal
Paper Board's registration statement on Form S-8, dated October 3, 1995,
including any amendment or report filed for the purpose of updating such
description.
All documents and reports filed by International Paper or Federal Paper
Board pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after
the date of this Proxy Statement/Prospectus and prior to the date of the
Special Meeting shall be deemed to be incorporated by reference in this Proxy
Statement/Prospectus and to be a part hereof from the dates of filing of such
documents or reports. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Proxy Statement/Prospectus to the extent
that a statement contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Proxy Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED
BY REFERENCE) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED, ON
WRITTEN OR ORAL REQUEST, IN THE CASE OF DOCUMENTS RELATING TO FEDERAL PAPER
BOARD, TO FEDERAL PAPER BOARD COMPANY, INC., 75 CHESTNUT RIDGE ROAD, MONTVALE,
NEW JERSEY 07645 (TELEPHONE NUMBER (201) 391-1776), ATTENTION: SECRETARY, OR
IN THE CASE OF DOCUMENTS RELATING TO INTERNATIONAL PAPER, TO INTERNATIONAL
PAPER COMPANY, TWO MANHATTANVILLE ROAD, PURCHASE, NEW YORK 10577 (TELEPHONE
NUMBER (914) 397-1500), ATTENTION: CORPORATE SECRETARY. IN ORDER TO ENSURE
DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETING, REQUESTS SHOULD BE
RECEIVED BY MARCH 5, 1996.
iii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
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<S> <C>
AVAILABLE INFORMATION..................................................... ii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... iii
SUMMARY................................................................... 1
The Companies........................................................... 1
The Special Meeting..................................................... 1
The Merger.............................................................. 2
Federal Paper Board Shareholders' Dissenters' Rights.................... 5
Certain Transactions; Conflicts of Interest............................. 5
Risk Factors............................................................ 6
International Paper Selected Consolidated Historical Financial Data..... 7
Federal Paper Board Selected Consolidated Historical Financial Data..... 8
Selected Unaudited Pro Forma Combined Financial Data.................... 9
Recent Developments..................................................... 11
Comparative Stock Prices................................................ 12
Comparative Per Share Data.............................................. 13
RISK FACTORS.............................................................. 14
THE SPECIAL MEETING....................................................... 15
General................................................................. 15
Record Date; Stock Entitled to Vote; Quorum............................. 15
Vote Required........................................................... 15
Proxies; Revocability of Proxies........................................ 16
Dissenting Federal Paper Board Shareholders' Appraisal Rights........... 16
Solicitation of Proxies; General........................................ 16
THE MERGER................................................................ 18
Background of the Merger................................................ 18
Reasons for the Merger; Recommendation of the FPB Board................. 21
Opinions of the Financial Advisors to the FPB Board..................... 23
Form of the Merger...................................................... 29
Merger Consideration.................................................... 29
Description of Election Procedures...................................... 30
Procedures for Exchange of FPB Common Stock Certificates................ 34
Effective Time.......................................................... 34
Stock Exchange Listing.................................................. 34
Certain Federal Income Tax Considerations............................... 35
Treatment of Federal Paper Board Employee Stock Options................. 37
Certain Transactions; Conflicts of Interest............................. 38
Litigation.............................................................. 40
Accounting Treatment.................................................... 40
Approvals and Consents.................................................. 40
Dissenting Federal Paper Board Shareholders' Rights of Appraisal........ 41
Delisting and Deregistration of FPB Common Stock........................ 43
Resales of IP Common Stock.............................................. 43
CERTAIN PROVISIONS OF THE MERGER AGREEMENT................................ 43
Certain Representations and Warranties.................................. 43
Conduct of Business Pending the Merger.................................. 44
Other Agreements........................................................ 45
Indemnification......................................................... 46
Conditions to Consummation of the Merger................................ 47
No Solicitation......................................................... 48
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
Termination............................................................ 48
Fees and Expenses...................................................... 49
Amendment and Waiver................................................... 50
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........... 51
IP Common Stock........................................................ 51
FPB Common Stock....................................................... 52
CAPITALIZATION........................................................... 54
INTERNATIONAL PAPER AND FEDERAL PAPER BOARD UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION.......................................... 55
INTERNATIONAL PAPER COMPANY AND ACQUISITIONS UNAUDITED PRO FORMA
CONDENSED COMBINED STATEMENTS OF EARNINGS TO REFLECT IP PRO FORMA
EVENTS.................................................................. 62
DESCRIPTION OF INTERNATIONAL PAPER CAPITAL STOCK......................... 66
IP Common Stock........................................................ 66
IP Preferred Stock..................................................... 66
Certain Restrictions on Takeovers...................................... 68
COMPARISON OF SHAREHOLDER RIGHTS......................................... 70
Amendment of Governing Documents....................................... 70
Directors.............................................................. 71
Quorum Requirements; Meetings of Shareholders.......................... 74
Shareholder Inspection Rights; Shareholder Lists....................... 75
Preemptive Rights...................................................... 75
Shareholder Action Without Meeting..................................... 76
Dividends and Distributions............................................ 76
Dissenters' Rights..................................................... 76
Indemnification........................................................ 77
Interested Transactions................................................ 78
Business Combinations.................................................. 78
State Anti-Takeover Laws............................................... 79
Shareholder Rights Plans............................................... 80
LEGAL MATTERS............................................................ 80
EXPERTS.................................................................. 80
SHAREHOLDER PROPOSALS FOR 1996 ANNUAL MEETING OF FEDERAL PAPER BOARD
SHAREHOLDERS............................................................ 80
</TABLE>
LIST OF ANNEXES
Annex I Restated and Amended Agreement and Plan of Merger
Annex II Opinion of Goldman, Sachs & Co.
Annex III Opinion of J.P. Morgan Securities Inc.
Annex IV Excerpt from the North Carolina Business Corporation Act Relating to
Dissenters' Appraisal Rights
v
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in this
Proxy Statement/Prospectus, including the Annexes hereto, or in the documents
incorporated herein by reference. Reference is made to, and this summary is
qualified in its entirety by, the more detailed information contained in this
Proxy Statement/Prospectus, the Annexes hereto and the documents incorporated
herein by reference. Shareholders of Federal Paper Board Company, Inc. are
urged to read this Proxy Statement/Prospectus and the Annexes hereto, and the
documents incorporated herein by reference, in their entirety. Shareholders
should carefully consider the information set forth below under the heading
"RISK FACTORS." Capitalized terms used in this Summary and not defined shall
have the meanings ascribed to them elsewhere in this Proxy
Statement/Prospectus.
THE COMPANIES
International Paper Company. International Paper Company ("International
Paper") is a worldwide producer of printing and writing papers, paperboard and
packaging and wood products; and distributes paper and office supply products
primarily in the United States and Europe. At December 31, 1994, International
Paper had manufacturing operations in 28 countries and sales in 130 countries.
It also produces pulp, laminated products, and specialty products, including
photosensitive films and papers, nonwovens, chemicals and minerals. The mailing
address of International Paper's principal executive offices is Two
Manhattanville Road, Purchase, New York 10577, and its telephone number is
(914) 397-1500.
Federal Paper Board Company, Inc. Federal Paper Board Company, Inc. ("Federal
Paper Board") is a diversified forest products company with 20 facilities
throughout the United States and two facilities in the United Kingdom. Federal
Paper Board operates in two business groups: the Forest Products Division and
the Converted Products Division. The Forest Products Division consists of five
business areas: market pulp, bleached and recycled paperboard, uncoated free-
sheet paper, wood products and forest management. The Converted Products
Division consists of two business areas: folding cartons and food service
disposables. Federal Paper Board's principal executive offices are located at
75 Chestnut Ridge Road, Montvale, New Jersey 07645, and its telephone number is
(201) 391-1776.
Focus Merger Co., Inc. Focus Merger Co., Inc., a wholly owned subsidiary of
International Paper ("Merger Sub"), was incorporated in November 1995 for
purposes of consummating the Merger. Merger Sub engages in no other business.
The mailing address of Merger Sub's principal executive offices is Two
Manhattanville Road, Purchase, New York 10577, and its telephone number is
(914) 397-1500.
THE SPECIAL MEETING
Time, Date and Place; Record Date; Matters to be Considered. The Special
Meeting of shareholders of Federal Paper Board is scheduled to be held at
Shearman & Sterling, 599 Lexington Avenue, 2nd Floor Conference Center, New
York, New York 10022 on March 12, 1996 at 9:30 a.m., local time. At the Special
Meeting, holders of shares of FPB Common Stock will be asked to consider and
vote upon (i) a proposal to approve the Merger Agreement and (ii) such other
matters as may be properly brought before the meeting. Shareholders of record
of FPB Common Stock at the close of business on February 7, 1996 (the "Meeting
Record Date") will be entitled to notice of and to vote at the Special Meeting.
Shareholders of record of FPB Convertible Preferred Stock at the Meeting Record
Date will be entitled to notice of the Special Meeting but will not be entitled
to vote at the Special Meeting.
Vote Required; Quorum. As of the Meeting Record Date, there were 47,559,782
shares of FPB Common Stock outstanding and entitled to vote. At January 15,
1996, Federal Paper Board's directors and executive officers and their
affiliates may be deemed to be beneficial owners of approximately 2,933,860
shares (excluding 1,330,370 shares underlying stock options) of FPB Common
Stock, or approximately 6.2% of the then outstanding shares of FPB Common
Stock. The affirmative vote of the holders of a majority of the shares of FPB
Common Stock outstanding and entitled to vote at the Special Meeting is
required to approve the Merger Agreement. A majority of the outstanding shares
of FPB Common Stock entitled to vote, represented in person
<PAGE>
or by proxy, will constitute a quorum at the Special Meeting. A failure to vote
shares, either by abstention or non-vote (including broker non-vote), will have
the same effect as a vote against the Merger Agreement.
THE MERGER
Form of Merger; Effective Time. The Merger Agreement provides that subject
to, and as promptly as practicable after, the approval of the Merger Agreement
by the common shareholders of Federal Paper Board, and compliance with (or
waiver of) certain other conditions, articles of merger will be filed with the
Secretary of State of the State of North Carolina pursuant to which Federal
Paper Board will be merged with and into Merger Sub (the date and time of such
filing being the "Effective Time"). Merger Sub will be the surviving
corporation after the Merger (the "Surviving Corporation"), remain a wholly
owned subsidiary of International Paper and change its name to that of Federal
Paper Board Company, Inc.
Merger Consideration. The Merger Agreement provides that, as of the Effective
Time, each outstanding share of FPB Common Stock (other than any held in
treasury by Federal Paper Board or by any of its subsidiaries and any
Dissenting Shares) shall be converted, at the election of the holder thereof,
into either the Stock Consideration (as defined below) or an amount equal to
$55.00 in cash (the "Cash Consideration", and together with the Stock
Consideration, the "Merger Consideration"), or a combination of each
representing prorated percentages of the Cash Consideration and the Stock
Consideration in accordance with the allocation procedures described below.
Such allocation procedures will result in approximately 51% of the outstanding
shares of FPB Common Stock being converted into the right to receive shares of
IP Common Stock and 49% being converted into the right to receive cash. The
"Stock Consideration" is the number of shares of IP Common Stock approximately
equal to the quotient determined by dividing $55.00 by the Average IP Share
Price, provided that the Stock Consideration will not be more than 1.612 nor
fewer than 1.275 shares of IP Common Stock. The "Average IP Share Price" is the
average of the last sales price per share of IP Common Stock on the New York
Stock Exchange ("NYSE") Composite Tape for the 20 consecutive trading days (the
"Valuation Period") ending on the trading day which is five days prior to the
date on which the closing of the Merger shall occur (the "Closing Date").
Federal Paper Board shareholders will receive cash in lieu of fractional shares
of IP Common Stock.
Elections; Proration. To be effective, an election must be made on a properly
completed and signed yellow Form of Election received by the Exchange Agent by
5:00 P.M., Eastern Standard Time, on the last business day prior to the Closing
Date and accompanied by the certificates representing shares of FPB Common
Stock as to which the election is being made (or an appropriate guarantee of
delivery). FEDERAL PAPER BOARD SHAREHOLDERS ARE URGED TO DELIVER TO THE
EXCHANGE AGENT A PROPERLY COMPLETED FORM OF ELECTION, ACCOMPANIED BY ALL
REQUIRED DOCUMENTS, NO LATER THAN 5:00 P.M., NEW YORK CITY TIME, ON MARCH 11,
1996, IN ORDER TO ENSURE THAT THEIR FORM OF ELECTION WILL BE RECEIVED BY THE
ELECTION DEADLINE. The election to receive cash or shares of IP Common Stock
will be subject to adjustment so that approximately 49% of the outstanding
shares of FPB Common Stock will be exchanged for cash and 51% will be exchanged
for shares of IP Common Stock, and as a result, shares of FPB Common Stock may
be converted into the right to receive a combination of cash and shares of IP
Common Stock representing prorated percentages of the Cash Consideration and
the Stock Consideration. If either form of consideration is "oversubscribed" by
Federal Paper Board shareholders submitting Forms of Election, then, (i) all
shares of FPB Common Stock covered by an Election requesting the
"undersubscribed" alternative and all of the shares of FPB Common Stock covered
by a Non-Election will be converted into the undersubscribed alternative, and
(ii) all shares of FPB Common Stock covered by an Election requesting the
oversubscribed alternative will be converted on a pro rata basis into a
combination of cash and shares of IP Common Stock. If neither form of
consideration is "oversubscribed" by Federal Paper Board shareholders
submitting Forms of Election, then, (i) all shares of FPB Common Stock covered
by an Election will be converted into the elected form of consideration, and
(ii) shares of FPB Common Stock covered by a Non-Election will be converted on
a pro rata basis into a combination of cash and shares of IP Common Stock. For
illustrations as to the manner in which the Merger Consideration may be
prorated under various scenarios, see "THE MERGER--Description of Election
Procedures--Allocation; Proration." There can be no assurance that each holder
of FPB Common Stock will receive the form of consideration elected by
2
<PAGE>
such holder. In the event a holder of FPB Common Stock receives cash for any of
such holder's shares, the receipt of such cash may be taxable to the holder.
See "THE MERGER--Certain Federal Income Tax Considerations."
Recommendations of the FPB Board. The Board of Directors of Federal Paper
Board (the "FPB Board") has determined that the Merger, upon the terms and
conditions set forth in the Merger Agreement, is fair to, and in the best
interests of, Federal Paper Board and its shareholders. Accordingly, the FPB
Board has unanimously adopted the Merger Agreement and unanimously recommends
that the shareholders vote in favor of approval of the Merger Agreement at the
Special Meeting. See "THE MERGER--Certain Transactions; Conflicts of Interest."
Opinions of the Financial Advisors to the FPB Board. Goldman, Sachs & Co.
("Goldman Sachs") and J.P. Morgan Securities Inc. ("J.P. Morgan") each has
acted as financial advisor to Federal Paper Board in connection with the
Merger. On November 5, 1995, Goldman Sachs delivered its oral opinion to the
FPB Board that, as of the date of such opinion and based upon and subject to
certain matters stated therein, the consideration in the form of shares of IP
Common Stock and cash to be received by holders of shares of FPB Common Stock
(the "Aggregate Consideration") pursuant to the Merger Agreement is fair to
such holders. Goldman Sachs subsequently delivered to the FPB Board a written
opinion dated November 5, 1995 confirming its oral opinion. Goldman Sachs
subsequently confirmed its November 5, 1995 opinion by delivery of its written
opinion dated as of the date of this Proxy Statement/Prospectus. The full text
of the written opinion of Goldman Sachs, dated the date of this Proxy
Statement/Prospectus, which sets forth assumptions made, matters considered and
limitations on the review undertaken in connection with its opinion, is
attached hereto as Annex II. Holders of shares of FPB Common Stock are urged
to, and should, read such opinion in its entirety.
On November 5, 1995, J.P. Morgan delivered its oral opinion to the FPB Board
that, as of the date of such opinion, the Aggregate Consideration to be
received by the holders of FPB Common Stock in the Merger is fair, from a
financial point of view, to such holders. J.P. Morgan subsequently delivered to
the FPB Board a written opinion dated November 5, 1995 confirming its oral
opinion. J.P. Morgan subsequently confirmed its November 5, 1995 opinion by
delivery of its written opinion dated as of the date of this Proxy
Statement/Prospectus. The full text of the written opinion of J.P. Morgan,
dated the date of this Proxy Statement/Prospectus, which sets forth the
assumptions made, matters considered and limitations on the review undertaken
in connection with its opinion, is attached hereto as Annex III. Holders of
shares of FPB Common Stock are urged to, and should, read such opinion in its
entirety.
Conditions to the Merger. The obligations of Federal Paper Board and
International Paper to consummate the Merger are subject to various conditions,
including (i) obtaining the approval of holders of the requisite number of
shares of FPB Common Stock, and (ii) the receipt by International Paper and by
Federal Paper Board of the opinions of their respective counsel to the effect
that, on the basis of facts, representations and assumptions set forth or
referred to in such opinions, for U.S. federal income tax purposes, the Merger
will be treated as a reorganization qualifying under the provisions of Section
368(a) of the Code, and that International Paper, Merger Sub and Federal Paper
Board will each be a party to that reorganization under Section 368(b) of the
Code.
Termination of the Merger Agreement. The Merger Agreement may be terminated
at any time prior to the Effective Time by mutual consent of Federal Paper
Board and International Paper, or by either party if (i) any permanent
injunction or action by any governmental entity preventing consummation of the
Merger becomes final and nonappealable; (ii) the Merger has not been
consummated on or before May 31, 1996; provided that such date may be extended
by written notice of Federal Paper Board to International Paper to a date not
later than August 31, 1996 if the Merger has not been consummated as a result
of (A) International Paper or Federal Paper Board having failed by May 31, 1996
to receive all required regulatory approvals or consents with respect to the
Merger, (B) an order or pending action by an applicable federal antitrust
authority seeking an order which would prohibit consummation of the Merger or
(C) the waiting period (and any extension thereof) under
3
<PAGE>
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
rules and regulations promulgated thereunder (the "HSR Act"), not having
expired or been terminated; or (iii) the shareholders of Federal Paper Board do
not approve the Merger Agreement at the Special Meeting. In addition, the
Merger Agreement may be terminated by Federal Paper Board under the following
circumstances: (i) the breach in any material respect by Merger Sub or
International Paper of any representation, warranty, covenant or agreement in
the Merger Agreement, which failure has not been cured within 20 days after
notice is given or is incapable of being cured, except such failures which are
not reasonably likely to affect Merger Sub's or International Paper's ability
to complete the Merger or (ii) the entering by Federal Paper Board into a
definitive agreement in accordance with exceptions to the restrictions
described under "CERTAIN PROVISIONS OF THE MERGER AGREEMENT--No Solicitation."
The Merger Agreement may be terminated by International Paper if (i) Federal
Paper Board breaches in any material respect any material representation,
warranty, covenant or agreement in the Merger Agreement, which breach cannot be
cured or has not been cured within 20 days after notice is given; (ii) the FPB
Board withdraws or modifies in a manner adverse to International Paper its
approval or recommendation of the Merger; (iii) the FPB Board approves or
recommends any "competitive proposal" (as defined in the Merger Agreement); or
(iv) Federal Paper Board enters into any agreement with respect to any
competitive proposal in accordance with exceptions to the restrictions
described under "CERTAIN PROVISIONS OF THE MERGER AGREEMENT--No Solicitation."
In the event the Merger Agreement is terminated under certain limited
circumstances related to a competitive proposal, Federal Paper Board will be
obligated to pay International Paper a fee of $76.0 million in cash. See
"CERTAIN PROVISIONS OF THE MERGER AGREEMENT--Fees and Expenses."
Redemption of FPB Convertible Preferred Stock. Pursuant to the Merger
Agreement, Federal Paper Board has agreed to cause the redemption of all
outstanding shares of FPB Convertible Preferred Stock (the "FPB Preferred Stock
Redemption") prior to the Effective Time. On January 16, 1996, Federal Paper
Board gave notice to all holders of the FPB Convertible Preferred Stock that on
February 17, 1996, all shares of FPB Convertible Preferred Stock would be
called for redemption in accordance with the terms thereof, at the prices
provided for therein.
Certain Federal Income Tax Considerations. The Merger has been structured
with the intent that it be treated as a reorganization within the meaning of
Section 368(a) of the Code. In general, if pursuant to the Merger (i) a holder
exchanges all of the shares of FPB Common Stock actually owned by it solely for
cash, it will recognize capital gain or loss equal to the difference between
the amount of cash received and its adjusted tax basis in the shares of FPB
Common Stock surrendered, (ii) a holder exchanges all of the shares of FPB
Common Stock actually owned by it solely for shares of IP Common Stock, it will
not recognize any gain or loss except in respect of cash received in lieu of a
fractional share of IP Common Stock, and (iii) a holder exchanges all of the
shares of FPB Common Stock actually owned by it for a combination of IP Common
Stock and cash, it will recognize gain only to the extent of the cash received.
Certain exceptions and/or other considerations may apply. See "THE MERGER--
Certain Federal Income Tax Considerations."
Federal Paper Board has agreed that, before filing any material tax return of
Federal Paper Board or any of its subsidiaries, it will consult with
International Paper and its advisors as to the positions and elections that may
be taken or made with respect to such return.
Stock Exchange Listing. International Paper will file an application to list
the shares of IP Common Stock to be issued in connection with the Merger on the
NYSE, subject to approval of the Merger Agreement by the Federal Paper Board
shareholders and official notice of issuance. The shares of IP Common Stock are
traded on the NYSE under the symbol "IP".
Accounting Treatment. The Merger will be accounted for by International Paper
under the "purchase" method of accounting in accordance with generally accepted
accounting principles. Therefore, the aggregate
4
<PAGE>
consideration paid by International Paper in connection with the Merger will be
allocated to Federal Paper Board's assets and liabilities based on their fair
market values with any excess being treated as goodwill. The assets and
liabilities and results of operations of Federal Paper Board will be
consolidated into the assets and liabilities and results of operations of
International Paper subsequent to the Effective Time.
Regulatory Approvals Required. Certain aspects of the Merger will require
notifications to, and/or approvals from, certain federal authorities, as well
as authorities in certain of the foreign jurisdictions in which International
Paper and/or Federal Paper Board currently operate. There can be no assurance
that regulatory approvals will be granted.
Pursuant to the HSR Act, International Paper and Federal Paper Board each
filed with the Antitrust Division of the United States Department of Justice
(the "Antitrust Division") and the Federal Trade Commission a Notification and
Report Form with respect to the Merger on November 13, 1995. On December 13,
1995, International Paper and Federal Paper Board received a request for
additional information from the Antitrust Division. On January 22, 1996, the
Antitrust Division notified International Paper and Federal Paper Board that it
was closing its investigation of the transaction without action. On the same
day, the Federal Trade Commission notified International Paper and Federal
Paper Board that the HSR Act waiting period had been terminated.
FEDERAL PAPER BOARD SHAREHOLDERS' DISSENTERS' RIGHTS
Under North Carolina law, holders of FPB Common Stock will be entitled to
dissent from the proposed Merger and to demand payment in cash of the fair
value of their shares of FPB Common Stock in the event that the Merger
Agreement is approved and the Merger is consummated and such shareholders
satisfy the required statutory procedures. The right of Federal Paper Board
shareholders to receive such payment is contingent upon strict compliance with
the requirements set forth in Article 13 of the North Carolina Business
Corporation Act (the "NCBCA"). The full text of Article 13 of the NCBCA is set
forth as Annex IV to this Proxy Statement/Prospectus. Failure to take any
necessary step in connection with the exercise of such rights may result in
termination or waiver of dissenters' rights. Any shareholder who intends to
exercise dissenters' rights must give written notice of such intent to Federal
Paper Board and such written notice must be actually received by Federal Paper
Board before the vote on the approval of the Merger Agreement is taken at the
Special Meeting. A shareholder who wishes to exercise dissenters' rights must
not vote any shares of FPB Common Stock in favor of the Merger Agreement. See
"THE MERGER--Dissenting Federal Paper Board Shareholders' Rights of Appraisal."
CERTAIN TRANSACTIONS; CONFLICTS OF INTEREST
International Paper has agreed to cause John R. Kennedy, the President and
Chief Executive Officer of Federal Paper Board, to be appointed to the Board of
Directors of International Paper as of the Effective Time, to serve until the
next annual election of directors of International Paper, and in connection
with such election, to take all necessary action to include Mr. Kennedy as a
recommended nominee for the Board of Directors.
The executive officers of Federal Paper Board and the directors of Federal
Paper Board have interests in the Merger in addition to their interests as
shareholders of Federal Paper Board. Such interests relate to, among other
things, provisions in the Merger Agreement regarding the receipt of salary and
bonus payments under existing employment agreements, severance payments, the
exchange of exercisable outstanding options to purchase FPB Common Stock for
exercisable options to purchase shares of IP Common Stock, the acceleration of
the exercisability of outstanding options to purchase FPB Common Stock, the
acceleration of vesting of restricted FPB Common Stock and the exchange of
unvested restricted FPB Common Stock for shares of IP Common Stock. See "THE
MERGER--Certain Transactions; Conflicts of Interest."
5
<PAGE>
RISK FACTORS
In considering whether to approve the Merger Agreement, the shareholders of
Federal Paper Board should consider that: (i) the number of shares of IP Common
Stock constituting the Stock Consideration offered in the Merger (and the value
thereof) is subject to fluctuation and at the Effective Time may be worth more
or less than $55.00; (ii) the form of the Merger Consideration to be received
by any shareholder will depend upon their election and the elections of other
holders, and there can be no assurance that the holders will receive the form
of Merger Consideration they elected in respect of all their shares of FPB
Common Stock; (iii) the consummation of the Merger is conditioned upon the
absence of any law, rule, regulation or order which is in effect and which
makes the Merger illegal or prohibits the consummation of the Merger and there
can be no assurance that any such law, rule, regulation or order will not be in
effect; and (iv) there can be no assurance of the extent to which the combined
company following the Merger will achieve cost savings and efficiencies as a
result of the Merger.
6
<PAGE>
INTERNATIONAL PAPER SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The following selected financial data for each of the five years in the
period ended December 31, 1994 have been derived from International Paper's
consolidated financial statements, which have been audited by Arthur Andersen
LLP, independent public accountants. The data as of September 30, 1995 and for
the nine months ended September 30, 1995 and 1994 are derived from
International Paper's unaudited consolidated financial statements which
include, in management's opinion, all adjustments, consisting of normal
recurring adjustments, necessary to present fairly the results of operations
and financial position of International Paper for the periods and dates
presented. This data should be read in conjunction with the respective audited
and unaudited consolidated financial statements of International Paper and
Federal Paper Board, including the notes thereto, incorporated herein by
reference and the unaudited Pro Forma Condensed Combined Financial Statements
appearing elsewhere in this Proxy Statement/Prospectus. See "AVAILABLE
INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------- ----------------------------------------
1995 1994 1994(b) 1993 1992(c) 1991(d) 1990
------- ------- ------- ------- ------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net Sales............... $14,721 $10,839 $14,966 $13,685 $13,598 $12,703 $12,960
Costs and expenses,
excluding interest..... 12,799 10,113 13,902 12,837 13,125 11,695 11,695
Earnings before income
taxes, minority
interest, extraordinary
item and cumulative
effect of accounting
changes................ 1,551 471 715 538 226 693 988
Earnings before
extraordinary item and
cumulative effect of
accounting changes..... 890 278 432 289 142 399 569
Earnings per common
share before
extraordinary item and
cumulative effect of
accounting changes(a).. $ 3.49 $ 1.12 $ 1.73 $ 1.17 $ 0.58 $ 1.80 $ 2.61
Cash dividends declared
per common share(a).... $ 0.67 $ 0.63 $ 0.84 $ 0.84 $ 0.84 $ 0.84 $ 0.84
BALANCE SHEET DATA:
Working capital......... $ 737 $ 823 $ 796 $ 472 $ (165) $ 404 $ 784
Plants, properties and
equipment, net......... 10,586 9,044 9,139 8,872 8,884 7,848 7,287
Forestlands............. 2,816 804 802 786 759 743 751
Total Assets............ 23,696 17,589 17,836 16,631 16,516 14,941 13,669
Long-term debt.......... 5,474 4,507 4,464 3,601 3,096 3,351 3,096
Common shareholders'
equity................. $ 7,587 $ 6,374 $ 6,514 $ 6,225 $ 6,189 $ 5,739 $ 5,632
</TABLE>
- --------
(a) Earnings and cash dividends per common share reflect the impact of a two-
for-one stock split, which was payable on September 15, 1995.
(b) 1994 amounts exclude the cumulative effect of changing the method of
accounting for start-up costs.
(c) 1992 amounts exclude the cumulative effect of adopting a new accounting
standard promulgated by the Financial Accounting Standards Board ("FASB")
that changed the method of accounting for income taxes and an extraordinary
loss for the early extinguishment of debt.
(d) 1991 amounts exclude the cumulative effect of adopting a new accounting
standard promulgated by the FASB that changed the method of accounting for
post-retirement benefits.
7
<PAGE>
FEDERAL PAPER BOARD SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The selected financial data for, and as of the end of, each of the years in
the five year period ended December 31, 1994 have been derived from Federal
Paper Board's audited consolidated financial statements, including the five
years ended December 31, 1994, audited by Deloitte & Touche LLP, independent
auditors. Federal Paper Board's fiscal year 1992 includes 53 weeks while the
other years presented include 52 weeks. The data as of September 9, 1995 and as
of September 10, 1994 and for the periods then ended are derived from Federal
Paper Board's unaudited consolidated financial statements which include, in
management's opinion, all adjustments, consisting of normal recurring
adjustments, necessary to present fairly the results of operations and
financial position of Federal Paper Board for the periods and dates presented.
This data should be read in conjunction with the respective audited and
unaudited consolidated financial statements of International Paper and Federal
Paper Board, including the notes thereto, incorporated herein by reference and
the unaudited Pro Forma Condensed Combined Financial Statements appearing
elsewhere in this Proxy Statement/Prospectus. See "AVAILABLE INFORMATION" and
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
<TABLE>
<CAPTION>
THIRTY-SIX
WEEKS ENDED FISCAL YEAR
------------------ ------------------------------------
SEPT. 9, SEPT. 10,
1995 1994 1994 1993 1992(a) 1991 1990
-------- --------- ------ ------ ------- ------ ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net Sales............... $1,357 $1,041 $1,570 $1,386 $1,461 $1,435 $1,374
Costs and expenses,
excluding interest..... 1,044 948 1,381 1,276 1,240 1,201 1,129
Earnings before income
taxes and cumulative
effect of accounting
change................. 250 34 101 26 136 144 202
Earnings before
cumulative effect of
accounting change...... 160 24 72 6 83 82 118
Earnings (loss) per
common share before
cumulative effect of
accounting change:
Assuming no dilution... $ 3.59 $ 0.46 $ 1.55 $ (.01) $ 1.82 $ 1.83 $ 2.74
Assuming full
dilution.............. $ 3.31 $ 0.45 $ 1.52 $ (.01) $ 1.77 $ 1.77 $ 2.58
Cash dividends declared
per common share....... $ 1.10 $ 0.75 $ 1.05 $ 1.00 $ 1.00 $ 1.00 $ 1.00
BALANCE SHEET DATA:
Working capital......... $ 101 $ 53 $ 19 $ 33 $ 89 $ 80 $ 120
Plants, properties and
equipment, net......... 1,902 1,899 1,898 1,897 1,878 1,829 1,757
Forestlands............. 188 189 189 190 192 188 183
Total assets............ 2,685 2,590 2,610 2,562 2,574 2,493 2,448
Long-term debt.......... 816 988 921 974 1,030 1,077 1,092
Total shareholders'
equity................. $1,056 $ 894 $ 918 $ 892 $ 940 $ 921 $ 883
</TABLE>
- --------
(a) 1992 amounts exclude a $9 million gain resulting from the cumulative effect
of adopting a new accounting standard promulgated by the FASB, which
changed the method of accounting for income taxes.
8
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following selected unaudited pro forma combined financial data gives
effect to the Merger, the FPB Preferred Stock Redemption and acquisitions by
International Paper in 1995 of interests in the following businesses accounted
for under the purchase method (collectively, the "IP Pro Forma Events"): shares
of stock of Carter Holt Harvey, Ltd., the assets of Carpenter Paper Company and
Seaman-Patrick Holding Company; the high-pressure laminates business acquired
from Westinghouse; the common stock of Papetries de Lana; and the inks and
adhesive resins business of DSM S.A. The unaudited pro forma condensed combined
statement of earnings data for the nine months ended September 30, 1995 was
prepared based upon International Paper's unaudited consolidated financial
statements for the nine months ended September 30, 1995, and Federal Paper
Board's unaudited consolidated financial statements for the thirty-six week
period ended September 9, 1995, as if the Merger, the FPB Preferred Stock
Redemption and the IP Pro Forma Events had occurred as of the beginning of that
period. The unaudited pro forma condensed combined statement of earnings data
for the year ended December 31, 1994 was prepared based upon International
Paper's audited consolidated financial statements for the year ended December
31, 1994 and Federal Paper Board's audited consolidated financial statements
for the year ended December 31, 1994 as if the Merger, the FPB Preferred Stock
Redemption and the IP Pro Forma Events had occurred at the beginning of the
period presented. The selected unaudited pro forma combined balance sheet data
was prepared based upon the balance sheet data of International Paper at
September 30, 1995 and of Federal Paper Board at September 9, 1995, giving
effect to the Merger, the FPB Preferred Stock Redemption and the IP Pro Forma
Events as if they occurred on September 30, 1995. The unaudited pro forma data
may not be indicative of the results that actually would have been achieved if
the Merger, the FPB Preferred Stock Redemption and the IP Pro Forma Events had
been in effect as of the date and for the periods indicated or which may be
obtained in the future. The unaudited pro forma financial statement data should
be read in conjunction with the respective audited and unaudited consolidated
financial statements of International Paper and Federal Paper Board, including
the notes thereto, incorporated herein by reference and the Unaudited Pro Forma
Condensed Combined Financial Statements appearing elsewhere in this Proxy
Statement/Prospectus. See "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE." Pro forma adjustments made to arrive at the pro forma
combined amounts are based on the purchase method of accounting and a
preliminary allocation of the purchase price. However, changes to the
adjustments included in the pro forma combined financial information set forth
below are expected as evaluations of assets and liabilities are completed and
additional information becomes available. In addition, the results of
operations of Federal Paper Board subsequent to September 30, 1995 will affect
the allocation of the purchase price and pro forma combined financial data.
Accordingly, the final pro forma combined financial data will differ from the
amounts reflected in the information set forth below.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1995 YEAR ENDED DECEMBER 31, 1994
------------------------------------ ------------------------------------
COMBINED INTERNATIONAL COMBINED INTERNATIONAL
INTERNATIONAL PAPER AND FEDERAL INTERNATIONAL PAPER AND FEDERAL
PAPER PAPER BOARD PAPER PAPER BOARD
PRO FORMA(1) PRO FORMA(2) PRO FORMA(1) PRO FORMA(2)
------------- ---------------------- ------------- ----------------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net Sales............... $15,523 $16,904 $16,901 $18,496
Costs and expenses,
excluding interest..... 13,483 14,534 15,594 17,009
Earnings before income
taxes, minority
interest and cumulative
effect of accounting
change................. 1,616 1,824 815 829
Earnings before
cumulative effect of
accounting change...... 908 1,032 434 439
Earnings per common
share before cumulative
effect of accounting
change(3)(4)........... $ 3.56 $ 3.58 $ 1.73 $ 1.55
Cash dividends declared
per common share(3).... $ 0.67 $ 0.67 $ 0.84 $ 0.84
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1995
------------------------------------
COMBINED INTERNATIONAL
INTERNATIONAL PAPER AND FEDERAL
PAPER PAPER BOARD
PRO FORMA(1) PRO FORMA(2)(4)
------------- ----------------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Working Capital........................... $ 747 $ 130
Plants, properties and equipment, net..... 10,611 12,855
Forestlands............................... 2,816 3,336
Total assets.............................. 23,762 28,466
Long-term debt............................ 5,534 7,010
Shareholders' equity...................... $ 7,587 $ 8,995
</TABLE>
- --------
(1) Historical amounts for International Paper adjusted to reflect the IP Pro
Forma Events.
(2) Pro forma amounts reflect consummation of the Merger and FPB Preferred
Stock Redemption, with historical amounts for International Paper adjusted
to reflect the IP Pro Forma Events.
(3) Per share amounts for International Paper reflect the impact of a two-for-
one stock split of IP Common Stock, which was payable on September 15,
1995.
(4) Assumes for purposes of these calculations that the Average IP Share Price
will be equal to $40.50, the last sales price on the NYSE Composite Tape on
February 2, 1996, and therefore, the Stock Consideration will be equal to
1.358 shares of IP Common Stock. The actual number of shares of IP Common
Stock constituting the Stock Consideration will be determined by dividing
$55.00 by the Average IP Share Price, provided that the Stock Consideration
will not be more than 1.612 nor fewer than 1.275 shares of IP Common Stock.
If the Stock Consideration were equal to 1.612, the pro forma earnings per
share before cumulative effect of accounting change would have been $3.51
at September 30, 1995 and $1.51 at December 31, 1994. If the Stock
Consideration were equal to 1.275, the pro forma earnings per share before
cumulative effect of accounting change would have been $3.61 at September
30, 1995 and $1.56 at December 31, 1994. See "THE MERGER--Merger
Consideration."
10
<PAGE>
RECENT DEVELOPMENTS
INTERNATIONAL PAPER
On January 9, 1996, International Paper issued a press release reporting 1995
fiscal year net earnings of $1.2 billion or $4.50 a share, as compared to 1994
net earnings of $357 million or $1.43 a share. Sales were $19.8 billion, a 32%
increase over 1994 sales of $15 billion.
International Paper's 1995 fourth quarter net earnings were $263 million or
$1.01 per share. The fourth quarter includes expenses before taxes of about $70
million or $.17 a share, mostly relating to severance costs and asset write-
offs. Severance costs, which account for about two-thirds of the total, reflect
a reduction in employment of approximately 1,300 people at several facilities
and businesses in the United States and Europe. Quarterly earnings without the
expenses would have been $1.18 per share. Fourth quarter 1995 earnings after
these expenses were up 66% over 1994 fourth quarter earnings of $154 million or
$.61 share. Fourth quarter sales were $5.1 billion, a 24% increase over fourth
quarter 1994 sales of $4.1 billion. See "AVAILABLE INFORMATION" and
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
FEDERAL PAPER BOARD
On January 24, 1996, Federal Paper Board issued a press release reporting net
income and sales for the 16 weeks and 52 weeks ended December 30, 1995. For the
52 weeks ended December 30, 1995, sales increased 21.9% to $1,913.1 million, as
compared to $1,569.6 million reported for the similar period of 1994. Federal
Paper Board's sales for the 16 weeks ended December 30, 1995 were $556.1
million compared to $528.3 million for the same period of 1994.
Federal Paper Board's net income for the 52 weeks ended December 30, 1995 was
$142.3 million or $2.92 per fully diluted common share, compared to $72.0
million or $1.52 per fully diluted common share for the similar period of 1994.
For the 16 weeks ended December 30, 1995, Federal Paper Board reported a net
loss of $17.9 million or $.38 per fully diluted common share compared to net
income of $48.1 million or $1.02 per fully diluted common share for the similar
period of 1994. Federal Paper Board's fourth quarter 1995 earnings include a
non-recurring (pre-tax charge of $78.1 million) after-tax charge of $66.8
million or $1.42 per fully diluted common share related to the restructuring of
Federal Paper Board's Imperial Bondware cup operations. Fourth quarter 1995
earnings before the non-recurring charge were $48.9 million or $1.04 per fully
diluted common share. See "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
11
<PAGE>
COMPARATIVE STOCK PRICES
FPB Common Stock is listed and traded on the NYSE under the symbol "FBO." IP
Common Stock is listed and traded on the NYSE under the symbol "IP."
The following table sets forth, for the periods indicated, the high and low
sales prices per share of FPB Common Stock and IP Common Stock as reported on
the NYSE Composite Tape, and the quarterly cash dividends per share declared
with respect thereto.
<TABLE>
<CAPTION>
FEDERAL PAPER BOARD INTERNATIONAL PAPER
COMMON STOCK(a) COMMON STOCK(b)
------------------------- -----------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
------- ------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1994
First Quarter.......... $27 1/4 $21 3/4 $0.25 $38 15/16 $33 9/16 $0.21
Second Quarter......... 24 20 1/2 0.25 36 7/16 30 5/16 0.21
Third Quarter.......... 31 1/4 22 5/8 0.25 40 3/16 33 3/16 0.21
Fourth Quarter......... 31 1/2 25 7/8 0.30 40 1/4 33 15/16 0.21
1995
First Quarter.......... $30 5/8 $26 3/4 $0.30 $39 7/8 $35 1/8 $0.21
Second Quarter......... 34 1/4 27 5/8 0.40 42 7/8 35 9/16 0.21
Third Quarter.......... 42 7/8 32 3/4 0.40 45 11/16 40 3/16 0.25
Fourth Quarter......... 52 1/8 35 3/4 0.40 42 34 1/8 0.25
1996
First Quarter (through
February 8, 1996)..... 54 1/4 52 3/8 -- 41 1/2 36 --
</TABLE>
- --------
(a) The FPB Common Stock high, low and dividend amounts represent a 12-week
period for each of the first three quarters and a 16-week period for the
fourth quarter of each year.
(b) Prices and dividend information for IP Common Stock reflect the impact of a
two-for-one stock split, which was payable on September 15, 1995.
On November 3, 1995, the last trading day before the announcement of the
Merger Agreement, the last sales price of FPB Common Stock was $45.50 per share
and the last sales price of IP Common Stock was $37.125 per share, as reported
on the NYSE Composite Tape.
On February 8, 1996, the date prior to the printing of this Proxy
Statement/Prospectus, the last sales price of FPB Common Stock was $54.25 per
share and the last sales price of IP Common Stock was $40.625 per share, as
reported on the NYSE Composite Tape. Certain information contained in this
Proxy Statement/Prospectus, including pro forma financial information and
examples relating to proration, assume the Average IP Share Price will be equal
to $40.50 per share, the last sales price of IP Common Stock on February 2,
1996, as reported on the NYSE Composite Tape.
The market prices of shares of FPB Common Stock and IP Common Stock are
subject to fluctuation. As a result, Federal Paper Board and International
Paper shareholders are urged to obtain current market quotations.
On February 7, 1996, there were approximately 5,033 holders of record of FPB
Common Stock and approximately 31,678 holders of record of IP Common Stock.
12
<PAGE>
COMPARATIVE PER SHARE DATA
Set forth below are historical earnings before the cumulative effect of
accounting changes, cash dividends and book value per common share data of
International Paper and Federal Paper Board, individually, and unaudited pro
forma per common share data for International Paper and Federal Paper Board.
The unaudited pro forma data gives effect to the Merger, the FPB Preferred
Stock Redemption and the IP Pro Forma Events as if such events occurred for
balance sheet purposes at the balance sheet date and for statement of earnings
purposes at the beginning of the periods presented. Unaudited pro forma data
was prepared based upon International Paper statement of earnings and balance
sheet data for the nine months ended or at September 30, 1995, Federal Paper
Board statement of earnings and balance sheet data for the 36 weeks ended or at
September 9, 1995, and the respective statement of earnings and balance sheet
data for the year ended or at December 31, 1994. Historical amounts for
International Paper and the pro forma information derived therefrom are
adjusted to reflect the two-for-one stock split of IP Common Stock which was
payable on September 15, 1995. The information has been prepared assuming for
purposes of these calculations that the Average IP Share Price will be equal to
$40.50, the final sales price on the NYSE Composite Tape on February 2, 1996,
and that, therefore, the Stock Consideration will be equal to 1.358 shares of
IP Common Stock. The actual number of shares of IP Common Stock constituting
the Stock Consideration will be determined by dividing $55.00 by the Average IP
Share Price, provided that the Stock Consideration will not be more than 1.612
nor fewer than 1.275 shares of IP Common Stock. See "THE MERGER--Merger
Consideration." The information set forth below should be read in conjunction
with the respective audited and unaudited consolidated financial statements of
International Paper and Federal Paper Board, including the notes thereto,
incorporated herein by reference and the Unaudited Pro Forma Condensed Combined
Financial Statements appearing elsewhere in this Proxy Statement/Prospectus.
See "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
<TABLE>
<CAPTION>
NINE MONTHS ENDED ON YEAR ENDED
OR AT ON OR AT
SEPTEMBER 30, 1995 DECEMBER 31, 1994
-------------------- -----------------
<S> <C> <C>
INTERNATIONAL PAPER--HISTORICAL
Earnings per common share before
cumulative effect of accounting
change................................ $ 3.49 $ 1.73
Cash dividends per common share........ $ 0.67 $ 0.84
Book value per common share............ $29.09 $25.87
INTERNATIONAL PAPER--PRO FORMA TO
REFLECT IP PRO FORMA EVENTS
Earnings per common share before
cumulative effect of accounting
change................................ $ 3.56 $ 1.73
Cash dividends per common share........ $ 0.67 $ 0.84
Book value per common share............ $29.09 $25.92
FEDERAL PAPER BOARD--HISTORICAL
Earnings per common share assuming:
No dilution........................... $ 3.59 $ 1.55
Full dilution......................... $ 3.31 $ 1.52
Cash dividends per common share........ $ 1.10 $ 1.05
Book value per common share assuming:
No Dilution........................... $22.40 $19.01
Full dilution......................... $21.68 $19.37
INTERNATIONAL PAPER--PRO FORMA COMBINED
INTERNATIONAL PAPER AND FEDERAL PAPER
BOARD
Earnings per common share before
cumulative effect of accounting
change................................ $ 3.58 $ 1.55
Cash dividends per common share........ $ 0.67 $ 0.84
Book value per common share............ $30.62 $27.38
FEDERAL PAPER BOARD--PRO FORMA
EQUIVALENT PER SHARE INFORMATION(a)
Earnings per common share before
cumulative effect of accounting
change................................ $ 4.86 $ 2.10
Cash dividends per common share........ $ 0.91 $ 1.14
Book value per common share............ $41.58 $37.18
</TABLE>
- --------
(a) Amounts are calculated by multiplying the International Paper pro forma
combined amounts by the Stock Consideration, assumed to be equal to 1.358
shares of IP Common Stock. For purposes of these calculations, it has been
assumed that the Average IP Stock Price will be equal to $40.50, the last
sales price of IP Common Stock on the NYSE Composite Tape on February 2,
1996.
13
<PAGE>
RISK FACTORS
In considering whether to approve the Merger Agreement, the shareholders of
Federal Paper Board should consider the following matters.
FLUCTUATION IN VALUE OF STOCK CONSIDERATION. Although the Stock
Consideration generally is intended to have a value of $55.00, based upon the
Average IP Share Price, its value at the Closing Date will be equal to the
product of the number of shares of IP Common Stock constituting the Stock
Consideration and the then current market price of IP Common Stock, and may be
more or less than $55.00. Adjustments to the number of shares constituting the
Stock Consideration are limited in that such number of shares is subject to a
maximum of 1.612 shares, which would occur if the Average IP Share Price were
less than approximately $34.12, and a minimum of 1.275, which would occur if
the Average IP Share Price were more than approximately $43.14. The value of
the Stock Consideration, based upon the Average IP Share Price, would be less
than $55.00 if the Average IP Share Price were less than $34.12, and would be
more than $55.00 if the Average IP Share Price were more than $43.14. In
either event, the value of the Stock Consideration at the Closing Date would
reflect the market price of IP Common Stock at the Closing Date and could be
higher or lower than the value based upon the Average IP Share Price. Such
variations may be the result of changes in the business, operations or
prospects of International Paper or Federal Paper Board, market assessments of
the likelihood that the Merger will be consummated and the timing thereof,
regulatory considerations, general market conditions and other factors.
International Paper and Federal Paper Board anticipate that the Closing Date
will occur as promptly as practicable following satisfaction or waiver of each
of the conditions to the Merger, including approval of the Merger Agreement by
the holders of the requisite number of shares of FPB Common Stock. If the
Special Meeting occurs prior to the end of the Valuation Period, neither the
precise number of shares of IP Common Stock constituting the Stock
Consideration nor the Average IP Share Price will be known at the time the
vote on approval of the Merger Agreement is held. The Merger Agreement
provides that the Valuation Period will end five days prior to the Closing
Date, and therefore the number of shares of IP Common Stock constituting the
Stock Consideration will be fixed at that time. The closing sales price of IP
Common Stock on the Closing Date may be higher or lower than the Average IP
Share Price, and as a result, the value of the Stock Consideration at the
Closing Date may be more or less than $55.00 (or, in the event the Average IP
Share Price is higher than $43.14 or lower than $34.12, the product of the
number of shares and the Average IP Share Price). See "THE MERGER--Description
of Election Procedures."
LIMITATION ON ELECTION OF FORM OF CONSIDERATION. While holders may elect
with respect to each share of FPB Common Stock they hold to receive either the
Cash Consideration or the Stock Consideration, such elections will be subject
to adjustment so that approximately 49% of the outstanding shares of FPB
Common Stock will be exchanged for cash and 51% will be exchanged for shares
of IP Common Stock. As a result, shares of FPB Common Stock may be converted
into a combination of cash and IP Common Stock representing pro-rated
percentages of the Cash Consideration and Stock Consideration. There can be no
assurance that each holder of FPB Common Stock will receive the form of Merger
Consideration that such holder elects with respect to any or all their shares.
See "THE MERGER--Description of Election Procedures."
NECESSITY OF RECEIVING APPROVALS. Consummation of the Merger is subject to
the satisfaction or waiver of various conditions, including no governmental
entity having enacted, issued, promulgated, enforced or entered any law, rule,
regulation or order which is in effect and which makes the Merger illegal or
otherwise prohibits consummation of the Merger. There can be no assurance that
such conditions will be satisfied or waived. International Paper, Merger Sub
and Federal Paper Board have agreed to use all reasonable efforts to take, or
cause to be taken, all actions, necessary, proper or advisable to consummate
the Merger, including (i) obtaining of necessary waivers, consents and
approvals from governmental entities and third parties and (ii) defending of
any lawsuits or other legal proceedings investigating or challenging the
Merger Agreement, including seeking to have any stay or temporary restraining
order entered by any court or other governmental entity vacated or reversed.
See "THE MERGER--Approvals and Consents."
14
<PAGE>
UNCERTAINTIES IN INTEGRATING OPERATIONS AND ACHIEVING COST SAVINGS. The
success of any merger, including the Merger, is in part dependent on the
ability following the merger to consolidate operations, integrate departments,
systems and procedures and thereby obtain business synergies and related cost
savings. While the management of International Paper, with the assistance of
the management of Federal Paper Board, intends to work diligently to
effectively integrate and rationalize the operations following the Merger,
there can be no assurance as to the timing or extent to which cost savings and
efficiencies will be achieved.
THE SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is provided to the holders of FPB Common
Stock in connection with the solicitation of proxies by the Board of Directors
of Federal Paper Board (the "FPB Board") for use at the Special Meeting to be
held on March 12, 1996 at 9:30 a.m., local time, at Shearman & Sterling, 599
Lexington Avenue, 2nd Floor Conference Center, New York, New York 10022 and at
any adjournments or postponements thereof. At the Special Meeting, holders of
FPB Common Stock will consider and vote upon a proposal to approve the Merger
Agreement and to transact such other business as may properly come before the
meeting. A white form of proxy is being provided to the holders of FPB Common
Stock with this Proxy Statement/Prospectus.
This Proxy Statement/Prospectus also constitutes a prospectus furnished by
International Paper for the issuance of shares of IP Common Stock to be issued
to holders of FPB Common Stock upon consummation of the Merger.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Shareholders of record of FPB Common Stock at the close of business on
February 7, 1996 (the "Meeting Record Date") will be entitled to notice of and
to vote on approval of the Merger Agreement. As of the Meeting Record Date,
47,559,782 shares of FPB Common Stock were issued and outstanding. A majority
of the outstanding shares of FPB Common Stock entitled to vote must be
represented in person or by proxy at the Special Meeting in order for a quorum
to be present. Shareholders of record of FPB Convertible Preferred Stock at
the Meeting Record Date will be entitled to notice of the Special Meeting but
will not be entitled to vote at the Special Meeting. See "CERTAIN PROVISIONS
OF THE MERGER AGREEMENT--Other Agreements--Redemption of FPB Convertible
Preferred Stock."
VOTE REQUIRED
The affirmative vote of the holders of a majority of the outstanding shares
of FPB Common Stock is required to approve the Merger Agreement. Because the
approval of the Merger Agreement requires the affirmative vote of the majority
of outstanding shares of FPB Common Stock, a failure to vote shares either by
abstention or non-vote (including broker non-vote) will have the same effect
as votes against the Merger Agreement. Each share of FPB Common Stock is
entitled to one vote.
THE FPB BOARD HAS UNANIMOUSLY ADOPTED THE MERGER AGREEMENT AND RECOMMENDS A
VOTE FOR APPROVAL OF THE MERGER AGREEMENT. SEE "THE MERGER--CERTAIN
TRANSACTIONS; CONFLICTS OF INTEREST."
At January 15, 1996, Federal Paper Board's directors and executive officers
and their affiliates may be deemed to be beneficial owners of approximately
2,933,860 shares (excluding 1,330,370 shares underlying stock options) of FPB
Common Stock, or approximately 6.2% of the then outstanding shares of FPB
Common Stock. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT--FPB Common Stock."
15
<PAGE>
PROXIES; REVOCABILITY OF PROXIES
Shares represented by properly executed proxies received in time for the
Special Meeting will be voted at the Special Meeting in the manner specified
by the holder thereof. PROXIES WHICH ARE PROPERLY EXECUTED BUT WHICH DO NOT
CONTAIN VOTING INSTRUCTIONS WILL BE VOTED IN FAVOR OF APPROVAL OF THE MERGER
AGREEMENT. It is not expected that any matter other than those referred to
herein will be brought before the Special Meeting. If a proxy is given to vote
in favor of approval of the Merger Agreement, the persons named in such proxy
will have authority to vote in accordance with their best judgment on any
other matter that is properly presented at the special meeting for action,
including without limitation, any proposal to adjourn the meeting or otherwise
concerning the conduct of the meeting.
The grant of a proxy on the enclosed white Federal Paper Board form does not
preclude a shareholder from voting in person. A shareholder may revoke a proxy
at any time prior to its exercise by submitting a new proxy at a later date,
by filing with the Secretary of Federal Paper Board, a duly executed
revocation of proxy bearing a later date or by voting in person at the
meeting. Attendance at the Special Meeting will not of itself constitute
revocation of a proxy.
DISSENTING FEDERAL PAPER BOARD SHAREHOLDERS' APPRAISAL RIGHTS
Section 55-13-01 et seq., of the North Carolina Business Corporation Act
(the "NCBCA") gives any holder of FPB Common Stock who objects to the Merger
Agreement and who complies with the provisions of Sections 55-13-01, et seq.,
the right to receive a cash payment from Federal Paper Board for the "fair
value," as appraised immediately before the date and time that the articles of
merger pursuant to which Federal Paper Board will be merged with and into
Merger Sub are filed with the Secretary of State of the State of North
Carolina (the "Effective Time"), of his FPB Common Stock, subject only to the
surrender by him of his certificates representing his shares. Any such payment
may be higher or lower than the value of the per share consideration paid in
the Merger. "Dissenting Shares" are shares of FPB Common Stock as to which
dissenters' rights are properly exercised pursuant to (S) 55-13-01 et seq. of
the NCBCA.
To exercise the right to object to the Merger Agreement, a shareholder must
give to Federal Paper Board, and Federal Board must receive, prior to the vote
taken at the Special Meeting, a written notice of such shareholder's intent to
demand payment for shares of FPB Common Stock. A shareholder who wishes to
object to the Merger Agreement must not vote any shares in favor of the Merger
Agreement. Failure to take any necessary step in connection with the exercise
of such rights may result in termination or waiver of dissenters' appraisal
rights.
NEITHER A VOTE AGAINST THE MERGER AGREEMENT NOR THE FAILURE TO VOTE WILL BY
ITSELF CONSTITUTE A PROPER WRITTEN OBJECTION TO THE MERGER AGREEMENT. If
proper and timely written objection to the Merger Agreement is given by a
shareholder, a failure to vote against the Merger Agreement will not
constitute a waiver of his right to dissent and demand the fair value of his
shares. A vote by a shareholder to approve the Merger Agreement terminates his
right to object under the statute. See "THE MERGER--Dissenting Federal Paper
Board Shareholders' Rights of Appraisal."
SOLICITATION OF PROXIES; GENERAL
Federal Paper Board will bear the cost of solicitation of proxies from its
shareholders, except that International Paper and Federal Paper Board will
share equally the cost of preparing and printing this Proxy
Statement/Prospectus, including related filing fees. In addition to
solicitation by mail, the directors, officers and employees of Federal Paper
Board and its subsidiaries may solicit proxies from shareholders of Federal
Paper Board by telephone or telegram or in person. Arrangements will also be
made with brokerage houses and other custodians, nominees and fiduciaries for
the forwarding of solicitation material to the beneficial owners of stock held
of record by such persons, and Federal Paper Board will reimburse such
custodians, nominees and fiduciaries for the reasonable out-of-pocket expenses
in connection therewith.
16
<PAGE>
Georgeson & Company, Inc. will assist in the solicitation of proxies by
Federal Paper Board for a fee of $7,500.00, plus reasonable out-of-pocket
expenses.
Representatives of Deloitte & Touche LLP are expected to be present at the
Special Meeting, where they will have the opportunity to make a statement if
they desire to do so and will be available to respond to appropriate
questions.
HOLDERS OF FPB COMMON STOCK SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR
WHITE PROXY CARDS. A YELLOW FORM OF ELECTION WHICH YOU MUST USE TO ELECT
WHETHER YOU WISH TO RECEIVE SHARES OF IP COMMON STOCK OR CASH IN EXCHANGE FOR
YOUR SHARES OF FPB COMMON STOCK WILL BE SENT TO YOU SHORTLY IN A SEPARATE
ENVELOPE.
17
<PAGE>
THE MERGER
The discussion in this Proxy Statement/Prospectus of the Merger and the
description of the Merger Agreement's principal terms are subject to and
qualified in their entirety by reference to the Merger Agreement, a copy of
which is attached to this Proxy Statement/Prospectus as Annex I and is
incorporated herein by reference.
BACKGROUND OF THE MERGER
Prior to 1995, senior management of Federal Paper Board and the FPB Board
periodically reviewed Federal Paper Board's general strategic alternatives in
light of existing conditions and developments in the paper and forest products
industry. J.P. Morgan Securities Inc. ("J.P. Morgan"), as part of its ongoing
general advisory assignment, was asked to assist in such review. In June 1995,
Federal Paper Board also requested that Goldman, Sachs & Co. ("Goldman Sachs")
participate in such review. J.P. Morgan and Goldman Sachs, during the course
of their review of Federal Paper Board's general strategic alternatives,
principally considered and evaluated the benefits and costs associated with a
possible strategic combination of Federal Paper Board with a third party and a
recapitalization of Federal Paper Board.
During the summer of 1995, senior management, working with Federal Paper
Board's financial advisors, determined that, given Federal Paper Board's
current position in the paper and forest products industry as a company
respected for its efficient mill operations and management and with a strong
position in the bleached paperboard segment of the paper industry, it was
advisable to explore the possibility of a combination with a third party which
could result in a combined company with broad product offerings or of a
recapitalization. Senior management and Federal Paper Board's financial
advisors preliminarily determined that large companies engaged in the paper
and forest products industry would possibly be willing to provide the
shareholders of Federal Paper Board with a market premium that Federal Paper
Board's management would insist upon for such a transaction. Senior management
believed that such companies could justify the payment of any such market
premium because of the likely strategic fit of Federal Paper Board's
operations with those of such a combination partner.
In September 1995 and early October 1995, potential combination partners
engaged in the paper and forest products industry were contacted to determine
whether any such parties were interested in exploring, on a preliminary basis,
a possible combination. In connection with such contacts, Federal Paper Board
entered into confidentiality agreements with six interested parties, including
International Paper, which entered into a confidentiality agreement dated
September 28, 1995. Each of such parties was provided a confidential
information memorandum describing Federal Paper Board's business. Each
interested party was also given the opportunity to meet with the senior
management of Federal Paper Board and visit Federal Paper Board's mills as
part of such party's review of Federal Paper Board's operations.
On October 4, 1995, John R. Kennedy, President and Chief Executive Officer
of Federal Paper Board, and representatives of Goldman Sachs and J.P. Morgan
met with John A. Georges, Chairman of the Board and Chief Executive Officer of
International Paper, John T. Dillon, President of International Paper, and
other representatives of senior management of International Paper to discuss
generally Federal Paper Board and its business. On October 23 and 24,
representatives of International Paper visited Federal Paper Board's
Riegelwood, North Carolina, Inverurie, Scotland and Augusta, Georgia mills.
During October, senior management of Federal Paper Board met at various
times with representatives of three potential combination partners (other than
International Paper) to discuss various matters contained in Federal Paper
Board's confidential information memorandum, including Federal Paper Board's
products, Federal Paper Board's mill operations, Federal Paper Board's
timberlands, the distribution of Federal Paper Board's products, financial
information relating to Federal Paper Board, Federal Paper Board's workforce
and the management of Federal Paper Board at the corporate and operations
levels. Members of senior management of Federal Paper Board who participated
in one or more of such meetings included John R. Kennedy, Robert D.
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Baldwin, Director and Senior Vice President of Federal Paper Board, W. Mark
Massey, Jr., Director and Senior Vice President of Federal Paper Board,
Quentin J. Kennedy, Director, Executive Vice President, Secretary and
Treasurer of Federal Paper Board, and Thomas L. Cassidy, Director of Federal
Paper Board. At various times in October, two of such parties (other than
International Paper) also visited certain Federal Paper Board mills.
On October 17, the Executive Committee of the FPB Board and the FPB Board
met to discuss the status of the preliminary contacts with the potential
combination partners, including International Paper. The Executive Committee,
after reviewing the situation, determined to permit the interested parties to
continue their review of the business of Federal Paper Board.
In late October, Federal Paper Board's financial advisors requested each of
the interested parties to provide an indication of interest in early November
with respect to a combination with Federal Paper Board. None of the FPB Board,
Goldman Sachs or J.P. Morgan, on behalf of the FPB Board, imposed on the
interested parties any restrictions on the form of consideration to be paid in
such a combination. The FPB Board did, however, express to its financial
advisors a preference that at least a portion of the consideration be paid in
the form of stock, so that shareholders of Federal Paper Board who wished to
do so could participate in the growth of the business conducted by the
combined company after the combination while obtaining tax-free treatment to
the extent they received shares of common stock in the combination
transaction.
On November 2, Messrs. J. Kennedy and Georges met privately to discuss
International Paper's interest in pursuing a combination transaction with
Federal Paper Board. At such meeting, Mr. Georges indicated that International
Paper was, on a preliminary basis, interested in a business combination and
further indicated that the form of consideration to be paid in such a
transaction could be a combination of IP Common Stock and cash.
Also on November 2, two of the other potential combination partners
submitted indications of interest to Federal Paper Board's financial advisors.
One indicated that it was flexible as to whether the consideration to be paid
to Federal Paper Board's shareholders would be in cash, shares of common stock
or a combination thereof. The other potential combination partner indicated
that it might be willing to consider a transaction in which the consideration
would be a combination of shares of common stock and cash. Each of these
potential combination partner's indicated range of consideration was less than
the amount of consideration International Paper indicated it might be willing
to pay if a satisfactory agreement could be negotiated. During the course of
the day on November 2, Goldman Sachs and J.P. Morgan engaged in a number of
discussions with each of the interested parties to determine the level of
interest of each party and to evaluate the submitted indications of interest.
Also on November 2, the Executive Committee of the FPB Board and the FPB
Board met to review the submitted indications of interest. Based on the review
of the indications of interest, the FPB Board preliminarily determined that,
at such time, the International Paper indication of interest appeared to be
the most favorable of those received principally because of the amount of
consideration International Paper might be willing to pay, the complementary
nature of Federal Paper Board's and International Paper's businesses and
product lines which would result in a broad product line being offered by the
combined company, the large market capitalization of International Paper and
the corresponding market liquidity for shares of IP Common Stock and the
indication that International Paper would be willing to proceed quickly with
the negotiation and execution of a definitive agreement. The FPB Board
requested that Federal Paper Board's senior management continue discussions
with International Paper and the other interested parties to determine whether
a transaction in the best interests of Federal Paper Board and the
shareholders of Federal Paper Board could be obtained. That day, Goldman Sachs
and J.P. Morgan continued to have discussions with the interested parties to
evaluate further each party's interest in a combination. In such discussions,
each of the potential combination partners (other than International Paper)
indicated that it was not then in the position to raise significantly the
range of consideration it might be willing to pay. The indications of interest
received from International Paper and the other two potential combination
partners described above were the firmest indications of interest received
from the parties contacted in September and early October 1995. The other
contacted parties indicated that they were not then in the position to submit
an appropriate indication of interest for Federal Paper Board to consider.
On November 3, Messrs. J. Kennedy and Dillon met privately to discuss
further the form and amount of consideration and general terms relating to a
transaction with Federal Paper Board. At such meeting, Messrs. J.
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Kennedy and Dillon discussed the operations and business of Federal Paper
Board, the structure of a possible combination, the regulatory approvals
required for the combination and the necessary procedures to be followed in
order to obtain such regulatory approvals. Mr. J. Kennedy suggested that he
would be willing to discuss with Federal Paper Board's senior management team
and the FPB Board a combination transaction in which the FPB shareholders
would receive consideration of a value of $55.00 per share of FPB Common
Stock. In a telephone conference later that day with Mr. J. Kennedy, Messrs.
Dillon and Georges indicated that if satisfactory terms could be negotiated,
International Paper would be willing to pay consideration valued at $55.00 per
share of FPB Common Stock and that the consideration would be a combination of
IP Common Stock and cash. Messrs. J. Kennedy, Georges and Dillon noted that
consideration valued at $55.00 per share of FPB Common Stock reflected a
significant premium over the $45.50 market price of FPB Common Stock then
existing.
Based, among other things, on International Paper's indicated willingness to
provide the Federal Paper Board shareholders with consideration valued at
$55.00 per share of FPB Common Stock, the fact that such amount was a
significant premium over the then-prevailing market price of FPB Common Stock
and higher than the ranges of consideration indicated by the other interested
parties, the complementary nature of the businesses and product lines of
Federal Paper Board and International Paper and the market liquidity of IP
Common Stock, senior management of Federal Paper Board determined that it was
advisable to discuss further a transaction with International Paper. In
connection with such discussions, counsel to Federal Paper Board delivered
late in the evening of November 3 to International Paper and its legal and
financial advisors a draft of the Merger Agreement.
During the course of the day on November 4, Quentin J. Kennedy, on behalf of
Federal Paper Board, and members of senior management of International Paper
and their respective legal and financial advisors met to discuss the
provisions of the Merger Agreement and various other legal, financial and
regulatory issues, including the treatment of certain Federal Paper Board
employee benefits plans, the identification of (and actions necessary to
comply with) required regulatory requirements, the tax treatment of the
proposed transaction to the parties and Federal Paper Board's shareholders and
the proper accounting of the proposed transaction.
Also on November 4, Goldman Sachs and J.P. Morgan met with senior management
of International Paper to review generally the business of International
Paper.
During the morning and afternoon of November 5, John R. Kennedy and Quentin
J. Kennedy, on behalf of Federal Paper Board, and members of senior management
of International Paper, together with the respective financial and legal
advisors for Federal Paper Board and International Paper, continued their
discussions relating principally to certain terms of the Merger Agreement,
including the applicable procedures to elect cash and stock as consideration
in the Merger, the payment of certain fees under specified circumstances in
the event of a termination of the Merger Agreement and the treatment of
certain employee benefits plans of Federal Paper Board. During the course of
such discussions, the parties reviewed and discussed a revised draft of the
Merger Agreement with the resolution of the outstanding issues being
considered by John R. Kennedy and Quentin J. Kennedy on behalf of Federal
Paper Board.
In the afternoon of November 5, the FPB Board met to consider the final
terms of the proposed transaction. Following detailed presentations from its
legal and financial advisors concerning the legal, regulatory, accounting and
financial issues relating to the proposed transaction, the FPB Board received
(i) the oral opinion of Goldman Sachs (subsequently confirmed in writing)
that, as of such date, the Aggregate Consideration (as defined below) to be
received by the holders of shares of FPB Common Stock pursuant to the Merger
Agreement is fair to such holders and (ii) the oral opinion of J.P. Morgan
(subsequently confirmed in writing) that, as of such date, the Aggregate
Consideration to be received by the holders of shares of FPB Common Stock in
the proposed Merger is fair, from a financial point of view, to such holders.
See "--Opinions of the Financial Advisors to the FPB Board." The FPB Board
then unanimously determined that the Merger, upon the terms and conditions set
forth in the Merger Agreement, is fair to, and in the best interests of, the
shareholders of Federal Paper Board,
unanimously adopted the Merger Agreement and unanimously resolved to recommend
that the holders of outstanding shares of FPB Common Stock vote for approval
of the Merger Agreement. See "--Certain Transactions; Conflicts of Interests."
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In the evening of November 5, the IP Board met to review the terms of the
proposed transaction. After discussion, the IP Board approved the Merger
Agreement and authorized the issuance of IP Common Stock and payment of cash
to the holders of shares of FPB Common Stock pursuant to the Merger Agreement.
Federal Paper Board, International Paper and Merger Sub executed the Merger
Agreement early in the morning of November 6. Prior to the beginning of
trading on the NYSE that morning, Federal Paper Board and International Paper
issued a joint press release announcing the transaction.
Prior to the discussions leading to the execution of the Merger Agreement,
Federal Paper Board and International Paper had no material contracts,
arrangements, understandings or relationships and had not engaged in any
material negotiations or transactions.
REASONS FOR THE MERGER; RECOMMENDATION OF THE FPB BOARD
At a special meeting of the FPB Board held on November 5, 1995, the FPB
Board received presentations concerning, and reviewed the terms of, the Merger
Agreement with members of Federal Paper Board's management and its legal
counsel and financial advisors and also received presentations from Federal
Paper Board's management and representatives of Goldman Sachs and of J.P.
Morgan concerning the business and prospects of Federal Paper Board and the
potential combination of Federal Paper Board and International Paper. At the
meeting, the FPB Board unanimously determined that the Merger, upon the terms
and conditions set forth in the Merger Agreement, is fair to, and in the best
interests of, the shareholders of Federal Paper Board. Accordingly, the FPB
Board has unanimously adopted the Merger Agreement and unanimously recommends
that the holders of outstanding shares of FPB Common Stock vote for approval
of the Merger Agreement at the Special Meeting. See "--Background of the
Merger" and "--Certain Transactions; Conflicts of Interest."
In reaching its determination, the FPB Board consulted with Federal Paper
Board's management, as well as its legal counsel and financial advisors, and
considered a number of factors, including the following principal factors:
(i) The consideration to be received by Federal Paper Board's
shareholders in the Merger, including the fact that even the minimum Stock
Consideration of 1.275 shares of IP Common Stock per share of FPB Common
Stock and the Cash Consideration of $55.00 per share of FPB Common Stock
represented a substantial premium over the then-prevailing market price
($45.50) of FPB Common Stock. Likewise, the FPB Board considered the risk
that the market value of IP Common Stock might decrease to such an extent
that even the maximum Stock Consideration of 1.612 shares of IP Common
Stock per share of FPB Common Stock would have a market value of less than
$55.00. See "--Form of the Merger", "--Merger Consideration", "--Effective
Time" and "Procedures for Exchange of FPB Common Stock Certificates" and
"RISK FACTORS--Fluctuation in Value of Stock Consideration."
(ii) The ability of Federal Paper Board shareholders who wish to do so to
continue to participate in the growth of the business conducted by
International Paper and Federal Paper Board after the Merger and to benefit
from the potential appreciation in the value of IP Common Stock by electing
to receive shares of IP Common Stock, while realizing an immediate premium
for their FPB Common Stock and while obtaining tax-free treatment to the
extent that they receive shares of IP Common Stock. See "--Certain Federal
Income Tax Considerations."
(iii) The review of other strategic alternatives, including possible
business combinations with other companies and the indications of interest
received from interested parties. See "--Background of the Merger." Based
upon their review of other strategic alternatives, such indications of
interest and the advantages that could be achieved from Federal Paper
Board's combination with International Paper, the FPB Board did not believe
that a transaction (whether in the form of a business combination or
otherwise) with any other company could reasonably be expected to offer
advantages comparable to those presented by a business combination with
International Paper.
(iv) Information provided by Federal Paper Board's legal counsel with
respect to the federal income tax consequences of the Merger to
shareholders of Federal Paper Board. The FPB Board was advised that,
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for federal income tax purposes, shareholders who exchange FPB Common Stock
solely for IP Common Stock generally would not recognize taxable gain or
loss on the exchange, that shareholders who exchange FPB Common Stock
solely for cash generally would be taxed on the difference between their
tax basis in the FPB Common Stock exchanged and the cash received, and that
shareholders who exchange FPB Common Stock for a combination of cash and IP
Common Stock generally would recognize taxable gain in an amount equal to
the lesser of (a) the excess of the sum of the cash and the fair market
value of the IP Common Stock received over the tax basis in the FPB Common
Stock exchanged and (b) the amount of cash received. The FPB Board was also
advised that shareholders of Federal Paper Board could not ascertain their
tax consequences at the time of making an election due to possible
applicability of proration. See "--Description of Election Procedures" and
"--Certain Federal Income Tax Considerations." The FPB Board also
considered the fact that the terms of the Merger Agreement will permit
Federal Paper Board shareholders to elect to receive the consideration to
be issued to them pursuant to the Merger Agreement in the form of IP Common
Stock or cash (subject to proration in each case), thereby generally
permitting shareholders to influence the tax consequences to them of the
Merger. In addition, the FPB Board noted that the provisions of the Merger
Agreement will enable Federal Paper Board shareholders who prefer cash to
avoid the necessity of selling any IP Common Stock they otherwise would
have received if all the consideration was in the form of IP Common Stock.
See "--Form of the Merger", "--Merger Consideration", "--Description of
Election Procedures", "--Procedures for Exchange of FPB Common Stock
Certificates" and "--Effective Time."
(v) Federal Paper Board's and International Paper's respective businesses
(including, without limitation, the range of services provided), assets,
liabilities, managements, strategic objectives, competitive positions and
prospects.
(vi) The joint presentation of Goldman Sachs and J.P. Morgan delivered to
the FPB Board on November 5, 1995, including, without limitation, Goldman
Sachs' oral opinion (subsequently confirmed in writing) that, as of such
date, the Aggregate Consideration (as defined herein) to be received by the
holders of shares of FPB Common Stock pursuant to the Merger Agreement was
fair to such holders and J.P. Morgan's oral opinion (subsequently confirmed
in writing) that, as of such date, the Aggregate Consideration to be
received by the holders of shares of FPB Common Stock in the Merger was
fair, from a financial point of view, to such holders. Each of Goldman
Sachs and J.P. Morgan subsequently confirmed its respective November 5,
1995 opinion by delivery of its written opinion dated as of the date of
this Proxy Statement/ Prospectus. Copies of such opinions are attached to
this Proxy Statement/Prospectus as Annexes II and III. See "--Opinions of
the Financial Advisors to the FPB Board."
(vii) The analysis and recommendation of the Merger by Federal Paper
Board's management, including, without limitation, a discussion of the
complementary nature of certain product lines of Federal Paper Board and
International Paper.
(viii) The terms and conditions of the Merger Agreement, including the
amount and the form of the consideration, the parties' representations,
warranties, covenants and agreements, and the conditions to their
respective obligations set forth in the Merger Agreement. See "CERTAIN
PROVISIONS OF THE MERGER AGREEMENT." The FPB Board, based on presentations
by its legal and financial advisors, deemed the terms of the Merger
Agreement, including the nature of the representations and warranties of
Federal Paper Board, the limited conditions to International Paper's
obligation to close the Merger and the ability of Federal Paper Board to
consider alternative business combination proposals (as further described
below in paragraph (ix)), to be generally favorable to Federal Paper Board.
(ix) The terms of the Merger Agreement that permit the FPB Board, in the
exercise of its fiduciary duties and subject to certain conditions, to
furnish information with respect to Federal Paper Board to a third party
making a competitive proposal (as defined in the Merger Agreement) and its
representatives, counsel and advisors pursuant to a confidentiality
agreement and to participate in negotiations regarding such competitive
proposal (although Federal Paper Board is not permitted by the Merger
Agreement to solicit or initiate, or knowingly encourage the submission of
such a competitive proposal). The FPB Board noted that the Merger Agreement
provides that, if a competing proposal is received, the FPB Board, in the
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exercise of its fiduciary duties, may, under specified circumstances,
terminate the Merger Agreement. In certain limited circumstances, as a
result of such a termination of the Merger Agreement, Federal Paper Board
would be obligated to pay International Paper $76.0 million (approximately
3% of the transaction value). The FPB Board did not view such fee
provisions of the Merger Agreement as unreasonably impeding any interested
third party from proposing an alternative transaction. The FPB Board also
noted that, from the date of the Merger Agreement until February 28, 1996,
Federal Paper Board is not permitted under the Merger Agreement to engage
in negotiations with or provide information to any party making a
competitive proposal unless the Board of Directors were to conclude that
such proposal could reasonably be expected to lead to a transaction which
would be financially superior to the transactions contemplated by the
Merger Agreement, nor could Federal Paper Board enter into any agreement
with respect to a competitive proposal unless the Board of Directors were
to determine, after consultation with its financial advisors, that such
competitive proposal was financially superior to the transactions
contemplated by the Merger Agreement. See "CERTAIN PROVISIONS OF THE MERGER
AGREEMENT--Termination."
(x) The possible strategic growth opportunities that might be available
to Federal Paper Board absent the Merger. Based upon their review of the
possible strategic growth opportunities that might be available to Federal
Paper Board as an independent company, the FPB Board believed that
shareholders of Federal Paper Board would benefit most from the potential
business combination with International Paper.
(xi) The uncertainties in the forest products industry, including the
likelihood of continuing consolidation of the industry and the possibility
that changes in the industry, depending on their nature, could be
disadvantageous to Federal Paper Board. The FPB Board believed that,
although the uncertainties of the forest products industry could also be
advantageous to Federal Paper Board and disadvantageous to International
Paper, the combined company would be better able to respond to the changes
in the industry and to take advantage of the opportunities that such
changes might bring.
(xii) The fact that shareholders of Federal Paper Board will not receive
the full benefit of any future growth in the value of their equity that
Federal Paper Board may have achieved as an independent company, and the
potential disadvantage to Federal Paper Board shareholders who receive IP
Common Stock in the event that International Paper does not perform as well
in the future as Federal Paper Board may have performed as an independent
company.
The foregoing discussion of information and factors considered and given
weight by the FPB Board is not intended to be exhaustive. In view of the wide
variety of factors considered in connection with its evaluation of the terms
of the Merger, the FPB Board did not find it practicable to, and did not,
quantify or otherwise attempt to assign relative weights to the specific
factors considered in reaching their determinations. In addition, individual
members of the FPB Board may have given different weights to different
factors.
THE FPB BOARD UNANIMOUSLY RECOMMENDS THAT HOLDERS OF FPB COMMON STOCK VOTE
FOR APPROVAL OF THE MERGER AGREEMENT. See "--Certain Transactions; Conflicts
of Interest."
OPINIONS OF THE FINANCIAL ADVISORS TO THE FPB BOARD
OPINION OF GOLDMAN SACHS. On November 5, 1995, Goldman Sachs delivered its
oral opinion to the FPB Board that, as of the date of such opinion, the
consideration in the form of shares of IP Common Stock and cash to be received
by holders of shares of FPB Common Stock (the "Aggregate Consideration")
pursuant to the Merger Agreement is fair to such holders. Goldman Sachs
subsequently delivered to the FPB Board a written opinion dated November 5,
1995 confirming its oral opinion. Goldman Sachs subsequently confirmed its
November 5, 1995 opinion by delivery of its written opinion dated as of the
date of this Proxy Statement/Prospectus. Certain financial analyses used by
Goldman Sachs and J.P. Morgan in connection with their joint presentation to
the FPB Board on November 5, 1995 and with providing their opinions to the FPB
Board on November 5, 1995 are summarized under "--Analyses" below.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS, DATED THE DATE
HEREOF, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS
ON THE REVIEW UNDERTAKEN IN CONNECTION WITH THE
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OPINION, IS ATTACHED HERETO AS ANNEX II, AND IS INCORPORATED HEREIN BY
REFERENCE. HOLDERS OF SHARES OF FPB COMMON STOCK ARE URGED TO, AND SHOULD,
READ SUCH OPINION IN ITS ENTIRETY. THE FOLLOWING SUMMARY IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. Goldman Sachs' opinion
was directed to the FPB Board in connection with and for the purposes of their
evaluation of the proposed Merger, and does not constitute a recommendation to
any shareholder of Federal Paper Board as to how such shareholder should vote
at the Special Meeting or whether to elect to receive cash or stock.
In connection with its written opinion, Goldman Sachs reviewed, among other
things, the Merger Agreement; this Proxy Statement/Prospectus; Annual Reports
to shareholders and Annual Reports on Form 10-K of Federal Paper Board and
International Paper for the five years ended December 31, 1994; certain
interim reports to shareholders and Quarterly Reports on Form 10-Q for Federal
Paper Board and International Paper; certain other communications from Federal
Paper Board and International Paper to their respective shareholders; and
certain internal financial analyses and forecasts for Federal Paper Board and
International Paper prepared by their respective managements. Goldman Sachs
also held discussions with members of the senior management of Federal Paper
Board and International Paper regarding the past and current business
operations, financial condition, and future prospects of their respective
companies. In the course of such discussions with the senior management of
International Paper, Goldman Sachs was informed that projections for
International Paper beyond 1995 were not available. Consequently, Goldman
Sachs held discussions with the senior management of International Paper
concerning their views as to projections published by financial analysts with
respect to International Paper. In addition, Goldman Sachs reviewed the
reported price and trading activity for the FPB Common Stock and the IP Common
Stock, compared certain financial and stock market information for Federal
Paper Board and International Paper with similar information for certain other
companies the securities of which are publicly traded, reviewed the financial
terms of certain recent business combinations in the paper and forest products
industry and in other industries generally and performed such other studies
and analyses as Goldman Sachs considered appropriate.
Goldman Sachs relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by it for
purposes of its opinion. In addition, Goldman Sachs has not made an
independent evaluation or appraisal of the assets and liabilities of Federal
Paper Board or International Paper or any of their respective subsidiaries,
and has not been furnished with any such evaluation or appraisal.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. Federal Paper Board
selected Goldman Sachs as its financial advisor because it is a nationally
recognized investment banking firm that has substantial experience in
transactions similar to the Merger. Goldman Sachs has provided certain
investment banking services to Federal Paper Board and International Paper
from time to time and may provide investment banking services to International
Paper in the future.
Goldman Sachs provides a full range of financial, advisory and brokerage
services and in the course of its normal trading activities may from time to
time effect transactions and hold positions in the securities or options on
securities of Federal Paper Board and/or International Paper for its own
account and for the account of customers. As of November 5, 1995, Goldman
Sachs had accumulated a long position in International Paper securities of
44,912 shares of IP Common Stock, 10,000 shares of 5 1/4% European Convertible
Preferred Shares and 94,000 shares of Convertible Preferred Class 144A Shares.
In addition, as of November 5, 1995, Goldman Sachs had accumulated a long
position of 5,594 shares of FPB Common Stock.
Pursuant to a letter agreement dated August 20, 1995 (the "Goldman Sachs
Engagement Letter"), Federal Paper Board engaged Goldman Sachs to act as its
financial advisor in connection with the Merger. Pursuant to the terms of the
Goldman Sachs Engagement Letter, Federal Paper Board has agreed to pay Goldman
Sachs a transaction fee in the event of any transaction in which at least 50%
of the outstanding shares of FPB Common Stock are acquired, or 50% of the
assets (based on the book value thereof) are transferred, in one or a series
of
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transactions including, but not limited to, private or open market purchases
of stock, a tender offer, a merger or a sale, equal to .375% of the Aggregate
Consideration paid in such transaction. Federal Paper Board has also agreed to
reimburse Goldman Sachs for its reasonable out-of-pocket expenses, including
attorney's fees, and to indemnify Goldman Sachs against certain liabilities,
including certain liabilities under the federal securities laws.
OPINION OF J.P. MORGAN. On November 5, 1995, J.P. Morgan delivered its oral
opinion to the FPB Board that, as of the date of such opinion, the Aggregate
Consideration to be received by the holders of shares of FPB Common Stock in
the proposed Merger is fair, from a financial point of view, to such holders.
J.P. Morgan subsequently delivered to the FPB Board a written opinion dated
November 5, 1995 confirming its oral opinion. J.P. Morgan subsequently
confirmed its November 5, 1995 opinion by delivery of its written opinion
dated as of the date of this Proxy Statement/Prospectus. Certain financial
analyses used by J.P. Morgan and Goldman Sachs in connection with their joint
presentation to the FPB Board on November 5, 1995 and with providing their
opinions to the FPB Board on November 5, 1995 are summarized under "--
Analyses" below.
THE FULL TEXT OF THE WRITTEN OPINION OF J.P. MORGAN, DATED THE DATE HEREOF,
WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON
THE REVIEW UNDERTAKEN IN CONNECTION WITH ITS OPINION, IS ATTACHED HERETO AS
ANNEX III, AND IS INCORPORATED HEREIN BY REFERENCE. HOLDERS OF SHARES OF FPB
COMMON STOCK ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY. THE
FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION. J.P. Morgan's opinion was directed to the FPB Board in
connection with and for the purposes of their evaluation of the proposed
Merger, and does not constitute a recommendation to any shareholder of Federal
Paper Board as to how such shareholder should vote at the Special Meeting or
whether to elect to receive cash or stock.
In connection with its written opinion, J.P. Morgan reviewed, among other
things: the Merger Agreement; this Proxy Statement/Prospectus; certain
publicly available information concerning the businesses of Federal Paper
Board and International Paper and of certain other companies engaged in
businesses comparable to Federal Paper Board and International Paper, and the
reported market prices for certain other companies' securities deemed
comparable; publicly available terms of certain transactions involving
companies J.P. Morgan believes to be reasonably comparable to Federal Paper
Board or otherwise relevant to its inquiry, and the consideration received for
such companies; current and historical market prices of, and trading activity
in, FPB Common Stock and IP Common Stock; the audited financial statements of
Federal Paper Board and International Paper for the fiscal period ended
December 31, 1994; certain unaudited financial statements of Federal Paper
Board and International Paper; certain unaudited financial information of
Federal Paper Board and International Paper for the period ended December 31,
1995; and certain internal financial analyses and forecasts prepared by
Federal Paper Board. In addition, J.P. Morgan held discussions with certain
members of the management of Federal Paper Board and International Paper
concerning their respective businesses, assets, liabilities and prospects, as
well as certain aspects of the Merger and certain other matters J.P. Morgan
believed necessary or appropriate to its inquiry. J.P. Morgan also performed
such other studies and analyses as it considered appropriate. J.P. Morgan
discussed the possibility of a potential transaction involving Federal Paper
Board with a limited number of other parties prior to Federal Paper Board
entering into the Merger Agreement, and took the results of those discussions
into consideration in connection with its opinion.
In giving its opinion, J.P. Morgan relied upon and assumed, without assuming
responsibility for independent verification of, the accuracy and completeness
of all information that was publicly available or was furnished to it by
Federal Paper Board and International Paper, and did not make or obtain any
independent evaluations or appraisals of the assets and liabilities of Federal
Paper Board or International Paper. With respect to financial projections,
International Paper advised J.P. Morgan that it had not prepared as of the
date of the Merger Agreement, and therefore did not make available, any
financial projections with respect to any period beginning on or after January
1, 1996. J.P. Morgan had discussions with members of International Paper's
management regarding the outlook for International Paper's business and
prospects and their views with respect to projections published by financial
analysts with respect to International Paper. In relying on financial analyses
and forecasts provided to it or publicly available (and, in the case of
International Paper, management's view with respect to
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such forecasts), J.P. Morgan assumed, with Federal Paper Board's consent, that
they had been reasonably prepared or made based on assumptions reflecting the
best currently available estimates as to the expected future results of
operations and financial condition of Federal Paper Board and International
Paper to which such analyses or forecasts relate. J.P. Morgan also assumed
that the Merger would be completed within the time frame contemplated by the
Agreement and without the waiver of any material conditions to the Merger set
forth in the Agreement. J.P. Morgan expressed no opinion as to the price at
which IP Common Stock will trade if and when issued or at any other time.
J.P. Morgan, as part of its investment banking business, engages in the
valuation of businesses and securities in connection with mergers,
acquisitions, underwritings, sales and distributions of listed and unlisted
securities, private placements, and valuations for estate, corporate and other
purposes. Federal Paper Board selected J.P. Morgan as its financial advisor
because it is a nationally recognized investment banking firm that has
substantial experience in transactions similar to the Merger. J.P. Morgan has
provided certain investment banking and financial services to Federal Paper
Board and International Paper from time to time and may provide investment
banking services to International Paper in the future.
J.P. Morgan provides a full range of financial, advisory and brokerage
services and in the course of its normal trading activities may from time to
time effect transactions and hold positions in the securities or options on
securities of Federal Paper Board and/or International Paper for its own
account and for the account of customers. As of November 5, 1995, J.P. Morgan
had accumulated a short position in IP Common Stock of 50,700 shares and a
long position of $800,000 of 8 1/2% medium term notes due March 21, 1998. In
addition, as of November 5, 1995, J.P. Morgan had accumulated long positions
in the securities of Federal Paper Board of 4,200 shares of FPB Common Stock
and $3.0 million of 8 7/8% notes due July 1, 2012. In addition, James T.
Flynn, a former Chief Finance Officer of J.P. Morgan, is a director of Federal
Paper Board.
Pursuant to a letter agreement dated September 8, 1995 (the "J.P. Morgan
Engagement Letter"), Federal Paper Board engaged J.P. Morgan to act as its
financial advisor in connection with the Merger. Pursuant to the terms of the
J.P. Morgan Engagement Letter, Federal Paper Board has agreed to pay J.P.
Morgan a transaction fee in the event of any sale, merger, consolidation, or
any other business combination, in one or a series of transactions, involving
all or a portion of the stock, assets, or business of Federal Paper Board, any
repurchase by Federal Paper Board of a significant amount of its securities,
any recapitalization of Federal Paper Board, or any spin-off, split-off, or
any other extraordinary dividend of cash, securities, or other assets of
Federal Paper Board to shareholders of Federal Paper Board, equal to .375% of
the Aggregate Consideration received by Federal Paper Board and/or its
shareholders in any such transaction. Federal Paper Board has also agreed to
reimburse J.P. Morgan for its reasonable out-of-pocket expenses, including
attorney's fees, and to indemnify J.P. Morgan against certain liabilities,
including certain liabilities under the federal securities laws.
Analyses. The following is a summary of the material financial analyses used
by Goldman Sachs and J.P. Morgan in connection with their joint presentation
to the FPB Board on November 5, 1995, and with providing their respective
opinions to the FPB Board on November 5, 1995 and does not purport to be a
complete description of the analyses conducted by Goldman Sachs and J.P.
Morgan in arriving at their respective opinions. In arriving at their
opinions, Goldman Sachs and J.P. Morgan did not attribute any particular
weight to any analysis or factor considered by them, but rather made
qualitative judgments as to the significance and relevance of each analysis
and factor. Goldman Sachs and J.P. Morgan utilized substantially the same
types of financial analyses in connection with providing their respective
written opinions attached hereto as Annexes II and III.
Analysis at Offer Price. Goldman Sachs and J.P. Morgan calculated the value
for the Aggregate Consideration to be received in the Merger of $2,627 million
based upon the $55.00 per share of FPB Common Stock to be paid in the Merger,
and the value for the levered Aggregate Consideration to be $3,532 million
based upon the Aggregate Consideration plus approximately $905 million of
outstanding debt of Federal Paper Board ("Levered Aggregate Consideration").
The multiples and ratios for Federal Paper Board which were considered were
based on projections provided by Federal Paper Board's management. Goldman
Sachs and J.P. Morgan considered the Levered Aggregate Consideration as a
multiple of the revenues, earnings before interest, taxes, depreciation and
amortization ("EBITDA") and the offer price of $55.00 per share of FPB Common
Stock to
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be paid in the Merger (the "Offer Price") as a multiple of earnings per share
and earnings per share (on a fully diluted basis) ("EPS") of Federal Paper
Board for the last twelve month ("LTM") period ended September 9, 1995.
Goldman Sachs' and J.P. Morgan's analysis indicated Levered Aggregate
Consideration multiples of LTM revenues of 1.9x and LTM EBITDA of 6.3x, and
Offer Price multiples of LTM EPS of 12.7x. Goldman Sachs and J.P. Morgan also
considered the Levered Aggregate Consideration as a multiple of estimated
calendar year 1995 and projected calendar year 1996 revenues and EBITDA and
Offer Price multiples of estimated calendar year 1995 and projected calendar
year 1996 EPS of Federal Paper Board. Goldman Sachs' and J.P. Morgan's
analysis indicated Levered Aggregate Consideration multiples of estimated 1995
revenues of 1.8x and projected 1996 revenues of 1.7x, Levered Aggregate
Consideration multiples of estimated 1995 EBITDA of 5.8x and projected 1996
EBITDA of 4.9x, and Offer Price multiples of estimated 1995 EPS of 11.2x and
projected 1996 EPS of 8.7x. The review also indicated that the Offer Price
represented a premium to the September 9, 1995 book value per share of FPB
Common Stock of 148.7%. Goldman Sachs' and J.P. Morgan's analysis indicated a
premium to the closing price of $45.50 on the NYSE for the shares of FPB
Common Stock on November 3, 1995 (the last trading day on the NYSE prior to
the announcement of the transaction between Federal Paper Board and
International Paper), of 20.9% based on the Offer Price, and a premium to the
closing price of $38.63 on the NYSE for the shares of FPB Common Stock on
August 3, 1995, of 42.4% based on the Offer Price.
Historical Stock Trading Analysis. Goldman Sachs and J.P. Morgan reviewed
the historical trading prices and volumes for the shares of FPB Common Stock.
Such review included, among other things, Goldman Sachs' and J.P. Morgan's
analysis of the weighted average market prices of the shares of FPB Common
Stock and the total volume of shares of FPB Common Stock traded as a
percentage of shares of FPB Common Stock outstanding during the period from
November 3, 1992 to November 3, 1995. Such analyses indicated a weighted
average market price of $28.94 per share with 282.6% of the total outstanding
shares of FPB Common Stock traded in such period. Such review also included
Goldman Sachs' and J.P. Morgan's analysis of the weighted average market
prices of the shares of FPB Common Stock and the total volume of shares of FPB
Common Stock traded as a percentage of shares of FPB Common Stock outstanding
during the LTM period preceding November 3, 1995. Such analysis indicated an
LTM weighted average market price of $33.93 per share (based on daily closing
prices for the shares of FPB Common Stock during such period) with 121.2% of
the total outstanding shares of FPB Common Stock traded in such period.
Selected Companies Analysis. Goldman Sachs and J.P. Morgan reviewed and
compared certain financial information, ratios and multiples relating to
Federal Paper Board to corresponding financial information, ratios and public
market multiples for ten publicly traded companies in the paper and forest
products industry: Caraustar Industries Inc., Champion International
Corporation, Chesapeake Corporation, Georgia-Pacific Corporation,
International Paper Company, Jefferson Smurfit Corporation, The Mead
Corporation, Temple-Inland Inc., Union Camp Corporation and Westvaco
Corporation (the "Selected Companies"). The Selected Companies were chosen
because they are publicly traded companies with operations that for purposes
of analysis may be considered similar to Federal Paper Board. Goldman Sachs
and J.P. Morgan calculated and compared various financial multiples and
ratios. The multiples of Federal Paper Board were calculated using a price of
$45.50 per share of FPB Common Stock, the closing price of shares of FPB
Common Stock on the NYSE on November 3, 1995. The multiples and ratios for
Federal Paper Board and each of the Selected Companies were based on the most
recent publicly available information and on published estimates of research
analysts. With respect to the Selected Companies, Goldman Sachs and J.P.
Morgan considered the levered market capitalization (i.e., market value of
common equity plus face value of preferred stock and book value of debt less
cash and marketable securities) as a multiple of estimated calendar year 1995
sales and as a multiple of estimated calendar year 1995 EBITDA and projected
calendar year 1996 EBITDA. Goldman Sachs' and J.P. Morgan's analysis of the
Selected Companies indicated multiples of 1995 estimated sales, which ranged
from .7x to 1.2x, of estimated calendar year 1995 EBITDA, which ranged from
4.0x to 6.0x, and of projected calendar year 1996 EBITDA, which ranged from
3.7x to 5.1x, compared to levered multiples of 1.6x, 4.9x and 4.3x,
respectively, for Federal Paper Board. Goldman Sachs and J.P. Morgan also
considered for the Selected Companies estimated calendar year 1995 and
projected calendar year 1996 price/earnings ratios, which ranged from 5.4x to
11.0x for estimated
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calendar year 1995 and 4.6x to 9.2x for projected calendar year 1996, compared
to 9.1x and 7.4x, respectively, for Federal Paper Board.
Historical Exchange Ratio. Goldman Sachs and J.P. Morgan reviewed historical
monthly trading prices for the shares of FPB Common Stock and the shares of IP
Common Stock during the period from October 31, 1985 to October 31, 1995. Such
analyses indicated exchange ratios (calculated by dividing the NYSE closing
price per share of FPB Common Stock by the NYSE closing price per share of IP
Common Stock) ranging from .63x to 1.15x.
Discounted Cash Flow Analysis. Goldman Sachs and J.P. Morgan performed a
discounted cash flow analysis using projections provided by management of
Federal Paper Board. Goldman Sachs and J.P. Morgan calculated a net present
value of free cash flows for the various business segments of Federal Paper
Board for the calendar years 1996 through 2000 using discount rates ranging
from 10% to 14% for the paperboard & pulp, converting and wood products
segments, from 11% to 15% for the uncoated freesheet segment, from 12% to 16%
for the cup segment, and from 6% to 10% for the timberlands segment. Goldman
Sachs and J.P. Morgan then calculated estimated terminal values for Federal
Paper Board using multiples of 4.0x, 6.0x and 8.0x normalized and projected
EBITDA for calendar year 2000. Based on the discount rates above and the
aggregate of the segmented discounted cash flows, these analyses produced
estimated net present values for Federal Paper Board, when using the terminal
value multiple of 4.0x, that ranged from $2,196 to $2,577 million, with an
implied value per share of FPB Common Stock ranging from $27.50 to $35.25,
when using the terminal value multiple of 6.0x, that ranged from $2,753 to
$3,255 million, with an implied value per share of FPB Common Stock ranging
from $39.00 to $49.25, and when using the terminal value multiple of 8.0x,
that ranged from $3,312 to $3,933 million, with an implied value per share of
FPB Common Stock ranging from $50.50 to $63.27.
Selected Transactions Analysis. Goldman Sachs and J.P. Morgan analyzed
certain information relating to selected acquisitions of companies from 1984
through 1995 (the "Selected Transactions"). These transactions were selected
by Goldman Sachs and J.P. Morgan because such transactions involved companies
in the paper and forest products industry and comprised: Four M Corp. & Stone
Container Corporation/St. Joe Paper; Clayton Dubilier/Riverwood International;
Stone Consolidated/Rainy River; Kimberly-Clark/Scott Paper; Tembec/Malette;
West Fraser Timber Co./Ranger Forest Products; BBA Group PLC/Holvis AG;
Consolidated Papers Inc./Niagara of Wisconsin and Lake Superior Papers;
Noranda Forest Inc./Cross Pointe Paper; Sappi Limited/S.D. Warren; Jefferson
Smurfit Group/Saint-Gobain; Bowater PLC/Specialty Coatings International,
Inc.; Investor Group/Proctor & Gamble Co.; Riverwood International/Macon
Kraft; Bowater/Great Northern Paper; Packaging Composition of America/Georgia-
Pacific Corporation; Wiggins Teape Appleton/Arjomari-Prioux; Georgia-Pacific
Corporation/Great Northern Nekoosa Corporation; SIBV-MS Acquisition
Corporation/Jefferson Smurfit Corporation; International Paper
Company/Aussedat Rey S.A.; Stone Container Corporation/Consolidated-Bathurst
Inc.; Management and Morgan Stanley Leveraged Equity Fund II L.P./Fort Howard
Corporation; Gaylord Container Corporation/Certain Assets of the Container
Board Division of Fireboard Corporation; Great Northern Nekoosa Corporation/
OI Forest Products FTS Inc. of Owens-Illinois, Inc.; International Paper
Company/Hammermill Paper Company; James River Corporation of Virginia/Crown
Zellerbach Corporation; JSC/MS Holdings Inc./Container Corporation of America;
Temple-Inland Inc./Linerboard Operations of Owens-Illinois, Inc.; Stone
Container Corporation/Brown Papers Systems and Georgia-Pacific
Corporation/Certain Assets of St. Regis Corporation. This analysis indicated
that for the Selected Transactions Levered Aggregate Consideration as a
multiple of (i) LTM sales for the Selected Transactions ranged from 0.55x to
2.21x, compared to 1.9x for the Levered Aggregate Consideration to be paid in
the Merger and (ii) LTM EBITDA for the Selected Transactions ranged from 4.3x
to 28.4x, compared to 6.3x for the Levered Aggregate Consideration to be paid
in the Merger.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without
considering the analyses as a whole, could create an incomplete view of the
processes underlying Goldman Sachs' and J.P. Morgan's opinions. In arriving at
its fairness opinion, Goldman Sachs and J.P. Morgan each considered the
results of all such analyses, taken as a whole. Furthermore, in arriving at
its fairness opinion,
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neither Goldman Sachs nor J.P. Morgan attributed any particular weight to any
analysis or factor considered by it. No company or transaction used in the
above analyses as a comparison is identical to Federal Paper Board or
International Paper or the Merger. The analyses were prepared solely for
purposes of Goldman Sachs' providing its opinion to the FPB Board as to the
fairness of the Aggregate Consideration to be received by the holders of
shares of FPB Common Stock pursuant to the Merger Agreement and J.P. Morgan's
opinion to the FPB Board as to the fairness, from a financial point of view,
of the Aggregate Consideration to be received by holders of shares of FPB
Common Stock in the proposed Merger; and do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities actually may
be sold. Analyses based upon forecasts of future results are not necessarily
indicative of actual future results, which may be significantly more or less
favorable than suggested by such analyses. Because such analyses are
inherently subject to uncertainty, being based upon numerous factors or events
beyond the control of the parties or their respective advisors, none of
Federal Paper Board, International Paper, Merger Sub, Goldman Sachs, J.P.
Morgan or any other person assumes responsibility if future results are
materially different from those forecast.
As described above, Goldman Sachs' and J.P. Morgan's opinions to the FPB
Board were two of many factors taken into consideration by the FPB Board in
making its determination to adopt the Merger Agreement. The foregoing summary
does not purport to be a complete description of the analysis performed by
either Goldman Sachs or J.P. Morgan and is qualified by reference to the
written opinions of Goldman Sachs and J.P. Morgan set forth in Annexes II and
III hereto, respectively.
FORM OF THE MERGER
If the approval of the Federal Paper Board shareholders is obtained and all
other conditions to the Merger are satisfied or waived, Federal Paper Board
will be merged with and into Merger Sub, with Merger Sub being the surviving
corporation after the Merger (the "Surviving Corporation") and a wholly owned
subsidiary of International Paper. The name of the Surviving Corporation will
be changed to that of Federal Paper Board Company, Inc. The date on which the
closing of the Merger shall occur is referred to herein as the "Closing Date."
MERGER CONSIDERATION
The Merger Agreement provides that, as of the Effective Time, each
outstanding share of FPB Common Stock (other than any held in treasury by
Federal Paper Board or by any of its subsidiaries and any Dissenting Shares)
shall be converted into either the Stock Consideration (as defined below) or
an amount equal to $55.00 in cash (the "Cash Consideration"), at the election
of the holder thereof, subject to the allocation provisions provided for
therein and described below. The "Stock Consideration" is the number of shares
of IP Common Stock determined by dividing $55.00 by the Average IP Share Price
and rounding the result to the nearest one thousandth of a share, subject to
the limitation that the Stock Consideration will not be more than 1.612 nor
fewer than 1.275 shares of IP Common Stock. The "Average IP Share Price" means
the average of the last sales prices per share of IP Common Stock on the NYSE
Composite Tape for the 20 consecutive trading days ending on the trading day
which is five days prior to the Closing Date (the "Valuation Period"). The
number of shares of IP Common Stock issued in the Merger is expected to be
approximately equal to the product of (i) 51% of the number of outstanding
shares of FPB Common Stock as of the Effective Time of the Merger and (ii) the
Stock Consideration. As a result of the allocation procedures, shares of FPB
Common Stock may be converted into the right to receive a combination of cash
and shares of IP Common Stock representing prorated percentages of the Cash
Consideration and Stock Consideration. The actual cash and/or shares of IP
Common Stock payable in respect of any share of FPB Common Stock is referred
to herein as the "Merger Consideration."
The Stock Consideration generally is intended to provide shares of IP Common
Stock valued at $55.00, based upon the Average IP Share Price, and therefore,
a higher Average IP Share Price would result in fewer shares of IP Common
Stock constituting the Stock Consideration, and a lower Average IP Share Price
would result in more shares of IP Common Stock constituting the Stock
Consideration. If the Average IP Share Price
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were equal to $40.50 per share, the last sales price of IP Common Stock on the
NYSE Composite Tape on February 2, 1996, the Stock Consideration would be
equal to 1.358 shares of IP Common Stock. Because of the restrictions on the
number of shares constituting the Stock Consideration, the value of the Stock
Consideration, based upon the Average IP Share Price, would be less than
$55.00 if the Average IP Share Price were less than approximately $34.12, and
would be more than $55.00 if the Average IP Share Price were more than
approximately $43.14.
International Paper and Federal Paper Board anticipate that the Closing Date
will occur as promptly as practicable following satisfaction or waiver of each
of the conditions to the Merger, including approval of the Merger Agreement by
the holders of the requisite number of shares of FPB Common Stock. If the
Special Meeting occurs prior to the end of the Valuation Period, the number of
shares of IP Common Stock constituting the Stock Consideration will not be
known at the time the vote on the approval of the Merger Agreement is held.
The Merger Agreement provides that the Valuation Period will end five days
prior to the Closing Date, and therefore the number of shares of IP Common
Stock constituting the Stock Consideration will be fixed at that time. The
market price of IP Common Stock and hence the value of the Stock Consideration
are expected to fluctuate with the performance of International Paper and
general market conditions. The last sales price of IP Common Stock on the
Closing Date may be higher or lower than the Average IP Share Price, and as a
result, the value of the Stock Consideration at the Closing Date may be more
or less than $55.00. See "RISK FACTORS."
If between the date of the Merger Agreement and the Effective Time the
outstanding shares of IP Common Stock have been changed into a different
number of shares or a different class, by reason of any stock dividend,
subdivision, reclassification, recapitalization, split, combination or
exchange of shares, the Merger Agreement provides that the Stock Consideration
will be correspondingly adjusted to the extent appropriate to reflect such
changes. In lieu of fractional shares of IP Common Stock, International Paper
shall pay to each holder who would otherwise be entitled to receive a
fractional share an amount in cash equal to the product of (i) such fractional
share interest to which such holder would otherwise be entitled by (ii) the
Average IP Share Price.
DESCRIPTION OF ELECTION PROCEDURES
Elections. Subject to the allocation procedures, each holder of FPB Common
Stock will be entitled, with respect to the Merger Consideration to be
received for each share of FPB Common Stock held by such holder, (i) to elect
to receive (x) the Stock Consideration (a "Stock Election"), or (y) the Cash
Consideration (a "Cash Election"), or (ii) to indicate that such holder has no
preference as to the receipt of the Stock Consideration or the Cash
Consideration (a "Non-Election," and together with a Stock Election and a Cash
Election, an "Election"). IF A HOLDER OF FPB COMMON STOCK MAKES NO ELECTION,
HE SHALL BE DEEMED TO HAVE MADE A NON-ELECTION.
Promptly after the mailing of this Proxy Statement/Prospectus, MacKenzie
Partners Inc., the Information Agent, will send a yellow form of election
("Form of Election") to recordholders of FPB Common Stock as of the Meeting
Record Date. Forms of Election shall be made available as may be reasonably
requested by all persons who become holders (or beneficial owners) of FPB
Common Stock between the Meeting Record Date and the close of business on the
day prior to the Election Deadline (as defined below), and such Forms of
Election will be accompanied by a copy of this Proxy Statement/Prospectus.
All Elections shall be made on a Form of Election. To make an effective
Election with respect to shares of FPB Common Stock, the holder thereof must,
in accordance with the Form of Election, (a) complete properly and return the
Form of Election to Chemical Mellon Shareholder Services L.L.C. (the "Exchange
Agent"), (b) either (i) deliver therewith his or her certificates representing
shares of FPB Common Stock (the "Certificates") with respect to such shares
(or an appropriate guarantee of delivery thereof), or (ii) complete the
procedure for delivery by book-entry transfer of such shares on a timely
basis, and (c) deliver therewith any other required documents, prior to 5:00
P.M., Eastern Standard Time, on the last business day (the "Election
Deadline") prior to the Closing Date. If all other conditions set forth in the
Merger Agreement have been met or, if permissible, waived, the Closing Date
could occur on the same day approval of the Merger Agreement by shareholders
of Federal Paper Board is obtained. FEDERAL PAPER BOARD SHAREHOLDERS ARE URGED
TO DELIVER A PROPERLY COMPLETED FORM OF ELECTION, ACCOMPANIED BY ALL REQUIRED
DOCUMENTS, NO LATER THAN 5:00 P.M., NEW YORK
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CITY TIME, ON MARCH 11, 1996, IN ORDER TO ENSURE THAT THEIR FORM OF ELECTION
WILL BE RECEIVED BY THE ELECTION DEADLINE. If the Closing Date will not occur
on March 12, 1996, as soon as the date on which the Closing Date is
anticipated to occur is determined, International Paper will publicly announce
such date.
IF INTERNATIONAL PAPER OR THE EXCHANGE AGENT DETERMINE THAT ANY PURPORTED
ELECTION WAS NOT PROPERLY MADE OR WAS RECEIVED AFTER THE ELECTION DEADLINE,
SUCH PURPORTED ELECTION SHALL BE DEEMED TO BE OF NO FORCE AND EFFECT AND THE
SHAREHOLDER MAKING SUCH PURPORTED ELECTION SHALL BE DEEMED TO HAVE MADE A NON-
ELECTION.
Any holder of FPB Common Stock may (x) change such holder's election by
submitting a revised Form of Election, properly completed and signed that is
received by the Exchange Agent prior to the Election Deadline, or (y) revoke
his election and withdraw his Certificates deposited with the Exchange Agent
by written notice to the Exchange Agent received prior to the Election
Deadline. The Certificate or Certificates covered by any properly revoked Form
of Election will be returned to the person who submitted the Form of Election
to the Exchange Agent upon written request to that effect. The Exchange Agent
and International Paper will have reasonable discretion to determine when any
Election, modification or revocation is received and whether any such
Election, modification or revocation has been properly made, and such
determination will be final.
A holder of shares of FPB Common Stock having a preference as to the form of
consideration to be received for his or her shares of FPB Common Stock should
make an Election, because shares as to which an Election has been made will be
given priority in allocating such consideration over shares as to which no
Election is received. NEITHER FEDERAL PAPER BOARD NOR THE FPB BOARD MAKES ANY
RECOMMENDATION AS TO WHETHER SHAREHOLDERS SHOULD ELECT TO RECEIVE THE CASH
CONSIDERATION OR THE STOCK CONSIDERATION IN THE MERGER. EACH HOLDER OF FPB
COMMON STOCK MUST MAKE HIS OR HER OWN DECISION WITH RESPECT TO SUCH ELECTION.
Subject to possible adjustment as described below, a fixed percentage of the
aggregate Merger Consideration will be paid in shares of IP Common Stock and
cash. Accordingly, there can be no assurance that each holder of FPB Common
Stock will receive the form of consideration that such holder elects with
respect to all shares of FPB Common Stock held by such holder. If the
Elections result in an oversubscription in respect of shares of FPB Common
Stock which would otherwise receive either the Stock Consideration or the Cash
Consideration, the procedures for allocating IP Common Stock and cash,
described below under "--Allocation; Proration," will be followed by the
Exchange Agent.
Allocation; Proration. The Merger Agreement provides that the number of
shares of FPB Common Stock to be converted into the right to receive the Cash
Consideration in the Merger shall be equal to (i) 49% of the number of shares
of FPB Common Stock outstanding immediately prior to the Effective Time less
(ii) the aggregate number of Dissenting Shares not withdrawn as of the
Election Deadline (the "Cash Election Number"). The number of shares of FPB
Common Stock to be converted into the right to receive the Stock Consideration
in the Merger (the "Stock Election Number") will be equal to 51% of the number
of shares of FPB Common Stock outstanding immediately prior to the Effective
Time. The Exchange Agent shall make all such computations which shall be
conclusive and binding on the holders of FPB Common Stock.
If the aggregate number of shares of FPB Common Stock covered by Cash
Elections (the "Cash Election Shares") exceeds the Cash Election Number, all
shares of FPB Common Stock covered by Stock Elections (the "Stock Election
Shares") and all shares of FPB Common Stock covered by Non-Elections (the
"Non-Election Shares") shall be converted into the right to receive the Stock
Consideration, and each Cash Election Share shall be converted into the right
to receive (i) an amount in cash, without interest, equal to the product of
(x) the Cash Consideration and (y) a fraction (the "Cash Fraction"), the
numerator of which shall be the Cash Election Number and the denominator of
which shall be the total number of Cash Election Shares, and (ii) a number of
shares of IP Common Stock equal to the product of (x) the Stock Consideration
and (y) a fraction equal to one minus the Cash Fraction.
If the aggregate number of Stock Election Shares exceeds the Stock Election
Number, all Cash Election Shares and all Non-Election Shares shall be
converted into the right to receive the Cash Consideration, and each
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Stock Election Share shall be converted into the right to receive (i) a number
of shares of IP Common Stock equal to the product of (x) the Stock
Consideration and (y) a fraction (the "Stock Fraction"), the numerator of
which shall be the Stock Election Number and the denominator of which shall be
the total number of Stock Election Shares, and (ii) an amount in cash, without
interest, equal to the product of (x) the Cash Consideration and (y) a
fraction equal to one minus the Stock Fraction.
If neither the aggregate number of Cash Election Shares exceeds the Cash
Election Number nor the aggregate number of Stock Election Shares exceeds the
Stock Election Number, all Cash Election Shares shall be converted into the
right to receive the Cash Consideration, all Stock Election Shares shall be
converted into the right to receive the Stock Consideration, and each Non-
Election Share shall be converted into the right to receive (i) an amount in
cash, without interest, equal to the product of (x) the Cash Consideration and
(y) a fraction (the "Non-Election Fraction"), the numerator of which shall be
the excess of (A) the Cash Election Number over (B) the total number of Cash
Election Shares and the denominator of which shall be the excess of (C) the
number of shares of FPB Common Stock outstanding immediately prior to the
Effective Time (other than Dissenting Shares) over (D) the sum of the total
number of Cash Election Shares and Stock Election Shares and (ii) a number of
shares of IP Common Stock equal to the product of (x) the Stock Consideration
and (y) a fraction equal to one minus the Non-Election Fraction.
AS A RESULT OF THE PRORATION AND OTHER LIMITATIONS, HOLDERS OF SHARES OF FPB
COMMON STOCK MAY RECEIVE A COMBINATION OF SHARES OF IP COMMON STOCK AND CASH,
NOTWITHSTANDING THE FORM OF MERGER CONSIDERATION SUCH HOLDERS ELECT TO
RECEIVE. SUCH HOLDERS WILL NOT BE ABLE TO CHANGE THE AMOUNTS OF IP COMMON
STOCK OR THE CASH CONSIDERATION ALLOCATED TO THEM.
The following examples illustrate the operation of the allocation and
proration provisions described above. The information has been prepared
assuming for purposes of these calculations that the Average IP Share Price
will be equal to $40.50, the final sales price on the NYSE Composite Tape on
February 2, 1996, and that, therefore, the Stock Consideration will be equal
to 1.358 shares of IP Common Stock. The actual number of shares of IP Common
Stock constituting the Stock Consideration will be determined by dividing
$55.00 by the Average IP Share Price, provided that the Stock Consideration
will not be more than 1.612 nor fewer than 1.275 shares of IP Common Stock.
See "--Merger Consideration." In addition, the examples assume that the number
of outstanding shares of FPB Common Stock at the Effective Time will be
47,521,206 (the number of such shares known to be outstanding or issuable upon
the conversion of all outstanding shares of FPB Convertible Preferred Stock on
January 31, 1996); and that there are no Dissenting Shares. Accordingly, the
Stock Election Number (i.e., the number of shares of FPB Common Stock to be
converted into the right to receive the Stock Consideration) is assumed for
these purposes to be approximately 24,235,815 (51% of 47,521,206), and the
Cash Election Number (i.e., the number of shares of FPB Common Stock to be
converted into the right to receive the Cash Consideration) is assumed for
these purposes to be approximately 23,285,391 (49% of 47,521,206). The number
of shares of IP Common Stock which would be issued is 32,912,236
(1.358 X 24,235,815) and the aggregate amount of cash to be paid would be
approximately $1,280,696,505 ($55.00 X 23,285,391). Each record holder who
receives Stock Consideration would receive cash in lieu of fractional shares
of IP Common Stock.
EXAMPLE NO. 1.
If Cash Elections are received as to 28,512,723 shares of FPB Common Stock,
representing approximately 60% of the outstanding shares of FPB Common Stock
(which is a number in excess of the Cash Election Number), and Stock Elections
are received as to 14,256,361 shares of FPB Common Stock, representing
approximately 30% of the outstanding shares of FPB Common Stock,
Then (a) each share of FPB Common Stock covered by either a Stock Election
or a Non-Election would be converted into the right to receive 1.358 shares of
IP Common Stock and an aggregate of all such shares would be converted into
approximately 25,813,520 shares of IP Common Stock ((47,521,206 -
28,512,723) X 1.358), and (b) each of the shares covered by a Cash Election
will be converted into the right to receive approximately $44.92 in cash
($55 X a fraction (the "Cash Fraction") equal to 23,285,391/28,512,723) and
approximately
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.249 shares of IP Common Stock (1.358 X (1 - the Cash Fraction)). (In this
example, a shareholder holding 100 shares of FPB Common Stock covered by a
Cash Election would receive approximately $4,492 in cash, 24 shares of IP
Common Stock and an additional $36.45 in cash in lieu of a fractional share.)
EXAMPLE NO. 2.
If Stock Elections are received as to 28,512,723 shares of FPB Common Stock,
representing approximately 60% of the outstanding shares of FPB Common Stock
(which is a number in excess of the Stock Election Number), and Cash Elections
are received as to 14,256,361 shares of FPB Common Stock, representing
approximately 30% of the outstanding shares of FPB Common Stock,
Then (a) each share of FPB Common Stock covered by either a Cash Election or
a Non-Election would be converted into the right to receive $55.00 in cash and
an aggregate of all such shares would be converted into $1,045,466,565
((47,521,206 - 28,512,723) X $55.00), and (b) each of the shares covered by a
Stock Election would be converted into the right to receive approximately
1.154 shares of IP Common Stock (1.358 X a fraction (the "Stock Fraction")
equal to 24,235,815/28,512,723) and $8.25 in cash ($55 X (1 - the Stock
Fraction)). (In this example, a shareholder holding 100 shares of FPB Common
Stock covered by a Stock Election would receive 115 shares of IP Common Stock,
$825 in cash and an additional $16.20 in cash in lieu of a fractional share.)
EXAMPLE NO. 3.
If Stock Elections are received as to 19,008,482 shares of FPB Common Stock,
representing approximately 40% of the outstanding shares of FPB Common Stock,
and Cash Elections are received as to 19,008,482 shares of FPB Common Stock,
representing approximately 40% of the outstanding shares of FPB Common Stock
(which numbers are less than the Stock Election Number and the Cash Election
Number, respectively),
Then (a) each share covered by a Stock Election would be converted into
1.358 shares of IP Common Stock and an aggregate of all such shares would be
converted into the right to receive approximately 25,813,520 shares of IP
Common Stock (19,008,482 X 1.358), (b) each share covered by a Cash Election
would be converted into the right to receive $55.00 and the aggregate of all
such shares would be converted into $1,045,466,510 (19,008,482 X $55.00), and
(c) each of the 9,504,242 shares with respect to which no Election had been
made would be converted into the right to receive $24.75 in cash ($55 X a
fraction (the "Non-Election Fraction") equal to (23,285,391 -
19,008,482)/(47,521,206 - (19,008,482 + 19,008,482))) and approximately .747
shares of IP Common Stock (1.358 X (1 - the Non-Election Fraction)).
Other Rules. International Paper has the right to make rules, not
inconsistent with the terms of the Merger Agreement, governing the validity of
Forms of Election, the manner and extent to which Elections are to be taken
into account in making the determinations required by the Merger Agreement,
the issuance and delivery of certificates for IP Common Stock for FPB Common
Stock converted into such stock in the Merger and the payment of cash for FPB
Common Stock converted into the right to receive the Cash Consideration in the
Merger.
Dissenting Shareholders. Any Dissenting Shares shall not be converted into
the right to receive the Merger Consideration unless and until the holder
shall have failed to perfect, or shall have effectively withdrawn or lost, his
right to dissent. If any such holder shall have so failed to perfect or shall
have effectively withdrawn or lost such right, each share of such holder's FPB
Common Stock shall be deemed to have been converted into as of the Effective
Time the right to receive, without any interest thereon, the Stock
Consideration or the Cash Consideration or a combination thereof as determined
by International Paper in its sole discretion.
Adjustments Relating to Tax Opinions. If either the tax opinion of Shearman
& Sterling, counsel to Federal Paper Board, or the tax opinion of Skadden,
Arps, Slate, Meagher & Flom, counsel to International Paper, relating to the
treatment of the Merger as a reorganization under Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), cannot be rendered as
a result of the Merger potentially failing to satisfy the "continuity of
interest" requirements under applicable U.S. federal income tax law,
International Paper is required to reduce the Cash Election Number and
correspondingly increase the Stock Election Number to the minimum extent
necessary to enable such opinions to be rendered. The adjustment is not
required, however, if
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pursuant thereto International Paper would be required to issue more than 50
million shares of IP Common Stock (including upon the exercise of Substitute
Options, as hereinafter defined).
PROCEDURES FOR EXCHANGE OF FPB COMMON STOCK CERTIFICATES
Upon consummation of the Merger, International Paper shall make available to
the Exchange Agent for the benefit of the holders of shares of FPB Common
Stock (other than Dissenting Shares), for exchange, certificates evidencing
shares of IP Common Stock and cash in amounts required to be exchanged for
shares of FPB Common Stock in the Merger.
As promptly as practicable after the Effective Time, the Exchange Agent
shall mail to each holder of a Certificate or Certificates (to the extent such
Certificates have not already been submitted with Forms of Election) (i) the
letter of transmittal (which specifies that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon proper
delivery of the Certificates to the Exchange Agent) and (ii) instructions for
use in effecting the surrender of the Certificates in exchange for
certificates evidencing shares of IP Common Stock or cash.
Upon surrender to the Exchange Agent of a Certificate for cancellation,
together with such letter of transmittal, duly executed and completed in
accordance with the instructions thereto, and such other documents as may be
reasonably required pursuant to such instructions, the holder of such
Certificate shall be entitled to receive in exchange therefor the appropriate
Merger Consideration.
No dividends or other distributions declared or made after the Effective
Time with respect to IP Common Stock with a record date after the Effective
Time shall be paid to the holder of any unsurrendered Certificate with respect
to the shares of IP Common Stock represented thereby, and no cash payment in
lieu of any fractional shares shall be paid to any such holder, until the
holder of such Certificate shall surrender such Certificate. Subject to the
effect of escheat, tax or other applicable laws, following surrender of any
such Certificate, the holder of whole shares of IP Common Stock issued in
exchange therefor, will be paid without interest, (i) the amount of any cash
payable with respect to a fractional share of IP Common Stock to which such
holder is entitled and the amount of dividends or other distributions with a
record date after the Effective Time and theretofore paid with respect to such
whole shares of IP Common Stock, and (ii) at the appropriate payment date, the
amount of dividends or other distributions, with a record date after the
Effective Time but prior to surrender and a payment date occurring after
surrender, payable with respect to such whole shares of IP Common Stock.
At the Effective Time, the stock transfer books of Federal Paper Board shall
be closed and there shall be no further registration of transfers of shares of
FPB Common Stock thereafter on the records of Federal Paper Board. From and
after the Effective Time, the holders of Certificates representing shares of
FPB Common Stock outstanding immediately prior to the Effective Time shall
cease to have any rights with respect to such shares of FPB Common Stock,
except as otherwise provided herein or by law.
EFFECTIVE TIME
The Merger will become effective upon the filing of the Articles of Merger
with the Secretary of State of the State of North Carolina, in accordance with
applicable law. Such filing will be made as promptly as practicable after
satisfaction or waiver of the conditions to the Merger.
STOCK EXCHANGE LISTING
International Paper has filed an application to list the shares of IP Common
Stock to be issued in connection with the Merger on the NYSE, subject to
approval of the Merger Agreement by the Federal Paper Board shareholders and
official notice of issuance. The shares of IP Common Stock are traded on the
NYSE under the symbol "IP".
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the material federal income tax
consequences of the Merger to a shareholder of Federal Paper Board that holds
its shares of FPB Common Stock as a capital asset (a "holder"). The discussion
set forth below is for general information only and may not apply to a holder
subject to special treatment under the Code, such as a holder that is a
foreign person, a tax exempt organization or that acquired its shares of FPB
Common Stock pursuant to the exercise of an employee stock option or otherwise
as compensation. This summary is based upon federal income tax laws,
regulations, rulings and decisions in effect as of the date hereof, all of
which are subject to change, retroactively or prospectively, and to differing
interpretation.
Consummation of the Merger is conditioned upon the receipt by International
Paper and by Federal Paper Board of the opinions of Skadden, Arps, Slate,
Meagher & Flom, counsel to International Paper, and Shearman & Sterling,
counsel to Federal Paper Board, each dated as of the Effective Time,
substantially to the effect that, on the basis of facts, representations and
assumptions set forth or referred to in such opinions, for U.S. federal income
tax purposes the Merger will be treated as a reorganization within the meaning
of Section 368(a) of the Code, and that International Paper, Merger Sub and
Federal Paper Board, will each be a party to that reorganization under Section
368(b) of the Code. If either or both of such opinions are unable to be issued
because of a concern that the Merger would not satisfy the "continuity of
interest" requirement for tax free reorganization treatment, the number of
shares of IP Common Stock to be issued in the Merger will be increased to the
minimum extent necessary to enable such opinion(s) to be issued and the amount
of Cash Consideration will accordingly be reduced; provided, however, that the
requirement to issue additional shares of IP Common Stock shall not be
applicable in the event that International Paper would be required to issue in
the aggregate more than 50 million shares of IP Common Stock (including upon
the exercise of Substitute Options (as hereinafter defined)). See "--
Description of Election Procedures."
If, in accordance with the opinions referred to above, the Merger will be
treated as a reorganization within the meaning of Section 368(a) of the Code,
and International Paper, Merger Sub and Federal Paper Board will each be a
party to that reorganization under Section 368(b) of the Code, then, in the
opinion of Skadden, Arps, Slate, Meagher & Flom and Shearman & Sterling, the
following is a summary of the general federal income tax consequences of the
Merger to a holder:
EXCHANGE OF FPB COMMON STOCK. As discussed below, the U.S. federal income
tax consequences of the Merger to a holder will depend on whether the holder
exchanges its FPB Common Stock for cash, IP Common Stock, or a combination
thereof, and may further depend on whether (i) the holder is deemed to
constructively own shares of FPB Common Stock under section 318 of the Code
(which generally deems a person to own stock that is owned by certain family
members or related entities or that is the subject of an option or options
owned or deemed owned by such person), and (ii) the holder actually or
constructively owns any IP Common Stock.
Exchange Solely for Cash. In general, if pursuant to the Merger a holder
exchanges all of the shares of FPB Common Stock actually owned by it solely
for cash (including pursuant to the exercise of its right to seek an
appraisal), it will recognize capital gain or loss equal to the difference
between the amount of cash received and its adjusted tax basis in the shares
of FPB Common Stock surrendered. That gain or loss generally will be long-term
capital gain or loss if the holder held the shares of FPB Common Stock
surrendered for more than one year as of the date of the exchange. If,
however, any such holder constructively owns shares of FPB Common Stock that
are exchanged for shares of IP Common Stock in the Merger, or, possibly, owns
shares of IP Common Stock actually or constructively after the Merger, in
unusual circumstances the consequences to such holder may be similar to the
consequences described below under the heading "Exchange for IP Common Stock
and Cash," except that the amount of consideration, if any, treated as a
dividend would not be limited to the amount of such holder's gain.
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Exchange Solely for IP Common Stock. If pursuant to the Merger a holder
exchanges all of the shares of FPB Common Stock actually owned by it solely
for shares of IP Common Stock, it will not recognize any gain or loss except
in respect of cash received in lieu of a fractional share of IP Common Stock
(as discussed below). The aggregate adjusted tax basis of the shares of IP
Common Stock received in that exchange will be equal to the aggregate adjusted
tax basis of the shares of FPB Common Stock surrendered therefor, and the
holding period of such IP Common Stock will include the period during which
such shares of FPB Common Stock were held. If a holder has differing bases
and/or holding periods in respect of its shares of FPB Common Stock, it should
consult its tax advisor prior to the exchange with regard to identifying the
bases and/or holding periods of the particular shares of IP Common Stock
received in the exchange.
Exchange for IP Common Stock and Cash. If pursuant to the Merger a holder
exchanges all of the shares of FPB Common Stock actually owned by it for a
combination of IP Common Stock and cash, it will realize gain or loss equal to
the difference between (i) the sum of cash and the fair market value of IP
Common Stock received and (ii) its adjusted tax basis in the shares of FPB
Common Stock surrendered. However, any such loss will not be recognized, and
any such gain will only be recognized to the extent of the cash received. For
this purpose, gain or loss must be calculated separately for each identifiable
block of shares surrendered in the exchange, and a loss recognized on one
block of shares of FPB Common Stock cannot be used to offset a gain recognized
on another block of shares of FPB Common Stock. Any such recognized gain will
be treated as capital gain unless the cash received has the effect of the
distribution of a dividend, in which case the gain would be treated as a
dividend to the extent of the holder's ratable share of Federal Paper Board's
accumulated earnings and profits.
In general, the determination as to whether the gain recognized in that
exchange will be treated as capital gain or dividend income depends upon
whether and to what extent that exchange reduces the holder's deemed
percentage stock ownership of International Paper. For purposes of that
determination, the holder is treated as if it first exchanged all of its
shares of FPB Common Stock solely for IP Common Stock and then International
Paper immediately redeemed (the "deemed redemption") a portion of such IP
Common Stock in exchange for the cash the holder actually received. The gain
recognized in that exchange will be treated as capital gain if the deemed
redemption is (i) "not essentially equivalent to a dividend" or (ii)
"substantially disproportionate" with respect to the holder.
Whether the deemed redemption is "not essentially equivalent to a dividend"
with respect to a holder will depend upon the holder's particular
circumstances. At a minimum, however, in order for the deemed redemption to be
"not essentially equivalent to a dividend," the deemed redemption must result
in a "meaningful reduction" in the holder's deemed percentage stock ownership
of International Paper. In general, that determination requires a comparison
of (i) the percentage of the outstanding stock of International Paper the
holder is deemed actually and constructively to have owned immediately before
the deemed redemption and (ii) the percentage of the outstanding stock of
International Paper actually and constructively owned by the holder
immediately after the deemed redemption. The deemed redemption will be
"substantially disproportionate" with respect to a holder if the percentage
described in (ii) above is less than 80 percent of the percentage described in
(i) above. The Internal Revenue Service has ruled that a reduction in the
percentage stock ownership of a minority stockholder in a publicly held
corporation whose relative stock interest is minimal and who exercises no
control with respect to corporate affairs is a "meaningful reduction."
In applying the foregoing tests, under certain attribution rules, a
stockholder is deemed to own stock owned and, in some cases, constructively
owned by certain family members, by certain estates and trusts of which the
holder is a beneficiary, and by certain affiliated entities, as well as stock
subject to an option actually or constructively owned by the shareholder or
such other persons. As these rules are complex, each holder that believes it
may be subject to these rules should consult its tax advisor.
Under the foregoing tests, in most circumstances, gain recognized by a
holder that exchanges its shares of FPB Common Stock for a combination of IP
Common Stock and cash will be treated as capital gain, and will be
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long-term capital gain if the holding period for such shares was greater than
one year as of the date of the exchange.
The aggregate tax basis of IP Common Stock received by a holder that
exchanges its shares of FPB Common Stock for a combination of IP Common Stock
and cash pursuant to the Merger, will be the same as the aggregate tax basis
of the shares of FPB Common Stock surrendered therefor, decreased by the cash
received and increased by any recognized gain (whether capital gain or
dividend income). The holding period of IP Common Stock will include the
holding period of the shares of FPB Common Stock surrendered therefor.
If such a holder has differing bases and/or holding periods in respect of
its shares of FPB Common Stock it should consult its tax advisor prior to the
exchange with regard to identifying the particular shares of FPB Common Stock
to be sold in the exchange and the particular bases and/or holding periods of
the particular shares of IP Common Stock it receives in the exchange.
CASH RECEIVED IN LIEU OF A FRACTIONAL SHARE. Cash received in lieu of a
fractional share of IP Common Stock will be treated as received in redemption
of such fractional share and gain or loss will be recognized, measured by the
difference between the amount of cash received and the portion of the basis of
the share of FPB Common Stock allocable to such fractional interest. Such gain
or loss will constitute capital gain or loss, and will be long-term capital
gain or loss if the holding period for such shares of FPB Common Stock was
greater than one year as of the date of the exchange.
BACKUP WITHHOLDING. Unless a holder complies with certain reporting and/or
certification procedures or is an "exempt recipient" (i.e., in general,
corporations and certain other entities), the holder may be subject to
withholding tax of 31% with respect to any cash payments received pursuant to
the Merger.
EACH HOLDER SHOULD CONSULT ITS TAX ADVISOR TO DETERMINE THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER, INCLUDING ANY FEDERAL, STATE, LOCAL OR OTHER TAX
CONSEQUENCES (INCLUDING TAX RETURN FILING AND REPORTING REQUIREMENTS).
TREATMENT OF FEDERAL PAPER BOARD EMPLOYEE STOCK OPTIONS
All options (the "FPB Stock Options") outstanding, whether or not
exercisable and whether or not vested, at the Effective Time under Federal
Paper Board's 1992 Key Employees Stock Option Plan, 1992 Stock Option Plan for
Non-Employee Directors and 1989 Key Employees Stock Option Plan (collectively,
the "FPB Stock Option Plans"), shall remain outstanding following the
Effective Time. At the Effective Time, FPB Stock Options shall be assumed by
International Paper. Each FPB Stock Option assumed by International Paper
(each, a "Substitute Option") shall be exercisable upon the same terms and
conditions as under the applicable FPB Stock Option Plan and the applicable
option agreement issued thereunder, except that (A) each such Substitute
Option shall be exercisable for that whole number of shares of IP Common Stock
(rounded up or down to the nearest whole share) equal to the number of shares
of FPB Common Stock subject to such FPB Stock Option multiplied by the Stock
Consideration; and (B) the option price per share of IP Common Stock shall be
an amount equal to the option price per share of FPB Common Stock subject to
such FPB Stock Option in effect immediately prior to the Effective Time
divided by the Stock Consideration. Such Substitute Option, in accordance with
the terms thereof and pursuant to action taken prior to the execution of the
Merger Agreement by the Compensation Committee of the FPB Board, shall vest
and become immediately exercisable as of the Effective Time, and any limited
rights relating to such FPB Stock Option shall continue to be exercisable
until thirty days following the Effective Time.
International Paper agreed to comply with the terms of all such FPB Stock
Options and ensure, to the extent required by, and subject to the provisions
of, FPB Stock Option Plans, that FPB Stock Options which qualified as
incentive stock options under Section 422 of the Code prior to the Effective
Time continue to qualify as incentive stock options after the Effective Time.
As soon as practicable after the Effective Time, the shares of IP Common Stock
subject to FPB Stock Options will be covered by an effective registration
statement on Form S-8
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(or any successor form) or another appropriate form and International Paper
agreed to use its reasonable efforts to maintain the effectiveness of such
registration statement or registration statements for so long as Substitute
Options remain outstanding. In addition, International Paper agreed to use all
reasonable efforts to cause the shares of IP Common Stock subject to FPB Stock
Options to be listed on the NYSE.
CERTAIN TRANSACTIONS; CONFLICTS OF INTEREST
Certain members of Federal Paper Board's management have interests in the
Merger in addition to their interests solely as shareholders of Federal Paper
Board, as described below.
The Merger Agreement provides that all options of Federal Paper Board
outstanding at the Effective Time under Federal Paper Board's stock option
plans, including those held by directors and key employees, will be assumed by
International Paper. Each stock option will thereafter constitute an option to
acquire, upon the same terms and conditions as under the applicable stock
option plan of Federal Paper Board, that number of shares of IP Common Stock
equal to the number of shares of FPB Common Stock subject to each Federal
Paper Board option multiplied by the Stock Consideration. See "--Treatment of
Federal Paper Board Employee Stock Options." As of November 6, 1995, each of
the executive officers named in the section of Federal Paper Board's Proxy
Statement dated March 17, 1995 captioned "Executive Compensation" held a
number of Federal Paper Board options subject to this accelerated vesting at
average exercise prices as follows: J. Kennedy, 274,000/$23.84; Q. Kennedy,
137,000/$23.84; R. Baldwin, 110,000/$23.83; W. Massey, 85,531/$24.60; and M.
Balduino, 51,050/$25.45. In addition, pursuant to certain stock option plans,
tandem limited rights allowing option holders to cash out their options will
become exercisable until thirty days following the Effective Time. Option
holders who exercise such rights will receive either (i) the highest market
price per share at which FPB Common Stock traded in the sixty-day period
immediately prior to the Merger or (ii) if provided by the Compensation
Committee of the FPB Board at the time of grant, the highest market price per
share at which the shares traded on the date of exercise, less the option
price. The executive officers named above hold tandem limited rights with
respect to their stock options.
The Merger Agreement provides that (i) for a period of at least two years
after the Effective Time, International Paper will cause the Surviving
Corporation to maintain Federal Paper Board's existing compensation,
severance, welfare and pension benefit plans, programs and arrangements (other
than stock-based plans, programs and arrangements) for the benefit of current
and former employees of Federal Paper Board, subject to certain conditions;
(ii) the officers of Federal Paper Board immediately prior to the Effective
Time shall become the officers of the Surviving Corporation; and (iii)
International Paper shall take all necessary action to appoint John R. Kennedy
to the Board of Directors of International Paper. See "CERTAIN PROVISIONS OF
THE MERGER AGREEMENT--Other Agreements."
Federal Paper Board presently has in effect a Key Employee Long-Term
Compensation Plan (the "Long-Term Plan"), pursuant to which it may pay bonuses
to participants based on a percentage of base salary. Pursuant to the Merger
Agreement, Federal Paper Board bonuses with respect to 1995 participants in
its Long-Term Plan are limited to an amount per participant not to exceed 60%
of base salary and an aggregate amount not to exceed $5.0 million. With
respect to all other outstanding Contingent Incentive Awards (as defined in
the Long-Term Plan) granted under the Long-Term Plan, such awards shall be
cancelled as of the Effective Time in exchange for an amount equal to the
value of such awards as of the Effective Time calculated using a price per
share of FPB Common Stock of $40 and subject to certain limitations. The
amount thus determined will be paid to the holder of each cancelled award on
January 1, 1997, subject to forfeiture upon any termination of the
participant's employment prior to such date other than as a consequence of
death, disability, retirement under Federal Paper Board's pension plans, or
involuntary termination under the severance policy applicable to the
participant. Disregarding the aggregate $5 million limitation, Federal Paper
Board's key executive officers would have become entitled to maximum cash
incentive bonuses with respect to 1995 under the Long-Term Plan as follows: J.
Kennedy, $750,000; Q. Kennedy, $345,000; R. Baldwin, $330,000; W. Massey,
$330,000; and M. Balduino, $180,000.
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The Merger Agreement provides that International Paper will cause the
Surviving Corporation to assume the severance policies, employment agreements,
and executive termination agreements of Federal Paper Board. These agreements
include two severance policies approved by the FPB Board on the same date it
adopted the Merger Agreement, all stock option plans, the Supplemental
Executive Retirement Plan, the Retirement Plan for Outside Directors, the 1988
Plan for Compensation of Directors, and employment agreements with Messrs. J.
Kennedy, Q. Kennedy, R. Baldwin, and W. Massey. Certain of these agreements
contain change in control provisions which are described below.
Federal Paper Board's two severance policies protect (1) Federal Paper
Board's key management group, and (2) other salaried employees of Federal
Paper Board and its subsidiaries; in each case excluding Messrs. J. Kennedy,
Q. Kennedy, R. Baldwin, and W. Massey. Under both of these policies, the
Merger will constitute a "Change in Control."
Federal Paper Board's severance policy for its key management group provides
that, in the case of continued employment with an acquiring company, all
benefit formulas as of the date of the change in control will establish a
minimum benefit for the Federal Paper Board portion of any future retirement
under the acquiring company's plan. Total pension will include a Federal Paper
Board portion plus the acquiring company's formula based on the higher of
compensation either at the time of retirement or the change in control.
Minimum retirement benefits will equal whatever the employee could have
retired with under the applicable Federal Paper Board plan at the time of the
change in control. In addition, all employees will become fully vested in
Federal Paper Board's Benefit Equalization Plan, Supplemental Executive
Retirement Plan, and 401(k) plan as of the date of the change in control,
regardless of service. In the case of an involuntary termination within two
years following a change in control, the policy provides that each key
employee will receive in monthly payments an aggregate amount equal to the sum
of 2/52 of the employee's annual compensation plus 1/52 of the same for each
full year of service plus 1/12 of the same for the first $9,999 in base salary
plus an additional 1/12 of the same for each $10,000 of base salary
thereafter; however the total of such payments may not exceed two times the
employee's annual compensation. The policy also includes provisions for a
period of post-termination benefits continuation and the protection of the
retirement benefits and retirement group insurance coverage of involuntarily
terminated employees. Under this policy, if involuntarily terminated within
the two-year period, Mr. M. Balduino will receive a severance payment of
$960,000. Other key employees covered by the policy will receive, in the
aggregate, $10,588,563.
Federal Paper Board's severance policy for other salaried employees of
Federal Paper Board and its subsidiaries provides that, in the case of
continued employment with an acquiring company, all benefit formulas, optional
benefits and accrued eligibility as of the date of the change in control will
establish a minimum benefit for the Federal Paper Board portion of any future
retirement under the acquiring company's plan, and all employees will become
fully vested in the 401(k) plan as of the date of the change in control,
regardless of service. In the case of an involuntary termination within two
years following a change in control, each employee will receive a severance
payment calculated according to the same formula used for key employees as
described above, subject to the same maximum limitation. Involuntarily
terminated employees also will be entitled to a period of benefits
continuation, as well as certain retirement benefits and retirement group
insurance coverage.
Pursuant to the employment contracts of Messrs. J. Kennedy and Q. Kennedy,
(i) each may retire from Federal Paper Board at any time after December 31,
1993 and (ii) if either executive is removed from his position, or his duties
are diminished or changed in any respect including non-material changes, the
executive may resign as an employee of Federal Paper Board, in each case
without breaching his employment agreement. Both executives will be eligible
for and deemed to have applied for early retirement under Federal Paper
Board's pension plan, and shall commence to receive benefits from the pension
plan, the Benefit Equalization Plan and the Supplemental Executive Retirement
Plan. Benefits payable to the executive under these plans will not be reduced
as provided in any plan for early retirement, but will be calculated as if the
executive had continued as an employee until age 65 at a salary equal to his
annual salary at the time of his early retirement and a bonus equal to the
last bonus received or accrued prior to his early retirement, escalated at a
rate of 8% per annum compounded annually until the employee reaches age 65. As
of November 1995, Federal Paper Board amended
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the employment agreements of Messrs. R. Baldwin and W. Massey to include
substantially the same early retirement provision described above for Messrs.
J. Kennedy and Q. Kennedy following a change in control. As John Kennedy has
now reached age 65, there can be no increase in his retirement benefits due to
the early retirement provision in his employment agreement.
For additional information regarding the benefits to be received by the
foregoing individuals, see "--Treatment of Federal Paper Board Employee Stock
Options" and for additional information concerning the beneficial ownership of
FPB Common Stock by the directors and officers of Federal Paper Board, see
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT--FPB Common
Stock."
Pursuant to the Merger Agreement, International Paper and the Surviving
Corporation have agreed (i) that the indemnification obligations set forth in
Federal Paper Board's Articles of Incorporation, as amended, and Federal Paper
Board's By-Laws, in each case as of the date of the Merger Agreement, shall
survive the Merger; (ii) to indemnify and hold harmless the present and former
officers to the fullest extent permitted by law; and (iii) to continue Federal
Paper Board's current directors' and officers' liability insurance for a
period of six years after the Effective Time subject to specified limitations.
See "CERTAIN PROVISIONS OF THE MERGER AGREEMENT--Indemnification."
LITIGATION
On November 9, 1995, a class action complaint, captioned Stanley Kuska v.
Thomas L. Cassidy, W. Mark Massey, Jr., W. Ran Clerihue, James T. Flynn,
Quentin J. Kennedy, John R. Kennedy, Robert D. Baldwin, Edward J. Kelly, John
T. Kelsey, International Paper Co. and Federal Paper Board Co., was filed in
the Superior Court Division of the General Court of Justice in and for Wake
County, North Carolina (the "Class Action"). The complaint purports to be
brought on behalf of a class of plaintiffs comprised of all shareholders of
Federal Paper Board. The complaint alleges that Federal Paper Board's
directors breached their fiduciary duties by approving the Merger Agreement.
The complaint seeks injunctive relief, damages in such an amount as may be
proved at trial, plus costs and attorneys' fees.
Pursuant to arms-length negotiations, and in the interest of avoiding the
burden and expense of further litigation, the defendants reached an agreement
in principle with the plaintiff relating to the settlement of the Class Action
(the "Settlement"). The Settlement is subject to the execution of a definitive
settlement agreement and final court approval. The Settlement provides for (i)
the reduction in the Termination Fee (as defined below) payable under certain
circumstances related to termination of the Merger Agreement from $80 million
to $76 million; and (ii) the opportunity of plaintiff's counsel to review and
offer comments on this Proxy Statement/Prospectus prior to the date hereof. In
connection with the Settlement, plaintiff's counsel requested of Federal Paper
Board that the opinions of Goldman Sachs and J.P. Morgan be dated the date of
this Proxy Statement/Prospectus. See "THE MERGER--Opinions of Financial
Advisors to the FPB Board." Defendants have agreed that, if the Settlement is
approved by the court, Federal Paper Board will pay to plaintiff's counsel, on
behalf of defendants in the Class Action, attorneys' fees not to exceed
$110,000.00 plus plaintiff's counsel's reasonable documented expenses not to
exceed $25,000 in such amounts as are awarded by the Court, and defendants
will not object to an application by plaintiff's counsel for an award of
attorneys' fees and/or reimbursement of expenses in such amounts. The
agreement in principle also contemplates that the class will be certified for
settlement purposes only, that the Class Action will be dismissed with
prejudice and that all claims with respect to the Merger, the Merger Agreement
and this Proxy Statement/Prospectus, including any federal or state securities
law or other claims, shall be fully and finally released, settled and
discharged. The Merger Agreement, as amended, reflects the reduction of the
Termination Fee described above.
ACCOUNTING TREATMENT
The Merger will be accounted for by International Paper under the "purchase"
method of accounting in accordance with generally accepted accounting
principles. Therefore, the aggregate Merger Consideration paid by
International Paper in connection with the Merger will be allocated to Federal
Paper Board's assets and
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liabilities based on their fair market values with any excess being treated as
goodwill. The assets and liabilities and results of operations of Federal
Paper Board will be consolidated into the assets and liabilities and results
of operations of International Paper subsequent to the Effective Time.
APPROVALS AND CONSENTS
In the Merger Agreement, International Paper, Merger Sub and Federal Paper
Board have agreed to use all reasonable efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective the Merger and the other
transactions contemplated by the Merger Agreement, including (i) the obtaining
of all necessary (x) actions or nonactions, waivers, consents and approvals
from governmental entities and (y) consents, approvals or waivers from third
parties, and (ii) the defending of any lawsuits or other legal proceedings,
whether judicial or administrative, investigating or challenging the Merger
Agreement, including seeking to have any stay or temporary restraining order
entered by any court or other governmental entity vacated or reversed.
Under the HSR Act, certain acquisition transactions may not be consummated
unless notice has been given and certain information has been furnished to the
Antitrust Division of the United States Department of Justice (the "Antitrust
Division") and the Federal Trade Commission (the "FTC") and specified waiting
period requirements have been satisfied. International Paper and Federal Paper
Board each filed with the Antitrust Division and the FTC a Notification and
Report Form with respect to the Merger on November 13, 1995. On December 13,
1995, International Paper and Federal Paper Board received a request for
additional information from the Antitrust Division. On January 22, 1996, the
Antitrust Division notified International Paper and Federal Paper Board that
it was closing its investigation of the transaction without action. On the
same day, the FTC notified International Paper and Federal Paper Board that
the HSR Act waiting period had been terminated.
DISSENTING FEDERAL PAPER BOARD SHAREHOLDERS' RIGHTS OF APPRAISAL
Holders of shares of FPB Common Stock are entitled to dissenters' rights
under Article 13 of the NCBCA ("Article 13"), provided that they comply with
the conditions established by Article 13. Article 13 is reprinted in its
entirety as Annex IV to this Proxy Statement/Prospectus. The following
discussion is not a complete statement of the law relating to dissenters'
rights and is qualified in its entirety by reference to Annex IV. This
discussion and Annex IV should be reviewed carefully by any holder who wishes
to exercise statutory dissenters' rights or who wishes to preserve the right
to do so, as failure to comply with the procedures set forth herein or therein
will result in the loss of dissenters' rights.
Pursuant to Article 13, any Federal Paper Board shareholder who (i) gives
written notice of his intent to demand payment for his shares if the Merger is
consummated and becomes effective, which notice is actually received by
Federal Paper Board before the vote is taken at the Special Meeting and (ii)
does not vote his shares at the Special Meeting in favor of the proposal to
approve the Merger Agreement, shall be entitled, if the Merger Agreement is
approved and consummated, to receive payment of the fair value of such
shareholder's shares upon compliance with the applicable procedural
requirements. Such payment shall be made by the "Surviving Corporation" which,
for purposes of this Dissenters' Rights summary, shall mean (i) Federal Paper
Board, with respect to action taken prior to the Effective Time, and (ii)
International Paper, with respect to action taken after the Effective Time.
Any written notice of a Federal Paper Board shareholder's intent to demand
payment for such shareholder's shares of FPB Common Stock if the Merger is
consummated must be received by Federal Paper Board at: 75 Chestnut Ridge
Road, Montvale, New Jersey 07645, Attention: Secretary, prior to the
shareholder vote at the Special Meeting. A shareholder who votes for the
Merger will have no dissenters' rights. The submission by a shareholder of a
proxy card without voting instructions with respect to the proposal to approve
the Merger or a proxy voted in favor of the Merger Agreement (if not revoked)
will count as a vote in favor of the Merger and will serve to waive
dissenters' rights. However, failure to return a proxy card or vote against
approval of the Merger Agreement will not serve to waive dissenters' rights. A
shareholder who does not satisfy each of the
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aforementioned requirements is not entitled to payment for such shareholder's
shares of FPB Common Stock under the dissenters' rights provisions of the
NCBCA and will be bound by the terms of the Merger Agreement.
After the Special Meeting, but no later than 10 days after the Effective
Time, the Surviving Corporation must mail, by registered or certified mail,
return receipt requested, a written dissenters' notice (a "Dissenters'
Notice") to all shareholders who have given the required notice and not voted
in favor of the Merger Agreement as described above. The Dissenters' Notice
will (i) supply a form for demanding payment; (ii) state where the payment
demand must be sent and where and when certificates for certificated shares
must be deposited; (iii) inform holders of uncertificated shares to what
extent transfer of the shares will be restricted after the payment demand is
received; (iv) set a date by which the Surviving Corporation must receive the
payment demand, which date may not be fewer than 30 nor more than 60 days
after the date the Dissenters' Notice is mailed; and (v) be accompanied by a
copy of Article 13. A Federal Paper Board shareholder who is sent a
Dissenters' Notice and who wishes to assert dissenters' rights must demand
payment and deposit his Certificates in accordance with the terms of the
Dissenters' Notice. A Federal Paper Board shareholder who demands payment and
deposits such Certificates in accordance with the terms of the Dissenters'
Notice retains all other rights of a Federal Paper Board shareholder until
these rights are cancelled or modified by the consummation and effectiveness
of the Merger. A Federal Paper Board shareholder who does not demand payments
or deposit his Certificates in accordance with the terms of the Dissenters'
Notice will not be entitled to payment for his shares under the NCBCA. If any
such holder of FPB Common Stock shall have failed to perfect or shall have
effectively withdrawn or lost such right, each share of such holder's FPB
Common Stock shall thereupon be deemed to have been converted into and to have
become, as of the Effective Time, the right to receive, without any interest
thereon, the Stock Consideration or the Cash Consideration or a combination
thereof as determined by International Paper in its sole discretion pursuant
to the Merger Agreement.
As soon as the Merger is consummated, or upon receipt of a payment demand,
the Surviving Corporation must offer to pay each dissenter who complied with
the requirements of Article 13 the amount the Surviving Corporation estimates
to be the fair value of such shareholder's shares of FPB Common Stock, plus
interest accrued to the date of payment ("Offer of Payment"), and must pay
this amount to each dissenting shareholder who agrees in writing to accept
such payment in full satisfaction of his demand. The Offer of Payment must be
accompanied by (i) the Surviving Corporation's most recent available balance
sheet as of the end of a fiscal year ending not more than 16 months before the
date of the Offer of Payment, an income statement for that year, a statement
of cash flows for that year and the latest available interim financial
statements, if any; (ii) a statement of the Surviving Corporation's estimate
of the fair value of the shares; (iii) an explanation of how the interest was
calculated; (iv) a statement of the dissenters' right to demand payment under
the provisions of the NCBCA described in the next succeeding paragraph; and
(v) a copy of Article 13. If the Merger is not effected within 60 days after
the date set for demanding payment and depositing Certificates, the Surviving
Corporation will return the deposited Certificates and release the transfer
restrictions imposed on uncertificated shares. If after returning deposited
Certificates and releasing transfer restrictions, the Merger is effected, the
Surviving Corporation will deliver a new Dissenters' Notice and repeat the
payment demand procedure.
A dissenting shareholder may notify the Surviving Corporation in writing of
his own estimate of the fair value of such shares and the amount of interest
due, and demand payment of his estimate, or reject the Surviving Corporation's
Offer of Payment and demand payment of the fair value of his shares and
interest due (in either case, a "Demand for Payment") if:
(i) the dissenting shareholder believes that the amount offered by the
Surviving Corporation is less than the fair value of his shares or that the
interest due is incorrectly calculated;
(ii) the Surviving Corporation fails to make payment to a dissenting
shareholder who accepts the Surviving Corporation's Offer of Payment within
30 days after the dissenting shareholder's acceptance; or
(iii) the Surviving Corporation, having failed to take the proposed
action, does not return the deposited Certificates within 60 days after the
date set for demanding payment.
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A dissenting shareholder waives his right to make a Demand for Payment under
subparagraphs (i), (ii) and (iii) above unless he notifies the Surviving
Corporation of his demand in writing under subparagraph (i) above within 30
days after the Surviving Corporation's Offer of Payment for his shares or
under subparagraph (ii) or (iii) above within 30 days after the Surviving
Corporation has failed to perform in a timely manner. A dissenting shareholder
who fails to notify the Surviving Corporation of his Demand for Payment under
subparagraph (i), (ii) or (iii) above within the applicable 30-day period will
be deemed to have withdrawn his dissent and Demand for Payment.
If a Demand for Payment remains unsettled, the dissenting shareholder may
commence a proceeding within 60 days after the date of his Demand for Payment
and petition the court to determine the fair value of the shares and accrued
interest. Upon service upon it of the petition filed with the court, the
Surviving Corporation shall pay to the dissenting shareholder the amount
previously offered by the Surviving Corporation in its Offer of Payment. If
the dissenting shareholder does not commence the proceeding within the 60-day
period, the dissenting shareholder has an additional 30 days to either (i)
accept in writing the amount offered by the Surviving Corporation in its Offer
of Payment, upon which the Surviving Corporation shall pay such amount to the
dissenting shareholder in full satisfaction of his demand, or (ii) withdraw
his Demand for Payment and resume the status of a nondissenting shareholder. A
dissenting shareholder who takes no action within such 30-day period is deemed
to have withdrawn his dissent and Demand for Payment.
A shareholder of record may assert dissenters' rights as to fewer than all
the shares registered in his name only if he complies with the conditions
established by Article 13 with respect to all shares beneficially owned by any
one person and notifies Federal Paper Board in writing of the name and address
of each person on whose behalf he asserts dissenters' rights. The rights of
such a partial dissenting shareholder are determined as if the shares as to
which such shareholder dissents and such shareholder's other shares were
registered in the names of different shareholders.
A beneficial shareholder may assert dissenters' rights as to shares held on
his behalf only if: (i) such shareholder submits to Federal Paper Board the
record shareholder's written consent to the dissent not later than the time
the beneficial shareholder asserts dissenters' rights and (ii) such
shareholder does so with respect to all shares of which he is the beneficial
shareholder.
Holders of FPB Common Stock who wish to demand dissenters' rights should not
complete the Form of Election. International Paper will regard any record
holder of FPB Common Stock who delivers a written demand for appraisal and who
subsequently delivers a Form of Election to the Exchange Agent as having
withdrawn such demand for appraisal. International Paper will regard any
holder who delivers a Form of Election and who simultaneously or subsequently
makes a written demand for appraisal as having revoked his or her Election.
DELISTING AND DEREGISTRATION OF FPB COMMON STOCK
If the Merger is consummated, the shares of FPB Common Stock will be
delisted from the NYSE and will be deregistered under the Exchange Act.
RESALES OF IP COMMON STOCK
All shares of IP Common Stock to be issued in connection with the Merger
will have been registered under the Securities Act. Such shares will be freely
transferable, except that shares received by any person who may be deemed to
be an affiliate within the meaning of Rule 145 of the rules and regulations
promulgated under the Securities Act (each such person being an "Affiliate")
of Federal Paper Board may not be resold except in transactions permitted by
such Rule 145 or as otherwise permitted under the Securities Act.
Pursuant to the Merger Agreement, on December 12, 1995, Federal Paper Board
delivered to International Paper a list of names and addresses of those
persons who were, in Federal Paper Board's reasonable judgment, on such date,
Affiliates of Federal Paper Board. Federal Paper Board has agreed to provide
International Paper
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with such information and documents as International Paper shall reasonably
request for purposes of reviewing such list. Federal Paper Board is obligated
under the Merger Agreement to use its reasonable efforts to deliver or cause
to be delivered to International Paper, prior to the Effective Time, a letter
substantially in the form agreed to by Federal Paper Board and International
Paper, executed by each of the Affiliates of Federal Paper Board identified in
the foregoing list and by any person who shall have become an Affiliate of
Federal Paper Board subsequent to the delivery of such list.
CERTAIN PROVISIONS OF THE MERGER AGREEMENT
CERTAIN REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
International Paper, Federal Paper Board and Merger Sub relating to, among
other things, the following matters (which representations and warranties are
subject, in certain cases, to specified exceptions): (i) the due organization,
existence and good standing of, and similar corporate matters with respect to,
each of International Paper and its Significant Subsidiaries (as defined in
the Merger Agreement), Federal Paper Board and its Significant Subsidiaries
and Merger Sub, and the organizational documents of each party; (ii) the
capital structure of each party; (iii) the authorization, execution, delivery
and enforceability of the Merger Agreement and the transactions contemplated
thereby; (iv) the absence, other than as disclosed, of any (x) conflict with
such party's organizational documents or with applicable law, or with certain
contracts, or (y) governmental or regulatory authorization, consent or
approval required to consummate the Merger; (v) reports and other documents
filed by International Paper and Federal Paper Board with the Commission and
the accuracy of the information contained therein; (vi) the accuracy of the
information supplied in this Proxy Statement/Prospectus; (vii) the absence of
certain changes or events; (viii) the absence of material pending or
threatened litigation; (ix) the absence of changes to, and the qualification,
operation and liability under, certain employee benefit plans of Federal Paper
Board and its subsidiaries; (x) certain tax matters of, and the payment of
taxes by, Federal Paper Board; (xi) compliance with applicable laws by Federal
Paper Board; (xii) compliance with all applicable environmental laws and other
environmental matters; (xiii) title to property and effect of leases of
Federal Paper Board; (xiv) the right to use all material patents, trademarks
or copyrights for use in connection with the business of Federal Paper Board
and its Significant Subsidiaries; (xv) maintenance of insurance by Federal
Paper Board; (xvi) the absence of actions or failures to act by either party
which would jeopardize the qualification of the Merger as a reorganization
within the meaning of Section 368(a) of the Code; (xvii) the vote required by
the shareholders of Federal Paper Board to approve the Merger Agreement;
(xviii) the opinions of the financial advisors of Federal Paper Board as to
the fairness of the consideration to be received in the Merger by the holders
of FPB Common Stock; (xix) the absence of any brokerage, finder's or other
similar fee due in connection with the Merger (except, in the case of
International Paper, to CS First Boston Corporation and, in the case of
Federal Paper Board, to J.P. Morgan and Goldman Sachs); (xx) the absence of
beneficial ownership by International Paper and Merger Sub of shares of FPB
Common Stock; and (xxi) the absence of operations by Merger Sub other than in
connection with the performance of its obligations under the Merger Agreement.
CONDUCT OF BUSINESS PENDING THE MERGER
Federal Paper Board. Federal Paper Board has agreed (except as expressly
contemplated by the Merger Agreement or to the extent that International Paper
otherwise consents in writing) that, prior to the Effective Time, it and its
subsidiaries shall carry on their respective businesses in the usual, regular
and ordinary course in substantially the same manner as conducted prior to the
date of the Merger Agreement and shall use all reasonable efforts to preserve
intact their present business organizations, keep available the services of
their present officers and employees and preserve their relationships with
customers, suppliers and others having business dealings with it and its
subsidiaries. In connection therewith, Federal Paper Board also agreed that it
would not: (a) (i) declare or pay any dividends on or make other distributions
in respect of any of its capital stock other than regular quarterly dividends
not to exceed $0.40 per share on FPB Common Stock and dividends required to be
paid on the FPB Convertible Preferred Stock (as defined below) or (ii) split,
combine or reclassify
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any of its capital stock or issue or authorize or propose the issuance of any
other securities in respect of or in substitution for shares of its capital
stock; (b) and would not permit any subsidiary to (i) repurchase, redeem or
otherwise acquire any shares of capital stock, except for redemption of the
FPB Convertible Preferred Stock, (ii) issue, deliver or sell, or authorize or
propose the issuance, delivery or sale of, any shares of its capital stock or
any securities convertible into, or any rights, warrants, calls, subscriptions
or options to acquire, any such shares or convertible securities, or any other
ownership interest other than (x) the issuance of shares of FPB Common Stock
upon the exercise of outstanding stock options, stock appreciation rights or
warrants, (y) issuances by a wholly owned subsidiary of its capital stock to
Federal Paper Board and (z) the issuance of shares of FPB Common Stock upon
conversion of shares of FPB Convertible Preferred Stock; (c) amend or propose
to amend its governing documents; (d) and would not permit any of its
subsidiaries to (i) acquire or agree to acquire a substantial interest in the
equity or assets of any business, (ii) sell, lease, encumber or otherwise
dispose of (or agree to dispose of) any of its material assets other than in
the ordinary course of business, equipment and property no longer used in its
business and assets related to discontinued operations, (iii) incur any
indebtedness for borrowed money or guarantee any such indebtedness or issue or
sell any debt securities or rights to acquire debt securities of Federal Paper
Board or any of its subsidiaries or guarantee any debt securities of others,
except in the ordinary course of business, including borrowings under existing
credit agreements and overnight borrowings, (iv) pay, discharge, settle or
satisfy any claim, liabilities or obligations in any amount in excess of $3.0
million, other than payment, discharge or satisfaction in the ordinary course
of business or in accordance with their terms, of liabilities recognized or
disclosed in the most recent consolidated financial statements (or the notes
thereto) filed with the Commission or incurred since the date of such
financial statements in the ordinary course of business, or agree to modify in
any manner, any confidentiality, standstill or similar agreement, (v) modify,
amend or terminate any material contract or agreement or waive, release or
assign any material rights or claims, except in the ordinary course of
business, or (vi) grant any increase in the compensation of any of its
directors, officers or key employees, except for increases for officers and
employees in the ordinary course of business, pay or agree to pay any employee
benefit not contemplated by any of the existing Company Benefit Plans (as
defined in the Merger Agreement) to, or enter into any new employment,
severance or termination agreement with, any such director, officer or key
employee or, except as may be required to comply with applicable law, become
obligated under any Company Benefit Plan which was not in existence on the
date of the Merger Agreement or amend any such plan in existence on the date
thereof to enhance the benefits thereunder; or (e) make any tax election that
would have a material adverse effect or settle or compromise any income tax
liability that would have a material adverse effect, and Federal Paper Board
shall, before filing or causing to be filed any material tax return, consult
with International Paper as to the positions and elections that may be taken
or made with respect to such return. Federal Paper Board also agreed that it
would not, and would not permit any of its subsidiaries to, authorize or make
any capital expenditures other than capital expenditures as disclosed,
incurred in the ordinary course of the business, or which do not exceed $60.0
million.
International Paper. International Paper has agreed (except as expressly
contemplated by the Merger Agreement, or to the extent that Federal Paper
Board shall otherwise consent in writing) that, prior to the Effective Time,
it would not (a) engage in any material repurchase at a premium,
recapitalization, restructuring or reorganization with respect to
International Paper's capital stock, including by way of any extraordinary
dividends on or distributions in respect of any of its capital stock, or amend
any material term or provision of the IP Common Stock or (b) and would not
permit any of its subsidiaries to, acquire or agree to acquire substantial
assets or equity in any business, or otherwise acquire or agree to acquire any
assets if such action would (A) materially delay the obtaining of, or
significantly increase the risk of not obtaining, any authorizations,
consents, orders, declarations or approvals of any governmental entity
necessary to consummate the Merger or the expiration or termination of any
applicable waiting period or (B) significantly increase the risk of any
governmental entity entering an order prohibiting the consummation of the
Merger or of not being able to remove any such order on appeal or otherwise.
International Paper also agreed that it would not, and would not permit any of
its subsidiaries to take, or fail to take, any other action which would
reasonably be expected to impede, interfere with, prevent or materially delay
the Merger.
Each of Federal Paper Board, International Paper and Merger Sub agreed that
it would not, and would not permit any of its subsidiaries to, take any action
that would, or that would reasonably be expected to, result in
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(a) any of its representations and warranties set forth in the Merger
Agreement that are qualified as to materiality becoming untrue, (b) any of
such representations and warranties that are not so qualified becoming untrue
in any material respect or (c) except as otherwise permitted by the Merger
Agreement, any of the conditions to the Merger set forth therein not being
satisfied.
OTHER AGREEMENTS
Federal Paper Board Benefit Plans. International Paper has agreed to cause
the Surviving Corporation to continue to maintain for a period of at least two
years after the Effective Time Federal Paper Board's existing compensation,
severance, welfare and pension benefit plans, programs and arrangements (other
than any stock-based plans, programs and arrangements for which alternative
plans are put into effect as described below) for the benefit of current and
former employees of Federal Paper Board and its subsidiaries (subject to such
modification as may be required by applicable law or to maintain the tax-
exempt status of any such plan, if applicable); provided, however, that
nothing herein shall prohibit International Paper from (i) replacing any such
existing plan, program or arrangement with a plan, program or arrangement
which provides such employees with benefits which are not less favorable in
the aggregate than the benefits that would have been provided under such
existing plan, program or arrangement to the extent such replacement is
permitted under the terms of the applicable plan, program or arrangement or
(ii) including current employees of Federal Paper Board in the plans, programs
and arrangements generally available to employees of International Paper and
its subsidiaries other than the Surviving Corporation in lieu of participation
in any Federal Paper Board plan, program or arrangement. The provisions
described in this paragraph do not apply to any employee subject to the terms
of a collective bargaining plan.
International Paper also agreed to cause the Surviving Corporation to honor
(without modification) and assume certain disclosed severance policies,
employment agreements, executive termination agreements and individual benefit
arrangements.
Pursuant to the Merger Agreement, Federal Paper Board is permitted to pay
bonuses with respect to 1995 to participants in Federal Paper Board's Long-
Term Plan in an amount per participant not to exceed 60% of base salary as in
effect on January 1, 1995, and in an aggregate amount not to exceed $5.0
million. With respect to all other outstanding Contingent Incentive Awards
granted under the Long-Term Plan (payable in respect of calendar years 1996
and 1997), such awards shall be cancelled as of the Effective Time in exchange
for the amounts determined as set forth below. As of the Effective Time, the
value of each Contingent Incentive Award shall be (i) determined using a price
per share of FPB Common Stock of $40 and (ii) otherwise limited to the portion
of such award accrued as of the Effective Time by Federal Paper Board for
income statement purposes in accordance with generally accepted accounting
principles and past practice. The amount determined in accordance with the
immediately preceding sentence shall be paid to the holder of each cancelled
Contingent Incentive Award on January 1, 1997; provided that such amount shall
be forfeited upon any termination of the participant's employment prior to
such date other than as a consequence of death, disability, retirement under
Federal Paper Board's pension plans or involuntary termination under the
severance policy applicable to the participant. See "THE MERGER--Certain
Transactions; Conflicts of Interest."
Redemption of FPB Convertible Preferred Stock. Pursuant to the Merger
Agreement, Federal Paper Board has agreed to cause the redemption of all
outstanding shares of its $1.20 convertible preferred stock, par value $1.00
per share (the "FPB Convertible Preferred Stock") prior to the Effective Time.
On January 16, 1996, Federal Paper Board gave notice to all holders of the FPB
Convertible Preferred Stock that on February 17, 1996, all shares of FPB
Convertible Preferred Stock would be called for redemption, in accordance with
the terms thereof, at the price provided for therein (the "FPB Preferred Stock
Redemption").
International Paper Board of Directors. International Paper has agreed to
take all necessary action to cause John R. Kennedy to be appointed to the
Board of Directors of International Paper as of the Effective Time, to serve
until the next annual election of directors of International Paper, and in
connection with such election, to take all necessary action to include Mr.
Kennedy as a recommended nominee for the Board of Directors.
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INDEMNIFICATION
International Paper and the Surviving Corporation have agreed in the Merger
Agreement that the Articles of Incorporation and By-laws of the Surviving
Corporation will contain the provisions with respect to indemnification set
forth in the Articles of Incorporation and By-laws of Federal Paper Board on
the date of the Merger Agreement, which provisions will not be amended,
repealed or otherwise modified for a period of six years after the Effective
Time in any manner that would adversely affect the rights thereunder of
individuals who at any time prior to the Effective Time were directors,
officers, employees or agents of Federal Paper Board. The parties have also
agreed in the Merger Agreement that regardless of whether the Merger becomes
effective, Federal Paper Board shall, and after the Effective Time,
International Paper and the Surviving Corporation shall, indemnify and hold
harmless each present and former officer or director of Federal Paper Board
and each of its subsidiaries and each person who served at the request of
Federal Paper Board or any subsidiary as a director, officer, trustee,
partner, fiduciary, employee or agent of another corporation, partnership,
joint venture, trust, pension or other employee benefit plan or enterprise
against all costs and expenses, judgments, fines, losses, claims, damages,
liabilities and settlement amounts paid in connection with any claim, action,
suit, proceeding or investigation (whether arising before or after the
Effective Time), pertaining to actions or omissions in their capacity as an
officer or director occurring prior to the Effective Time (including the
transactions contemplated by the Merger Agreement) in each case to the full
extent permitted under the NCBCA. Federal Paper Board and International Paper
have also agreed in the Merger Agreement that if any such claim, action, suit,
proceeding or investigation is brought against any indemnified party, Federal
Paper Board or International Paper and the Surviving Corporation, as the case
may be, will pay all reasonable fees and expenses of counsel selected by such
indemnified party, which counsel shall be reasonably satisfactory to Federal
Paper Board or International Paper and the Surviving Corporation, as the case
may be, and Federal Paper Board and International Paper will cooperate in the
defense of such matter.
The Merger Agreement further provides that the Surviving Corporation will
cause to be maintained for six years after the Effective Time directors' and
officers' liability insurance protection of the same kind and scope as those
policies provided by Federal Paper Board to its current directors and
officers. The Surviving Corporation will not be required to pay premiums for
such insurance in excess of an amount equal to 200% of annual premiums
currently paid by Federal Paper Board for such insurance.
CONDITIONS TO CONSUMMATION OF THE MERGER
The obligations of Federal Paper Board, International Paper and Merger Sub
to consummate the Merger are subject to the satisfaction or waiver of various
conditions, including (i) the effectiveness of the Registration Statement and
the absence of any stop order suspending the effectiveness thereof and any
proceedings for that purpose initiated by the Commission; (ii) the approval of
the Merger Agreement by the requisite holders of FPB Common Stock; (iii) no
governmental entity having enacted, issued, promulgated, enforced or entered
any law, rule, regulation or order which is in effect and which makes the
Merger illegal or otherwise prohibits consummation of the Merger; (iv) the
applicable waiting period under the HSR Act having expired or been terminated;
and (v) the shares of IP Common Stock issuable pursuant to the Merger
Agreement or upon exercise of the Substitute Options having been authorized
for listing on the NYSE upon official notice of issuance.
The obligations of International Paper and Merger Sub to consummate the
Merger are also subject to satisfaction or waiver by International Paper of
the following conditions: (i) each of the representations and warranties of
Federal Paper Board contained in the Merger Agreement being true and correct
in all material respects as of the Closing Date as though made on and as of
the Closing Date, except (a) for changes permitted by the Merger Agreement and
(b) that those representations and warranties which address matters only as of
a particular date are required to be true and correct as of such date; (ii)
Federal Paper Board having performed or complied in all material respects with
all material agreements and covenants required by the Merger Agreement to be
performed or complied with by it on or prior to the Closing Date; (iii) all
required consents, approvals and authorizations having been obtained except
for such consents, approvals and authorizations the failure of which to obtain
would not have a material adverse effect on International Paper; and (iv)
International Paper having
47
<PAGE>
received the opinion of Skadden, Arps, Slate, Meagher & Flom, dated on or
about the Closing Date, to the effect that the Merger will be treated for
federal income tax purposes as a reorganization qualifying under the
provisions of Section 368(a) of the Code and that International Paper, Merger
Sub and Federal Paper Board will each be a party to that reorganization under
Section 368(b) of the Code, the issuance of such opinion being conditioned on
the receipt of certain representation letters.
The obligations of Federal Paper Board to consummate the Merger are also
subject to the satisfaction or waiver by Federal Paper Board of the following
conditions: (i) each of the representations and warranties of International
Paper and Merger Sub contained in the Merger Agreement being true and correct
in all material respects as of the Closing Date, as though made on and as of
the Closing Date, except (a) for changes permitted by the Merger Agreement and
(b) that those representations and warranties which address matters only as of
a particular date are required to be true and correct as of such date; (ii)
each of International Paper and Merger Sub having performed or complied in all
material respects with all material agreements and covenants required by the
Merger Agreement to be performed or complied with by it on or prior to the
Closing Date; and (iii) Federal Paper Board having received the opinion of
Shearman & Sterling, dated on or about the Closing Date, to the effect that
the Merger will be treated for federal income tax purposes as a reorganization
qualifying under the provisions of Section 368(a) of the Code, and that
International Paper, Merger Sub and Federal Paper Board will each be a party
to that reorganization under Section 368(b) of the Code, the issuance of such
opinion being conditioned on the receipt of certain representation letters.
NO SOLICITATION
The Merger Agreement provides that Federal Paper Board shall not, nor shall
it permit any of its subsidiaries to, nor shall it authorize or permit any
officer, director or employee of, or any investment banker, attorney or other
advisor or representative of Federal Paper Board or any of its subsidiaries to
(i) solicit or initiate, or knowingly encourage the submission of, any
"competitive proposal" (as defined below) or (ii) participate in any
discussions or negotiations regarding, or furnish to any person any
information with respect to, or take any other action to knowingly facilitate
the making of any proposal that constitutes, or may reasonably be expected to
lead to, a competitive proposal; provided, however, that, prior to the
Effective Time, if the FPB Board concludes, after consultation with counsel,
that its fiduciary duties to Federal Paper Board's shareholders under
applicable law require such action, Federal Paper Board may, in response to an
unsolicited competitive proposal, (x) furnish information with respect to
Federal Paper Board to the party making such competitive proposal and its
representatives, counsel and advisors pursuant to a confidentiality agreement
with such party containing customary terms and provisions regarding the
nondisclosure of confidential information and (y) participate in negotiations
regarding such competitive proposal; provided further, upon the furnishing of
such information to any such party, Federal Paper Board shall notify
International Paper that it has done so and shall identify such party in such
notice. A "competitive proposal" means any proposal or offer from any person
relating to any direct or indirect acquisition or purchase of all or a
substantial part of the assets of Federal Paper Board or any of its
subsidiaries or of over 50% of any class of equity securities of Federal Paper
Board or any of its subsidiaries (other than the FPB Convertible Preferred
Stock), any tender offer or exchange offer that if consummated would result in
any person beneficially owning 50% or more of any class of equity securities
of Federal Paper Board or any of its subsidiaries (other than the FPB
Convertible Preferred Stock), any merger, consolidation, business combination,
dissolution or similar transaction involving Federal Paper Board or any of its
subsidiaries, other than the transactions contemplated by the Merger
Agreement, or any other transaction the consummation of which would reasonably
be expected to impede, interfere with, prevent or materially delay the Merger
or dilute materially the benefits to International Paper of the transactions
contemplated by the Merger Agreement. Federal Paper Board also agreed not to
release any third party from, or waive any provision of, any confidentiality
or standstill agreement to which Federal Paper Board is a party.
The FPB Board may not (i) withdraw or modify in a manner adverse to
International Paper, the approval or recommendation by the FPB Board of the
Merger, (ii) approve or recommend any competitive proposal or (iii) enter into
any agreement with respect to any competitive proposal; unless the FPB Board
concludes, after
48
<PAGE>
consultation with counsel, that failure to do so would violate its fiduciary
duties and in such case only after certain conditions have been satisfied. In
addition, Federal Paper Board has agreed that until February 28, 1996, it
shall not (i) engage in negotiations with or provide information to any party
making a competitive proposal unless the FPB Board concludes that such
proposal could reasonably be expected to lead to a transaction which is
financially superior to the transactions contemplated by the Merger Agreement
or (ii) enter into any agreement with respect to a competitive proposal unless
the FPB Board determines, after consultation with its financial advisors, that
such competitive proposal is financially superior to the transactions
contemplated by the Merger Agreement.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval thereof by shareholders of Federal
Paper Board:
(a) by mutual written consent of International Paper and Federal Paper
Board;
(b) by either International Paper or Federal Paper Board if the Effective
Time shall not have occurred on or before May 31, 1996; provided that such
right to terminate would not be available to any party whose failure to
fulfill an obligation under the Merger Agreement caused, or resulted in,
the failure of the Effective Time to occur on or before such time; provided
further that, upon notice from Federal Paper Board, International Paper
shall not have the right to terminate until August 31, 1996 if the Merger
has not been consummated as a result of (i) Federal Paper Board or
International Paper having failed by May 31, 1996 to receive required
regulatory approvals or consents, (ii) an order or pending action by an
applicable federal antitrust authority seeking an order which makes or
would make illegal or would otherwise prohibit consummation of the Merger,
or (iii) the waiting period (and any extension thereof) applicable to the
Merger under the HSR Act not having expired or terminated;
(c) by International Paper if (i) the FPB Board shall have withdrawn or
modified in a manner adverse to International Paper its approval or
recommendation of the Merger, (ii) the FPB Board approved or recommended
any competitive proposal or (iii) Federal Paper Board entered into any
agreement with respect to any competitive proposal in accordance with
exceptions to the restrictions described under "--No Solicitation;"
(d) by either International Paper or Federal Paper Board if a final and
nonappealable order, decree or ruling has been issued or other action taken
permanently enjoining, restraining or otherwise prohibiting the Merger;
provided that the party seeking to terminate has used its best efforts to
remove such injunction, order or decree;
(e) by International Paper in the event of a material breach by Federal
Paper Board of any representation, warranty, covenant or other agreement
contained in the Merger Agreement which cannot be or has not been cured
within 20 days after the giving of notice to Federal Paper Board;
(f) by Federal Paper Board in connection with entering into a definitive
agreement in accordance with exceptions to the restrictions described under
"--No Solicitation;"
(g) by Federal Paper Board if Merger Sub or International Paper breached
in any material respect any of their respective representations,
warranties, covenants or other agreements contained in the Merger
Agreement, which failure to perform is incapable of being cured or has not
been cured within 20 days after the giving of written notice by Federal
Paper Board to International Paper or Merger Sub, as applicable, except
such failures which are not reasonably likely to affect adversely their
ability to complete the Merger; or
(h) by International Paper or Federal Paper Board if the shareholders of
Federal Paper Board do not approve the Merger Agreement at the Special
Meeting.
FEES AND EXPENSES
Except as described below, all fees and expenses incurred in connection with
the Merger Agreement and the Merger and any other transaction contemplated by
the Merger Agreement shall be paid by the party incurring
49
<PAGE>
such fees or expenses, whether or not the Merger is consummated. Federal Paper
Board shall pay to International Paper a fee of $76.0 million (the
"Termination Fee") if (i) International Paper terminates the Merger Agreement
after the FPB Board approved or recommended any competitive proposal or
Federal Paper Board entered into any agreement with respect to any competitive
proposal in accordance with exceptions to the restrictions described under "--
No Solicitation"; (ii) Federal Paper Board terminates the Merger Agreement in
connection with entering into any agreement with respect to any competitive
proposal in accordance with exceptions to the restrictions described under "--
No Solicitation"; (iii) (x) the Merger Agreement is terminated by Federal
Paper Board or International Paper if the holders of FPB Common Stock do not
approve the Merger Agreement at the Special Meeting, (y) prior to the Special
Meeting a competitive proposal has been made to Federal Paper Board and (z)
within one year of the date of such termination and as a result of such
competitive proposal, Federal Paper Board enters into a definitive agreement
with respect to the transaction contemplated by such competitive proposal; or
(iv) (A) either party terminates the Merger Agreement because the Effective
Time shall not have occurred on or before May 31, 1996 (or August 31, 1996, if
extended as described under "--Termination"), (B) prior to such termination, a
competitive proposal has been made to Federal Paper Board, (C) the FPB Board
had withdrawn its recommendation or approval of the Merger Agreement because
of the existence of such competitive proposal or J.P. Morgan and Goldman Sachs
failed to deliver updated written opinions as contemplated by the Merger
Agreement because of the existence of such competitive proposal, (D) the
Special Meeting shall not have occurred and (E) within one year of the date of
such termination and as a result of such competitive proposal, Federal Paper
Board enters into a definitive agreement with respect to the transaction
contemplated by such competitive proposal; provided that the Termination Fee
shall not be payable if, at the time of any such termination, International
Paper is in material breach of any of its material representations,
warranties, covenants or agreements set forth in the Merger Agreement.
AMENDMENT AND WAIVER
The Merger Agreement may be amended by the parties at any time prior to the
approval of the Merger Agreement by the Federal Paper Board shareholders.
After approval of the Merger Agreement by the Federal Paper Board
shareholders, no amendment which under applicable law may not be made without
the approval of the shareholders of Federal Paper Board may be made without
such approval.
At any time prior to the Effective Time, the parties may (i) extend the time
for the performance of any of the obligations or other acts of the other
parties; (ii) waive any inaccuracies in the representations and warranties of
the other parties contained in the Merger Agreement or in any document
delivered pursuant thereto; and (iii) waive compliance by the other parties
with any of the agreements or conditions contained therein.
50
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
IP COMMON STOCK
Set forth below is certain information, as of September 30, 1995, concerning
the beneficial ownership of IP Common Stock by (i) each director of
International Paper; (ii) each of the five most highly compensated executive
officers of International Paper; and (iii) all directors and executive
officers of International Paper as a group. To the best knowledge of
International Paper, no person or group beneficially owns more than 5% of IP
Common Stock outstanding, except as set forth below in the table. The number
of shares of IP Common Stock beneficially owned by such persons or group
reflects a two-for-one stock split, which was payable on September 15, 1995.
BENEFICIAL OWNERSHIP OF SHARES OF IP COMMON STOCK
<TABLE>
<CAPTION>
AMOUNT AND PERCENT
NAME NATURE OF OWNERSHIP(1) OF CLASS
---- ---------------------- --------
<S> <C> <C>
W.C. Butcher.................................. 5,184 *
J.T. Dillon................................... 226,772 *
R.J. Eaton.................................... 3,400 *
S.C. Gault.................................... 18,708 *
J.A. Georges.................................. 456,279 *
T.C. Graham................................... 13,160 *
A.G. Hansen................................... 6,416 *
D.F. McHenry.................................. 5,866 *
P.F. Noonan................................... 2,050 *
J.C. Pfeiffer................................. 5,450 *
E.T. Pratt.................................... 5,160 *
C.R. Shoemate................................. 2,100 *
R.B. Smith.................................... 7,000 *
J.P. Melican.................................. 135,506 *
C.W. Smith.................................... 132,927 *
M.A. Turk..................................... 79,165 *
All executive officers and directors as a
group........................................ 1,105,143 .42%
Bank trustee under International Paper and
subsidiary employee benefit plans(2)......... 22,075,386 8.47%
</TABLE>
- --------
* No director or executive owns as much as 1/5th of 1%.
(1) Ownership shown includes securities over which the individual has or
shares, directly or indirectly, voting or investment powers, including
shares held in the International Paper Restricted Stock Plan for Non-
Employee Directors, shares owned by a spouse or certain relatives and
ownership by trusts for the benefit of such relatives, as required to be
reported by the Commission. Certain individuals may disclaim beneficial
ownership of some of these shares, but they are included for the purpose
of computing the holdings and the percentages of IP Common Stock owned.
Interests in shares resulting from participation in the International
Paper Salaried Savings Plan, Performance Share Awards, and Executive
Continuity Awards are included above. The above table does not include
735,637 shares represented by stock options granted to executive officers
under the Long-Term Plan, including options for 335,000 shares for Mr.
Georges, 139,937 shares for Mr. Dillon, 124,500 shares for Mr. Melican,
82,200 shares for Mr. C.W. Smith and 54,000 shares for Mr. Turk. In
addition, under the Nonfunded Deferred Compensation Plan for Non-Employee
Directors or the Unfunded Savings Plan, the Directors and executive
officers listed below own the non-voting stock equivalent units set forth
in the following chart:
51
<PAGE>
<TABLE>
<CAPTION>
STOCK
DIRECTOR/NAMED OFFICER UNITS
---------------------- ------
<S> <C>
W.C. Butcher............ 12,519
R.J. Eaton.............. 2,586
J.T. Dillon............. 19,813
J.A. Georges............ 84,089
T.C. Graham............. 16,481
A.G. Hansen............. 8,285
D.F. McHenry............ 5,675
P.F. Noonan............. 1,884
C.R. Shoemate........... 1,593
R.B. Smith.............. 11,981
J.P. Melican............ 17,348
C.W. Smith.............. 11,811
M.A. Turk............... 1,498
</TABLE>
(2) State Street Bank & Trust Co., N.A. held such shares as the independent
trustee in trust funds for employee savings, thrift, and similar employee
benefit plans of International Paper and its subsidiaries ("International
Paper Trust Funds"). In addition, State Street Bank & Trust Co., N.A. is
trustee for various third party trusts and employee benefit plans and is
an investment advisor. As a result of its holdings in all capacities,
State Street Bank & Trust Co., N.A. was the record holder of 24,270,194
shares of IP Common Stock. The trustee disclaims beneficial ownership of
all such shares except 2,194,808 shares of which it has sole power to
dispose or to direct the disposition. The IP Common Stock held by the
International Paper Trust Funds is allocated to participants' accounts,
and such stock or the cash equivalent will be distributed to participants
upon termination of employment or pursuant to withdrawal rights. The
trustee votes the shares of IP Common Stock held in the International
Paper Trust Funds in accordance with the instructions of the
participants; shares for which no instructions are received are voted
proportionately to those shares voted by participants.
FPB COMMON STOCK
Principal Holders of FPB Common Stock. As of February 2, 1996, to the best
knowledge of Federal Paper Board, no person or group beneficially owns more
than 5% of FPB Common Stock.
FPB Common Stock Ownership by Directors and Executive Officers. The
following table sets forth, as of January 15, 1996, the beneficial ownership
of FPB Common Stock by all directors, each of the executive officers named in
the section of Federal Paper Board's Proxy Statement dated March 17, 1995
captioned "Executive Compensation" and all directors and executive officers as
a group.
<TABLE>
<CAPTION>
AMOUNT AND PERCENT
NAME NATURE OF OWNERSHIP OF CLASS
---- ------------------- --------
<S> <C> <C>
John R. Kennedy.............................. 1,253,468(a)(b)(e) 2.6%
Quentin J. Kennedy........................... 1,045,467(a)(c)(e) 2.2%
Robert D. Baldwin............................ 194,254(a) *
W. Mark Massey, Jr........................... 181,702(a) *
John L. Kelsey............................... 49,000(d) *
Thomas L. Cassidy............................ 45,408(d) *
W. Ran Clerihue.............................. 35,000(d) *
Edmund J. Kelly.............................. 29,500(d) *
James T. Flynn............................... 19,000(d) *
All executive officers and directors as a
group, 25 persons(a)(b)(c)(d)(e)............ 4,264,230 9.0%
</TABLE>
- --------
* Less than 1%. As of January 15, 1996, there were 47,432,200 shares of FPB
Common Stock outstanding.
(a) Includes shares of FPB Common Stock held as of January 15, 1996, in the
Federal Paper Board Retirement Savings Plan for Salaried Employees
(formerly known as the Savings and Stock Ownership Plan for Salaried
Employees), as follows: for John R. Kennedy, 74,660; for Quentin J.
Kennedy, 68,327; for Robert D. Baldwin, 16,143; for W. Mark Massey, Jr.,
15,171 and for all officers and directors as a group, 329,281. Also
includes shares of FPB Common Stock under Federal Paper Board's 1989 and
1992 Key Employee Stock Option Plans as to which officers have the right
to acquire beneficial ownership through the exercise
52
<PAGE>
of options which are vested or will become vested within 60 days of January
15, 1996, as follows: for John R. Kennedy, 274,000; for Quentin J. Kennedy,
137,000; for Robert D. Baldwin, 48,938; for W. Mark Massey, Jr., 55,000;
and for all officers and directors as a group, 1,255,370.
(b) Includes 96,300 shares of FPB Common Stock held by The John R. Kennedy
Foundation Incorporated, and 18,500 shares of FPB Common Stock held by The
Jack Kennedy Foundation. Mr. John R. Kennedy is President of both
Foundations.
Includes 226,920 shares of FPB Common Stock held equally in three trusts of
which John R. Kennedy is co-trustee with Quentin J. Kennedy. Under one of
such trusts John R. Kennedy is also beneficiary.
Includes 47,912 shares of FPB Common Stock held under the Uniform Gift to
Minors Act. Includes 21,120 shares of FPB Common Stock held in a trust of
which John R. Kennedy is co-trustee.
(c) Includes 194,800 shares of FPB Common Stock held by the Quentin J. Kennedy
Foundation, of which Quentin J. Kennedy is President and Treasurer.
Includes 226,920 shares of FPB Common Stock held equally in three trusts of
which Quentin J. Kennedy is co-trustee with John R. Kennedy. Under one of
such trusts Quentin J. Kennedy is also beneficiary.
(d) Includes shares of FPB Common Stock under Federal Paper Board's 1992 Stock
Option Plan for Non-Employee Directors as to which Messrs. Cassidy,
Clerihue, Flynn, Kelly and Kelsey each have the right to acquire 15,000
shares of FPB Common Stock through the exercise of options which are
vested or will become vested within 60 days of January 15, 1996.
(e) Quentin J. Kennedy, Director, Executive Vice President, Secretary and
Treasurer of Federal Paper Board, and John R. Kennedy, Director and
President of Federal Paper Board, are brothers.
53
<PAGE>
CAPITALIZATION
Set forth below are the unaudited (i) pro forma consolidated capitalization
of International Paper as of September 30, 1995 giving effect to the IP Pro
Forma Events (as hereinafter defined); (ii) consolidated capitalization of
Federal Paper Board as of September 9, 1995; and (iii) pro forma combined
capitalization of International Paper as of September 30, 1995 after giving
effect to the Merger, the FPB Preferred Stock Redemption and the IP Pro Forma
Events. The pro forma information has been prepared assuming for purposes of
these calculations that the Average IP Share Price will be equal to $40.50,
the final sales price on the NYSE Composite Tape on February 2, 1996, and
that, therefore, the Stock Consideration will be equal to 1.358 shares of IP
Common Stock, or an aggregate of 32,912,835 shares of IP Common Stock. This
information should be read in conjunction with the other financial statements,
related notes and other financial information pertaining to International
Paper and Federal Paper Board incorporated herein by reference and
"INTERNATIONAL PAPER AND FEDERAL PAPER BOARD UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION" included elsewhere in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL SEPTEMBER 30, 1995
UNAUDITED UNAUDITED
--------------------------------- -------------------------
SEPT. 30, 1995 SEPT. 9, 1995
------------------- ------------- COMBINED INTERNATIONAL
INTERNATIONAL FEDERAL PAPER AND FEDERAL
PAPER PRO FORMA (a) PAPER BOARD PAPER BOARD PRO FORMA (b)
------------------- ------------- -------------------------
(IN MILLIONS)
<S> <C> <C> <C>
Indebtedness:
Short-term
indebtedness......... $ 2,312 $ 16 $ 2,988
Current maturities of
long-term
indebtedness......... 484 73 557
------- ------ -------
Total short-term
indebtedness....... 2,796 89 3,545
Long-term
indebtedness,
excluding current
maturities........... 5,534 816 7,010
------- ------ -------
Total indebtedness.. 8,330 905 10,555
International Paper
obligated mandatorily
redeemable preferred
securities of Trust
holding solely
International Paper
subordinated
debentures........... 450 -- 450
------- ------ -------
Shareholders' Equity:
Common Stock.......... 263 236 296
Paid-in capital....... 1,957 242 3,332
Retained earnings
less: Common stock
held in treasury, at
cost................. 5,367 578 5,367
------- ------ -------
Total shareholders'
equity............. 7,587 1,056 8,995
------- ------ -------
Total
capitalization..... $16,367 $1,961 $20,000
======= ====== =======
</TABLE>
- --------
(a) Historical amounts for International Paper adjusted to reflect the IP Pro
Forma Events.
(b) Pro forma amounts reflecting consummation of the Merger and the FPB
Preferred Stock Redemption, with historical amounts for International
Paper adjusted to reflect the IP Pro Forma Events.
54
<PAGE>
INTERNATIONAL PAPER AND FEDERAL PAPER BOARD
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The unaudited pro forma condensed combined financial information presented
herein gives effect to the Merger and the FPB Preferred Stock Redemption. The
International Paper statements of earnings for the year ended December 31,
1994 and the nine months ended September 30, 1995 and the balance sheet at
September 30, 1995 are adjusted from historical amounts to reflect
acquisitions in 1995 of interests in the following businesses accounted for
under the purchase method (collectively, the "IP Pro Forma Events"): shares of
stock of Carter Holt Harvey, Ltd.; the assets of Carpenter Paper Company and
Seaman-Patrick Holding Company; the high-pressure laminates business of
Westinghouse; the common stock of Papetries de Lana; and the inks and adhesive
resins business of DSM S.A. ("DSM"). The Unaudited Pro Forma Condensed
Combined Balance Sheet combines the historical balance sheets of International
Paper and Federal Paper Board as if the Merger, the FPB Preferred Stock
Redemption and the IP Pro Forma Events occurred as of September 30, 1995,
after giving effect to purchase accounting and the other adjustments described
in the notes thereto. The Unaudited Pro Forma Condensed Combined Statements of
Earnings for the nine months ended September 30, 1995 and for the year ended
December 31, 1994 assume that the Merger, the FPB Preferred Stock Redemption
and the IP Pro Forma Events occurred on January 1, 1994. Accordingly, the pro
forma financial information for the 1995 period is based upon the historical
financial statements of International Paper, including pro forma adjustments
for previous acquisitions in 1995 (see pages 62 to 65), for the nine months
ended September 30, 1995 and Federal Paper Board for the 36-week period ended
September 9, 1995. The pro forma financial information for 1994 is based upon
the historical financial statements of International Paper and the historical
financial statements of Federal Paper Board for the fiscal year ended December
31, 1994. The pro forma information has been prepared assuming for purposes of
these calculations that the Average IP Share Price will be equal to $40.50,
the final sales price on the NYSE Composite Tape on February 2, 1996, and,
therefore, the Stock Consideration will be equal to 1.358 shares of IP Common
Stock, or an aggregate of 32,912,835 shares of IP Common Stock.
The unaudited pro forma combined financial statements and accompanying notes
reflect the application of the purchase method of accounting. Under this
method of accounting, the purchase price will be allocated to the assets
acquired and liabilities assumed based on their estimated fair values at the
Effective Time. As described in the accompanying notes, estimates of the fair
values of Federal Paper Board and its subsidiaries' assets and liabilities
have been combined with the recorded values of the assets and liabilities of
International Paper and its subsidiaries. However, changes to the adjustments
included in the unaudited pro forma condensed combined financial statements
are expected as evaluations of assets and liabilities are completed and as
additional information becomes available. In addition, the results of
operations of Federal Paper Board subsequent to September 9, 1995 will affect
the allocation of the purchase price. Accordingly, the final pro forma
combined amounts will differ from those set forth in the unaudited pro forma
condensed combined financial statements.
The Unaudited Pro Forma Condensed Combined Statements of Earnings exclude
any non-recurring costs of International Paper acquiring Federal Paper Board.
These amounts cannot be determined until the Merger is completed.
International Paper expects to achieve certain reductions in costs subsequent
to the Merger as a result of the combination and consolidation of the
operations of International Paper and Federal Paper Board. To comply with the
Commission's pro forma reporting rules, the cost reductions reflected in the
accompanying Unaudited Pro Forma Condensed Combined Statements of Earnings
have been limited to specific salary and benefit costs that are expected to be
eliminated after the Merger.
The unaudited pro forma condensed combined financial statements are intended
for informational purposes only and are not necessarily indicative of the
future financial position or future results of operations of the combined
company, or of the financial position or results of operations of the combined
company that would have actually occurred had the Merger, the FPB Preferred
Stock Redemption and the IP Pro Forma Events been in effect as of the date or
for the periods presented. These unaudited pro forma condensed combined
financial statements and the accompanying notes should be read in conjunction
with the consolidated financial statements, including accompanying notes, of
International Paper and Federal Paper Board included in the documents
described under "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." See
"AVAILABLE INFORMATION."
55
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
TO REFLECT THE PROPOSED FEDERAL PAPER BOARD MERGER
NINE MONTHS ENDED SEPTEMBER 30, 1995
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
INTERNATIONAL FEDERAL PAPER
PAPER BOARD PRO FORMA PRO FORMA
(PRO FORMA) (a) (HISTORICAL) ADJUSTMENTS COMBINED
--------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Net Sales............... $15,523 $1,357 $ 24 (b) $16,904
------- ------ ---- -------
Costs and Expenses
Cost of products
sold................. 10,811 879 (56)(c) 11,634
Depreciation and
amortization......... 808 107 14 (d) 929
Distribution
expenses............. 616 -- 65 (e) 681
Selling and
administrative
expenses............. 1,114 63 (16)(f) 1,161
Taxes other than
payroll and income
taxes................ 134 (5) -- 129
------- ------ ---- -------
Total Costs and
Expenses........... 13,483 1,044 7 14,534
------- ------ ---- -------
Earnings Before
Interest, Income Taxes
and Minority Interest.. 2,040 313 17 2,370
Interest expense,
net.................. 424 63 59 (g) 546
------- ------ ---- -------
Earnings Before Income
Taxes and Minority In-
terest................. 1,616 250 (42) 1,824
Provision for income
taxes................ 552 90 (6)(h) 636
Minority interest
expense, net of
taxes................ 156 -- -- 156
------- ------ ---- -------
Earnings................ $ 908 $ 160 $(36) $ 1,032
======= ====== ==== =======
Earnings Per Common
Share.................. $ 3.56 $ 3.58(i)
======= =======
Average Shares of Common
Stock Outstanding...... 255.1 288.0
======= =======
</TABLE>
The accompanying notes are an integral part of these Unaudited Pro Forma
Condensed Combined Financial Statements.
56
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
TO REFLECT THE PROPOSED FEDERAL PAPER BOARD MERGER
YEAR ENDED DECEMBER 31, 1994
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
INTERNATIONAL FEDERAL PAPER
PAPER BOARD PRO FORMA PRO FORMA
(PRO FORMA) (a) (HISTORICAL) ADJUSTMENTS COMBINED
--------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Net Sales............... $16,901 $1,570 $ 25 (b) $18,496
------- ------ ----- -------
Costs and Expenses
Cost of products
sold................. 12,256 1,144 (44)(c) 13,356
Depreciation and
amortization......... 985 147 16 (d) 1,148
Distribution
expenses............. 762 -- 80 (e) 842
Selling and
administrative
expenses............. 1,436 74 (18)(f) 1,492
Taxes other than
payroll and income
taxes................ 155 16 -- 171
------- ------ ----- -------
Total Costs and
Expenses........... 15,594 1,381 34 17,009
------- ------ ----- -------
Earnings Before
Interest, Income Taxes,
Minority Interest and
Cumulative Effect of
Accounting Change...... 1,307 189 (9) 1,487
Interest expense,
net.................. 492 88 78 (g) 658
------- ------ ----- -------
Earnings Before Income
Taxes, Minority
Interest and Cumulative
Effect of Accounting
Change................. 815 101 (87) 829
Provision for income
taxes................ 247 29 (20)(h) 256
Minority interest ex-
pense, net of taxes.. 134 -- -- 134
------- ------ ----- -------
Earnings Before
Cumulative Effect of
Accounting Change...... $ 434 $ 72 $ (67) $ 439
======= ====== ===== =======
Earnings Per Common
Share Before Cumulative
Effect of Accounting
Change................. $ 1.73 $ 1.55(i)
======= =======
Average Shares of Common
Stock Outstanding...... 250.7 283.6
======= =======
</TABLE>
The accompanying notes are an integral part of these Unaudited Pro Forma
Condensed Combined Financial Statements.
57
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
TO REFLECT THE PROPOSED FEDERAL PAPER BOARD MERGER
SEPTEMBER 30, 1995
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
INTERNATIONAL FEDERAL PAPER
PAPER BOARD PRO FORMA PRO FORMA
(PRO FORMA) (a) (HISTORICAL) ADJUSTMENTS COMBINED
--------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and temporary
investments............ $ 372 $ -- $ -- $ 372
Accounts and notes
receivable, net........ 2,741 123 (4)(j) 2,860
Inventories............. 2,772 278 6 (k) 3,056
Other current assets.... 233 36 -- 269
------- ------ ------ -------
Total Current Assets.. 6,118 437 2 6,557
------- ------ ------ -------
Plants, Properties and
Equipment, Net........... 10,611 1,902 342 (l) 12,855
Forestlands............... 2,816 188 332 (l) 3,336
Investments............... 1,562 19 -- 1,581
Goodwill.................. 1,282 110 1,347 (m) 2,739
Deferred Charges and Other
Assets................... 1,373 29 (4)(n) 1,398
------- ------ ------ -------
Total Assets.......... $23,762 $2,685 $2,019 $28,466
======= ====== ====== =======
LIABILITIES AND COMMON
SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable and
current maturities of
long-term debt......... $ 2,796 $ 89 $ 660 (o) $ 3,545
Accounts payable and
accrued liabilities.... 2,575 248 59 (p) 2,882
------- ------ ------ -------
Total Current Liabili-
ties..................... 5,371 337 719 6,427
------- ------ ------ -------
Long-Term Debt............ 5,534 816 660 (o) 7,010
Deferred Income Taxes..... 1,953 394 172 (q) 2,519
Other Liabilities......... 891 82 116 (r) 1,089
Minority Interest......... 1,976 -- -- 1,976
International Paper
obligated mandatorily
redeemable preferred
securities of Trust
holding solely
International Paper
subordinated debentures.. 450 -- -- 450
Shareholders' Equity
Common Stock............ 263 236 (203)(s) 296
Paid-in capital......... 1,957 242 1,133 (s) 3,332
Retained earnings....... 5,430 580 (580)(s) 5,430
------- ------ ------ -------
7,650 1,058 350 9,058
Less: Common stock held
in treasury, at cost... 63 2 (2)(s) 63
------- ------ ------ -------
Total Shareholders' Equi-
ty....................... 7,587 1,056 352 8,995
------- ------ ------ -------
Total Liabilities and
Shareholders' Equity..... $23,762 $2,685 $2,019 $28,466
======= ====== ====== =======
</TABLE>
The accompanying notes are an integral part of these Unaudited Pro Forma
Condensed Combined Financial Statements.
58
<PAGE>
INTERNATIONAL PAPER COMPANY AND FEDERAL PAPER BOARD
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The Unaudited Pro Forma Condensed Combined Statements of Earnings have been
prepared as if the Merger, the FPB Preferred Stock Redemption and the IP Pro
Forma Events occurred on January 1, 1994. The Unaudited Pro Forma Condensed
Combined Balance Sheet has been prepared as if the Merger, the FPB Preferred
Stock Redemption and the IP Pro Forma Events occurred on September 30, 1995.
The Merger has been accounted for under the purchase method of accounting. The
excess of the purchase price over the fair value of the net assets acquired is
being amortized on a straight-line basis over a 40 year period.
A preliminary allocation of the purchase price is summarized as follows (in
millions):
<TABLE>
<S> <C>
PURCHASE PRICE OF ACQUISITION
Cash consideration (including transaction expenses)................ $1,316
Value of IP Common Stock exchanged for 51% of FPB Common Stock
outstanding....................................................... 1,333
Value of options on IP Common Stock exchanged for all outstanding
options on FPB Common Stock....................................... 75
------
$2,724
======
ALLOCATION OF PURCHASE PRICE
Net assets of Federal Paper Board at September 30, 1995............ $1,056
Increase (decrease) to Federal Paper Board net asset value at
September 30, 1995 as a result of estimated fair value
adjustments:
Plants, Properties and Equipment, net............................ 342
Forestlands...................................................... 332
Accrued liabilities.............................................. (63)
Other liabilities................................................ (116)
Deferred income taxes............................................ (172)
Other, net....................................................... (2)
Excess of the purchase price over the fair value of the net assets
acquired.......................................................... 1,347
------
Total purchase price........................................... $2,724
======
</TABLE>
The following is a summary of reclassifications and adjustments reflected in
the Unaudited Pro Forma Condensed Combined Statements of Earnings:
(a) The International Paper Unaudited Pro Forma Condensed Combined
Financial Statements reflect the IP Pro Forma Events. See pages 62 to
65.
(b) Represents the elimination of sales from Federal Paper Board to
International Paper and reclassification of distribution expenses from
net sales to distribution expenses to conform to International Paper's
financial reporting presentation. The pro forma adjustments to sales
are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 DECEMBER 31, 1994
------------------ -----------------
<S> <C> <C>
Elimination of sales................ $(41) $(55)
Reclassification of distribution
expenses........................... 65 80
---- ----
$ 24 $ 25
==== ====
</TABLE>
(c) Represents reversal of the increase in the LIFO reserve recorded by
Federal Paper Board in each period, and, as a result of recording the
excess of the pension benefit obligation over plan assets for the
defined benefits pension plans and the excess accumulated
postretirement benefit obligation over
59
<PAGE>
plan assets, the amortization of deferred losses and the transition
obligation are being reversed from the periodic pension cost and
postretirement benefit cost, respectively. Also includes elimination of
cost of sales related to sales from Federal Paper Board to International
Paper and the reversal of start-up costs previously capitalized to
attain consistent accounting of such costs with International Paper. The
pro forma adjustments to cost of products sold are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 DECEMBER 31, 1994
------------------ -----------------
<S> <C> <C>
Reversal of increase in the LIFO
reserve............................. $ (8) $ (3)
Reversal of amortization of deferred
pension losses ..................... (6) 13
Reversal of amortization of
transition obligation for the post-
retirement benefit plan............. (1) (1)
Elimination of cost of sales from
Federal Paper Board to International
Paper............................... (41) (55)
Reversal of start-up costs previously
capitalized......................... -- 2
---- ----
$(56) $(44)
==== ====
</TABLE>
(d) Represents depreciation expense as a result of (i) the step-up of
Federal Paper Board's plants, properties and equipment; (ii) the
utilization of International Paper's policy on useful lives of such
assets; and (iii) amortization of excess cost over net assets acquired
over 40 years. Such amounts also reflect the reversal of amortization
expense of start-up costs that were capitalized by Federal Paper Board
and the reversal of goodwill amortization that was recorded by Federal
Paper Board on previous acquisitions. The pro forma adjustments to
depreciation and amortization are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 DECEMBER 31, 1994
------------------ -----------------
<S> <C> <C>
Reduction of depreciation expense .. $(5) $(10)
Amortization of excess cost over net
assets acquired.................... 25 34
Reversal of amortization of start-up
costs.............................. (4) (5)
Reversal of Federal Paper Board
goodwill amortization.............. (2) (3)
--- ----
$14 $ 16
=== ====
</TABLE>
(e) Represents reclassification of distribution expense from net sales to
distribution expense to conform to International Paper's financial
reporting presentation.
(f) Represents the planned reduction of salaries and benefits as a result
of eliminating duplicative office functions.
(g) Represents acquisition interest expense based upon the private
placement of commercial paper at an assumed interest rate of 5.51% and
long-term debt at an assumed interest rate of 6.31%. Also included is
the amortization of debt issuance costs which were incurred to finance
the Merger. The pro forma adjustments to interest expense, net are as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 DECEMBER 31, 1994
------------------ -----------------
<S> <C> <C>
Interest expense..................... $58 $77
Amortization of debt issuance cost... 1 1
--- ---
$59 $78
=== ===
</TABLE>
(h) Represents the tax effect of the Unaudited Pro Forma Condensed Combined
Statements of Earnings adjustments, excluding goodwill amortization,
based upon the statutory tax rate.
(i) Pro forma combined earnings per share amounts, as presented in the
accompanying Unaudited Pro Forma Condensed Combined Statements of
Earnings, are based on the weighted average number of shares of
International Paper outstanding for each period presented.
60
<PAGE>
The following is a summary of reclassifications and adjustments reflected in
the Unaudited Pro Forma Condensed Combined Balance Sheet:
(j) Represents the elimination of receivables between Federal Paper Board
and International Paper.
(k) Represents the step-up of inventory to fair value by $13 million and to
expense Federal Paper Board's by-product inventory of $7 million to
conform with International Paper's financial reporting presentation.
(l) Represents the preliminary adjustments of assets to fair value.
(m) Represents the preliminary estimate of excess purchase price over the
fair value of Federal Paper Board net assets acquired. The estimated
purchase price (estimated at $2,724 million) includes acquisition
related expenses and the value of options on IP Common Stock exchanged
for all outstanding options on FPB Common Stock.
(n) Represents capitalized debt issuance costs of $4 million and related
expenses to finance the purchase of 49% of Federal Paper Board shares
in cash offset by the reversal of deferred start up costs of $8 million
to attain consistent accounting of such costs with International Paper.
(o) Represents the issuance of current and long-term debt to finance the
transaction. Management of International Paper has assumed that the
acquisition will be financed with both privately placed commercial
paper (50%) and long-term debt (50%).
(p) Represents accrual of estimated severance related expenses of $63
million resulting from the Merger and elimination of payables between
International Paper and Federal Paper Board of $4 million.
(q) Represents the net tax effect of the pro forma adjustments.
(r) Represents the recording of the excess of the pension benefit
obligation over plan assets for the defined pension plans of $21
million and the accumulated benefit obligation over plan assets of $20
million for the postretirement benefit plan as well as the accrual of
additional costs of $75 million related to the Merger.
(s) Represents the elimination of Federal Paper Board's historical equity,
issuance of shares by International Paper to acquire 51% of the
outstanding shares of Federal Paper Board at the conversion rate of
1.358 International Paper shares for each share of Federal Paper Board
and the cost of exchanging outstanding options on shares of Federal
Paper Board stock for options of International Paper stock based upon
2,457,655 Federal Paper Board stock options outstanding at September
30, 1995 at an average exercise price of $24.53 per share. The
revaluation reflects the exchange of 1.358 International Paper options
for each Federal Paper Board option and a corresponding reduction in
the average exercise price at the conversion rate of $18.06 compared to
an assumed International Paper common stock price of $40.50 per share.
The pro forma adjustments to shareholders' equity are summarized as
follows:
<TABLE>
<CAPTION>
COMMON PAID IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK
------ ------- -------- --------
<S> <C> <C> <C> <C>
Reversal of Federal Paper Board's equi-
ty...................................... $(236) $ (242) $(580) $(2)
Issuance of IP Common Stock for 51% of
FPB Common Stock outstanding............ 33 1,300 -- --
Value of options on IP Common Stock
exchanged for all outstanding options on
FPB Common Stock........................ -- 75 -- --
----- ------ ----- ----
$(203) $1,133 $(580) $(2)
===== ====== ===== ====
</TABLE>
61
<PAGE>
INTERNATIONAL PAPER COMPANY AND ACQUISITIONS
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF
EARNINGS TO REFLECT IP PRO FORMA EVENTS
The following unaudited pro forma condensed combined statements of earnings
for the nine months ended September 30, 1995 and the year ended December 31,
1994, and the related pro forma adjustments described in the accompanying
footnotes, present the combined results of the continuing operations of
International Paper, Carter Holt Harvey, Ltd., Carpenter Paper Company;
Seaman-Patrick Holding Company, the high-pressure laminates business of
Westinghouse, Papetries de Lana, and the inks and adhesive resins business of
DSM, collectively referred to herein as the "IP Pro Forma Events."
The acquisition of 26.5% of Carter Holt Harvey, Ltd. ("CHH") common stock
was completed on April 20, 1995, thereby increasing International Paper's
total ownership in CHH to 50.3% (50.2% on a fully diluted basis). CHH was
accounted for under the equity method in International Paper's historical
financial statements until May 1, 1995, at which time International Paper
began consolidating CHH's financial statements. CHH is consolidated for all
periods in the accompanying pro forma statements of earnings.
The assets of Carpenter Paper Company and Seaman-Patrick Holding Company
were acquired on January 31, 1995 in exchange for shares of IP Common Stock.
The common stock of Papetries de Lana was acquired on July 6, 1995. The high-
pressure laminates business was acquired from Westinghouse on September 1,
1995. The acquisition of DSM was completed during October 1995.
The unaudited pro forma condensed combined statements of earnings are
prepared as if the transactions occurred as of the beginning of the period.
The pro forma adjustments are based on available information, estimated
purchase price allocations and certain assumptions that International Paper
believes are reasonable. There can be no assurance that the assumptions and
estimates will be realized. The unaudited pro forma condensed combined
statements of earnings do not purport to represent International Paper's
actual results of operations if the transactions described above would have
occurred at the beginning of the respective periods. In addition, they may not
be indicative of future results. An unaudited pro forma condensed combined
balance sheet as of September 30, 1995 is not included in this document
because International Paper's historical consolidated balance sheet as of
September 30, 1995 (incorporated by reference in this Proxy
Statement/Prospectus) includes the consolidation of the assets and liabilities
of acquired businesses except for the inks and resin business of DSM which was
not significant.
The unaudited pro forma condensed combined statements of earnings should be
read in conjunction with International Paper's historical financial statements
and related notes thereto included in the documents described under
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
62
<PAGE>
INTERNATIONAL PAPER COMPANY AND ACQUISITIONS
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF EARNINGS TO REFLECT IP PRO FORMA EVENTS
NINE MONTHS ENDED SEPTEMBER 30, 1995
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
INTERNATIONAL ACQUIRED INTERNATIONAL
PAPER BUSINESSES PRO FORMA PAPER
(HISTORICAL) (HISTORICAL) ADJUSTMENTS(a) (PRO FORMA)
------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
Net Sales............... $14,721 $802 $ -- $15,523
------- ---- ----- -------
Costs and Expenses
Cost of products
sold................. 10,322 470 19 (b) 10,811
Depreciation and amor-
tization............. 764 38 6 (c) 808
Distribution ex-
penses............... 589 28 (1)(d) 616
Selling and adminis-
trative expenses..... 992 122 -- 1,114
Taxes other than
payroll and income
taxes................ 132 2 -- 134
------- ---- ----- -------
Total Costs and Ex-
penses............. 12,799 660 24 13,483
------- ---- ----- -------
Earnings Before
Interest, Income Taxes
and Minority Interest.. 1,922 142 (24) 2,040
Interest expense,
net.................. 371 22 31 (f) 424
------- ---- ----- -------
Earnings Before Income
Taxes and Minority
Interest............... 1,551 120 (55) 1,616
Provision for income
taxes................ 551 22 (21)(g) 552
Minority interest ex-
pense, net of taxes.. 110 -- 46 (h) 156
------- ---- ----- -------
Earnings................ $ 890 $ 98 $ (80) $ 908
======= ==== ===== =======
Earnings Per Common
Share.................. $ 3.49 $-- $ -- $ 3.56
======= ==== ===== =======
Average Shares of Common
Stock Outstanding...... 255.1 -- -- 255.1
======= ==== ===== =======
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma
Statements of Earnings.
63
<PAGE>
INTERNATIONAL PAPER COMPANY AND ACQUISITIONS
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF EARNINGS TO REFLECT IP PRO FORMA EVENTS
YEAR ENDED DECEMBER 31, 1994
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
INTERNATIONAL ACQUIRED INTERNATIONAL
PAPER BUSINESSES PRO FORMA PAPER
(HISTORICAL) (HISTORICAL) ADJUSTMENTS (a) (PRO FORMA)
------------- ------------ --------------- -------------
<S> <C> <C> <C> <C>
Net Sales............... $14,966 $1,935 $ -- $16,901
------- ------ ----- -------
Costs and Expenses
Cost of products
sold................. 11,092 1,120 44 (b) 12,256
Depreciation and
amortization......... 885 90 10 (c) 985
Distribution
expenses............. 692 71 (1)(d) 762
Selling and
administrative
expenses............. 1,082 356 (2)(e) 1,436
Taxes other than
payroll and income
taxes................ 151 4 -- 155
------- ------ ----- -------
Total Costs and
Expenses........... 13,902 1,641 51 15,594
------- ------ ----- -------
Earnings Before
Interest, Income Taxes,
Minority Interest and
Cumulative Effect of
Accounting Change...... 1,064 294 (51) 1,307
Interest expense,
net.................. 349 56 87 (f) 492
------- ------ ----- -------
Earnings Before Income
Taxes, Minority
Interest and Cumulative
Effect of Accounting
Change................. 715 238 (138) 815
Provision for income
taxes................ 236 65 (54)(g) 247
Minority interest
expense, net of
taxes................ 47 2 85 (h) 134
------- ------ ----- -------
Earnings Before
Cumulative Effect of
Accounting Change...... $ 432 $ 171 $(169) $ 434
======= ====== ===== =======
Earnings Per Common
Share
Earnings before
cumulative effect of
accounting change.... $ 1.73 $ -- $ -- $ 1.73
======= ====== ===== =======
Average Shares of Common
Stock Outstanding...... 249.7 -- 1.0 (i) 250.7
======= ====== ===== =======
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma
Statements of Earnings.
64
<PAGE>
INTERNATIONAL PAPER COMPANY AND ACQUISITIONS
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF EARNINGS
TO REFLECT IP PRO FORMA EVENTS
(a) The unaudited pro forma condensed combined statements of earnings adjust
the historical International Paper amounts to reflect acquisitions in 1995 of
interests in the following businesses accounted for under the purchase method
(collectively, the "IP Pro Forma Events"): shares of stock of Carter Holt
Harvey, Ltd.; the assets of Carpenter Paper Company and Seaman-Patrick Holding
Company; the high-pressure laminates business of Westinghouse; the common
stock of Papetries de Lana; and the inks and adhesive resins business of DSM.
(b) The elimination of earnings for acquired businesses previously accounted
for under the equity method.
(c) The pro forma adjustments include the increase in depreciation and
goodwill amortization expense resulting from the purchase adjustments related
to the acquired businesses. Depreciation expense is computed under the
straight-line method over lives ranging from 6 to 40 years. Goodwill is
amortized over 40 years. The pro forma adjustments to depreciation and
amortization are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
Increase in depreciation expense................ $3 $ 7
Amortization of excess cost over net assets ac-
quired......................................... 5 8
Reversal of goodwill amortization............... (2) (5)
--- ---
$6 $10
=== ===
</TABLE>
(d) The planned reduction in salaries, benefits and facility costs resulting
from the closure of duplicate distribution facilities of an acquired business.
(e) The planned reduction in selling and administrative expenses resulting
from the restructuring of certain acquired businesses.
(f) Interest expense on acquisition related debt.
(g) Deferred taxes on the pro forma adjustments.
(h) The minority interest in the acquired businesses.
(i) Additional shares issued in conjunction with the acquired businesses.
65
<PAGE>
DESCRIPTION OF INTERNATIONAL PAPER CAPITAL STOCK
The statements set forth under this heading with respect to certain
provisions of the New York Business Corporation Law (the "NYBCL"), the
Restated Certificate of Incorporation of International Paper (the "IP
Charter"), the by-laws of International Paper (the "IP By-laws") and the
Rights Agreement (as defined below) are brief summaries thereof and do no
purport to be complete and are qualified in their entirety by reference to the
relevant provisions of the NYBCL, the IP Charter, the IP By-laws and the
Rights Agreement, as appropriate.
The authorized capital stock of International Paper consists of (i)
400,000,000 shares of IP Common Stock; (ii) 400,000 shares of cumulative $4.00
preferred stock, without par value (the "IP $4.00 Preferred Stock"); and (iii)
8,750,000 shares of serial preferred stock, $1.00 par value per share (the "IP
Serial Preferred Stock" and, together with the IP $4.00 Preferred Stock, the
"IP Preferred Stock").
At October 31, 1995, there were outstanding (a) 260,758,197 shares of IP
Common Stock (as well as the same number of International Paper Common Share
Purchase Rights (the "Rights") to purchase IP Common Stock pursuant to the
Rights Agreement dated as of April 17, 1987 (the "Rights Agreement"), as
amended, between International Paper and Chemical Bank (successor to
Manufacturers Hanover Trust Company, as Rights Agent)), (b) employee stock
options to purchase an aggregate of approximately 8,679,116 shares of IP
Common Stock and (c) 15,780 shares of IP $4.00 Preferred Stock. In addition,
approximately 9,000,000 shares of IP Common Stock were reserved for issuance
upon the conversion of the 5 1/4% Convertible Preferred Securities issued by
International Paper Capital Trust.
IP COMMON STOCK
Subject to the rights of the holders of any shares of IP Preferred Stock
which may at the time be outstanding, holders of IP Common Stock are entitled
to receive such dividends as may be declared from time to time by the IP Board
out of funds legally available therefor. Dividends on the IP Common Stock are,
in effect, limited by the terms of the IP $4.00 Preferred Stock to the amount
of International Paper's retained earnings, which at September 30, 1995 were
$5.4 billion. In addition, under the IP Charter no dividends may be declared,
paid, or set aside for payment on the IP Common Stock unless full cumulative
dividends are paid on the issued and outstanding IP Preferred Stock.
The holders of IP Common Stock are entitled to one vote per share on all
matters submitted to a vote of shareholders and do not have cumulative voting
rights. Under certain circumstances involving a failure by International Paper
to pay dividends on the IP $4.00 Preferred Stock, holders of IP $4.00
Preferred Stock will have the right to elect one-third (or the nearest whole
number thereto) of the total number of directors to be elected at the next
annual meeting of shareholders and at each subsequent annual meeting until all
such dividends have been paid in full.
Holders of IP Common Stock are entitled to share pro rata, upon any
liquidation or dissolution of International Paper, in all remaining assets
available for distribution to shareholders after satisfaction of International
Paper's liabilities and payment to the holders of the IP $4.00 Preferred Stock
of $100 per share upon involuntary liquidation and $105 per share upon
voluntary liquidation. The outstanding shares of IP Common Stock are, and any
shares which may be acquired upon conversion of the 5 1/4% Convertible
Preferred Securities issued by International Paper Capital Trust will be,
fully paid and nonassessable. The holders of IP Common Stock have no
preferential, preemptive, conversion or redemption rights. The IP Common Stock
is listed on the NYSE. The registrar and transfer agent for the IP Common
Stock is Chemical Mellon Shareholder Services L.L.C.
IP PREFERRED STOCK
The following summary contains a description of certain general terms of the
IP Preferred Stock. The description of certain provisions of the IP Preferred
Stock does not purport to be complete and is subject to and
66
<PAGE>
qualified in its entirety by reference to the applicable provisions of the IP
Charter relating to each particular series of IP Preferred Stock.
IP Serial Preferred Stock. Under the IP Charter, the Board of Directors of
International Paper (the "IP Board") is authorized, without further
shareholder action, to provide for the issuance of up to 8,750,000 shares of
IP Serial Preferred Stock. The IP Serial Preferred Stock may be issued in one
or more series, with such designations of titles, dividend rates, any
redemption provisions, special or relative rights in the event of liquidation,
dissolution, distribution or winding up of International Paper, any sinking
fund provisions, any conversion provisions, any voting rights thereof, and any
other preferences, privileges, powers, rights, qualifications, limitations and
restrictions as shall be set forth as and when established by the IP Board.
The shares of any series of IP Serial Preferred Stock will be, when issued,
fully paid and nonassessable and holders thereof will have no preemptive
rights in connection therewith.
IP $4.00 Preferred Stock. The IP Charter authorizes the issuance of up to
400,000 shares of IP $4.00 Preferred Stock without par value. Pursuant to the
applicable provisions of the IP Charter, the holders of the IP $4.00 Preferred
Stock are entitled to receive when, as and if declared by the IP Board, out of
funds legally available for payment, cash dividends at the rate per annum of
$4.00 per share. Dividends are cumulative without interest. If dividends in
full on all outstanding shares of the IP $4.00 Preferred Stock for all past
quarterly dividend periods and the then current quarterly dividend period
shall not have been paid, no cash dividends may be paid or distributions made
to the holders of any class of stock ranking junior to the IP $4.00 Preferred
Stock.
Except as expressly provided by law or in the IP Charter, the holders of
shares of IP $4.00 Preferred Stock have no voting rights. If dividends payable
on the IP $4.00 Preferred Stock are in arrears in an amount equal to four full
quarterly dividends, the holders of the IP $4.00 Preferred Stock will have the
right to elect one-third (or the nearest whole number thereto) of the total
number of directors to be elected at the next annual meeting of shareholders
and at each subsequent annual meeting until all such dividends have been paid
in full. International Paper must obtain the approval of holders of two-thirds
of the shares of the IP $4.00 Preferred Stock in order to (i) authorize,
create or issue stock of any class ranking prior to the IP $4.00 Preferred
Stock or (ii) amend (x) the certificate of authorization of new shares
relating to the IP $4.00 Preferred Stock or (y) any provisions of the IP
Charter in a manner materially prejudicial to such holders. International
Paper must obtain the affirmative vote of holders of a majority of the shares
of the IP $4.00 Preferred Stock in order to (i) increase the number of
authorized shares of IP $4.00 Preferred Stock; (ii) authorize, create or issue
stock of any class ranking on a parity with the IP $4.00 Preferred Stock; or
(iii) sell, lease or dispose of all or substantially all of the assets of
International Paper (otherwise than by merger of consolidation).
In the event of a merger or consolidation of International Paper in which
the holders of the IP $4.00 Preferred Stock do not have appraisal rights under
the NYBCL, such holders are entitled to receive $105.00 per share of IP $4.00
Preferred Stock, unless by the terms of the merger or consolidation such
holders are entitled to shares or securities which have the relative ranking,
rights and preferences of the IP $4.00 Preferred Stock prior to such merger or
consolidation. Under certain circumstances relating to aggregate net earnings
of International Paper, approval of holders of a majority of the IP $4.00
Preferred Stock may be required to purchase or redeem or pay cash dividends in
respect of stock which is junior to the IP $4.00 Preferred Stock, including IP
Common Stock.
Shares of IP $4.00 Preferred Stock may be redeemed at the option of
International Paper, in whole or in part, at any time or from time to time,
out of funds legally available therefor, at $105.00 plus an amount equal to
accrued and unpaid dividends, if any, to the redemption date, whether or not
earned or declared.
Holders of shares of IP $4.00 Preferred Stock are entitled to a liquidation
preference of (i) $105.00, in the event of a voluntary liquidation,
dissolution or winding up or (ii) $100.00, if such liquidation, dissolution or
winding up is involuntary, plus in each case any amount equal to all dividends
accrued and unpaid up to and including the date fixed for distribution,
whether or not earned or declared.
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CERTAIN RESTRICTIONS ON TAKEOVERS
General. Certain provisions of the NYBCL, the IP Charter and the IP By-laws,
as well as the Rights Agreement, may be deemed to have an anti-takeover
effect. Such provisions are designed to protect shareholders of International
Paper against coercive, unfair or inadequate tender offers and other abusive
tactics and to encourage any person contemplating a business combination with
International Paper to negotiate with the IP Board for the fair and equitable
treatment of all shareholders.
Charter Provisions. The IP Charter contains provisions which require the
affirmative vote of (a) 80% of the outstanding shares of voting stock and (b)
a majority of the voting stock not owned by an Interested Shareholder (an
owner of 10% or more of voting power) to approve any Business Combination (as
such term is defined in the IP Charter) with an Interested Shareholder unless
(x) the Business Combination shall have been approved by the IP Board at a
time when Disinterested Directors (those directors unaffiliated with an
Interested Shareholder who were either on the IP Board prior to the time the
Interested Shareholder became an Interested Shareholder or succeeded a
Disinterested Director and were recommended for a nomination or election by a
majority of the Disinterested Directors) constitute a majority of the entire
Board of Directors of International Paper or (y) in the case of a Business
Combination involving the payment of consideration to holders of capital
stock, certain conditions concerning the adequacy of the consideration are
met. In addition, the IP Charter contains provisions which (1) divide the IP
Board into three classes of as nearly equal size as possible, with directors
in each class being elected for terms of three years and (2) require the
affirmative vote of 80% of the outstanding shares of voting stock to remove
any Director except for cause. For a more detailed discussion on certain
provisions of the IP Charter and the IP By-laws relating to directors, see
"COMPARISON OF SHAREHOLDER RIGHTS--Directors".
New York Law. Under the NYBCL, the affirmative vote of the holders of two-
thirds of all outstanding shares of stock of a New York corporation entitled
to vote thereon is required to approve mergers and consolidations, and for
sales, leases, exchanges or other dispositions of all or substantially all the
assets of a corporation, if not made in the usual or regular course of the
business actually conducted by such corporation.
In addition, Section 912 of the NYBCL (the "New York Business Combination
Law") prohibits any business combination (defined to include a variety of
transactions, including mergers, consolidations, sales or dispositions of
assets, issuances of stock, liquidations, reclassifications and the receipt of
certain benefits from the corporation, including loans or guarantees) with,
involving or proposed by any interested shareholder (defined generally as any
person who (i) directly or indirectly, beneficially owns 20% or more of the
outstanding voting stock of a resident domestic New York corporation or (ii)
is an affiliate or associate of such resident domestic corporation and at any
time within the past five years was a beneficial owner of 20% or more of such
stock) for a period of five years after the date on which the interested
shareholder became such. After such five-year period, a business combination
between a resident domestic New York corporation and such interested
shareholder is prohibited unless either certain "fair price" provisions are
complied with or the business combination is approved by a majority of the
outstanding voting stock not beneficially owned by such interested shareholder
or its affiliates or associates. The New York Business Combination Law exempts
from its prohibitions any business combination with an interested shareholder
if such business combination, or the purchase of stock by the interested
shareholder that caused such shareholder to become such, is approved by the
board of directors of the resident domestic New York corporation prior to the
date on which the interested shareholder becomes such. Provided that at least
ten percent of the voting stock of International Paper is owned beneficially
by residents of (or organizations having their principal offices in) the State
of New York, International Paper is a resident New York corporation. The New
York Business Combination Law also excludes resident domestic corporations
having no class of stock registered with the Commission, unless the
certificate of incorporation provides otherwise.
A resident domestic New York corporation may adopt an amendment to its by-
laws, approved by the affirmative vote of the holders, other than interested
shareholders and affiliates and associates, of a majority of the outstanding
voting stock, excluding the voting stock of interested shareholders and their
affiliates and
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associates, expressly electing not to be governed by the New York Business
Combination Law. However, such amendment will not be effective until 18 months
after such shareholder vote and will not apply to any business combination
with an interested shareholder who was such on or prior to the effective date
of such amendment. International Paper has not amended the IP By-laws to elect
not to be governed by the New York Business Combination Law.
Rights Agreement. Pursuant to the Rights Agreement, certificates for IP
Common Stock also represent a like number of Rights to purchase IP Common
Stock issued thereunder and each share of IP Common Stock offered hereby will
be accompanied by one Right. The following description of the Rights is
qualified in its entirety by reference to such Rights Agreement, which is an
exhibit to International Paper's registration statement on Form 8-A, dated
April 17, 1987, as amended, incorporated by reference herein. Capitalized
terms used herein and not otherwise defined shall have the meaning assigned
thereto in the Rights Agreement.
Except as provided below, each Right entitles the registered holder to
purchase from International Paper one share of IP Common Stock at an exercise
price of $77.50, subject to adjustment as provided below (the "Purchase
Price"). The Rights will be evidenced by the IP Common Stock certificates
until the earlier of (i) the tenth day after the commencement of, or first
public disclosure of an intention to commence, a tender or exchange offer by a
person or group other than International Paper if, upon consummation of the
offer, such person or group has acquired beneficial ownership of 20% or more
of the outstanding IP Common Stock, or (ii) the tenth day after the first
public announcement that an Acquiring Person has acquired the beneficial
ownership of 20% or more of the shares of IP Common Stock (the earlier of such
dates being called the "Distribution Date"). The Rights will be transferable
with and only with the shares of IP Common Stock until the Distribution Date.
As soon as practicable following the Distribution Date, separate Right
Certificates will be mailed to holders of record of shares of IP Common Stock
as of the close of business on the Distribution Date, and such separate Right
Certificates alone will thereafter evidence the Rights.
The Rights are not exercisable until the Distribution Date and will expire
on April 29, 1997 (the "Final Expiration Date"), unless earlier redeemed by
International Paper as provided below. Until a Right is exercised, the holder
thereof will have no additional rights as a shareholder of International
Paper, including, without limitation, the right to vote or to receive
dividends on shares of IP Common Stock subject to the Rights.
In the event that, following the Distribution Date, International Paper (i)
engages in a merger or other business combination transaction with a Principal
Party in which the shares of IP Common Stock are changed into, or exchanged
for, stock or other securities of any other person or cash or other property,
or (ii) sells or transfers 50% or more of its assets or earnings power to a
Principal Party, each holder of a Right (except as provided below) shall
thereafter have the right to receive, upon exercise thereof at the Purchase
Price, common stock of such Principal Party having a value of twice such
Purchase Price. In the event that (i) an Acquiring Person shall acquire
beneficial ownership of 30% or more of the shares of IP Common Stock
outstanding, other than pursuant to an offer for all outstanding shares of IP
Common Stock which the Continuing Directors, as defined below, determine to be
in the best interests of International Paper and its shareholders, (ii)
International Paper merges with an Acquiring Person and International Paper is
the surviving corporation and all shares of IP Common Stock remain outstanding
and unchanged or (iii) an Acquiring Person engages in one or more "self-
dealing" transactions with International Paper, each holder of a Right will be
entitled to purchase, at the Purchase Price, (A) shares of IP Common Stock
having a value of twice the Purchase Price or (B) in certain circumstances as
determined by the Continuing Directors, any combination of cash, property,
shares of IP Common Stock or other securities equal to twice the Purchase
Price (any of the events described in this paragraph being called "Triggering
Events"). Any Rights that are or were at any time on or after the earlier of
the Distribution Date or the Stock Acquisition Date beneficially owned by an
Acquiring Person will become null and void upon the occurrence of a Triggering
Event, and any holder of any such Right will be unable to exercise such Right
after the occurrence of a Triggering Event.
At any time prior to the earlier of (i) the tenth day following the Stock
Acquisition Date or (ii) the Final Expiration Date, the IP Board may redeem
the Rights in whole, but not in part, at a price of $.025 per Right.
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The Purchase Price payable, and the number of shares of IP Common Stock or
other securities or property issuable, upon exercise of the Rights are subject
to adjustment from time to time to prevent dilution (i) in the event of a
stock dividend on, or a subdivision, combination or reclassification of, the
IP Common Stock; (ii) upon the grant to holders of IP Common Stock of certain
rights or warrants to subscribe for shares of IP Common Stock or convertible
securities at less than the current market price of the IP Common Stock; or
(iii) upon the distribution to holders of IP Common Stock of evidences of
indebtedness, securities, cash or assets (excluding regular periodic
dividends) or of subscription rights or warrants (other than those referred to
above). With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
the Purchase Price.
The term "Continuing Director" is defined in the Rights Agreement as any
member of the IP Board who was a member of the IP Board prior to the Stock
Acquisition Date, and any successor of a Continuing Director who is
recommended, or elected to succeed such Continuing Director by a majority of
the Continuing Directors but shall not include an Acquiring Person or a
representative or nominee of an Acquiring Person.
The Rights have certain anti-takeover effects. The Rights may cause
substantial dilution to a person or group that attempts to acquire
International Paper on terms not approved by the IP Board. The Rights should
not interfere with any merger or other business combination approved by the IP
Board since the Rights may be redeemed by International Paper prior to the
time that a person or group has acquired beneficial ownership of 20% or more
of the outstanding Common Stock.
COMPARISON OF SHAREHOLDER RIGHTS
The statements set forth under this heading with respect to certain
provisions of the NYBCL, the IP Charter, the IP By-laws, the Rights Agreement,
the NCBCA and the Articles of Incorporation (the "FPB Articles") and by-laws
(the "FPB By-laws") of Federal Paper Board, are brief summaries thereof and do
not purport to be complete and are qualified in their entirety by reference to
the relevant provisions of the NYBCL, the IP Charter, the IP By-laws, the
Rights Agreement, the NCBCA, the FPB Articles and the FPB By-laws, as
appropriate.
The following summary compares certain rights of Federal Paper Board
shareholders under the NCBCA and the FPB Articles and FPB By-laws with the
rights of International Paper's shareholders under the NYBCL and the IP
Charter and the IP By-laws. International Paper is incorporated under the laws
of the State of New York. Federal Paper Board is incorporated under the laws
of the State of North Carolina. If the Merger is consummated, the shareholders
of Federal Paper Board receiving the Stock Consideration will become
shareholders of International Paper. As shareholders of a New York
corporation, their rights will differ in certain respects from those of
shareholders of a North Carolina corporation. In addition, the rights of
shareholders of Federal Paper Board who become shareholders of International
Paper following the Merger will be governed by the IP Charter and the IP By-
laws rather than the provisions of the FPB Articles and the FPB By-laws.
AMENDMENT OF GOVERNING DOCUMENTS
Certificates of Incorporation. Under the NYBCL, except for certain specified
matters, an amendment or change to the IP Charter must be authorized by the IP
Board of Directors, followed by a vote of the majority of all outstanding
shares entitled to vote thereon at a meeting of shareholders. In addition,
certain specified amendments affecting the rights of holders of a class of
securities must be approved by vote of the majority of all outstanding shares
of such class entitled to vote thereon, even though they ordinarily would not
have voting rights. Under the NYBCL, certain specified amendments to the
articles of incorporation may be made by the board of directors without
shareholder approval.
Under the IP Charter, any proposal to amend or repeal certain provisions of
the IP Charter including provisions relating to business combinations, the
size of the board of directors, classification of directors, removal
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of directors, indemnification of directors and transactions with interested
directors requires the affirmative vote of not less than 80% of the
outstanding shares entitled to vote.
Under the NCBCA, amendments to the articles of incorporation generally must
be recommended by the board of directors and approved by the shareholders. If
the proposed amendment would not create dissenters' rights with respect to a
voting group entitled to vote, for a proposed amendment to be approved by such
voting group, more votes of such group must be cast in favor of the proposed
amendment than against, provided a quorum is present. If the proposed
amendment would create dissenters' rights in one or more voting groups, the
shareholders in such voting groups must approve the amendment by a majority of
the votes entitled to be cast on the amendment. In either case, the articles
of incorporation or a by-law adopted by the shareholders or the board of
directors may require a greater vote. Under the NCBCA, unless otherwise
provided, certain specified amendments to the articles of incorporation may be
made by the board of directors (without shareholder approval). In addition,
certain specified amendments affecting the rights of holders of a class of
securities must be approved by vote of holders of shares of such class
entitled to vote thereon, even though they ordinarily would not have voting
rights.
The FPB Articles require the consent of the holders of 95% of all
outstanding voting shares of Federal Paper Board to amend Article Tenth
thereof, which is described below under "--Business Combinations".
By-laws. Under the NYBCL, by-laws may be adopted, amended or repealed by a
majority vote of all shareholders entitled to vote in the election of
directors. When provided by the certificate of incorporation or a by-law
adopted by the shareholders, as is the case with International Paper, a
majority of the board of directors may also adopt, amend or repeal by-laws.
Any by-law adopted by the board of directors without shareholder approval may
be amended or repealed by a majority of votes cast at a meeting of
shareholders.
By their terms, the IP By-laws may be amended at any annual meeting, or at
any special meeting called for that purpose, by a vote of majority of the
shares represented and entitled to vote thereat. By majority vote of the whole
Board, the IP Board may amend the IP By-laws but any such action may be
amended by the shareholders at any annual meeting.
Under the NCBCA, a corporation's board of directors may amend or repeal the
corporation's by-laws, except to the extent otherwise provided in the articles
of incorporation or a by-law adopted by the shareholders or the NCBCA, and
except that a by-law adopted, amended or repealed by the shareholders may not
be readopted, amended or repealed by the board of directors if neither the
articles of incorporation nor a by-law adopted by the shareholders authorizes
the board of directors to adopt, amend or repeal that particular by-law or the
by-laws generally. A corporation's shareholders may amend or repeal the
corporation's by-laws even though the by-laws may also be amended or repealed
by the board of directors.
The FPB By-laws provide that, subject to the following sentence, the FPB By-
laws may be altered, amended or repealed (i) at any shareholders meeting by a
vote of the holders of a majority of the shares represented at the meeting or
(ii) by a majority vote of the entire FPB Board at any regular or special
meeting, but any by-laws so made by the FPB Board may be altered or repealed
by the shareholders. Notwithstanding the foregoing, (i) the provisions of the
FPB By-laws relating to the number and classification of the FPB Board may be
amended only by the vote of the holders of two-thirds of all outstanding
shares of FPB Common Stock and any preferred stock voting together with the
FPB Common Stock as one class and (ii) so long as any class of preferred stock
of Federal Paper Board is outstanding, no alteration, amendment or repeal of
the provisions of the FPB By-laws regarding notice of shareholder meetings,
voting rights of shareholders, and election and removal of directors which
adversely affect the rights or preferences of such class shall be made without
the consent of the holders of at least two-thirds of the outstanding shares of
such class.
DIRECTORS
Number and Election; Classification. Under the NYBCL, the board of directors
of a widely held corporation must consist of a least three directors. Under
the IP Charter, the number of directors of International
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Paper is determined by the IP Board, but may not be less than nine or more
than eighteen. The IP Board is classified into three classes of directors.
Each class has a three-year term expiring on the date of the third annual
meeting of shareholders succeeding their election. The IP Charter does not
provide for cumulative voting for the election of directors.
The NCBCA provides that the number of directors shall be fixed in accordance
with the articles of incorporation or by-laws. If the number of directors of a
corporation is fixed at nine or more, the NCBCA permits the articles of
incorporation or by-laws adopted by the shareholders to provide for election
of directors on a staggered basis.
The FPB Articles and the FPB By-laws provide that the number of directors
shall be not less than three nor more than fifteen; provided that the number
of directors shall be increased in the event that and for so long as the
holders of any class of preferred stock of Federal Paper Board shall, under
the provisions of the FPB Articles, become entitled to elect, as a class,
directors because of default in the payment of dividends. The exact number of
directors shall be determined from time to time by the board of directors, and
shall be nine unless otherwise determined by resolution of the board of
directors. The FPB By-laws provide that the board shall be divided into four
classes as nearly equal in number as may be, with each class of directors
serving a four-year term. The FPB By-laws provide that directors shall be
elected at the annual meeting of shareholders.
The NCBCA grants shareholders the right to cumulate their votes for
directors if the corporation was formed on or after July 1, 1957 and before
July 1, 1990 unless such corporation is a "public corporation". Shareholders
of other corporations do not have a right to cumulate their votes for
directors unless the corporation's articles of incorporation so provide. Since
Federal Paper Board is a "public corporation" as defined under the NCBCA and
was incorporated in North Carolina as of October 8, 1993, and since the FPB
Articles do not provide for cumulative voting, its shareholders are not
entitled to cumulative voting.
Removal; Vacancies. Under the NYBCL, any or all directors may be removed for
cause by vote of the shareholders. A director may be removed without cause by
a shareholder vote only if the certificate of incorporation or the by-laws so
provide. The IP Charter provides that directors may be removed for cause only
by the affirmative vote of 80% of the outstanding shares entitled to vote. The
IP Charter and the IP By-laws do not provide for the removal of directors
without cause by a shareholder vote.
The NYBCL provides that, unless the certificate of incorporation or by-laws
of a corporation provide otherwise, vacancies on the board of directors
resulting in an increase in the number of directors and vacancies occurring
for any reason except the removal of directors without cause may be filled by
vote of the board. If the number of directors then in office is less than a
quorum, such newly created directorships and vacancies may be filled by vote
of a majority of directors then in office. The NYBCL further provides that
unless the certificate of incorporation or a specific provision in the by-laws
adopted by the shareholders provides otherwise, vacancies in the board of
directors resulting from the removal of directors without cause may only be
filled by a vote of the shareholders. A director elected to fill a vacancy,
unless elected by the shareholders, shall hold office until the next meeting
of shareholders and until his successor has been elected and qualified. The IP
By-laws provide that any vacancy in the IP Board which occurs during the year
or occurs as a result of an increase in the size of the IP Board may be filled
by a vote of the IP Board, provided a quorum is present, or by a majority of
directors then in office, if less than a quorum is then in office, or by a
sole remaining director.
Under the NCBCA, the shareholders may remove one or more directors with or
without cause unless the articles of incorporation provide that directors may
be removed only for cause. If cumulative voting is not authorized, a director
may be removed only if the number of votes cast to remove him exceeds the
number of votes cast not to remove him. The FPB Articles, however, provide
that any director elected by the holders of FPB Common Stock and any preferred
stock of Federal Paper Board voting together with FPB Common Stock as one
class may be removed from office, with or without cause, only by the vote of
the holders of two-thirds of all outstanding shares of FPB Common Stock and
any preferred stock voting together with the FPB Common Stock as one class.
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The NCBCA provides that, unless the articles of incorporation provide
otherwise, a vacancy on the board of directors may be filled by (i) the
shareholders; (ii) the board of directors; or (iii) if the directors remaining
in office constitute fewer than a quorum of the board of directors, the
affirmative vote of a majority of all the directors, or by the sole director,
remaining in office. If the vacant office was held by a director elected by a
voting group of shareholders, only the remaining director or directors elected
by that voting group or the holders of shares of that voting group are
entitled to fill the vacancy. The FPB Articles provide that the successor or
successors of any director or directors removed by a vote of shareholders may
be elected in the manner provided by the FPB By-laws for the filling of
vacancies in the FPB Board. The FPB Articles are silent as to the election of
directors to fill other vacancies on the board of directors. The FPB By-laws
provide that a vacancy in the FPB Board may be filled by the stockholders
entitled to vote thereon or, in the case of any vacancy in the FPB Board
occurring at any time among the directors elected by the holders of FPB Common
Stock and the FPB Convertible Preferred Stock voting together as one class, a
majority of the remaining directors elected by the holders of FPB Common Stock
and the FPB Convertible Preferred Stock voting together as one class, though
less than a quorum, may elect a new director to hold office for the unexpired
term of the director whose place shall be vacant and until his successor shall
be elected and qualified.
Fiduciary Duties. Under Section 717 of the NYBCL, a director must perform
his duties as a director, including his duties as a member of any committee of
the board upon which he may serve, in good faith and with that degree of care
which an ordinarily prudent person in a like position would use under similar
circumstances. In performing his duties, a director is entitled to rely on
information, opinions, reports or statements including financial statements
and other financial data, in each case prepared or presented by:
(1) one or more officers or employees of the corporation or of any other
corporation of which at least fifty percent of the outstanding shares of
stock entitling the holders thereof to vote for the election of directors
is owned directly or indirectly by the corporation, whom the director
believes to be reliable and competent in the matters presented,
(2) counsel, public accountants or other persons as to matters which the
director believes to be within such person's professional or expert
competence, or
(3) a committee of the board upon which he does not serve, duly
designated in accordance with a provision of the certificate of
incorporation or the by-laws, as to matters within its designated
authority, which committee the director believes to merit confidence, so
long as in so relying he shall be acting in good faith and with such degree
of care, but he shall not be considered to be acting in good faith if he
has knowledge concerning the matter in question that would cause such
reliance to be unwarranted.
A person who so performs his duties shall have no liability by reason of
being or having been a director of the corporation.
In taking action, including, without limitation, action which may involve or
relate to a change or potential change in the control of the corporation, a
director shall be entitled to consider, without limitation, (1) both the long-
term and the short-term interests of the corporation and its shareholders and
(2) the effects that the corporation's actions may have in the short-term or
in the long-term upon any of the following: (i) the prospects for potential
growth, development, productivity and profitability of the corporation; (ii)
the corporation's current employees; (iii) the corporation's retired employees
and other beneficiaries receiving or entitled to receive retirement, welfare
or similar benefits from or pursuant to any plan sponsored, or agreement
entered into, by the corporation; (iv) the corporation's customers and
creditors; and (v) the ability of the corporation to provide, as a going
concern, goods, services, employment opportunities and employment benefits and
otherwise to contribute to the communities in which it does business.
By their terms, these provisions do not create any duties owed by any
director to any person or entity to consider or afford any particular weight
to any of the foregoing or abrogate any duty of the directors, either
statutory or recognized by common law or court decisions. For these purposes,
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of the corporation,
whether through the ownership of voting stock, by contract, or otherwise.
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Under the NCBCA, a director shall discharge his duties as a director (i) in
good faith; (ii) with the care an ordinarily prudent person in a like position
would exercise under similar circumstances; and (iii) in a manner he
reasonably believes to be in the best interests of the corporation. A director
is not liable for any action taken as a director, or any failure to take any
action, if he performed the duties of his office in compliance with the
standards of conduct for directors prescribed by the NCBCA. The duties of a
director weighing a change of control situation are not any different, nor is
the standard of care any higher, than otherwise provided under the NCBCA.
Limitation on Liability. As permitted under the NYBCL, the IP Charter
contains a provision eliminating the personal liability of directors to
International Paper or its shareholders for damages for breaches of duty in
such capacity, except where a judgment or other final adjudication establishes
that the directors's acts or omissions (i) were in bad faith; (ii) involved
intentional misconduct or a knowing violation of law; (iii) involved financial
profit or some other advantage to which the director was legally entitled; or
(iv) resulted in violation of a statute prohibiting certain dividend
declarations, certain payments to shareholders after dissolution, and
particular types of loans. In addition, the provision does not affect the
liability of a director for acts occurring prior to adoption of the limitation
of liability.
As permitted under the NCBCA, the FPB Articles provide that no person who is
serving or has served as a director of Federal Paper Board shall be personally
liable to Federal Paper Board or any of its shareholders for monetary damages
for breach of duty as a director, except for liability with respect to (i)
acts or omissions that the director at the time of such breach knew or
believed were clearly in conflict with the best interest of Federal Paper
Board; (ii) any transaction from which the director derived an improper
personal benefit; (iii) acts or omissions with respect to which the NCBCA does
not permit the limitation of liability. The term "improper personal benefit"
does not include a director's reasonable compensation or other reasonable
incidental benefit for or on account of his service as a director, officer,
employee, independent contractor, attorney or consultant of Federal Paper
Board.
QUORUM REQUIREMENTS; MEETINGS OF SHAREHOLDERS
The IP By-laws provide that at least one-third of the holders of voting
stock must be present in person or by proxy at any meeting of shareholders in
order to constitute a quorum. The majority vote of a quorum at a meeting shall
decide any question brought before such meeting. The IP By-laws further
provide that the annual meeting of shareholders shall be held on a date and at
such place as fixed by the IP Board. Special meetings may be called at any
time by a majority of the IP Board or by the Chairman of the IP Board or by
the President of International Paper.
Under the NCBCA, a quorum of shareholders of a particular voting group
exists if a majority of the votes entitled to be cast on a matter by the
voting group is present or represented. Under the NCBCA, the quorum
requirement may be increased or decreased by the articles of incorporation or
a by-law adopted by the shareholders. The FPB Articles do not provide for an
increased or decreased quorum requirement and the shareholders of Federal
Paper Board have not adopted such a by-law.
The FPB By-laws provide that the annual meeting of shareholders will be held
on the third Tuesday of April in each year. The NCBCA provides that a special
meeting of shareholders may be held (i) on call of the board of directors or
persons authorized to do so in the corporation's articles of incorporation or
by-laws or (ii) if provided in the articles of incorporation or by-laws (in
the case of a "public corporation" such as Federal Paper Board), within 30
days after the holders of at least 10% of all the votes entitled to be cast on
any issue proposed to be considered at a proposed special meeting sign, date
and deliver to the corporation's secretary one or more written demands for the
meeting describing the purpose for which it is to be held. The FPB By-laws
provide that special meetings may be called by the chairman of the board of
directors, the president or the FPB Board, and neither the FPB Articles nor
the FPB By-laws provide that special meetings may be called by shareholders.
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SHAREHOLDER INSPECTION RIGHTS; SHAREHOLDER LISTS
Under the NYBCL, every person who has been a shareholder of record for at
least six months, or any person holding or authorized in writing by the
holders of at least five percent of any class of the outstanding shares has a
right to examine, in person or by agent or attorney, during usual business
hours the minutes of the proceedings of a corporation's shareholders and
record of shareholders and to make extracts therefrom. The requesting
shareholder must submit a written demand to the corporation at least five days
prior to such examination. The corporation may refuse to provide such records
to a person if such person refuses to furnish to the corporation an affidavit
that such inspection is not desired for a purpose which is in the interest of
a business or object other than the business of the corporation and that he
has not within five years sold or offered for sale any list of shareholders of
any corporation, or aided or abetted any person in procuring any such record
of shareholders for any such purpose.
Under the NCBCA, a qualified shareholder of a corporation is entitled to
inspect and copy, upon at least five business days' written notice, during
regular business hours at the corporation's principal office, certain records
of the corporation, including (i) its articles or restated articles of
incorporation, by-laws or restated by-laws, and all amendments to them
currently in effect; (ii) resolutions adopted by the board of directors
creating one or more classes or series of shares, and fixing their relative
rights, preferences and limitations, if shares issued pursuant to those
resolutions are outstanding; (iii) minutes of all shareholders' meetings and
records of all action taken by shareholders without a meeting for the past
three years; (iv) all written communications to shareholders generally within
the past three years and the financial statements required to be made
available to the shareholders during the past three years under the NCBCA; (v)
a list of the names and business addresses of its current directors and
officers; and (vi) its most recent annual report delivered to the Secretary of
State of the State of North Carolina.
Under the NCBCA, a qualified shareholder may inspect and copy, during
regular business hours at a reasonable location specified by the corporation,
certain other documents of the corporation, including the record of
shareholders, if (i) the shareholder's demand is made in good faith and for a
proper purpose; (ii) the shareholder describes with reasonable particularity
his purpose and the records he desires to inspect; (iii) the records are
directly connected with his purpose; and (iv) the shareholder gives the
corporation written notice of his demand at least five business days before
the date on which he wishes to inspect and copy. A "qualified shareholder" is
defined as a person who has been a shareholder in the corporation for at least
six months immediately preceding his demand or who is the holder of at least
5% of the corporation's outstanding shares of any class.
Notwithstanding the foregoing, the NCBCA requires that a corporation must,
after fixing a record date for a shareholders' meeting, prepare a list of the
names of all its shareholders who are entitled to notice of a shareholders'
meeting, which list must be available for inspection by any shareholder,
beginning two business days after notice of the meeting is given for which the
list was prepared and continuing through the meeting.
PREEMPTIVE RIGHTS
Under the NYBCL, unless a certificate of incorporation provides otherwise,
shareholders have certain preemptive rights. In general, these rights allow
shareholders whose unlimited dividend rights or voting rights would be
adversely affected by the issuance of new stock to purchase, on terms and
conditions set by the board of directors, that proportion of the new issue
that would preserve the relative dividend or voting rights of such
shareholders. The IP Charter provides that its shareholders do not possess
such preemptive rights.
Under the NCBCA, the shareholders of a North Carolina corporation
incorporated on or after July 1, 1990 do not have a preemptive right to
acquire the corporation's unissued shares, except to the extent the articles
of incorporation so provide. The FPB Articles provide that "no holder of any
class of stock of the corporation shall be entitled as such, as a matter of
right, to any preemptive or preferential rights to subscribe for or purchase
any part of any new or additional issue of stock of the corporation of any
class whatsoever, or of any notes, bonds, obligations or other securities,
whether or not the same be convertible into or exchangeable for stock of the
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corporation of any class whatsoever, whether now or hereafter authorized, or
whether issued for cash or other consideration, or by way of dividend."
SHAREHOLDER ACTION WITHOUT MEETING
Under both the NYBCL and the NCBCA, any shareholder action required or
permitted to be taken by shareholder vote may be taken with the unanimous
written consent of shareholders. Under the NYBCL, the certificate of
incorporation may provide, to the extent it is not inconsistent with New York
law, that such shareholder action may be taken upon the written consent of
less than all outstanding shares. The IP Charter does not provide for written
consent by less than all of the shareholders.
DIVIDENDS AND DISTRIBUTIONS
Under the NYBCL, a corporation may generally pay dividends out of surplus.
New York law requires a board of directors to make certain disclosures when
paying dividends out of any account other than earned surplus. Dividends on
the IP Common Stock are, in effect, limited by the terms of the IP $4.00
Preferred Stock to the amount of International Paper's retained earnings. At
September 30, 1995, International Paper had available approximately $5.4
billion in retained earnings for the payment of dividends. In addition, under
the IP Charter, no dividends may be declared, paid or set aside for payment on
the IP Common Stock unless full cumulative dividends are paid on the IP $4.00
Preferred Stock and any issued and outstanding Serial Preferred Stock.
The NCBCA provides that a board of directors may authorize and a corporation
may make distributions to its shareholders subject to any restrictions in the
corporation's articles of incorporation and subject to the further limitation
that no distribution may be made if, after giving it effect, (i) the
corporation would not be able to pay its debts as they become due in the usual
course of business or (ii) the corporation's total assets would be less than
the sum of its liabilities plus (unless the articles of incorporation permit
otherwise) the amount that would be needed, if the corporation were to be
dissolved at the time of the distribution, to satisfy the preferential rights
upon dissolution of shareholders whose preferential rights are superior to
those receiving the distribution.
The FPB Articles provide that, subject to the rights of Federal Paper
Board's preferred stock, dividends may be paid upon the FPB Common Stock as
and when declared by the FPB Board out of any funds legally available for the
payment of dividends. Upon any liquidation, dissolution or winding up of
Federal Paper Board, whether voluntary or involuntary, and after the holders
of Federal Paper Board's preferred stock, if any, shall have been paid the
amounts to which they are entitled, the remaining net assets of Federal Paper
Board shall be distributed pro rata to the holders of FPB Common Stock in
accordance with their respective rights and interests.
DISSENTERS' RIGHTS
Under the NYBCL, holders of shares have the right, in certain circumstances,
to dissent from certain corporate reorganizations by demanding payment in cash
for their shares equal to the fair value (excluding any appreciation or
depreciation as a consequence or in expectation of the transaction) of such
shares, as determined by agreement with the corporation or by an independent
appraiser appointed by a court in an action timely brought by the corporation
or the dissenters. New York law affords dissenters' rights of appraisal upon
certain mergers, consolidations, sales and other dispositions of assets
requiring shareholder approval and share exchanges.
Under the NCBCA, the shareholders of North Carolina corporations have the
right to dissent and receive payment of the fair value of their shares in the
event of a merger effected under the NCBCA, as well as certain other corporate
actions such as amendments or changes to the articles of incorporation
adversely affecting their shares, certain consolidations, and certain sales,
leases, exchanges or other dispositions of all or substantially all of the
corporation's assets. In connection with the Merger, shareholders of FPB
Common Stock are entitled to exercise dissenters' rights as described under
"THE SPECIAL MEETING--Dissenting Federal Paper Board Shareholders' Appraisal
Rights".
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INDEMNIFICATION
Under the NYBCL, a corporation may indemnify any person made, or threatened
to be made, a party to any action or proceeding, except for shareholder
derivative suits, by reason of the fact that he or she was a director or
officer of the corporation, provided such director or officer acted in good
faith for a purpose which he or she reasonably believed to be in the best
interests of the corporation and, in criminal proceedings, in addition, had no
reasonable cause to believe his or her conduct was unlawful. In the case of
shareholder derivative suits, the corporation may indemnify any person by
reason of the fact that he or she was a director or officer of the corporation
if he or she acted in good faith for a purpose which he or she reasonably
believed to be in the best interests of the corporation, except that no
indemnification may be made in respect of (i) a threatened action, or a
pending action which is settled or otherwise disposed of, or (ii) any claim,
issue or matter as to which such person has been adjudged to be liable to the
corporation, unless and only to the extent that the court on which the action
was brought, or, if no action was brought, any court of competent
jurisdiction, determines upon application that, in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for that portion of the settlement amount and expenses as the court
deems proper.
The indemnification described above under the NYBCL is not exclusive of
other indemnification rights to which a director or officer may be entitled,
whether contained in the certificate of incorporation or by-laws, or when
authorized by (i) such certificate of incorporation or by-laws; (ii) a
resolution of shareholders; (iii) a resolution of directors; or (iv) an
agreement providing for such indemnification, provided that no indemnification
may be made to or on behalf of any director or officer if a judgment or other
final adjudication adverse to the director or officer establishes that his or
her acts were committed in bad faith or were the result of active and
deliberate dishonesty and were material to the cause of action so adjudicated,
or that he or she personally gained in fact a financial profit or other
advantage to which he or she was not legally entitled. The IP By-laws provide
that International Paper shall indemnify to the maximum extent permissible
under New York law its officers and directors for liability arising out of
their actions in such capacity.
Any person to whom such provisions apply who has been successful on the
merits or otherwise in the defense of a civil or criminal action or proceeding
will be entitled to indemnification. Except as provided in the preceding
sentence, unless ordered by a court pursuant to the NYBCL, any indemnification
under the NYBCL pursuant to the above paragraphs may be made only if
authorized in the specific case and after a finding that the director or
officer met the requisite standard of conduct (i) by the disinterested
directors if a quorum is available or (ii) in the event a quorum of
disinterested directors is not available or so directs by either (A) the board
upon the written opinion of legal counsel, or (B) by the shareholders.
Under the NCBCA, a corporation may indemnify an individual made a party to a
proceeding because he is or was a director against liability incurred in the
proceeding if (i) he conducted himself in good faith, (ii) he reasonably
believed (a) in the case of conduct in his official capacity with the
corporation, that his conduct was in its best interest and (b) in all other
cases, that his conduct was at least not opposed to its best interests and
(iii) in the case of any criminal proceeding, he had no reasonable cause to
believe his conduct was unlawful. The NCBCA requires that, unless limited by
its articles of incorporation, a corporation shall indemnify a director who
was wholly successful, on the merits or otherwise, in defense of any
proceeding to which he was a party because he is or was a director of the
corporation against reasonable expenses incurred in connection with the
proceeding. To the extent that a proceeding by or in the right of the
corporation is concluded without a final adjudication on the issue of
liability, indemnification is limited to reasonable expenses incurred by him
in connection with the proceeding. A corporation may not indemnify a director
in connection with a proceeding by or in the right of the corporation in which
the director was adjudged liable to the corporation or in connection with any
other proceeding charging improper personal benefit to the director, whether
or not involving action in his official capacity, in which he was adjudged
liable on such grounds.
The NCBCA requires that, unless limited by its articles of incorporation, a
corporation shall indemnify an officer who was wholly successful, on the
merits or otherwise, in defense of any proceeding to which he was a party
because he is or was an officer of the corporation against reasonable expenses
incurred in connection with
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the proceeding. In addition, the NCBCA provides that a corporation may
indemnify and advance expenses to an officer, employee or agent of the
corporation to the same extent as to a director, and may indemnify and advance
expenses to an officer, employee or agent who is not a director to the extent,
consistent with public policy, that may be provided by its articles of
incorporation, by-laws, general or specific action of its board of directors,
or contract.
The FPB By-laws provide that Federal Paper Board shall indemnify any person
who is or was a director or officer of Federal Paper Board on the basis and to
the extent provided in the FPB Articles, and that Federal Paper Board may
indemnify any other person to whom Federal Paper Board is permitted to provide
indemnification by applicable law, on such basis and to such extent as Federal
Paper Board in its sole discretion may elect. The FPB Articles provides that
Federal Paper Board shall, to the fullest extent permitted by law, indemnify
its directors and officers against all liabilities and expenses arising out of
their status as such, unless the activities of the person to be indemnified
were at the time taken known or believed by him to be clearly in conflict with
the best interests of Federal Paper Board.
INTERESTED TRANSACTIONS
Generally, under the NYBCL and the NCBCA, no contract or transaction between
a corporation and one or more of its directors or between a corporation and
another entity in which one or more of its directors are directors or officers
or in which one or more of its directors has a material financial interest is
void or voidable because of such relationship or interest, if (i) the material
facts of the transaction and the director's interest are disclosed or known to
the board of directors or a committee of the board of directors which
authorizes, approves, or ratifies the transaction by the affirmative vote of a
majority of the directors of the board of directors who have no direct or
indirect interest in the transaction; (ii) the material facts of the
transaction and the director's interest are disclosed or known to the
shareholders entitled to vote and they authorize, approve or ratify the
transaction; or (iii) the transaction is fair to the corporation.
The IP Charter provides that no contract or transaction entered into by
International Paper is affected by the fact that a director of International
Paper is in any way interested in or connected with any party to such contract
or transaction or himself is a party to such contract or transaction, provided
that such contract or transaction is approved by a majority of the directors
present at the meeting authorizing or confirming such contract or transaction,
without counting the vote of any interested director.
The FPB Articles provide that, in the absence of fraud, a director shall not
be disqualified by his office from dealing with or contracting with Federal
Paper Board either as vendor, purchaser or otherwise, nor shall any
transaction or contract of Federal Paper Board be void or voidable or affected
by reason of the fact that any director or any firm of which any director is a
member, or any corporation of which a director is an officer, director or
stockholder, is in any way interested in such transaction or contract;
provided that at the meeting of the FPB Board or of the committee thereof
having authority to authorize or confirm such contract or transaction, the
interest of such director, firm or corporation is disclosed or known, and
there is present a quorum of directors or of the directors constituting such
committee not so interested or connected and such contract or transaction is
approved by a majority of such quorum, which majority consists of directors
not so interested or connected. No director or directors so interested or
connected shall be liable to Federal Paper Board or to any shareholder or
creditor thereof or to any other person for any loss incurred by it under or
by reason of any such contract or transaction.
BUSINESS COMBINATIONS
For information concerning the NYBCL, the IP Charter and the IP By-laws, see
"DESCRIPTION OF INTERNATIONAL PAPER CAPITAL STOCK--Certain Restrictions on
Takeovers."
Generally under the NCBCA, approval of mergers and share exchanges requires
approval of each voting group entitled to vote separately on the plan by a
majority of all the votes entitled to be cast on the plan by that
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voting group, unless the articles of incorporation or by-laws provide
otherwise. For the sale of all or substantially all of the assets of a
corporation, the approval by the affirmative vote of a majority of all the
votes entitled to be cast on the matter, regardless of voting groups, is
required, unless the articles of incorporation or the by-laws require a
greater vote or a vote by voting groups.
In the event of a merger, the NCBCA provides that the approval of the
shareholders of the surviving corporation is not required if certain criteria
are met, including the requirement that the number of voting shares
outstanding immediately after the merger, plus the number of voting shares
issuable as a result of the merger, not exceed by more than 20% the total
number of voting shares of the surviving corporation outstanding immediately
before the merger.
Article Tenth of the FPB Articles provides that the affirmative vote of 95%
of the outstanding voting shares of Federal Paper Board, considered for this
purpose as one class, is required for the adoption or authorization of a
business combination with any other entity if, as of the record date for the
determination of shareholders entitled to notice thereof and to vote thereon
or consent thereto, such other entity is the beneficial owner, directly or
indirectly, of 30% or more of the then outstanding voting shares of Federal
Paper Board, considered as one class. The 95% voting requirement is
supplemental to, and not in lieu of, the provisions of the Shareholder
Protection Act (as defined below), and is not applicable if certain fair price
and procedural requirements are satisfied.
STATE ANTI-TAKEOVER LAWS
New York Business Combination Law. For a description of the New York
Business Combination Law, see "DESCRIPTION OF INTERNATIONAL PAPER CAPITAL
STOCK--Certain Restrictions On Takeovers".
Shareholder Protection Act. Article 9 of the NCBCA sets forth the North
Carolina Shareholder Protection Act (the "Shareholder Protection Act"). The
Shareholder Protection Act requires the affirmative vote of the holders of 95%
of the voting shares of a corporation, voting as one class, for the adoption
or authorization of a business combination with any other entity if, as of the
record date for the determination of shareholders entitled to vote on such
business combination, the other entity is the beneficial owner, directly or
indirectly, of more than 20% of the voting shares of the corporation or with
an affiliate of the corporation which at any time has been a 20% holder of
such voting shares. A "business combination" is defined to include any merger
or consolidation of a corporation with or into any other corporation, or the
sale or lease of all or any substantial part of the corporation's assets to,
or any payment, sale or lease to the corporation or any fair subsidiary
thereof, in exchange for securities of the corporation of any assets (except
assets having an aggregate fair market value of less than $5,000,000) of any
other entity. The 95% voting requirement is not applicable if certain fair
price and procedural requirements are satisfied. Since International Paper
does not own any voting securities of Federal Paper Board, the Shareholder
Protection Act does not apply to the Merger.
Control Share Acquisitions. Article 9A of the NCBCA sets forth the North
Carolina Control Share Acquisition Act (the "Control Share Acquisition Act").
The Control Share Acquisition Act generally provides that any person who
acquires beneficial ownership of the shares of a corporation that when added
to all other shares of the corporation beneficially owned by the person would
entitle that person to voting power in the election of directors that is equal
to or greater than one-fifth, one-third or a majority of all voting power, is
not entitled to vote the shares acquired in the acquisition unless the right
to vote such shares is approved by a majority of all the outstanding shares of
the corporation entitled to vote for the election of directors, excluding
interested shares. Interested shares include any shares owned by any person
who has acquired or proposes to acquire a controlling interest, any officer of
the corporation, and any employee of the corporation who is also a director.
The decision to grant voting rights to the control shareholder must be voted
upon at the next special or annual shareholders meeting. Unless otherwise
provided in the corporation's articles of incorporation or by-laws, if voting
rights are granted to the control shares and the holders of the control shares
have a majority of voting power for the election of directors, other
shareholders may have their shares redeemed by the corporation at their fair
value calculated as of the day prior to the date the vote was taken to accord
the control shares such voting
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rights, as long as certain procedural requirements are satisfied. The Control
Share Acquisition Act does not apply to acquisitions of stock pursuant to a
merger or share exchange if effected pursuant to a written agreement to which
the corporation is a party. The Control Share Acquisition Act applies only to
certain covered corporations that are public corporations incorporated in and
with substantial ties to the State of North Carolina and that have not opted
out of the provisions of the Control Share Acquisition Act.
Since Federal Paper Board elected to be exempt from the Control Share
Acquisition Act, the Control Share Acquisition Act does not apply to the
Merger.
SHAREHOLDER RIGHTS PLAN
International Paper has adopted the Rights Agreement, while Federal Paper
Board does not have a shareholder rights plan. A description of the Rights
Agreement and the Rights is set forth above under "DESCRIPTION OF
INTERNATIONAL PAPER CAPITAL STOCK--Certain Restrictions on Takeovers --Rights
Agreement."
LEGAL MATTERS
The legality of the IP Common Stock offered hereby will be passed upon for
International Paper by James W. Guedry, Staff Vice President, Associate
General Counsel and Secretary of International Paper. Shearman & Sterling,
counsel to Federal Paper Board, and Skadden, Arps, Slate, Meagher & Flom,
counsel to International Paper, will deliver opinions concerning federal
income tax consequences of the Merger.
EXPERTS
The consolidated financial statements and related financial statement
schedule incorporated in this Proxy Statement/Prospectus by reference from
Federal Paper Board's Annual Report on Form 10-K/A for the year ended December
31, 1994 have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports, which are incorporated herein by reference, and have
been so incorporated in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.
The consolidated financial statements of International Paper included in
International Paper's Annual Report on Form 10-K for its fiscal year ended
December 31, 1994 have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
incorporated by reference herein in reliance upon the authority of said firm
as experts in accounting and auditing and in giving such reports.
SHAREHOLDER PROPOSALS FOR
1996 ANNUAL MEETING OF
FEDERAL PAPER BOARD SHAREHOLDERS
If the Merger is not consummated, it is currently anticipated, subject to
postponement, that the 1996 Annual Meeting of Shareholders of Federal Paper
Board will be held on or about April 18, 1996. If such meeting is held,
shareholder proposals intended to be presented at such meeting must have been
received by Federal Paper Board not later than November 15, 1995 for inclusion
in the proxy materials for such meeting.
By Order of the Board of Directors,
John T. Flynn, Jr.
Assistant Secretary
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ANNEXES TO THE
PROXY STATEMENT--PROSPECTUS
ANNEX I RESTATED AND AMENDED AGREEMENT AND PLAN OF MERGER
ANNEX II OPINION OF GOLDMAN, SACHS & CO.
ANNEX III OPINION OF J.P. MORGAN SECURITIES INC.
ANNEX IV EXCERPT FROM THE NORTH CAROLINA BUSINESS CORPORATION ACT RELATING
TO DISSENTERS' APPRAISAL RIGHTS
<PAGE>
ANNEX I
CONFORMED COPY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RESTATED AND AMENDED AGREEMENT AND PLAN OF MERGER
AMONG
INTERNATIONAL PAPER COMPANY,
FOCUS MERGER CO., INC.
AND
FEDERAL PAPER BOARD COMPANY, INC.
DATED AS OF NOVEMBER 6, 1995 AND AMENDED AS OF FEBRUARY 8, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ANNEX I
CONFORMED COPY
RESTATED AND AMENDED AGREEMENT AND PLAN OF MERGER
AMONG
INTERNATIONAL PAPER COMPANY,
FOCUS MERGER CO., INC.
AND
FEDERAL PAPER BOARD COMPANY, INC.
DATED AS OF NOVEMBER 6, 1995 AND AMENDED AS OF FEBRUARY 8, 1996
RESTATED AND AMENDED AGREEMENT AND PLAN OF MERGER dated as of November 6,
1995 and amended as of February 8, 1996 among International Paper Company, a
New York corporation ("Parent"), Focus Merger Co., Inc., a North Carolina
corporation and a wholly owned subsidiary of Parent ("Merger Sub"), and
Federal Paper Board Company, Inc., a North Carolina corporation (the
"Company").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Parent, Merger Sub and the
Company have approved the acquisition of the Company by Parent upon the terms
and subject to the conditions set forth in this Agreement and Plan of Merger,
including, without limitation, the exhibits attached hereto (collectively,
this "Agreement");
WHEREAS, the respective Boards of Directors of Parent, Merger Sub and the
Company have approved the merger of the Company with and into Merger Sub as
set forth below (the "Merger") upon the terms and subject to the conditions
set forth in this Agreement, whereby each issued and outstanding share of
common stock, par value $5.00 per share, of the Company ("Company Common
Stock"), other than shares owned directly or indirectly by Parent or by the
Company and other than Dissenting Shares (as defined in Section 2.04), will be
converted into the right to receive shares of common stock, par value $1.00
per share, of Parent ("Parent Common Stock") or cash or a combination thereof
subject to the provisions of Article II of this Agreement;
WHEREAS, for federal income tax purposes, the Merger is intended to qualify
as a reorganization under the provisions of Section 368(a) of the United
States Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, Parent, Merger Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe certain conditions to the Merger;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent, Merger Sub and the Company hereby agree as follows:
ARTICLE I
The Merger
SECTION 1.01. The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the North Carolina Business
Corporation Act (the "NCBCA"), the Company shall be merged with and into
Merger Sub at the Effective Time of the Merger (as defined in Section 1.03).
Following the Merger, the separate corporate existence of the Company shall
cease, and Merger Sub shall continue as the surviving corporation (the
"Surviving Corporation") and shall succeed to and assume all the rights and
obligations of the Company in accordance with the NCBCA. At the election of
Parent prior to the effective date of the Registration Statement (as defined
in Section 6.02), any direct or indirect wholly owned subsidiary of Parent may
be substituted for Merger Sub as a constituent corporation in the Merger,
provided that no such substitution shall be made if it would materially delay
or impede the Merger or any of the other transactions contemplated by this
Agreement. In such event, the parties agree to execute an appropriate
amendment to this Agreement in order to reflect the foregoing.
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SECTION 1.02. Closing. The closing of the Merger shall take place at 10:00
a.m. on a date to be specified by the parties which shall be no later than the
second business day after the satisfaction or waiver of the conditions set
forth in Article VII (the "Closing Date") at the offices of Shearman &
Sterling, 599 Lexington Avenue, New York, New York 10022, unless another date
or place is agreed to in writing by the parties hereto.
SECTION 1.03. Effective Time. On the Closing Date, or as soon as practicable
thereafter, the parties shall file articles of merger or other appropriate
documents (in any such case, the "Articles of Merger") executed in accordance
with the relevant provisions of the NCBCA and shall make all other filings or
recordings required under the NCBCA. The Merger shall become effective at such
time as the Articles of Merger are duly filed with the North Carolina
Secretary of State, or at such later time as is agreed upon by the parties and
specified in the Articles of Merger (such time as the Merger becomes effective
is referred to herein as the "Effective Time").
SECTION 1.04. Effects of the Merger. The Merger shall have the effects set
forth in Section 55-11-06 of the NCBCA.
SECTION 1.05. Articles of Incorporation and By-Laws of the Surviving
Corporation. (a) Subject to the provisions of Section 6.07(a), the Articles of
Incorporation of Merger Sub as in effect immediately prior to the Effective
Time shall become the Articles of Incorporation of the Surviving Corporation
after the Effective Time (except that Article I of the Articles of
Incorporation shall be amended as of the Effective Time to read as follows:
"The name of the Corporation is Federal Paper Board Company, Inc."), and
thereafter may be amended as provided therein and as permitted by law and this
Agreement.
(b) Subject to the provisions of Section 6.07(a), the By-Laws of Merger Sub
as in effect immediately prior to the Effective Time shall become the By-Laws
of the Surviving Corporation after the Effective Time, and thereafter may be
amended as provided therein and as permitted by law and this Agreement.
SECTION 1.06. Directors. The directors of Merger Sub immediately prior to
the Effective Time shall become the directors of the Surviving Corporation,
until the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be.
SECTION 1.07. Officers. The officers of the Company immediately prior to the
Effective Time shall become the officers of the Surviving Corporation, until
the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be.
ARTICLE II
Effect of the Merger on the Capital Stock of the Constituent
Corporations; Exchange of Certificates
SECTION 2.01. Capital Stock of Merger Sub. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
shares of Company Common Stock or any shares of capital stock of Merger Sub,
each share of common stock, without par value, of Merger Sub issued and
outstanding immediately prior to the Effective Time shall be converted into
and become one fully paid and nonassessable share of common stock, without par
value, of the Surviving Corporation.
SECTION 2.02. Cancellation of Treasury Stock and Parent Owned Stock. As of
the Effective Time, by virtue of the Merger and without any action on the part
of the holder of any shares of Company Common Stock or any shares of capital
stock of Merger Sub, each share of Company Common Stock issued and held
immediately prior to the Effective Time in the Company's treasury or by any of
the Company's direct or indirect wholly owned subsidiaries and each share of
Company Common Stock that is owned by Parent, Merger Sub or any other
subsidiary of Parent shall automatically be cancelled and retired and shall
cease to exist, and no consideration shall be delivered in exchange therefor.
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SECTION 2.03. Conversion of Company Common Stock. (a) As of the Effective
Time, by virtue of the Merger and without any action on the part of the holder
of any shares of Company Common Stock or any shares of capital stock of Merger
Sub, except as otherwise provided in this Section 2.03 and subject to Sections
2.04 and 2.05(f), each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares to be cancelled in
accordance with Section 2.02) shall be converted into, at the election of the
holder thereof, one of the following (or a combination of shares of Parent
Common Stock and cash determined in accordance with Sections 2.03(d), (e), (f)
and (g)) (the "Merger Consideration"):
(i) the right to receive the number of shares of Parent Common Stock
determined by dividing $55.00 by the Average Parent Share Price and
rounding the result to the nearest one thousandth of a share (the "Stock
Consideration"); provided, however, that in no event shall the Stock
Consideration be less than 1.275 or more than 1.612 shares of Parent Common
Stock; provided, further, that, in any event, if between the date of this
Agreement and the Effective Time the outstanding shares of Parent Common
Stock shall have been changed into a different number of shares or a
different class, by reason of any stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of
shares, the Stock Consideration shall be correspondingly adjusted to the
extent appropriate to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of
shares. The "Average Parent Share Price" means the average of the last
sales prices per share of Parent Common Stock on the New York Stock
Exchange, Inc. (the "Stock Exchange") Composite Tape for the 20 consecutive
trading days ending on the trading day which is five days prior to the
Closing Date; or
(ii) the right to receive in cash from Parent, without interest, an
amount equal to $55.00 (the "Cash Consideration").
As of the Effective Time, all such shares of Company Common Stock shall no
longer be outstanding and shall automatically be cancelled and retired and
shall cease to exist, and each holder of a certificate representing any such
shares of Company Common Stock shall cease to have any rights with respect
thereto, except the right to receive the Merger Consideration.
(b) Elections. Subject to the election and allocation procedures set forth
in this Section 2.03, each holder of Company Common Stock will be entitled,
with respect to the Merger Consideration to be received for each share of
Company Common Stock held by such holder, to (i) elect to receive the Stock
Consideration (a "Stock Election"), or (ii) elect to receive the Cash
Consideration (a "Cash Election"), or (iii) indicate that such holder has no
preference as to the receipt of the Stock Consideration or the Cash
Consideration (a "Non-Election").
(c) Election Numbers. The number of shares of Company Common Stock to be
converted into the right to receive the Cash Consideration in the Merger shall
be equal to (A) 49% of the number of shares of Company Common Stock
outstanding immediately prior to the Effective Time less (B) the aggregate
number of shares of Company Common Stock as to which a notice of dissent has
been timely and properly filed pursuant to Section 55-13-21 of the NCBCA and
not withdrawn as of the Election Deadline (as defined in Section 2.03(i)) (the
"Cash Election Number"). The number of shares of Company Common Stock to be
converted into the right to receive the Stock Consideration in the Merger (the
"Stock Election Number") shall be equal to 51% of the number of shares of
Company Common Stock outstanding immediately prior to the Effective Time.
(d) Cash Election Adjustments. If the aggregate number of shares of Company
Common Stock covered by Cash Elections (the "Cash Election Shares") exceeds
the Cash Election Number, all shares of Company Common Stock covered by Stock
Elections (the "Stock Election Shares") and all shares of Company Common Stock
covered by Non-Elections (the "Non-Election Shares") shall be converted into
the right to receive the Stock Consideration, and the Cash Election Shares
shall be converted into the right to receive Parent Common Stock and cash in
the following manner:
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each Cash Election Share shall be converted into the right to receive (i)
an amount in cash, without interest, equal to the product of (x) the Cash
Consideration and (y) a fraction (the "Cash Fraction"), the numerator of
which shall be the Cash Election Number and the denominator of which shall
be the total number of Cash Election Shares, and (ii) a number of shares of
Parent Common Stock equal to the product of (x) the Stock Consideration and
(y) a fraction equal to one minus the Cash Fraction.
(e) Stock Election Adjustments. If the aggregate number of Stock Election
Shares exceeds the Stock Election Number, all Cash Election Shares and all
Non-Election Shares shall be converted into the right to receive the Cash
Consideration, and the Stock Election Shares shall be converted into the right
to receive Parent Common Stock and cash in the following manner:
each Stock Election Share shall be converted into the right to receive (i)
a number of shares of Parent Common Stock equal to the product of (x) the
Stock Consideration and (y) a fraction (the "Stock Fraction"), the
numerator of which shall be the Stock Election Number and the denominator
of which shall be the total number of Stock Election Shares, and (ii) an
amount in cash, without interest, equal to the product of (x) the Cash
Consideration and (y) a fraction equal to one minus the Stock Fraction.
(f) Non-Election Adjustments. In the event that neither Section 2.03(d) nor
2.03(e) above is applicable, all Cash Election Shares shall be converted into
the right to receive the Cash Consideration, all Stock Election Shares shall
be converted into the right to receive the Stock Consideration, and the Non-
Election Shares, if any, shall be converted into the right to receive Parent
Common Stock and cash in the following manner:
each Non-Election Share shall be converted into the right to receive (i) an
amount in cash, without interest, equal to the product of (x) the Cash
Consideration and (y) a fraction (the "Non-Election Fraction"), the
numerator of which shall be the excess of (A) the Cash Election Number over
(B) the total number of Cash Election Shares and the denominator of which
shall be the excess of (C) the number of shares of Company Common Stock
outstanding immediately prior to the Effective Time (other than Dissenting
Shares) over (D) the sum of the total number of Cash Election Shares and
Stock Election Shares and (ii) a number of shares of Parent Common Stock
equal to the product of (x) the Stock Consideration and (y) a fraction
equal to one minus the Non-Election Fraction.
(g) Adjustments Relating to Tax Opinions. If either (i) the tax opinion of
Shearman & Sterling referred to in Section 7.03(c) cannot be rendered (as
reasonably determined by Shearman & Sterling and concurred in by Skadden,
Arps, Slate, Meagher & Flom) or (ii) the tax opinion of Skadden, Arps, Slate,
Meagher & Flom referred to Section 7.02(d) cannot be rendered (as reasonably
determined by Skadden, Arps, Slate, Meagher & Flom and concurred in by
Shearman & Sterling), in either case as a result of the Merger potentially
failing to satisfy continuity of interest requirements under applicable
federal income tax principles relating to reorganizations under Section 368(a)
of the Code, then Parent shall reduce to the minimum extent necessary to
enable the relevant tax opinion or opinions, as the case may be, to be
rendered, the Cash Election Number and correspondingly increase the Stock
Election Number. The requirement to issue additional shares of Parent Common
Stock pursuant to the foregoing sentence shall not be applicable in the event
Parent would be required thereunder to issue in the aggregate (including upon
the exercise of Substitute Options (as defined in Section 6.05)) more than 50
million shares of Parent Common Stock (with such number of shares being
correspondingly adjusted to reflect the occurrence of any of the events set
forth in the second proviso of Section 2.03(a)(i)).
(h) Exercise of Election. All Cash Elections, Stock Elections and Non-
Elections shall be made on a form designed for that purpose and mutually
acceptable to the Company and Parent (a "Form of Election") and mailed to
holders of record of shares of Company Common Stock as of the record date for
the Company Shareholders' Meeting or such other date as Parent and the Company
shall mutually agree (the "Election Form Record Date"). Parent and the Company
shall make available one or more Election Forms as may be reasonably requested
by all persons who become holders (or beneficial owners) of Company Common
Stock between the Election Form Record Date and the close of business on the
day prior to the Election Deadline. Elections shall be made by submitting to
the Exchange Agent (as defined in Section 2.05) a Form of Election. To be
effective, a Form of Election must be properly completed, signed and submitted
to the Exchange Agent in accordance with
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Section 2.03(i) and accompanied by the Certificates (as defined in Section
2.05(b)) representing the shares of Company Common Stock as to which the
election is being made (or an appropriate guarantee of delivery by an
appropriate trust company in the United States or a member of a registered
national securities exchange or the National Association of Securities
Dealers, Inc.). Parent will have the discretion, which it may delegate in
whole or in part to the Exchange Agent, to reasonably determine whether Forms
of Election have been properly completed, signed and submitted or revoked and
to disregard immaterial defects in Forms of Election. The decision of Parent
(or the Exchange Agent) in such matters shall be conclusive and binding.
Neither Parent nor the Exchange Agent will be under any obligation to notify
any person of any defect in a Form of Election submitted to the Exchange
Agent. The Exchange Agent shall also make all computations contemplated by
this Section 2.03 and all such computations shall be conclusive and binding on
the holders of Company Common Stock.
(i) Election Deadline. A Form of Election must be received by the Exchange
Agent by the close of business on the last business day prior to the Closing
Date (such time hereinafter referred to as the "Election Deadline") in order
to be effective. Any holder of Company Common Stock who has made an election
by submitting a Form of Election to the Exchange Agent may at any time prior
to the Election Deadline change such holder's election by submitting a revised
Form of Election, properly completed and signed that is received by the
Exchange Agent prior to the Election Deadline. Any holder of Company Common
Stock may at any time prior to the Election Deadline revoke his election and
withdraw his Certificates deposited with the Exchange Agent by written notice
to the Exchange Agent received prior to the Election Deadline. As soon as
practicable after the Election Deadline, the Exchange Agent shall determine
the allocation of the cash portion of the Merger Consideration and the stock
portion of the Merger Consideration and shall notify Parent of its
determination. Promptly after such notification, Parent shall issue a press
release announcing in reasonable detail the results of the Exchange Agent's
allocation of the Merger Consideration.
(j) Deemed Non-Election. For the purposes hereof, a holder of Company Common
Stock who does not submit a Form of Election which is received by the Exchange
Agent prior to the Election Deadline shall be deemed to have made a Non-
Election. If Parent or the Exchange Agent shall determine that any purported
Cash Election or Stock Election was not properly made, such purported Cash
Election or Stock Election shall be deemed to be of no force and effect and
the shareholder making such purported Cash Election or Stock Election shall
for purposes hereof, be deemed to have made a Non-Election.
SECTION 2.04. Shares of Dissenting Shareholders. Notwithstanding anything in
this Agreement to the contrary, any shares of Company Common Stock that are
issued and outstanding as of the Effective Time and that are held by a
shareholder who has exercised his right (to the extent such right is available
by law) to demand and to receive the fair value of such shares (the
"Dissenting Shares") under Article 13 of the NCBCA shall not be converted into
the right to receive the Merger Consideration unless and until the holder
shall have failed to perfect, or shall have effectively withdrawn or lost, his
right to dissent from the Merger under the NCBCA and to receive such
consideration as may be determined to be due with respect to such Dissenting
Shares pursuant to and subject to the requirements of Article 13 of the NCBCA.
If any such holder shall have so failed to perfect or have effectively
withdrawn or lost such right, each share of such holder's Company Common Stock
shall thereupon be deemed to have been converted into and to have become, as
of the Effective Time, the right to receive, without any interest thereon, the
Stock Consideration or the Cash Consideration or a combination thereof as
determined by Parent in its sole discretion. The Company shall give Parent (i)
prompt notice of any notice or demands for appraisal or payment for shares of
Company Common Stock received by the Company and (ii) the opportunity to
participate in and direct all negotiations and proceedings with respect to any
such demands or notices. The Company shall not, without the prior written
consent of Parent, make any payment with respect to, or settle, offer to
settle or otherwise negotiate, any such demands.
SECTION 2.05. Exchange of Certificates. (a) Exchange Agent. From and after
the Effective Time, (i) Parent shall make available to a bank or trust company
designated by Parent and reasonably satisfactory to the Company (the "Exchange
Agent"), for the benefit of the holders of shares of Company Common Stock
(other than Dissenting Shares), for exchange in accordance with this Article
II through the Exchange Agent, (i)
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certificates evidencing such number of shares of Parent Common Stock issuable
to holders of Company Common Stock in the Merger pursuant to Section 2.03 and
(ii) cash in the amount required to be exchanged for shares of Company Common
Stock in the Merger pursuant to Section 2.03 (such certificates for shares of
Parent Common Stock, together with any dividends or distributions with respect
thereto and cash, being hereinafter referred to as the "Exchange Fund"). The
Exchange Agent shall, pursuant to irrevocable instructions, deliver the cash
and the Parent Common Stock contemplated to be issued pursuant to Section 2.03
out of the Exchange Fund. Except as contemplated by Section 2.05(g) hereof,
the Exchange Fund shall not be used for any other purpose.
(b) Exchange Procedures. As promptly as practicable after the Effective
Time, Parent shall cause the Exchange Agent to mail to each holder of a
certificate or certificates (to the extent such certificates have not already
been submitted to the Exchange Agent with Forms of Election) which immediately
prior to the Effective Time represented outstanding shares (other than
Dissenting Shares) of Company Common Stock (the "Certificates") (i) a letter
of transmittal (which shall be in customary form and shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the Exchange
Agent) and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for certificates evidencing shares of Parent Common
Stock or cash.
(c) Exchange of Certificates. Upon surrender to the Exchange Agent of a
Certificate for cancellation, together with such letter of transmittal, duly
executed and completed in accordance with the instructions thereto, and such
other documents as may be reasonably required pursuant to such instructions,
the holder of such Certificate shall be entitled to receive in exchange
therefor (A) a Certificate representing that number of whole shares of Parent
Common Stock, if any, which such holder has the right to receive pursuant to
this Article II and (B) a check in the amount equal to the cash, if any, which
such holder has the right to receive pursuant to the provisions of this
Article II (including any cash in lieu of any fractional shares of Parent
Common Stock to which such holder is entitled pursuant to Section 2.05(f) and
any dividends or other distributions to which such holder is entitled pursuant
to Section 2.05(d)), and the Certificate so surrendered shall forthwith be
cancelled. In the event of a transfer of ownership of shares of Company Common
Stock which is not registered in the transfer records of the Company, the
applicable Merger Consideration, cash in lieu of any fractional shares of
Parent Common Stock to which such holder is entitled pursuant to Section
2.05(f) and any dividends or other distributions to which such holder is
entitled pursuant to Section 2.05(d) may be issued to a transferee if the
Certificate representing such shares of Company Common Stock is presented to
the Exchange Agent, accompanied by all documents required to evidence and
effect such transfer and by evidence that any applicable stock transfer taxes
have been paid. Until surrendered as contemplated by this Section 2.05, each
Certificate shall be deemed at all times after the Effective Time to represent
only the right to receive upon such surrender the applicable Merger
Consideration with respect to the shares of Company Common Stock formerly
represented thereby, cash in lieu of any fractional shares of Parent Common
Stock to which such holder is entitled pursuant to Section 2.05(f) and any
dividends or other distributions to which such holder is entitled pursuant to
Section 2.05(d).
(d) Distributions with Respect to Unexchanged Shares of Parent Common
Stock. No dividends or other distributions declared or made after the
Effective Time with respect to Parent Common Stock with a record date after
the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of Parent Common Stock represented
thereby, and no cash payment in lieu of any fractional shares shall be paid to
any such holder pursuant to Section 2.05(f), until the holder of such
Certificate shall surrender such Certificate. Subject to the effect of
escheat, tax or other applicable laws, following surrender of any such
Certificate, there shall be paid to the holder of the certificates
representing whole shares of Parent Common Stock issued in exchange therefor,
without interest, (i) promptly, the amount of any cash payable with respect to
a fractional share of Parent Common Stock to which such holder is entitled
pursuant to Section 2.05(f) and the amount of dividends or other distributions
with a record date after the Effective Time and theretofore paid with respect
to such whole shares of Parent Common Stock, and (ii) at the appropriate
payment date, the amount of dividends or other distributions, with a record
date after the Effective Time but prior to surrender and a payment date
occurring after surrender, payable with respect to such whole shares of Parent
Common Stock.
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(e) No Further Rights in Company Common Stock. All shares of Parent Common
Stock issued or cash paid upon conversion of the shares of Company Common
Stock in accordance with the terms hereof (including any cash paid pursuant to
Section 2.05(d) or (f)) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Company Common Stock.
(f) No Fractional Shares. No certificates or scrip representing fractional
shares of Parent Common Stock shall be issued upon the surrender for exchange
of Certificates, and such fractional share interests will not entitle the
owner thereof to vote or to any other rights of a shareholder of Parent. Each
holder of a fractional share interest shall be paid an amount in cash equal to
the product obtained by multiplying (i) such fractional share interest to
which such holder (after taking into account all fractional share interests
then held by such holder) would otherwise be entitled by (ii) the Average
Parent Share Price. As promptly as practicable after the determination of the
amount of cash, if any, to be paid to holders of fractional share interests,
the Exchange Agent shall so notify Parent, and Parent shall deposit such
amount with the Exchange Agent and shall cause the Exchange Agent to forward
payments to such holders of fractional share interests subject to and in
accordance with the terms of Sections 2.05(b), (c) and (d).
(g) Termination of Exchange Fund. Any portion of the Exchange Fund
(including any shares of Parent Common Stock) which remains undistributed to
the holders of Company Common Stock for one year after the Effective Time
shall be delivered to Parent, upon demand, and any holders of Company Common
Stock who have not theretofore complied with this Article II shall thereafter
look only to Parent for the applicable Merger Consideration, any cash in lieu
of fractional shares of Parent Common Stock to which they are entitled
pursuant to Section 2.05(f) and any dividends or other distributions with
respect to the Parent Common Stock to which they are entitled pursuant to
Section 2.05(d). Any portion of the Exchange Fund remaining unclaimed by
holders of shares of Company Common Stock as of a date which is immediately
prior to such time as such amounts would otherwise escheat to or become
property of any government entity shall, to the extent permitted by applicable
law, become the property of Parent free and clear of any claims or interest of
any person previously entitled thereto.
(h) No Liability. None of the Exchange Agent, Parent nor the Surviving
Corporation shall be liable to any holder of shares of Company Common Stock
for any such shares of Parent Common Stock (or dividends or distributions with
respect thereto), or cash delivered to a public official pursuant to any
abandoned property, escheat or similar law.
(i) Withholding Rights. Each of the Surviving Corporation and Parent shall
be entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of shares of Company Common Stock
such amounts as it is required to deduct and withhold with respect to the
making of such payment under the Code, or any provision of state, local or
foreign tax law. To the extent that amounts are so withheld by the Surviving
Corporation or Parent, as the case may be, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the holder
of the shares of Company Common Stock in respect of which such deduction and
withholding was made by the Surviving Corporation or Parent, as the case may
be.
(j) Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond, in such
reasonable amount as the Surviving Corporation may direct, as indemnity
against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost, stolen
or destroyed Certificate the applicable Merger Consideration, any cash in lieu
of fractional shares of Parent Common Stock to which the holders thereof are
entitled pursuant to Section 2.05(f) and any dividends or other distributions
to which the holders thereof are entitled pursuant to this Agreement.
(k) Further Assurances. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary
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or desirable to vest, perfect or confirm of record or otherwise in the
Surviving Corporation its right, title or interest in, to or under any of the
rights, properties or assets of either of the Merger Sub or the Company
acquired or to be acquired by the Surviving Corporation as a result of, or in
connection with, the Merger or otherwise to carry out this Agreement, the
officers of the Surviving Corporation shall be authorized to execute and
deliver, in the name and on behalf of each of the Merger Sub and the Company
or otherwise, all such deeds, bills of sale, assignments and assurances and to
take and do, in such names and on such behalves or otherwise, all such other
actions and things as may be necessary or desirable to vest, perfect or
confirm any and all right, title and interest in, to and under such rights,
properties or assets in the Surviving Corporation or otherwise to carry out
the purposes of this Agreement.
SECTION 2.06. Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed and there shall be no further
registration of transfers of shares of Company Common Stock thereafter on the
records of the Company. From and after the Effective Time, the holders of
certificates representing shares of Company Common Stock outstanding
immediately prior to the Effective Time shall cease to have any rights with
respect to such shares of Company Common Stock, except as otherwise provided
herein or by law. On or after the Effective Time, any Certificates presented
to the Exchange Agent or Parent for any reason shall be converted into shares
of Parent Common Stock, any cash in lieu of fractional shares of Parent Common
Stock to which the holders thereof are entitled pursuant to Section 2.05(f)
and any dividends or other distributions to which the holders thereof are
entitled pursuant to Section 2.05(d).
ARTICLE III
Representations and Warranties of the Company
The Company hereby represents and warrants to Parent and Merger Sub as
follows:
SECTION 3.01. Organization. Each of the Company and its Significant
Subsidiaries (as defined below) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority and all
necessary government approvals to own, lease and operate its properties and to
carry on its business as now being conducted, except where the failure to be
so organized, existing and in good standing or to have such power, authority
and governmental approvals would not have a material adverse effect. For
purposes of this Agreement, a "Significant Subsidiary" means any subsidiary of
the Company or Parent, as the case may be, that constitutes a significant
subsidiary within the meaning of Rule 1-02 of Regulation S-X of the Securities
and Exchange Commission (the "SEC"). The Company and each of its subsidiaries
is duly qualified or licensed to do business and in good standing in each
jurisdiction in which the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification or licensing
necessary, except where the failure to be so duly qualified or licensed and in
good standing would not have a material adverse effect. The Company has made
available to Parent complete and correct copies of its Articles of
Incorporation, as amended, and By-Laws and the articles of incorporation and
by-laws or other comparable charter or organizational documents of its
Significant Subsidiaries, in each case as amended to the date of this
Agreement. The list of subsidiaries of the Company set forth in Schedule 3.01
of the separate disclosure schedule delivered by the Company to Parent prior
to the execution of this Agreement (the "Company Disclosure Schedule") is a
true and accurate list of all the subsidiaries of the Company. All the
outstanding shares of capital stock of each Significant Subsidiary of the
Company are owned by the Company or by another wholly owned subsidiary of the
Company, free and clear of all liens, and are duly authorized, validly issued,
fully paid and nonassessable.
SECTION 3.02. Capitalization. The authorized capital stock of the Company
consists of 240,000,000 shares of Company Common Stock, 1,900,000 shares of
Convertible Preferred Stock and 10,000,000 shares of Class A Preferred Stock,
par value $1.00 per share, of the Company ("Class A Preferred Stock"). As of
October 7, 1995, (i) 47,248,878 shares of Company Common Stock, 48,635 shares
of Convertible Preferred Stock and no shares of Class A Preferred Stock were
issued and outstanding, (ii) 2,693,071 shares of Company Common Stock
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were reserved for issuance upon exercise of outstanding Company Stock Options
(as defined in Section 6.05), (iii) 243,661 shares of Company Common Stock
were reserved for issuance upon conversion of the Convertible Preferred Stock
and (iv) 66,171 shares of Company Common Stock were held in the treasury of
the Company. All the outstanding shares of Company Common Stock are, and all
shares which may be issued pursuant to the Company Stock Options and the
Convertible Preferred Stock will be, when issued in accordance with the
respective terms thereof, duly authorized, validly issued, fully paid and
nonassessable and free of any pre-emptive rights in respect thereof. As of the
date hereof, no bonds, debentures, notes or other indebtedness of the Company
convertible into voting securities of the Company are issued or outstanding
and, except as set forth above, (i) no shares of capital stock or other voting
securities of the Company are outstanding, (ii) no equity equivalents,
interests in the ownership or earnings of the Company or other similar rights
are outstanding and (iii) there are no existing options, warrants, calls,
subscriptions or other rights or agreements or commitments relating to the
capital stock of the Company or any of its subsidiaries or obligating the
Company or any of its subsidiaries to issue, transfer or sell any shares of
capital stock, or other equity interest in, the Company or any of its
subsidiaries or obligating the Company or any of its subsidiaries to grant,
extend or enter into any such option, warrant, call, subscription or other
right, agreement or commitment. As of the date of this Agreement, except as
contemplated by Section 6.08, there are no outstanding contractual obligations
of the Company or any of its subsidiaries to repurchase, redeem or otherwise
acquire any shares of capital stock of the Company or any of its subsidiaries.
SECTION 3.03. Authority. The Company has the requisite corporate power and
authority to execute and deliver this Agreement and, subject to the requisite
approval of this Agreement by the holders of the outstanding shares of Company
Common Stock and Convertible Preferred Stock, voting together as one class, to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company, subject to the requisite approval
of this Agreement by the holders of the outstanding shares of Company Common
Stock and Convertible Preferred Stock, voting together as one class. This
Agreement has been duly executed and delivered by the Company and, assuming
this Agreement constitutes the valid and binding obligation of Parent and
Merger Sub, constitutes the valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and similar laws, now or
hereafter in effect, affecting creditors' rights and remedies and to general
principles of equity.
SECTION 3.04. Noncontravention; Filings and Consents. (a) Except as set
forth in Schedule 3.04 of the Company Disclosure Schedule, the execution and
delivery of this Agreement by the Company do not, and the consummation of the
transactions contemplated by this Agreement and compliance with the provisions
of this Agreement will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation, or acceleration of any obligation or
to loss of a material benefit under, or result in the creation of any lien
upon any of the properties or assets of the Company or any of its subsidiaries
under (i) the Articles of Incorporation, as amended, or By-Laws of the Company
or the comparable charter or organizational documents of any of its
Significant Subsidiaries, (ii) any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit, concession,
franchise or license applicable to the Company or any of its Significant
Subsidiaries or their respective properties or assets or (iii) subject to the
governmental filings and other matters referred to in paragraph (b) below, any
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or any of its subsidiaries or their respective
properties or assets, other than, in the case of clauses (ii) and (iii), any
such conflicts, violations, defaults, rights or liens that individually or in
the aggregate would not (x) impair in any material respect the ability of the
Company to perform its obligations under this Agreement or (y) prevent or
impede, in any material respect, the consummation of the transactions
contemplated by this Agreement.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with, any federal, state or local government or any
court, administrative or regulatory agency or commission or other governmental
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authority or agency, domestic or foreign (a "Governmental Entity"), is
required by the Company or any of its subsidiaries in connection with the
execution and delivery of this Agreement by the Company or the consummation by
the Company of the transactions contemplated by this Agreement, except for (i)
the filing of a premerger notification and report form by the Company under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (ii) the filing of a notification with the European Commission under
Council Regulation (EEC) No. 4064/89 ("Regulation 4064/89"), (iii) the filing
with the SEC of (x) the Proxy Statement (as defined in Section 6.02) and (y)
such reports under Section 13(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as may be required in connection with this
Agreement and the transactions contemplated by this Agreement, (iv) the filing
of the Articles of Merger with the North Carolina Secretary of State and
appropriate documents with the relevant authorities of other states in which
the Company is qualified to do business, (v) the filing of such notices and
other reports as may be required to comply with the Connecticut Transfer Act
("CTA"), (vi) such as may be required by any applicable state securities or
"blue sky" laws and (vii) such other consents, approvals, orders,
authorizations, registrations, declarations and filings the failure of which
to be obtained or made would not, individually or in the aggregate, (x) impair
in any material respect the ability of the Company to perform its obligations
under this Agreement or (y) prevent or impede, in any material respect, the
consummation of the transactions contemplated by this Agreement.
SECTION 3.05. Company SEC Documents; Financial Statements. The Company has
filed all required reports, proxy statements, forms, and other documents with
the SEC since December 31, 1993 and prior to the date of this Agreement (the
"Company SEC Documents"). As of their respective dates, (i) the Company SEC
Documents complied, and all similar documents filed prior to the Closing Date
will comply, in all material respects with the requirements of the Securities
Act of 1933, as amended (the "Securities Act") or the Exchange Act, as the
case may be, and the rules and regulations of the SEC promulgated thereunder
applicable to such Company SEC Documents and (ii) none of the Company SEC
Documents contained, nor will any similar document filed after the date of
this Agreement contain, any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading. The financial statements of the Company included in
the Company SEC Documents (including any similar documents filed after the
date of this Agreement) comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto have been prepared in accordance with generally
accepted accounting principles (except, in the case of unaudited statements,
as permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
present the consolidated financial position of the Company and its
consolidated subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments). Except as
set forth in Schedule 3.05 of the Company Disclosure Schedule and except as
set forth in the Company SEC Documents, and except for liabilities and
obligations incurred in the ordinary course of business consistent with past
practice since the date of the most recent consolidated balance sheet included
in the Company SEC Documents, neither the Company nor any of its subsidiaries
has any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) required by generally accepted accounting principles
to be set forth on a consolidated balance sheet of the Company and its
consolidated subsidiaries or in the notes thereto and which, individually or
in the aggregate, would reasonably be expected to have a material adverse
effect.
SECTION 3.06. Information Supplied. None of the information to be supplied
by the Company expressly for inclusion or incorporation by reference in the
Registration Statement and the Proxy Statement will, (i) on the date the Proxy
Statement is first mailed to the shareholders of the Company and Parent, (ii)
at the time the Registration Statement becomes effective and (iii) at the time
of the Company Shareholders' Meeting (as defined in Section 6.01), contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading, except that no representation or warranty is made by the Company
with respect to statements made or incorporated by reference therein based on
information supplied by Parent or Merger Sub specifically for inclusion or
incorporation by reference therein. The Proxy Statement will comply as
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to form in all material respects with the requirements of the Exchange Act and
the rules and regulations thereunder.
SECTION 3.07. Absence of Certain Changes or Events. Except as disclosed in
the Company SEC Documents or as set forth in Schedule 3.07 of the Company
Disclosure Schedule or as contemplated by this Agreement, since September 9,
1995, the Company and its subsidiaries have conducted their respective
businesses only in the ordinary course, and there has not been (i) any
material adverse change in the Company, (ii) any declaration, setting aside or
payment of any dividend or other distribution with respect to the Company's
capital stock other than the regular quarterly dividends on the shares of
Company Common Stock, Convertible Preferred Stock and Class A Preferred Stock,
(iii) any split, combination or reclassification of any of the Company's
capital stock or any issuance or the authorization of any issuance of any
other securities in respect of, in lieu of or in substitution for shares of
its capital stock, (iv) (A) any granting by the Company or any of its
subsidiaries to any officer of the Company or any of its subsidiaries of any
increase in compensation, except in the ordinary course of business consistent
with prior practice, (B) any granting by the Company or any of its
subsidiaries to any such officer of any increase in severance or termination
pay, except as part of a standard employment package to any person promoted or
hired, (C) except termination arrangements in the ordinary course of business
consistent with past practice with employees other than any executive officer
of the Company, any entry by the Company or any of its subsidiaries into any
employment, severance or termination agreement with any such officer, or (D)
any material modifications to any existing Company Benefit Plans (as defined
in Section 3.10) other than such modifications required by law, (v) any
damage, destruction or loss, whether or not covered by insurance, that has or
reasonably would be expected to have a material adverse effect on the Company
or (vi) any change in accounting methods, principles or practices by the
Company materially affecting its assets, liabilities or business, except
insofar as may have been required by a change in generally accepted accounting
principles.
SECTION 3.08. Litigation. Except as disclosed in the Company SEC Documents
or as set forth in Schedule 3.08 of the Company Disclosure Schedule, there are
no suits, actions or proceedings pending or, to the knowledge of the Company,
threatened against the Company or any of its subsidiaries that would
reasonably be expected, individually or in the aggregate, to have a material
adverse effect. Except as disclosed in the Company SEC Documents, neither the
Company nor any of its subsidiaries is subject to any outstanding order, writ,
injunction or decree that would reasonably be expected to have a material
adverse effect.
SECTION 3.09. Absence of Changes in Benefit Plans. Except as disclosed in
Schedule 3.09 of the Company Disclosure Schedule, since December 31, 1994
there has not been any adoption or amendment in any material respect by the
Company or any of its subsidiaries of any collective bargaining agreement or
any bonus, pension, profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, retirement,
severance, disability, death benefit, hospitalization, medical or other plan,
arrangement or understanding providing benefits to any current or former
employee, officer or director of the Company or any of its subsidiaries.
Except as disclosed in Schedule 3.09 of the Company Disclosure Schedule, there
exist no employment, consulting, severance, termination or indemnification
agreements, arrangements or understandings between the Company or any of its
subsidiaries and any current or former employee, officer or director of the
Company or any of its subsidiaries, and there is no oral or written
understanding or arrangement to enter into any such agreement with any such
individual.
SECTION 3.10. Employee Benefits; ERISA. (a) Schedule 3.10 of the Company
Disclosure Schedule contains a list of all "employee pension benefit plans"
(as defined in Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")) (sometimes referred to herein as "Company Pension
Plans"), "employee welfare benefit plans" (as defined in Section 3(1) of
ERISA) (sometimes referred to herein as "Welfare Plans"), and each other plan,
arrangement or policy (written or oral) relating to stock options, stock
purchases, compensation, deferred compensation, severance, fringe benefits or
other employee benefits, in each case maintained, or contributed to, by the
Company or any of its subsidiaries or any other person or entity that,
together with the Company is treated as a single employer under Section
414(b), (c), (m) or (o) of the Code
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(each, together with the Company, a "Commonly Controlled Entity"), for the
benefit of any current or former employees, officers, agents or directors of
the Company or any of its subsidiaries (all of the foregoing being herein
called "Company Benefit Plans"). The Company has made available to Parent true
and complete copies of (w) each Company Benefit Plan (or, in the case of any
unwritten Company Benefit Plans, descriptions thereof), (x) the most recent
annual report on Form 5500 filed with the Internal Revenue Service with
respect to each Company Benefit Plan (if any such report was required), (y)
the most recent summary plan description (or similar document) for each
Company Benefit Plan for which a summary plan description is required or was
otherwise provided to plan participants or beneficiaries and (z) each trust
agreement and group annuity contract relating to any Company Benefit Plan.
(b) Except as disclosed in Schedule 3.10 of the Company Disclosure Schedule,
all Company Pension Plans and related trusts that are intended to be tax-
qualified plans have been the subject of determination letters from the
Internal Revenue Service to the effect that such Company Pension Plans and
related trusts are qualified and exempt from federal income taxes under
Sections 401(a) and 501(a), respectively, of the Code, and no such
determination letter has been revoked nor, to the knowledge of the Company,
has revocation been threatened; no event has occurred and no circumstances
exist that would adversely affect the tax qualification of such Company
Pension Plan nor has any such Company Pension Plan been amended since the date
of its most recent determination letter or application therefor in any respect
that would adversely affect its qualification or materially increase its costs
or require security under Section 302 of ERISA.
(c) Each Company Benefit Plan has been administered in all material respects
in accordance with its terms. The Company Benefit Plans are, and have been
administered, in compliance in all material respects with the applicable
provisions of ERISA, the Code, and all other applicable laws. There are no
investigations by any governmental agency, termination proceedings or other
claims (except claims for benefits payable in the normal operation of the
Company Benefit Plans), suits or proceedings against or involving any Company
Benefit Plan or asserting any rights to or claims for benefits under any
Company Benefit Plan that could give rise to any material liability, and there
are not any facts that would reasonably be expected to give rise to any
material liability in the event of any such investigation, claim, suit or
proceeding.
(d) No Commonly Controlled Entity is required to contribute to any
"multiemployer plan" as defined in Section 4001(a)(3) of ERISA or has
withdrawn from any such multiemployer plan where such withdrawal has resulted
or would result in any material "withdrawal liability" (within the meaning of
Section 4201 of ERISA) that has not been fully paid. None of the Company, any
of its subsidiaries, any officer of the Company or any of its subsidiaries or
any of the Company Benefit Plans which are subject to ERISA, including the
Company Pension Plans, any trusts created thereunder or any trustee or
administrator thereof, has engaged in a "prohibited transaction" (as such term
is defined in Section 406 of ERISA or Section 4975 of the Code) or any other
breach of fiduciary responsibility that could subject the Company, any of its
subsidiaries or any officer of the Company or any of its subsidiaries to any
material tax or penalty on prohibited transactions imposed by such Section
4975 or to any material liability under Section 502(i) or (l) of ERISA.
Neither any of such Company Benefit Plans nor any of such trusts has been
terminated, nor has there been any "reportable event" (as that term is defined
in Section 4043 of ERISA) with respect thereto, during the last five years.
(e) Except as set forth in Schedule 3.10 of the Company Disclosure Schedule,
no employee of the Company or any of its subsidiaries will be entitled to any
severance benefits or any other additional benefits or any acceleration of the
time of payment or vesting of any benefits under any Company Benefit Plan as a
result of the transactions contemplated by this Agreement.
(f) No liability under Title IV of ERISA has been incurred by the Company or
any Commonly Controlled Entity that has not been satisfied in full, and no
condition exists that presents a material risk to the Company or any Commonly
Controlled Entity of incurring a liability under such Title, other than
liability for premiums due the Pension Benefit Guaranty Corporation ("PBGC")
(which premiums have been paid when due). To the extent this representation
applies to sections 4064, 4069 or 4204 of Title IV of ERISA, it is made not
only with respect to each Company Pension Plan but also with respect to any
employee benefit plan, program, agreement or
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arrangement subject to Title IV of ERISA to which the Company or any Commonly
Controlled Entity made, or was required to make, contributions during the five
(5)-year period ending on the Closing Date. No Company Pension Plan or any
trust established thereunder has incurred any "accumulated funding deficiency"
(as defined in section 302 of ERISA and section 412 of the Code), whether or
not waived, as of the last day of the most recent fiscal year of each Company
Pension Plan ended prior to the Closing Date; and all contributions required
to be made with respect thereto (whether pursuant to the terms of any Company
Pension Plan or otherwise) on or prior to the Closing Date have been timely
made.
(g) The Tait U.K. Pension Scheme has been administered in all material
respects in accordance with applicable law, all contributions required to be
made thereto on or prior to the Effective Time have been or will be timely
made, and such Scheme has been funded in accordance with local law and
practice.
SECTION 3.11. Taxes. Each of the Company and each of its subsidiaries has
filed all tax returns and reports required to be filed by it and has paid (or
the Company has paid on its behalf) all taxes required to be paid by it, and
the most recent financial statements contained in the Company SEC Documents
reflect an adequate reserve for all taxes payable by the Company and its
subsidiaries for all taxable periods and portions thereof through the date of
such financial statements. No deficiencies for any taxes have been proposed,
asserted or assessed against the Company or any of its subsidiaries, and no
requests for waivers of the time to assess any such taxes are pending. The
federal income tax returns of the Company and each of its subsidiaries
consolidated in such returns have been examined by and settled with the United
States Internal Revenue Service for all years through 1992. As used in this
Agreement, "taxes" shall include all federal, state, local and foreign income,
property, sales, excise and other taxes, tariffs or governmental charges of
any nature whatsoever.
SECTION 3.12. Compliance with Applicable Laws. Except as disclosed in the
Company SEC Documents or as set forth in Schedule 3.12 of the Company
Disclosure Schedule, to the knowledge of the Company, since January 1, 1993
neither the Company nor any of its subsidiaries has violated or failed to
comply with any statute, law, regulation, rule, judgment, decree or order of
any Governmental Entity applicable to its business or operations, except for
violations and failures to comply that would not, individually or in the
aggregate, reasonably be expected to result in a material adverse effect. The
conduct of the business of the Company and its subsidiaries is in conformity
with all federal, state and local governmental and regulatory requirements
applicable to its business and operations, except where such nonconformities
would not, in the aggregate, reasonably be expected to result in a material
adverse effect. The Company and its subsidiaries have all permits, licenses
and franchises from governmental agencies required to conduct their businesses
as now being conducted, except for such permits, licenses and franchises the
absence of which would not, in the aggregate, reasonably be expected to result
in a material adverse effect.
SECTION 3.13. Environmental Matters. Except as disclosed in the Company SEC
Documents or as set forth in Schedule 3.13 of the Company Disclosure Schedule
and except as would not, individually or in the aggregate, reasonably be
expected to result in a material adverse effect:
(a) To the knowledge of the Company, (i) the Company and its subsidiaries
are in compliance with all applicable Environmental Laws and (ii) the
Company and its subsidiaries hold all Environmental Permits necessary for
their operations and properties and are in compliance with the terms and
conditions of all such Environmental Permits.
(b) To the knowledge of the Company, there is no written claim, demand,
notice or complaint alleging violation of, or liability under, any
Environmental Laws pending or threatened against the Company and its
subsidiaries, or against any person or entity whose liability for any such
claim, demand, notice or complaint the Company or any of its subsidiaries
has retained or assumed either contractually or by operation of law.
(c) The Company and its subsidiaries have not received any written
request for information relating to, or been notified that any of them is a
potentially responsible party under, CERCLA or any similar state, local or
foreign law.
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(d) The Company has not entered into or agreed to any consent decree or
order, and is not subject to any judgment, decree or judicial order,
relating to compliance with Environmental Laws or Environmental Permits or
the investigation, sampling, monitoring, treatment, remediation, removal or
cleanup of Hazardous Materials, and, to the knowledge of the Company, no
investigation, litigation or other proceeding is pending or threatened with
respect thereto.
(e) None of the properties of the Company or its subsidiaries is listed
or, to the knowledge of the Company, proposed for listing, on the "National
Priorities List" under CERCLA, as updated through the date hereof, or any
similar state list of sites requiring investigation or cleanup.
(f) To the knowledge of the Company, Hazardous Materials have not been
released, discharged or disposed of on any of the properties owned or
occupied by the Company or its subsidiaries in any manner or quantity which
requires investigation, assessment, monitoring, remediation or cleanup
under currently applicable Environmental Laws.
(g) The Company has made available to Parent copies of all environmental
audits, assessments or studies completed since January 1, 1993 within its
possession with respect to the facilities or real property currently owned,
leased or operated by the Company or any subsidiary.
(h) To the knowledge of the Company, there are no past or present
actions, activities, circumstances, conditions, events or incidents
(including, without limitation, the release, emission, discharge, presence
or disposal of any Hazardous Materials) which could reasonably be expected
to form the basis of any claim, demand, notice or complaint alleging
violation of, or liability under, any Environmental Laws against the
Company and its subsidiaries, or against a person or entity whose liability
for any such claim, demand, notice or complaint the Company or any of its
subsidiaries has retained or assumed either contractually or by operation
of law.
(i) For purposes of this Agreement:
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended as of the date hereof.
"Environmental Laws" means any federal, state, local or foreign
statute, law, ordinance, regulation, rule, code or order and any
enforceable judicial or administrative interpretation thereof,
including any judicial or administrative order, consent decree or
judgment, relating to pollution or protection of industrial hygiene or
of the environment or natural resources, including, without limitation,
those relating to the use, handling, transportation, treatment,
storage, disposal, release or discharge of Hazardous Materials, in
effect as of the date hereof.
"Environmental Permits" means any permit, approval, identification
number, license or other authorization required of the Company or its
subsidiaries, or Parent or its subsidiaries, as the case may be, under
any applicable Environmental Law.
"Hazardous Materials" means (a) any petroleum, petroleum products, by
products or breakdown products, radioactive materials, asbestos-
containing materials or polychlorinated biphenyls or (b) any chemical,
material or substance defined or regulated as toxic or hazardous or as
a pollutant or contaminant or waste under any applicable Environmental
Law.
SECTION 3.14. Title to Properties. (a) Except as disclosed in the Company
SEC Documents or as set forth in Schedule 3.14 of the Company Disclosure
Schedule, each of the Company and each of its subsidiaries has good and
marketable title to, or valid leasehold interests in, all its properties and
assets except for such as are no longer used or useful in the conduct of its
businesses or as have been disposed of in the ordinary course of business and
except for defects in title, easements, restrictive covenants and similar
encumbrances or impediments that, in the aggregate, do not materially
interfere with its ability to conduct its business as currently conducted. All
such assets and properties, other than assets and properties in which the
Company or any of its subsidiaries has leasehold interests, are free and clear
of all liens other than those set forth in Schedule 3.14 of the Company
Disclosure Schedule and except for liens that, in the aggregate, do not and
will not materially interfere with the ability of the Company and its
subsidiaries to conduct their businesses as currently conducted.
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(b) Except as disclosed in the Company SEC Documents or as set forth in
Schedule 3.14 of the Company Disclosure Schedule, each of the Company and its
subsidiaries has complied in all material respects with the terms of all
material leases to which it is a party and under which it is in occupancy, and
all such leases are in full force and effect. Each of the Company and its
subsidiaries enjoys peaceful and undisturbed possession under all such
material leases.
SECTION 3.15. Trademarks, Etc. The material patents, trademarks (registered
or unregistered), trade names, service marks and copyrights and applications
therefor owned by or licensed to the Company and its subsidiaries
(collectively, "Intellectual Property Rights") are sufficient to allow each of
the Company and each of its Significant Subsidiaries to conduct, and to
continue to conduct, its business as currently conducted in all material
respects. To the knowledge of the Company, each of the Company and each of its
Significant Subsidiaries owns or has sufficient unrestricted right to use the
Intellectual Property Rights in order to allow it to conduct, and to continue
to conduct, its business as currently conducted in all material respects, and
the consummation of the transactions contemplated hereby will not alter or
impair such ability in any respect. Except as set forth in Schedule 3.15 of
the Company Disclosure Schedule, to the knowledge of the Company, neither the
Company nor any of its Significant Subsidiaries has received any written
notice from any other person pertaining to or challenging the right of the
Company or any of its Significant Subsidiaries to use any of the Intellectual
Property Rights. To the knowledge of the Company, no claims are pending by any
person with respect to the ownership, validity, enforceability or use of any
such Intellectual Property Rights challenging or questioning the validity or
effectiveness of any of the foregoing. Except as set forth in Schedule 3.15 of
the Company Disclosure Schedule, to the knowledge of the Company, neither the
Company nor any of its Significant Subsidiaries has made any claim of a
violation or infringement by others of its rights to or in connection with the
Intellectual Property Rights.
SECTION 3.16. Insurance. To the knowledge of the Company, the Company and
its Significant Subsidiaries have obtained and maintained in full force and
effect insurance with responsible and reputable insurance companies or
associations in such amounts, on such terms and covering such risks, including
fire and other risks insured against by extended coverage, as is reasonably
prudent, and each has maintained in full force and effect public liability
insurance, insurance against claims for personal injury or death or property
damage occurring in connection with the activities of the Company or its
Significant Subsidiaries or any properties owned, occupied or controlled by
the Company or its Significant Subsidiaries, in such amount as reasonably
deemed necessary by the Company or its Significant Subsidiaries.
SECTION 3.17. Reorganization. To the knowledge of the Company, neither it
nor any of its subsidiaries has taken any action or failed to take any action
which action or failure would jeopardize the qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code.
SECTION 3.18. Voting Requirements. The affirmative vote of the holders of a
majority of the outstanding shares of Company Common Stock and Convertible
Preferred Stock, voting together as one class, entitled to vote approving this
Agreement is the only vote of the holders of any class of the Company's
capital stock necessary to approve this Agreement and the transactions
contemplated by this Agreement.
SECTION 3.19. Opinions of Financial Advisors. The Company has received (a)
an opinion from J.P. Morgan Securities Inc. to the effect that, as of the date
of this Agreement, the consideration to be received in the Merger by the
holders of Company Common Stock is fair to the holders of Company Common Stock
from a financial point of view and (b) an opinion from Goldman, Sachs & Co.,
to the effect that, as of the date of this Agreement, the consideration to be
received in the Merger by the holders of Company Common Stock is fair to the
holders of Company Common Stock.
SECTION 3.20. Brokers. No broker, investment banker, financial advisor or
other person, other than J.P. Morgan Securities Inc. and Goldman, Sachs & Co.,
the fees and expenses of which will be paid by the Company, is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company.
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The Company has provided Parent true and correct copies of the agreements
between the Company and each of J.P. Morgan Securities Inc. and Goldman, Sachs
& Co.
ARTICLE IV
Representations and Warranties of Parent and Merger Sub
Parent and Merger Sub hereby jointly and severally represent and warrant to
the Company as follows:
SECTION 4.01. Organization. Each of Parent and Merger Sub and Parent's
Significant Subsidiaries is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation and
has all requisite corporate power and authority and all necessary government
approvals to own, lease and operate its properties and to carry on its
business as now being conducted, except where the failure to be so organized,
existing and in good standing or to have such power, authority and
governmental approvals would not have a material adverse effect. Each of
Parent and Merger Sub and each of Parent's subsidiaries is duly qualified or
licensed to do business and in good standing in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or licensing necessary, except where
the failure to be so duly qualified or licensed and in good standing would not
have a material adverse effect. Each of Parent and Merger Sub has made
available to the Company complete and correct copies of its respective
Articles of Incorporation and By-Laws and the articles of incorporation and
by-laws or other comparable charter or organizational documents of Parent's
Significant Subsidiaries, in each case as amended to the date of this
Agreement. The list of subsidiaries of Parent filed by Parent with its most
recent Report on Form 10-K is on the date of this Agreement a true and
accurate list of all the subsidiaries which are required to be set forth
therein. Merger Sub has no subsidiaries.
SECTION 4.02. Capitalization. (a) The authorized capital stock of Parent
consists of 400,000,000 shares of Parent Common Stock, 8,750,000 shares of
Serial Preferred, par value $1.00 per share (the "Serial Preferred Stock"),
and 400,000 shares of Cumulative $4 Preferred Stock, without par value (the
"$4 Preferred"). As of September 30, 1995, (i) 260,824,389 shares of Parent
Common Stock, no shares of the Serial Preferred Stock and 15,780 shares of the
$4 Preferred were issued and outstanding. As of July 31, 1995, (i) 8,679,116
shares of Parent Common Stock were reserved for issuance upon exercise of
outstanding options ("Parent Stock Options"), and (ii) 9,000,000 shares of
Parent Common Stock were reserved for issuance upon the conversion of
outstanding Trust Issued Tax Deductible Convertible Preferred (the "Trust
Preferred"). All the outstanding shares of Parent Common Stock are, and all
shares which may be issued pursuant to Parent Stock Options and the Trust
Preferred will be, when issued in accordance with the respective terms
thereof, duly authorized, validly issued, fully paid and nonassessable and
free of any pre-emptive rights in respect thereof. As of the date hereof, no
bonds, debentures, notes or other indebtedness of Parent convertible into
voting securities of Parent are issued or outstanding and, except as set forth
above, (i) no shares of capital stock or other voting securities of Parent are
outstanding, (ii) no equity equivalents, interests in the ownership or
earnings of Parent or other similar rights are outstanding and (iii) there are
no existing options, warrants, calls, subscriptions or other rights or
agreements or commitments relating to the capital stock of Parent or
obligating Parent or any of its subsidiaries to issue, transfer or sell any
shares of capital stock, or other equity interest in, Parent or obligating
Parent or any of its subsidiaries to grant, extend or enter into any such
option, warrant, call, subscription or other right, agreement or commitment.
As of the date hereof, there are no outstanding contractual obligations of
Parent or any of its subsidiaries to repurchase, redeem or otherwise acquire
any shares of capital stock of Parent.
(b) The authorized capital stock of Merger Sub consists of 1,000 shares of
common stock, without par value, all of which are duly authorized, validly
issued, fully paid and nonassessable and free of any pre-emptive rights in
respect thereof and all of which are owned by Parent.
SECTION 4.03. Authority. Each of Parent and Merger Sub has the requisite
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated by this
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Agreement. The execution and delivery of this Agreement by Parent and Merger
Sub and the consummation by Parent and Merger Sub of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Parent and Merger Sub and does not require the approval
of the shareholders of Parent. This Agreement has been duly executed and
delivered by Parent and Merger Sub and, assuming this Agreement constitutes
the valid and binding obligation of the Company, constitutes the valid and
binding obligation of Parent and Merger Sub, enforceable against Parent and
Merger Sub in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and similar laws, now or hereafter in effect,
affecting creditors' rights and remedies and to general principles of equity.
SECTION 4.04. Noncontravention; Filings and Consents. (a) The execution and
delivery of this Agreement by either Parent or Merger Sub do not, and the
consummation of the transactions contemplated by this Agreement and compliance
with the provisions of this Agreement will not, conflict with, or result in
any violation of, or default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination, cancellation, or
acceleration of any obligation or to loss of a material benefit under, or
result in the creation of any lien upon any of the properties or assets of
Parent or Merger Sub or any of Parent's subsidiaries under (i) the Articles of
Incorporation or By-Laws of either Parent or Merger Sub or the comparable
charter or organizational documents of any of Parent's Significant
Subsidiaries, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession, franchise
or license applicable to Parent or Merger Sub or any of Parent's Significant
Subsidiaries or their respective properties or assets or (iii) subject to the
governmental filings and other matters referred to in paragraph (b) below, any
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Parent or Merger Sub or any of Parent's subsidiaries or their
respective properties or assets, other than, in the case of clauses (ii) and
(iii), any such conflicts, violations, defaults, rights or liens that
individually or in the aggregate would not (x) impair in any material respect
the ability of Parent or Merger Sub to perform their respective obligations
under this Agreement or (y) prevent or impede, in any material respect, the
consummation of the transactions contemplated by this Agreement.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity, is required by Parent or
Merger Sub or any of Parent's subsidiaries in connection with the execution
and delivery of this Agreement by Parent or Merger Sub or the consummation by
Parent or Merger Sub of the transactions contemplated by this Agreement,
except for (i) the filing of a premerger notification and report form by
Parent and Merger Sub under the HSR Act, (ii) the filing with the SEC of the
Proxy Statement and the Registration Statement, (iii) the filing of a
notification with the European Commission under Regulation 4064/89, (iv) the
filing of the Articles of Merger with the North Carolina Secretary of State
and appropriate documents with the relevant authorities of other states in
which Parent is qualified to do business, (v) the filing of such notices and
other reports as may be required to comply with the CTA, (vi) such as may be
required by any applicable state securities or "blue sky" laws and (vii) such
other consents, approvals, orders, authorizations, registrations, declarations
and filings the failure of which to be obtained or made would not,
individually or in the aggregate, (x) impair in any material respect the
ability of Parent or Merger Sub to perform their respective obligations under
this Agreement or (y) prevent or impede, in any material respect, the
consummation of the transactions contemplated by this Agreement.
SECTION 4.05. Parent SEC Documents; Financial Statements. Parent has filed
all required reports, proxy statements, forms, and other documents with the
SEC since December 31, 1993 and prior to the date of this Agreement (the
"Parent SEC Documents"). As of their respective dates, (i) the Parent SEC
Documents complied, and all similar documents filed prior to the Closing Date
will comply, in all material respects with the requirements of the Securities
Act or the Exchange Act, as the case may be, and the rules and regulations of
the SEC promulgated thereunder applicable to such Parent SEC Documents and
(ii) none of the Parent SEC Documents contained, nor will any similar document
filed after the date of this Agreement contain, any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of Parent included in the Parent SEC Documents (including any
similar documents filed after
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the date of this Agreement) comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles (except, in the case of unaudited statements,
as permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
present the consolidated financial position of Parent and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). Except as set
forth in the Parent SEC Documents, and except for liabilities and obligations
incurred in the ordinary course of business consistent with past practice
since the date of the most recent consolidated balance sheet included in the
Parent SEC Documents, neither Parent nor any of its subsidiaries has any
liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) required by generally accepted accounting principles
to be set forth on a consolidated balance sheet of Parent and its consolidated
subsidiaries or in the notes thereto and which, individually or in the
aggregate, would reasonably be expected to have a material adverse effect.
SECTION 4.06. Information Supplied. None of the information supplied or to
be supplied by Parent or Merger Sub expressly for inclusion or incorporation
by reference in the Registration Statement and the Proxy Statement will, (i)
on the date the Proxy Statement is first mailed to the shareholders of the
Company and Parent, (ii) at the time the Registration Statement becomes
effective and (iii) at the time of the Company Shareholders' Meeting, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading, except that no representation or warranty is made by Parent or
Merger Sub with respect to statements made or incorporated by reference
therein based on information supplied by the Company specifically for
inclusion or incorporation by reference therein. The Registration Statement
and the Proxy Statement will comply as to form in all material respects with
the requirements of the Exchange Act and the Securities Act and the rules and
regulations thereunder.
SECTION 4.07. Absence of Certain Changes or Events. Except as disclosed in
the Parent SEC Documents or contemplated by this Agreement, since June 30,
1995 and prior to the date of this Agreement, Parent and its subsidiaries have
conducted their respective businesses only in the ordinary course, and there
has not been (i) any declaration, setting aside or payment of any dividend or
other distribution with respect to Parent's capital stock other than the
regular quarterly dividends on the shares of Parent Common Stock and the $4
Preferred, (ii) any split, combination or reclassification of any of Parent's
capital stock or any issuance or the authorization of any issuance of any
other securities in respect of, in lieu of or in substitution for shares of
its capital stock or (iii) any change in accounting methods, principles or
practices by Parent materially affecting its assets, liabilities or business,
except insofar as may have been required by a change in generally accepted
accounting principles. Except as disclosed in the Parent SEC Documents, since
June 30, 1995, there has not been (i) any material adverse change in Parent or
(ii) any damage, destruction or loss, whether or not covered by insurance,
that has or reasonably could be expected to have, a material adverse effect on
Parent.
SECTION 4.08. Litigation. Except as disclosed in the Parent SEC Documents,
there are no suits, actions or proceedings pending or, to the knowledge of
Parent, threatened against Parent or any of its subsidiaries that would
reasonably be expected to have, individually or in the aggregate, a material
adverse effect. Except as disclosed in the Parent SEC Documents, neither
Parent nor any of its subsidiaries is subject to any outstanding order, writ,
injunction or decree that would reasonably be expected to have a material
adverse effect.
SECTION 4.09. Environmental Matters. Except as disclosed in the Parent SEC
Documents and except as would not, individually or in the aggregate, be
reasonably expected to result in a material adverse effect, to the knowledge
of Parent, (i) Parent and its subsidiaries are in compliance with all
applicable Environmental Laws and the terms and conditions of all applicable
Environmental Permits and (ii) no Hazardous Materials have been released,
discharged or disposed of on any of the properties owned or occupied by Parent
or its subsidiaries in any manner or quantity which requires investigation,
assessment, monitoring, remediation or cleanup under currently applicable
Environmental Laws.
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SECTION 4.10. Reorganization. To the knowledge of Parent, neither Parent nor
any of its subsidiaries has taken any action or failed to take any action
which action or failure would jeopardize the qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code.
SECTION 4.11. Ownership of Company Capital Stock. Neither Parent nor Merger
Sub nor any of their respective affiliates is the beneficial owner of any
shares of capital stock of the Company.
SECTION 4.12. Interim Operations of Merger Sub. Merger Sub was formed solely
for the purpose of engaging in the transactions contemplated by this Agreement
and has not engaged in any business activities or conducted any operations
other than in connection with the performance of its obligations hereunder.
SECTION 4.13. Brokers. No broker, investment banker, financial advisor or
other person, other than CS First Boston Corporation, the fees and expenses of
which will be paid by Parent, is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Parent or Merger Sub.
ARTICLE V
Covenants Relating to Conduct of Business
SECTION 5.01. Conduct of Business of the Company. Prior to the Effective
Time, the Company agrees (except as expressly contemplated or permitted by
this Agreement, as set forth in Schedule 5.01 of the Company Disclosure
Schedule, or to the extent that Parent shall otherwise consent in writing) as
follows:
(a) Ordinary Course. The Company and its subsidiaries shall carry on
their respective businesses in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted and shall use all
reasonable efforts to preserve intact their present business organizations,
keep available the services of their present officers and employees and
preserve their relationships with customers, suppliers and others having
business dealings with the Company and its subsidiaries.
(b) Dividends; Changes in Stock. The Company shall not (i) declare or pay
any dividends on or make other distributions in respect of any of its
capital stock other than regular quarterly dividends not to exceed $0.40
per share on the Company Common Stock and dividends required to be paid
pursuant to the terms of the Convertible Preferred Stock, (ii) split,
combine or reclassify any of its capital stock or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock or (iii) except as
contemplated by Section 6.08, repurchase, redeem or otherwise acquire, or
permit any subsidiary to repurchase, redeem or otherwise acquire, any
shares of capital stock.
(c) Issuance of Securities. The Company shall not, and it shall not
permit any of its subsidiaries to, issue, deliver or sell, or authorize or
propose the issuance, delivery or sale of, any shares of its capital stock
of any class or any securities convertible into, or any rights, warrants,
calls, subscriptions or options to acquire, any such shares or convertible
securities, or any other ownership interest other than (i) the issuance of
shares of Company Common Stock upon the exercise of stock options or stock
appreciation rights or warrants granted under the Company Stock Option
Plans (as defined in Section 6.05) and outstanding on the date of this
Agreement and in accordance with the present terms of such options or stock
appreciation rights, (ii) issuances by a wholly owned subsidiary of the
Company of its capital stock to the Company and (iii) the issuance of
shares of Company Common Stock upon conversion of shares of Convertible
Preferred Stock.
(d) Governing Documents. The Company shall not amend or propose to amend
its Articles of Incorporation, as amended, or By-Laws.
(e) No Acquisitions. The Company shall not, and it shall not permit any
of its subsidiaries to, acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial equity interest in or
substantial portion of the assets of, or by any other manner, any business
or any corporation, partnership, association or other business organization
or division thereof.
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(f) No Dispositions. The Company shall not, and it shall not permit any
of its subsidiaries to, sell, lease, encumber or otherwise dispose of, or
agree to sell, lease, encumber or otherwise dispose of, any of its material
assets other than (i) sales in the ordinary course of business consistent
with past practice, (ii) equipment and property no longer used in the
operation of the Company's business and (iii) assets related to
discontinued operations of the Company or its subsidiaries.
(g) Indebtedness. The Company shall not, and it shall not permit any of
its subsidiaries to, incur (which shall not be deemed to include entering
into credit agreements, lines of credit or similar arrangements until
borrowings are made under such arrangements) any indebtedness for borrowed
money or guarantee any such indebtedness or issue or sell any debt
securities or warrants or rights to acquire any debt securities of the
Company or any of its subsidiaries or guarantee any debt securities of
others, except in the ordinary course of business consistent with past
practice, including, without limitation, borrowings under the Company's
existing credit agreements and overnight borrowings.
(h) Tax Matters. The Company shall not make any tax election that would
have a material adverse effect or settle or compromise any income tax
liability of the Company or of any of its subsidiaries that would have a
material adverse effect. The Company shall, before filing or causing to be
filed any material tax return of the Company or any of its subsidiaries,
consult with Parent and its advisors as to the positions and elections that
may be taken or made with respect to such return.
(i) Discharge of Liabilities. The Company shall not, and it shall not
permit any of its subsidiaries to, pay, discharge, settle or satisfy any
claim, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise) in any amount in excess of $3 million,
other than the payment, discharge or satisfaction, in the ordinary course
of business consistent with past practice or in accordance with their
terms, of liabilities recognized or disclosed in the most recent
consolidated financial statements (or the notes thereto) of the Company
included in the Company SEC Documents or incurred since the date of such
financial statements in the ordinary course of business consistent with
past practice, or waive the benefit of, or agree to modify in any manner,
any confidentiality, standstill or similar agreement to which the Company
or any of its subsidiaries is a party.
(j) Material Contracts. Except in the ordinary course of business,
neither the Company nor any of its subsidiaries shall modify, amend or
terminate any material contract or agreement to which the Company or such
subsidiary is a party or waive, release or assign any material rights or
claims.
(k) Employee Benefits. The Company shall not, and shall not permit any of
its subsidiaries to, (i) grant any increase in the compensation of any of
its directors, officers or key employees, except for increases for officers
and employees in the ordinary course of business, (ii) pay or agree to pay
any pension, retirement allowance or other employee benefit not required or
contemplated by any of the existing Company Benefit Plans as in effect on
the date hereof to any director, officer or key employee, (iii) enter into
any new employment, severance or termination agreement with any such
director, officer or key employee or (iv) except as may be required to
comply with applicable law, become obligated under any Company Benefit Plan
which was not in existence on the date hereof or amend any such plan in
existence on the date hereof to enhance the benefits thereunder.
(1) Capital Expenditures. The Company shall not, and shall not permit any
of its subsidiaries to, authorize or make any capital expenditures other
than capital expenditures (i) described in the summary of approved capital
expenditures set forth in Schedule 5.01 of the Company Disclosure Schedule,
(ii) incurred in the ordinary course of the business of the Company and its
subsidiaries as currently conducted (including, without limitation, capital
expenditures required as a result of ordinary maintenance and repair) or
(iii) not otherwise described in clauses (i) and (ii) above which, in the
aggregate, do not exceed $60 million.
SECTION 5.02. Conduct of Business of Parent. Prior to the Effective Time,
Parent agrees (except as expressly contemplated or permitted by this
Agreement, or to the extent that the Company shall otherwise consent in
writing) as follows:
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(a) Dividends; Changes in Stock. Parent shall not (i) engage in any
material repurchase at a premium, recapitalization, restructuring or
reorganization with respect to Parent's capital stock, including, without
limitation, by way of any extraordinary dividends on or other extraordinary
distributions in respect of any of its capital stock, or (ii) amend any
material term or provision of Parent Common Stock.
(b) Material Acquisitions. Parent shall not, and shall not permit any of
its subsidiaries to, acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets of
or equity in, or by any other manner, any business or any corporation,
partnership, association or other business organization or division
thereof, or otherwise acquire or agree to acquire any assets if the
entering into of a definitive agreement relating to or the consummation of
such acquisition, merger or consolidation would (A) impose any material
delay in the obtaining of, or significantly increase the risk of not
obtaining, any authorizations, consents, orders, declarations or approvals
of any Governmental Entity necessary to consummate the Merger or the
expiration or termination of any applicable waiting period, (B)
significantly increase the risk of any Governmental Entity entering an
order prohibiting the consummation of the Merger or (C) significantly
increase the risk of not being able to remove any such order on appeal or
otherwise.
(c) Other Actions. Parent shall not, and shall not permit any of its
subsidiaries to take, or fail to take, any other action which would
reasonably be expected to impede, interfere with, prevent or materially
delay the Merger.
SECTION 5.03. Other Actions. Each of Parent, Merger Sub and the Company
shall not, and shall not permit any of its subsidiaries to, take any action
that would, or that would reasonably be expected to, result in (i) any of its
representations and warranties set forth in this Agreement that are qualified
as to materiality becoming untrue, (ii) any of such representations and
warranties that are not so qualified becoming untrue in any material respect
or (iii) except as otherwise permitted by Section 5.04 or Section 6.01, any of
the conditions to the Merger set forth in Article VII not being satisfied.
SECTION 5.04. No Solicitation. (a) The Company shall not, nor shall it
permit any of its subsidiaries to, nor shall it authorize or permit any
officer, director or employee of, or any investment banker, attorney or other
advisor or representative of, the Company or any of its subsidiaries to, (i)
solicit or initiate, or knowingly encourage the submission of, any
"competitive proposal" (as defined below in this Section 5.04(a)) or (ii)
participate in any discussions or negotiations regarding, or furnish to any
person any information with respect to, or take any other action to knowingly
facilitate the making of any proposal that constitutes, or may reasonably be
expected to lead to, a competitive proposal; provided, however, that, prior to
the Effective Time, if the Board of Directors concludes, after consultation
with counsel, that its fiduciary duties to the Company's shareholders under
applicable law require such action, the Company may, in response to an
unsolicited competitive proposal, (x) furnish information with respect to the
Company to the party making such competitive proposal and its representatives,
counsel and advisors pursuant to a confidentiality agreement with such party
containing customary terms and provisions regarding the nondisclosure of
confidential information and (y) participate in negotiations regarding such
competitive proposal; provided, further, upon the furnishing of such
information to any such party, the Company shall notify Parent that it has
done so and shall identify such party in such notice. Without limiting the
foregoing, it is understood that any violation of the restrictions set forth
in the preceding sentence by any director, officer, investment banker,
attorney or other advisor or representative of the Company or any of its
subsidiaries, whether or not such person is purporting to act on behalf of the
Company or any of its subsidiaries or otherwise, shall be deemed to be a
breach of this Section 5.04(a) by the Company. For purposes of this Agreement,
"competitive proposal" means any proposal or offer from any person relating to
any direct or indirect acquisition or purchase of all or a substantial part of
the assets of the Company or any of its subsidiaries (other than the
Convertible Preferred Stock) or of over 50% of any class of equity securities
of the Company or any of its subsidiaries, any tender offer or exchange offer
that if consummated would result in any person beneficially owning 50% or more
of any class of equity securities of the Company or any of its subsidiaries
(other than the Convertible Preferred Stock), any merger, consolidation,
business combination, sale of substantially all the assets, recapitalization,
liquidation, dissolution or similar transaction involving the Company or any
of its subsidiaries, other than the transactions contemplated by this
Agreement, or any other
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transaction the consummation of which would reasonably be expected to impede,
interfere with, prevent or materially delay the Merger or which would
reasonably be expected to dilute materially the benefits to Parent of the
transactions contemplated hereby. The Company agrees not to release any third
party from, or waive any provision of, any confidentiality or standstill
agreement to which the Company is a party.
(b) Except as set forth in this Section 5.04(b) or Section 6.01, neither the
Board of Directors of the Company nor any committee thereof shall (i) withdraw
or modify, or propose to withdraw or modify, in a manner adverse to Parent,
the approval or recommendation by the Board of Directors or any such committee
of this Agreement or the Merger, (ii) approve or recommend, or propose to
approve or recommend, any competitive proposal or (iii) enter into any
agreement with respect to any competitive proposal. Notwithstanding the
foregoing, in the event prior to the Effective Time if the Board of Directors
concludes, after consultation with counsel, failure to do so would violate its
fiduciary duties to the Company's shareholders under applicable law, the Board
of Directors may withdraw or modify its approval or recommendation of this
Agreement or the Merger, approve or recommend a competitive proposal, or enter
into an agreement with respect to a competitive proposal, in each case
involving a competitive proposal at any time after midnight on the third
business day following Parent's receipt of written notice advising Parent that
the Board of Directors has received a competitive proposal which includes a
description of the material terms and conditions of such proposal and which it
intends to consider accepting, specifying the material terms and conditions of
such competitive proposal and identifying the person making such competitive
proposal. Notwithstanding anything to the contrary in the foregoing, from the
date of this Agreement until February 28, 1996, the Company shall not (i)
engage in negotiations with or provide information to any party making a
competitive proposal unless the Board of Directors concludes that such
proposal could reasonably be expected to lead to a transaction which is
financially superior to the transactions contemplated by this Agreement or
(ii) enter into any agreement with respect to a competitive proposal unless
the Board of Directors of the Company determines, after consultation with its
financial advisors, that such competitive proposal is financially superior to
the transactions contemplated by this Agreement. The Company shall consider
any proposal submitted by Parent that enhances the value to be received by the
Company's shareholders pursuant to the terms of this Agreement. Nothing
contained in this Section 5.04 shall prohibit the Company from taking and
disclosing to its shareholders a position contemplated by Rule 14e-2(a)
promulgated under the Exchange Act or from making any disclosure to the
Company's shareholders if, in the opinion of the Company's Board of Directors,
after consultation with counsel, failure to so disclose would be inconsistent
with its fiduciary duties under applicable law.
ARTICLE VI
Additional Agreements
SECTION 6.01. Company Shareholders' Meeting. Subject to the following
sentence, the Company shall call and hold a meeting of its shareholders (the
"Company Shareholders' Meeting") as promptly as practicable to consider and
vote upon the approval of this Agreement and the Company shall use its
reasonable efforts to hold the Company Shareholders' Meeting as soon as
practicable after the date on which the Registration Statement becomes
effective. The Board of Directors of the Company shall recommend such
approval, and the Company shall take all lawful action to solicit such
approval, including, without limitation, timely mailing the Proxy Statement;
provided, however, that calling the Company Shareholders' Meeting, mailing the
Proxy Statement and making such recommendation or solicitation is subject to
any action (including any withdrawal or change of its recommendation) taken
by, or upon authority of, the Board of Directors of the Company (i) upon
concluding after consultation with counsel that the failure to so act would
violate its fiduciary duties to its shareholders under applicable law or (ii)
in the event that (A) each of J.P. Morgan Securities Inc. and Goldman, Sachs &
Co. shall have withdrawn its opinion to the effect that, in the case of J.P.
Morgan Securities Inc., the consideration to be received in the Merger by the
holders of Company Common Stock is fair to such holders from a financial point
of view, and in the case of Goldman, Sachs & Co., that the consideration to be
received in the Merger by the holders of Company Common Stock is fair to such
holders or (B) each such firm shall have failed to deliver its updated written
opinion to the same effect dated the date of the Proxy Statement.
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Notwithstanding anything to the contrary contained in this Agreement, any such
failure to call the Company Shareholders' Meeting, solicit proxies or take
other action to secure the vote or consent of shareholders permitted by the
terms of this Section 6.01 shall not constitute a breach of this Agreement by
Parent or the Company, as the case may be.
SECTION 6.02. Registration Statement; Proxy Statement. (a) As promptly as
practicable after the execution of this Agreement, (i) Parent and the Company
shall cooperate and prepare and Parent shall file with the SEC a registration
statement on Form S-4 (together with all amendments thereto, the "Registration
Statement") in connection with the registration under the Securities Act of
the shares of Parent Common Stock to be issued to the shareholders of the
Company in the Merger, a portion of which Registration Statement shall also
serve as the proxy statement (together with any amendments thereof or
supplements thereto, the "Proxy Statement") relating to the Company
Shareholders' Meeting. The respective parties will cause the Proxy Statement
and the Registration Statement to comply as to form in all material respects
with the applicable provisions of the Securities Act, the Exchange Act and the
rules and regulations thereunder. The Company shall furnish all information
concerning the Company as Parent may reasonably request in connection with
such actions and the preparation of the Registration Statement and the Proxy
Statement. Parent shall use all reasonable efforts, and the Company will
cooperate with Parent, to cause the Registration Statement to become effective
as promptly as practicable and to keep the Registration Statement effective as
long as is necessary to consummate the Merger. Prior to the effective date of
the Registration Statement, Parent shall take all action required under any
applicable federal or state securities laws in connection with the issuance of
shares of Parent Common Stock pursuant to the Merger. Parent shall, as
promptly as practicable, provide copies of any written comments received from
the SEC with respect to the Registration Statement to the Company and advise
the Company of any verbal comments with respect to the Registration Statement
received from the SEC. As promptly as practicable after the Registration
Statement shall have become effective, the Company shall mail the Proxy
Statement to its shareholders.
(b) No amendment or supplement to the Proxy Statement or the Registration
Statement will be made by Parent or the Company without the approval of the
other party. Parent will advise the Company, promptly after it receives notice
thereof, of the time when the Registration Statement has become effective or
any supplement or amendment has been filed, of the issuance of any stop order,
of the suspension of the qualification of Parent Common Stock issuable in
connection with the Merger for offering or sale in any jurisdiction, or of any
request by the SEC for amendment of the Proxy Statement or the Registration
Statement or comments thereon and responses thereto or requests by the SEC for
additional information.
(c) Notwithstanding anything to the contrary in this Agreement, (i) Parent
shall have no obligation to mail the Proxy Statement to the Company's
stockholders unless and until Parent shall have received the "comfort letter"
referred to in Section 6.15(a) and (ii) the Company shall have no obligation
to mail the Proxy Statement to its stockholders unless and until the Company
shall have received the "comfort letter" referred to in Section 6.15(b).
SECTION 6.03. Access to Information; Confidentiality. (a) As permitted by
law, the Company shall afford to Parent, and to Parent's officers, employees,
accountants, counsel, financial advisors and other representatives, reasonable
access during normal business hours during the period prior to the Effective
Time to all the properties, books, contracts, commitments and records of the
Company and its subsidiaries, and during such period, the Company shall
furnish promptly to Parent (a) a copy of each report, schedule, registration
statement and other document filed by it or its subsidiaries during such
period pursuant to the requirements of applicable federal or state securities
laws and (b) all other information concerning its business, properties and
personnel as Parent may reasonably request. Until the Effective Time, Parent
will be bound by the terms of the confidentiality agreement with the Company
dated September 28, 1995 (the "Confidentiality Agreement"), except as
otherwise agreed to by the Company.
(b) As permitted by law, Parent shall afford to the Company, and to the
Company's officers, employees, accountants, counsel, financial advisors and
other representatives, reasonable access during normal business
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hours during the period prior to the Effective Time to all the properties,
books, contracts, commitments and records of Parent and its subsidiaries
reasonably necessary in connection with preparing the Proxy Statement,
including the opinions of Goldman, Sachs & Co. and J.P. Morgan Securities
Inc., dated the date of the Proxy Statement, and during such period, Parent
shall furnish promptly to the Company a copy of each report, schedule,
registration statement and other document filed by it or its subsidiaries
during such period pursuant to the requirements of federal or state securities
laws. The Company will keep such information provided to it by Parent
confidential, except to the extent such information (i) is provided to the
Company for its use in connection with the preparation of the Proxy Statement,
(ii) is or becomes generally available to the public (other than as a result
of a disclosure by the Company), (iii) was available to the Company on a
nonconfidential basis prior to disclosure by Parent to the Company or (iv)
becomes available to the Company on a nonconfidential basis from a source
other than Parent which is entitled to disclose it, and except as required by
law or as otherwise agreed to by Parent.
SECTION 6.04. Approvals and Consents; Cooperation. (a) Upon the terms and
subject to the conditions set forth in this Agreement, each of the parties
agrees to use all reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, and to assist and cooperate with the
other parties in doing, all things necessary, proper or advisable to
consummate and make effective, in the most expeditious manner practicable, the
Merger and the other transactions contemplated by this Agreement, including
(i) the obtaining of all necessary actions or nonactions, waivers, consents
and approvals from Governmental Entities and the making of all necessary
registrations and filings (including filings with Governmental Entities) and
the taking of all reasonable steps as may be necessary to obtain an approval
or waiver from, or to avoid an action or proceeding by, any Governmental
Entity, (ii) the obtaining of all necessary consents, approvals or waivers
from third parties, (iii) the defending of any lawsuits or other legal
proceedings, whether judicial or administrative, investigating or challenging
this Agreement or the consummation of any of the transactions contemplated by
this Agreement, including seeking to have any stay or temporary restraining
order entered by any court or other Governmental Entity vacated or reversed
and (iv) the execution and delivery of any additional instruments necessary to
consummate the transactions contemplated by, and to fully carry out the
purposes of, this Agreement.
(b) Parent and the Company shall file as soon as practicable after the date
of this Agreement notifications under the HSR Act and shall respond as
promptly as practicable to all inquiries or requests received from the Federal
Trade Commission or the Antitrust Division of the Department of Justice for
additional information or documentation and shall respond as promptly as
practicable to all inquiries and requests received from any State Attorney
General or other Governmental Entity in connection with antitrust matters. The
parties shall cooperate with each other in connection with the making of all
such filings or responses, including providing copies of all such documents to
the other party and its advisors prior to filing or responding. Parent and
Merger Sub agree to use their respective best efforts to avoid the entry of
(or, if entered, to lift, vacate or reverse) any order, decree, judgment or
ruling of any court or Governmental Entity restraining or preventing the
consummation of the Merger on the basis of any federal, state or local
antitrust laws or regulations, including by committing to or effecting (by
consent decree, hold separate order or otherwise) the sale or disposition of
such assets of Parent or the Company as may be required to avoid (or, if
entered, to lift, vacate or reverse) any such order, decree, judgment or
ruling; provided, however, that in no event shall Parent, the Company or
Merger Sub be obligated under this Section 6.04 to sell, or hold separate, a
pulp mill, a paper plant or a paper machine.
SECTION 6.05. Company Stock Options. (a) All options (the "Company Stock
Options") outstanding, whether or not exercisable and whether or not vested,
at the Effective Time under the Company's 1992 Key Employees Stock Option
Plan, 1992 Stock Option for Non-Employee Directors and 1989 Key Employees
Stock Option Plan (collectively, the "Company Stock Option Plans"), shall
remain outstanding following the Effective Time. A listing of all outstanding
Company Stock Options as of November 5, 1995, showing what portions of such
Company Stock Options are exercisable as of such date, the dates upon which
such Company Stock Options expire, the exercise price of such Company Stock
Options, the number of limited rights tandem thereto, and whether such option
is intended to qualify as an "incentive stock opinion" within the meaning of
Section 422 of the Code, is set forth in Schedule 6.05 of the Company
Disclosure Schedule. At the Effective Time, the
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Company Stock Options shall, by virtue of the Merger and without any further
action on the part of the Company or the holder thereof, be assumed by Parent
in such manner that Parent (i) is a corporation "assuming a stock option in a
transaction to which Section 424(a) applied" within the meaning of Section 424
of the Code or (ii) to the extent that Section 424 of the Code does not apply
to any such Company Stock Options, would be such a corporation were Section
424 of the Code applicable to such Company Stock Options. From and after the
Effective Time, all references to the Company in the Company Stock Option
Plans and the applicable stock option agreements issued thereunder shall be
deemed to refer to Parent, which shall have assumed the Company Stock Option
Plans as of the Effective Time by virtue of this Agreement and without any
further action. Each Company Stock Option assumed by Parent (each, a
"Substitute Option") shall be exercisable upon the same terms and conditions
as under the applicable Company Stock Option Plan and the applicable option
agreement issued thereunder, except that (A) each such Substitute Option shall
be exercisable for, and represent the right to acquire, that whole number of
shares of Parent Common Stock (rounded up or down to the nearest whole share)
equal to the number of shares of Company Common Stock subject to such Company
Stock Option multiplied by the Stock Consideration; and (B) the option price
per share of Parent Common Stock shall be an amount equal to the option price
per share of Company Common Stock subject to such Company Stock Option in
effect immediately prior to the Effective Time divided by the Stock
Consideration (the option price per share, as so determined, being rounded
upward to the nearest full cent). Such Substitute Option shall otherwise be
subject to the same terms and conditions as such Company Stock Option, which
in accordance with the terms thereof and pursuant to action heretofore taken
by the Compensation Committee of the Company's Board of Directors shall vest
and become immediately exercisable as of the Effective Time, and any limited
rights relating to such Company Stock Option shall continue to be exercisable
until thirty days following the Effective Time.
(b) As soon as practicable after the Effective Time, Parent shall deliver to
each holder of an outstanding Company Stock Option an appropriate notice
setting forth such holder's rights pursuant thereto and such Company Stock
Option shall continue in effect on the same terms and conditions (including
any antidilution provisions, and subject to the adjustments required by this
Section 6.05 after giving effect to the Merger). Parent shall comply with the
terms of all such Company Stock Options and ensure, to the extent required by,
and subject to the provisions of, the Company Stock Option Plans, that Company
Stock Options which qualified as incentive stock options under Section 422 of
the Code prior to the Effective Time continue to qualify as incentive stock
options after the Effective Time. Parent shall take all corporate action
necessary to reserve for issuance a sufficient number of shares of Parent
Common Stock for delivery upon exercise of Substitute Options pursuant to the
terms set forth in this Section 6.05. As soon as practicable after the
Effective Time, the shares of Parent Common Stock subject to Company Stock
Options will be covered by an effective registration statement on Form S-8 (or
any successor form) or another appropriate form and Parent shall use its
reasonable efforts to maintain the effectiveness of such registration
statement or registration statements for so long as Substitute Options remain
outstanding. In addition, Parent shall use all reasonable efforts to cause the
shares of Parent Common Stock subject to Company Stock Options to be listed on
the Stock Exchange and such other exchanges as Parent shall determine.
SECTION 6.06. Company Benefit Plans. (a) For a period of at least two years
after the Effective Time, Parent shall cause the Surviving Corporation to
continue to maintain the Company's existing compensation, severance, welfare
and pension benefit plans, programs and arrangements (other than any stock-
based plans, programs and arrangements for which alternative incentive
compensation plans will be put into effect pursuant to paragraph (b) below)
for the benefit of current and former employees of the Company and its
subsidiaries (subject to such modification as may be required by applicable
law or to maintain the tax exempt status of any such plan which is intended to
be qualified under Section 401(a) of the Code); provided, however, that
nothing herein shall prohibit Parent from (i) replacing any such existing
plan, program or arrangement with a plan, program or arrangement which provide
such employees with benefits which are not less favorable in the aggregate
than the benefits that would have been provided under such existing plan,
program or arrangement to the extent such replacement is permitted under the
terms of the applicable plan, program or arrangement or (ii) including current
employees of the Company in the plans, programs and arrangements generally
available to employees of Parent and its subsidiaries other than the Surviving
Corporation in lieu of participation in any Company plan, program or
arrangement.
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(b) All service credited to each employee by the Company through the
Effective Time shall be recognized by Parent for all purposes, including for
purposes of eligibility, vesting and benefit accruals under any employee
benefit plan provided by Parent for the benefit of the employees; provided,
however, that, to the extent necessary to avoid duplication of benefits,
amounts payable under employee benefit plans provided by Parent may be reduced
by amounts payable under similar Company plans with respect to the same
periods of service. Any benefits accrued by employees of the Company and its
subsidiaries prior to the Effective Time under any of the Company's defined
benefit pension plans that employ a final average pay formula shall be
calculated based on such employees' final average pay with the Surviving
Corporation or any successor to the Surviving Corporation or other affiliate
of Parent employing such employees. In addition, with respect to any welfare
benefit plan established or maintained by Parent or its subsidiaries for the
benefit of employees of the Company, Parent shall, or shall cause the relevant
subsidiary to, waive any pre-existing condition exclusions (other than any
pre-existing condition that was not waived by a Company plan) and provide that
any covered expenses incurred on or before the Effective Time in respect of
the current plan year by any employee of the Company (or any covered dependent
of such an employee) shall be taken into account for purposes of satisfying
applicable deductible, coinsurance and maximum out-of-pocket provisions after
the Effective Time in respect of such current plan year.
(c) Parent hereby agrees to cause the Surviving Corporation to honor
(without modification) and assume the severance policies, employment
agreements, executive termination agreements and individual benefit
arrangements listed in Schedule 3.09 of the Company Disclosure Schedule.
(d) The provisions of this Section 6.06 shall not apply to any employee
subject to the terms of a collective bargaining plan.
(e) The Company may pay bonuses with respect to 1995 to participants in the
Company's Key Employees Long-Term Compensation Plan (the "Long-Term Plan") in
an amount per participant not to exceed 60% of base salary as in effect on
January 1, 1995, and in an aggregate amount not to exceed $5.0 million. With
respect to all other outstanding Contingent Incentive Awards granted under the
Long-Term Plan (payable in respect of calendar years 1996 and 1997), such
awards shall be cancelled as of the Effective Time in exchange for the amounts
determined in accordance with, and payable subject to the terms of, this
Section 6.06(e). As of the Effective Time, the value of each Contingent
Incentive Award shall be (i) determined using a price per share of Company
Common Stock of $40 and (ii) otherwise limited to the portion of such award
accrued as of the Effective Time by the Company for income statement purposes
in accordance with generally accepted accounting principles and past practice.
The amount determined in accordance with the immediately preceding sentence
shall be paid to the holder of each cancelled Contingent Incentive Award on
January 1, 1997; provided, however, that such amount shall be forfeited upon
any termination of the participant's employment prior to such date other than
as a consequence of death, disability, retirement under the Company's pension
plans or involuntary termination under the severance policy applicable to the
participant.
SECTION 6.07. Indemnification and Insurance. (a) Parent and the Surviving
Corporation agree that the indemnification obligations set forth in the
Company's Articles of Incorporation, as amended, and the Company's By-Laws, in
each case as of the date of this Agreement, shall survive the Merger (and,
prior to the Effective Time, Parent shall cause the Articles of Incorporation
and By-Laws of Merger Sub to reflect such provisions) and shall not be
amended, repealed or otherwise modified for a period of six years after the
Effective Time in any manner that would adversely affect the rights thereunder
of the individuals who on or prior to the Effective Time were directors,
officers, employees or agents of the Company or its subsidiaries.
(b) The Company shall, to the fullest extent permitted under applicable law
and regardless of whether the Merger becomes effective, indemnify and hold
harmless, and, after the Effective Time, Parent and the Surviving Corporation
shall, to the fullest extent permitted under applicable law, indemnify and
hold harmless, each present and former director or officer of the Company and
each subsidiary of the Company and each such person who served at the request
of the Company or any subsidiary of the Company as a director, officer,
trustee, partner, fiduciary, employee or agent of another corporation,
partnership, joint venture, trust, pension or other employee benefit plan or
enterprise (collectively, the "Indemnified Parties") against all costs and
expenses (including
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reasonable attorneys' fees), judgments, fines, losses, claims, damages,
liabilities and settlement amounts paid in connection with any claim, action,
suit, proceeding or investigation (whether arising before or after the
Effective Time), whether civil, administrative or investigative, arising out
of or pertaining to any action or omission in their capacity as an officer or
director, in each case occurring before the Effective Time (including the
transactions contemplated by this Agreement). Without limiting the foregoing,
in the event of any such claim, action, suit, proceeding or investigation, (i)
the Company or Parent and the Surviving Corporation, as the case may be, shall
pay the fees and expenses of counsel selected by any Indemnified Party, which
counsel shall be reasonably satisfactory to the Company or to Parent and the
Surviving Corporation, as the case may be, promptly after statements therefor
are received (unless the Surviving Corporation shall elect to defend such
action) and (ii) the Company and Parent and the Surviving Corporation shall
cooperate in the defense of any such matter; provided, however, that neither
the Company nor Parent or the Surviving Corporation shall be liable for any
settlement effected without its written consent (which consent shall not be
unreasonably withheld).
(c) For six years from the Effective Time, the Surviving Corporation shall
provide to the Company's current directors and officers liability insurance
protection of the same kind and scope as that provided by the Company's
directors' and officers' liability insurance policies (copies of which have
been made available to Parent); provided, however, that in no event shall the
Surviving Corporation be required to expend in any one year an amount in
excess of 200% of the annual premiums currently paid by the Company for such
insurance; and, provided, further, that if the annual premiums of such
insurance coverage exceed such amount, the Surviving Corporation shall be
obligated to obtain a policy with the greatest coverage available for a cost
not exceeding such amount.
(d) In the event the Company or the Surviving Corporation or any of their
respective successors or assigns (i) consolidates with or merges into any
other person or shall not be the continuing or surviving corporation or entity
in such consolidation or merger or (ii) transfers all or substantially all its
properties and assets to any person, then, and in each case, proper provision
shall be made so that the successors and assigns of the Company or the
Surviving Corporation, as the case may be, honor the indemnification
obligations set forth in this Section 6.07.
(e) The obligations of the Company, the Surviving Corporation, and Parent
under this Section 6.07 shall not be terminated or modified in such a manner
as to adversely affect any director, officer, employee, agent or other person
to whom this Section 6.07 applies without the consent of such affected
director, officer, employees, agents or other persons (it being expressly
agreed that each such director, officer, employee, agent or other person to
whom this Section 6.07 applies shall be third-party beneficiaries of this
Section 6.07).
SECTION 6.08. Redemption of Convertible Preferred Stock. Prior to the date
on which the Registration Statement becomes effective, the Company shall give
notice to all holders of Convertible Preferred Stock that, on a date
designated by the Company which shall be a date prior to the Effective Time,
all shares of Convertible Preferred Stock shall be called for redemption, in
accordance with the terms thereof as set forth in Article Third of the
Company's Articles of Incorporation, as amended, at the price provided for
therein. The Company will cause the redemption to be consummated, and the
shares of Convertible Preferred Stock to no longer be outstanding, prior to
the Effective Time.
SECTION 6.09. Fees and Expenses. (a) Except as provided below in this
Section 6.09, all fees and expenses incurred in connection with this Agreement
and the Merger and any other transaction contemplated by this Agreement shall
be paid by the party incurring such fees or expenses, whether or not the
Merger is consummated.
(b) The Company shall pay to Parent upon demand a fee of $76.0 million (the
"Termination Fee") if (i) Parent terminates this Agreement pursuant to Section
8.01(c)(ii) or (c)(iii), (ii) the Company terminates this Agreement pursuant
to Section 8.01(f), (iii) (x) this Agreement is terminated by the Company or
Parent pursuant to Section 8.01(h), (y) prior to the Company Shareholders'
Meeting but after the date of this Agreement a competitive proposal has been
made to the Company and (z) within one year of the date of such termination
and
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as a result of such competitive proposal, the Company enters into a definitive
agreement with respect to the transaction contemplated by such competitive
proposal, or (iv) (A) Parent or the Company terminates this Agreement pursuant
to Section 8.01(b), (B) prior to such termination but after the date of this
Agreement, a competitive proposal has been made to the Company, (C) the Board
of Directors of the Company had withdrawn its recommendation or approval of
this Agreement because of the existence of such competitive proposal or
J.P. Morgan Securities Inc. and Goldman, Sachs & Co. shall have failed to
deliver the updated written opinions contemplated by Section 6.01 because of
the existence of such competitive proposal, (D) the Company Shareholders'
Meeting shall not have occurred and (E) within one year of the date of such
termination and as a result of such competitive proposal, the Company enters
into a definitive agreement with respect to the transaction contemplated by
such competitive proposal; provided, however, the Company shall not be
obligated to pay the Termination Fee to Parent if, at the time of any
termination of this Agreement referred to in clauses (i), (ii), (iii) or (iv)
of this paragraph (b), Parent shall be in material breach of any of its
material representations, warranties, covenants or agreements set forth in
this Agreement.
SECTION 6.10. Notification. Each of the Company and Parent shall give prompt
notice to the other of (i) any representation or warranty made by it contained
in this Agreement that is qualified as to materiality becoming untrue or
inaccurate in any respect or any such representation or warranty that is not
so qualified becoming untrue or inaccurate in any material respect or (ii) the
failure by it to comply with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
SECTION 6.11. Obligations of Merger Sub. Parent shall take all action
necessary to cause Merger Sub to perform its obligations under this Agreement
and to consummate the Merger on the terms and subject to the conditions set
forth in this Agreement.
SECTION 6.12. Affiliates' Letters. No later than 45 days from the date of
this Agreement, the Company shall deliver to Parent a list of names and
addresses of those persons who were, in the Company's reasonable judgment, on
such date, affiliates within the meaning of Rule 145 of the rules and
regulations promulgated under the Securities Act (each such person being an
"Affiliate") of the Company. The Company shall provide Parent with such
information and documents as Parent shall reasonably request for purposes of
reviewing such list. The Company shall use its reasonable efforts to deliver
or cause to be delivered to Parent, prior to the Effective Time, a letter
substantially in the form attached hereto as Exhibit A, executed by each of
the Affiliates of the Company identified in the foregoing list and of any
person who shall have become an Affiliate of the Company subsequent to the
delivery of such list.
SECTION 6.13. Plan of Reorganization. This Agreement is intended to
constitute a "plan of reorganization" within the meaning of Section 1.368-2(g)
of the income tax regulations promulgated under the Code. From and after the
date of this Agreement and until the Effective Time, each party hereto shall
use its reasonable efforts, subject to the last sentence of Section 2.03(g),
to cause the Merger to qualify, and will not knowingly take any actions or
cause any actions to be taken which could prevent the Merger from qualifying,
as a reorganization under the provisions of Section 368(a) of the Code.
Following the Effective Time, neither the Surviving Corporation, Parent nor
any of their affiliates shall knowingly take any action or knowingly cause any
action to be taken which would cause the Merger to fail to qualify as a
reorganization under Section 368(a) of the Code.
SECTION 6.14. Public Announcements. Unless otherwise required by applicable
law or the requirements of any listing agreement with any applicable stock
exchange, Parent and the Company shall each use their reasonable efforts to
consult with each other before issuing any press release or otherwise making
any public statements with respect to this Agreement or any transaction
contemplated by this Agreement and shall not issue any such press release or
make any such public statement prior to such consultation.
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SECTION 6.15. Letters of Accountants. (a) The Company shall use its
reasonable efforts to cause to be delivered to Parent a "comfort" letter of
Deloitte & Touche, LLP, the Company's independent public accountants, dated
and delivered the date on which the Registration Statement shall become
effective, and addressed to Parent, in the form, scope and content
contemplated by Statement on Auditing Standards No. 49 issued by the American
Institute of Certified Public Accountants, Inc. ("SAS 49"), relating to the
financial statements and other financial data with respect to the Company and
its consolidated subsidiaries included or incorporated by reference in the
Proxy Statement and such other matters as may be reasonably required by
Parent, and based upon procedures carried out to a specified date not earlier
than five days prior to the date thereof.
(b) Parent shall use its reasonable efforts to cause to be delivered to the
Company a "comfort" letter of Arthur Andersen LLP, Parent's independent public
accountants, dated the date on which the Registration Statement shall become
effective, and addressed to the Company, in the form, scope and content
contemplated by SAS 49, relating to the financial statements and other
financial data with respect to Parent and its consolidated subsidiaries
included in or incorporated by reference in the Proxy Statement and such other
matters as may be reasonably required by the Company, and based upon
procedures carried out to a specified date not earlier than five days prior to
the date thereof.
SECTION 6.16. Stock Exchange Listing. Parent shall promptly prepare and
submit to the Stock Exchange a listing application covering the shares of
Parent Common Stock to be issued in the Merger and pursuant to Substitute
Options, and shall use its reasonable efforts to obtain, prior to the
Effective Time, approval for the listing of such Parent Common Stock, subject
to official notice to the Stock Exchange of issuance, and the Company shall
cooperate with Parent with respect to such listing.
SECTION 6.17. Parent Board of Directors. Parent shall take all necessary
action to cause John R. Kennedy to be appointed to the Board of Directors of
Parent as of the Effective Time, to serve until the next annual election of
directors of Parent. In connection with such election, Parent shall take all
necessary action to include John R. Kennedy as a nominee for the Board of
Directors of Parent recommended by such Board of Directors for election by
Parent's shareholders to the Board.
ARTICLE VII
Conditions to the Merger
SECTION 7.01. Conditions to the Obligations of Each Party. The obligations
of the Company, Parent and Merger Sub to consummate the Merger are subject to
the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Registration Statement. The Registration Statement shall have become
effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued by the
SEC and no proceeding for that purpose shall have been initiated by the
SEC.
(b) Company Shareholder Approval. This Agreement shall have been approved
by the requisite affirmative vote of the shareholders of the Company in
accordance with the Company's Articles of Incorporation, as amended, and
the NCBCA.
(c) No Injunction or Restraint. No Governmental Entity shall have
enacted, issued, promulgated, enforced or entered any law, rule, regulation
or order which is then in effect and has the effect of making the Merger
illegal or otherwise prohibiting consummation of the Merger.
(d) HSR Act. Any waiting period (and any extension thereof) applicable to
the consummation of the Merger under the HSR Act shall have expired or been
terminated.
(e) Stock Exchange Listing. The shares of Parent Common Stock to be
issued in the Merger and pursuant to Substitute Options shall have been
authorized for listing on the Stock Exchange, subject to official notice of
listing.
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SECTION 7.02. Conditions to the Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to consummate the Merger are subject to
the satisfaction or waiver by Parent on or prior to the Closing Date of the
following further conditions:
(a) Company Representations and Warranties. Each of the representations
and warranties of the Company contained in this Agreement that is qualified
by materiality shall be true and correct on and as of the Closing Date as
if made on and as of such date (other than representations and warranties
which address matters only as of a certain date which shall be true and
correct as of such certain date) and each of the representations and
warranties that is not so qualified shall be true and correct in all
material respects on and as of the Closing Date, as if made on and as of
such date (other than representations and warranties which address matters
only as of a certain date which shall be true and correct in all material
respects as of such certain date), in each case except as contemplated or
permitted by this Agreement, and Parent shall have received a certificate
of the Chairman, President or Chief Financial Officer of the Company to
such effect.
(b) Company Agreements and Covenants. The Company shall have performed or
complied in all material respects with all material agreements and
covenants required by this Agreement to be performed or complied with by it
on or prior to the Closing Date, and Parent shall have received a
certificate of the Chairman, President or Chief Financial Officer of the
Company to that effect.
(c) Consents and Approvals. All consents, approvals and authorizations
legally required to be obtained to consummate the Merger shall have been
obtained from all Governmental Entities, except for such consents,
approvals and authorizations the failure of which to obtain would not have
a material adverse effect on Parent (assuming for purposes of this
paragraph (c) that the Merger shall have been effected).
(d) Tax Opinion. Parent shall have received the opinion of Skadden, Arps,
Slate, Meagher & Flom, counsel to Parent, based upon representation letters
substantially in the forms of Exhibits B and C to this Agreement, dated on
or about the Closing Date, and such other facts, representations and
assumptions concerning, among other things, the actions of the shareholders
of the Company as counsel may reasonably deem relevant, to the effect that
the Merger will be treated for federal income tax purposes as a
reorganization qualifying under the provisions of Section 368(a) of the
Code and that each of Parent, Merger Sub and the Company will be a party to
the reorganization within the meaning of Section 368(b) of the Code, dated
on the Closing Date.
SECTION 7.03. Conditions to the Obligations of the Company. The obligations
of the Company to consummate the Merger are subject to the satisfaction or
waiver by the Company on or prior to the Closing Date of the following further
conditions:
(a) Parent Representations and Warranties. Each of the representations
and warranties of each of Parent and Merger Sub contained in this Agreement
that is qualified by materiality shall be true and correct on and as of the
Closing Date as if made on and as of such date (other than representations
and warranties which address matters only as of a certain date which shall
be true and correct as of such certain date) and each of the
representations and warranties that is not so qualified shall be true and
correct in all material respects on and as of the Closing Date as if made
on and as of such date (other than representations and warranties which
address matters only as of a certain date which shall be true and correct
in all material respects as of such certain date), in each case except as
contemplated or permitted by this Agreement, and the Company shall have
received a certificate of the Chairman, President or Chief Financial
Officer of each of Parent and Merger Sub to such effect.
(b) Parent Agreements and Covenants. Each of Parent and Merger Sub shall
have performed or complied in all material respects with all material
agreements and covenants required by this Agreement to be performed or
complied with by it on or prior to the Closing Date, and the Company shall
have received a certificate of the Chairman, President or Chief Financial
Officer of each of Parent and Merger Sub to that effect.
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(c) Tax Opinion. The Company shall have received the opinion of Shearman
& Sterling, counsel to the Company, based upon representation letters
substantially in the forms of Exhibits B and C to this Agreement, dated on
or about the Closing Date, and such other facts, representations and
assumptions concerning, among other things, the actions of the shareholders
of the Company as counsel may reasonably deem relevant, to the effect that
the Merger will be treated for federal income tax purposes as a
reorganization qualifying under the provisions of Section 368(a) of the
Code and that each of Parent, Merger Sub and the Company will be a party to
the reorganization within the meaning of Section 368(a) of the Code, dated
on the Closing Date.
ARTICLE VIII
Termination, Amendment and Waiver
SECTION 8.01. Termination. This Agreement may be terminated and the Merger
and the other transactions contemplated by this Agreement may be abandoned at
any time prior to the Effective Time, whether before or after approval thereof
by shareholders of the Company or Parent, as follows:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company if the Effective Time shall not have
occurred on or before May 31, 1996; provided, however, that the right to
terminate this Agreement under this Section 8.01(b) shall not be available
to any party whose failure to fulfill any obligation under this Agreement
has been the cause of, or resulted in, the failure of the Effective Time to
occur on or before May 31, 1996; provided further that, upon written notice
to Parent from the Company, Parent shall not have the right to terminate
this Agreement under this Section 8.01(b) until August 31, 1996 if the
Merger shall not have been consummated as a result of (i) the Company or
Parent having failed by May 31, 1996 to receive all required regulatory
approvals or consents with respect to the Merger necessary to satisfy the
condition set forth in Section 7.02(c), (ii) the entering of an order or
any pending action commenced by any applicable federal governmental
antitrust authority seeking an order which would have the effect of making
the Merger illegal or otherwise prohibiting consummation of the Merger, or
(iii) the failure of the condition set forth in Section 7.01(d) to be
satisfied;
(c) by Parent if (i) the Board of Directors of the Company or any
committee thereof shall have withdrawn or modified in a manner adverse to
Parent its approval or recommendation of this Agreement and the Merger,
(ii) the Board of Directors of the Company or any committee thereof shall
have approved or recommended any competitive proposal or (iii) the Company
shall have entered into any agreement with respect to any competitive
proposal in accordance with Section 5.04(b) of this Agreement;
(d) by either Parent or the Company if any Governmental Entity shall have
issued an order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the Merger and such order,
decree or ruling or other action shall have become final and nonappealable;
provided, however, that the party seeking to terminate this Agreement under
this Section 8.01(d) shall have used its best efforts to remove such
injunction, order or decree;
(e) by Parent in the event of a breach by the Company of any
representation, warranty, covenant or other agreement contained in this
Agreement which (A) would give rise to the failure of a condition set forth
in Section 7.02(a) or (b) and (B) cannot be or has not been cured within 20
days after the giving by Parent of written notice to the Company;
(f) by the Company in connection with entering into a definitive
agreement in accordance with Section 5.04(b), provided it has complied with
all provisions thereof, including the notice provisions therein;
(g) by the Company if Merger Sub or Parent shall have breached in any
material respect any of their respective representations, warranties,
covenants or other agreements contained in this agreement, which failure to
perform is incapable of being cured or has not been cured within 20 days
after the giving of written notice by the Company to Parent or Merger Sub,
as applicable, except, in any case, such failures which are not reasonably
likely to affect adversely Parent's or Merger Sub's ability to complete the
Merger; or
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<PAGE>
(h) by Parent or the Company if the shareholders of the Company do not
approve this Agreement at the Company Shareholders' Meeting or any
adjournment or postponement thereof.
SECTION 8.02. Effect of Termination. In the event of termination of this
Agreement by either the Company or Parent as provided in Section 8.01, this
Agreement shall forthwith become void and have no effect, without any
liability or obligation on the part of Parent, Merger Sub or the Company,
other than the provisions of Section 3.20, Section 4.13, the last sentence of
Sections 6.03(a) and (b), Section 6.09, this Section 8.02 and Article IX, and
except to the extent that such termination results from the wilful and
material breach by a party of any of its representations, warranties,
covenants or agreements set forth in this Agreement.
SECTION 8.03. Amendment. This Agreement may be amended by the parties at any
time before or after any required approval of this Agreement by the
shareholders of the Company; provided, however, that after any such approval,
there shall not be made any amendment that by law requires further approval by
such shareholders without the further approval of such shareholders. This
Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties.
SECTION 8.04. Extension; Waiver. At any time prior to the Effective Time,
the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties contained in this Agreement or in any
document delivered pursuant to this Agreement or (c) subject to the proviso of
Section 8.03, waive compliance with any of the agreements or conditions
contained in this Agreement. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in any instrument in
writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of those rights.
ARTICLE IX
General Provisions
SECTION 9.01. Nonsurvival of Representations. None of the representations
and warranties in this Agreement or in any instrument delivered pursuant to
this Agreement shall survive the Effective Time. This Section 9.01 shall not
limit any covenant or agreement of the parties which by its terms contemplates
performance after the Effective Time.
SECTION 9.02. Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally or sent by overnight courier (providing proof of
delivery) to the parties at the following addresses (or at such address for a
party as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
International Paper Company
Two Manhattanville Road
Purchase, New York 10577
Attention: General Counsel
Facsimile No.: (914) 397-1612
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: Blaine V. Fogg, Esq.
Facsimile No.: (212) 735-2000
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<PAGE>
(b) if to the Company, to:
Federal Paper Board Company, Inc.
75 Chestnut Ridge Road
Montvale, New Jersey 07645
Attention: Executive Vice President
Facsimile No.: (201) 307-6132
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attention: John J. Madden, Esq.
Facsimile No.: (212) 848-7179
SECTION 9.03. Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person;
(b) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a
person, whether through the ownership of voting securities, by contract or
otherwise;
(c) "knowledge" or "known" means, with respect to the matter in question,
if any of the executive officers of the Company or Parent, as the case may
be, has actual knowledge of such matter;
(d) "lien" means any encumbrance, hypothecation, infringement, lien,
mortgage, pledge, restriction, security interest, title retention or other
security arrangement, or any adverse right or interest, charge or claim of
any nature whatsoever of, on, or with respect to any asset, property or
property interest; provided, however, that the term "lien" shall not
include (i) liens for water and sewer charges and current taxes not yet due
and payable or being contested in good faith, (ii) mechanics', carriers',
workers', repairers', materialmen's, warehousemen's and other similar liens
arising or incurred in the ordinary course of business or (iii) all liens
approved in writing by the other party hereto;
(e) "material adverse change" or "material adverse effect" means, when
used in connection with the Company or Parent, any change or effect (or any
development that, insofar as can reasonably be foreseen, is likely to
result in any change or effect) that is materially adverse to the business,
financial condition or results of operations of such party and its
subsidiaries taken as a whole;
(f) "person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity;
and
(g) a "subsidiary" of any person means another person, an amount of the
voting securities, other voting ownership or voting partnership interests
of which is sufficient to elect at least a majority of its Board of
Directors or other governing body (or, if there are no such voting
interests, 50% or more of the equity interests of which) is owned directly
or indirectly by such first person.
SECTION 9.04. Interpretation. When a reference is made in this Agreement to
a Section, Exhibit or Schedule, such reference shall be to a Section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table
of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words "include", "includes" or "including" are
used in this Agreement, they shall be deemed to be followed by the words
"without limitation".
SECTION 9.05. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
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<PAGE>
SECTION 9.06. Entire Agreement; No Third-Party Beneficiaries. This Agreement
constitutes the entire agreement, and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement (provided, however, that the provisions of
the Confidentiality Agreement shall remain valid and in effect) and, except
for the provisions of Article II and Sections 6.05, 6.06 and 6.07, is not
intended to confer upon any person other than the parties any rights or
remedies hereunder.
SECTION 9.07. Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or
in part, by operation of law or otherwise by any of the parties without the
prior written consent of the other parties, except that Merger Sub may assign,
in its sole discretion, any or all of its rights, interests and obligations
under this Agreement to Parent or to any direct or indirect wholly owned
subsidiary of Parent, but no such assignment shall relieve Merger Sub of any
of its obligations under this Agreement. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and assigns.
SECTION 9.08. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, without
regard to any applicable conflicts of law, except to the extent that the NCBCA
shall be held to govern the terms of the Merger.
SECTION 9.09. Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction
or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court of the
United States located in the State of New York or in New York state court,
this being in addition to any other remedy to which they are entitled at law
or in equity. In addition, each of the parties hereto (a) consents to submit
itself to the personal jurisdiction of any federal court located in the State
of New York or any New York state court in the event any dispute arises out of
this Agreement or any of the transactions contemplated by this Agreement, (b)
agrees that it will not attempt to deny or defeat such personal jurisdiction
by motion or other request for leave from any such court and (c) agrees that
it will not bring any action relating to this Agreement or any of the
transactions contemplated by this Agreement in any court other than a federal
or state court sitting in the State of New York.
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
INTERNATIONAL PAPER COMPANY
/s/ James P. Melican
By___________________________________
JAMES P. MELICAN
Executive Vice President
FOCUS MERGER CO., INC.
/s/ James P. Melican
By___________________________________
JAMES P. MELICAN
Executive Vice President
FEDERAL PAPER BOARD COMPANY, INC.
/s/ Quentin J. Kennedy
By___________________________________
QUENTIN J. KENNEDY
Executive Vice President
I-34
<PAGE>
EXHIBIT A
FORM OF AFFILIATE LETTER FOR
AFFILIATES OF THE COMPANY
[ ], 1996
International Paper Company
Two Manhattanville Road
Purchase, New York 10577
Ladies and Gentlemen:
I have been advised that as of the date of this letter I may be deemed to be
an "affiliate" of Federal Paper Board Company, Inc., a North Carolina
corporation (the "Company"), as the term "affiliate" is defined for purposes
of paragraphs (c) and (d) of Rule 145 of the rules and regulations (the "Rules
and Regulations") of the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Act"). Pursuant to the
terms of the Restated and Amended Agreement and Plan of Merger dated as of
November 6, 1995 and amended as of February 8, 1996 (the "Merger Agreement"),
among International Paper Company, a New York corporation ("Parent"), Focus
Merger Co., Inc., a North Carolina corporation ("Merger Sub"), and the
Company, the Company will be merged with and into Merger Sub (the "Merger").
Capitalized terms used in this letter without definition shall have the
meanings assigned to them in the Merger Agreement.
As a result of the Merger, I may receive shares of common stock, par value
$1.00 per share, of Parent (the "Parent Shares"). I would receive such Parent
Shares in exchange for shares (or upon exercise of options for shares) owned
by me of common stock, par value $5.00 per share, of the Company (the "Company
Shares").
1. I represent, warrant and covenant to Parent that in the event I receive
any Parent Shares as a result of the Merger:
A. I shall not make any sale, transfer or other disposition of the Parent
Shares in violation of the Act or the Rules and Regulations.
B. I have carefully read this letter and the Merger Agreement and
discussed the requirements of such documents and other applicable
limitations upon my ability to sell, transfer or otherwise dispose of the
Parent Shares, to the extent I felt necessary, with my counsel or counsel
for the Company.
C. I have been advised that the issuance of the Parent Shares to me
pursuant to the Merger has been registered with the Commission under the
Act on a Registration Statement on Form S-4. However, I have also been
advised that, because at the time the Merger is submitted for a vote of the
shareholders of the Company, (a) I may be deemed to be an affiliate of the
Company and (b) the distribution by me of the Parent Shares has not been
registered under the Act, I may not sell, transfer or otherwise dispose of
the Parent Shares issued to me in the Merger unless (i) such sale, transfer
or other disposition is made in conformity with the volume and other
limitations of Rule 145 promulgated by the Commission under the Act, (ii)
such sale, transfer or other disposition has been registered under the Act
or (iii) in the opinion of counsel reasonably acceptable to Parent, such
sale, transfer or other disposition is otherwise exempt from registration
under the Act.
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<PAGE>
D. I understand that Parent is under no obligation to register the sale,
transfer or other disposition of the Parent Shares by me or on my behalf
under the Act or, except as provided in paragraph 2(A) below, to take any
other action necessary in order to make compliance with an exemption from
such registration available.
E. I understand that there will be placed on the certificates for the
Parent Shares issued to me, or any substitutions therefor, a legend stating
in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933 APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE
TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT DATED [ ],
1996 BETWEEN THE REGISTERED HOLDER HEREOF AND INTERNATIONAL PAPER
COMPANY, A COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES
OF INTERNATIONAL PAPER COMPANY."
F. I understand that unless a sale or transfer is made in conformity with
the provisions of Rule 145, or pursuant to a registration statement, Parent
reserves the right to put the following legend on the certificates issued
to my transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO
RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED
UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE BEEN ACQUIRED
BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933
AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN
ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OF 1933."
G. Execution of this letter should not be considered an admission on my
part that I am an "affiliate" of the Company as described in the first
paragraph of this letter, nor as a waiver of any rights I may have to
object to any claim that I am such an affiliate on or after the date of
this letter.
2. By Parent's acceptance of this letter, Parent hereby agrees with me as
follows:
A. For so long as and to the extent necessary to permit me to sell the
Parent Shares pursuant to Rule 145 and, to the extent applicable, Rule 144
under the Act, Parent shall (a) use its reasonable efforts to (i) file, on
a timely basis, all reports and data required to be filed with the
Commission by it pursuant to Section 13 of the Securities Exchange Act of
1934, as amended (the "1934 Act"), and (ii) furnish to me upon request a
written statement as to whether Parent has complied with such reporting
requirements during the 12 months preceding any proposed sale of the Parent
Shares by me under Rule 145, and (b) otherwise use its reasonable efforts
to permit such sales pursuant to Rule 145 and Rule 144. Parent hereby
represents to me that it has filed all reports required to be filed with
the Commission under Section 13 of the 1934 Act during the preceding 12
months.
B. It is understood and agreed that certificates with the legends set
forth in paragraphs E and F above will be substituted by delivery of
certificates without such legend if (i) two years shall have elapsed from
the date the undersigned acquired the Parent Shares received in the Merger
and the provisions of Rule 145(d)(2) are then available to the undersigned,
(ii) three years shall have elapsed from the date the undersigned acquired
the Parent Shares received in the Merger and the provisions of Rule
145(d)(3) are then applicable to the undersigned, or (iii) Parent has
received either an opinion of counsel, which
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<PAGE>
opinion and counsel shall be reasonably satisfactory to Parent, or a "no
action" letter obtained by the undersigned from the staff of the Commission, to
the effect that the restrictions imposed by Rule 145 under the Act no longer
apply to the undersigned.
Very truly yours,
_____________________________________
Name:
Agreed and accepted this day of
[ ], 1996, by
International Paper Company
By: _________________________________
Name:
Title:
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<PAGE>
EXHIBIT B
FORM OF COMPANY TAX OPINION REPRESENTATION LETTER
, 1996
Shearman & Sterling
Citicorp Center
153 East 53rd Street
New York, NY 10022-4676
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, NY 10022
Dear Sirs:
On behalf of the Company, the undersigned, in connection with the opinions
to be delivered by your firms pursuant to Sections 7.03(c) and 7.02(d) of the
Restated and Amended Agreement and Plan of Merger dated as of November 6, 1995
and amended as of February 8, 1996, among Parent, Merger Sub and the Company,*
hereby certifies that, to the extent the facts relate to the Company to his
knowledge and after due diligence, and to the extent otherwise without
knowledge to the contrary, the descriptions of the facts contained in the
Registration Statement and the Proxy Statement completely and accurately
describe the Merger and the transactions leading up thereto and further that:
1. The fair market value of the Parent Common Stock and other consideration
received by each Company shareholder will be approximately equal to the fair
market value of the Company Common Stock surrendered in the exchange.
2. There is no intercorporate indebtedness existing between Parent and the
Company or between Merger Sub and the Company that was issued, acquired, or
will be settled at a discount.
3. The Company is not an investment company as defined in section
368(a)(2)(F)(iii) and (iv) of the Internal Revenue Code.
4. To the best knowledge of the management of the Company there is no plan
or intention on the part of the shareholders of the Company on the date hereof
to sell, exchange or otherwise dispose of a number of shares of Parent Common
Stock received in the Merger that would reduce such Company shareholders'
ownership of Parent Common Stock to a number of shares having a value, as of
the date of the Merger, of less than 40 percent of the value of all of the
formerly outstanding Company Common Stock and Convertible Preferred Stock as
of the same date. For purposes of this representation, shares of Convertible
Preferred Stock redeemed prior to the Merger and shares of Company Common
Stock exchanged for cash or other property in the Merger, surrendered by
dissenters or exchanged for cash in lieu of fractional shares of Parent Common
Stock will be treated as outstanding Company stock on the date of the Merger.
In addition, and not in limitation of the foregoing, the Company has
considered, in making this representation, any shares of Company Common Stock
that have been sold, redeemed or otherwise disposed of by shareholders who own
5 percent or more of the Company Common Stock, or by shareholders who are
officers or directors of the Company, after the announcement of the Merger and
prior to the Effective Time to the extent the management of the Company has
knowledge on the date hereof of any such sales, redemptions or dispositions.
Except as set forth on Annex I to this letter, to the knowledge of the
management of the Company there are no shareholders who own 5 percent or more
of the Company Common Stock on the date hereof.
- --------
* For purposes of this certificate, capitalized terms used and not otherwise
defined herein shall have the meaning ascribed thereto in the Agreement and
Plan of Merger.
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<PAGE>
5. At the Effective Time, Merger Sub will acquire at least 90 percent of the
fair market value of the net assets and at least 70 percent of the fair market
value of the gross assets held by the Company immediately prior to the Merger.
For purposes of this representation, amounts used by the Company to pay its
reorganization expenses and all redemptions, including the redemption of the
Convertible Preferred Stock prior to the Merger, and distributions (except for
regular, normal dividends) made by the Company immediately preceding the
transfer will be included as assets of the Company held immediately prior to
the Merger.
6. The liabilities of the Company assumed by Merger Sub and the liabilities
to which the transferred assets of the Company are subject were incurred by
the Company in the ordinary course of its business.
7. The fair market value of the assets of the Company transferred to Merger
Sub will equal or exceed the sum of the liabilities assumed by Merger Sub,
plus the amount of liabilities, if any, to which the transferred assets are
subject.
8. The Company is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of section 368(a)(3)(A) of the Internal
Revenue Code.
9. None of the compensation received by any shareholder-employees of the
Company will be separate consideration for, or allocable to, any of their
shares of Company Common Stock.
10. The payment of cash in lieu of fractional shares of Parent Common Stock
is solely for the purpose of avoiding the expense and inconvenience to Parent
of issuing fractional shares of Parent Common Stock and does not represent
separately bargained-for consideration.
I understand that Shearman & Sterling, as counsel for the Company, and
Skadden, Arps, Slate, Meagher & Flom, as counsel for Parent, will rely on this
certificate in rendering their respective opinions concerning certain of the
federal income tax consequences of the Merger and hereby commit to inform them
if, for any reason, any of the foregoing representations ceases to be true
prior to the Effective Time.
Federal Paper Board Company, Inc.
By: ________________________
Name:
Title:
I-39
<PAGE>
EXHIBIT C
FORM OF PARENT TAX OPINION REPRESENTATION LETTER
, 1996
Shearman & Sterling
Citicorp Center
153 East 53rd Street
New York, NY 10022-4676
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, NY 10022
Dear Sirs:
On behalf of Parent and Merger Sub, the undersigned, in connection with the
opinions to be delivered by your firms pursuant to Sections 7.03(c) and
7.02(d) of the Restated and Amended Agreement and Plan of Merger dated as of
November 6, 1995 and amended as of February 8, 1996, among Parent, Merger Sub
and the Company,* hereby certifies that, to the extent the facts relate to
Parent and Merger Sub to his knowledge and after due diligence, and to the
extent otherwise without knowledge to the contrary, the descriptions of the
facts contained in the Registration Statement and the Proxy Statement
completely and accurately describe the Merger and the transactions leading up
thereto and further that:
1. The fair market value of the Parent Common Stock and other consideration
received by each Company shareholder will be approximately equal to the fair
market value of the Company Common Stock surrendered in the exchange.
2. There is no intercorporate indebtedness existing between Parent and the
Company or between Merger Sub and the Company that was issued, acquired, or
will be settled at a discount.
3. Neither Parent nor Merger Sub is an investment company as defined in
section 368(a)(2)(F)(iii) and (iv) of the Internal Revenue Code.
4. At the Effective Time, Merger Sub will acquire at least 90 percent of the
fair market value of the net assets and at least 70 percent of the fair market
value of the gross assets held by the Company immediately prior to the Merger.
For purposes of this representation, amounts paid by the Company to
dissenters, amounts paid by the Company to shareholders who receive cash or
other property, assets of the Company used to pay reorganization expenses, and
all redemptions, including the redemption of the Convertible Preferred Stock
prior to the Merger, and distributions (except for regular, normal dividends)
made by the Company immediately before the Merger will be included as assets
held by the Company immediately prior to the Merger.
5. Prior to the Merger, Parent will be in control of Merger Sub within the
meaning of the section 368(c) of the Internal Revenue Code.
6. Parent has no plan or intention to redeem or otherwise acquire after the
date of the Merger any of the Parent Common Stock to be issued in the Merger.
7. Parent has no plan or intention to liquidate Merger Sub; to merge Merger
Sub with and into another corporation; to sell or otherwise dispose of any of
the stock of Merger Sub; or to cause Merger Sub to sell or
- --------
* For purposes of this certificate, capitalized terms used and not otherwise
defined herein shall have the meaning ascribed thereto in the Agreement and
Plan of Merger.
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<PAGE>
otherwise dispose of any of the assets of the Company acquired in the Merger,
except for dispositions made in the ordinary course of business, or transfers
described in section 368(a)(2)(C) of the Internal Revenue Code.
8. Following the Merger, Merger Sub will continue the historic business of
the Company or use a significant portion of the Company's business assets in a
business.
9. Following the Merger, Merger Sub will not issue additional shares of its
stock that would result in Parent losing control of Merger Sub within the
meaning of section 368(c) of the Internal Revenue Code.
10. No stock of Merger Sub will be issued in the Merger.
11. The payment of cash in lieu of fractional shares of Parent Common Stock
is solely for the purpose of avoiding the expense and inconvenience to Parent
of issuing fractional shares of Parent Common Stock and does not represent
separately bargained-for consideration.
12. None of the compensation received by any shareholder-employees of the
Company will be separate consideration for, or allocable to, any of their
shares of Company Common Stock.
I understand that Shearman & Sterling, as counsel for the Company, and
Skadden, Arps, Slate, Meagher & Flom, as counsel for Parent, will rely on this
certificate in rendering their opinion concerning certain of the federal
income tax consequences of the Merger and hereby commit to inform them if, for
any reason, any of the foregoing representations ceases to be true prior to
the Effective Time.
International Paper Company
By: ____________________
Name:
Title:
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<PAGE>
ANNEX II
Goldman, Sachs & Co. | 85 Broad Street | New York, New York 10004
Tel: 212-902-1000
Goldman
Sachs
PERSONAL AND CONFIDENTIAL
February 9, 1996
Board of Directors
Federal Paper Board Company, Inc.
75 Chestnut Ridge Road
Montvale, NJ 07645
Gentlemen:
You have requested our opinion as to the fairness to the holders of the
outstanding shares of Common Stock, par value $5.00 per share (the "Shares"),
of Federal Paper Board Company, Inc. (the "Company") of the Aggregate
Consideration (as hereinafter defined) to be received for Shares pursuant to
the Restated and Amended Agreement and Plan of Merger, dated as of November 6,
1995, and amended as of February 8, 1996, by and among International Paper
Company ("IP"), Focus Merger Co., Inc., a wholly-owned subsidiary of IP
("Focus"), and the Company (the "Agreement"). Pursuant to the Agreement, the
Company will be merged with Focus (the "Merger") and each outstanding Share
will be converted into the right to receive consideration consisting of $55.00
in cash or the number of shares of Common Stock, par value $1.00 per share ("IP
Shares"), of IP determined by dividing $55.00 by the Average Parent Share Price
(as defined in the Agreement); provided, however, that the number of IP Shares
to be received for each Share may not be less than 1.275 nor more than 1.612.
The Agreement further provides that the holders of Shares shall be entitled to
elect to receive the cash consideration, IP Shares or express no preference and
the cash consideration and IP Shares will be allocated among holders of Shares
in accordance with such elections, subject to certain allocation and proration
procedures, as to which we express no opinion, ensuring that the number of
Shares to be converted into the right to receive cash consideration and IP
Shares are equal to the percentages specified in the Agreement. The total
consideration in the form of IP Shares and cash to be paid to the holders of
Shares is referred to herein as the "Aggregate Consideration".
<PAGE>
Federal Paper Board Company, Inc.
February 9, 1996
Page Two
Goldman, Sachs & Co. ("Goldman Sachs"), as part of its investment banking
business, is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate
and other purposes. We are familiar with the Company having acted as its
financial advisor in connection with, and having participated in certain of
the negotiations leading to, the Agreement. We also have provided certain
investment banking services to IP from time to time and may provide investment
banking services to IP in the future. Goldman Sachs is a full service
securities firm and, in the course of its normal trading activities may from
time to time effect transactions and hold positions in the securities of the
Company or IP for its own account or for the accounts of customers. As of
February 7, 1996, Goldman Sachs had a long position of 11,694 Shares. In
addition, as of February 7, 1996, Goldman Sachs had a long position in IP
securities of 124,298 IP Shares, 10,000 shares of 5 1/4% European Convertible
Preferred Shares and 89,575 shares of Convertible Preferred Class 144A Shares.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Registration Statement on Form S-4, including the Proxy
Statement/Prospectus relating to the Special Meeting of Stockholders of the
Company to be held in connection with the Agreement; Annual Reports to
Stockholders and Annual Reports on Form 10-K of the Company and IP for the
five years ended December 31, 1994; certain interim reports to stockholders
and Quarterly Reports on Form 10-Q for the Company and IP; certain other
communications from the Company and IP to its stockholders; and certain
internal financial analyses and forecasts for the Company prepared by its
management. We also have held discussions with members of the senior
management of the Company and IP regarding the past and current business
operations, financial condition and future prospects of their respective
companies. In the course of such discussions with the senior management of IP
we were informed that financial projections for IP beyond 1995 were not
available. Consequently, we held discussions with the senior management of IP
concerning their views as to projections published by financial analysts with
respect to IP. In addition, we have reviewed the reported price and trading
activity for the Shares and IP Shares, compared certain financial and stock
market information for the Company and IP with similar information for certain
other companies the securities of which are publicly traded, reviewed the
financial terms of certain recent business combinations in the paper and
forest products industry and in other industries generally and performed such
other studies and analyses as we considered appropriate.
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of this opinion. In addition, we have not made an independent
evaluation or appraisal of the assets and liabilities of the Company or IP or
any of their respective subsidiaries and we have not been furnished with any
such evaluation or appraisal.
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion that as of the date hereof the
Aggregate Consideration to be received by the holders of Shares pursuant to
the Agreement is fair to such holders.
Very truly yours.
/s/ Goldman, Sachs & Co.
_______________________________
GOLDMAN, SACHS & CO.
<PAGE>
ANNEX III
JP MORGAN
J.P. Morgan Securities Inc.
60 Wall Street February 9, 1996
New York, N.Y.
10260-0060 The Board of Directors
Federal Paper Board Company, Inc.
75 Chestnut Ridge Road
Montvale, New Jersey 07645
Gentlemen:
You have requested our opinion as to the fairness, from a
financial point of view, to the holders of the shares of common
stock, par value $5.00 per share (the "Shares"), of Federal
Paper Board Company, Inc., a North Carolina corporation (the
"Company"), of the Merger Consideration (as defined below) to
be received by such holders in the proposed merger (the
"Merger") of the Company with and into Focus Merger Co., Inc.,
a North Carolina corporation ("Sub"), which is a wholly owned
subsidiary of International Paper Company, a New York
corporation ("Parent"), pursuant to the Restated and Amended
Agreement and Plan of Merger dated as of November 6, 1995 and
amended as of February 8, 1996 by and among the Company, Parent
and Sub (the "Agreement").
Under the terms of the Agreement, at the effective time of the
Merger, each outstanding Share (other than Dissenting Shares
(as defined in the Agreement) and Shares held in the Company's
treasury or owned by Parent, Sub or any other subsidiary of
Parent) will be converted into the right to receive: (i) a
number of shares of common stock, par value $1.00 per share
("Parent Common Stock"), of Parent, determined by dividing
$55.00 by the average of the last sales prices of Parent Common
Stock on the New York Stock Exchange, Inc. Composite Tape for
the 20 consecutive trading days ending on the trading day which
is five days prior to the Closing Date (as defined in the
Agreement), subject to adjustment as set forth in the
Agreement; provided that such number of shares of Parent Common
Stock will not be less than 1.275, nor more than 1.612 (the
"Stock Consideration"); (ii) $55.00 in cash, without interest;
or (iii) a combination of shares of Parent Common Stock and
cash determined in accordance with certain allocation and
proration procedures set forth in the Agreement (as to which
procedures we express no opinion) (such consideration to be
paid for the Shares being referred to herein as the "Merger
Consideration"). Holders of Shares may elect to convert their
Shares into the right to receive cash or shares of Parent
Common Stock, subject to certain limitations contained in the
Agreement. The Agreement provides that the number of Shares to
be converted into the right to receive the Stock Consideration
shall be 51% of the number of outstanding Shares immediately
prior to the effective time of the Merger, subject to certain
adjustments as provided in the Agreement. Please be advised
that while certain provisions of the Merger are summarized
above, the terms of the Merger are more fully set forth in the
Agreement.
In arriving at our opinion, we have, among other things,
reviewed: (i) the Agreement; (ii) the proxy
statement/prospectus relating to the Merger in substantially
the final form to be sent to holders of Shares; (iii) certain
publicly available information concerning the businesses of the
Company and Parent and of certain other companies engaged in
businesses comparable to the Company and Parent, and the
reported market prices for certain other companies' securities
deemed comparable; (iv) publicly available terms of certain
transactions involving companies we believe to be reasonably
comparable to the Company or otherwise relevant to our inquiry,
and the consideration received for
<PAGE>
JP MORGAN
such companies; (v) current and historical market prices of,
and trading activity in, the Shares and Parent Common Stock;
(vi) the audited financial statements of the Company and Parent
for the fiscal period ended December 31, 1994, the unaudited
financial statements of the Company for the period ended
December 2, 1995, the unaudited financial statements of Parent
for the period ended September 30, 1995, and certain unaudited
financial information of the Company and Parent for the period
ended December 31, 1995; and (vii) certain internal financial
analyses and forecasts prepared by the Company. In addition, we
have held discussions with certain members of the management of
the Company and Parent concerning their respective businesses,
assets, liabilities and prospects, as well as certain aspects
of the Merger and certain other matters we believed necessary
or appropriate to our inquiry. We have also reviewed such other
financial studies and analyses and considered such other
information as we deemed appropriate for the purposes of this
opinion.
In giving our opinion, we have relied upon and assumed, without
assuming responsibility for independent verification of, the
accuracy and completeness of all information that was publicly
available or was furnished to us by the Company and Parent, and
we have not made or obtained any independent evaluations or
appraisals of the assets and liabilities of the Company or
Parent. With respect to financial projections, Parent advised
us that it had not prepared as of the original date of the
Agreement, and therefore did not make available, any financial
projections with respect to any period beginning on or after
January 1, 1996. Accordingly, instead of reviewing projections
prepared by Parent, we have discussed with members of Parent's
management the outlook for Parent's business and prospects and
their views with respect to projections published by financial
analysts with respect to Parent. In relying on financial
analyses and forecasts provided to us or publicly available
(and, in the case of Parent, management's view with respect to
such forecasts), we have assumed, with your consent, that they
have been reasonably prepared or made based on assumptions
reflecting the best currently available estimates as to the
expected future results of operations and financial condition
of the Company and Parent to which such analyses or forecasts
relate. We have also assumed that the Merger will be completed
within the time frame contemplated by the Agreement and without
the waiver of any material conditions to the Merger set forth
in the Agreement.
Our opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available
to us as of, the date hereof. We are expressing no opinion
herein as to the price at which Parent Common Stock will trade
if and when issued or at any other time. In addition, at your
direction, we and Goldman, Sachs & Co. have discussed the
possibility of a potential transaction involving the Company
with a limited number of other parties, and we have taken the
results of those discussions into consideration in connection
with our opinion.
We have acted as financial advisor to the Company with respect
to the proposed Merger and will receive a fee from the Company
for our services, which is payable upon consummation of the
proposed Merger. In addition, we have in the past provided
financial advisory and financing services to the Company and
Parent and have been compensated for providing such services.
In the ordinary course of their businesses, affiliates of J.P.
Morgan may actively trade the debt and equity securities of the
Company or Parent for their own account or for the accounts of
customers, and accordingly, they may at any time hold long or
short positions in such securities. James T. Flynn, a former
Chief Financial Officer of J.P. Morgan & Co. Incorporated, is a
director of the Company.
On the basis of and subject to the foregoing, it is our opinion
as of the date hereof that the Merger Consideration to be
received by the holders of Shares in the proposed Merger is
fair, from a financial point of view, to such holders.
<PAGE>
JP MORGAN
Our opinion is directed to the Board of Directors of the Company
in connection with and for the purposes of their evaluation of
the proposed Merger. Our opinion does not constitute a
recommendation to any stockholder of the Company as to how such
stockholder should vote at the stockholders' meeting to be held
in connection with the Merger or whether to elect to receive cash
or stock. This letter and our opinion may not be used, circulated
or quoted (in whole or in part) for any purpose whatsoever except
with our prior written consent in each instance.
Very truly yours,
J.P. MORGAN SECURITIES, INC.
By:
-------------------------------
Name: Robert Sroka
Title:Managing Director
<PAGE>
ANNEX IV
ARTICLE 13.
DISSENTERS' RIGHTS
PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
55-13-01 Definitions.--In this Article:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under G.S. 55-13-02 and who exercises that right when and
in the manner required by G.S. 55-13-20 through 55-13-28.
(3) "Fair value", with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate action
to which the dissenter objects, excluding any appreciation or depreciation
in anticipation of the corporate action unless exclusion would be
inequitable.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at a rate that is fair and equitable
under all the circumstances, giving due consideration to the rate currently
paid by the corporation on its principal bank loans, if any, but not less
than the rate provided in G.S. 24-1.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on file
with a corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
55-13-02 Right to Dissent.--(a) In addition to any rights granted Article 9,
a shareholder is entitled to dissent from, and obtain payment of the fair
value of his shares in the event of, any of the following corporate actions:
(1) Consummation of a plan of merger to which the corporation (other than
a parent corporation in a merger under G.S. 55-11-04) is a party unless (i)
approval by the shareholders of that corporation is not required under G.S.
55-11-03(g) or (ii) such shares are then redeemable by the corporation at a
price not greater than the cash to be received in exchange for such shares;
(2) Consummation of a plan of share exchange to which the corporation is
a party as the corporation whose shares will be acquired, unless such
shares are then redeemable by the corporation at a price not greater than
the cash to be received in exchange for such shares;
(3) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than as permitted by G.S. 55-12-01,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale pursuant to a plan by which all or substantially all of the
net proceeds of the sale will be distributed in cash to the shareholders
within one year after the date of sale;
(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it (i)
alters or abolishes a preferential right of the shares; (ii) creates,
alters, or abolishes a right in respect of redemption, including a
provision respecting a sinking fund for the redemption or repurchase, of
the shares; (iii) alters or abolishes a preemptive right of the holder of
the shares to acquire shares or other securities; (iv) excludes or limits
the right of the shares to vote on any matter, or to cumulate votes; (v)
reduces the number of shares owned by the shareholder to a fraction of a
share if the fractional share so created is to be acquired for cash under
G.S. 55-6-04; or (vi) changes the corporation into a nonprofit corporation
or cooperative organization;
IV-1
<PAGE>
(5) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for his shares
under this Article may not challenge the corporate action creating his
entitlement, including without limitation a merger solely or partly in
exchange for cash or other property, unless the action is unlawful or
fraudulent with respect to the shareholder or the corporation.
55-13-03 Dissent by Nominees and Beneficial Owners.--(a) A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing
of the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered
in the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares held
on his behalf only if:
(1) He submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights; and
(2) He does so with respect to all shares of which he is the beneficial
shareholder.
55-13-04 through 55-13-19 [Reserved for future codification purposes.]
PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
55-13-20 Notice of Dissenters' Rights.--(a) If proposed corporate action
creating dissenters' rights under G.S. 55-13-02 is submitted to a vote at a
shareholders' meeting, the meeting notice must state that shareholders are or
may be entitled to assert dissenters' rights under this Article and be
accompanied by a copy of this Article.
(b) If corporate action creating dissenters' rights under G.S. 55-13-02 is
taken without a vote of shareholders, the corporation shall no later than 10
days thereafter notify in writing all shareholders entitled to assert
dissenters' rights that the action was taken and send them the dissenters'
notice described in G.S. 55-13-22.
(c) If a corporation fails to comply with the requirements of this section,
such failure shall not invalidate any corporate action taken; but any
shareholder may recover from the corporation any damage which he suffered from
such failure in a civil action brought in his own name within three years
after the taking of the corporate action creating dissenters' rights under
G.S. 55-13-02 unless he voted for such corporate action.
55-13-21 Notice of Intent to Demand Payment.--(a) If proposed corporate
action creating dissenters' rights under G.S. 55-13-02 is submitted to a vote
at a shareholders' meeting, a shareholder who wishes to assert dissenters'
rights:
(1) Must give to the corporation, and the corporation must actually
receive, before the vote is taken written notice of his intent to demand
payment for his shares if the proposed action is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(b) A shareholder who does not satisfy the requirements of subsection (a) is
not entitled to payment for his shares under this Article.
55-13-22 Dissenters' Notice.--(a) If proposed corporate action creating
dissenters' rights under G.S. 55-13-02 is authorized at a shareholders'
meeting, the corporation shall mail by registered or certified mail, return
receipt requested, a written dissenters' notice to all shareholders who
satisfied the requirements of G.S. 55-13-21.
IV-2
<PAGE>
(b) The dissenters' notice must be sent no later than 10 days after the
corporate action was taken, and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment;
(4) Set a date by which the corporation must receive the payment demand,
which date may not be fewer than 30 nor more than 60 days after the date
the subsection (a) notice is mailed; and
(5) Be accompanied by a copy of this Article.
55-13-23 Duty to Demand Payment.-- (a) A shareholder sent a dissenters' notice
described in G.S. 55-13-22 must demand payment and deposit his share
certificates in accordance with the terms of the notice.
(b) The shareholder who demands payment and deposits his share certificates
under subsection (a) retains all other rights of a shareholder until these
rights are cancelled or modified by the taking of the proposed corporate
action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice,
is not entitled to payment for his shares under this Article.
55-13-24 Share Restrictions.--(a) The corporation may restrict the transfer
of uncertificated shares from the date the demand for their payment is
received until the proposed corporate action is taken or the restrictions
released under G.S. 55-13-26.
(b) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are
cancelled or modified by the taking of the proposed corporate action.
55-13-25 Offer of Payment.--(a) As soon as the proposed corporate action is
taken, or upon receipt of a payment demand, the corporation shall offer to pay
each dissenter who complied with G.S. 55-13-23 the amount the corporation
estimates to be the fair value of his shares, plus interest accrued to the
date of payment, and shall pay this amount to each dissenter who agrees in
writing to accept it in full satisfaction of his demand.
(b) The offer of payment must be accompanied by:
(1) The corporation's most recent available balance sheet as of the end
of a fiscal year ending not more than 16 months before the date of offer of
payment, an income statement for that year, a statement of cash flows for
that year, and the latest available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair value of the
shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under G.S. 55-
13-28; and
(5) A copy of this Article.
55-13-26 Failure to Take Action.--(a) If the corporation does not take the
proposed action within 60 days after the date set for demanding payment and
depositing share certificates, the corporation shall return the deposited
certificates and release the transfer restrictions imposed on uncertificated
shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under G.S. 55-13-22 and repeat the payment demand
procedure.
IV-3
<PAGE>
55-13-27 [Reserved for future codification purposes.]
55-13-28 Procedure if Shareholder Dissatisfied with Corporation's Offer or
Failure to Perform.--(a) A dissenter may notify the corporation in writing of
his own estimate of the fair value of his shares and amount of interest due,
and demand payment of his estimate or reject the corporation's offer under
G.S. 55-13-25 and demand payment of the fair value of his shares and interest
due, if:
(1) The dissenter believes that the amount offered under G.S. 55-13-25 is
less than the fair value of his shares or that the interest due is
incorrectly calculated;
(2) The corporation fails to make payment to a dissenter who accepts the
corporation's offer under G.S. 55-13-25 within 30 days after the
dissenter's acceptance; or
(3) The corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions
imposed on uncertified shares within 60 days after the date set for
demanding payment.
(b) A dissenter waives his right to demand payment under this section unless
he notifies the corporation of his demand in writing (i) under subdivision
(a)(1) within 30 days after the corporation offered payment for his shares or
(ii) under subdivisions (a)(2) and (a)(3) within 30 days after the corporation
has failed to perform timely. A dissenter who fails to notify the corporation
of his demand under subsection (a) within such 30-day period shall be deemed
to have withdrawn his dissent and demand for payment.
PART 3. JUDICIAL APPRAISAL OF SHARES
55-13-30 Court Action.--(a) If a demand for payment under G.S. 55-13-28
remains unsettled, the dissenter may commence a proceeding within 60 days
after the date of his payment demand under G.S. 55-13-28 and petition the
court to determine the fair value of the shares and accrued interest. Upon
service upon it of the petition filed with the court, the corporation shall
pay to the dissenter the amount offered by the corporation under G.S. 55-13-
25.
(a1) If the dissenter does not commence the proceeding within the 60-day
period, the dissenter shall have an additional 30 days to either (i) accept in
writing the amount offered by the corporation under G.S. 55-13-25, upon which
the corporation shall pay such amount to the dissenter in full satisfaction of
his demand, or (ii) withdraw his demand for payment and resume the status of a
nondissenting shareholder. A dissenter who takes no action within such 30-day
period shall be deemed to have withdrawn his dissent and demand for payment.
(b) [Reserved for future codification purposes.]
(c) The court shall have the discretion to make all dissenters (whether or
not residents of this State) whose demands remain unsettled parties to the
proceeding as in an action against their shares and all parties must be served
with a copy of the petition. Nonresidents may be served by registered or
certified mail or by publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced under
subsection (b) is plenary and exclusive. The court may appoint one or more
persons as appraisers to receive evidence and recommend decision on the
question of fair value. The appraisers have the powers described in the order
appointing them, or in any amendment to it. The parties are entitled to the
same discovery rights as parties in other civil proceedings. However, in a
proceeding by a dissenter in a public corporation, there is no right to a
trial by jury.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds the fair value of this
shares, plus interest, exceeds the amount paid by the corporation.
IV-4
<PAGE>
55-13-31 Court Costs and Counsel Fees.--(a) The court in an appraisal
proceeding commenced under G.S. 55-13-30 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court, and shall assess the costs as it finds equitable.
(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the
requirements of G.S. 55-13-20 through 55-13-28; or
(2) Against either the corporation or a dissenter, in favor of either or
any other party, if the court finds that the party against whom the fees
and expenses are assessed acted arbitrarily, vexatiously, or not in good
faith with respect to the rights provided by this Article.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.
IV-5
<PAGE>
FEDERAL PAPER BOARD COMPANY, INC.
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF FEDERAL PAPER BOARD COMPANY, INC.
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS, MARCH 12, 1996
The undersigned hereby appoints John R. Kennedy and Quentin J. Kennedy, and
each of them, as proxy or proxies of the undersigned, with full power of
substitution, to represent the undersigned and to vote all of the shares of
common stock of Federal Paper Board Company, Inc. which the undersigned is
entitled in any capacity to vote if personally present at the Special Meeting
of Shareholders of Federal Paper Board Company, Inc. to be held at Shearman &
Sterling, 599 Lexington Avenue, 2nd Floor Conference Center, New York, New York
10022, at 9:30 a.m., local time, on March 12, 1996, and at any and all
adjournments and postponements thereof, with respect to all matters set forth
in the Proxy Statement/Prospectus dated February 9, 1996, and all supplements
and amendments thereto and, in their discretion, upon all matters incident to
the conduct of the Special Meeting and all matters presented at the meeting but
which are not known to the Board of Directors at the time of the solicitation
of this proxy. The undersigned hereby revokes any proxy or proxies heretofore
given by the signer to vote at said meeting or any adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.
1. Proposal to approve the Restated and Amended Agreement and Plan of Merger,
dated as of November 6, 1995 and amended as of February 8, 1996, among
Federal Paper Board Company, Inc., International Paper Company
("International Paper") and Focus Merger Co., Inc., a wholly owned
subsidiary of International Paper.
FOR [_] AGAINST [_] ABSTAIN [_]
(CONTINUED, AND TO BE SIGNED AND DATED, ON THE OTHER SIDE.)
<PAGE>
(continued from other side)
Shares represented by all properly executed proxies will be voted in
accordance with instructions appearing on the proxy and at the discretion of
the proxy holders as to any other matters that may properly come before the
Special Meeting of Shareholders. IN THE ABSENCE OF SPECIFIC INSTRUCTIONS,
PROXIES WILL BE VOTED FOR PROPOSAL 1 AND AT THE DISCRETION OF THE PROXY HOLDERS
AS TO ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE SPECIAL MEETING OF
SHAREHOLDERS. The undersigned hereby acknowledges receipt of the Notice of
Special Meeting of Shareholders and of the Proxy Statement/Prospectus (with all
enclosures and attachments) dated February 9, 1996, relating to the meeting.
Please mark, sign, date and return this proxy in the enclosed white postage
prepaid envelope as soon as possible, even if you plan to attend the Special
Meeting.
Dated: __________________, 1996
_______________________________
_______________________________
Signature(s)
NOTE: Please sign this proxy
exactly as your name appears
hereon. Joint owners should
each sign personally.
Attorneys, administrators,
trustees, guardians and others
signing in a representative
capacity should indicate this
capacity. An authorized
officer may sign on behalf of
a corporation and should
indicate the name of the
corporation and his capacity.
